Filed pursuant to Rule 424b(5)
File number 333-44185
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 20, 1998)
5,000,000 Shares
[IRON MOUNTAIN LOGO]
Common Stock
--------------------
We are offering for sale 5,000,000 shares of common stock of Iron Mountain
Incorporated. All of the shares of common stock offered under this Prospectus
Supplement are being offered by Iron Mountain.
Our common stock is listed on the New York Stock Exchange under the symbol
"IRM." On May 11, 1999, the last reported sale price for our common stock on
the New York Stock Exchange was $28-1/4 per share.
See "Risk Factors" beginning on page S-8 of this Prospectus Supplement and page
1 of the accompanying Prospectus to read about certain risks that you should
consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the adequacy or
accuracy of this Prospectus Supplement or the accompanying Prospectus. Any
representation to the contrary is a criminal offense.
--------------------
<TABLE>
<CAPTION>
Per
Share Total
----------- ---------------
<S> <C> <C>
Public offering price .......................... $ 28.00 $140,000,000
Underwriting discounts and commissions ......... $ 1.33 $ 6,650,000
Proceeds, before expenses, to us ............... $ 26.67 $133,350,000
</TABLE>
--------------------
The underwriters may, under certain circumstances, purchase up to an additional
750,000 shares of common stock from us at the public offering price less the
underwriting discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on May 17, 1999.
--------------------
Bear, Stearns & Co. Inc.
William Blair & Company
Prudential Securities
Wasserstein Perella Securities, Inc.
The date of this Prospectus Supplement is May 11, 1999.
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights information contained elsewhere in this Prospectus
Supplement. This summary is not complete and does not contain all of the
information that you should consider before investing in our common stock. You
should read the entire Prospectus Supplement and the accompanying Prospectus
carefully, especially the risks of investing in our common stock discussed
under "Risk Factors" in this Prospectus Supplement and the accompanying
Prospectus. You should also read the documents we have referred you to in
"Incorporation of Certain Information by Reference." We have restated all share
and per share amounts in this Prospectus Supplement to reflect a three-for-two
stock split effected in the form of a stock dividend on our common stock on
July 31, 1998.
Iron Mountain
Iron Mountain Incorporated is the world's largest records and information
management services company, as measured by its revenues. We are an
international, full-service provider of records and information management
services, enabling customers to outsource these functions. We have a
diversified customer base that includes more than half of the Fortune 500. We
provide storage for all major media, including paper, which is the dominant
form of records storage, and magnetic media, including computer tapes. Our
principal services provided to our storage customers include courier pick-up
and delivery, filing, retrieval and destruction of records, database
management, customized reporting and disaster recovery support. We also sell
storage materials, including cardboard boxes and magnetic media, and provide
information technology staffing, consulting, facilities management and other
outsourcing services.
We believe that we are the industry leader in business records management
services, off-site data security services, which is the management of electronic
records, and healthcare information management. As of December 31, 1998, giving
effect to our 1999 acquisitions completed through April 30, 1999, we operated
299 records and information management services centers in 66 domestic markets
and four markets in the United Kingdom, servicing over 70,000 customer accounts.
For the year ended December 31, 1998, giving effect on a pro forma basis to our
1998 and 1999 acquisitions completed through April 30, 1999, we had revenues of
approximately $511 million and earnings before interest, taxes, depreciation,
amortization, extraordinary items and other income, also known as EBITDA, of
approximately $119 million. For the same period, after adjustments for specific
identified cost reductions from the integration of our 1998 and 1999
acquisitions completed through April 30, 1999, our pro forma EBITDA would have
been approximately $126 million. We have included in pro forma revenues and
EBITDA 100% of the results of our 50.1% owned subsidiary, Britannia Data
Management Limited. Britannia Data Management had revenues of $30.3 million and
EBITDA of $8.2 million for its fiscal year ended October 31, 1998, based on an
average exchange rate of $1.6622 per [British Pound]1 for this period. See "Pro
Forma Condensed Consolidated Financial Information."
Industry Overview
The records and information management services industry stores
information in a variety of media formats, which can be broadly divided into
paper and electronic records, and provides a wide range of services related to
the records stored. 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 remain available for reference for many years. We
believe that the volume of information stored on electronic media has similarly
been expanding in recent years, and that the volume of stored paper and
electronic records will continue to increase.
Despite the growth of new "paperless" technologies, such as the Internet
and e-mail, we believe that stored information remains predominantly
paper-based and that such technologies have promoted the creation of hard
copies of such electronic information. In addition, we believe 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.
S-1
<PAGE>
Further, we believe that there are only three records and information
management services providers, including Iron Mountain, with a national
operating presence, the balance being regional or, in most instances,
single-city operators. According to Professional Records and Information
Services Management, 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. We believe that there is a trend toward
consolidation in the records and information management services industry and
that this trend will continue.
Iron Mountain Strategy
Our strategy is to increase revenues and EBITDA while maintaining a
low-cost operating structure and providing premium services. This strategy is
based on the following elements:
Growth from Existing Customers. Our existing customers storing paper
records contribute to storage and services revenue growth because on average
they generate additional Cartons(1) 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(2) increased at an average
annual rate of approximately 6%.
Additions of New Customers. From December 31, 1996 through March 1, 1999,
we increased the size of our sales force from 21 to 115 sales professionals.
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 Acquisitions. We have a successful record of acquiring and
integrating smaller records and information management services companies. From
January 1996 through April 30, 1999, we acquired 55 companies. We have proven
our ability to successfully reduce the cost structure of our acquired
operations and believe we will realize additional cost savings from recent
acquisitions. Our acquisition strategy includes both expanding geographically,
focusing primarily on the 75 largest U.S. markets and certain international
markets, and increasing our presence and scale within existing markets through
"fold-in" acquisitions.
Capitalize on Operating Efficiencies. We pursue 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.
Provide Superior Customer Service and Utilize Proprietary Technology. We
believe that we have a reputation for providing reliable, quality service based
on our more than 48 years of operations, our commitment to providing premium
customer service by offering a full service approach to a customer's records and
information management services needs, and the continuity and depth of our
management team. Our proprietary Safekeeper(TM) and MediaLink(TM) systems
provide advanced inventory control and information access, enabling us to supply
customized records and information management services solutions and to quickly
respond to marketplace trends.
Financial Characteristics of Iron Mountain's Business
Our records and information management services business benefits from the
following financial characteristics:
o Recurring Revenues. Storage revenues consist of fixed periodic, usually
monthly, fees charged to customers based on the volume of records stored.
Once a customer places paper records in storage with us and until those
records are destroyed or permanently removed, for which we typically
receive a service fee, we receive recurring payments for storage fees
without incurring additional labor or marketing expenses or significant
capital costs. These revenues have grown for 41 consecutive quarters
- ----------------------
(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 our vital records
services and data security services, which are described under
"Business--Description of Iron Mountain's Records and Information
Management Services Business."
(2) "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 Iron Mountain's facilities in South Brunswick
Township, New Jersey. See "Business--Legal Proceedings."
S-2
<PAGE>
and represented approximately 60% of our total records and information
management services revenues in each of the last five fiscal years.
Similarly, contracts for the storage of electronic media consist primarily
of fixed monthly payments.
o Historically Non-Cyclical Business. We have not experienced a reduction
of our records and information management services business as a result of
past general economic downturns, although we can make no assurance that
this will be the case in the future. We believe that the outsourcing of
records and information management services may accelerate during economic
downturns as companies focus on reducing costs through outsourcing
non-core operating functions.
o Inherent Growth from Existing Paper Records Customers. Our paper records
customers have on average generated additional Cartons 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 increased at an average annual rate of approximately 6%.
o Diversified and Stable Customer Base. As of March 1, 1999, we had over
70,000 customer accounts in a variety of industries. No customer accounted
for more than 2% of our 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. Our records and
information management services business requires limited annual capital
expenditures in order to maintain our current revenues. From 1994 to 1998,
over 90% of our aggregate capital expenditures were growth-related
investments, primarily in racking systems, management information systems,
new buildings and expansion of storage capacity in existing facilities.
These growth-related capital expenditures are primarily discretionary and
create additional capacity for increases in revenues and EBITDA.
Recent Developments
International Activity
On January 4, 1999, we purchased a controlling 50.1% interest in Britannia
Data Management for consideration of $49.8 million. Mentmore Abbey plc is our
partner in this venture, holding the remaining 49.9% interest. As of December
31, 1998, Britannia Data Management operated 16 data storage facilities in the
United Kingdom and had over 1,500 customer accounts. Britannia Data Management
had revenues of $30.3 million for its fiscal year ended October 31, 1998, based
on an average exchange rate of $1.6622 per [British Pound]1 for this period.
On May 10, 1999, Britannia Data Management entered into an agreement to
acquire Memogarde S.A. and related companies for aggregate consideration of
$16.1 million, based on an exchange rate of 6.0827 French Francs per $1 on May
10, 1999. Memogarde, headquartered and operating in Paris, France, is a leading
provider of data security services in France. Memogarde had revenues of $4.3
million for its fiscal year ended February 28, 1999, based on an average
exchange rate of 5.8448 French Francs per $1 for this period. This offering is
not conditioned upon completion of the Memogarde acquisition, and the Memogarde
acquisition is not conditioned upon the completion of this offering. See
"Acquisitions."
The acquisition of Britannia Data Management marked our first large
investment internationally. We believe there are significant opportunities to
acquire records and information management services companies internationally
and expect to continue our international expansion. Europe and Latin America
are our primary areas of focus for our international expansion at this time,
and we are actively pursuing opportunities in these areas. We intend to use
Britannia Data Management as our primary vehicle for acquisitions in Europe, as
is the case with our pending Memogarde acquisition. As we expand
internationally, we expect that some of our acquisitions will be in the form of
joint ventures or acquisitions of less than 100% ownership of companies, as we
did with Britannia Data Management. This will allow us to reduce the risks of
entering new markets and to work with local partners who can provide local
market knowledge and regional management expertise and have an established
presence within the community.
S-3
<PAGE>
Data Base Acquisition
On April 8, 1999, we acquired all of the outstanding capital stock of Data
Base, Inc. and certain related real estate for aggregate consideration of
approximately $116 million, including estimated transaction costs. This amount
consisted of (a) approximately $70 million of assumed indebtedness and cash
payments to Data Base's stockholders and to the owner of the real estate and
for related expenses and (b) 1,476,577 shares of our common stock. We believe
that Data Base is a premier provider of data security services, with 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 April 8, 1999, Data
Base operated in 12 markets in the United States. Data Base had revenues of
$26.6 million for the year ended December 31, 1998.
First American Records Management Acquisition
On April 1, 1999, we acquired First American Records Management, Inc. for
consideration of $41.7 million. First American Records Management provides
records and information management services, including data security services,
in several locations in California and the Pacific Northwest. As of April 1,
1999, First American Records Management operated in five markets, serving
approximately 1,000 customer accounts. First American Records Management had
revenues of $9.9 million for the year ended December 31, 1998.
Private Placement of Debt
On April 26, 1999, we completed a private placement of $150 million in
aggregate principal amount of 8-1/4% Senior Subordinated Notes due 2011. The
notes were sold to qualified institutional buyers at a purchase price equal to
99.64% of the face value of the senior subordinated notes. The issuance of the
notes has not been registered under the Securities Act of 1933 and the notes
may not be reoffered or resold in the United States absent registration or an
applicable exemption from registration. We used the proceeds from the notes
offering to repay indebtedness under our credit agreement.
Other 1999 Acquisitions
Through April 30, 1999, we acquired three additional records and
information management services companies for total consideration of $7.9
million, including $2.3 million for related real estate. These companies had
total revenues of $3.5 million for the fiscal year ended December 31, 1998. On
May 1, 1999, we acquired Datavault/United States Safe Deposit Company for total
consideration of $4.3 million. Datavault had total revenues of $2.0 million for
its fiscal year ended January 31, 1999.
First Quarter 1999 Results of Operations
On April 26, 1999, we reported our results of operations for the quarter
ended March 31, 1999. Our total consolidated revenues for the first quarter of
1999 were $120.1 million, an increase of 20.7% compared with the same period in
1998. Our EBITDA was $27.5 million for the first quarter of 1999, an increase
of 22.7% compared with the same period in 1998. We had a net loss of $0.1
million ($0.01 per common share) for the quarter ended March 31, 1999 compared
with a net loss of $0.3 million ($0.01 per common share) for the same period in
1998.
We acquired our 50.1% owned subsidiary, Britannia Data Management, on
January 4, 1999. For consolidation purposes we designated October 31 as
Britannia Data Management's fiscal year end. Accordingly, our first quarter
results only include Britannia Data Management's results from the date of
purchase through the end of Britannia Data Management's first fiscal quarter
ended January 31, 1999. Britannia Data Management contributed $2.9 million in
revenues and $0.8 million in EBITDA to our first quarter consolidated results
without reduction for the 49.9% minority interest.
Address and Telephone Number
Iron Mountain was incorporated in Delaware in 1990 but its operations date
from 1951. Our principal executive offices are located at 745 Atlantic Avenue,
Boston, Massachusetts 02111. Our telephone number is (617) 535-4766.
S-4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock Offered ................................ 5,000,000 (1)
Common Stock Outstanding After the Offering ......... 34,527,932 (1)(2)
Use of Proceeds ..................................... The net proceeds from this offering will be used to
repurchase all of the 1,476,577 shares of our
common stock issued in the Data Base acquisition,
to repay indebtedness under our credit agreement
and for general corporate purposes, including future
acquisitions. See "Use of Proceeds."
New York Stock Exchange Symbol ...................... IRM
</TABLE>
- ----------------------
(1) Excludes a 30-day option granted to the underwriters to purchase up to
750,000 additional shares of our common stock to cover over-allotments, if
any. See "Underwriting."
(2) After repurchase of all of the 1,476,577 shares of common stock issued in
the Data Base acquisition. Excludes 2,095,679 shares reserved for issuance
upon the exercise of stock options currently outstanding under our
existing stock option plans.
Risk Factors
You should carefully consider all of the information in both this
Prospectus Supplement and the accompanying Prospectus. In particular, you
should evaluate the specific risks set forth under "Risk Factors" beginning on
page S-8 of this Prospectus Supplement and page 1 of the accompanying
Prospectus for a discussion of certain risks in making an investment in our
common stock.
S-5
<PAGE>
Summary Historical and Pro Forma Information
(In thousands, except per share data)
The following table contains certain summary financial information with
respect to Iron Mountain. The historical information is derived from Iron
Mountain's audited consolidated financial statements. You should read this
historical and pro forma information in conjunction with "Pro Forma Condensed
Consolidated Financial Information" and the Notes thereto, "Selected
Consolidated Financial and Operating Information" and the Notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Iron Mountain's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Prospectus Supplement.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
Historical
------------------------------------------------------------------
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(2) ........................................ -- -- -- -- 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
Minority Interest(3) ........................................ -- -- -- -- --
------- -------- ------- ------- -------
Income (Loss) Before Extraordinary Charge ................... 1,284 248 357 (4,521) (2,966)
Extraordinary Charge, Net of Tax Benefit(4) ................. -- -- 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(4) ................. -- -- (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(5):
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(6) ................................................... $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(7)(8) ............................................... $15,829 $ 14,395 $23,334 $37,082 $54,566
Maintenance(9) ............................................. 1,151 858 1,112 1,238 1,888
------- -------- ------- ------- -------
Total Capital Expenditures(8) ............................. $16,980 $ 15,253 $24,446 $38,320 $56,454
======= ======== ======= ======= =======
<CAPTION>
Year Ended
December 31,
-------------
Pro
Forma(1)
-------------
1998
-------------
<S> <C>
Consolidated Statements of Operations Data:
Revenues:
Storage .................................................... $295,544
Service and Storage Material Sales ......................... 215,081
-------
Total Revenues ........................................... 510,625
Operating Expenses:
Cost of Sales (Excluding Depreciation) ..................... 264,179
Selling, General and Administrative ........................ 127,403
Depreciation and Amortization .............................. 64,592
-------
Total Operating Expenses ................................. 456,174
-------
Operating Income ............................................ 54,451
Interest Expense, Net ....................................... 54,986
Other Income, Net(2) ........................................ 1,384
-------
Income (Loss) Before Provision (Benefit) for Income Taxes.... 849
Provision (Benefit) for Income Taxes ........................ 7,107
Minority Interest(3) ........................................ 653
-------
Income (Loss) Before Extraordinary Charge ................... (6,911)
Extraordinary Charge, Net of Tax Benefit(4) ................. --
-------
Net Income (Loss) ........................................... (6,911)
Accretion of Redeemable Put Warrant ......................... --
-------
Net Loss Applicable to Common Stockholders .................. $(6,911)
=======
Income (Loss) per Common Share--Basic and Diluted:
Income (Loss) Before Extraordinary Charge .................. $ (0.20)
Extraordinary Charge, Net of Tax Benefit(4) ................. --
-------
Net Loss Applicable to Common Stockholders ................. $ (0.20)
=======
Weighted Average Common Shares Outstanding ................. 34,130
=======
Pro Forma(5):
Net Loss Applicable to Common Stockholders ................. $ (0.20)
=======
Weighted Average Common Shares Outstanding ................. 34,130
=======
Other Data:
EBITDA(6) ................................................... $119,043
EBITDA as a Percentage of Total Revenues .................... 23.3%
Capital Expenditures:
Growth(7)(8) ...............................................
Maintenance(9) .............................................
Total Capital Expenditures(8) .............................
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------------------
Pro
Historical Forma(10)
-------------------------------------------------------------- ------------
1994 1995 1996 1997 1998 1998
---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and Cash Equivalents ......... $ 1,303 $ 1,585 $ 3,453 $ 24,510 $ 1,715 $ 45,157
Total Assets ...................... 136,859 186,881 281,799 636,786 967,385 1,297,614
Total Debt ........................ 86,258 121,874 184,733 428,018 456,178 588,323
Stockholders' Equity .............. 22,869 21,011 52,384 137,733 338,882 478,398
</TABLE>
- ----------------------
(1) Gives effect to: (a) the 1998 and 1999 acquisitions we completed through
April 30, 1999, (b) our public equity offering completed in April 1998,
(c) our private senior subordinated notes offering completed in April 1999
and (d) this offering and the application of the net proceeds from this
offering as described under "Use of Proceeds," as if each had occurred as
of January 1, 1998. See "Use of Proceeds" and "Pro Forma Condensed
Consolidated Financial Information." The pro forma information does not
give effect to identified cost savings of $6.7 million that we believe
would have been realized had the 1998 and 1999 acquisitions we completed
through April 30, 1999 been fully integrated as of January 1, 1998
relating to: (a) termination of specific employees and related net
reductions in labor expenses, (b) closure of identified redundant
facilities and related net reductions in occupancy costs and (c)
elimination of related party expenses, management fees and compensation
expenses in excess of amounts that would have been incurred by Iron
Mountain. The pro forma information also does not give effect to the
Datavault acquisition we completed in May 1999. Total consideration for
this acquisition was $4.3 million and Datavault had revenues of $2.0
million for its fiscal year ended January 31, 1999.
(2) Other income, net includes a $1.7 million gain resulting from the
settlement of several insurance claims related to the March 1997 fires at
our South Brunswick Township, New Jersey facilities.
(3) Minority interest represents 49.9% of the total equity of Britannia Data
Management after giving pro forma effect to the issuance of capital stock
to Iron Mountain in exchange for cash and the net assets of Arcus Data
Security Limited, our existing data security business in London.
(4) 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.
(5) Represents pro forma earnings per share as if the preferred stock that was
converted into common stock in connection with our initial public offering
completed in 1996 had been converted for all periods presented.
(6) Based on our experience in the records and information management services
industry, we believe that EBITDA is an important tool for measuring the
performance of records and information management services companies
(including potential acquisition targets) in several areas, such as
liquidity, operating performance and leverage. In addition, lenders use
EBITDA in evaluating records and information management services
companies, and substantially all of our financing agreements contain
covenants in which EBITDA is used as a measure of financial performance.
However, you should not consider EBITDA to be a substitute to operating or
net income (as determined in accordance with GAAP) as an indicator of our
performance or to cash flow from operations (as determined in accordance
with GAAP) as a measure of liquidity. Pro forma revenue and EBITDA
information included in this Prospectus Supplement give effect to 100% of
the revenues and EBITDA of Britannia Data Management for the applicable
periods without reduction for minority interest. 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 our sources and applications of cash flow.
(7) Growth capital expenditures consist primarily of investments in racking
systems, management information systems, new buildings and expansion of
storage capacity in existing facilities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Capital Investments."
(8) Includes $2,901 in 1994 related to the cost of constructing a records and
information management services facility which was sold in a sale and
leaseback transaction in 1994.
(9) Consists of capital expenditures we made in order to maintain our current
revenues.
(10) Gives effect to: (a) the 1999 acquisitions we completed through April 30,
1999, (b) our private senior subordinated notes offering completed in
April 1999 and (c) this offering and the application of the net proceeds
from this offering as described under "Use of Proceeds," as if each had
occurred as of December 31, 1998. See "Use of Proceeds" and "Pro Forma
Condensed Consolidated Financial Information." The pro forma information
does not give effect to the Datavault acquisition we completed in May
1999. Total consideration for this acquisition was $4.3 million and
Datavault had revenues of $2.0 million for its fiscal year ended January
31, 1999.
S-7
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors as well as the
risk factors beginning on page 1 of the accompanying Prospectus, in addition to
the other information in this Prospectus Supplement and the accompanying
Prospectus, before investing in our common stock. This Prospectus Supplement
includes "forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including, in particular, the statements about our goals, beliefs, plans,
strategies and current expectations in "Prospectus Supplement Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business." Although we believe that our goals, beliefs,
plans, strategies and current expectations reflected in or suggested by such
forward-looking statements are reasonable, we can give no assurance that such
goals, beliefs, plans, strategies or expectations will be achieved. Important
factors that could cause actual results to differ materially from the forward-
looking statements we make in this Prospectus Supplement are set forth below,
as well as in "Risk Factors" in the accompanying Prospectus and elsewhere in
this Prospectus Supplement and the accompanying Prospectus. All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the following cautionary statements as well as
the risk factors contained in the accompanying Prospectus. We undertake 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 of this Prospectus Supplement or to reflect the occurrence of
unanticipated events.
Risks Associated with International Operations
Our growth strategy involves expanding our operations to international
markets. We currently provide records and information management services in
the United Kingdom through Britannia Data Management, our majority-owned
subsidiary. In addition, Britannia Data Management has agreed to acquire
Memogarde, a leading provider of data security services in France. Europe and
Latin America are our primary areas of focus for our international expansion at
this time, and we are actively pursuing opportunities in these areas. We intend
to use Britannia Data Management as our primary vehicle for acquisitions in
Europe, as is the case with our pending acquisition of Memogarde. International
operations are subject to numerous additional risks, including the impact of
foreign government regulations, currency fluctuations, political uncertainties
and differences in business practices. We can make no assurance that foreign
governments will not adopt regulations or take other actions that would have a
direct or indirect adverse impact on our business or market opportunities
within such government's countries. Furthermore, we can make no assurance that
the political, cultural and economic climate outside the United States will be
favorable to our operations and growth strategy.
Year 2000 Related Risks
We face risks associated with the fact that many computer systems and
computer software programs were not designed to recognize and process the
change from 1999 to 2000 or may not be able to process dates related to the
turn of the millennium and beyond. These computer systems and software might
malfunction or cease to work unless they are reprogrammed or replaced by the
end of 1999. We have established and are implementing a multi-phase plan in
response to the Year 2000, or Y2K, problem. As a result of our plan and other
system improvement initiatives, we are remediating or replacing our financial
accounting systems, information technology staffing operational software and
products and services obtained from third parties. Our primary operational
systems for our records and information management services segment are already
Y2K compliant. Although we do not currently expect the impact of the Year 2000
problem to materially adversely affect our financial condition or results of
operations, we cannot assure you that we will not experience unexpected
difficulties, significant expenses or business interruptions as a result of the
Y2K problem. For a more detailed discussion of our Year 2000 plan, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Readiness."
S-8
<PAGE>
ACQUISITIONS
As part of our growth strategy, from January 1, 1996 through April 30,
1999, we acquired 55 records and information management services businesses.
The following table presents certain information with respect to these
acquisitions.
<TABLE>
<CAPTION>
Components of Purchase Price
-------------------------------------
Cash Paid Total
Aggregate Annual Fair Value of and Debt Purchase
Number Revenues(1) Equity Issued Assumed Price
-------- ------------------ --------------- ----------- ---------
(All dollar amounts presented are in millions)
<S> <C> <C> <C> <C> <C>
1996 Acquisitions ......................... 16 $ 33 $-- $ 73 $ 73
1997 Acquisitions ......................... 18 96 89 199 288
1998 Acquisitions ......................... 15 152 67 192(2) 259
1999 Acquisitions (through April 30, 1999) 6 70(3) 46 169(4) 215
</TABLE>
- ----------------------
(1) Aggregate annual revenues for the 1996, 1997 and 1998 acquisitions 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 revenues for the portion of the year
after we purchased the acquired business. Aggregate annual revenues for
the 1999 acquisitions were calculated by reference to the 1998 revenues of
each of the businesses.
(2) Includes approximately $3 million attributable to assets that we exchanged
as part of the consideration paid in connection with one acquisition.
(3) Includes total revenues of Britannia Data Management, in which we acquired
a 50.1% interest.
(4) Includes approximately $2 million attributable to our contribution of the
capital stock of Arcus Data Security Limited in connection with our
acquisition of a 50.1% interest in Britannia Data Management.
1999 Acquisitions
Britannia Data Management Limited Acquisition
On January 4, 1999, we purchased a controlling 50.1% interest in Britannia
Data Management from Mentmore Abbey plc. We paid total consideration of $49.8
million comprised of cash and the capital stock of Arcus Data Security Limited,
our existing data security business in London. Britannia Data Management has
provided records and information management services for over 30 years, and we
believe that it is the second largest provider of these services in the United
Kingdom. As of December 31, 1998, Britannia Data Management operated 16 data
storage facilities in the United Kingdom and had over 1,500 customer accounts.
Britannia Data Management 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]1 for this period. In connection with our strategy of further
international expansion, Britannia Data Management is actively pursuing a number
of acquisitions and joint ventures in Europe.
Data Base Acquisition
On April 8, 1999, we acquired all of the outstanding capital stock of Data
Base and certain related real estate. We paid total consideration of
approximately $116 million, including estimated transaction costs. This amount
consisted of (a) approximately $70 million of assumed indebtedness and cash
payments to Data Base's stockholders and to the owner of the real estate and
for related expenses and (b) 1,476,577 shares of our common stock. The
amortization of the goodwill created as a result of our acquisition of Data
Base will be deductible by us for federal income tax purposes.
We believe that Data Base is a premier provider of data security services,
with 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 April 8,
1999, Data Base, headquartered in Bellevue, Washington, operated in 12 markets
in the United States. Our data security services business operates in eight new
markets and has increased its presence in four other markets as a result of the
Data Base acquisition. Data Base had revenues of $26.6 million for 1998.
S-9
<PAGE>
As part of the Data Base acquisition, we have agreed to repurchase all of
the 1,476,577 shares of our common stock that we issued to the sellers. We have
agreed to repurchase these shares at $26.74 per share. We will repurchase their
shares shortly after the closing of this offering. See "Use of Proceeds."
First American Records Management Acquisition
On April 1, 1999, we acquired all of the outstanding capital stock of
First American Records Management. We paid $41.7 million in cash. First
American Records Management provides records and information management
services to approximately 1,000 customers, including many of America's leading
technology companies. As of April 1, 1999, First American Records Management,
headquartered in San Jose, California, operated in five markets in the United
States. First American Records Management had revenues of $9.9 million for the
year ended December 31, 1998.
Other 1999 Acquisitions
Through April 30, 1999, we acquired three additional records and
information management services companies for total consideration of $7.9
million, including $2.3 million for related real estate. These companies had
total revenues of $3.5 million for the fiscal year ended December 31, 1998.
On May 1, 1999, we acquired Datavault for total consideration of $4.3
million. Datavault had total revenues of $2.0 million for its fiscal year ended
January 31, 1999.
Pending Memogarde Acquisition
On May 10, 1999, Britannia Data Management entered into an agreement to
acquire Memogarde S.A. and related companies for aggregate consideration of
$16.1 million, based on an exchange rate of 6.0827 French Francs per $1 on May
10, 1999, consisting of cash and the assumption of debt. We expect that this
acquisition will be financed through borrowings by Britannia Data Management.
Memogarde, headquartered and operating in Paris, France, is a leading
provider of data security services in France. Memogarde had revenues of $4.3
million for its fiscal year ended February 28, 1999, based on an average
exchange rate of 5.8448 French Francs per $1 for this period. The Memogarde
acquisition is expected to close in June 1999 and is subject to customary
conditions. We can give no assurance that the transaction will be completed.
This offering is not conditioned upon completion of the Memogarde acquisition,
and the Memogarde acquisition is not conditioned upon the completion of this
offering.
The following table presents certain information for the 1998 acquisitions
and the 1999 acquisitions we completed through April 30, 1999, all of which,
other than the information technology staffing business acquired as a part of
the Arcus Group acquisition, were in the records and information management
services business.
<TABLE>
<CAPTION>
Principal State(s)/Country
Acquisition of Operation Completion Date
- ----------------------------------------------------- --------------------------- ----------------
<S> <C> <C>
1998 Acquisitions:
Arcus Group, Inc. ................................... Various (1) January 1998
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
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
Records and information management services
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
</TABLE>
S-10
<PAGE>
<TABLE>
<CAPTION>
Principal State(s)/Country
Acquisition of Operation Completion Date
- ------------------------------------------------------------ --------------------------- ----------------
<S> <C> <C>
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 April 30, 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
First American Records Management, Inc. .................... Various (2) April 1999
Data Base, Inc. ............................................ Various (3) April 1999
</TABLE>
- ----------------------
(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) California, Colorado, Oregon and Washington.
(3) Illinois, Maryland, North Carolina, Ohio, Pennsylvania, Texas, Virginia,
Washington and Wisconsin.
S-11
<PAGE>
USE OF PROCEEDS
The net proceeds to us from this offering are estimated to be $133.0
million, or $153.1 million if the underwriters over-allotment option is
exercised in full, after deducting the underwriting discounts and estimated
offering expenses. We expect to use the net proceeds from this offering (a) to
repurchase all of the 1,476,577 shares of common stock that we issued in the
Data Base acquisition at a purchase price equal to $26.74 per share, (b) to
repay indebtedness under our credit agreement and (c) for general corporate
purposes, including future acquisitions. We used borrowings under our credit
agreement during the most recent 12 months to finance acquisitions and for
working capital. Our credit agreement has a maturity date of September 30,
2002. The weighted average interest rate as of May 7, 1999 on indebtedness
outstanding under our credit agreement was 6.25%. We may apply a portion of the
net proceeds from this offering to redeem up to $57,750,000 in aggregate
principal amount of our 10-1/8% Senior Subordinated Notes due 2006, at a
redemption price equal to 109.125% of the principal amount of the notes, plus
accrued and unpaid interest to, but excluding, the date of redemption.
Information in this Prospectus Supplement assumes that we will not use any
portion of the net proceeds from this offering to redeem these notes. Pending
these uses, the net proceeds from this offering will be invested in short-term,
dividend paying or interest-bearing investment grade securities.
PRICE RANGE OF COMMON STOCK
Our common stock began trading on the New York Stock Exchange under the
symbol "IRM" on April 26, 1999. Since our initial public offering in February
1996 through April 23, 1999, our common stock traded on the Nasdaq National
Market under the symbol "IMTN." The following table sets forth the high and low
sales prices on the Nasdaq National Market or the New York Stock Exchange, as
applicable, for the periods indicated, giving effect to the stock split:
<TABLE>
<CAPTION>
High Low
----------- -----------
<S> <C> <C>
1996
First Quarter (from February 1, 1996) ......... $ 10.83 $ 9.17
Second Quarter ................................ 14.00 9.67
Third Quarter ................................. 20.33 13.67
Fourth Quarter ................................ 21.33 19.00
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
1999
First Quarter ................................. $ 36.25 $ 27.38
Second Quarter (through May 11, 1999) ......... 33.13 26.00
</TABLE>
The last reported sale price of our common stock on the New York Stock
Exchange on May 11, 1999 was $28-1/4. As of May 11, 1999, there were 296 holders
of record of our common stock. We believe that there are more than 2,900
beneficial owners of our common stock.
S-12
<PAGE>
DIVIDEND POLICY
We do not currently pay dividends on shares of our common stock. Our board
of directors currently intends to retain future earnings, if any, for the
development of our businesses and does not anticipate paying cash dividends on
our common stock in the foreseeable future. Future determinations by our board
of directors to pay dividends on our common stock would be based primarily upon
our financial condition, results of operations and business requirements.
Dividends, if any, would be payable in the sole discretion of our board of
directors out of the funds legally available for that purpose. Some of our
agreements pursuant to which we have borrowed funds contain provisions that
limit the amount of dividends and stock repurchases that we may make.
S-13
<PAGE>
CAPITALIZATION
(In thousands, except per share data)
The following table sets forth at December 31, 1998 our: (a) cash and cash
equivalents and actual capitalization and (b) pro forma cash and cash
equivalents and capitalization, after giving effect to our 1999 acquisitions
completed through April 30, 1999, the application of the net proceeds from the
sale of our 8-1/4% Senior Subordinated Notes and this offering and the
application of the net proceeds from this offering as described in "Use of
Proceeds."
This table should be read in conjunction with "Use of Proceeds," "Pro
Forma Condensed Consolidated Financial Information" and the Notes thereto and
Iron Mountain's Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus Supplement.
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------------
Actual Pro Forma (1)
------------ --------------
<S> <C> <C>
Cash and Cash Equivalents ..................................... $ 1,715 $ 45,157
========= ==========
Long-term Debt (Including Current Maturities):
Credit Agreement ............................................. $ 35,300 $ --
10-1/8% Senior Subordinated Notes due 2006 ................... 165,000 165,000
8-3/4% Senior Subordinated Notes due 2009 .................... 249,566 249,566
8-1/4% Senior Subordinated Notes due 2011 .................... -- 149,460
Real Estate Mortgages and Other .............................. 6,312 24,297
--------- ----------
Total Long-term Debt ........................................ $ 456,178 $ 588,323
Stockholders' Equity:
Preferred Stock, $0.01 par value; 2,000 Shares Authorized,
None Issued or Outstanding .................................. -- --
Common Stock, $0.01 par value; 100,000 Shares Authorized,
29,430 Issued and Outstanding; 35,907 Issued and 34,430
Outstanding, Pro Forma ...................................... 294 359
Common Stock--Nonvoting, $0.01 par value; 1,000 Shares
Authorized, None Issued or Outstanding ...................... -- --
Additional Paid-in Capital ................................... 355,927 534,862
Accumulated Deficit .......................................... (17,339) (17,339)
Less Treasury Stock, 1,477 Shares at Cost, Pro Forma ......... -- (39,484)
--------- ----------
Total Stockholders' Equity ................................... 338,882 478,398
--------- ----------
Total Capitalization ........................................ $ 795,060 $1,066,721
========= ==========
</TABLE>
- ----------------------
(1) Assumes that we will not use any portion of the net proceeds from this
offering to redeem a portion of our 10-1/8% senior subordinated notes. See
"Use of Proceeds."
S-14
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet
(the "Pro Forma Balance Sheet") has been prepared based upon the historical
condensed consolidated balance sheet of Iron Mountain as of December 31, 1998
and the balance sheets as of December 31, 1998 of the 1999 acquisitions we
completed through April 30, 1999, except for Britannia Data Management whose
balance sheet is as of October 31, 1998. The Pro Forma Balance Sheet gives
effect to: (a) the 1999 acquisitions we completed through April 30, 1999, (b)
the use of the net proceeds from the sale of our 1999 8-1/4% senior subordinated
notes and (c) this offering and the use of the net proceeds as described under
"Use of Proceeds" as if each had occurred as of December 31, 1998. The
following Unaudited Pro Forma Condensed Consolidated Statement of Operations
(the "Pro Forma Statement of Operations" and together with the Pro Forma
Balance Sheet, the "Pro Forma Financial Statements") for the year ended
December 31, 1998 gives effect to each of the above transactions and to: (a)
our 1998 acquisitions and (b) our sale of 6.0 million shares of our common
stock in an underwritten public offering in 1998 and the use of the net
proceeds from such offering, as if each had occurred as of January 1, 1998. Pro
forma adjustments are described in the accompanying footnotes. See "Overview"
in the accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.
The Pro Forma Financial Statements assume that we will not use the net
proceeds from this offering to redeem a portion of our 101/8% senior
subordinated notes. If we redeem the maximum permitted aggregate principal
amount of such notes with the net proceeds of this offering, then we would
record, in the quarter in which it occurs, an extraordinary charge of
approximately $4 million (after a tax benefit of approximately $3 million) from
the early retirement of debt. This pretax extraordinary charge of $7 million
would consist of a redemption premium of approximately $5 million and the
write-off of unamortized deferred financing costs of approximately $2 million.
The impact on the Pro Forma Balance Sheet would not be material.
We have not included in the Pro Forma Statement of Operations results of
operations prior to the date of acquisition, or pro forma adjustments, for an
acquisition completed by Data Base on December 31, 1998, which had revenues of
$1.0 million for its fiscal year ended September 30, 1998. See "Overview" in
the accompanying Notes to Unaudited Condensed Pro Forma Financial Statements.
The Pro Forma Financial Statements do not give effect to the Datavault
acquisition we completed in May 1999 or Britannia Data Management's pending
acquisition of Memogarde. The impact of these acquisitions is immaterial to the
Pro Forma Financial Statements.
The Pro Forma Statement of Operations does not necessarily indicate the
actual results of operations that we would have reported if the events
described above had occurred as of January 1, 1998, nor does it necessarily
indicate the results of our future operations. Furthermore, the pro forma
results do not give effect to all cost savings or incremental costs that may
occur as a result of the integration and consolidation of our 1998 and 1999
acquisitions. In the opinion of management, we have made all adjustments
necessary to fairly present these pro forma financial statements.
We have accounted for all of our acquisitions and the related real estate
transactions using the purchase method of accounting.
The pro forma condensed consolidated financial information should be read
in conjunction with "Capitalization" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with Iron Mountain's
financial statements and the footnotes thereto included elsewhere or
incorporated by reference in this Prospectus Supplement.
S-15
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
1999 Acquisitions
--------------------------------------------------
First
Historical Britannia American
Iron Data Records
Mountain Management(1) Management Data Base Other
------------ --------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets ....................... $143,937 $ 13,570 $ 1,822 $ 4,876 $ 499
Property, Plant and
Equipment, net ...................... 266,743 31,988 3,495 21,934 495
Goodwill, net ........................ 527,235 56,963 680 4,220 --
Other Long-term Assets ............... 29,470 -- 1,979 675 34
-------- -------- --------- ------- ------
Total Assets ....................... $967,385 $102,521 $ 7,976 $31,705 $1,028
======== ======== ========= ======= ======
Liabilities and Stockholders' Equity
Current Liabilities .................. $143,472 $ 15,073 $ 5,134 $ 5,893 $ 986
Long-term Debt, net of
Current Portion ..................... 454,447 15,109 6,668 19,227 264
Other Long-term
Liabilities ......................... 8,925 -- 19 -- 113
Deferred Rent ........................ 9,616 -- 448 -- --
Deferred Income Taxes ................ 12,043 837 -- -- --
Minority Interest(2) ................. -- -- -- -- --
Stockholders' Equity
(Deficit) ........................... 338,882 71,502 (4,293) 6,585 (335)
-------- -------- --------- ------- ------
Total Liabilities and
Stockholders'
Equity ........................... $967,385 $102,521 $ 7,976 $31,705 $1,028
======== ======== ========= ======= ======
<CAPTION>
Pro Forma
Pro Forma Iron
Adjustments Mountain
------------- -------------
<S> <C> <C> <C>
Assets
Current Assets ....................... $ 37,490 (A) $ 202,194
Property, Plant and
Equipment, net ...................... 4,520 (A) 329,175
Goodwill, net ........................ 140,563 (A) 729,661
Other Long-term Assets ............... 4,426 (A) 36,584
-------- ----------
Total Assets ....................... $186,999 $1,297,614
======== ==========
Liabilities and Stockholders' Equity
Current Liabilities .................. $ (7,392) (B) $ 163,166
Long-term Debt, net of
Current Portion ..................... 88,219 (B) 583,934
Other Long-term
Liabilities ......................... (113) (B) 8,944
Deferred Rent ........................ -- 10,064
Deferred Income Taxes ................ -- 12,880
Minority Interest(2) ................. 40,228 (B) 40,228
Stockholders' Equity
(Deficit) ........................... 66,057 (B) 478,398
-------- ----------
Total Liabilities and
Stockholders'
Equity ........................... $186,999 $1,297,614
======== ==========
</TABLE>
- --------
(1) Represents the historical condensed combined balance sheet of Britannia
Data Management as of October 31, 1998, after conversion to U.S. generally
accepted accounting principles. See "Overview--Recent
Acquisitions--Britannia Data Management Acquisition" in the accompanying
Notes.
(2) Minority Interest represents 49.9% of the total equity of Britannia Data
Management after giving pro forma effect to the issuance of capital stock
to Iron Mountain in exchange for cash and the net assets of Arcus Data
Security Limited, our existing data security business in London. See
"Overview--Recent Acquisitions--Britannia Data Management Acquisition" in
the accompanying Notes.
The accompanying notes are an integral part of these pro forma financial
statements.
S-16
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 and 1999 Acquisitions(1)
--------------------------------------------------------
National Britannia First
Historical Under- Data American
Iron ground Manage- Records Data
Mountain Storage ment(2) Management Base(3) Other(4)
------------ ---------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Storage ......................... $230,702 $4,657 $16,258 $ 6,139 $24,907 $12,881
Service and Storage Material
Sales ......................... 192,810 885 14,062 3,761 1,682 1,881
-------- ------ ------- -------- ------- -------
Total Revenues ................ 423,512 5,542 30,320 9,900 26,589 14,762
Operating Expenses:
Cost of Sales (Excluding
Depreciation) ................. 220,980 2,116 16,511 7,338 11,337 6,182
Selling, General and
Administrative ................ 105,025 1,121 5,580 2,212 6,555 6,910
Depreciation and
Amortization .................. 49,152 713 3,863 572 3,706 887
-------- ------ ------- -------- ------- -------
Total Operating
Expenses .................... 375,157 3,950 25,954 10,122 21,598 13,979
-------- ------ ------- -------- ------- -------
Operating Income (Loss) .......... 48,355 1,592 4,366 (222) 4,991 783
Interest Expense, net ............ 45,756 282 1,533 541 1,776 406
Other Income, net(6) ............. 1,384 -- -- -- -- --
-------- ------ ------- -------- ------- -------
Income (Loss) Before Provision
(Benefit) for Income Taxes ...... 3,983 1,310 2,833 (763) 3,215 377
Provision (Benefit) for Income
Taxes ........................... 6,949 544 1,504 238 -- (148)
Minority Interest ................ -- -- -- -- -- --
-------- ------ ------- -------- ------- -------
Net Income (Loss) ................ $ (2,966) $ 766 $ 1,329 $ (1,001) $ 3,215 $ 525
======== ====== ======= ======== ======= =======
Net Loss Per Common Share--
Basic and Diluted ............... $ (0.11)
========
Weighted Average Common
Shares Outstanding .............. 27,470
========
EBITDA ........................... $ 97,507 $2,305 $ 8,229 $ 350 $ 8,697 $ 1,670
<CAPTION>
Pro
Forma
Pro Forma Iron
Adjustments Mountain(5)
------------- ------------
<S> <C> <C> <C>
Revenues:
Storage ......................... $ -- $295,544
Service and Storage Material
Sales ......................... -- 215,081
--------- --------
Total Revenues ................ -- 510,625
Operating Expenses:
Cost of Sales (Excluding
Depreciation) ................. (285) (C) 264,179
Selling, General and
Administrative ................ -- 127,403
Depreciation and
Amortization .................. 5,699 (D) 64,592
--------- --------
Total Operating
Expenses .................... 5,414 456,174
--------- --------
Operating Income (Loss) .......... (5,414) 54,451
Interest Expense, net ............ 4,692 (E) 54,986
Other Income, net(6) ............. -- 1,384
--------- --------
Income (Loss) Before Provision
(Benefit) for Income Taxes ...... (10,106) 849
Provision (Benefit) for Income
Taxes ........................... (1,980) (F) 7,107
Minority Interest ................ 653 (G) 653
--------- --------
Net Income (Loss) ................ $ (8,779) $ (6,911)
========= ========
Net Loss Per Common Share--
Basic and Diluted ............... $ (0.20)
========
Weighted Average Common
Shares Outstanding .............. 6,660 (H) 34,130
========= ========
EBITDA ........................... $ 285 $119,043
</TABLE>
- --------
(1) Represents historical results of operations for: (a) each 1998 acquisition
for the period in 1998 prior to the time it was acquired and (b) each 1999
acquisition we completed through April 30, 1999, unless otherwise noted,
for the year ended December 31, 1998. See "Overview--Recent Acquisitions"
in the accompanying Notes.
(2) Represents the historical condensed combined statement of operations for
Britannia Data Management for the year ended October 31, 1998, after
conversion to U.S. generally accepted accounting principles. See
"Overview--Recent Acquisitions--Britannia Data Management Acquisition" in
the accompanying Notes.
(3) Does not include results of operations prior to the date of acquisition, or
pro forma adjustments for, an acquisition completed by Data Base on
December 31, 1998. The acquired business had revenues of $1.0 million for
its fiscal year ended September 30, 1998.
(4) After a reduction of service and storage material sales revenues of $2.6
million and EBITDA of $0.6 million related to the disposition of the
assets of one of our subsidiaries which we exchanged along with cash for
the assets of Leonard Archives Acquisition Corp. in October 1998. See
"Overview--Recent Acquisitions" in the accompanying Notes.
(5) Does not give pro forma effect to certain identified cost savings of $6.7
million that we believe would have been realized had our 1998 acquisitions
and the 1999 acquisitions we completed through April 30, 1999 been fully
integrated as of January 1, 1998. These cost savings relate to: (a)
termination of specific employees and related net reductions in labor
expenses, (b) closure of identified redundant facilities and related net
reductions in occupancy costs and (c) elimination of related party
expenses, management fees and compensation expenses in excess of amounts
that we would have incurred.
(6) Other income, net includes a $1.7 million gain resulting from the
settlement of several insurance claims related to the March 1997 fires at
our South Brunswick Township, New Jersey facilities.
The accompanying notes are an integral part of these pro forma financial
statements.
S-17
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Overview
Recent Acquisitions
In 1998, we acquired 15 records and information management services
businesses including Arcus Group and National Underground Storage, Inc. Total
consideration for Arcus Group was $153.7 million, including $55.0 million in
aggregate fair value of our common stock and options to acquire our common
stock and the balance in cash and assumed debt. Total consideration for
National Underground Storage was $30.1 million in cash and assumed debt. The
aggregate purchase price of the businesses and related real estate acquired in
1998, excluding Arcus Group and National Underground Storage, was $74.8
million, including $12.1 million in fair value of our common stock. In
addition, we exchanged certain assets of Copyright, Inc., one of our
subsidiaries, with a fair value of $3.0 million as partial consideration in our
acquisition of Leonard Archives. The Pro Forma Statement of Operations reflects
a reduction of service and storage material sales revenues of $2.6 million and
a reduction of EBITDA of $0.6 million related to the disposition of these
assets.
In 1999, through April 30, 1999, we acquired six records and information
management services businesses, including Data Base and a controlling 50.1%
interest in Britannia Data Management. Total consideration for the 50.1%
interest in Britannia Data Management was $49.8 million, consisting of cash and
the capital stock of Arcus Data Security Limited. Total consideration for Data
Base, related real estate and estimated transaction costs was approximately
$116 million, including $46.0 million in fair value of our common stock and the
balance in cash and assumed debt. The aggregate purchase price of the
businesses and related real estate acquired through April 30, 1999, excluding
Britannia Data Management and Data Base, was $49.6 million.
Our 1998 acquisitions and 1999 acquisitions completed through April 30,
1999 are listed below:
<TABLE>
<S> <C>
1998 Acquisitions: Completion Date
----------------
Arcus Group, Inc. ..................................................................... January 1998
Bekins Records Management (a division of Bekins Van & Storage, Inc.) .................. January 1998
Midwest Records Management (a division of I-GO Van & Storage Co.) ..................... January 1998
Records Venture One, Inc. (d/b/a Information Management Consultants of Arizona) ....... January 1998
Sloan Vaults, Inc. (d/b/a The Vault) .................................................. February 1998
InterMation, Inc. ..................................................................... April 1998
Records and information management services business of Bekins Moving & Storage Co. ... June 1998
National Underground Storage, Inc. .................................................... July 1998
Hart Information Services, Inc. ....................................................... July 1998
Rockford Business Interiors, Inc. ..................................................... July 1998
Albuquerque Archives, Inc. ............................................................ August 1998
Records and Filing Consultants, Inc. .................................................. August 1998
Commercial Archives, Inc. ............................................................. October 1998
Leonard Archives Acquisition Corp. .................................................... October 1998
Datavault Corporation ................................................................. November 1998
1999 Acquisitions (through April 30, 1999):
Britannia Data Management Limited (50.1% interest) .................................... January 1999
Secure Accessible Files Environment, Inc. ............................................. February 1999
Confidential Records Center, Inc. ..................................................... March 1999
Information Storage Service Center, Inc. .............................................. March 1999
First American Records Management, Inc. ............................................... April 1999
Data Base, Inc. ....................................................................... April 1999
</TABLE>
S-18
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
Overview (continued)
Britannia Data Management Acquisition
On January 4, 1999, we purchased a controlling 50.1% interest in Britannia
Data Management for total consideration of $49.8 million, consisting of $47.3
million in cash and the balance in the capital stock of Arcus Data Security
Limited, our existing data security services business in London. We acquired
shares of Britannia Data Management from Mentmore Abbey plc and from Abbey
Storage Limited, a wholly owned subsidiary of Mentmore Abbey. In addition, we
acquired newly issued shares from Britannia Data Management in exchange for
cash and the capital stock of Arcus Data Security Limited. Upon completion of
the transactions, we owned 50.1% of the outstanding capital stock of Britannia
Data Management and Mentmore Abbey owned the remaining 49.9%. Concurrently with
these transactions, Britannia Data Management acquired the net assets of Abbey
Records Management for $5.9 million.
The acquisition was accounted for as a purchase. Britannia Data Management
will be included in our consolidated financial results from the date of
acquisition. Britannia Data Management has an April 30 fiscal year end. For
consolidation purposes, we have designated October 31 as its fiscal year end.
Accordingly, the Pro Forma Financial Statements include its condensed combined
balance sheet and the condensed combined statement of operations as of and for
the year ended October 31, 1998.
We prepared the financial statements of Britannia Data Management in
accordance with U.S. generally accepted accounting principles and translated
them into U.S. dollars in accordance with Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation." The functional currency of
Britannia Data Management is Pounds Sterling. Accordingly, we have translated
the assets and liabilities into U.S. dollars at an exchange rate of $1.6771 per
[British Pound]1, the exchange rate in effect at the end of the period
translated. We translated revenues and expenses into U.S. dollars at an exchange
rate of $1.6622 per [British Pound]1, the average exchange rate during the
period translated. We include gains and losses that result from translating
assets and liabilities into U.S. dollars in stockholders' equity as a cumulative
translation adjustment. The amount of the cumulative translation adjustment as
of October 31, 1998 included in stockholders' equity on the accompanying Pro
Forma Balance Sheet was $2.1 million.
Data Base Acquisition
On April 8, 1999, we acquired Data Base and related real estate for
approximately $116 million, including estimated transaction costs. As part of
the total consideration, we issued 1,476,577 shares of common stock with a fair
value of $46.0 million. The amortization of the goodwill created as a result of
this transaction will be deductible for federal income tax purposes. On
December 31, 1998, Data Base completed the acquisition of File Protek, Inc., a
data security services business in Portland, Oregon. The results of operations
of File Protek are not included in the accompanying Pro Forma Statement of
Operations. File Protek had total revenues of $1.0 million for its fiscal year
ended September 30, 1998.
We agreed to repurchase all of the 1,476,577 shares issued in connection
with the Data Base acquisition from the former shareholders of Data Base with a
portion of the proceeds from this offering. The repurchase is contingent upon
the completion of this offering. The repurchase price of those shares will be
equal to $26.74 per share.
S-19
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
Balance Sheet
We paid aggregate consideration for the 1998 and 1999 acquisitions we
completed through April 30, 1999 of $474.0 million. We have allocated the
excess of the purchase price over the book value of the net assets acquired for
each of the acquisitions to tangible and intangible assets, based on our
estimate of the fair value of the net assets acquired. It is not practicable at
this time for us to estimate the fair value of every asset acquired and
liability assumed in the 1998 and 1999 acquisitions we completed through April
30, 1999. As a result, we have used the net book value of certain assets and
liabilities as an estimate of fair value for pro forma purposes. The allocation
of the aggregate purchase price is illustrated below (in millions):
<TABLE>
<S> <C> <C>
1998 Acquisitions:
Current Assets .................................................... $ 28.9
Property, Plant and Equipment ..................................... 54.2
Goodwill .......................................................... 202.7
Other Long-term Assets ............................................ 1.7
Current Liabilities ............................................... (22.7)
Deferred Income Taxes ............................................. (2.4)
Other Long-term Liabilities ....................................... (3.8)
-------
Purchase Price of 1998 Acquisitions ............................ $ 258.6
1999 Acquisitions (through April 30, 1999):
Current Assets .................................................... 22.0
Property, Plant and Equipment ..................................... 62.4
Fair Value of Arcus Data Security Net Assets ...................... 2.5
Goodwill .......................................................... 202.4
Other Long-term Assets ............................................ 2.6
Current Liabilities ............................................... (19.7)
Long-term Debt .................................................... (15.3)
Deferred Income Taxes ............................................. (0.8)
Other Long-term Liabilities ....................................... (0.5)
Minority Interest ................................................. (40.2)
-------
Purchase Price of 1999 Acquisitions ............................ 215.4
--------
Total Purchase Price of the 1998 and 1999 Acquisitions ......... $ 474.0
========
</TABLE>
S-20
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
Balance Sheet (continued)
We have assumed our 1998 and 1999 acquisitions completed through April 30,
1999 to be financed with common stock, options to purchase common stock, the
net proceeds from the sale in 1997 of our 8-3/4% senior subordinated notes, the
net proceeds from the sale in 1999 of our 8-1/4% senior subordinated notes, our
1998 public equity offering, certain of our assets, including the capital stock
of Arcus Data Security Limited, and the net proceeds from this offering as
follows (in millions):
<TABLE>
<S> <C> <C>
1998 Acquisitions:
Fair Value of Common Stock Issued .............................. $ 51.4
Fair Value of Options Granted .................................. 15.7
Proceeds from our 1997 8-3/4% Senior Subordinated Notes ........ 24.5
Proceeds from our 1998 Public Equity Offering .................. 132.0
Proceeds from our 1999 8-1/4% Senior Subordinated Notes ........ 32.0
Assets of Copyright, Inc. ...................................... 3.0
-------
Purchase Price of 1998 Acquisitions ......................... $ 258.6
1999 Acquisitions (through April 30, 1999):
Fair Value of Common Stock Issued .............................. $ 46.0
Proceeds from this Offering .................................... 53.9
Proceeds from our 1999 8-1/4% Senior Subordinated Notes ........ 113.0
Capital Stock of Arcus Data Security Limited ................... 2.5
-------
Purchase Price of 1999 Acquisitions ......................... 215.4
--------
Total Purchase Price of 1998 and 1999 Acquisitions ......... $ 474.0
========
</TABLE>
S-21
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
Balance Sheet (continued)
The accompanying Pro Forma Balance Sheet as of December 31, 1998 has been
prepared as if our 1999 acquisitions we completed through April 30, 1999, the
use of the net proceeds from the sale of our 1999 8-1/4% senior subordinated
notes, and this offering and the use of the net proceeds as described under
"Use of Proceeds" had been completed as of December 31, 1998 and reflects the
following pro forma adjustments:
(A) Pro forma adjustments to Assets consist of the following (in millions,
except share data):
<TABLE>
<CAPTION>
Property, Other
Current Plant and Long-term
Assets Equipment Goodwill Assets
--------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Acquisition Adjustments:
Reverse assets of acquired companies not purchased .............. $ (0.1) $ -- $ -- $ --
Record estimated fair value in excess of net book value of
buildings acquired ............................................. -- 4.5 -- --
Record cash received by Britannia Data Management for newly
issued shares of stock, net of cash paid for its acquisition of
the net assets of Abbey Records Management ..................... 1.3 -- -- --
Reverse goodwill of acquired companies not purchased ............ -- -- (61.8) --
Record goodwill related to acquired companies ................... -- -- 202.4 --
------- ---- ------- ----
Total Acquisition Adjustments ................................. 1.2 4.5 140.6 --
------- ---- ------- ----
Use of Proceeds Adjustments:
Record estimated net proceeds from this offering ................ 133.0 -- -- --
Record use of a portion of the net proceeds from this offering
to repurchase 1,476,577 shares of common stock at $26.74
per share in connection with the Data Base acquisition ......... (39.5) -- -- --
Record use of a portion of the net proceeds from this offering
to repay borrowings under our revolving credit facility and to
repay debt used to finance our 1999 acquisitions completed
through April 30, 1999 ......................................... (57.2) -- -- --
Record deferred financing fees associated with our 1999 8-1/4%
Senior Subordinated Notes ...................................... -- -- -- 4.4
------- ---- ------- ----
Total Use of Proceeds Adjustments ............................. 36.3 -- -- 4.4
------- ---- ------- ----
Total Pro Forma Adjustments ................................... $ 37.5 $ 4.5 $ 140.6 $ 4.4
======= ===== ======= =====
</TABLE>
S-22
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
Balance Sheet (continued)
(B) Pro forma adjustments to Liabilities and Stockholders' Equity consist
of the following (in millions, except share data):
<TABLE>
<CAPTION>
Other
Current Long-term Long-term Minority Stockholders'
Liabilities Debt Liabilities Interest Equity
------------- ----------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Acquisition Adjustments:
Reverse liabilities and equity not assumed in connection
with the 1999 acquisitions we completed through April
30, 1999 ................................................... $ (7.4) $ (25.9) $ (0.1) $ -- $ (82.5)
Record additional debt to finance the 1999 acquisitions
we completed through April 30, 1999 ........................ -- 166.9 -- -- --
Record minority interest in the net assets of Britannia
Data Management ............................................ -- -- -- 40.2 --
Record equity issued by Britannia Data Management in
exchange for cash and the net assets of Arcus Data
Security Limited ........................................... -- -- -- -- 9.1
Record common stock issued to finance the 1999
acquisitions we completed through April 30, 1999 ........... -- -- -- -- 46.0
------ -------- ------ ----- -------
Total Acquisition Adjustments ............................. (7.4) 141.0 (0.1) 40.2 (27.4)
------ -------- ------ ----- -------
Use of Proceeds Adjustments:
Record estimated net proceeds from this offering ............ -- -- -- -- 133.0
Record use of a portion of the net proceeds from this
offering to repurchase 1,476,577 shares of common
stock at $26.74 per share in connection with the Data
Base acquisition ........................................... -- -- -- -- (39.5)
Record proceeds from the sale of our 1999 8-1/4% Senior
Subordinated Notes ......................................... -- 149.4 -- -- --
Record use of the net proceeds from our 1999 8-1/4%
Senior Subordinated Notes to repay borrowings under
our revolving credit facility .............................. -- (145.0) -- -- --
Record use of a portion of net proceeds from this offering
to repay borrowings under our revolving credit facility..... -- (57.2) -- -- --
------ -------- ------ ----- -------
Total Use of Proceeds Adjustments ......................... -- (52.8) -- -- 93.5
------ -------- ------ ----- -------
Total Pro Forma Adjustments ............................... $ (7.4) $ 88.2 $ (0.1) $ 40.2 $ 66.1
====== ======== ====== ====== =======
</TABLE>
S-23
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
Statement of Operations
Pro Forma Adjustments
We have prepared the accompanying Pro Forma Statement of Operations for
the year ended December 31, 1998 as if our 1998 and 1999 acquisitions completed
through April 30, 1999, our 1998 equity offering, the sale in 1999 of our 8-1/4%
Senior Subordinated Notes and this offering had occurred on January 1, 1998 and
to reflect the following pro forma adjustments:
(C) To reduce cost of sales to eliminate rent expense for facilities we
purchased as part of certain acquisitions that would not have been incurred had
these acquisitions occurred as of January 1, 1998.
(D) To adjust depreciation expense based on the fair value of the assets
acquired and the remaining useful lives and the amortization of goodwill.
Property, plant and equipment are depreciated over three to 50 years, goodwill
is amortized over 25 to 30 years, software is amortized over three years and
covenants not-to-compete are amortized over two to five years on a
straight-line basis. This depreciation and amortization may change when we
determine the final fair value of the net assets acquired.
(E) Pro forma adjustments to Interest Expense consist of the following (in
millions):
<TABLE>
<S> <C>
Acquisition Adjustments:
Reverse interest expense on debt of the acquired companies retired or not
assumed ...................................................................... $ (3.0)
Record interest expense on the additional debt used to finance our 1999
acquisitions assumed to be financed under our revolving credit facility ...... 9.8
Use of Proceeds Adjustments:
Reverse interest expense on our revolving credit facility debt assumed to be
retired with the net proceeds from our 1999 8-1/4% Senior Subordinated
Notes ........................................................................ (9.4)
Record interest expense related to our 1999 8-1/4% Senior Subordinated
Notes, including amortization of deferred financing fees ..................... 12.8
Record interest income on excess cash from this offering of $36.3 million at
an assumed rate of 4.75% per annum ........................................... (1.7)
Reverse interest expense on our revolving credit facility debt assumed to be
retired with a portion of the net proceeds from this offering ................ (3.8)
------
Total Acquisition and Use of Proceeds Adjustments .............................. $ 4.7
======
</TABLE>
S-24
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (Continued)
Statement of Operations (continued)
(F) To adjust the provision for income taxes to a 40% rate on pro forma
U.S. income before nondeductible goodwill amortization and other nondeductible
expenses.
(G) To record the 49.9% minority interest in the net income of Britannia
Data Management after giving pro forma effect to the net income of Arcus Data
Security Limited for the year ended December 31, 1998.
(H) To adjust the pro forma weighted average common shares outstanding as
if the 1998 and 1999 acquisitions we completed through April 30, 1999, our 1998
public equity offering and this offering had occurred on January 1, 1998. The
number of shares of common stock issued, or assumed to be issued, and assumed
to be repurchased, and the adjustments are as follows (in thousands):
<TABLE>
<CAPTION>
Total
Number of Adjustments to
Shares Issued Weighted Average
or Repurchased Shares
---------------- -----------------
<S> <C> <C>
Transactions:
This Offering .......................... 5,000 5,000
1998 Public Equity Offering ............ 6,038 1,538
Data Base .............................. 1,477 1,477
Repurchase of Data Base shares ......... (1,477) (1,477)
Other .................................. 489 122
------ ------
Total Shares Issued, or Assumed to be
Issued, and Assumed to be Repurchased,
for these Transactions .............. 11,527 6,660
====== ======
</TABLE>
S-25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(In thousands, except per share data)
The following selected consolidated statements of operations and balance
sheet data of Iron Mountain is derived from Iron Mountain's audited
consolidated financial statements. You should read this information 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 Prospectus
Supplement.
<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 Per Share 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>
S-26
<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
our 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 our initial public offering
completed in 1996 had been converted for all periods presented. See Notes
5 and 6 of Notes to Iron Mountain's Consolidated Financial Statements.
(4) Based on our experience in the records and information management services
industry, we believe that EBITDA is an important tool for measuring the
performance of records and information management services companies
(including potential acquisition targets) in several areas, such as
liquidity, operating performance and leverage. In addition, lenders use
EBITDA in evaluating records and information management services
companies, and substantially all of our financing agreements contain
covenants in which EBITDA is used as a measure of financial performance.
However, you should not consider EBITDA to be a substitute to operating or
net income (as determined in accordance with GAAP) as an indicator of our
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 our sources and
applications of cash flow.
(5) Growth capital expenditures consist primarily of investments in racking
systems, management information systems, new buildings and expansion of
storage capacity in 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 records and
information management services facility which was sold in a sale and
leaseback transaction in 1994.
(7) Consists of capital expenditures we made in order to maintain our current
revenues.
S-27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the Selected
Consolidated Financial and Operating Information and Iron Mountain's
Consolidated Financial Statements and the Notes thereto and the other financial
and operating information included elsewhere or incorporated by reference in
this Prospectus Supplement.
Overview
Our primary financial objective is to increase our consolidated EBITDA,
which is a source of funds for investment in continued internal growth and
growth through acquisitions and to service indebtedness. We have 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,
this objective has negatively affected other measures of our financial
performance, such as consolidated net income and consolidated net income
applicable to common stockholders.
For the years ended December 31, 1996 through 1998, we experienced
consolidated net losses applicable to common stockholders. We attribute such
losses in part to significant charges associated with our pursuit of our growth
strategy, namely:
o increases in depreciation and amortization expenses associated with
expansion of our storage capacity,
o increases in goodwill amortization associated with acquisitions accounted
for under the purchase method and
o increases in interest expense associated with the borrowings used to fund
our 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.
We classify our operations into two fundamental businesses: records and
information management services and information technology staffing. We
acquired our information technology staffing business in connection with our
acquisition of Arcus Group. We manage the reportable segments separately since
each business has different economic characteristics based on the differing
customer requirements and the nature of the services provided.
Our records and information management services 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 records and information management
services 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 our 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.
Our information technology staffing business generates revenues by
supplying information technology professionals to information technology
staffing clients on either a contract or temporary basis. We also recruit
information technology professionals for permanent placement with information
technology staffing clients.
Cost of sales (excluding depreciation) for our records and information
management services segment consists primarily of wages and benefits, facility
occupancy costs, vehicle and other equipment costs and supplies. Of these,
wages and benefits and facility occupancy costs are the most significant. Over
the past several years, we have been able to reduce per Carton storage costs
by:
o designing racking systems and operating space to maximize facility
storage efficiency,
o negotiating favorable facility leases and having facilities built to our
custom specifications and
o occupying larger facilities, which, when filled, are less expensive per
Carton to operate.
S-28
<PAGE>
For the information technology staffing segment, cost of sales (excluding
depreciation) consists primarily of wages and benefits.
Selling, general and administrative expenses for both our records and
information management services and information technology 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.
Our consolidated depreciation and amortization charges result primarily
from the capital-intensive nature of the records and information management
services business and the acquisitions we have 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. We have accounted for all of our acquisitions under the purchase method.
Since the purchase price for records and information management services
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. We have not
acquired any information technology staffing companies other than through our
acquisition of Arcus Group.
EBITDA is an important financial performance measure in the records and
information management services industry, both for determining the value of
companies within the industry and for defining standards for borrowing from
institutional lenders. Our records and information management services EBITDA
margins were 24.2% for 1996, 24.1% for 1997 and 25.0% for 1998. We acquired 16
records and information management services businesses in 1996, 18 in 1997 and
15 in 1998, most of which had lower EBITDA margins than the rest of our records
and information management services business. We generally did not recognize
anticipated synergies relating to such acquisitions immediately. Nonetheless,
we have been able to maintain our recent records and information management
services EBITDA margins through increased overall operating efficiencies and
economies of scale and the realization of synergies in connection with earlier
acquisitions.
Although the EBITDA margin for our information technology staffing
business is lower than for our records and information management services
business, the capital requirements in the information technology staffing
business are minimal. The EBITDA margin of our information technology staffing
business for 1998 was 3.9%. This resulted in our 1998 consolidated EBITDA
margin being lower than it was in prior years. Our consolidated EBITDA margin
for 1998 was 23.0%, as compared to 24.1% for 1997 and to our records and
information management services EBITDA margin of 25.0% for 1998.
In March 1997, we experienced three fires that resulted in damage to one
and destruction of our other records and information management services
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, we
settled several insurance claims, including a significant claim under our
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
"Business--Legal Proceedings" and Note 11 of Notes to Iron Mountain's
Consolidated Financial Statements for a description of certain claims and
proceedings against Iron Mountain relating to these fires.
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 requires computer
software costs associated with internal use software to be expensed as incurred
until specified capitalization criteria are met. SOP 98-1 also defines which
types of costs should be capitalized and which should be expensed. We have
adopted SOP 98-1 prospectively as of January 1, 1999. Based on our current
budget, we expect our 1999 net income to be negatively impacted by
approximately $2 million and our 1999 EBITDA to be negatively impacted by
approximately $4 million.
S-29
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, information
derived from Iron Mountain's consolidated statements of operations, expressed
as a percentage of total consolidated revenues.
<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 Iron Mountain's consolidated statements of operations,
as it relates to our records and information management services and
information technology staffing business segments, expressed as a percentage of
total revenues for each such segment.
<TABLE>
<CAPTION>
Records and Information Information
Management Services Technology 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 73.0
Selling, General and Administrative ............ 25.0 23.1
Depreciation and Amortization .................. 12.6 2.2
----- -----
Total Operating Expenses ...................... 87.6 98.3
----- -----
Operating Income ................................ 12.4% 1.7%
===== =====
EBITDA .......................................... 25.0% 3.9%
===== =====
</TABLE>
S-30
<PAGE>
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 storage revenue 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 records and information management services 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. Service and storage material sales for our records and
information management services segment internal revenue growth was 14.6% and
resulted from increases in service and storage material sales to existing
customers and the addition of new customer accounts. The $110.0 million
increase includes $39.6 million attributable to our information technology
staffing business. Service and storage material sales revenues for our records
and information management services 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 records and information management services 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 information
technology staffing revenues amounted to $39.6 million for the year ended
December 31, 1998. Total records and information management services 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. We attribute the dollar
increase primarily to the increase in records and other media stored, expenses
related to facility relocations and costs associated with our new information
technology staffing business. We attribute the increase as a percentage of
consolidated revenues primarily to the information technology staffing business
having a lower gross margin than the records and information management
services business. Cost of sales (excluding depreciation) for our records and
information management services business increased $85.2 million to $192.1
million (50.0% of records and information management services revenues) for the
year ended December 31, 1998 from $106.9 million (51.2% of records and
information management services revenues) for the same period last year. We
attribute the decrease as a percentage of revenues primarily to:
o particular data security acquisitions, including the Arcus Group
acquisition, and the acquisition of a software escrow business, acquired
in the third quarter of 1997, having a higher gross margin than the rest
of Iron Mountain and
o the closing of redundant facilities associated with particular
acquisitions.
The information technology staffing business reported cost of sales (excluding
depreciation) of $28.9 million (73.0% of information technology 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. We attribute the dollar
increase primarily to:
o the addition of overhead attributable to the Arcus Group acquisition,
o additional salespeople, primarily related to the acquisitions of Arcus
Group and Safesite Records Management Corporation and our decision to
significantly increase our selling resources,
o increased personnel, office and overhead costs to support our growth and
o recruiting, relocation and training expenses associated with acquisition
integration.
S-31
<PAGE>
As a result, selling, general and administrative expenses for the records
and information management services business increased $44.2 million to $95.9
million (25.0% of records and information management services revenues) for the
year ended December 31, 1998 from $51.7 million (24.7% of records and
information management services revenues) for the year ended December 31, 1997.
The information technology staffing business reported selling, general and
administrative expenses of $9.1 million (23.1% of information technology
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. We attribute the dollar
increase primarily to the additional depreciation and amortization expense
related to our acquisitions and capital expenditures for our records and
information management services businesses, including racking systems,
information systems and expansion of storage capacity in existing facilities.
As a result, depreciation and amortization expense for the records and
information management services business increased $21.2 million to $48.3
million (12.6% of records and information management services revenues) for the
year ended December 31, 1998 from $27.1 million (13.0% of records and
information management services revenues) for the year ended December 31, 1997.
The information technology staffing business reported depreciation and
amortization expenses of $0.9 million (2.2% of information technology 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 records and information management services business increased $24.6
million, or 106.3%, to $47.7 million (12.4% of records and information
management services revenues) for the year ended December 31, 1998 from $23.1
million (11.1% of records and information management services revenues) for the
year ended December 31, 1997. Operating income for the information technology
staffing business was $0.7 million (1.7% of information technology staffing
revenues) for the year ended December 31, 1998.
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. We attribute the increase primarily 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 our business interruption
insurance policy, related to the March 1997 fires at our South Brunswick
Township, New Jersey facilities. A $0.3 million loss on a foreign currency
transaction in connection with our acquisition of Britannia Data Management
partially offset such gain.
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. Our effective tax rate is higher than statutory
rates primarily due to the amortization of the nondeductible portion of
goodwill associated with particular acquisitions (the tax laws generally permit
deduction of such expenses for asset purchases, but not for acquisitions of
stock). In connection with our 1998 acquisitions, we 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 records and
information management services business increased $45.8 million, or 91.2%, to
$96.0 million (25.0% of records and
S-32
<PAGE>
information management services revenues) for the year ended December 31, 1998
from $50.2 million (24.1% of records and information management services
revenues) for the year ended December 31, 1997. EBITDA for the information
technology staffing business was $1.6 million (3.9% of information technology
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 Iron Mountain 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
Iron Mountain 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. We attribute the greater percentage increase in service and storage
material sales revenues, as compared to storage revenues, for the year ended
December 31, 1997 primarily to some businesses acquired in 1997 that have a
higher component of service and storage material sales revenues, compared to
storage revenues, than the rest of our records and information management
services 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. We attribute an
increase of $59.9 million, or 42.3 percentage points, to our acquisitions
completed in 1996 and 1997, and an increase of $10.2 million, or 8.2 percentage
points, to internal growth. The internal growth percentage includes the loss of
revenues resulting from the fires in South Brunswick Township, New Jersey in
March 1997. Excluding our 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. We attribute the dollar increase primarily to the increase
in Cartons stored and expenses related to facility relocations. We attribute
the increase as a percentage of revenues primarily to recent acquisitions,
which initially have lower gross margins than the rest of Iron Mountain.
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. We attribute the dollar increase primarily to:
o increased personnel, office and overhead costs needed to support our
growth,
o the addition of overhead, primarily salespeople, related to the
acquisition of Safesite Records Management and
o the integration, training and redeployment of personnel principally
related to the Safesite Records Management 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. We attribute the dollar increase primarily to the additional depreciation
and amortization related to our acquisitions and capital expenditures including
racking systems, information systems and expansion of storage capacity in
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. We attribute the increase primarily to increased
indebtedness related to the financing of acquisitions. Lower effective interest
rates for the year ended December 31, 1997 as compared to the same period for
1996 partially offset such increase.
S-33
<PAGE>
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. Our effective tax rate is less favorable than statutory
rates primarily due to the amortization of the nondeductible portion of
goodwill associated with particular acquisitions (the tax laws generally permit
deduction of such expenses for asset purchases, but not for acquisitions of
stock). In connection with our 1997 acquisitions, we 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 our common stock for the
year ended December 31, 1996. The warrant was redeemed in full in February 1996
with a portion of the proceeds from our initial public offering. As a result of
such redemption, we will not have any 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.
Recent Consolidated Quarterly Financial Data
The following table sets forth, for the quarterly periods indicated,
information derived from Iron Mountain'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 do not necessarily indicate results for the year or for any future
period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
1997
----------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
----------- ----------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Revenues:
Storage ............................... $ 25,823 $ 27,987 $ 32,390 $ 39,768
Service and, Storage Material
Sales ................................ 16,331 18,598 22,265 25,603
-------- -------- -------- --------
Total Revenues ...................... 42,154 46,585 54,655 65,371
Operating Expenses:
Cost of Sales (Excluding
Depreciation) ........................ 21,764 24,108 27,870 33,137
Selling, General and
Administrative ....................... 10,207 11,296 14,180 15,985
Depreciation and Amortization ......... 5,722 6,243 6,530 8,612
-------- -------- -------- --------
Total Operating Expenses ............ 37,693 41,647 48,580 57,734
-------- -------- -------- --------
Operating Income ....................... $ 4,461 $ 4,938 $ 6,075 $ 7,637
======== ======== ======== ========
EBITDA ................................. $ 10,183 $ 11,181 $ 12,605 $ 16,249
======== ======== ======== ========
<CAPTION>
Three Months Ended
---------------------------------------------
1998
---------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
----------- ---------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Revenues:
Storage ............................... $ 52,948 $55,592 $59,506 $ 62,656
Service and, Storage Material
Sales ................................ 46,536 47,471 48,454 50,349
-------- ------- ------- --------
Total Revenues ...................... 99,484 103,063 107,960 113,005
Operating Expenses:
Cost of Sales (Excluding
Depreciation) ........................ 52,610 53,664 56,335 58,371
Selling, General and
Administrative ....................... 24,418 25,801 26,447 28,359
Depreciation and Amortization ......... 11,264 12,122 12,839 12,927
-------- ------- ------- --------
Total Operating Expenses ............ 88,292 91,587 95,621 99,657
-------- ------- ------- --------
Operating Income ....................... $ 11,192 $11,476 $12,339 $ 13,348
======== ======= ======= ========
EBITDA ................................. $ 22,456 $23,598 $25,178 $ 26,275
======== ======= ======= ========
</TABLE>
S-34
<PAGE>
Liquidity and Capital Resources
Recent Financings and Sources of Funds
In April 1999, we completed a private placement of $150 million in
aggregate principal amount of 8-1/4% Senior Subordinated Notes due 2011. We
received net proceeds of approximately $145.0 million from the offering after
deducting discounts, commissions and expenses. We used the net proceeds from
the notes offering to repay indebtedness under our credit agreement.
In connection with certain of our 1998 acquisitions, we issued 2,645,913
shares of our common stock with a fair value of $51.4 million and options to
acquire approximately 885,000 shares of common stock with a fair value of $15.7
million.
In April 1998, we issued and sold an aggregate of 6,037,500 shares
(including 787,500 to cover over-allotments) of our common stock in an
underwritten public offering. We had net proceeds after deducting underwriters'
discounts of $132.9 million, which we used to repay outstanding bank debt, to
fund the cash portion of the purchase price of some of our 1998 acquisitions
and for general corporate purposes.
Our net cash provided by financing activities consisted of:
o $80.6 million for the year ended December 31, 1996, consisting primarily
of the net proceeds of $160.1 million from the sale of our 10-1/8% Senior
Subordinated Notes due 2006 and $33.3 million from our initial public
offering, offset by $102.2 million of repayment of indebtedness and $6.6
million used to retire the warrant,
o $231.2 million for the year ended December 31, 1997, consisting primarily
of the net proceeds of $242.6 million from the sale of our 8-3/4% Senior
Subordinated Notes due 2009 offset by $10.3 million of repayment of
indebtedness, and
o $159.3 million for the year ended December 31, 1998, consisting primarily
of the net proceeds of $132.9 million from our 1998 public equity
offering and additional borrowings under our revolving credit facility of
$23.7 million.
As of December 31, 1998, outstanding borrowings under our credit agreement
amounted to $35.3 million.
Based on outstanding borrowings under our credit facility of $80.5 million
as of May 7, 1999, we had indebtedness maturing for the year ending December
31, 1999 of $4.8 million, for the year ending December 31, 2000 of $0.8
million, for the year ending December 31, 2001 of $1.7 million, for the year
ending December 31, 2002 of $81.1 million and for the year ending December 31,
2003 of $0.4 million. We used outstanding borrowings under our revolving credit
facility to fund, among other things, the purchase price of the acquisition of
six records and information management services businesses and for general
corporate purposes.
With our acquisition of Britannia Data Management, we assumed a bank loan
with an outstanding balance as of October 31, 1998 of $15.9 million. The annual
maturity of this loan is $1.7 million for each of its fiscal years ending
October 31, 1999, 2000 and 2001. The maturity of this loan for its fiscal year
ending October 31, 2002 is $2.1 million and for its fiscal year ending October
31, 2003 is $2.5 million. See Notes 2 and 4 of the Notes to Britannia Data
Management Limited's Combined Financial Statements. We expect that the pending
Memogarde acquisition will be financed through borrowings by Britannia Data
Management.
As of May 7, 1999, excluding the debt of Britannia Data Management, we had
$653.8 million of total debt, of which $570.2 million had fixed interest rates
and $83.6 million had variable interest rates. See Note 4 of Notes to Iron
Mountain's Consolidated Financial Statements. These amounts include outstanding
borrowings of $3.1 million under a short-term $10 million working capital line
of credit, which had a variable interest rate.
Our 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. We
attribute the increase primarily 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, we 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
S-35
<PAGE>
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, we have not
recognized the deferred tax asset generated by such loss carryforwards. If we
receive a favorable outcome in the litigation, any tax benefit realized will be
recorded as a reduction of goodwill.
Capital Investments
As we have sought to increase our EBITDA, we have made significant capital
investments, consisting primarily of:
o acquisitions,
o capital expenditures, primarily related to growth, including
investments in real estate, racking systems, management information
systems and expansion of storage capacity in existing facilities and
o customer acquisition costs.
We paid cash for these investments during 1998 amounting to $189.7 million,
$56.5 million and $3.0 million, respectively. We have funded these investments
primarily through cash flows from operations, borrowings under our revolving
credit facility, a portion of the net proceeds from the sale of our 8-3/4%
Senior Subordinated Notes due 2009 and the net proceeds from our 1998 public
equity offering.
As a result of implementing our acquisition strategy, we paid cash for
acquisitions of $68.5 million in 1996, $192.2 million in 1997 and $189.7
million in 1998. In addition, in connection with certain of our acquisitions,
we issued common stock and options to purchase common stock with an aggregate
fair value of $88.9 million in 1997 and $67.1 million in 1998. From January 1,
1999 through April 30, 1999, we acquired six additional records and information
management services businesses for total consideration of approximately $215
million, including $46.0 million in fair value of our common stock.
Our growth-related capital expenditures were $23.3 million for 1996, $37.1
million for 1997 and $54.6 million for 1998. Growth-related capital
expenditures consist primarily of investments in racking systems, management
information systems, new buildings and expansion of storage capacity in
existing facilities. Our capital expenditures made in order to maintain our
current revenues were $1.1 million for 1996, $1.2 million for 1997 and $1.9
million for 1998.
We currently estimate that our capital expenditures (other than capital
expenditures related to future acquisitions, which we cannot presently
estimate) for 1999 will be approximately $65 to $70 million. We expect to fund
these expenditures with cash flows from operations.
In addition, we incur costs (net of revenues received for the initial
transfer of records) related to the acquisition of large volume accounts. Our
additions to customer acquisition costs were $1.6 million for 1996, $1.6
million for 1997 and $3.0 million for 1998.
Acquisitions
Our acquisitions within the records and information management services
industry have significantly impacted our liquidity and capital resources and,
given our acquisition strategy, may continue to do so for the foreseeable
future.
We have historically financed the cash portion of our acquisitions with
borrowings under our credit agreements in conjunction with cash flows provided
by operations and with the net proceeds of issuances of debt securities and
common stock. Our future interest expense may increase significantly as a
result of the additional indebtedness we may incur to finance possible future
acquisitions. To the extent that we finance future acquisitions with additional
borrowings under our revolving credit facility or other credit facilities, or
the future issuance of debt securities, the resulting increase in debt and
interest expense could negatively effect such measures of liquidity as debt to
equity, EBITDA to debt and EBITDA to interest expense.
In connection with our acquisition program, we undertake certain
restructurings of the acquired businesses. We complete formalized restructuring
plans for acquisitions within one year of the date of
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acquisition. The restructuring activities include reductions in staffing
levels, elimination of duplicate facilities and other costs associated with
exiting activities of the acquired businesses. In connection with these
restructuring activities, we established reserves of $6.6 million in 1997 and
$11.4 million in 1998 as part of the purchase accounting for the acquisitions.
We expended $2.2 million during 1997 and $4.7 million during 1998 for
restructuring costs. In addition, we made $0.3 million of adjustments in 1997
and $1.6 million of adjustments in 1998, 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, we had a total of $10.5 million
accrued for restructuring costs for all of our then completed acquisitions. We
expect to record reserves for the acquisitions completed between January 1,
1999 and April 30, 1999 and are currently evaluating our restructuring plans.
We will continue to evaluate our restructuring plans regarding these
acquisitions during the year following their completion.
Future Capital Needs
Our ability to generate sufficient cash to fund our needs depends
generally on the results of our 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, we cannot make
any assurance in this regard or that the terms available for any future
financing, if required, would be favorable to us.
Seasonality
Historically, seasonality has not affected our businesses in any material
respect.
Inflation
Some of our expenses, such as wages and benefits, occupancy costs and
equipment repair and replacement, are subject to normal inflationary pressures.
Although to date we have been able to offset inflationary cost increases
through increased operating efficiencies, we cannot assure that we 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, or 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, we have established a Y2K Project Plan. The plan is 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
Our primary operational systems for our records and information management
services segment are Safekeeper, an internally developed software application
used mainly in our business records operations, and MediaLink, a software
application obtained from a third party used mainly in our data security
operations. Additionally, as an active acquirer of businesses, we currently
use, and will continue to use, several different legacy operational systems
that have been, and will be, inherited through our ongoing acquisition program.
Both Safekeeper and MediaLink are Y2K compliant. Based on our assessment, we
believe that approximately 85% of our 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. We are currently
converting the remaining business units to a Y2K compliant operational system.
Our information technology staffing business uses commercially available,
off-the-shelf software packages from nationally recognized vendors for its
primary software applications, which include its financial
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accounting, time and billing and resume retrieval database systems. Based on
publicly available certifications from the vendors, we believe that these
software packages are Y2K compliant. The information technology 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 our normal course of business, we have several system
improvement initiatives underway. One such initiative involves the installation
of new financial accounting software from Oracle Corporation. 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.
We currently use, and will continue to use, several different legacy
accounting systems that have been, and will be, inherited through our ongoing
acquisition program. Accordingly, we continue to assess these newly acquired
legacy systems and, based on vendor certifications, we believe that
substantially all of these systems are Y2K compliant. We are in the process of
remediating the remaining systems and expect to complete such remediation
before the end of the third quarter of 1999.
Products and Services Obtained from Third Parties
The products and services we obtain from third parties consist mainly of
(1) facility systems, including telecommunications, climate control systems,
security systems, fire and safety systems, and (2) products and services
purchased from vendors, including third party payroll processing and products
for resale such as cartons and operating supplies. We have substantially
completed assessment of our telecommunications systems and are in the process
of implementing our remediation plan for such systems that are not Y2K
compliant. With respect to our other facility systems and products and services
purchased from vendors, we have substantially completed the assessment phase
and expect to complete the implementation phase by the end of the third quarter
of 1999.
Customers
Our 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 we provide to our customers, as well as the diversification of
our customer base, we do not believe that Y2K issues associated with our
customers will have a material adverse effect on our financial condition or
results of operations.
Costs
Based on our current assessment of our Y2K issues, we do not expect the
total cost associated with required modifications to become Y2K compliant to be
material to our financial position. Some costs associated with our 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. Some payroll and
related costs represent the redeployment of existing staff resources rather
than incremental costs to Iron Mountain. All other costs associated with our
Y2K plan will be expensed as incurred. We estimate that our costs associated
with the plan to be incurred in 1999 will be under $3 million. These costs are
included in our operating and capital budgets for 1999.
Contingency Plans
As part of our Y2K project, we have analyzed our points of major risk and
are developing contingency plans as a backup to our remediation effort.
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Year 2000 Risks
The failure on our part or one of our suppliers to correct a material Y2K
problem could result in an interruption in, or a failure of, normal business
activities or operations, although we do not know the extent of such a possible
business disruption at this time. We expect the implementation of our Y2K plan
to significantly reduce our level of uncertainty about the Y2K problem. We
believe that, with the completion of our existing system improvement
initiatives and the successful execution of the plan, we will substantially
reduce the likelihood of significant interruptions of normal operations.
However, we cannot assure that we will be able to address the Y2K issues for
all of our software applications and major operating systems in a timely manner
or that we will not encounter unexpected difficulties or significant expenses.
If we or our major third party suppliers of products and services fail to
adequately address our or their Y2K issues, or we fail to successfully
integrate or convert our computer systems generally, our business, financial
condition or results of operations could be materially adversely affected.
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BUSINESS
Introduction
Iron Mountain is the world's largest records and information management
services company, as measured by its revenues. We are an international,
full-service provider of records and information management services, enabling
customers to outsource these functions. We have 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. We provide 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. The principal services provided to our storage
customers include courier pick-up and delivery, filing, retrieval and
destruction of records, database management, customized reporting and disaster
recovery support. We also sell storage materials, including cardboard boxes and
magnetic media, and provide consulting, facilities management, information
technology staffing and other outsourcing services.
We believe that we are the industry leader in business records management
services, off-site data security services, which is the management of
electronic records, and healthcare information management. Our recently
completed acquisition of Data Base will strengthen our position as a leader in
data security services. We have also expanded the ancillary services offered by
us to include information technology staffing and have enhanced our range of
facilities management services as a result of our 1997 acquisitions and 1998
acquisitions. As of April 30, 1999, giving effect to the acquisitions we
completed in 1999, our records and information management services business
operated 299 records and information management services facilities in 66
domestic markets and in four markets in the United Kingdom, servicing over
70,000 customer accounts. Our information technology staffing business managed
over 500 independent contractors in ten markets.
The Records and Information Management Services Industry
Overview
The records and information management services 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 blueprints. 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
records and information management services 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, we
believe 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 healthcare information management 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
healthcare information 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
We believe that the volume of stored paper and electronic records will
continue to increase for a number of reasons, including:
o the rapid growth of inexpensive document producing technologies such as
facsimile and desktop printing,
o the continued proliferation of data processing technologies such as
personal computers and networks,
o increased regulatory requirements,
o concerns over possible future litigation and the resulting increases in
volume and holding periods of documentation,
o the high cost of reviewing records and deciding whether to retain or
destroy them,
o the failure of many entities to adopt or follow policies on records
destruction and
o 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, we believe 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 records and information management services 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, 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. We believe that there are
only three national providers in the records and information management
services industry, including Iron Mountain, 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,
healthcare information management and vital records protection services have
higher market concentrations. We have made, and intend to make, acquisitions to
increase our presence in these markets.
Industry Consolidation
Over the past several years, there has been consolidation in the records
and information management services industry. We believe that this trend will
continue because of the industry's capital requirements for growth,
opportunities for large records and information management services providers
to achieve economies of scale and customer demands for more sophisticated
technology-based solutions. In particular, the records and information
management services 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
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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 healthcare, electronic
and vital records needs. Large, national companies are better able to satisfy
these demands than smaller competitors.
Financial Characteristics of Iron Mountain's Business
Our records and information management services business has the following
financial characteristics:
o Recurring Revenues. We derive a majority of our records and information
management services 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 41 consecutive
quarters and have represented approximately 60% of our total records and
information management services revenues in each of the last five years.
Once a customer places paper records in storage with us and until those
records are destroyed or permanently removed, for which we typically
receive a service fee, we receive 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
EBITDA from related service activities and sales of storage materials.
o Historically Non-Cyclical Business. We have not experienced a reduction
of our records and information management services business as a result of
past general economic downturns, although we can give no assurance that
this would be the case in the future. Management believes that the
outsourcing of records and information management services may accelerate
during economic downturns as companies focus on reducing costs through
outsourcing non-core operating functions. In addition, management believes
that companies that have outsourced records and information management
services are less likely during economic downturns to incur the move-out
costs and other expenses associated with switching vendors or moving
records and information management services in-house.
o Inherent Growth from Existing Paper Records Customers. Our 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%. We
believe the consistent growth of our paper storage revenues is the result
of a number of factors, including: (1) the trend toward increased records
retention, (2) customer satisfaction with our services, and (3) 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, we had over
70,000 customer accounts in a variety of industries. We currently provide
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 our
records and information management services 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.
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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 Iron Mountain's vital
records services and data security services, which are described under
"--Description of Iron Mountain's Records and Information Management
Services Business."
(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 Iron Mountain's facilities in South
Brunswick Township, New Jersey. See "--Legal Proceedings."
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o Capital Expenditures Related Primarily to Growth. Our records and
information management services business requires limited annual capital
expenditures in order to maintain our current revenues. These capital
expenditures were $1.1 million in 1996, $1.2 million in 1997 and $1.9
million in 1998. From 1994 to 1998, over 90% of our aggregate capital
expenditures were growth-related investments, primarily in racking
systems, management information systems, new buildings and expansion of
storage capacity in existing facilities. These growth-related capital
expenditures are primarily discretionary and create additional capacity
for increases in revenues and EBITDA.
Growth Strategy
Our domestic objective is to be one of the largest records and information
management services providers in each of our geographic markets and to maintain
our position as the largest national records and information management
services provider. Our international objective is to continue to capitalize on
our expertise in the records and information management services industry and
to make additional acquisitions and investments in international markets. We
seek to expand through:
o increased business with existing customers, including the provision of
new services,
o additions of new customers and
o selective acquisitions in existing and new markets, both domestic and
international.
Growth from Existing Customers
Existing Iron Mountain records and information management services
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, we seek to maintain high levels of
customer retention by providing premium customer service through our
decentralized customer service approach complemented by our local management
staff.
Through our local account management staff, we leverage existing business
relationships with our customers by selling complementary services and
products. Services include records tracking, indexing, customized reporting,
vital records management, records management consulting services, and
additional temporary staffing/outsourcing services in the information
technology, clerical and healthcare sectors.
Additions of New Customers
Our sales force is dedicated to establishing new account relationships and
servicing existing customer accounts and draws on our national marketing
organization and senior management. As a result of recent acquisitions and our
decision to increase our sales force by recruiting additional qualified sales
professionals, from December 31, 1996 through March 1, 1999, we increased the
size of our sales force from 21 to 115 sales professionals. 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
Our acquisition strategy includes both expanding geographically, focusing
primarily on the 75 largest U.S. markets, and increasing our presence and scale
within existing markets through "fold-in" acquisitions. We have a successful
record of acquiring and integrating smaller records and information management
services companies. In order to capitalize on industry consolidation, in
mid-1994 we adopted an active acquisition strategy and implemented changes in
our management, systems and financial infrastructure, to execute this strategy.
From mid-1994 through April 30, 1999, we acquired 66 companies. Our corporate
development staff is engaged in an ongoing review of acquisition candidates.
Management believes that we are well positioned to participate in the further
consolidation of the records and information management services industry.
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We have made, and intend to continue to make, acquisitions to increase our
presence in the data security services and healthcare information management
markets. Of the acquisitions completed from mid-1994 through April 30, 1999, 16
have been records and information management services companies that focused on
data security services and five have been records and information management
services companies that focused on healthcare information management. We have
not acquired any information technology staffing companies other than through
our acquisition of Arcus Group.
We seek to expand our 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. We seek to acquire records and information management services
companies in markets where we believe there is the potential for growth. Within
such markets, we use 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.
We believe that we can use our 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. We believe that our new-market acquisition strategy could
have a number of benefits, including:
o continued growth in revenues and EBITDA and diversification across a
greater number of markets,
o introduction of our storage, labor, transportation and other operating
efficiencies into new markets,
o increased utilization of efficiencies available through our central
administrative and management information functions,
o increased market awareness of Iron Mountain's national scope and presence
and
o increased overall scale, which should broaden the range of and facilitate
our capital-raising activities.
We also intend to continue to make fold-in acquisitions to augment our
operations in existing markets. Our goal in our existing markets is to exploit
economies of scale while maintaining high quality service. Following a
new-market acquisition, we seek to increase our business with the acquired
customer base and to supplement that growth with new customers and,
potentially, with appropriate fold-in acquisitions so that we may benefit from
economies of scale.
We have proven our ability to successfully reduce the cost structure of
our acquired operations and believe we 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. Our goal is to achieve substantially all of
the targeted cost savings within 24 months of an acquisition.
International Growth Strategy
We recently commenced an international expansion by acquiring a
controlling 50.1% interest in Britannia Data Management Limited, which has
significant operations in the United Kingdom. In addition, on May 10, 1999,
Britannia Data Management entered into an agreement to acquire Memogarde, S.A.
and related companies. See "Acquisitions." We intend to continue to make
acquisitions and investments in records and information management services
businesses outside the United States. Europe and Latin America are our primary
areas of focus for our international expansion at this time and we are actively
pursuing opportunities in these areas. We intend to use Britannia Data
Management as our primary vehicle for acquisitions in Europe, as is the case
with our pending acquisition of Memogarde. In order to implement our strategy
of further international expansion, we recently hired a President of our
international division, selected for his significant acquisition and operations
experience in the European records and information management services
business, who will focus on expansion opportunities in the United Kingdom and
Continental Europe.
In many respects our approach to international investments and
acquisitions will be similar to our approach to domestic acquisitions. We will
seek to acquire or invest in records and information management services
companies in countries, and, more specifically, markets within such countries,
where we believe there is the potential for growth. These transactions may take
the form of acquisitions of the entire business, joint
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ventures or acquisitions of less than 100% ownership of businesses, generally
with a long-term goal towards full ownership. In addition to criteria we use to
evaluate domestic acquisition candidates, we 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.
The experience, depth and strength of local management will be
particularly important in our international acquisition strategy. In this
regard, the most significant departure from our domestic acquisition strategy
will be that we may seek to form joint ventures or acquire less than 100%
ownership in businesses, as we did with Britannia Data Management. We believe
this strategy, rather than an outright acquisition, may better position us to
expand the existing business and may reduce the risk associated with entering
new markets. The local partner will benefit from our expertise in the records
and information management services industry and, in certain cases, our
technology, and we will benefit from our local partner's market knowledge,
relationships with customers and presence in the community.
We also intend to make fold-in acquisitions to augment our operations in
international markets. We expect that fold-in acquisitions will be done
directly by us or through the local joint venture, depending on whether our
initial investment was an acquisition or a joint venture. As with domestic
acquisitions, we believe that with appropriate fold-in acquisitions we can
benefit from economies of scale.
For the amount of revenues from external customers and long-lived assets
(other than financial instruments) attributable to our operations in the United
Kingdom for 1998, prior to our acquisition of Britannia Data Management, see
Note 10 of Notes to Iron Mountain's Consolidated Financial Statements contained
herein.
Premium Service Strategy
Organizations selecting a records and information management services
provider consider a number of factors in addition to price. Management believes
that we are a "premium" brand in the marketplace based upon our reputation for
reliability, customer-oriented organization, full service approach, investment
in technology and national operating presence. We seek to exploit our strengths
in each of these areas to maintain customer relationships and to attract new
customers. Management believes that the Arcus Group and Record Masters brand
names which we continue to utilize are similarly viewed as premium brands in
their specific markets.
Reputation for Reliability
We believe that we have a reputation for reliability based on our more
than 48 years of operations, the continuity and depth of our management, our
successful historical growth, the quality and diversity of our customer base,
our technological capabilities, and our size and financial resources.
Customer-Oriented Organization and Locally Responsive Management
We have developed a decentralized, local management structure that brings
significant management experience and stability to local markets and allows us
to respond directly, effectively and flexibly to our customers. We delegate
broad operating authority to vice presidents and to local managers. In pursuing
our acquisition strategy, we seek 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. We believe
that the experience, stability and commitment of our regional and local
management is integral to our ability to provide superior customer service and
to maximize growth potential.
Full Service Approach
We offer a full range of records and information management services. We
provide 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. Our principal services provided to our storage customers
include courier pick-up and delivery, filing, retrieval
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and destruction of records, database management, customized reporting and
disaster recovery support. We also sell storage materials, including cardboard
boxes and magnetic media, and provide consulting, facilities management and
other outsourcing services, including information technology staffing. We
believe that our ability to provide all of these services provides numerous
competitive advantages, including:
o cross marketing opportunities from marketing additional services to
existing customers,
o leverage of our general, administrative, software development and real
estate expenses and
o 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
We have made significant investments in management information systems and
computer technology in order to provide faster and more flexible solutions for
our customers and to enhance the quality and lower the costs of our own
operations. We believe that our technological capabilities, especially our
Safekeeper and MediaLink systems used in our records and information management
services business, are a significant tool in attracting new customers. We plan
to continue to invest in our proprietary technologies in the future. See
"Technology and Development; Management Information Systems."
National Operating Presence
We believe that we are one of only three records and information
management services companies with a national operating presence.
Traditionally, the purchase decision for large multi-site customers has been
made at the local level. Recently, however, we have found that certain large
organizations have sought to obtain operating and economic efficiencies by
outsourcing a significant portion of their records and information management
functions with a single records management company. We seek to use our national
operating presence to compete for such large multi-site customer accounts. In
addition, certain customers prefer to use large, sophisticated records
management companies for the storage of vital records and the support of
disaster recovery programs.
Low-Cost Operating Strategy
We pursue 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. We believe
that we are one of the few records and information management services
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 our cost of sales,
reducing per unit storage costs is a primary strategic goal of our records and
information management services business and our real estate management staff.
We seek to minimize per unit storage costs by:
o designing racking systems and operating space to maximize facility
storage efficiency,
o negotiating favorable facility leases and having facilities built to our
custom specifications and
o leasing larger facilities, which, when filled, are less expensive per
storage unit to operate.
Since December 31, 1994, we have acquired or leased 16 records and
information management services facilities constructed per our 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 our overall average Carton density. As a result of
these practices, average Carton density in our facilities increased
approximately 25% from December 31, 1993 to December 31, 1998. Because
healthcare records are inherently more active, we store 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. We believe
our expertise in designing storage facilities and racking systems will lead to
improved densities and cost reductions in the storage of our healthcare
records.
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Labor and Transportation Efficiency
We have made significant investments in computer technologies for our
service operations, resulting in greater operating and logistics efficiencies.
In addition, by increasing the scale of our operations and customer base in a
local market area, we seek to maximize our courier delivery fleet usage and to
increase delivery and routing efficiencies.
Our incentive structure has also contributed to labor efficiency. Each of
our full-time employees participates in incentive compensation programs based
upon achievement of specific operating targets designed to integrate the
objectives and performance of records and information management services
facility employees and managers. For the year ended December 31, 1998, our
employees earned incentive compensation in an amount equal to approximately 11%
of the base wages paid by Iron Mountain.
General and Administrative and Management Information Systems Efficiencies
Our 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, our
corporate staff is responsible for the design and support of all records and
information management services technology. We believe 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
We pioneered the application of advanced information technology to the
records and information management services industry. Our proprietary
Safekeeper system, which is Year 2000 compliant, provides advanced inventory
control and information access, enabling us to provide faster, higher quality
and more flexible solutions to our customers and to lower the costs of our
operations. Our Safekeeper system exploits bar-code technology to provide
inventory integrity and a comprehensive, standardized approach to tracking,
accessing and retrieving records. Safekeeper offers state-of-the-art records
and information management services 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. We have made significant investments to develop and refine
our 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
us a substantial measure of flexibility and vendor independence and reduces the
risk of technological obsolescence.
During 1998, we 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 records and information management services
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.
Our data security operations utilize our 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 our customer support and operating efficiency in
the following ways:
Acquisition System Integration
Safekeeper has been designed to integrate newly acquired records and
information management services companies and offer improved levels of customer
service and records and information management services capabilities to
customers acquired through acquisitions. The critical components of integrating
acquisition
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systems are the abilities to match the acquired company's carton identifiers,
location identifiers, records descriptive data and billing data. Safekeeper is
designed with flexible, comprehensive capabilities in each of these areas.
Consequently, an acquired company's inventory can be converted to Safekeeper
without having to relabel cartons or reset and relabel inventory locations. The
customers of the acquired company retain their records data and receive similar
billing rate structures. In addition, acquisition customers experience minimal
disruption during integration and, after conversion, gain access to advanced
records and information management services 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 us to maximize the efficient use of storage space at
our 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 our
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
We use 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, we cannot
process billing. We believe that this system-driven quality assurance is a
significant advantage over the "best efforts" approach used by many of our
competitors.
Customer Information Access
Customers can access their records and information management services
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 records and information management services 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 records and information management
services, from file creation to destruction, enabling each customer to
establish schedules for records retention and destruction as dictated by the
customer's specific needs. Safekeeper can flexibly accommodate large or small
amounts of records and information management services data in accordance with
customer requirements. A series of customer-specific features and options
allows us to tailor the records and information management services
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.
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Description of Iron Mountain's Records and Information Management Services
Business
Through our records and information management services business, we
provide 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. Our principal services provided to our records and information
management services customers include courier pick-up and delivery, filing,
retrieval and destruction of records, database management, customized reporting
and disaster recovery support. We also sell storage materials and provide
consulting, outsourcing and other services.
Paper Storage Operations
Storage revenues accounted for approximately 60% of our records and
information management services revenues in each of our 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 when we issue Safekeeper bar-coded labels
to the customer. The customer packs records in cartons and affixes the
bar-coded label to each carton. Customer personnel and the Iron Mountain driver
conduct a physical count of the cartons and the driver signs for the cartons,
which are then transported to the records and information management services
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 our 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
our courier operations on a scheduled basis to secure, climate-controlled
facilities, where they are available to customers 24 hours a day, 365 days a
year, to facilitate data recovery in the event of a disaster. Iron Mountain's
MediaLink software manages this process. We also manage tape library relocation
and support disaster recovery testing and execution.
Healthcare Information Management Services
Healthcare information 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.
Healthcare information 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 healthcare
information 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. Our
charges for providing enhanced security and special climate-controlled
environments for vital records are higher than for typical storage functions.
We provide the same ancillary services for vital records as we provide for our
other storage operations.
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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. We also provide 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, we utilized a fleet of approximately 1,100 owned or leased
delivery vehicles.
Additional Services and Products
We offer 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. We also provide
services for the management of active records programs. We can provide these
services, which generally include document and file processing and storage,
both off-site at our own facilities and by supplying our own personnel to
perform management functions on-site at the customer's premises.
In addition, we provide professional consulting services to large
customers, enabling them to develop and implement comprehensive records
management programs. Our consulting business draws on our experience in records
management to analyze the practices of such companies and assist them in
creating more effective programs of records management. Our consultants work
with these customers to develop policies for document review, analysis and
evaluation and for scheduling of document retention and destruction.
We also sell a full line of specially designed corrugated cardboard, metal
and plastic storage containers and magnetic media products.
Customers
Our customer base is diversified in terms of revenues and industry
concentration. We track 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, we had over 70,000 customer accounts in a variety of industries.
We currently provide 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 our
records and information management services or consolidated revenues for the
year ended December 31, 1998.
Marketing and Sales
Our records and information management services selling organization,
which as of March 1, 1999 included 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.
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Competition
Our records and information management services business competes with two
other national records and information management services companies as well as
a large number of local and regional concerns. We believe that competition for
customers is based on price, reputation for reliability, quality of service and
scope and scale of technology, and believe that we generally compete
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 Iron Mountain. In addition, we face
competition from the internal records and information management services
capability of our current and potential customers. We cannot assure that these
organizations will outsource more of their records and information management
services needs or that they will not bring in-house some or all of the
functions they currently outsource.
We also face competition for acquisition candidates as our industry
consolidates. To accommodate growth, a records and information management
services 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 our records and information management
services 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,
microform, audio/video tape, film, CD-ROM and optical disk. None of these
technologies has replaced paper as the principal means for storing information.
However, we 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 our business.
Information Technology Staffing Services
We acquired Arcus Group, whose principal business was off-site data
security services, in January 1998. As part of this acquisition, we also
acquired Arcus Group's information technology staffing business and we now
provide staffing services to a diverse group of corporate clients. Information
technology staffing services include temporary staffing and permanent
placements for data center operations and management information systems
functions, including supplying data center clerks, tape librarians, systems
operators and software programmers. We believe that information technology
staffing is a high growth segment of the temporary staffing market, complements
our existing services and offers opportunities to leverage our large customer
base. Our information technology professionals, placed with our corporate
clients on either a contract, temporary or permanent basis by our 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. Our
information technology staffing business services Iron Mountain's 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 information technology staffing companies to supplement
their information technology operations. Using outside technical professionals:
o allows a company's management to focus on core business operations,
o affords greater staffing flexibility in information technology
department,
o increases a company's ability to adapt to, and keep pace with, rapidly
changing technologies and
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o avoids the expense of developing and maintaining in-house expertise in
information technology.
Our account managers target corporate clients based upon client size, use
of contract staffing and relationships with account managers of our records and
information management services segment. Our recruiters are responsible for
sourcing, qualifying and matching their candidates to meet a corporate client's
needs. The recruiters then share all resumes received from candidate
professionals so as to optimize the placement process.
Our information technology 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 information technology 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. We believe that our future success in the information technology
staffing industry will depend in part upon our continued ability to attract and
retain highly skilled information technology professionals and managerial,
technical, sales and support personnel. We consider our compensation and
benefits plans, which are offered to all full time information technology
staffing employees, to be market competitive. We believe that we have good
relationships with our information technology staffing employees.
For the amounts of revenues from external customers, EBITDA, total assets
and capital expenditures attributable to each industry segment of Iron Mountain
(records and information management services and information technology
staffing), see Note 10 of Notes to Iron Mountain's Consolidated Financial
Statements contained herein.
Employees
A key feature of our operating strategy is our decentralized management
structure and empowerment of local management operating in local business
environments. We are divided into two operational business units, each of which
has a president in charge of such unit: Records and Information Management
Services and Information Technology 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. We have recently hired a President of our
international division who will focus on expansion opportunities in the United
Kingdom and Continental Europe. Management believes this structure offers
responsive and superior customer service and positions Iron Mountain to sell
ancillary services and products. Our headquarters staff performs a variety of
central administrative and support functions in order to maximize the time and
resources that local personnel can devote to customer service and client
development.
As of March 1, 1999, our records and information management services
business domestically employed over 4,500 full time employees, of whom
approximately 96% were employed at the field level and 4% at our headquarters
in Boston, Massachusetts. Through our international joint venture, Britannia
Data Management, as of March 1, 1999, our records and information management
services business employed over 330 full time employees in the United Kingdom.
Various Teamsters Union locals under four different agreements represent
approximately 4% of our employees. One of these agreements, covering
approximately 16 employees, has expired, and we are 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 our experience with
the union locals, we expect that we will enter into new agreements on
satisfactory terms, though we cannot assure this. In addition, ten employees of
Britannia Data Management are members of a union under an agreement scheduled
to expire in July 1999.
All non-union employees, other than employees of Britannia Data
Management, are eligible to participate in our 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 employees of
Britannia Data Management, 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.
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Management believes that we have good relationships with our employees and
unions. Britannia Data Management employees participate in separate benefit and
incentive-based compensation programs.
Insurance
We carry a comprehensive property insurance policy with insurers that we
believe to be reputable and in amounts that we believe 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. We also
maintain general liability and excess liability insurance covering bodily
injury, property damage and personal injury.
Our standard form of contract sets forth an agreed maximum value for each
carton or other storage unit held by us 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 we believe that in typical
circumstances our liability would be so limited in the event of loss or damage
relating to the value of information stored on media held by us. However, some
of our agreements with certain large volume accounts and some of the contracts
we have assumed in our acquisitions contain no such limits or contain higher
limits or supplemental insurance arrangements. See "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 our 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 these 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.
Certain environmental laws govern the removal, encapsulation or
disturbance of asbestos-containing materials. Such laws may impose liability
for the release of asbestos-containing materials and may enable third parties
to seek recovery from owners or operators of real estate for personal injury
associated with exposure to such substances. We are aware of the presence of
asbestos-containing materials at some of our facilities, but believe that such
materials are in acceptable condition at this time. We believe that future
costs related to any removal and disposal of asbestos-containing materials 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, some of the properties formerly or currently owned or
operated by Iron Mountain were previously used for industrial or other purposes
that involved the use or storage of hazardous substances or petroleum products
or the generation and disposal of hazardous wastes and, in some instances,
included the operation of underground storage tanks. In addition, some of these
properties are adjacent to or near Superfund sites or other contaminated
properties. In connection with our former and current ownership or operation of
certain properties, we may be potentially liable for environmental costs such
as those discussed above.
We have from time to time conducted environmental investigations and
remedial activities at certain of our former and current facilities, but we
have not conducted an in-depth environmental review of all our properties. We
believe that we are in substantial compliance with all applicable material
environmental laws. We have not received any written notice from any
governmental authority or third party asserting, and are not otherwise aware
of, any material noncompliance, liability or claim relating to hazardous
substances or wastes, petroleum products or material environmental laws
applicable to our operations in connection with any of our
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present or former properties. However, we cannot assure you that we will not be
liable in the future for any environmental conditions for which we might be
liable in the future or that future regulatory action, as well as compliance
with future environmental laws, will not require us to incur costs for or at
its properties that could have a material adverse effect on our financial
condition and results of operations.
Properties
As of April 30, 1999, we conducted operations through 242 leased and 57
owned facilities containing a total of over 16.5 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. Many of
our leases contain either a purchase option or a right of first refusal upon
the sale of the property.
The following table sets forth our records and information management
services facilities in the geographic locations indicated below as of April 30,
1999:
<TABLE>
<CAPTION>
Location Number of Facilities
- -------- --------------------
<S> <C>
Alabama ................. 1
Arizona ................. 10
California .............. 54
Colorado ................ 6
Connecticut ............. 3
Delaware ................ 1
Florida ................. 16
Georgia ................. 9
Illinois ................ 11
Indiana ................. 1
Kansas .................. 1
Kentucky ................ 1
Louisiana ............... 4
Maine ................... 1
Maryland ................ 8
Massachusetts ........... 9
Michigan ................ 15
Minnesota ............... 6
Missouri ................ 4
Nebraska ................ 4
Nevada .................. 1
New Hampshire ........... 1
New Jersey .............. 12
New Mexico .............. 3
New York ................ 16
North Carolina .......... 5
Ohio .................... 16
Oklahoma ................ 1
Oregon .................. 9
Pennsylvania ............ 7
Rhode Island ............ 1
Tennessee ............... 2
Texas ................... 17
Utah .................... 2
Virginia ................ 12
Washington .............. 10
Wisconsin ............... 2
United Kingdom .......... 17
--
Total ............... 299
===
</TABLE>
We lease an additional 11 office facilities in connection with our
information technology staffing services in Arizona, California, Colorado,
Florida, Pennsylvania and Washington.
Iron Mountain Incorporated 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 Iron Mountain's Consolidated
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Financial Statements for information regarding our minimum annual rental
commitments. The stock of substantially all of our subsidiaries is pledged as
security to the lenders under our revolving credit facility. In addition,
substantially all of the property and assets of Britannia Data Management and
its subsidiaries and the stock of Britannia Data Management's subsidiaries are
pledged as security for the lenders under Britannia Data Management's credit
facility.
Legal Proceedings
In March 1997, we experienced three fires, all of which authorities have
determined were caused by arson. The fires resulted in damage to one and
destruction of our other records and information management services facility
in South Brunswick Township, New Jersey.
Approximately 61 of our 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 our part. We and our insurers have denied any liability on
our part as to all of these claims. We are presently aware of six lawsuits
filed against us by certain of our 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.
We have denied liability and asserted various affirmative defenses in each
of these cases. We have also asserted counterclaims for indemnification against
certain of the plaintiffs. Discovery is ongoing in all eight cases, and five of
the six cases in New Jersey state court have been consolidated for purposes of
discovery and pre-trial administration. We deny any liability as a result of
the destruction of or damage to customer records as a result of the fires,
which were beyond our control, and intend to vigorously defend ourselves
against these and any other lawsuits that may arise. We are also pursuing
coverage of these claims and proceedings with our various insurers.
We have been paid by our general liability and property insurance carrier
for costs incurred as a result of business interruption and property damage due
to the fires. However, our errors and omissions carrier has made an initial
determination denying coverage as to these claims. On November 19, 1998, we
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 our 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, we 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 we 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 we would have to pay in such event would have a material adverse
effect on our financial condition or results of operations, although there can
be no assurance in this regard.
In addition to the matters discussed above, we are 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 Iron
Mountain, or any of its properties, is subject.
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<PAGE>
MANAGEMENT
Directors, Executive Officers and Certain Other Officers
The directors, executive officers and certain other officers of Iron
Mountain are as follows (all information is as of May 7, 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.
Christophe M. Giecold ..................... 41 President of International Division of Iron Mountain
Records Management, Inc.
George P. Groff ........................... 49 President of Arcus Staffing Resources, Inc.
Richard A. Drutman ........................ 56 Executive Vice President of Arcus Data Security, Inc.
Robert G. Miller .......................... 42 Executive Vice President of Iron Mountain Records
Management, Inc.
Christopher Neefus ........................ 43 Executive Vice President of Iron Mountain Records
Management, Inc.
Kenneth F. Radtke, Jr. .................... 53 Executive Vice President of Iron Mountain Records
Management, Inc.
Robert P. Swift ........................... 57 Executive Vice President of Iron Mountain Records
Management, Inc.
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
Names of Certain Other Officers Age Position
- ------------------------------- -- --------
Eileen Aird ............................... 48 President of Record Masters
Jean A. Bua ............................... 40 Vice President and Corporate Controller
Michael Karp .............................. 34 Vice President, Sales and Marketing
Van M. Latham ............................. 41 Vice President, Human Resources
John P. Lawrence .......................... 47 Vice President and Treasurer
Donald P. Richards ........................ 34 Vice President, Mergers and Acquisitions
Kenneth A. Rubin .......................... 37 Vice President, Business Development
T. Anthony Ryan ........................... 58 Vice President, Real Estate
</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 board of directors 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 our stockholders following their election or until their successors
are elected and qualified.
The executive officers and other officers were elected by the board of
directors on May 28, 1998, other than Mr. Giecold, who was elected on March 30,
1999, and Ms. Aird, who was appointed by our President in
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<PAGE>
April 1998. All executive officers and other officers hold office at the
discretion of the board of directors until the first meeting of the board of
directors 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 board of directors of Iron
Mountain, 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, which owns approximately 8.8% of the
outstanding stock of Iron Mountain, and a trustee of Schooner Capital Trust.
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
Professional Records and Information Services Management. He holds a Master of
Business Administration degree from Harvard Business School.
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 Professional Records and Information Services
Management. 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 Iron Mountain 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.
Christophe M. Giecold is the President of the International Division of
Iron Mountain Records Management, Inc., Iron Mountain's principal records and
information management services subsidiary, 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.
George P. Groff is the President of Arcus Staffing Resources, Inc., a
subsidiary of Iron Mountain conducting information technology 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 which he joined in 1989
that was acquired by Arcus Group in 1996. He holds a Master of Business
Administration degree from Golden Gate University.
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 Iron Mountain in
January 1998 as a result of the completion of the Arcus Group merger. Mr.
Drutman joined Arcus Data Security, Inc. in 1976 and held various positions,
including Senior Vice President and Chief
S-57
<PAGE>
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 Iron Mountain Records
Management, Inc., 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 Iron Mountain Records
Management, Inc., 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 Iron
Mountain. 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 Iron Mountain
Records Management, Inc., a position that he has held since June 1996. Prior to
June 1996, Mr. Radtke was Northeast Regional Vice President and prior to 1995
was Sales Manager, New York Region. Mr. Radtke has worked in the records and
information management 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 Iron Mountain Records
Management, Inc., 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 of
directors in accordance with the terms of the Arcus Group 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, Inc., United
Acquisition Company and Arcus Technology Services, Inc., positions that he had
held since 1995, until the completion of the Arcus Group 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 of
directors in accordance with the terms of the Record Masters merger. He also
serves as President of Keystone Capital, Inc., 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 Record Masters until the
completion 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.
S-58
<PAGE>
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 Iron
Mountain, he had extensive experience in commercial and investment banking, as
well as financial and general management experience at senior levels. He holds
a Master of Business Administration degree from Harvard Business School.
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 of
directors in accordance with the terms of our merger with Safesite Records
Management Corporation. 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.
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 Capital LLC and has served as Chairman and Chief Executive Officer of
Schooner Capital LLC since 1971. He is also President and a Trustee of Schooner
Capital Trust, the sole member of Schooner Capital LLC. Prior to November 1995,
Mr. Ryan served as Chairman of the Iron Mountain board of directors.
Certain Other Officers
Eileen Aird is the President of Record Masters, Iron Mountain's healthcare
information management business, a position that she has held since April 1998.
Prior to joining Iron Mountain, Ms. Aird held numerous positions in the
healthcare field, including President of Life Chem, a national clinical
reference lab, and Vice President and Director of Operations of Hackensack
University Medical Center, a 600-bed regional medical center. Ms. Aird is a
member of the American College of Healthcare Executives. She holds a Master of
Business Administration degree from The Wharton School, University of
Pennsylvania.
Jean A. Bua is Vice President and Corporate Controller of Iron Mountain.
Ms. Bua joined Iron Mountain in such capacity in March 1996. From 1993 to 1996,
Ms. Bua was the Corporate Controller for Duracraft Corp., a consumer products
manufacturer. Prior to that, Ms. Bua was the accounting manager for a high-tech
manufacturer and was a management consultant for Ernst & Young. She holds a
Master of Business Administration degree from the University of Rhode Island.
Ms. Bua is a certified public accountant.
Michael Karp is Vice President, Sales and Marketing of Iron Mountain. Mr.
Karp joined Iron Mountain in June 1997 as a result of the Safesite Records
Management merger. From 1988 until June 1997, he was employed by Safesite in
various positions, including as branch manager, regional manager and director
of national sales. Mr. Karp holds a Bachelors degree in business from Arizona
State University.
Van M. Latham is Vice President of Human Resources of Iron Mountain. Mr.
Latham joined Iron Mountain in 1997. For the preceding ten years he was
employed by PepsiCola and Pizza Hut, most recently as Human Resources Director
of PepsiCola East. He holds a Ph.D. in Industrial and Organizational Psychology
from Wayne State University.
John P. Lawrence is Vice President and Treasurer of Iron Mountain, with
responsibility for acquisition integration, internal audit, risk management and
purchasing and contracting. Mr. Lawrence has been associated with Iron Mountain
since 1988. Prior to 1988, he worked for Hewlett Packard for nine years in
various management positions in finance, control, marketing and manufacturing.
He holds a Master of Business Administration degree from Harvard Business
School.
S-59
<PAGE>
Donald P. Richards is Vice President, Mergers & Acquisitions of Iron
Mountain, a position he has held since December 1997. Prior to joining Iron
Mountain, Mr. Richards practiced corporate law with Bingham Dana LLP from 1992
through 1997. He holds a Juris Doctor degree from Cornell University.
Kenneth A. Rubin is Vice President of Business Development of Iron
Mountain. Mr. Rubin joined Iron Mountain in 1989 and served as Vice President
of Marketing through mid-1997. Mr. Rubin is currently serving as the Managing
Director of Iron Mountain Consulting Services, Inc., a subsidiary of Iron
Mountain that provides records and information consulting services. Prior to
1989, Mr. Rubin worked for Leahy Business Archives (formally Instar Inc.) in
various sales and sales management roles. He holds a Bachelors degree in
political science from Drew University.
T. Anthony Ryan is Vice President of Real Estate of Iron Mountain. Mr.
Ryan manages the real estate of Iron Mountain and is responsible for
identifying and evaluating new facility opportunities and negotiating long-term
leases. He has been involved in real estate development for 22 years. His work
experience includes positions as Director of Development for Gilbane Property,
Vice President of CRJ Investments and, more recently, Vice President and
Partner at the Linpro Company. He holds a Bachelors degree in history from The
George Washington University.
S-60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding
the beneficial ownership of common stock by (a) each stockholder known by us to
be the beneficial owner of more than five percent of the common stock, (b) each
director, (c) the Chief Executive Officer and the four highest paid executive
officers serving in such capacity at December 31, 1998 and (d) all executive
officers and directors of Iron Mountain as a group. Such information is
presented as of May 7, 1999. The table also reflects ownership of common stock
after this offering and the application of the net proceeds from this offering
as described in "Use of Proceeds," without giving effect to the possible
exercise of the over-allotment option granted to the underwriters.
<TABLE>
<CAPTION>
Amount of Beneficial Amount of Beneficial
Ownership Ownership
Before the Offering After the Offering
----------------------- ----------------------
Percent Percent
Name(1) Shares Owned Shares Owned
- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Directors and Executive Officers
C. Richard Reese(2) ..................... 1,690,694 5.5% 1,690,694 4.9%
David S. Wendell(3) ..................... 210,787 * 210,787 *
John F. Kenny, Jr.(4) ................... 131,409 * 131,409 *
Harold E. Ebbighausen(5) ................ 11,407 * 11,407 *
George P. Groff(6) ...................... 20,253 * 20,253 *
Clarke H. Bailey(7) ..................... 55,698 * 55,698 *
Constantin R. Boden(8) .................. 32,547 * 32,547 *
Kent P. Dauten(9) ....................... 1,410,454 4.5% 1,410,454 4.1%
Eugene B. Doggett(10) ................... 113,727 * 113,727 *
B. Thomas Golisano(11) .................. 1,521,867 4.9% 1,521,867 4.4%
Arthur D. Little(12) .................... 40,624 * 40,624 *
Vincent J. Ryan(13) ..................... 5,041,852 16.3% 5,041,852 14.6%
All directors and executive officers as a
group (18 persons)(14) ................ 9,571,210 30.4% 9,571,210 27.3%
Five Percent Stockholders
Baron Capital Group, Inc./Ronald
Baron(15) ............................. 1,675,750 5.4% 1,675,750 4.9%
Schooner Capital LLC(16) ................ 2,736,076 8.8% 2,736,076 7.9%
</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
Capital LLC, as a result of a 1988 deferred compensation arrangement, as
amended, between Schooner Capital and Mr. Reese relating to Mr. Reese's
former services as President of the predecessor corporation of Schooner
Capital. Pursuant to such arrangement, upon the earlier to occur of (a)
Schooner Capital LLC's sale or exchange of substantially all of the shares
of our common stock held by Schooner Capital LLC or (b) the cessation of
Mr. Reese's employment with Iron Mountain, Schooner Capital LLC 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.
(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 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 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.
(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.
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<PAGE>
(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.
(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 Capital LLC, as to which Mr. Ryan has sole voting power and
investment power as the Chairman of the Board of Schooner Capital LLC and
principal stockholder of Schooner Capital Trust, the sole member of
Schooner Capital LLC. See footnote (16) regarding shares held by Schooner
Capital LLC.
(14) Includes 529,053 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. and 25,750 shares held by
Baron Capital Management, Inc., both of which are subsidiaries of Baron
Capital Group, Inc., in which Ronald Baron owns a controlling interest.
Baron Capital Group, Inc. 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
Baron Capital Group, Inc. and Ronald Baron. BAMCO, Inc. and Baron Capital
Management, Inc. disclaim beneficial ownership of shares held by their
investment advisory clients to the extent such shares are held by persons
other than BAMCO, Inc., Baron Capital Management, Inc. and their
affiliates. The foregoing information is based on a Schedule 13G filed
with the SEC on January 22, 1999 reporting beneficial ownership as of
December 31, 1998.
(16) Mr. Ryan is the Chairman of the Board of Schooner Capital LLC and the
principal shareholder, President and a Trustee of Schooner Capital Trust,
the sole member of Schooner Capital LLC, and, accordingly, has sole voting
and investment power with respect to the shares of common stock held by
Schooner Capital LLC. Includes 874,249 shares of common stock as to which
Schooner Capital LLC shares beneficial ownership with Mr. Reese as
described in footnote (2). Schooner Capital LLC has agreed to vote the
shares of common stock subject to such arrangements at the direction of
Mr. Reese.
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<PAGE>
UNDERWRITING
The underwriters named below have severally agreed, subject to the terms
and conditions of the underwriting agreement, to purchase from us the number of
shares of common stock set forth opposite their respective names below. The
underwriting agreement provides that the obligations of the underwriters are
subject to conditions precedent, and that the underwriters are committed to
purchase all of the common stock if any are purchased.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
- ----------- ------------
<S> <C>
Bear, Stearns & Co. Inc. ..................... 2,760,000
William Blair & Company L.L.C. ............... 1,150,000
Prudential Securities Incorporated ........... 460,000
Wasserstein Perella Securities, Inc. ......... 230,000
Allen & Company Incorporated ................ 100,000
BancBoston Robertson Stephens Inc. ........... 100,000
CJS Securities, Inc. ......................... 100,000
Jefferies & Company, Inc. .................... 100,000
---------
Total ...................................... 5,000,000
=========
</TABLE>
The underwriters have advised us that they propose to offer our common
stock to the public at the public offering price set forth on the cover page of
this Prospectus Supplement and to certain dealers at that price less a
concession not in excess of $0.80 per share. The underwriters may allow, and
such dealers may reallow, a discount not in excess of $0.10 per share on sales
to certain other dealers. After the initial offering to the public, the public
offering price, concession and discount may be changed. The underwriters have
agreed to reimburse us for certain expenses related to the offering.
We have granted to the underwriters an option, exercisable for 30 days
after the date of this Prospectus Supplement, to purchase up to 750,000
additional shares of common stock to cover over-allotments, if any, at the
public offering price per share set forth on the cover page of this Prospectus
Supplement, less the underwriting discount. If the underwriters exercise this
option, each of the underwriters will have a firm commitment, subject to
customary conditions, to purchase approximately the same percentage of the
total overallotment option shares proportionate to each underwriter's initial
commitment as indicated in the foregoing table.
In the underwriting agreement, we have agreed to indemnify the several
underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933 or to contribute to payments the underwriters may be
required to make in respect thereof.
Iron Mountain, its directors, executive officers, certain other officers,
Schooner Capital LLC and the former stockholders of Data Base have agreed,
subject to certain exceptions, not to offer, sell, contract to sell, swap, make
any short sale, establish an open "put equivalent position" within the meaning
of Rule 16a-1(h) under the Securities Exchange Act of 1934, grant any option to
purchase or otherwise dispose, or publicly announce his, her or its intention
to do any of the foregoing, of any shares of common stock, or any securities
convertible into, or exercisable or exchangeable for, any shares of common
stock for a period of 90 days after the date of this Prospectus Supplement
without the prior written consent of Bear, Stearns & Co. Inc.
In order to facilitate this offering, Bear, Stearns & Co. Inc. and other
persons participating in the offering may engage in transactions that
stabilize, maintain or otherwise affect the price of our common stock during
and after the offering. Specifically, the underwriters may over-allot or
otherwise create a short position in our common stock for their own account by
selling more shares of common stock than we have sold to them. The underwriters
may elect to cover any such short position by purchasing shares of common stock
in the open market or by exercising the over-allotment option granted to the
underwriters. In addition, Bear, Stearns & Co. Inc. and other persons may
stabilize or maintain the price of our common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in the offering are reclaimed if shares of common
stock previously distributed in the offering are repurchased in connection with
stabilizing transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price of our common
S-63
<PAGE>
stock at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of our common stock
to the extent that it discourages resales of the common stock. We make no
representation as to the magnitude or effect of any such stabilization or other
transactions. The foregoing transactions may be effected on the New York Stock
Exchange. Such transactions, if commenced, may be discontinued at any time.
From time to time, some of the underwriters or their affiliates have
provided, and may continue to provide in the future, investment banking,
general financing and banking services to us and our affiliates, for which they
have received, and expect to receive, customary compensation. Bear, Stearns &
Co. Inc., William Blair & Company, L.L.C., Prudential Securities Incorporated
and Wasserstein Perella Securities, Inc. acted as underwriters in connection
with our April 1998 equity offering and received customary compensation for
their services. Bear, Stearns & Co. Inc. acted as our financial advisor in
connection with our acquisition of Arcus Group and received a customary fee for
its services. William Blair & Company, L.L.C. acted as our financial advisor in
connection with our acquisitions of Safesite Records Management Corporation and
Britannia Data Management and received a customary fee for its services.
S-64
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by this Prospectus
Supplement will be passed upon for us by Sullivan & Worcester LLP, Boston,
Massachusetts and for the underwriters by Latham & Watkins, New York, New York.
Jas. Murray Howe, Secretary of Iron Mountain, is of counsel to Sullivan &
Worcester LLP and beneficially owns 20,000 shares of common stock.
EXPERTS
The following financial statements have been audited by the following
independent public accountants. The following amends and supersedes in its
entirety the information under the caption "Experts" in the accompanying
Prospectus:
The consolidated financial statements and schedule of Iron Mountain
Incorporated and its subsidiaries for the three years ended December 31, 1998,
included in Iron Mountain's Annual Report on Form 10-K dated March 31, 1999,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The financial statements of Records Retention/FileSafe, L.P. for the two
years ended December 31, 1996, included in Iron Mountain's Current Report on
Form 8-K dated November 25, 1997, have been audited by Abbott Stringham &
Lynch, independent public accountants, as indicated in their report with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated financial statements of HIMSCORP, Inc. and Subsidiaries
for the period February 1, 1995 to December 31, 1995 and for the year ended
December 31, 1996, appearing in Iron Mountain's Current Reports on Form 8-K
dated October 30, 1997 and November 25, 1997, have been audited by Ernst &
Young LLP, independent auditors, as indicated in their report thereon included
therein, and are incorporated by reference herein in reliance upon such report
given upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Arcus Technology Services, Inc.
for each of the two years in the period ended December 31, 1997 and the
five-month period ended December 31, 1995 and the consolidated financial
statements of Arcus, Inc. (Predecessor Company) for the seven-month period
ended July 31, 1995, appearing in Iron Mountain's Current Report on Form 8-K
dated March 9, 1998, have been audited by Ernst & Young LLP, independent
auditors, as indicated in their report thereon and are incorporated by
reference herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of Arcus Group, Inc. for each of the
two years in the period ended December 31, 1996, appearing in Iron Mountain's
Current Reports on Form 8-K dated October 30, 1997 and November 25, 1997, have
been audited by Ernst & Young LLP, independent auditors, as indicated in their
reports thereon included therein, and are incorporated by reference herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Midwest Records Management for the year ended
December 31, 1997, included in Iron Mountain's Current Report on Form 8-K dated
September 18, 1998, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statements of Sloan Vaults, Inc. and Affiliate for the year
ended December 31, 1997, included in Iron Mountain's Current Report on Form 8-K
dated September 18, 1998, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statements of InterMation, Inc. for the year ended December
31, 1997, included in Iron Mountain's Current Report on Form 8-K dated
September 18, 1998, have been audited by Arthur Andersen
S-65
<PAGE>
LLP, independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said report.
The financial statements of National Underground Storage, Inc. for the two
years ended December 31, 1997, included in Iron Mountain's Current Report on
Form 8-K/A dated August 7, 1998, have been audited by Carbis Walker &
Associates, LLP, independent public accountants, as indicated in their report
with respect thereto, and are incorporated by reference herein in reliance upon
the authority of said firm as experts in giving said report.
The financial statements of Britannia Data Management Limited for the two
years ended October 31, 1998, included in Iron Mountain's Current Report on
Form 8-K/A dated March 22, 1999, have been audited by Robson Rhodes, chartered
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The financial statements of Data Base, Inc. and Affiliate for the three
years ended December 31, 1998, included in Iron Mountain's Current Report on
Form 8-K dated April 16, 1999, have been audited by Moss Adams LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus Supplement, and information that we
subsequently file with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below filed with
the SEC (File No. 0-27584) under the Exchange Act.
o Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
o Current Reports on Form 8-K dated January 19, 1999, March 3, 1999, April
16, 1999, April 22, 1999, May 7, 1999 and May 11, 1999,
o Current Report on Form 8-K/A dated March 22, 1999 and
o Registration Statement on Form 8-A dated April 16, 1999.
We also incorporate by reference each of the following documents that we
file with the SEC after the date of this Prospectus Supplement but before the
end of this offering:
o Reports filed under Sections 13(a) and (c) of the Exchange Act,
o Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders meeting, and
o Reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any of the filings, excluding exhibits unless
the exhibits are specifically incorporated by reference into this Prospectus
Supplement, at no cost, by writing or telephoning us at the following address:
John F. Kenny, Jr.
Executive Vice President and
Chief Financial Officer
Iron Mountain Incorporated
745 Atlantic Avenue
Boston, Massachusetts 02111
(617) 535-4766
To obtain timely delivery, you must request the information by no later
than five business days before you make your investment decision.
S-66
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act and,
accordingly, file annual, quarterly, and current reports, proxy statements and
other information with the SEC. You may read and copy material filed by us with
the SEC at the Public Reference Section of the SEC located at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at regional
public reference facilities maintained by the SEC located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of these materials
can be obtained from the Public Reference Section of the SEC at prescribed
rates. Please call the SEC at 1-800-SEC-0330 for further information on the
Public Reference Section. You may access our electronic filings on the SEC's
internet site, http://www.sec.gov, which contains reports, proxy and
information statements and other information regarding issuers, including Iron
Mountain, that file electronically with the SEC.
S-67
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
Page
----
<S> <C>
Financial Statements of Iron Mountain Incorporated:
Annual Consolidated Financial Statements ......... F-2
Financial Statements of Completed Acquisitions:
Data Base, Inc. and Affiliate .................... F-24
Britannia Data Management Limited ................ F-40
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Iron Mountain Incorporated:
We have audited the accompanying consolidated balance sheets of Iron
Mountain Incorporated (a Delaware corporation) and its subsidiaries as of
December 31, 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.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 19, 1999
F-2
<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.
F-3
<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.
F-4
<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.
F-5
<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.
F-6
<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.
F-7
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies (continued)
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:
<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
F-8
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies (continued)
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.
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.
F-9
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Summary of Significant Accounting Policies (continued)
Storage and service revenues are recognized in the month the respective
service is provided. Storage material sales are recognized when shipped to the
customer. Amounts related to future storage for customers where storage fees
are billed in advance are accounted for as deferred income and amortized over
the applicable period.
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.
F-10
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. Debt
Long-term debt consists of the following:
<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, 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
F-11
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. Debt (continued)
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:
<TABLE>
<CAPTION>
Year Amount
- ------------------------------------------------------------ -----------
<S> <C>
1999 ..................................................... $ 1,731
2000 ..................................................... 807
2001 ..................................................... 1,661
2002 ..................................................... 35,899
2003 ..................................................... 419
Thereafter ............................................... 415,661
--------
$456,178
========
</TABLE>
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, 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
F-12
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. Debt (continued)
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>
F-13
<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:
F-14
<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
common stock received, as an incentive, an amount of stock equivalent to 110%
of the director's
F-15
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Capital Stock, Redeemable Put Warrant and Stock Options (continued)
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>
F-16
<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 Weighted Weighted
Average 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
======== ======== ========
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>
F-17
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. Income (Loss) Per Common Share--Basic and Diluted (continued)
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.
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
F-18
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. Income Taxes (continued)
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>
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,
-------------------------------------
1996 1997 1998
---------- ------------ ---------
<S> <C> <C> <C>
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
F-19
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. Segment Information (continued)
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").
<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>
F-20
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. Segment Information (continued)
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.
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.
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.
F-21
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. Commitments and Contingencies (continued)
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.
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>
F-22
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. Noncash Transactions (continued)
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.
F-23
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Members
of Data Base, Inc. and Affiliate:
We have audited the accompanying combined balance sheets of Data Base, Inc. and
Affiliate at December 31, 1997 and 1998, and the related combined statements of
operations, stockholders' and members' 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 companies' 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 combined financial position of Data Base, Inc. and
Affiliate at December 31, 1997 and 1998, and the results of their combined
operations and cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Moss Adams LLP
Seattle, Washington
April 8, 1999
F-24
<PAGE>
DATA BASE, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................................... $ 116,665 $ 747,812
Restricted cash .................................................... 700,000 --
Accounts receivable (less allowances of $55,500 and $55,837
as of 1997 and 1998, respectively) ................................ 4,066,999 3,797,336
Notes and other receivables from related parties ................... 1,006,978 155,283
Inventory .......................................................... 59,423 72,424
Prepaid expenses ................................................... 81,812 103,490
----------- ------------
Total Current Assets ............................................ 6,031,877 4,876,345
----------- ------------
Net Property, Plant and Equipment ................................... 19,869,255 21,933,779
----------- ------------
Other Assets:
Deposits and other assets .......................................... 304,353 299,989
Intangible assets, net ............................................. 2,345,418 4,594,961
----------- ------------
Total Other Assets .............................................. 2,649,771 4,894,950
----------- ------------
Total Assets .................................................... $28,550,903 $ 31,705,074
=========== ============
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term obligations ........................ $ 3,348,476 $ 1,545,545
Notes payable to related parties ................................... -- 707,938
Demand notes and other current obligations ......................... 861,280 635,739
Accounts payable ................................................... 1,442,372 549,844
Construction costs payable ......................................... -- 1,185,470
Accrued compensation ............................................... 1,199,406 1,058,643
Other accrued liabilities .......................................... 269,852 113,258
Deferred revenue ................................................... 294,446 96,161
----------- ------------
Total Current Liabilities ....................................... 7,415,832 5,892,598
----------- ------------
Long-Term Obligations:
Notes and other payables, less current portion ..................... 16,272,754 19,227,177
Notes payable to related parties, less current portion ............. 1,325,000 --
----------- ------------
Total Long-term Obligations ..................................... 17,597,754 19,227,177
----------- ------------
Commitments and Contingencies (Notes 13 and 17)
Stockholders' and Members' Equity:
Common stock ....................................................... 8,550 8,550
Contributed capital ................................................ 1,520,657 1,520,657
Members' equity .................................................... (445,863) (1,150,439)
Retained earnings .................................................. 2,453,973 6,206,531
----------- ------------
Total Stockholders' and Members' Equity ......................... 3,537,317 6,585,299
----------- ------------
Total Liabilities and Stockholders' and Members' Equity ......... $28,550,903 $ 31,705,074
=========== ============
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
F-25
<PAGE>
DATA BASE, INC. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Storage ......................................................... $19,059,667 $21,746,450 $24,907,140
Service and storage material sales .............................. 1,729,161 3,195,462 1,682,146
----------- ----------- -----------
Total Revenues ................................................ 20,788,828 24,941,912 26,589,286
----------- ----------- -----------
Operating Expenses:
Cost of sales (excluding depreciation and amortization) ......... 7,988,071 11,780,052 11,336,967
Selling, general and administrative ............................. 8,459,489 8,017,124 6,554,557
Depreciation and amortization ................................... 1,951,693 3,732,601 3,705,727
----------- ----------- -----------
Total Operating Expenses ...................................... 18,399,253 23,529,777 21,597,251
----------- ----------- -----------
Operating Income ................................................. 2,389,575 1,412,135 4,992,035
Interest Expense, Net ............................................ 643,450 1,598,404 1,775,911
----------- ----------- -----------
Net Income (Loss) ................................................ $ 1,746,125 $ (186,269) $ 3,216,124
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
F-26
<PAGE>
DATA BASE, INC. AND AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' AND MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
Total
Stockholders'
Common Contributed Members' Retained and Members'
Stock Capital Equity Earnings Equity
------------ ------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ............... $ 84,300 $1,174,907 $ -- $ 893,461 $ 2,152,668
Contributions from members .............. -- -- 334,876 -- 334,876
Distributions to members ................ -- -- (608,960) -- (608,960)
Distributions to stockholders ........... -- -- -- (1,043,292) (1,043,292)
Net income (loss) ....................... -- -- (361,590) 2,107,715 1,746,125
--------- ---------- ------------ ------------ ------------
Balance, December 31, 1996 ............... 84,300 1,174,907 (635,674) 1,957,884 2,581,417
Reclassification of contributed
capital resulting from
reorganization ......................... (75,750) 75,750 -- -- --
Contributions from members .............. -- -- 1,087,068 -- 1,087,068
Contributions from stockholders ......... -- 270,000 -- -- 270,000
Distributions to stockholders ........... -- -- -- (214,899) (214,899)
Net income (loss) ....................... -- -- (897,257) 710,988 (186,269)
--------- ---------- ------------ ------------ ------------
Balance, December 31, 1997 ............... 8,550 1,520,657 (445,863) 2,453,973 3,537,317
Contributions from members .............. -- -- 304,615 -- 304,615
Distributions to stockholders ........... -- -- -- (472,757) (472,757)
Net income (loss) ....................... -- -- (1,009,191) 4,225,315 3,216,124
--------- ---------- ------------ ------------ ------------
Balance, December 31, 1998 ............... $ 8,550 $1,520,657 $ (1,150,439) $ 6,206,531 $ 6,585,299
========= ========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
F-27
<PAGE>
DATA BASE, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
--------------- ---------------- ---------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) .............................................. $ 1,746,125 $ (186,269) $ 3,216,124
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization ................................. 1,951,693 3,732,601 3,705,727
Changes in Assets and Liabilities (exclusive of acquisitions)
Accounts receivable ........................................... (439,563) (1,881,370) 444,228
Inventory ..................................................... (65,275) 8,477 (13,001)
Prepaid expenses .............................................. 36,228 1,104 (14,567)
Deposits and other assets ..................................... 68,722 (100,729) (11,005)
Accounts payable .............................................. (69,193) 932,210 (961,962)
Construction costs payable .................................... -- -- 1,185,470
Accrued liabilities ........................................... 312,665 368,799 (297,355)
Deferred revenue .............................................. 40,307 (74,548) (198,284)
------------ ------------- ------------
Cash Flows Provided by Operating Activities ................. 3,581,709 2,800,275 7,055,375
------------ ------------- ------------
Cash Flows from Investing Activities
Restricted cash ............................................... -- (700,000) 700,000
Acquisition of property, plant and equipment .................. (3,929,254) (7,813,404) (5,378,980)
Acquisition of File Protek, Inc. .............................. -- -- (1,960,000)
Acquisition of First Safe Deposit Corp. ....................... -- (2,169,747) --
Acquisition of Fortress for Valuables ......................... -- (2,661,117) --
Acquisition of United Leasing Corporation ..................... -- (54,602) --
Proceeds from sale of property, plant and equipment ........... 8,375 -- 76,150
Notes and other receivables from related parties, net ......... 35,271 (899,965) 851,696
------------ ------------- ------------
Cash Flows Used in Investing Activities ..................... (3,885,608) (14,298,835) (5,711,134)
------------ ------------- ------------
Cash Flows from Financing Activities
Net borrowing (repayment) on line of credit ................... 1,250,000 (750,000) (500,000)
Proceeds from current and long-term obligations ............... 4,999,899 14,331,280 4,150,000
Payments on current and long-term obligations ................. (2,017,321) (10,704,412) (4,089,403)
Payment for early retirement of capital lease ................. -- -- (105,549)
Member contributions .......................................... 1,000 1,000,000 304,615
Member distributions .......................................... (608,960) -- --
Stockholder contributions ..................................... -- 270,000 --
Stockholder distributions ..................................... (1,043,292) (214,899) (472,757)
------------ ------------- ------------
Cash Flows Provided by (Used in) Financing
Activities ................................................. 2,581,326 3,931,969 (713,094)
------------ ------------- ------------
Increase (decrease) in Cash and Cash Equivalents ................ 2,277,427 (7,566,591) 631,147
Cash and Cash Equivalents, Beginning of Year .................... 5,405,829 7,683,256 116,665
------------ ------------- ------------
Cash and Cash Equivalents, End of Year .......................... $ 7,683,256 $ 116,665 $ 747,812
============ ============= ============
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
F-28
<PAGE>
DATA BASE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. Summary of Accounting Policies
Basis of Presentation
The accompanying combined financial statements include the accounts of
Data Base, Inc. (DBI) and Affiliate (collectively, the Companies). The
affiliate is Data Base Real Estate Holdings, LLC (DBRHC), whose majority member
is also the majority stockholder of DBI. All material intercompany accounts and
transactions have been eliminated in combination.
For financial reporting purposes, all land and buildings owned (less
accumulated depreciation) by the majority member, net of related outstanding
mortgage notes payable, are presented as if contributed to DBRHC on January 1,
1996. Additionally, all revenues and expenses of DBRHC are accounted for in the
accompanying combined statement of operations.
Nature of the Business and Organization
DBI is a full service provider of offsite data recovery management
services including Data Protection Services (DPS), Disaster Recovery Services
(DRS), Tape Move Services (TMS), Electronic Vaulting Services (EVS), Data
Escrow Services (ESC) and other auxiliary services required to fully support
the core offerings. DBI provides these services in twelve locations throughout
the United States to Fortune 500 companies, large financial institutions and
numerous legal, health care, accounting, insurance, entertainment and
governmental organizations.
The Data Base Combined Group, which consisted of seven separate companies
under common ownership at December 31, 1996, merged into one company, DBI,
effective January 1, 1997. This transaction resulted in a decrease in common
stock from $84,300 to $8,550 and an increase in contributed capital of $75,750
at January 1, 1997. The Combined Group included the accounts of Data Base,
Inc., Data Base Co., Inc., Data Base of Virginia, Inc., Data Base of Northern
Virginia, Inc., Data Base of Chicago, Inc., Data Base of Ohio, Inc., and Data
Base of Pennsylvania, LLC.
DBRHC, a Washington limited liability company, was formed in October 1996
to hold land and buildings that are rented solely to DBI under long-term rental
agreements. DBRHC authorized 10,000 member units, which were issued for $100 in
total.
Members' equity in the accompanying combined balance sheets includes
DBRHC's results of operations net of eliminations, and contributions and
distributions. All other equity accounts include the activity for DBI.
Allocation of Net Profits and Losses of DBRHC
Net profits, net losses and cash distributions, as defined in the Limited
Liability Company Agreement (the Agreement), are to be allocated to the members
in accordance with their respective percentage interests. The net loss
allocated to each member is not to exceed the maximum amount of the net loss
that can be allocated without causing a member to have a deficit capital
account at the end of the fiscal year.
Special allocations, corrective allocations and other allocations, all as
defined in the Agreement, are also allocated to members in accordance with the
Agreement.
Cash Equivalents
For purposes of the statements of cash flows, the Companies consider all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
F-29
<PAGE>
DATA BASE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1998
1. Summary of Accounting Policies (continued)
Restricted Cash
At December 31, 1997, a $700,000 certificate of deposit was pledged as
collateral on outstanding notes payable related to buildings and land owned by
DBRHC.
Inventory
Inventories, which consist of disaster recovery carts held for resale, are
stated at the lower of cost, on a first-in, first-out basis, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Companies provide
for depreciation on property, plant and equipment on a straight-line basis over
the estimated useful lives of such assets. The following is a listing of asset
types and their respective estimated useful lives in years.
<TABLE>
<S> <C>
Buildings .............................. 15-40
Leasehold improvements ................. 10
Equipment and racking .................. 5-7
Vehicles ............................... 5
Computer hardware and software ......... 5
Office furniture and fixtures .......... 7
</TABLE>
Maintenance and repairs are charged to operations as incurred. When
equipment is sold or otherwise disposed of, the asset and accumulated
depreciation are removed from the accounts and the resulting gain or loss is
included in the respective statement of operations.
Intangible Assets
Goodwill reflects the cost in excess of the 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, which is estimated to be twenty-five years. Amortization on
non-competition agreements is calculated using the straight-line method over
the five-year life of the agreements.
Impairment of Long-Lived Assets
The Companies assess the recoverability of goodwill, as well as other long
lived assets based upon expectations of future undiscounted cash flows in
accordance with the Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of."
Software Costs
DBI develops software for internal use. The costs associated with the
development have been capitalized in accordance with each phase of development.
Upon substantial completion of each phase, capitalization ceases and the asset
is placed in service. The related costs are then amortized on a straight-line
basis over the estimated useful life of five years. In March 1998, the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Management believes that the effect of applying the new
statement is not material to the results of operations or financial position.
F-30
<PAGE>
DATA BASE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1998
1. Summary of Accounting Policies (continued)
DBI also develops software for sale to external customers and has
capitalized a portion of these costs in accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software To Be Sold, Leased or Otherwise
Marketed." The related costs are then amortized on a straight-line basis over
the estimated useful life of five years. The company performs an annual review
of the internally developed software assets to determine the appropriate amount
to record as amortization expense.
Revenue Recognition
Revenues for DBI consist of storage revenues and service and storage
material sales revenues. Storage revenues consist of periodic charges related
to the storage of materials on a per unit 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. 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 for customers where storage fees
are billed in advance are accounted for as deferred revenue and amortized over
the applicable period. Advance payments cover periods ranging from four to
twelve months in duration. Most customers are billed in arrears.
Federal Income Tax
DBI has elected to be taxed as a Small Business Corporation pursuant to
subchapter S of the Internal Revenue Code. Under this election, DBI's
stockholders, rather than the corporation, are liable for federal and state
income taxes. Accordingly, there is no provision for income taxes in the
accompanying combined statements of operations.
DBRHC is a limited liability company and is treated as a partnership under
the Internal Revenue Code. Accordingly, the members of DBRHC are allocated
their proportionate share of the DBRHC's federal and state taxable income or
loss and there is no provision for income taxes in the accompanying combined
statements of operations.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates used in preparing these statements include estimating the
useful lives of assets and intangibles that have a direct effect on net income.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1998
presentation. These changes had no impact on previously reported results of
operations or stockholders' and members' equity.
F-31
<PAGE>
DATA BASE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1998
2. Acquisitions
File Protek, Inc. (Portland, Oregon)
DBI purchased certain assets and assumed certain liabilities of this
company on December 31, 1998 for $3,077,187. The transaction was funded
utilizing $1,960,000 of available cash, $750,000 in notes payable to the seller
and $250,000 of additional short-term seller financing. Additionally, a working
capital adjustment of $117,187 is payable to the seller at December 31, 1998,
and is included in demand notes and other current obligations in the
accompanying combined balance sheet. The allocation of the purchase price is
detailed below:
<TABLE>
<S> <C>
Working capital .................... $ 117,187
Tangible personal property ......... 500,000
Non-competition agreements ......... 100,000
Goodwill ........................... 2,360,000
----------
$3,077,187
==========
</TABLE>
Concurrent with the purchase, DBI assumed an operating lease agreement on
a data protection facility. The data protection facility is leased from a third
party and the lease is in effect through September 30, 2000, requiring monthly
rental payments of $6,263.
First Safe Deposit Corp. (Raleigh, North Carolina)
DBI purchased certain assets of this company on January 31, 1997 for
$3,169,747. The acquisition included a media storage facility and certain
assets of a paper storage business. The transaction was funded utilizing
$336,385 of available cash, $1,000,000 in a note payable to the seller and
$1,833,362 of additional bank financing. The allocation of the purchase price
is detailed below:
<TABLE>
<S> <C>
Land ............................... $ 75,000
Building ........................... 608,362
Purchased working capital .......... 161,385
Tangible personal property ......... 1,050,000
Non-competition agreements ......... 100,000
Goodwill ........................... 1,175,000
----------
$3,169,747
==========
</TABLE>
Concurrent with the purchase, DBI entered into an operating lease
agreement for the paper storage facility land and building, which requires
average annual rents of approximately $138,000 over a five-year term.
Fortress for Valuables (Milwaukee, Wisconsin)
DBI purchased certain assets of this company on February 28, 1997 for
$2,661,117. The transaction was funded utilizing $111,117 of available cash and
$2,550,000 of additional bank financing. The allocation of the purchase price
is detailed below:
<TABLE>
<S> <C>
Land ............................... $ 325,000
Building ........................... 675,000
Tangible personal property ......... 1,076,627
Non-competition agreements ......... 100,000
Goodwill ........................... 484,490
----------
$2,661,117
==========
</TABLE>
F-32
<PAGE>
DATA BASE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1998
2. Acquisitions (continued)
Concurrent with the purchase, DBI assumed a capital lease on a related
facility, the Total Corporate Recovery Center (TCRC). DBI recorded the building
asset of $747,316 with $19,770 of accumulated amortization at December 31,
1997. Total liabilities assumed with the lease were $469,642.
United Leasing Corporation (Richmond, Virginia)
DBI purchased the assets of this company on May 30, 1997 for $54,602. The
transaction was funded utilizing available cash and the entire purchase price
was allocated to goodwill. Liabilities assumed in this transactions consisted
of deferred revenue only.
The business combinations discussed above have been accounted for under
the purchase method. Accordingly, assets and liabilities have been recorded at
their fair value at acquisition date. Operating results of the acquired
companies are included in the Companies' combined statements of operations from
the respective acquisition date.
3. Notes and Other Receivables from Related Parties
Notes and other receivables from related parties consist of the following
at December 31:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Data Base Integrated Services Corporation ......... $ 118,795 $125,327
Stockholder ....................................... 850,000 --
Employee loans .................................... 38,183 29,956
---------- --------
$1,006,978 $155,283
========== ========
</TABLE>
DBI has a receivable due from Data Base Integrated Services Corporation
(DBISC), an affiliate through common ownership, for services paid by DBI on
behalf of DBISC. The outstanding balance is unsecured, due on demand and
subject to monthly interest payments based on a 9% annual rate.
DBI had a receivable due from one of its stockholders totaling $850,000 at
December 31, 1997. The note was unsecured, due on demand and subject to monthly
interest payments based on a 9% annual rate. The note was repaid during 1998.
The remaining balance represents computer loans due from employees,
resulting from DBI's employee computer purchase program.
4. Intangible Assets
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Non-competition agreements ......... $ 525,000 $ 375,000
Goodwill ........................... 2,941,934 4,546,778
------------ ----------
3,466,934 4,921,778
Accumulated amortization ........... (1,121,516) (326,817)
------------ ----------
$ 2,345,418 $4,594,961
============ ==========
</TABLE>
When intangible assets are fully amortized, the asset and accumulated
amortization are removed from the accounts.
Total amortization of intangibles charged to expense was $203,960,
$281,824 and $230,766 for the years ended December 31, 1996, 1997 and 1998,
respectively.
F-33
<PAGE>
DATA BASE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1998
5. Property, Plant and Equipment
Property, plant and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Buildings and land ................................ $ 10,878,204 $ 11,199,414
Leasehold improvements ............................ 2,657,829 2,893,213
Equipment and racking ............................. 8,139,979 6,797,192
Vehicles .......................................... 2,726,737 2,670,975
Computer hardware and software .................... 5,206,468 5,992,851
Office furniture and fixtures ..................... 1,244,311 1,022,239
Construction in progress .......................... 7,197 1,198,644
------------- ------------
30,860,725 31,774,528
Accumulated depreciation and amortization ......... (10,991,470) (9,840,749)
------------- ------------
$ 19,869,255 $ 21,933,779
============= ============
</TABLE>
DBI expended approximately $1,756,000, $2,780,000 and $1,130,500 during
1996, 1997 and 1998, respectively, on the internal development of two software
applications.
One of the applications, SecureBase(SM), tracks the operational activity
associated with off site data recovery management. DBI capitalized $2,017,072
and $652,830 in 1997 and 1998, respectively, for costs associated with
SecureBase(SM) development. Cumulative capitalized expenditures for
SecureBase(SM) development through December 31, 1997 and 1998 are $2,503,249 and
$3,156,079, respectively and are included in computer hardware and software.
Management expects to spend an additional $1 to $2 million to complete all
phases of the SecureBase(SM) development effort.
The other application, SecureSync(TM), allows customers to interface with
the SecureBase(SM) application and view and update their off site data recovery
management information. DBI capitalized $145,514 and $194,311 in 1997 and 1998,
respectively, for costs associated with SecureSync(TM) development. Cumulative
capitalized expenditures for SecureSync(TM) development through December 31,
1997 and 1998 are $233,513 and $427,824, respectively and are included in
computer hardware and software. Management expects to spend an additional $1
million to complete all phases of the SecureSync(TM) development effort.
Construction costs payable of $1,185,470 at December 31, 1998 relate to
the construction in progress of the Companies' North Carolina facility.
Total depreciation and amortization of property, plant and equipment
charged to expense was $1,747,733, $3,450,777 and $3,474,961 for the years
ended December 31, 1996, 1997 and 1998, respectively.
Included in depreciation and amortization of property, plant and equipment
are losses on the disposition of property, plant and equipment of $99,198,
$1,124,465 and $95,757 for the years ended December 31, 1996, 1997 and 1998,
respectively.
Additionally, for the year ended December 31, 1998, DBI realized a gain of
$263,346 from the early retirement of debt associated with a capital lease
obligation. Total debt of $368,895 was relieved in exchange for cash of
$105,549. In conjunction with this transaction, DBI also realized a loss on the
disposition of the related building of $712,186. The total net loss of $448,840
is included in depreciation and amortization.
6. Line of Credit
DBI maintains a revolving line of credit limited to $2,500,000, scheduled
to expire on December 1, 1999. The line of credit is secured by DBI's accounts
receivable, vehicles and equipment, general intangibles and is guaranteed by
the majority stockholder. The line bears interest annually at Seafirst Bank's
prime rate plus
F-34
<PAGE>
DATA BASE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1998
6. Line of Credit (continued)
0.5%, which was 8.5% and 7.75% at December 31, 1997 and 1998, respectively.
There were no outstanding advances on the line at December 31, 1998. At
December 31, 1997, outstanding advances were $500,000. See Note 8 related to
financial and restrictive covenants.
7. Long-Term Obligations
Long-term obligations consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
--------------- --------------
<S> <C> <C>
Note payable to bank (Note 8) ........................................... $ 8,500,000 $ 10,500,000
Notes payable to bank, due in 2007, payments total $61,208 plus interest
at various rates, secured by deeds of trust on real property. (Note 8) . 7,612,058 6,877,557
Subordinated notes payable (Note 9) ..................................... 3,775,000 3,657,938
Lease payable, due August 1999, payments of $11,400 including interest at
8.5%, secured by the TCRC building. .................................... 469,642 --
Note payable to bank, due October 2001, payments of $4,071 per month
including interest at prime plus 2%, secured by a deed of trust on real
property. (Note 8) ..................................................... 455,305 445,165
Note payable to bank, due January 1998, payments of $91,666 including
interest at prime plus 0.5%, unsecured. ................................ 91,666 --
Note payable to bank, due June 2001, payments of $1,105 per month
including interest at 4.9%, secured by a vehicle. ...................... 42,559 --
------------ ------------
Total Long-Term Obligations ............................................ 20,946,230 21,480,660
Less -- Current Portion ................................................ (3,348,476) (2,253,483)
------------ ------------
Long-Term Obligations, Net of Current Portion ........................... $ 17,597,754 $ 19,227,177
============ ============
</TABLE>
Aggregate maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
- ------------
<S> <C>
1999 ....................... $ 2,253,483
2000 ....................... 4,918,620
2001 ....................... 4,284,500
2002 ....................... 6,084,500
2003 ....................... 734,500
Thereafter ................. 3,205,057
-----------
$21,480,660
===========
</TABLE>
F-35
<PAGE>
DATA BASE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1998
8. Note Payable to Bank
DBI has a term note payable of $8,500,000 and $10,500,000 at December 31,
1997 and 1998, respectively. The note bears annual interest at 0.25% plus
Seafirst Bank's prime rate or 2.5% plus the 30-day LIBOR rate. At the end of
each month, DBI has the option to choose which interest rate is used for the
following month. The interest rate was 8.125% at December 31, 1998. Principal
payments are due as follows:
<TABLE>
<CAPTION>
Monthly Sum of
Payment Payments
----------- --------------
<S> <C> <C>
July - December 1999 ............ $ 50,000 $ 300,000
January - December 2000 ......... 250,000 3,000,000
January - December 2001 ......... 275,000 3,300,000
January - November 2002 ......... 300,000 3,300,000
December, 2000 .................. 600,000 600,000
-----------
$10,500,000
===========
</TABLE>
On December 1, 2002, the entire unpaid balance of principal plus all
unpaid interest is due. The note is secured by bank accounts, accounts
receivable, equipment and general intangibles.
DBI's loan agreements with the bank for the line of credit and the note
payable to bank contain several covenants that include maintaining adequate
stockholders' equity as well as leverage and debt coverage ratios. The
borrowing agreements also contain provisions that place limits on capital
expenditures and stockholder distributions. At December 31, 1998, DBI was in
compliance with all loan covenants.
DBRHC has a series of notes payable related to the acquisition of certain
properties of $7,612,058 and $6,877,557 at December 31, 1997 and 1998,
respectively. The real estate for each property is held as collateral for each
respective loan. Under the terms of each agreement, these notes bear interest
at rates ranging from 2.75% to 3.25% over the annual adjusted index rate, as
defined in the agreements. The interest rates range from 8.45% to 8.77% and
7.36% to 8.67% at December 31, 1997 and 1998, respectively. These notes expire
at various dates in 2007.
DBRHC has a note payable related to the acquisition of a certain property
of $455,305 and $445,165 at December 31, 1997 and 1998, respectively. The real
estate for the property is held as collateral for the loan. Under the terms of
the agreement, this note bears interest at prime plus 2.0% and expires in
October 2001. DBRHC repaid the note in March 1999.
9. Subordinated Notes Payable
DBI has a series of notes payable to a stockholder totaling $1,325,000 and
$707,938 at December 31, 1997 and 1998, respectively. The notes bear interest
at 9.0%, mature on December 31, 1999, and are subordinated to the notes payable
to bank.
DBI has a series of notes payable to an unrelated individual totaling
$1,450,000 at December 31, 1997 and 1998. The notes bear interest at 10.5%,
mature on September 20, 2002, and are subordinated to the notes payable to
bank.
DBI has a note payable for $1,000,000 and $750,000 at December 31, 1997
and 1998, respectively, related to the acquisition of First Safe Deposit Corp.
The note bears interest at 9.5%. The note is due in two installments; $250,000
due February 1, 1999 and the remaining amount of $500,000 due February 1, 2000.
The note is subordinated to the notes payable to bank.
DBI has two notes payable at December 31, 1998 totaling $750,000 related
to the acquisition of File Protek, Inc. The notes bear interest at 8.3% and are
due in three equal installments of $250,000, payable on December 31, 1999, 2000
and 2001. The notes are subordinated to the notes payable to bank.
F-36
<PAGE>
DATA BASE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1998
10. Demand Notes and Other Current Obligations
DBI has a series of demand notes payable to unrelated third parties for
$215,000 and $206,500 at December 31, 1997 and 1998, respectively, with monthly
interest payments based on an annual rate of 10%. In addition, DBI has
short-term notes payable related to the acquisition of File Protek, Inc. in the
amount of $250,000 and a working capital settlement payable of $117,187 at
December 31, 1998.
DBRHC owes a stockholder $146,280 and $62,052 at December 31, 1997 and
1998, respectively. The obligation bears no interest and is due on demand.
11. Common Stock
On July 28, 1998, DBI amended its corporate bylaws and changed the par
value and authorized number of shares of common stock. The following details
apply to common stock at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Par value .............................. $ 1.00 $ 0.0855
Authorized voting shares ............... 50,000 1,000
Authorized non-voting shares ........... -- 499,000
Outstanding voting shares .............. 8,550 400
Outstanding non-voting shares .......... -- 99,600
</TABLE>
On July 28, 1998, the $1 par value common stock was retired and replaced
with 100,000 shares of $.0855 par value common stock. In August 1998, the
majority stockholder transferred 17,000 non-voting shares to four new
stockholders and retained ownership of 83,000 shares, consisting of 400 voting
shares and 82,600 non-voting shares.
12. Employee Retirement / Profit Sharing Plan
DBI maintains a qualified deferred compensation plan under section 401(k)
of the Internal Revenue Code. Under the plan, employees meeting certain
eligibility requirements may elect to defer up to 15% of their salary, subject
to Internal Revenue Service limits. DBI contributes a matching 50% of the first
6% of employee contributions based upon the participant's salary. Total
contributions made by DBI to the plan were $428,000, $393,901 and $494,495 for
the years ended December 31, 1996, 1997 and 1998, respectively.
13. Commitments
At December 31, 1997 and 1998, various facilities are leased from third
parties under operating leases expiring through 2002. Future rental commitments
under these operating leases are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
- ----------------
<S> <C>
1999 ......... $ 519,531
2000 ......... 424,070
2001 ......... 297,677
2002 ......... 129,701
----------
$1,370,979
==========
</TABLE>
Rent expense for DBI paid to third parties was approximately $436,000,
$501,000 and $488,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
F-37
<PAGE>
DATA BASE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1998
14. Significant Components of Combined Financial Statements and Related Party
Transactions
The significant components of the entities, including eliminations,
comprising the combined financial statements are as follows:
<TABLE>
<CAPTION>
Combined
DBI DBRHC Eliminations Amounts
-------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
1996
Total revenues ............................. $20,788,828 $ 829,368 $ (829,368) $20,788,828
Total operating expenses ................... 19,087,260 141,361 (829,368) 18,399,253
Interest expense, net ...................... 423,221 220,229 -- 643,450
----------- ----------- ------------ -----------
Net income ................................. $ 1,278,347 $ 467,778 $ -- $ 1,746,125
=========== =========== ============ ===========
1997
Property, plant and equipment, net ......... $11,118,307 $ 8,750,948 $ -- $19,869,255
Other assets ............................... 7,684,984 1,120,842 (124,178) 8,681,648
----------- ----------- ------------ -----------
Total assets ............................... $18,803,291 $ 9,871,790 $ (124,178) $28,550,903
=========== =========== ============ ===========
Debt obligations ........................... $13,718,044 $ 8,213,644 $ (124,178) $21,807,510
Other liabilities .......................... 3,153,133 52,943 -- 3,206,076
Stockholders' and members' equity .......... 1,932,114 1,605,203 -- 3,537,317
----------- ----------- ------------ -----------
Total liabilities and stockholders' and
members' equity ........................... $18,803,291 $ 9,871,790 $ (124,178) $28,550,903
=========== =========== ============ ===========
Total revenues ............................. $24,941,911 $ 1,221,699 $ (1,221,698) $24,941,912
Total operating expenses ................... 24,379,621 371,854 (1,221,698) 23,529,777
Interest expense, net ...................... 1,073,000 525,404 -- 1,598,404
----------- ----------- ------------ -----------
Net income (loss) .......................... $ (510,710) $ 324,441 $ -- $ (186,269)
=========== =========== ============ ===========
1998
Property, plant and equipment, net ......... $11,240,196 $10,693,583 $ -- $21,933,779
Other assets ............................... 9,566,833 244,763 (40,301) 9,771,295
----------- ----------- ------------ -----------
Total assets ............................... $20,807,029 $10,938,346 $ (40,301) $31,705,074
=========== =========== ============ ===========
Debt obligations ........................... $14,731,625 $ 7,425,075 $ (40,301) $22,116,399
Other liabilities .......................... 1,757,268 1,246,108 -- 3,003,376
Shareholders' and members' equity .......... 4,318,136 2,267,163 -- 6,585,299
----------- ----------- ------------ -----------
Total liabilities and stockholders' and
members' equity ........................... $20,807,029 $10,938,346 $ (40,301) $31,705,074
=========== =========== ============ ===========
Total revenues ............................. $26,589,288 $ 1,366,530 $ (1,366,532) $26,589,286
Total operating expenses ................... 22,561,715 402,068 (1,366,532) 21,597,251
Interest expense, net ...................... 1,168,790 607,121 -- 1,775,911
----------- ----------- ------------ -----------
Net income ................................. $ 2,858,783 $ 357,341 $ -- $ 3,216,124
=========== =========== ============ ===========
</TABLE>
All properties held by DBRHC are leased to DBI in the normal course of
business under long-term rental agreements. Total rent paid to DBRHC by DBI was
$829,368, $1,221,698 and $1,366,532 for the years ended December 31, 1996, 1997
and 1998, respectively. These amounts have been eliminated in the accompanying
statements of operations.
In the normal course of business, DBI funds capital expenditures for DBRHC
and records a corresponding receivable. Total amount owed to DBRHC by DBI was
$124,178 as of December 31, 1997. Total amount owed to DBI by DBRHC was $40,301
as of December 31, 1998. These amounts have been eliminated in the accompanying
combined balance sheets.
F-38
<PAGE>
DATA BASE, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1998
15. Supplemental Cash Flow Disclosures
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------- -------------
<S> <C> <C> <C>
Cash paid for interest ................................................... $ 678,228 $1,686,091 $1,878,929
Interest capitalized on software ......................................... -- 107,000 40,000
Non cash investing and financing activities consist of:
Notes payable exchanged for purchase of File Protek, Inc. ................ -- -- 1,117,187
Refinance of note payable ................................................ -- -- 6,350,000
Subordinated note payable exchanged for purchase of First Safe
Deposit Corp. ........................................................... -- 1,000,000 --
Long-term obligation exchanged for purchase of building .................. -- 547,316 --
Contribution of property, plant and equipment and other assets ........... 3,198,625 87,068 --
Contribution of long-term debt on property, plant and equipment .......... 2,864,749 -- --
Contribution of equity in property, plant and equipment and
other assets ............................................................ 333,876 -- --
</TABLE>
16. Concentration of Credit Risk
Financial instruments which potentially subject the Companies to
concentrations of credit risk include deposits with financial institutions,
short-term investments, and accounts receivable. The Companies place their
deposits and investments with high quality financial institutions; however, at
times, deposits exceed the federally insured limits. DBI generally grants
credit to customers without requiring collateral or other security. DBI's
customers are located throughout the United States.
17. Subsequent Events
On April 8, 1999, Iron Mountain Incorporated (Iron Mountain) purchased all
of the issued and outstanding shares of DBI and all of the land and
improvements of DBRHC for total consideration of approximately $115 million,
which is comprised of approximately $69 million in cash and assumed
indebtedness, and 1,476,577 shares of Iron Mountain common stock.
In anticipation of a possible sale, merger, consolidation or other
business combination of the Companies, DBI established a change in control
severance plan for the benefit of eligible employees of DBI and a discretionary
change of control bonus plan. The severance plan provides for termination
benefits to be paid by the acquiring company to employees who are involuntarily
terminated or who voluntarily terminate their employment for good reason as
defined in the plan. Compensation to be paid under the severance plan is
generally based on a monthly base salary times three to eighteen months,
depending on the position held with the Companies. The change of control bonus
plan provides for a percentage of the enterprise value to be awarded to
employees on a discretionary basis. The amount of the change of control bonus
was approximately $4,786,000 and was paid in April 1999 prior to the closing of
the sale to Iron Mountain. No provision has been made in the combined financial
statements for the change in control severance plan or the discretionary change
of control bonus plan.
DBRHC entered into an agreement with a general contractor to build a new
facility in Cary, North Carolina. The facility was completed on February 1,
1999 at a total cost $1.8 million. DBI will operate the Research Triangle
District out of the new facility.
In January 1999, DBI repaid a $100,000 note to the former owners of File
Protek, Inc.
In February 1999, DBI repaid $250,000 of the note payable to the former
owners of First Safe Deposit Corp. The remaining balance on the note of
$500,000 is due in 2000. DBI entered into an agreement to lease a facility in
Westminster, Colorado from an unrelated third party. The operating lease, which
requires monthly rental payments of $1,879, commences February 15, 1999 and
will run through August 31, 2000.
F-39
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Britannia Data Management Limited:
We have audited the accompanying combined balance sheets of the companies
identified in Note 1 as of October 31, 1997 and 1998 and the related combined
statements of operations, changes in stockholders' equity and cash flows for
each of the two years in the period ended October 31, 1998. These financial
statements are the responsibility of the Company's management and have been
prepared on the basis of Notes 1-3. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States 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 from 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 our audits provide a reasonable
basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Britannia
Data Management Limited at October 31, 1997 and 1998 and the combined results
of its operations and its combined cash flows for each of the two years in the
period ended October 31, 1998, in conformity with generally accepted accounting
principles in the United States.
ROBSON RHODES
Chartered Accountants
Birmingham, England
February 9, 1999
F-40
<PAGE>
BRITANNIA DATA MANAGEMENT LIMITED
COMBINED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
October 31,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................................... $ -- $ 4,932
Accounts receivable (less allowances of $371 and $278 as of
1997 and 1998, respectively) ........................................... 5,226 5,417
Inventories ............................................................. 134 132
Prepaid expenses and other .............................................. 1,130 880
Amounts due from related parties (Note 10) .............................. 2,737 2,209
Income taxes receivable ................................................. 878 --
--------- ---------
Total Current Assets ................................................. 10,105 13,570
Property, Plant and Equipment:
Property, plant and equipment (Note 6) .................................. 43,604 46,030
Less--Accumulated depreciation .......................................... (12,280) (14,042)
--------- ---------
Net Property, Plant and Equipment .................................... 31,324 31,988
Other Assets:
Goodwill, net ........................................................... 58,825 56,963
--------- ---------
Total Assets ......................................................... $ 100,254 $ 102,521
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Borrowings under line of credit ......................................... $ 436 $ --
Current portion of long-term debt (Note 4) .............................. 836 1,677
Obligations under capital leases ........................................ 1,055 877
Accounts payable ........................................................ 1,436 1,821
Amounts owed to related parties (Note 10) ............................... 1,344 3,381
Accrued expenses and other payables (Note 7) ............................ 4,414 4,338
Deferred income ......................................................... 2,132 2,979
--------- ---------
Total Current Liabilities ............................................ 11,653 15,073
Long-term Debt, net of current portion (Note 4) .......................... 15,886 14,255
Obligations under Capital Leases, net of current portion (Note 9) ........ 1,733 854
Deferred Income Taxes .................................................... 416 837
Commitments and Contingencies (Note 9) ...................................
Stockholders' Equity:
Common stock ............................................................ 4,081 4,081
Additional paid-in capital .............................................. 66,359 66,359
Accumulated deficit ..................................................... (1,785) (1,074)
Cumulative translation adjustment ....................................... 1,911 2,136
--------- ---------
Total Stockholders' Equity ........................................... 70,566 71,502
--------- ---------
Total Liabilities and Stockholders' Equity ........................... $ 100,254 $ 102,521
========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-41
<PAGE>
BRITANNIA DATA MANAGEMENT LIMITED
COMBINED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Year ended October 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Revenues:
Storage ............................................. $14,958 $16,258
Service and storage material sales .................. 13,295 14,062
------- -------
Total Revenues ................................... 28,253 30,320
Operating Expenses:
Cost of sales (excluding depreciation) .............. 17,298 16,511
Selling, general and administrative ................. 4,337 5,580
Depreciation and amortization ....................... 3,915 3,863
------- -------
Total Operating Expenses ......................... 25,550 25,954
Operating Income ..................................... 2,703 4,366
Interest Expense ..................................... 1,654 1,533
------- -------
Income Before Provision for Income Taxes ......... 1,049 2,833
Provision for Income Taxes (Note 5) .................. 946 1,504
------- -------
Net Income ....................................... $ 103 $ 1,329
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-42
<PAGE>
BRITANNIA DATA MANAGEMENT LIMITED
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Retained Total
Common Additional Cumulative earnings/ Stock-
Common Stock Paid-in Translation (Accumulated holders'
Shares Amount Capital Adjustment deficit) Equity
------------ -------- ------------ ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1996 .............. 25,079,751 $4,081 $66,359 $ -- $ (1,359) $69,081
Net Income ............................ -- -- -- -- 103 103
Translation Adjustment ................ -- -- -- 1,911 -- 1,911
Distributions to Stockholders ......... -- -- -- -- (529) (529)
---------- ------ ------- ------ -------- -------
Balance, October 31, 1997 .............. 25,079,751 4,081 66,359 1,911 (1,785) 70,566
Net Income ............................ -- -- -- -- 1,329 1,329
Translation Adjustment ................ -- -- -- 225 -- 225
Distributions to Stockholders ......... -- -- -- -- (618) (618)
---------- ------ ------- ------ -------- -------
Balance, October 31, 1998 .............. 25,079,751 $4,081 $66,359 $2,136 $ (1,074) $71,502
========== ====== ======= ====== ======== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-43
<PAGE>
BRITANNIA DATA MANAGEMENT LIMITED
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended October 31,
---------------------------
1997 1998
------------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income ................................................... $ 103 $ 1,329
Adjustments to reconcile net income to cash flows provided by
operating activities:
Depreciation and amortization ............................... 3,915 3,863
(Gain)/loss on sale of fixed assets ......................... (7) 12
Changes in Assets and Liabilities:
Inventories ................................................. (14) 2
Accounts receivable ......................................... (947) (191)
Prepaid expenses and other current assets ................... (211) 1,656
Accounts payable ............................................ (74) 385
Accrued expenses and other payables ......................... (572) 3,229
--------- --------
Cash Flows Provided by Operating Activities ............... 2,193 10,285
--------- --------
Cash Flows from Investing Activities:
Capital expenditures ......................................... (2,203) (2,253)
Proceeds from sale of assets ................................. 555 30
--------- --------
Cash Flows Used in Investing Activities ................... (1,648) (2,223)
--------- --------
Cash Flows from Financing Activities:
Repayment of debt and capital leases ......................... (446) (1,903)
Repayment of line of credit .................................. (932) (436)
Distributions to stockholders ................................ (529) (618)
--------- --------
Cash Flows Used in Financing Activities ................... (1,907) (2,957)
Effect of Exchange Rates on Cash and Cash Equivalents ......... 1,362 (173)
--------- --------
Increase in Cash and Cash Equivalents ......................... -- 4,932
Cash and Cash Equivalents, Beginning of Year .................. -- --
--------- --------
Cash and Cash Equivalents, End of Year ........................ $ -- $ 4,932
========= ========
Supplemental Information:
Cash Paid for Interest ........................................ $ 1,378 $ 1,534
========= ========
Cash Paid for Income Taxes .................................... $ (607) $ 185
========= ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-44
<PAGE>
BRITANNIA DATA MANAGEMENT LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(In thousands, except share data)
1. Nature of Business and Corporate Status
Principles of Combination
Britannia Data Management Limited (the "BDM Group" or "the Company") is a
wholly-owned subsidiary of Mentmore Abbey plc a publicly owned United Kingdom
company. Mentmore Abbey plc acquired Britannia Data Management Limited on
October 8, 1996 and the acquisition was accounted for as a purchase. These
financial statements reflect the "push-down" of Mentmore Abbey's purchase
accounting and therefore the assets and liabilities have been recorded at the
fair market value on the date of the acquisition. These financial statements
have been prepared in accordance with generally accepted accounting principles
in the United States and represent the business acquired by Iron Mountain
Incorporated. See Note 11.
The accompanying financial statements reflect the financial position and
results of operations of the BDM Group on a combined basis. All significant
intercompany and interdivisional balances have been eliminated. For the
purposes of these financial statements, "Britannia Data Management Limited" or
"the BDM Group" mean the combined accounts of:
-- Britannia Data Management Limited;
-- British Data Management Limited, a wholly owned subsidiary of Britannia
Data Management Limited;
-- Abbey Records Management, a division of Abbey Storage Limited, a company
wholly owned by Mentmore Abbey plc; and
-- The Document Storage Company Limited and various other non-trading
wholly owned subsidiaries of Britannia Data Management Limited.
The financial statements are not comparable to the United Kingdom
financial statements and exclude Britannia Storage Systems Limited, a wholly
owned subsidiary of Britannia Data Management Limited which was retained by
Mentmore Abbey plc. See Note 11.
The BDM Group is a full-service records management company providing
storage and related services for all media in various locations throughout
England to Government departments and commercial, professional, financial and
energy businesses.
On July 21, 1997, Britannia Data Management Limited formally changed its
name from British Data Management Limited and British Data Management Limited
formally changed its name from Britannia Data Management Limited.
2. Basis of Presentation
The Company maintains its accounts in accordance with accounting
principles and practices employed by enterprises in the United Kingdom, whereas
the accompanying financial statements reflect certain adjustments not recorded
in the Company's books, to present these statements in accordance with
generally accepted accounting principles in the United States. These financial
statements have been translated to US dollars.
The significant adjustments made to present the financial statements in
accordance with generally accepted accounting principles in the United States
relate primarily to accounting for goodwill and income taxes. At October 31,
1998, stockholder's equity of $57,468 arises because of differences between the
UK statutory accounts and the US GAAP financial statements.
F-45
<PAGE>
BRITANNIA DATA MANAGEMENT LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
2. Basis of Presentation (continued)
Foreign Currency Translation
The financial information expressed in US dollars is presented solely for
the convenience of the reader. Assets and liabilities have been translated from
UK sterling at the following rates for each US dollar:
<TABLE>
<S> <C>
October 31, 1997: ......... 1.6722
October 31, 1998: ......... 1.6771
</TABLE>
Revenues and expenses have been translated at the average exchange rate
for each US dollar as follows:
<TABLE>
<S> <C>
Year ended October 31, 1997: ......... 1.6729
Year ended October 31, 1998: ......... 1.6622
</TABLE>
3. Summary of Significant Accounting Policies
a. 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.
b. Revenue Recognition
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. 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 for customers where storage fees
are billed in advance are accounted for as deferred income and amortized over
the applicable period.
c. Cash and Cash Equivalents
Cash and cash equivalents consist of 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 the fair market
value.
d. Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated over the
following estimated useful lives on the straight line method:
<TABLE>
<S> <C>
Buildings ...................... 50 years
Leasehold improvements ......... over the lease term
Furniture and fixtures ......... 10 years
</TABLE>
F-46
<PAGE>
BRITANNIA DATA MANAGEMENT LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
3. Summary of Significant Accounting Policies (continued)
<TABLE>
<S> <C>
Buildings .............................. 50 years
Equipment and racking .................. 5-20 years
Motor vehicles ......................... 4 years
Computer hardware and software ......... 5 years
</TABLE>
Repairs and maintenance costs, except to the extent that they increase
productivity or extend the useful life of an asset, are expensed when incurred.
During 1998 the estimated useful life of certain equipment and racking has
been revised. The effect of this change is to reduce depreciation by $173.
e. 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 30 years. The recoverability of goodwill
is periodically assessed based upon the future undiscounted cash flows in
accordance with Statement of Financial Accounting Standards ("SFAS") No 121,
"Accounting for the Impairment of Long Lived Assets and for Long Lived Assets
to be Disposed Of."
The net book value of goodwill at October 31, 1998 relates to the
acquisition of Britannia Data Management Limited by Mentmore Abbey plc in
October 1996. Accumulated amortization of goodwill was $1,993 and $4,009 as of
October 31, 1997 and 1998, respectively.
f. Inventories
Inventories are valued at the lower of cost using the first-in, first-out
basis, or market value. Inventories comprise cartons, magnetic tape and dyeline
film and paper.
g. Deferred Income Taxes
Provision is made at current rates for taxation deferred in respect of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for tax purposes.
h. Defined Contribution Plan
The BDM Group operates a defined contribution plan. The assets of the plan
are held separately from those of the BDM Group in an independently
administered fund. Contributions payable for the period are charged to the
statement of operations. The cost charged was $156 and $160 in 1997 and 1998,
respectively.
i. Foreign Currency
All assets and liabilities of the BDM Group are translated at year-end
exchange rates, and revenues and expenses are translated at average exchange
rates for the year in accordance with SFAS No. 52, "Foreign Currency
Translation." Resulting translation adjustments are reflected as a separate
component of stockholders' equity titled "Cumulative translation adjustment."
Foreign currency transaction gains and losses are included in the accompanying
statements of operations and are not material for the two years presented.
F-47
<PAGE>
BRITANNIA DATA MANAGEMENT LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
3. Summary of Significant Accounting Policies (continued)
j. Restructuring
Following the acquisition of the BDM Group in October 1996, the Company
undertook certain restructurings of the acquired businesses, which were
completed within one year from the date of acquisition. The restructuring
activities consisted of certain reductions in warehouse and overhead staffing
levels pursuant to a formalized plan. In connection with these restructuring
activities the Company had established reserves of $281 at October 31 1996.
These amounts were recorded as restructuring charges in the profit and loss
account between the date of acquisition and October 31, 1996 and were provided
in accordance with Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition For Costs To Exit An Activity (Including Certain Costs Incurred In
A Restructuring)." During the year ended October 31, 1997 the Company expended
$281 for such restructuring costs. As of October 31, 1997 and 1998 there were
no amounts accrued for restructuring costs.
4. Debt
The maturities of the long term debt are as follows:
<TABLE>
<CAPTION>
October 31,
1998
------------
<S> <C>
1999 ........................................... $ 1,677
2000 ........................................... 1,677
2001 ........................................... 1,677
2002 ........................................... 2,096
2003 ........................................... 2,515
Thereafter ..................................... 6,290
--------
15,932
Current ........................................ (1,677)
--------
Long term debt, net of current portion ......... $ 14,255
========
</TABLE>
On January 21 1997, Britannia Data Management Limited entered into a
$16,000 bank loan. Principal and interest payments are payable monthly through
March 31, 2006. The effective rate of interest on the bank loan is 1.125% over
the London Inter-Bank Offered Rate (LIBOR) (7.7348% at October 31, 1998). All
payments are payable in UK Sterling. On the same date, Britannia Data
Management Limited entered into a $10,000 group working capital bank facility.
The effective rate of interest for all balances within this facility was 1%
over the bank's base rate (7.25% at October 31, 1998).
The above facilities are secured by the assets of the Company and
guaranteed by Mentmore Abbey plc, Abbey Storage Limited, Britannia Storage
Systems Limited and Homewares Brands Limited, all of which are in the Mentmore
Abbey plc group. The facility agreement includes certain financial and
non-financial covenants and restrictions based on net income and net worth. The
Company is in compliance of all covenants at October 31, 1998. On January 4,
1999, the Company renegotiated its financing with the result that the
guarantees from Mentmore Abbey plc and the other companies within the Mentmore
Abbey plc group were released.
5. Income Taxes
Income taxes have been accounted for 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 primary temporary
differences are due to timing
F-48
<PAGE>
BRITANNIA DATA MANAGEMENT LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
5. Income Taxes (continued)
differences from the depreciation of property, plant and equipment. The BDM
Group had aggregate gross deferred tax assets of $623 and $374 at October 31,
1997 and 1998, respectively, and aggregate gross deferred tax liabilities of
$1,039 and $1,211 at October 31, 1997 and 1998, respectively.
Britannia Data Management Limited and British Data Management Limited file
individual tax returns. A tax return is filed for Abbey Storage Limited which
includes Abbey Records Management. Taxes for Abbey Records Management have been
provided as if it were a separate company.
The provision for income tax consists of the following components:
<TABLE>
<CAPTION>
October 31,
------------------
1997 1998
------ ---------
<S> <C> <C>
UK Corporation tax--current .......... $496 $1,088
UK Corporation tax--deferred ......... 450 416
---- ------
$946 $1,504
==== ======
</TABLE>
A reconciliation of total income tax expense and the amount computed by
applying the UK corporation tax rate of 31% to income taxes is as follows:
<TABLE>
<CAPTION>
October 31,
------------------
1997 1998
------ ---------
<S> <C> <C>
Computed "expected" tax provision ............. $325 $ 878
Increase in income taxes resulting from:
Non deductible goodwill amortization ......... 618 625
Other ........................................ 3 1
---- ------
$946 $1,504
==== ======
</TABLE>
6. Property, Plant and Equipment
<TABLE>
<CAPTION>
Computer
Equipment hardware Furniture
Land and Leasehold and Motor and and
buildings improvements racking vehicles software fixtures Total
----------- -------------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross fixed assets at
October 31, 1997 ......... $20,600 $337 $13,038 $1,071 $3,129 $5,429 $43,604
======= ==== ======= ====== ====== ====== =======
Gross fixed assets at
October 31, 1998 ......... $21,194 $443 $13,517 $ 941 $3,698 $6,237 $46,030
======= ==== ======= ====== ====== ====== =======
</TABLE>
Included in operating expenses are amounts of $454 in 1997 and $450 in
1998 representing repairs and maintenance expense.
F-49
<PAGE>
BRITANNIA DATA MANAGEMENT LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
7. Accrued Expenses
<TABLE>
<CAPTION>
October 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Accrued expenses .............. $2,673 $2,909
Income taxes .................. 20 7
Sales taxes ................... 1,266 998
Accrued payroll taxes ......... 455 424
------ ------
$4,414 $4,338
====== ======
</TABLE>
8. Stockholders' Equity
Share Capital
Authorized: Common stock comprises 32,000 ordinary shares of $.16 nominal
value.
<TABLE>
<CAPTION>
October 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Allotted, issued and fully paid:
Common stock--ordinary shares, $.16 nominal value ......... $4,081 $4,081
====== ======
</TABLE>
$529 and $618 were distributed to Abbey Storage Limited in 1997 and 1998,
respectively.
9. Commitments and Contingencies
Capital Leases
The present value of the minimum lease payments for capital leases is as
follows:
<TABLE>
<CAPTION>
October 31,
1998
------------
<S> <C>
1999 ........................................... $ 989
2000 ........................................... 704
2001 ........................................... 193
------
Gross payments ................................. 1,886
Interest portion ............................... (155)
Current portion ................................ (877)
------
Capital leases, net of current portion ......... $ 854
======
</TABLE>
Assets under capital leases consist primarily of equipment and racking.
The gross amount of assets held under capital leases is $4,319 at October 31,
1997 and $4,078 at October 31, 1998. The accumulated depreciation on these
assets is $477 at October 31, 1997 and $695 at October 31, 1998. The
depreciation on these assets charged in 1997 and 1998 is included within the
depreciation expense.
Operating Leases
The BDM Group leases most of its facilities under various operating
leases. A majority of these leases have an average lease life of between 10 and
20 years and have either fixed or Consumer Price Index escalation clauses. The
BDM Group also leases motor vehicles under operating leases which have an
average lease life of three years. The amounts paid in respect of operating
leases including rent expense were $2,749 in 1997 and $3,078 in 1998.
F-50
<PAGE>
BRITANNIA DATA MANAGEMENT LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
9. Commitments and Contingencies (continued)
The minimum future lease payments for buildings under operating leases are
as follows:
<TABLE>
<CAPTION>
October 31,
1998
------------
<S> <C>
1999 ................................. $ 2,584
2000 ................................. 2,341
2001 ................................. 2,231
2002 ................................. 2,154
2003 ................................. 2,118
2004 and thereafter .................. 17,919
-------
Total minimum lease payments ......... $29,347
=======
</TABLE>
Guarantees
The BDM Group has guaranteed the borrowings of other companies within the
Mentmore Abbey plc group by way of granting security over its property and
assets. The total related debt outstanding at October 31, 1998 amounted to
$22,049. On January 4, 1999, Mentmore Abbey plc renegotiated its financing with
the result that the guarantees by the BDM Group relating to Mentmore Abbey plc
and the other companies within the Mentmore Abbey plc group were released.
Employment Agreements
The BDM Group has severance agreements with certain key officials that
provide for potential additional payments of up to $70 in the event of a change
in control of the entity. The transactions discussed in Note 11 will not result
in any payments under these agreements.
10. Related Party Transactions
Amounts Due from/owed to Other Companies in the Mentmore Abbey plc Group
The amounts due from/owed to related parties, as set out in the combined
balance sheets, are all in respect of other companies within the Mentmore Abbey
plc group. These balances represent the net of cash advances and expenses
charged by Mentmore Abbey plc.
Transactions with Related Parties
Certain administrative expenses such as insurances and certain
professional fees have been paid on behalf of and charged to the BDM Group, at
cost by Mentmore Abbey plc. In addition a management fee has been charged by
Mentmore Abbey plc as the BDM Group uses certain resources and administrative
staff of Mentmore Abbey plc. The management fee is variable and is calculated
on the basis of expenditure incurred. The fee charged for the year ended
October 31, 1997, was $171. For the year ended October 31, 1998 the total
management fee charged by Mentmore Abbey plc to the BDM Group was $1,080. This
fee comprised $243 in respect of obtaining an insurance rebate and $837 in
respect of management fees.
F-51
<PAGE>
BRITANNIA DATA MANAGEMENT LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
11. Subsequent Events
On January 4, 1999 the following events occurred which resulted in Iron
Mountain Incorporated becoming a 50.1% stockholder of Britannia Data Management
Limited:
o Mentmore Abbey plc and Abbey Storage Limited sold an aggregate of
12,290,505 shares in Britannia Data Management Limited to Iron Mountain
(UK) Limited, a subsidiary of Iron Mountain Incorporated, a US public
company;
o Britannia Data Management Limited acquired the entire issued share
capital of Arcus Data Security Limited, a company wholly owned by Iron
Mountain (UK) Limited, in exchange for 150,000 shares of BDM common stock;
o Iron Mountain (UK) Limited acquired 400,000 new ordinary shares in
Britannia Data Management Limited;
o Abbey Storage Limited sold Abbey Records Management and its related
assets to British Data Management Limited; and
o Britannia Storage Systems Limited was transferred to Mentmore Abbey plc.
F-52
<PAGE>
PROSPECTUS
$350,000,000
Iron Mountain Incorporated
Debt Securities, Preferred Stock, Depositary Shares,
Common Stock and Warrants
----------------
Iron Mountain Incorporated (the "Company" or "Iron Mountain") may from
time to time offer in one or more series (i) its debt securities (the "Debt
Securities"), (ii) its shares of preferred stock, par value $.01 per share (the
"Preferred Stock"), (iii) fractional shares of the Preferred Stock (the
"Depositary Shares"), (iv) its shares of common stock, par value $.01 per share
(the "Common Stock"), or (v) warrants to purchase any of the above securities
(the "Warrants"), with an aggregate public offering price of up to $350,000,000
on terms to be determined at the time of offering. The Debt Securities,
Preferred Stock, Depositary Shares, Common Stock and Warrants may be offered,
separately or together, in separate series, in amounts, at prices and on terms
to be set forth in a supplement to this Prospectus (a "Prospectus Supplement").
In connection with the Debt Securities, substantially all of the present
and future subsidiaries of Iron Mountain (the "Guarantors") may, on a joint and
several basis, offer full and unconditional guarantees ("Guarantees") of Iron
Mountain's obligations under the Debt Securities. The Debt Securities,
Guarantees, Preferred Stock, Depositary Shares, Common Stock and Warrants are
collectively referred to as the "Offered Securities."
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Company or
repayment at the option of the holder, terms for sinking fund payments, terms
for conversion into Preferred Stock, Depositary Shares or Common Stock, terms
of subordination to other indebtedness of the Company, terms of related
Guarantees (if any), terms of security or pledge of assets (if any), and any
original issue discount and any initial public offering price; (ii) in the case
of Preferred Stock, the specific title and stated value, any dividend,
liquidation, redemption, conversion, voting and other rights, and any initial
public offering price; (iii) in the case of Depositary Shares, the fractional
shares of Preferred Stock represented by each Depositary Share; (iv) in the
case of Common Stock, any offering price; and (v) in the case of Warrants, the
securities to which they relate, duration, offering price, exercise price and
detachability.
----------------
See "RISK FACTORS" at page 1 for certain information that should be
considered by prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is January 20, 1998.
<PAGE>
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by such Prospectus Supplement. Any statement contained in
this Prospectus will be deemed to be modified or superseded by any inconsistent
statement contained in the accompanying Prospectus Supplement.
The Common Stock is traded on the Nasdaq National Market System under the
symbol "IMTN." Application will be made to list any shares of Common Stock sold
pursuant to a Prospectus Supplement on the Nasdaq National Market System,
subject to official notice of issuance. Iron Mountain has not yet determined
whether any of the Debt Securities, Preferred Stock or Depositary Shares
offered hereby will be listed on any exchange or over-the-counter market. If
Iron Mountain decides to seek listing of any such Offered Securities, the
Prospectus Supplement relating thereto will disclose such exchange or market.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of a Prospectus Supplement describing the method and terms of
the offering of such Offered Securities.
----------------
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus in connection with the offer contained in this Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company or any underwriters, agents or dealers.
This Prospectus does not constitute an offer to sell or solicitation of an
offer to buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
an implication that there has been no change in the affairs of the Company and
its subsidiaries since the date hereof or the information contained or
incorporated by reference herein is correct at any time subsequent to the date
hereof.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C., a registration statement on Form S-3
(together with all exhibits, schedules and amendments thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Offered Securities. This Prospectus,
which is a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement. Statements in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other documents filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference and the exhibits and schedules thereto. For further information
concerning the Company and the Offered Securities, reference is made to the
Registration Statement. Copies of the Registration Statement may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the prescribed fee.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. The
Registration Statement, the exhibits and schedules forming a part thereof and
the reports, proxy statements and other information filed by the Company with
the Commission can be inspected and copies obtained at the public reference
facilities maintained by the Commission at Judiciary Plaza, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: Chicago Regional Office, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661-2511; and New York Regional Office,
Seven World Trade Center, New York, New York 10048. Copies of such material can
be obtained at prescribed rates from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants,
including the Company, that file electronically with the Commission. The
address of the site is http://www.sec.gov. In addition, reports, proxy
statements and other information concerning the Company may be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by Iron Mountain with the
Commission (File No. 0-27584) pursuant to the Exchange Act, are hereby
incorporated in this Prospectus and specifically made a part hereof by
reference: (i) Annual Report on Form 10-K for the fiscal year ended December
31, 1996 (the "Annual Report"), (ii) Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997, (iii)
Current Reports on Form 8-K dated June 25, 1997 (as amended August 26, 1997),
October 1, 1997, October 16, 1997 (as amended November 10, 1997), October 30,
1997, November 25, 1997 and January 13, 1998 and (iv) the description of the
Common Stock contained in the Company's Registration Statement on Form 8-A
dated January 18, 1996. In addition, the financial information contained in
Iron Mountain's Registration Statements on Form S-4 (i) File No. 333-24635,
filed with the Commission on April 4, 1997, as amended on May 7, 1997 and May
13, 1997, as made effective by the Commission on May 14, 1997, and (ii) File
No. 333-41715, filed with the Commission on December 8, 1997, as made effective
by the Commission on December 11, 1997 is incorporated herein by reference. All
documents filed by Iron Mountain pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Offered Securities shall be deemed to be
incorporated by reference into the Registration Statement and to be a part
hereof from the respective dates of filing of any such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the applicable Prospectus Supplement), or in any other
subsequently filed document that also is or is deemed to be incorporated herein
by reference, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom this Prospectus is delivered, upon the written or oral request of such
person, a copy of any and all of the information that has been incorporated by
reference in this Prospectus (excluding exhibits unless such exhibits are
specifically incorporated by reference into the information that this
Prospectus incorporates). Requests for such copies should be made to the
Company at its principal executive offices, 745 Atlantic Avenue, Boston,
Massachusetts 02111, Attention: John F. Kenny, Jr., Executive Vice President
and Chief Financial Officer.
iii
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
RISK FACTORS
Investors should carefully consider the following risk factors, in
addition to the other information contained in this Prospectus and any
Prospectus Supplement, before purchasing any of the Offered Securities. This
Prospectus sets forth or incorporates by reference forward-looking statements
within the meaning of Section 27A of the Securities Act, such as those
regarding the goals, beliefs, plans or current expectations of the Company and
its management and other statements contained in this Prospectus regarding
matters that are not historical facts. Because such forward-looking statements
include risks and uncertainties, actual results may differ materially from
those expressed in or implied by such forward-looking statements. Factors that
could cause actual results to differ materially include, but are not limited
to, the risk factors set forth below and the matters set forth or incorporated
by reference in this Prospectus generally and any Prospectus Supplement. The
Company undertakes no obligation to release publicly the results of any
revisions to these forward-looking statements that may be made to reflect
future events or circumstances or to reflect unanticipated events.
Risks Associated with Acquisition Strategy
Iron Mountain has pursued and intends to continue to pursue acquisitions
of records management and related service businesses as a key component of its
growth strategy. Certain risks are inherent in an acquisition strategy, such as
increasing leverage and debt service requirements and combining disparate
company cultures and facilities, which could adversely affect Iron Mountain's
operating results. The success of any completed acquisition will depend in part
on Iron Mountain's ability to integrate effectively the acquired businesses
into Iron Mountain. The process of integrating such acquired businesses may
involve unforeseen difficulties and may require a disproportionate amount of
management's attention and Iron Mountain's financial and other resources. No
assurance can be given that additional suitable acquisition candidates will be
identified, financed and purchased on acceptable terms, or that recent
acquisitions or future acquisitions, if completed, will be successful.
In September 1997, Iron Mountain amended and restated its bank facility,
dated as of September 30, 1996 among Iron Mountain, the lenders party thereto
and The Chase Manhattan Bank, as Administrative Agent (the "Credit Agreement").
Under the terms of the Credit Agreement, acquisitions by Iron Mountain
involving in excess of (i) $65 million (other than the acquisition of Arcus
Group, Inc. (the "Arcus Acquisition") and the acquisition of HIMSCORP, Inc.
("HIMSCORP")) for any one acquisition and (ii) $150 million in the aggregate or
$100 million in cash for 1998 or any subsequent year require the approval of
lenders holding 51% or more of the commitments under the Credit Agreement. No
assurance can be given that the lenders will consent to any acquisitions that
Iron Mountain proposes to make in excess of such limits.
The size, timing and integration of possible future acquisitions may cause
substantial fluctuations in operating results from quarter to quarter. As a
result, operating results for any quarter may not be indicative of the results
that may be achieved for any subsequent fiscal quarter or for a full fiscal
year.
Competition; Alternative Technologies
Iron Mountain has one or more competitors in all geographic areas where it
operates. Iron Mountain believes that competition for customers is based on
price, reputation for reliability, quality of service and scope and scale of
technology, and believes that it generally competes effectively based on these
factors. As a result of this competition, the records management industry has
for the past several years experienced downward pricing pressures. While Iron
Mountain believes that this pricing climate is stabilizing, there can be no
assurance that prices will not decline further, as competitors seek to gain or
preserve market share. Should a further downward trend in pricing occur or
continue for an extended period of time, it could have a material adverse
effect on Iron Mountain's results of operations. Iron Mountain also competes
for acquisition candidates. Some of Iron Mountain's competitors may possess
greater financial and other resources than Iron Mountain. If any such
competitor were to devote additional resources to the records management
business and such acquisition candidates or to focus its strategy on Iron
Mountain's markets, Iron Mountain's results of operations could be adversely
affected. In addition, Iron Mountain faces competition from the internal
records management capability of its current and potential customers. There can
be no assurance that these organizations will outsource more of their records
management needs or that they will not bring in-house some or all of the
functions they currently outsource.
1
<PAGE>
The substantial majority of Iron Mountain's revenues have been derived
from the storage of paper documents and from related services. Such storage
requires significant physical space. Alternative technologies for generating,
capturing, managing, transmitting and storing information have been developed,
many of which require significantly less space than paper. Such technologies
include computer media, microforms, audio/video tape, film, CD-ROM and optical
disk. None of these technologies has replaced paper as the principal means for
storing information. However, there can be no assurance that one or more
non-paper-based technologies (whether now existing or developed in the future)
may not in the future reduce or supplant the use of paper as a preferred
medium, which could in turn adversely affect Iron Mountain's business.
Financial Leverage; Debt Service Requirements
Iron Mountain is highly leveraged due to the substantial indebtedness it
has incurred primarily to finance acquisitions and expand its operations. Iron
Mountain expects to continue to borrow under the Credit Agreement and possible
future credit arrangements in order to finance possible future acquisitions and
for general corporate purposes.
The ability of Iron Mountain to repay its indebtedness depends upon future
operating performance, which is subject to the success of Iron Mountain's
business strategy, prevailing economic conditions, levels of interest rates and
financial, business and other factors, many of which are beyond Iron Mountain's
control. The debt service obligations of Iron Mountain could have important
consequences, including the following: (i) the ability of Iron Mountain to
obtain additional financing for future working capital needs or for possible
future acquisitions or other purposes may be limited; (ii) a substantial
portion of Iron Mountain's cash flow from operations will be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing funds
available for other purposes; (iii) Iron Mountain may be more vulnerable to
adverse economic conditions than some of its competitors and thus may be
limited in its ability to withstand competitive pressures; and (iv) Iron
Mountain may be more highly leveraged than certain of its competitors, which
may place it at a competitive disadvantage.
A substantial portion of Iron Mountain's cash flow from operations is
required for debt service. Management believes that cash flow from operations
in conjunction with borrowings from existing and possible future credit
facilities will be sufficient for the foreseeable future to meet debt service
requirements and to make possible future acquisitions and capital expenditures.
However, there can be no assurance in this regard, and Iron Mountain's leverage
could make it vulnerable to a downturn in the operating performance of its
subsidiaries, a downturn in economic conditions or, because borrowings under
the Credit Agreement bear interest at rates which fluctuate, increases in
interest rates on borrowings under the Credit Agreement. If such cash flow were
not sufficient to meet such debt service requirements or payments of principal,
Iron Mountain could be required to sell additional equity securities, refinance
its obligations or dispose of assets in order to make such scheduled payments.
There can be no assurance that Iron Mountain would be able to effect any of
such transactions or do so on favorable terms.
Casualty
Iron Mountain currently maintains and intends to continue to maintain, to
the extent such insurance is available on commercially reasonable terms,
comprehensive liability, fire, flood and earthquake (where appropriate) and
extended coverage insurance with respect to the properties that it now owns or
leases or that it may in the future own or lease, with customary limits and
deductibles. Certain types of loss, however, may not be fully insurable on a
cost-effective basis, such as losses from earthquakes, or may be altogether
uninsurable, such as losses from riots. Iron Mountain has in the past suffered
damages and losses from an earthquake and a riot in California, which damages
and losses were substantially covered by insurance. In March 1997, Iron
Mountain experienced three fires, all of which authorities have determined were
caused by arson and which resulted in extensive damage to one and destruction
of the Company's other records management facility in South Brunswick Township,
New Jersey. Iron Mountain has filed several insurance claims related to the
South Brunswick fires, including a significant claim under its business
interruption insurance policy. Some of the Company's customers or their
insurance carriers have asserted claims or filed lawsuits as a consequence of
the destruction of or damage to their records due to the fires. The Company is
a defendant in three such lawsuits. The outcome of these claims and 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 claims and lawsuits 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.
2
<PAGE>
In the future, should uninsured losses or damages occur, Iron Mountain
could lose both its investment in and anticipated profits and cash flow from
the affected property and may continue to be obligated on any leasehold
obligations, mortgage indebtedness or other obligations related to such
property. As a result, any such loss could materially adversely affect Iron
Mountain.
History of Losses; EBITDA Objective
Iron Mountain has a history of experiencing net losses applicable to
common stockholders. Such net losses are attributable in part to significant
non-cash charges associated with Iron Mountain's pursuit of its growth
strategy, namely, (i) depreciation and amortization expenses associated with
expansion of Iron Mountain's storage capacity and (ii) goodwill amortization
associated with acquisitions accounted for under the purchase method. In
addition, net income applicable to common stockholders has been negatively
affected by a charge for accretion of a redeemable put warrant and, in 1996, by
an extraordinary charge related to the early retirement of debt. The put
warrant was redeemed in February 1996, upon completion of Iron Mountain's
initial public offering.
Iron Mountain's primary financial objective is to increase its earnings
before interest, taxes, depreciation, amortization and extraordinary items
("EBITDA"), which is a source of funds to service indebtedness and for
investment in continued internal growth and growth through acquisitions, and
not net income and net income applicable to common stockholders. Iron Mountain
has benefited from growth in EBITDA, while net losses applicable to common
stockholders have increased over such period. Based on its experience in the
records management industry, Iron Mountain believes that EBITDA is an important
tool for measuring the performance of records management companies (including
potential acquisition targets) in several areas, such as liquidity, operating
performance and leverage. In addition, lenders use EBITDA as a criterion in
evaluating records management companies, and Iron Mountain's financing
agreements contain covenants in which EBITDA is used as a measure of financial
performance. Other measures of Iron Mountain's financial performance, such as
net income and net income applicable to common stockholders, have been
negatively affected by pursuit of Iron Mountain's objective to increase EBITDA
and may be negatively affected in the future. In addition, execution of Iron
Mountain's growth strategy could result in future net losses due to increased
interest expense associated with borrowings under the Credit Agreement and
possible future credit arrangements and increased depreciation and amortization
expenses.
Anti-Takeover Effect of Certain Provisions of Iron Mountain's Certificate of
Incorporation, By-Laws and the Notes Indentures
Certain provisions of Iron Mountain's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") and Iron Mountain's By-Laws (the
"By-Laws") could have the effect of making it more difficult for a third party
to acquire, or discouraging a third party from acquiring, a majority of the
outstanding capital stock of Iron Mountain and could make it more difficult to
consummate certain types of transactions involving an actual or potential
change in control of Iron Mountain, such as a merger, tender offer or proxy
contest. The Restated Certificate also provides for three classes of Directors,
as equal in number as possible, to be elected on a staggered basis (one class
per year). As a result of such a provision, it would generally require at least
two elections of the Iron Mountain Board to replace a majority of the members
of the Iron Mountain Board, thereby enabling existing management to exercise
significant control over Iron Mountain's affairs during such period. Pursuant
to the Restated Certificate, shares of Preferred Stock may be issued in the
future without further stockholder approval and upon such terms and conditions,
and having such rights, privileges and preferences (including the right to vote
and the right to convert into Common Stock), as the Iron Mountain Board may
determine. Pursuant to the By-Laws, approximately 4 million shares of Common
Stock that were issued by the Company in five acquisitions are subject to
restrictions on transfer for varying periods of time, all of which expire by
January 1999. A significant portion of such shares are held by affiliates.
Iron Mountain currently has outstanding $165,000,000 in aggregate
principal amount of 10-1/8% Senior Subordinated Notes due 2006 issued in
October 1996 (the "1996 Notes") and $250,000,000 in aggregate principal amount
of 8-3/4% Senior Subordinated Notes due 2009 issued in October 1997 (the "1997
Notes," and collectively with the 1996 Notes, the "Senior Subordinated Notes").
Under certain circumstances relating to a change of control of Iron Mountain (a
"Change of Control") as set forth in the indentures for the Senior Subordinated
Notes (the "Notes Indentures"), Iron Mountain will be required to make an offer
to purchase all of the outstanding Senior Subordinated
3
<PAGE>
Notes at a purchase price, in cash, equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase.
There can be no assurance that Iron Mountain would be able to obtain such funds
through a refinancing of the Senior Subordinated Notes to be purchased or
otherwise, or that the purchase would be permitted under the Credit Agreement.
Also, the requirement that Iron Mountain make an offer to purchase all of the
Senior Subordinated Notes then outstanding in the event of a Change of Control
may have the effect of deterring a third party from effecting a transaction
that would constitute a Change of Control.
Control by Principal Stockholders
The voting power held by certain large stockholders of Iron Mountain may
have the effect of discouraging certain types of transactions involving an
actual or potential change of control of Iron Mountain, including transactions
in which the holders of Common Stock might otherwise receive a premium for
their shares over then-current market prices. In addition, as a result of such
voting power, such stockholders have the ability to significantly affect the
election of Directors of Iron Mountain who, in turn, control the management and
affairs of Iron Mountain.
Restrictions Imposed by Terms of Indebtedness; Dependence Upon Operations of
Subsidiaries
The Credit Agreement and the Notes Indentures contain covenants
restricting or limiting the ability of the Company and its subsidiaries to,
among other things: (i) incur additional indebtedness; (ii) pay dividends or
make other restricted payments; (iii) make asset dispositions; (iv) permit
liens; (v) enter into sale and leaseback transactions; (vi) enter into certain
mergers; (vii) make certain investments; and (viii) enter into transactions
with related persons. This may adversely affect the Company's ability to pursue
its acquisition strategy. The Credit Agreement also requires the Company to
maintain specific financial ratios and to satisfy certain financial condition
tests. The Company's ability to meet those financial ratios and financial
condition tests can be affected by events beyond its control, and there can be
no assurance that the Company will meet those tests. The breach of any of those
covenants could result in a default under the Credit Agreement, the Notes
Indentures or all of them. In the event of a default under the Credit Agreement
or the Notes Indentures, the lenders could seek to declare all amounts
outstanding under the Credit Agreement, together with accrued and unpaid
interest, if any, to be immediately due and payable. If the Company were unable
to repay those amounts, the lenders under the Credit Agreement could proceed
against the collateral granted to them to secure that indebtedness. If the
indebtedness under the Credit Agreement or the Notes Indentures were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full that indebtedness and the other indebtedness of the
Company.
Substantially all of the tangible assets of the Company are held by, and
substantially all of the Company's operating revenues are derived from
operations of, the Company's subsidiaries. Therefore, the Company's ability to
pay interest and principal when due under the Credit Agreement and the Senior
Subordinated Notes is dependent upon the receipt of sufficient funds from such
subsidiaries. The Company's obligations under the Credit Agreement and the
Senior Subordinated Notes are guaranteed, jointly and severally, by
substantially all of the Company's present and future subsidiaries.
Environmental Matters
As of September 30, 1997, Iron Mountain owned or leased over 150 records
management facilities. Under various federal, state and local environmental
laws, ordinances and regulations ("Environmental Laws"), an owner of real
estate or a lessee conducting operations thereon may become liable for the
costs of investigation, removal or remediation of soil and groundwater
contaminated by certain hazardous substances or wastes or petroleum products.
Certain such laws impose cleanup responsibility and liability without regard to
whether the owner or operator of the real estate or operations thereon knew of
or was responsible for the contamination, and whether or not operations at the
property have been discontinued or title to the property has been transferred.
In addition, the presence of such substances, or the failure to properly
remediate such property, may adversely affect the current property owner's or
operator's ability to sell or rent such property or to borrow using such
property as collateral. The owner or operator of contaminated real estate also
may be subject to common law claims by third parties based on damages and costs
resulting from off-site migration of the contamination.
Certain Environmental Laws govern the removal, encapsulation or
disturbance of asbestos-containing materials ("ACMs"). Such laws may impose
liability for release of ACMs and may enable third parties to seek recovery
from owners or operators of real estate for personal injury associated with
exposure to such substances.
4
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Certain facilities operated by Iron Mountain contain or may contain ACMs.
Certain of the properties formerly or currently owned or operated by Iron
Mountain were previously used for industrial or other purposes that involved
the use or storage of hazardous substances or petroleum products or the
generation and disposal of hazardous wastes, and in some instances, included
the operation of underground storage tanks ("USTs"). In addition, certain of
such properties are adjacent to or near Superfund sites or other contaminated
properties. In connection with its former and current ownership or operation of
certain properties, Iron Mountain may be potentially liable for environmental
costs such as those discussed above. Iron Mountain has from time to time
conducted certain environmental investigations and remedial activities at
certain of its former and current facilities, but an in-depth environmental
review of all properties has not yet been conducted by or on behalf of Iron
Mountain.
Iron Mountain believes it is in substantial compliance with all applicable
material Environmental Laws. No assurance can be given that there are, or as a
result of possible future acquisitions there will be, no environmental
conditions for which Iron Mountain might be liable in the future or that future
regulatory action, as well as compliance with future Environmental Laws, will
not require Iron Mountain to incur costs for or at its properties that could
have a material adverse effect on Iron Mountain's financial condition and
results of operations.
No Intention to Pay Dividends
Iron Mountain has never declared or paid cash dividends on its capital
stock. Iron Mountain intends to retain future earnings for use in its business
and does not anticipate declaring or paying any cash dividends on shares of
Common Stock in the foreseeable future. In addition, Iron Mountain is currently
restricted under the terms of the Credit Agreement and the Notes Indentures
from declaring or paying cash dividends on its Common Stock.
THE COMPANY
Iron Mountain is America's largest records management company, as measured
by its revenues. The Company is a national, full-service provider of records
management and related services, enabling customers to outsource records
management functions. Iron Mountain has a diversified customer base, which
includes more than half of the Fortune 500 and numerous commercial, legal,
banking, healthcare, accounting, insurance, entertainment and government
organizations. The Company provides storage and related services for all major
media, including paper (the dominant form of record storage), computer disk and
tapes, microfilm and microfiche, master audio and video tapes, film and optical
disks, X-rays and blueprints. Iron Mountain's principal services provided to
its storage customers include courier pick-up and delivery, filing, retrieval
and destruction of records, database management, customized reporting and
disaster recovery support. The Company also sells storage materials and
provides consulting, facilities management, information technology staffing and
other outsourcing services.
Iron Mountain was incorporated in Delaware in 1990, but its predecessor
operations date from 1951. The principal executive office of the Company is
located at 745 Atlantic Avenue, Boston, Massachusetts 02111. Its telephone
number is (617) 357-4455.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Offered Securities
for general corporate purposes, which may include acquisitions, investments and
the repayment of indebtedness outstanding at such time or the reduction of
amounts outstanding under the Credit Agreement or any other credit facility.
Pending utilization as set forth above, the proceeds from the sale of the
Offered Securities will be invested in short-term, dividend-paying or
interest-bearing investment grade securities.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratio of
earnings to fixed charges for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Pro Forma(1)
-----------------------------
Nine months ended For the year For the nine
Year ended December 31, September 30, ended months ended
------------------------------------------------- ------------------------ December 31, September 30,
1992 1993 1994 1995 1996 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges 1.3x 1.3x 1.2x 1.1x 1.1x 1.1x 0.9x(2) 0.7x(3) 0.8x(4)
</TABLE>
(1) Includes results of operations prior to the date of acquisition and pro
forma adjustments for acquisitions completed in 1996 and 1997 and the
acquisition by the Company of Arcus Group, Inc. Does not include results of
operations prior to the date of acquisition, or pro forma adjustments, for
acquisitions completed by HIMSCORP or Arcus Group, Inc. in 1996 and 1997.
(2) The Company reported a pretax loss for the nine months ended September 30,
1997. For such period the Company would have needed to generate additional
income from continuing operations, before provision for income taxes, of
$2,156 to cover its fixed charges of $24,425.
(3) On a pro forma basis, the Company would have needed to generate additional
income from continuing operations, before provision for income taxes, of
$17,779 to cover its fixed charges of $58,449.
(4) On a pro forma basis, the Company would have needed to generate additional
income from continuing operations, before provision for income taxes, of
$7,601 to cover its fixed charges of $44,366.
The ratios of earnings to fixed charges presented above were computed by
dividing the Company's earnings by fixed charges. For this purpose, earnings
have been calculated by adding fixed charges to income (loss) before provision
for income taxes. Fixed charges consist of interest costs, whether expensed or
capitalized, the interest component of rental expense, if any, amortization of
debt discounts and deferred financing costs, whether expensed or capitalized.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be direct obligations of the Company, which may
be secured or unsecured, and which may be senior or subordinated indebtedness
of the Company. The Debt Securities may be fully and unconditionally guaranteed
on a secured or unsecured, senior or subordinated basis, jointly and severally
by the Guarantors. The Debt Securities will be issued under one or more
indentures (an "Indenture") between the Company and a trustee (an "Indenture
Trustee"). Any Indenture will be subject to, and governed by, the Trust
Indenture Act of 1939, as amended (the "TIA"). The statements made hereunder
relating to any Indentures and the Debt Securities to be issued thereunder are
summaries of certain anticipated provisions thereof and do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indentures and such Debt Securities.
General
The Company has filed with the Registration Statement with respect to the
Offered Securities a form of Indenture (as supplemented from time to time, the
"Senior Indenture") relating to the Senior Securities (as defined) and a form
of Indenture (as supplemented from time to time, the "Subordinated Indenture")
relating to the Senior Subordinated Securities (as defined) and Subordinated
Securities (as defined). The Debt Securities will be direct obligations of the
Company and, if issued under the Senior Indenture, will rank equally and
ratably in right of payment with other indebtedness of the Company that is not
subordinated (the "Senior Securities"), or, if issued under the Subordinated
Indenture, will be subordinated in right of payment to the prior payment in
full of Senior Indebtedness (as defined in the applicable Prospectus
Supplement) and may rank equally and ratably with the Senior Subordinated Notes
and any other senior subordinated indebtedness ("Senior Subordinated
Securities") or may be subordinated in right of payment to the Senior
Subordinated Notes and such other senior subordinated indebtedness
("Subordinated Securities"). See "--Subordination." The Debt Securities may be
issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time in or pursuant to authority
granted by a resolution of the Board of Directors of the Company or as
established in one or more
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indentures supplemental to any Indenture. All Debt Securities of one series
need not be issued at the same time and, unless otherwise provided, a series
may be reopened, without the consent of the holders of the Debt Securities of
such series, for issuances of additional Debt Securities of such series.
It is anticipated that any Indenture will provide that the Company may,
but need not, designate more than one Indenture Trustee thereunder, each with
respect to one or more series of Debt Securities. Any Indenture Trustee under
any Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Indenture Trustee may be appointed to act with
respect to such series. In the event that two or more persons are acting as
Indenture Trustee with respect to different series of Debt Securities, each
such Indenture Trustee shall be a trustee of a trust under the applicable
Indenture separate and apart from the trust administered by any other Indenture
Trustee, and, except as otherwise indicated herein, any action described herein
to be taken by the Indenture Trustee may be taken by each such Indenture
Trustee with respect to, and only with respect to, the one or more series of
Debt Securities for which it is Indenture Trustee under the applicable
Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including, where
applicable, the following:
(1) the title of such Debt Securities and whether such Debt Securities are
Senior Securities, Senior Subordinated Securities or Subordinated
Securities;
(2) the aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof, or (if applicable) the portion of
the principal amount of such Debt Securities which is convertible, or
the method by which any such portion shall be determined;
(4) if convertible, the terms on which such Debt Securities are
convertible, including the initial conversion price or rate and the
conversion period and any applicable limitations on the ownership or
transferability of the securities into which such Debt Securities are
convertible;
(5) the date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) the date or dates, or the method for determining such date or dates,
from which any interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment
dates, or the method by which any such date shall be determined, the
person to whom such interest shall be payable, and the basis upon which
interest shall be calculated if other than that of a 360-day year of 12
months consisting of 30 days each;
(8) the place or places where (i) the principal of, any premium and
interest on, and any additional amounts payable in respect of such Debt
Securities will be payable, (ii) such Debt Securities may be
surrendered for conversion or registration of transfer or exchange and
(iii) notices or demands to or upon the Company in respect of such Debt
Securities and the applicable Indenture may be served;
(9) the period or periods within which, the price or prices at which and
the terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Company, if the
Company is to have such an option;
(10) the obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or
periods within which, the price or prices at which and the terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(11) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
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<PAGE>
(12) if the principal of or premium, if any, or interest on such Debt
Securities is to be payable, at the election of the Company or a
holder thereof, in one or more currencies or currency units other than
that or those in which such Debt Securities are stated to be payable,
the currency, currencies or currency units in which payment of the
principal of and premium, if any, and interest on Debt Securities of
such series as to which such election is made shall be payable, and
the periods within which and the terms and conditions upon which such
election is to be made;
(13) whether the amount of payments of interest on, principal of or
premium, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula
or method may, but need not, be based on a currency, currencies,
currency unit or units or composite currency or currencies) and the
manner in which such amounts shall be determined;
(14) the events of default or covenants of such Debt Securities, to the
extent different from or in addition to those described in this
Prospectus, and any provisions granting special rights to the holders
of such Debt Securities upon the occurrence of events specified in
such Prospectus Supplement;
(15) whether such Debt Securities will be issued in certificated and/or
book-entry form;
(16) whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the
denominations thereof and terms and conditions relating thereto;
(17) whether any of such Debt Securities are to be issuable in permanent
global form (a "Global Security") and, if so, the terms and
conditions, if any, upon which interests in such Global Security may
be exchanged, in whole or in part, for the individual Debt Securities
represented thereby;
(18) the applicability, if any, of the defeasance and covenant defeasance
provisions described in this Prospectus or any modification thereof;
(19) if such Debt Securities are to be issued upon the exercise of debt
warrants, the time, manner and place for such Debt Securities to be
authenticated and delivered;
(20) whether and under what circumstances the Company will pay additional
amounts on such Debt Securities in respect of any tax, assessment or
governmental charge and, if so, whether the Company will have the
option to redeem such Debt Securities in lieu of making such payment;
(21) the subordination provisions, if any, relating to such Debt
Securities;
(22) the provisions, if any, relating to any security provided for such
Debt Securities; and
(23) the provisions, if any, relating to any guarantee of such Debt
Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). If material or applicable, special U.S.
federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable Prospectus
Supplement.
Except as described under "--Merger, Consolidation or Sale of Assets" or
as may be set forth in any Prospectus Supplement, an Indenture will not contain
any other provisions that would limit the ability of the Company to incur
indebtedness or that would afford holders of the Debt Securities protection in
the event of a highly leveraged or similar transaction involving the Company or
in the event of a change of control. Reference is made to the applicable
Prospectus Supplement for information with respect to any deletions from,
modifications of or additions to the events of default or covenants that are
described below, including any addition of a covenant or other provisions
providing event risk or similar protection.
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series that are registered securities, other than Global
Securities (which may be of any denomination), shall be issuable in
denominations of $1,000 and any integral multiple thereof.
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<PAGE>
Unless otherwise specified in the applicable Prospectus Supplement, the
interest on and principal of and premium, if any, on any series of Debt
Securities will be payable at the corporate trust office of the Indenture
Trustee, initially at the address which will be set forth in the applicable
Prospectus Supplement; provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the person entitled
thereto as it appears in the applicable register or by wire transfer of funds
to such person at an account maintained within the United States.
Any interest not punctually paid or duly provided for on any interest
payment date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the holder on the applicable regular record
date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Indenture Trustee, notice whereof shall be given to the holder of
such Debt Security not less than 10 days prior to such Special Record Date, or
may be paid at any time in any other lawful manner, all as more completely
described in the applicable Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Indenture
Trustee. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer thereof at the corporate
trust office of the applicable Indenture Trustee. Every Debt Security
surrendered for conversion, registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration of transfer or exchange of any Debt
Securities, but the Indenture Trustee or the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith. If the applicable Prospectus Supplement refers to any
transfer agent (in addition to the Indenture Trustee) initially designated by
the Company with respect to any series of Debt Securities, the Company may at
any time rescind the designation of any such transfer agent or approve a change
in the location through which any such transfer agent acts, except that the
Company will be required to maintain a transfer agent in each place of payment
for such series. The Company may at any time designate additional transfer
agents with respect to any series of Debt Securities.
Neither the Company nor any Indenture Trustee shall be required to (i)
issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days before any
selection of Debt Securities of that series to be redeemed and ending at the
close of business on (a) if such Debt Securities are issuable only as
registered securities, the day of the mailing of the relevant notice of
redemption and (b) if such Debt Securities are issuable as bearer securities,
the day of the first publication of the relevant notice of redemption or, if
such Debt Securities are also issuable as registered securities and there is no
publication, the mailing of the relevant notice of redemption; (ii) register
the transfer of or exchange any registered security so selected for redemption
in whole or in part, except, in the case of any registered security to be
redeemed in part, the portion thereof not to be redeemed; (iii) exchange any
bearer security so selected for redemption except that such a bearer security
may be exchanged for a registered security of that series and like tenor,
provided that such registered security shall be simultaneously surrendered for
redemption; or (iv) issue, register the transfer of or exchange any Debt
Security which has been surrendered for repayment at the option of the holder,
except the portion, if any, of such Debt Security not to be so repaid.
Merger, Consolidation or Sale of Assets
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another entity unless: (a) the Company is
the surviving corporation or the entity formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (b) the entity formed by
or surviving any such consolidation or merger (if other than the Company) or
the entity to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Debt Securities and any Indenture (pursuant to a supplemental
indenture in
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a form reasonably satisfactory to the applicable Indenture Trustee); and (c)
immediately after such transaction no event of default under the applicable
Indenture, and no event which, after notice or the lapse of time, or both,
would become such an event of default exists.
Certain Covenants
Provision of Financial Information. Whether or not required by the rules
and regulations of the Commission, so long as any Debt Securities are
outstanding, the Company will furnish to the holders of Debt Securities (a) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (b) all financial information that would be
required to be included in a Form 8-K filed with the Commission if the Company
were required to file such reports. In addition, whether or not required by the
rules and regulations of the Commission, the Company will file a copy of all
such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to investors who request it in writing.
Additional Covenants. Any additional or different covenants of the Company
(or modifications to the foregoing covenants) with respect to any series of
Debt Securities will be set forth in the applicable Prospectus Supplement.
Events of Default, Notice and Waiver
Each Indenture will provide that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (a)
default for 30 days in the payment of any installment on any Debt Security of
such series; (b) default in the payment of the principal of (or premium, if
any, on) any Debt Security of such series at its maturity; (c) default in
making any sinking fund payments as required for any Debt Security of such
series; (d) default in the performance of any other covenant of the Company
contained in the applicable Indenture (other than a covenant added to such
Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), such default having continued for 60 days
after written notice as provided in such Indenture; (e) default in the payment
of an aggregate principal amount exceeding a specified dollar amount of any
evidence of indebtedness of the Company or any mortgage, indenture or other
instrument under which such indebtedness is issued or by which such
indebtedness is secured, such default having occurred after the expiration of
any applicable grace period and having resulted in the acceleration of the
maturity of such indebtedness or constituting a default in the payment of such
indebtedness at final maturity, but only if such indebtedness is not discharged
or such acceleration is not rescinded or annulled; (f) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary (as
hereinafter defined) or any of their respective property; and (g) any other
event of default provided with respect to a particular series of Debt
Securities. The term "Significant Subsidiary" means each significant subsidiary
(as defined in Regulation S-X promulgated under the Securities Act) of the
Company.
If an Event of Default (other than an Event of Default described in clause
(f) above) under any Indenture with respect to Debt Securities of any series at
the time outstanding occurs and is continuing, then in every such case the
applicable Indenture Trustee or the holders of at least 25% in principal amount
of the outstanding Debt Securities of that series may declare the principal
amount (or, if the Debt Securities of that series are Original Issue Discount
Securities or indexed securities, such portion of the principal amount as may
be specified in the terms thereof) of all of the Debt Securities of that series
to be due and payable immediately by written notice thereof to the Company (and
to the applicable Indenture Trustee if given by the holders). If an Event of
Default described in clause (f) above with respect to the Debt Securities of
any series at the time outstanding shall occur, the principal amount of all the
Debt Securities of that series (or, in the case of any such Original Issue
Discount Security or other Debt Security, such specified amount) will
automatically, and without any action by the Indenture Trustee or any holder of
such series of Debt Securities, become immediately due and payable. However, at
any time after such a declaration of acceleration with respect to Debt
Securities of such series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be) has been made, but before a judgment
or decree for payment of the money due has been obtained by the applicable
Indenture Trustee, the holders of not less than a majority in principal amount
of outstanding Debt Securities of such series (or of all Debt Securities then
outstanding under the applicable
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Indenture, as the case may be) may rescind and annul such declaration and its
consequences if (i) the Company shall have deposited with the applicable
Indenture Trustee all required payments of the principal of (and premium, if
any) and interest on the Debt Securities of such series (or of all Debt
Securities then outstanding under the applicable Indenture, as the case may
be), plus certain fees, expenses, disbursements and advances of the applicable
Indenture Trustee, and (ii) all Events of Default, other than the non-payment
of accelerated principal (or specified portion thereof), or premium, if any, or
interest on the Debt Securities of such series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be) have been cured
or waived as provided in the applicable Indenture. Each of the Indentures will
also provide that the holders of not less than a majority in principal amount
of the outstanding Debt Securities of any series (or of all Debt Securities
then outstanding under the applicable Indenture, as the case may be) may waive
any past default with respect to such series and its consequences, except a
default (i) in the payment of the principal of (or premium, if any) or interest
on any Debt Security of such series or (ii) in respect of a covenant or
provision contained in the applicable Indenture that cannot be modified or
amended without the consent of the holder of each outstanding Debt Security
affected thereby.
The Indenture Trustee will be required to give notice to the holders of
Debt Securities within 90 days of a default under the applicable Indenture
unless such default has been cured or waived; provided, however, that such
Indenture Trustee may withhold notice to the holders of any series of Debt
Securities of any default with respect to such series (except a default in the
payment of the principal of (or premium, if any) or interest on any Debt
Security of such series or in the payment of any sinking fund installment in
respect of any Debt Security of such series) if specified responsible officers
of such Indenture Trustee consider such withholding to be in the interest of
such holders.
Each Indenture will provide that no holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
the Indenture or for any remedy thereunder, except in the case of failure of
the Indenture Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an event of default from the
holders of not less than a majority in principal amount of the outstanding Debt
Securities of such series, as well as an offer of reasonable indemnity. This
provision will not prevent, however, any holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof.
Subject to provisions in the applicable Indenture relating to its duties
in case of default, no Indenture Trustee will be under any obligation to
exercise any of its rights or powers under such Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding
under such Indenture, unless such holders shall have offered to the Indenture
Trustee reasonable security or indemnity. The holders of not less than a
majority in principal amount of the outstanding Debt Securities of any series
(or of all Debt Securities then outstanding under the applicable Indenture, as
the case may be) shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable Indenture
Trustee, or of exercising any trust or power conferred upon such Indenture
Trustee. However, an Indenture Trustee may refuse to follow any direction which
is in conflict with any law or the Indenture, which may involve such Indenture
Trustee in personal liability or which may be unduly prejudicial to the holders
of Debt Securities of such series not joining therein.
The Company will be required to deliver to each Indenture Trustee annually
a certificate, signed by one of several specified officers of the Company,
stating whether or not such officer has knowledge of any default under the
applicable Indenture and, if so, specifying each such default and the nature
and status thereof.
Modification of the Indenture
Modifications and amendments of an Indenture will be permitted to be made,
and a waiver of any existing default or compliance with any provision may be
made, only with the consent of the holders of not less than a majority in
principal amount of all outstanding Debt Securities or series of outstanding
Debt Securities which are affected by such modification, amendment or waiver;
provided, however, that no such modification, amendment or waiver may, without
the consent of the holder of each such Debt Security affected thereby, (i)
change the stated maturity of the principal of, or any installment of interest
(or premium, if any) on any such Debt Security; (ii) reduce the principal
amount of, or the rate or amount of interest on, or any premium payable on
redemption of, any such Debt Security, or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable upon declaration
of acceleration of the maturity thereof or would be provable in bankruptcy, or
adversely affect any right of repayment of the holder of any such Debt
Security; (iii) change the place of payment, or the
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coin or currency, for payment of principal of, premium, if any, or interest on
any such Debt Security; (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Debt Security; (v)
reduce the percentage of outstanding Debt Securities of any series necessary to
modify or amend the Indenture, to waive compliance with certain provisions
thereof or certain defaults and consequences thereunder or to reduce the quorum
or voting requirements set forth in such Indenture; or (vi) waive a default or
event of default in the payment of principal of or premium, if any, or interest
on the Debt Securities (except a recision of acceleration of the Debt
Securities by holders of not less than a majority in principal amount of Debt
Securities or series of Debt Securities affected thereby and that resulted from
such acceleration); or (vii) modify any of the foregoing provisions or any of
the provisions relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect such action or
to provide that certain other provisions may not be modified or waived without
the consent of the holder of such Debt Security.
Modifications and amendments of an Indenture will be permitted to be made
by the Company and the applicable Indenture Trustee thereunder without the
consent of any holder of Debt Securities for any of the following purposes: (i)
to evidence the succession of another person to the Company as obligor under
such Indenture; (ii) to add to the covenants of the Company for the benefit of
the holders of all or any series of Debt Securities or to surrender any right
or power conferred upon the Company in such Indenture; (iii) to add events of
default for the benefit of the holders of all or any series of Debt Securities;
(iv) to add or change any provisions of the Indenture to facilitate the
issuance of, or to liberalize certain terms of, Debt Securities in bearer form,
or to permit or facilitate the issuance of Debt Securities in uncertificated
form; provided that such action shall not adversely affect the interests of the
holders of the Debt Securities in any material respect; (v) to change or
eliminate any provisions of the Indenture; provided that any such change or
elimination shall become effective only when there are no Debt Securities
outstanding of any series created prior thereto which are entitled to the
benefit of such provision; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities of any series, including the
provisions and procedures, if applicable, for the conversion of such Debt
Securities into Common Stock or Preferred Stock; (viii) to provide for the
acceptance of appointment by a successor Indenture Trustee or facilitate the
administration of the trusts under an Indenture by more than one Indenture
Trustee; (ix) to cure any ambiguity, defect or inconsistency in an Indenture;
provided that such action shall not adversely affect the interests of holders
of Debt Securities of any series in any material respect; or (x) to supplement
any of the provisions of an Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such Debt Securities;
provided that such action shall not adversely affect the interests of the
holders of the Debt Securities of any series in any material respect.
Each Indenture will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security
that shall be deemed to be outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security in the
applicable Indenture, and (iv) Debt Securities owned by the Company or any
other obligor upon the Debt Securities or any affiliate of the Company or of
such other obligor shall be disregarded.
Each Indenture will contain provisions for convening meetings of the
holders of each series of Debt Securities. A meeting may be called at any time
by an Indenture Trustee, and also, upon request, by the Company or the holders
of at least 25% in principal amount of the outstanding Debt Securities of such
series, in any such case, upon notice given as provided in such Indenture.
Except for any consent that must be given by the holder of each Debt Security
affected by certain modifications, amendments and waiver of an Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present may be adopted by the affirmative vote of the holders of a
majority in principal amount of the outstanding Debt Securities of that series;
provided, however, that, except as referred to above, any resolution with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the holders of a
specified percentage, which
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is less than a majority, in principal amount of the outstanding Debt Securities
of a series may be adopted at a meeting or adjourned meeting duly reconvened at
which a quorum is present by the affirmative vote of the holders of such
specified percentage in principal amount of the outstanding Debt Securities for
that series. Any resolution passed or decision taken at any meeting of holders
of Debt Securities of any series duly held in accordance with the applicable
Indenture will be binding on all holders of Debt Securities of that series. The
quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the holders of not less than a specified percentage in
principal amount of the outstanding Debt Securities of a series, the persons
holding or representing such specified percentage in principal amount of the
outstanding Debt Securities of such series will constitute a quorum.
Notwithstanding the foregoing provisions, each Indenture will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver or other action that such Indenture expressly provides may be
made, given or taken by the holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the outstanding Debt Securities of such series
that vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under such Indenture.
Discharge, Defeasance and Covenant Defeasance
The Company may discharge certain obligations to holders of any series of
Debt Securities that have not already been delivered to the applicable
Indenture Trustee for cancellation and that either have become due and payable
or will become due and payable within one year (or scheduled for redemption
within one year) by irrevocably depositing with such Indenture Trustee, in
trust, funds in such currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are payable in
an amount sufficient to pay the entire indebtedness on such Debt Securities in
respect of principal (and premium, if any) and interest to the date of such
deposit (if such Debt Securities have become due and payable) or to the stated
maturity or redemption date, as the case may be.
An Indenture may provide that, if certain provisions thereof are made
applicable to the Debt Securities of or within a series pursuant to the
Indenture, the Company may elect either (i) to defease and be discharged from
any and all obligations with respect to such Debt Securities (except for the
obligation to pay additional amounts, if any, upon the occurrence of certain
events of tax, assessment or governmental charge with respect to payments on
such Debt Securities and the obligations to register the transfer or exchange
of such Debt Securities, to replace temporary or mutilated, destroyed, lost or
stolen Debt Securities, to maintain an office or agency in respect of such Debt
Securities and to hold moneys for payment in trust) ("defeasance") or (ii) to
be released from its obligations with respect to such Debt Securities under
certain sections of such Indenture (including the restrictions described under
"--Certain Covenants") and, if provided pursuant to such Indenture, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute a default or an event of default with
respect to such Debt Securities ("covenant defeasance"), in either case upon
the irrevocable deposit by the Company with the applicable Indenture Trustee,
in trust, of an amount, in such currency or currencies, currency unit or units
of composite currency or currencies in which such Debt Securities are payable
at stated maturity, or Government Obligations (as defined below), or both,
applicable to such Debt Securities which through the scheduled payment of
principal and interest, in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled dates therefor.
Such a trust may be established only if, among other things, the Company
has delivered to the applicable Indenture Trustee an opinion of counsel (as
specified in the applicable Indenture) to the effect that the holders of such
Debt Securities will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred.
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"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the foreign currency in which the Debt Securities of a particular series are
payable, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America or such other government,
which, in either case, are not callable or redeemable at the option of the
issuer thereof, and shall also include a depository receipt issued by a bank or
trust company as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of any such Government Obligation
held by such custodian for the account of the holder of a depository receipt;
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Obligations or the specific payment of interest on or principal of the
Government Obligations evidenced by such depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if
after the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (i) the holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (ii) a Conversion Event (as defined below) occurs in respect of
the currency, currency unit or composite currency in which such deposit has
been made, the indebtedness represented by such Debt Security shall be deemed
to have been, and will be, fully discharged and satisfied through the payment
of the principal of (and premium, if any) and interest on such Debt Security as
they become due out of the proceeds yielded by converting the amount so
deposited in respect of such Debt Security into the currency, currency unit or
composite currency in which such Debt Security becomes payable as a result of
such election or such cessation of usage based on the applicable market
exchange rate. "Conversion Event" means the cessation of use of (i) a currency,
currency unit or composite currency both by the government of the country which
issued such currency and for the settlement of transactions by a central bank
or other public institutions of or within the international banking community,
(ii) the ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a foreign currency
that ceases to be used by its government of issuance shall be made in U.S.
dollars.
If the Company effects covenant defeasance with respect to any Debt
Securities and such Debt Securities are declared due and payable because of the
occurrence of any event of default and the amount in such currency, currency
unit or composite currency in which such Debt Securities are payable, and
Government Obligations on deposit with the Trustee, are not sufficient to pay
amounts due on such Debt Securities at the time of the acceleration resulting
from such event of default (even though they would have been sufficient to pay
amounts due under such Debt Security at their stated time of maturity), the
Company would remain liable to make payment of such amounts due at the time of
acceleration.
Notwithstanding the description set forth under "--Subordination" below,
in the event that the Company deposits money or Government Obligations in
compliance with the applicable Indenture in order to defease all or certain of
its obligations with respect to any Senior Subordinated Securities or
Subordinated Securities, the moneys or Government Obligations so deposited will
not be subject to the subordination provisions of such Indenture and the
indebtedness evidenced by such Senior Subordinated Securities or Subordinated
Securities will not be subordinated in right of payment to the holders of
senior indebtedness and senior subordinated indebtedness (as the case may be)
to the extent of the moneys or Government Obligations so deposited.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
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Conversion Rights
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
Prospectus Supplement relating thereto. Such terms will include whether such
Debt Securities are convertible into Common Stock or Preferred Stock, the
conversion price or rate (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the
holders of the Company, the events requiring an adjustment of the conversion
price or rate and provisions affecting conversion in the event of the
redemption of such Debt Securities, and any restrictions on conversion.
Subordination
The terms and conditions, if any, upon which Senior Subordinated
Securities or Subordinated Securities of a series are subordinated to Debt
Securities of another series or to other indebtedness of the Company will be
set forth in the applicable Prospectus Supplement. Such terms will include a
description of the indebtedness ranking senior to such Senior Subordinated
Securities or Subordinated Securities, the restrictions on payments to the
holders of such Senior Subordinated Securities or Subordinated Securities while
a default with respect to such senior indebtedness is continuing, the
restrictions, if any, on payments to the holders of such Senior Subordinated
Securities or Subordinated Securities following an Event of Default, and
provisions requiring holders of such Senior Subordinated Securities or
Subordinated Securities to remit certain payments to holders of senior
indebtedness.
Global Securities
If so set forth in the applicable Prospectus Supplement, the Debt
Securities of a series may be issued in whole or in part in the form of one or
more Global Securities that will be deposited with, or on behalf of, a
depositary identified in the applicable Prospectus Supplement relating to such
series. Global Securities may be issued in either registered or bearer form and
in either temporary or permanent form. The specific terms of the depositary
arrangement with respect to any such series of Debt Securities will be
described in the applicable Prospectus Supplement.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of Iron Mountain and
certain provisions of the Restated Certificate and the By-Laws is a summary and
is qualified in its entirety by reference to the Restated Certificate and the
By-Laws.
Iron Mountain's authorized capital stock consists of 100,000,000 shares of
Common Stock, 1,000,000 shares of nonvoting common stock, $.01 par value per
share ("Nonvoting Common Stock") and 2,000,000 shares of Preferred Stock. No
shares of Preferred Stock have been issued. There were 13,452,917 shares of
Common Stock held by 219 holders of record and no shares of Nonvoting Common
Stock issued and outstanding as of January 5, 1998.
Common Stock
The rights of holders of the Common Stock and the Nonvoting Common Stock
are identical in all respects except voting and convertibility.
Dividends. Holders of record of shares of Common Stock and Nonvoting
Common Stock on the record date fixed by the Iron Mountain Board are entitled
to receive such dividends as may be declared by the Iron Mountain Board out of
funds legally available for such purpose. No dividends may be declared or paid
in cash or property on any share of either class, however, unless
simultaneously the same dividend is declared or paid on each share of the other
class. In the case of any stock dividend, holders of each class are entitled to
receive the same percentage dividend (payable in shares of that class) as the
holders of the other class.
Iron Mountain is currently restricted under the terms of the Credit
Agreement and the Notes Indentures from paying cash dividends on the Common and
Nonvoting Common Stock. Even if funds were to be available, Iron Mountain does
not intend to pay dividends in the foreseeable future.
Voting Rights. Except as otherwise required by law, on each matter
submitted for a vote of stockholders, holders of shares of Common Stock are
entitled to one vote per share and holders of Nonvoting Common Stock are not
entitled to vote.
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Under the Restated Certificate, the vote of holders of at least 80% of the
voting power of all outstanding shares of capital stock entitled to vote
generally in the election of Directors, voting together as a single class (the
"Voting Power"), is required for the amendment or repeal of, or the adoption of
any provision inconsistent with, provisions of the Restated Certificate
establishing a classified Board of Directors. The vote of holders of at least
66-2/3% of such Voting Power is required for the amendment or repeal of, or the
adoption of any provision inconsistent with, provisions of the Restated
Certificate authorizing the Preferred Stock, Common Stock and Nonvoting Common
Stock or specifying the terms of the Common Stock and the Nonvoting Common
Stock (including any amendment to increase any shares of authorized capital
stock). Certain other provisions also require such a 66-2/3% vote. See "DGCL and
Certain Provisions of the Restated Certificate and the By-Laws." There are no
cumulative voting rights in the election of the Board of Directors of the
Company.
Conversion Provisions. Shares of Nonvoting Common Stock are convertible,
at any time at the option of the holder, on a share-for-share basis into shares
of Common Stock without the payment of any additional consideration; provided
that the conversion of any shares of Nonvoting Common Stock by a "bank holding
company" under the Bank Holding Company Act of 1956, as amended, or an
affiliate thereof is prohibited if the conversion of the total number of shares
of Nonvoting Common Stock held by such holder would cause it to be in violation
of such Act.
Liquidation Rights. Upon liquidation, dissolution or winding-up of Iron
Mountain, the holders of Common Stock and Nonvoting Common Stock are entitled
to share ratably (based on the number of shares held) in all assets available
for distribution after payment in full of creditors and payment in full to any
holders of Preferred Stock then outstanding of any amount required to be paid
under the terms of such Preferred Stock.
Other Provisions. The outstanding shares of Common Stock and Nonvoting
Common Stock are validly issued, fully paid and nonassessable. In any merger,
consolidation or business combination, holders of each class will receive
identical consideration, except that in any such transaction in which shares of
stock are distributed, such shares may differ as to voting rights to the extent
that voting rights now differ between the two classes. Neither class may be
subdivided, consolidated, reclassified or otherwise changed unless,
concurrently, the other class is subdivided, consolidated, reclassified or
otherwise changed in the same proportion and in the same manner.
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe
Limited Partnership, 150 Royall Street, Canton, Massachusetts 02021 (telephone
number (781) 575-2000).
The Iron Mountain Board has the power to issue shares of authorized but
unissued Common Stock and Nonvoting Common Stock without further stockholder
action. The holders of Common Stock and Nonvoting Common Stock are not entitled
to preemptive or subscription rights. The issuance of such unissued shares
could have the effect of diluting the earnings per share and book value per
share of currently outstanding shares of Common Stock.
Preferred Stock
The authorized and unissued shares of Preferred Stock may be issued with
such designations, preferences, limitations and relative rights as the Iron
Mountain Board may authorize including, but not limited to: (i) the distinctive
designation of each series and the number of shares that will constitute such
series; (ii) the voting rights, if any, of shares of such series; (iii) the
dividend rate on the shares of such series, any restriction, limitation or
condition upon the payment of such dividends, whether dividends shall be
cumulative, and the dates on which dividends are payable; (iv) the prices at
which, and the terms and conditions on which, the shares of such series may be
redeemed, if such shares are redeemable; (v) the purchase or sinking fund
provisions, if any, for the purchase or redemption of shares of such series;
(vi) any preferential amount payable upon shares of such series in the event of
the liquidation, dissolution or winding-up of Iron Mountain or the distribution
of its assets; and (vii) the price or rates of conversion at which, and the
terms and conditions on which the shares of such series may be converted into
other securities, if such shares are convertible. Although Iron Mountain has no
present intention to issue shares of Preferred Stock, the issuance of Preferred
Stock, or the issuance of rights to purchase such shares, could discourage an
unsolicited acquisition proposal and the rights of holders of Common Stock will
be subject to, and may be adversely affected by, the rights of holders of any
Preferred Stock that may be issued in the future.
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
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in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Restated Certificate (including any applicable
certificates of designation) and the By-Laws.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) the title of such Preferred Stock;
(2) the number of shares of such Preferred Stock offered, the par value,
the liquidation preference per share and the offering price of such
Preferred Stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) the date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) the procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) the provision for a sinking fund, if any, for such Preferred Stock;
(7) the provision for redemption, if applicable, of such Preferred Stock;
(8) any listing of such Preferred Stock on any securities exchange;
(9) the terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company or another
series of Offered Securities, including the conversion price (or manner
of calculation thereof);
(10) whether interests in such Preferred Stock will be represented by
Depositary shares as more fully described below under "Description of
Depositary Shares;"
(11) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12) a discussion of federal income tax considerations applicable to such
Preferred Stock;
(13) the relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(14) any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company; and
(15) any limitations on direct or beneficial ownership and restrictions on
transfer.
As described under "Description of Depositary Shares," the Company may, at
its option, elect to offer Depositary Shares evidenced by depositary receipts
("Depositary Receipts"), each representing a fractional interest (to be
specified in the Prospectus Supplement relating to the particular series of the
Preferred Stock) in a share of the particular series of the Preferred Stock
issued and deposited with a Depositary (as defined below).
Rank
Unless otherwise determined by the Iron Mountain Board and specified in
the applicable Prospectus Supplement, it is expected that the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all Common Stock, and to all
equity securities ranking junior to such Preferred Stock; (ii) on a parity with
all equity securities issued by the Company the terms of which specifically
provide that such equity securities rank on a parity with the Preferred Stock;
and (iii) junior to all equity securities issued by the Company the terms of
which specifically provide that such equity securities rank senior to the
Preferred Stock.
Dividends
Holders of Preferred Stock of each series shall be entitled to receive,
when, as and if declared by the Iron Mountain Board, out of assets of the
Company legally available for payment, cash dividends at such rates and on such
dates as will be set forth in the applicable Prospectus Supplement. Each such
dividend shall be payable to
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holders of record as they appear on the stock transfer books of the Company
(or, if applicable, on the records of the Depositary referred to below under
"Description of Depositary Shares") on such record dates as shall be fixed by
the Board.
Dividends on any series of the Preferred Stock may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Iron Mountain Board fails to declare a
dividend payable on a dividend payment date on any series of the Preferred
Stock for which dividends are noncumulative, then the holders of such series of
the Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
If Preferred Stock of any series are outstanding, no full dividends shall
be declared or paid or set apart for payment on the Preferred Stock of the
Company of any other series ranking, as to dividends, on a parity with or
junior to the Preferred Stock of such series for any period unless (i) if such
series of Preferred Stock has a cumulative dividend, full cumulative dividends
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Stock of such series for all past dividend periods and the then current
dividend period or (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends for the then current dividend period have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Stock of such series. When dividends are not paid in full (or a sum sufficient
for such full payment is not so set apart) upon the Preferred Stock of any
series and the shares of any other series of Preferred Stock ranking on a
parity as to dividends with the Preferred Stock of such series, all dividends
declared upon Preferred Stock of such series and any other series of Preferred
Stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the Preferred Stock of such series (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock do not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the repayment
thereof set apart for payment for all past dividend periods and the then
current dividend period, and (ii) if such series of Preferred Stock does not
have a cumulative dividend, full dividends on the Preferred Stock of such
series have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for the then
current dividend period, no dividends (other than in Common Stock or other
capital stock ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the Common Stock
or any other capital stock of the Company ranking junior to or on a parity with
the Preferred Stock of such series as to dividends or upon liquidation, nor
shall any Common Stock or any other capital stock of the Company ranking junior
to or on a parity with the Preferred Stock of such series as to dividends or
upon liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Company (except by
conversion into or exchange for other capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation and except pursuant to certain pro rata offers to purchase or a
concurrent redemption of all, or a pro rata portion of, the outstanding shares
of the Preferred Stock of such series and any other series of Preferred Stock
ranking on a parity with such series as to dividends and liquidation).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
Redemption
If so provided in the applicable Prospectus Supplement, the Preferred
Stock will be subject to mandatory redemption or redemption at the option of
the Company, as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
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The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of such Preferred Stock
that shall be redeemed by the Company in each year commencing after a date to
be specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which shall not, if
such Preferred Stock do not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into shares of the applicable
capital stock of the Company pursuant to conversion provisions specified in the
applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Stock has a cumulative dividend, full cumulative dividends on all shares of any
series of Preferred Stock shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(ii) if such series of Preferred Stock does not have a cumulative dividend,
full dividends on the Preferred Stock of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend period,
no shares of any other series of Preferred Stock ranking, as to dividends and
upon liquidation, on parity with or junior to the Preferred Stock of such
series shall be redeemed unless all outstanding series of Preferred Stock of
such series are simultaneously redeemed and the Company shall not purchase or
otherwise acquire directly or indirectly any Preferred Stock of such series
(except by conversion into or exchange for capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of Preferred Stock of such series pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
Preferred Stock of such series.
If fewer than all of the outstanding Preferred Stock of any series are to
be redeemed, the number of Preferred Stock to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held by such holders
(with adjustments to avoid redemption of fractional shares) or by lot in manner
determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Stock are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all the Preferred
Stock of any series are to be redeemed, the notice mailed to each such holder
thereof shall also specify the number of Preferred Stock to be redeemed from
each such holder. If notice of redemption of any Preferred Stock has been given
and if the funds necessary for such redemption have been set aside by the
Company in trust for the benefit of the holders of any of the Preferred Stock
so called for redemption, then from and after the redemption date dividends
will cease to accrue on such Preferred Stock, and any and all rights of the
holders of such shares will terminate, except the right to receive the
redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of any Common Stock or any other class or series of
capital stock of the Company ranking junior to a series of Preferred Stock in
the distribution of assets upon any liquidation, dissolution or winding up of
the Company, the holders of such series of Preferred Stock shall be entitled to
receive out of assets of the Company legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock do not have a cumulative dividend). After
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payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Stock will have no right or claim to any of
the remaining assets of the Company. In the event that upon any such voluntary
or involuntary liquidation, dissolution or winding up, the available assets of
the Company are insufficient to pay the amount of the liquidating distributions
on all outstanding shares of a series of Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of capital stock of
the Company ranking on a parity with such series of Preferred Stock in the
distribution of assets (including, if applicable, other series of Preferred
Stock), then the holders of such series of Preferred Stock and all other such
classes or series of capital stock shall share ratably in any such distribution
of assets in proportion to the full liquidating distributions to which they
would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders
of Preferred Stock, the remaining assets of the Company shall be distributed
among the holders of any other classes or series of capital stock ranking
junior to the Preferred Stock upon liquidation, dissolution or winding up,
according to their respective rights and preferences and in each case according
to their respective number of shares. For such purposes, the consolidation or
merger of the Company with or into any other trust or corporation, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
Voting Rights
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, at any
time dividends on any Preferred Stock shall be in arrears for a specified
number of consecutive quarterly periods, the holders of such Preferred Stock
and any other series of Preferred Stock upon which like voting rights have been
conferred and are exercisable (voting separately as a class) will be entitled
to vote for the election of two additional directors of the Company at the next
annual meeting of shareholders and at each subsequent meeting until (i) if such
series of Preferred Stock has a cumulative dividend, all dividends accumulated
on such Preferred Stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment or (ii) if such series of Preferred
Stock does not have a cumulative dividend, four consecutive quarterly dividends
shall have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment.
Unless otherwise specified in the applicable Prospectus Supplement, so
long as any Preferred Stock remain outstanding, the Company shall not, without
the affirmative vote or consent of the holders of a majority of the shares of a
series of Preferred Stock outstanding at the time that is adversely affected,
given in person or by proxy, either in writing or at a meeting (such series
voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to such series of Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up, or
reclassify any authorized capital stock of the Company into any such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or
repeal the provisions of the certificate of designation for such series of
Preferred Stock, whether by merger, consolidation or otherwise, so as to
materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; provided,
however, that any increase in the amount of the authorized Preferred Stock or
the creation or issuance of any other series of Preferred Stock, or any
increase in the amount of authorized shares of such series or any other series
of Preferred Stock, in each case ranking on a parity with or junior to the
Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
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As more fully described under "Description of Depositary Shares" below, if
the Company elects to issue Depositary Shares, each representing a fraction of
share of a series of the Preferred Stock, each such Depositary will, in effect
be entitled to such fraction of a vote per Depositary Share.
Conversion Rights
The terms and conditions, if any, upon which shares of any series of
Preferred Stock may be converted into or exchanged for Common Stock or another
series of Preferred Stock or other series of Offered Securities will be set
forth in the Prospectus Supplement relating thereto. Such terms will include
the number of Common Stock or other securities into which the Preferred Share
is convertible or exchangeable, conversion or exchange price (or manner of
calculation thereof), the conversion or exchange period, provisions as to
whether conversion or exchange will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion or exchange price and provisions affecting conversion or exchange in
the event of the redemption such Preferred Stock.
DESCRIPTION OF DEPOSITARY SHARES
General
The description set forth below and in any applicable Prospectus
Supplement of certain provisions of any Deposit Agreement (as defined below)
and of the Depositary Shares and depositary receipts representing Depositary
Shares ("Depositary Receipts") does not purport to be complete and is subject
to and qualified in its entirety by reference to the forms of Deposit Agreement
and Depositary Receipts relating to each series of the Preferred Stock which
have been or will be filed with the Commission at or prior to the time of the
offering of such series of the Preferred Stock.
The Company may, at its option, elect to offer fractional interests in
shares of Preferred Stock, rather than shares of Preferred Stock. In the event
such option is exercised, the Company will provide for the issuance by a
Depositary (as defined below) to the public of Depositary Receipts, each of
which will represent a fractional interest to be set forth in the Prospectus
Supplement relating to a particular series of the Preferred Stock which will be
filed with the Commission at or prior to the time of the offering of such
series of the Preferred Stock as described below. Preferred Stock of each
series represented by Depositary Shares will be deposited under a separate
deposit agreement (each, a "Deposit Agreement") among the Company and the
depositary named therein (a "Depositary"). The Prospectus Supplement relating
to a series of Depositary Shares will set forth the name and address of the
Depositary. Subject to the terms of the applicable Deposit Agreement, each
owner of a Depositary Share will be entitled, in proportion to the fractional
interest of a share of a particular series of Preferred Stock represented by
such Depositary Share to all the rights and preferences of the Preferred Stock
represented by such Depositary Shares (including dividend, voting, conversion,
redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Upon surrender of Depositary
Receipts at the office of the Depositary and upon payment of the charges
provided in the Deposit Agreement and subject to the terms thereof, a holder of
Depositary Shares is entitled to have the Depositary deliver to such holder the
shares of Preferred Stock underlying the Depositary Shares evidenced by the
surrendered Depositary Receipts.
Dividends and Other Distributions
A Depositary will be required to distribute all cash dividends or other
cash distributions received in respect of the applicable Preferred Stock to the
record holders of Depositary Receipts evidencing the related Depositary Shares
in proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and
other information and to pay certain charges and expenses to such Depositary.
Fractions will be rounded down to the market whole cent.
In the event of a distribution other than in cash, a Depositary will be
required to distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to such Depositary, unless such
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Depositary determines that it is not feasible to make such distribution, in
which case such Depositary may, with the approval of the Company, sell such
property and distribute the net proceeds from such sale to such holders.
No distributions will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which have been converted or
exchanged. The Deposit Agreement will also contain provisions relating to the
manner in which any subscription or similar rights offered by the Company to
holders of the Preferred Stock shall be made available to holders of Depositary
Shares.
Redemption of Depositary Shares
If a series of the Preferred Stock underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the proceeds
received by the Depositary resulting from the redemption, in whole or in part,
of such series of the Preferred Stock held by the Depositary. The Depositary
shall mail notice of redemption not less than 30 and not more than 60 days
prior to the date fixed for redemption to the record holders of the Depositary
Receipts evidencing the Depositary Shares to be so redeemed at their respective
addresses appearing in the Depositary's books. The redemption price per
Depositary Share will be equal to the applicable fraction of the redemption
price per share payable with respect to such series of the Preferred Stock.
Whenever the Company redeems shares of Preferred Stock held by the Depositary,
the Depositary will redeem as of the same redemption date the number of
Depositary Shares relating to shares of Preferred Stock so redeemed. If less
than all of the Depositary Shares are to be redeemed, the Depositary Shares to
be redeemed will be selected by lot or pro rata as may be determined by the
Depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares and the related Depositary Receipts will
cease, except the right to receive the moneys payable upon such redemption and
any money or other property to which the holders of such Depositary Shares were
entitled upon such redemption upon surrender to the Depositary of the
Depositary Receipts evidencing such Depositary Shares.
Voting of the Preferred Stock
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Depositary will be required
to mail the information contained in such notice of meeting to the record
holders of the Depositary Receipts evidencing the Depositary Shares which
represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Depositary as to the exercise of the voting rights pertaining to the amount of
Preferred Stock represented by such holder's Depositary Shares. Such Depositary
will endeavor, insofar as practical, to vote the amount of Preferred Stock
represented by such Depositary Shares in accordance with such instructions, and
the Company will agree to take all reasonable action which may be deemed
necessary by such Depositary in order to enable such Depositary to do so. Such
Depositary will be required to abstain from voting the amount of Preferred
Stock represented by such Depositary Shares to the extent it does not receive
specific instructions from the holders of Depositary Receipts evidencing such
Depositary Shares. The Depositary will not be responsible for any failure to
carry out any instruction to vote, or for the manner or effect of any such vote
made, as long as such action or non-action is in good faith and does not result
from gross negligence or willful misconduct of such Depositary.
Liquidation Preference
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Share will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by such Depositary Share, as set forth in the
applicable Prospectus Supplement.
Conversion of Preferred Stock
The Depositary Shares, as such, will not be convertible into or
exchangeable for Common Stock, Preferred Stock or any other securities or
property of the Company. Nevertheless, if so specified in the applicable
Prospectus Supplement relating to an offering of Depositary Shares, the
Depositary Receipts may be surrendered by holders thereof to the applicable
Depositary with written instructions to such Depositary to instruct the Company
to cause
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conversion or exchange of the Preferred Stock represented by the Depositary
Share evidenced by such Depositary Receipts into Common Stock, other shares of
Preferred Stock of the Company or such other Offered Securities as shall be
provided therein, and the Company will agree that upon receipt of such
instruction and any amounts payable in respect thereof, it will cause the
conversion or exchange thereof utilizing the same procedures as those provided
for delivery of Preferred Stock to effect such conversion or exchange. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a new Depositary Receipt or Depositary Receipts will be issued for any
Depositary Shares not to be converted.
Amendment and Termination of a Deposit Agreement
Any form of Depositary Receipt evidencing Depositary Shares and any
provision of a Deposit Agreement will be permitted at any time to be amended by
agreement between the Company and the applicable Depositary. However, any
amendment that materially and adversely alters the rights of the holders of
Depositary Shares will not be effective unless such amendment has been approved
by the existing holders of at least a majority of the applicable Depositary
Shares then outstanding. Every holder of an outstanding Depositary Receipt at
the time any such amendment becomes effective shall be deemed, by continuing to
hold such Depositary Receipt, to consent and agree to such amendment and to be
bound by the applicable Deposit Agreement as amended thereby.
Any Deposit Agreement may be terminated by the Company upon not less than
30 days' prior written notice to the applicable Depositary if a majority of
each series of Preferred Stock affected by such termination consents to such
termination, whereupon such Depositary will be required to deliver or make
available to each holder of Depositary Receipts, upon surrender of the
Depositary Receipts held by such holder, such number of whole or fractional
Preferred Stock as are represented by the Depositary Shares evidenced by such
Depositary Receipts together with any other property held by such Depositary
with respect to such Depositary Receipts. In addition, a Deposit Agreement will
automatically terminate if (i) all outstanding Depositary Shares thereunder
shall have been redeemed; (ii) there shall have been a final distribution in
respect of the related Preferred Stock in connection with any liquidation,
dissolution or winding up of the Company and such distribution shall have been
distributed to the holders of Depositary Receipts evidencing the Depositary
Shares underlying such Preferred Stock; or (iii) each of the related Preferred
Stock shall have been converted or exchanged into securities not so represented
by Depositary Shares.
Charges of a Depositary
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, the
Company will pay the fees and expenses of a Depositary in connection with the
initial deposit of the Preferred Stock and any redemption of Preferred Stock.
However, holders of Depositary Receipts will pay any transfer or other
governmental charges and the fees and expenses of a Depositary for any duties
requested by such holders to be performed which are outside of those expressly
provided for in the applicable Deposit Agreement.
Resignation and Removal of Depositary
A Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove a Depositary, any
such resignation or removal to take effect upon the appointment of a successor
Depositary. A successor Depositary will be required to be appointed within 60
days after delivery of the notice of resignation or removal and will be
required to be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least $50
million.
Miscellaneous
A Depositary will be required to forward to holders of Depositary Receipts
any reports and communications from the Company which are received by such
Depositary with respect to the related Preferred Stock.
Neither Depositary nor the Company will be liable if it is prevented from
or delayed in, by law or any circumstances beyond its control, performing its
obligations under a Deposit Agreement. The obligations of the Company and a
Depositary under a Deposit Agreement will be limited to performing their duties
thereunder in good faith and without gross negligence or willful misconduct,
and neither the Company nor any applicable Depositary
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will be obligated to prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or Preferred Stock represented thereby
unless satisfactory indemnity is furnished. The Company and any Depositary will
be permitted to rely on written advice of counsel or accountants, on
information provided by persons presenting Preferred Stock represented thereby
for deposit, holders of Depositary Receipts or other persons believed in good
faith to be competent to give such information, and on documents believed in
good faith to be genuine and signed by a proper party.
In the event a Depositary shall receive conflicting claims, requests or
instructions from any holders of Depositary Receipts, on the one hand, and the
Company, on the other hand, such Depositary shall be entitled to act on such
claims, requests or instructions received from the Company.
DESCRIPTION OF WARRANTS
The Company may issue, together with any other series of Offered
Securities or separately, Warrants entitling the holder to purchase from or
sell to the Company, or to receive from the Company the cash value of the right
to purchase or sell, Debt Securities, Preferred Stock, Depositary Shares or
Common Stock. Any Warrants will be issued under Warrant Agreements (each a
"Warrant Agreement") to be entered into between the Company and a warrant agent
(the "Warrant Agent"), all as set forth in the applicable Prospectus Supplement
relating to the particular issue of Warrants.
In the case of each series of Warrants, the applicable Prospectus
Supplement will describe the terms of the Warrants being offered thereby,
including the following, if applicable: (i) the offering price; (ii) the
currencies in which such Warrants are being offered; (iii) the number of
Warrants offered; (iv) the securities underlying the Warrants; (v) the exercise
price, the procedures for exercise of the Warrants and the circumstances, if
any, that will cause the Warrants to be deemed to be automatically exercised;
(vi) the date on which the right shall expire; (vii) U.S. federal income tax
consequences; and (viii) other terms of the Warrants.
Warrants may be exercised at the appropriate office of the Warrant Agent
or any other office indicated in the applicable Prospectus Supplement. Prior to
the exercise of Warrants entitling the holder to purchase any securities,
holders of such Warrants will not have any of the rights of holders of the
securities purchasable upon such exercise and will not be entitled to payments
made to holders of such securities.
The Warrant Agreements may be amended or supplemented without the consent
of the holders of the Warrants issued thereunder to effect changes that are not
inconsistent with the provisions of the Warrants and that do not adversely
affect the interests of the holders of the Warrants.
DGCL AND CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE AND THE BY-LAWS
The Restated Certificate and the By-Laws contain certain provisions that
could delay or make more difficult the acquisition of Iron Mountain by means of
a tender offer, a proxy contest or otherwise. These provisions, as described
below, are expected to discourage certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire
control of Iron Mountain first to negotiate with Iron Mountain. Iron Mountain
believes that the benefits of increased protection of its ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure Iron Mountain outweigh the disadvantages of discouraging such
proposals because, among other things, negotiations with respect to such
proposals could result in an improvement of their terms.
Classified Board of Directors
The Restated Certificate and the By-Laws provide for a Board of Directors
that is divided into three classes of Directors, as nearly equal in number as
possible, with the term of each class expiring in a different year. The By-Laws
provide that the number of Directors will be fixed from time to time
exclusively by the Iron Mountain Board, but shall consist of not more than 15
nor less than three Directors. The classified Iron Mountain Board is intended
to promote continuity and stability of Iron Mountain's management and policies
since a majority of the Directors at any given time will have prior experience
as Directors of Iron Mountain. Such continuity and stability facilitates
long-range planning of Iron Mountain's business and ensures the quality of its
business operations. The classification of Directors has the effect of making
it more difficult to change the composition of the Iron Mountain
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Board. At least two annual stockholder meetings, instead of one, would be
required to effect a change in the majority control of the Iron Mountain Board,
except in the event of vacancies resulting from removal (in which case the
remaining Directors will fill the vacancies so created). See "--Removal of
Directors; Filling Vacancies on the Iron Mountain Board."
Removal of Directors; Filling Vacancies on the Iron Mountain Board
The Restated Certificate and Iron Mountain By-Laws provide that an Iron
Mountain Director may be removed by the stockholders only for cause at any time
during such Director's term of office by the affirmative vote of the holders of
at least 80% of the Voting Power.
The By-Laws and the Restated Certificate both provide that a vacancy on
the Iron Mountain Board, including a vacancy created by an increase in the size
of the Iron Mountain Board by the Directors, may be filled by a majority of the
remaining Directors or by a sole remaining Director, or if no Directors remain,
then by the stockholders. The Restated Certificate also provides that any
Director elected by the Iron Mountain Board to replace another Director of a
given class of Directors will hold office until the next election of such class
of Directors. These provisions are to ensure that a third party would be
precluded from removing incumbent Directors and simultaneously gaining control
of the Iron Mountain Board by filling the vacancies created by such removal
with its own nominees. Moreover, even if the holders of the outstanding Common
Stock were to vote to remove Directors for cause, only the remaining Directors
would have the power to fill the vacancies created by such removal, unless such
vote provided for the removal of the entire Iron Mountain Board for cause.
Amendment of Certain Provisions of the Restated Certificate and the By-Laws
The Restated Certificate and the By-Laws contain provisions requiring the
affirmative vote of the holders of at least 66-2/3% of the Voting Power to amend
certain provisions of the Restated Certificate and the By-Laws. This
supermajority voting provision also applies to (i) the provisions of the
Restated Certificate authorizing Iron Mountain to release its Directors from
any liability for monetary damages as a result of any breach of their fiduciary
duties, with certain exceptions mandated by the DGCL, and (ii) the provisions
allowing for the indemnification of officers and Directors of Iron Mountain.
The Restated Certificate provides that the By-Laws may be amended only by a
majority of the full Iron Mountain Board or by the stockholders holding at
least 66-2/3% of the Voting Power. The DGCL provides that by-laws may not be
amended by a corporation's board of directors unless the corporation's
certificate of incorporation expressly authorizes such amendments by the board
of directors; the Restated Certificate includes such a provision. Under the
Restated Certificate, at least 80% of the Voting Power is required to approve
amendments to those provisions of the Restated Certificate or Iron Mountain
By-Laws establishing a classified Board, specifying notice requirements for
stockholder nominations of Directors or business to be brought by a stockholder
before an annual meeting and limiting the rights of stockholders to remove
Directors or fill vacancies on the Iron Mountain Board, to call special
meetings or to effect actions by written consent.
Stockholder Actions and Meetings
Iron Mountain's Restated Certificate provides that stockholder action may
be taken only at an annual or special meeting of stockholders and prohibits
stockholder action by written consent in lieu of a meeting. The Restated
Certificate and Iron Mountain By-Laws provide that special meetings of
stockholders can be called by the Chairman of the Board of Directors, if any,
or the Iron Mountain Board pursuant to a resolution approved by a majority of
the members of the Iron Mountain Board. The business permitted to be conducted
at any special meeting of stockholders is limited to the business brought
before the meeting by the Iron Mountain Board. The ByLaws set forth an advance
notice procedure with regard to the nomination, other than by or at the
direction of the Iron Mountain Board, of candidates for election as directors
and with regard to business brought before an annual meeting of stockholders of
Iron Mountain.
Delaware Anti-Takeover Statute
Subject to certain exceptions set forth therein, Section 203 of the DGCL
provides that a corporation shall not engage in any business combination with
any "interested stockholder" for a three-year period following the date that
such stockholder becomes an interested stockholder unless (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming
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an interested stockholder, (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares) or
(iii) on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and by the affirmative vote of at least
66-2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified therein, an interested stockholder is defined
to mean any person that (a) is the owner of 15% or more of the outstanding
voting stock of the corporation or (b) is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within three years immediately prior to the relevant
date, or any affiliate or associate of such person referred to in (a) or (b) of
this sentence. Under certain circumstances, Section 203 of the DGCL makes it
more difficult for an interested stockholder to effect various business
combinations with a corporation for a three-year period, although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or by-laws, elect not to be governed by this section, effective 12
months after adoption. The Restated Certificate and the By-Laws do not exclude
Iron Mountain from the restrictions imposed under Section 203 of the DGCL. It is
anticipated that the provisions of Section 203 of the DGCL may encourage
companies interested in acquiring Iron Mountain to negotiate in advance with the
Iron Mountain Board.
DESCRIPTION OF INDEBTEDNESS
The summaries contained herein of certain of the indebtedness of Iron
Mountain do not purport to be complete and are qualified in their entirety by
reference to the provisions of the various agreements and indentures related
thereto, which are filed as exhibits to the Registration Statement of which
this Prospectus is a part and to which reference is hereby made.
Credit Agreement
The Credit Agreement, as currently in effect, is a $250.0 million
revolving credit facility that matures on September 30, 2002. Upon maturity,
all outstanding revolving credit loans and other amounts payable thereunder
will become due.
Borrowings under the Credit Agreement may be used to finance possible
future acquisitions, as well as for working capital and general corporate
purposes. The Company's obligations under the Credit Agreement are guaranteed
by substantially all of Iron Mountain's subsidiaries and are secured by the
pledge of the stock of such subsidiaries. Prepayment of outstanding borrowings
under the Credit Agreement are required in certain circumstances out of the
proceeds of certain insurance payments, condemnations, issuances of
indebtedness and asset dispositions.
The Credit Agreement permits the Company to elect interest rates from time
to time, as to all or a portion of the borrowings made thereunder, at interest
rates based upon the applicable reference rate and margin or spread over such
reference rate (which spread varies based upon the ratio of the Company's
indebtedness to EBITDA). The reference rate, at the Company's option, may be
based upon (i) a fluctuating rate of interest equal to the higher of the prime
rate of The Chase Manhattan Bank, or rates based upon certificate of deposit or
overnight federal funds rates, or (ii) for interest periods of 1, 2, 3, 6 or
(if available) 12 months, the interest rates prevailing on the date of
determination for the selected interest period in the London interbank market.
The Credit Agreement contains covenants restricting the ability of Iron
Mountain and its subsidiaries to, among other things: (i) declare dividends or
redeem or repurchase capital stock; (ii) make optional payments and
modifications of subordinated and other debt instruments; (iii) incur liens and
engage in sale and leaseback transactions; (iv) make loans and investments; (v)
incur indebtedness and contingent obligations; (vi) make capital expenditures;
(vii) engage in mergers, acquisitions and assets sales; (viii) enter into
transactions with affiliates; and (ix) make changes in their lines of business.
Iron Mountain is also required to comply with financial covenants with respect
to: (i) a maximum leverage ratio; (ii) a minimum interest coverage ratio; and
(iii) a minimum fixed charge coverage ratio. The Credit Agreement also contains
customary affirmative covenants and events of default.
The Senior Subordinated Notes
In October 1996, the Company issued $165.0 million principal amount of the
1996 Notes, and in October 1997, the Company issued $250.0 million principal
amount of the 1997 Notes. The 1996 Notes mature on October 1,
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2006, and bear interest at a rate of 10-1/8% per annum, payable semi-annually in
arrears on April 1 and October 1. The 1997 Notes mature on September 30, 2009,
and bear interest at a rate of 8-3/4% per annum, payable semi-annually in
arrears on March 31 and September 30. Both the 1996 Notes and the 1997 Notes
are general, unsecured obligations of the Company, subordinated in right of
payment to senior indebtedness of the Company, and are guaranteed on an
unsecured, senior subordinated and joint and several basis by substantially all
of the Company's present and future subsidiaries.
Each of the Notes Indentures provides that the Company may redeem up to
35% of the initial principal amount of the 1996 Notes and the 1997 Notes,
respectively, for a period of 36 months after the date of issuance with the net
proceeds of one or more equity offerings, whether such offerings are registered
pursuant to the Securities Act or not (unless such equity securities are
redeemable prior to the maturity of the 1996 Notes or the 1997 Notes, as the
case may be). In such event, the redemption price for the 1996 Notes would be
109.125%, and the redemption price for the 1997 Notes would be 108.75%, of the
aggregate principal amount plus, in each case, accrued and unpaid interest.
Each of the Notes Indentures also provides that the Company must repurchase, at
the option of the holders, the 1996 Notes and the 1997 Notes, respectively, at
100% of their principal amount, plus accrued and unpaid interest, upon the
occurrence of a "Change of Control," as defined therein. Except for required
repurchases upon the occurrence of a change of control or in the event of
certain asset sales, each as described in the respective Indenture, the Company
is not required to make sinking fund or redemption payments with respect to the
1996 Notes or the 1997 Notes. The 1996 Notes become redeemable at the option of
the Company at stated premiums commencing October 1, 2001. The 1997 Notes
become redeemable at the option of the Company at stated premiums commencing
September 30, 2002. Prior to September 30, 2002, the 1997 Notes are also
redeemable at the option of the Company, in whole or in part, at a specified
make-whole price.
The Notes Indentures contain covenants restricting or limiting the ability
of the Company and its subsidiaries to, among other things: (i) incur
additional indebtedness, including indebtedness ranking senior to the 1996
Notes and the 1997 Notes and junior to any senior indebtedness; (ii) pay
dividends or make other restricted payments; (iii) make asset dispositions;
(iv) permit liens; (v) enter into sale and leaseback transactions; (vi) enter
into certain mergers; (vii) make certain investments; and (viii) enter into
transactions with related persons.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters
for public offering and sale by them or may sell the Offered Securities to
investors directly or through agents. Any such underwriter or agent involved in
the offer and sale of the Offered Securities will be named in the applicable
Prospectus Supplement.
The distribution of Offered Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
at market prices prevailing at the time of sale, at prices related to such
market prices or at negotiated prices. In connection with the sale of Offered
Securities, underwriters or agents may receive or be deemed to have received
compensation from the Company or from purchasers in the form of underwriting
discounts, concessions or commissions. Underwriters may sell Offered Securities
to or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or from purchasers.
Any underwriting compensation paid by the Company to underwriters or
agents in connection with the offering of Offered Securities, and any
discounts, concessions or commissions allowed by underwriters to participating
dealers, will be set forth in the applicable Prospectus Supplement.
Underwriters, dealers and agents participating in the distribution of the
Offered Securities may be deemed to be underwriters, and any discounts,
concessions and commissions received by them and any profit realized by them on
resale of the Offered Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with the Company, to indemnification
against and contribution toward certain civil liabilities, including
liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Offered Securities from the
Company at the public offering price set forth in such Prospectus Supplement
pursuant to contracts providing for payment and delivery on a future date or
dates. Institutions with whom such contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies,
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<PAGE>
educational and charitable institutions, and other institutions, but will in
all cases be subject to the approval of the Company. Any such contracts will be
subject to the condition that the purchase by an institution of the Offered
Securities covered by its contracts shall not at the time of delivery be
prohibited under the law of any jurisdiction in the United States to which such
institution is subject and, if a portion of the Offered Securities is being
sold to underwriters, may be subject to the condition that the Company shall
have sold to such underwriters the Offered Securities not sold for delayed
delivery. The underwriters and such other persons will not have any
responsibility in respect of the validity or performance of such contracts.
Unless otherwise specified in the related Prospectus Supplement, each series
of Offered Securities will be a new issue with no established trading market,
other than shares of Common Stock, which are listed on the Nasdaq National
Market. Any shares of Common Stock sold pursuant to a Prospectus Supplement
will be listed on the Nasdaq National Market. The Company may elect to list any
other series of Offered Securities on an exchange, but is not obligated to do
so. Any underwriters to whom Offered Securities are sold by the Company for
public offering and sale may make a market in such Offered Securities, but such
underwriters will not be obligated to do so and may discontinue any market
making at any time without notice. No assurance can be given as to the
liquidity of or the trading markets for any Offered Securities.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its subsidiaries
in the ordinary course of business.
The specific terms and manner of sale of the Offered Securities will be set
forth or summarized in the applicable Prospectus Supplement.
LEGAL MATTERS
Certain legal matters with respect to the Offered Securities offered by
the Company will be passed upon for the Company by Sullivan & Worcester LLP,
Boston, Massachusetts. Jas. Murray Howe, Secretary of Iron Mountain, is of
counsel to Sullivan & Worcester LLP and beneficially owns 5,000 shares of
Common Stock.
EXPERTS
The consolidated financial statements and schedule of Iron Mountain
Incorporated and its subsidiaries for the three years ended December 31, 1996,
included in Iron Mountain's Annual Report on Form 10-K, have been audited by
Arthur Andersen LLP, independent public accountants, as stated in their reports
with respect thereto, and are incorporated by reference herein in reliance upon
the authority of said firm as experts in giving said reports.
The financial statements of Nashville Vault Company, Ltd. for the year
ended December 31, 1995, included in Iron Mountain's Registration Statement on
Form S-4 (file No. 333-24635, effective date May 14, 1997), have been audited
by Geo. S. Olive & Co. LLC, independent public accountants, as stated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said report.
The financial statements of International Record Storage and Retrieval
Services, Inc. for the year ended December 31, 1995, included in Iron
Mountain's Registration Statement on Form S-4 (file No. 333-24635, effective
date May 14, 1997), have been audited by Rothstein, Kass & Company, P.C.,
independent public accountants, as stated in their report with respect thereto,
and are incorporated by reference herein in reliance upon the authority of said
firm as experts in giving said report.
The financial statements of Mohawk Business Record Storage, Inc. for the
year ended December 31, 1995, included in Iron Mountain's Registration
Statement on Form S-4 (file No. 333-24635, effective date May 14, 1997), have
been audited by Arthur Andersen LLP, independent public accountants, as stated
in their report with respect thereto, and are incorporated by reference herein
in reliance upon the authority of said firm as experts in giving said report.
The financial statements of Security Archives of Minnesota for the year
ended December 31, 1996, included in Iron Mountain's Current Report on Form 8-K
dated October 30, 1997, have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report.
28
<PAGE>
The financial statements of Wellington Financial Services, Inc. for the
year ended December 31, 1996, included in Iron Mountain's Current Report on
Form 8-K dated October 30, 1997, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their report with respect thereto,
and are incorporated by reference herein in reliance upon the authority of said
firm as experts in giving said report.
The financial statements of Allegiance Business Archives, Ltd. for the
year ended December 31, 1996, included in Iron Mountain's Current Report on
Form 8-K dated November 25, 1997, have been audited by Stout, Causey & Horning,
P.A., independent public accountants, as stated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said report.
The financial statements and schedule of Safesite Records Management
Corporation for the three years ended December 31, 1996, included in Iron
Mountain's Registration Statement on Form S-4 (file no. 333-24635, effective
date May 14, 1997), have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements of Concorde Group, Inc. and Neil Trucker Trust
for the year ended December 31, 1996, included in Iron Mountain's Current
Report on Form 8-K dated October 30, 1997, have been audited by Fisher, Schacht
& Oliver LLP, independent public accountants, as stated in their report with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said report.
The financial statements of Data Securities International, Inc. for the
year ended December 31, 1996, included in Iron Mountain's Current Report on
Form 8-K dated October 30, 1997, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their report with respect thereto,
and are incorporated by reference herein in reliance upon the authority of said
firm as experts in giving said report.
The financial statements of Records Retention/FileSafe, LP for the two
years ended December 31, 1996, included in Iron Mountain's Current Report on
Form 8-K dated November 25, 1997, have been audited by Abbott Stringham &
Lynch, independent public accountants, as stated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated financial statements of HIMSCORP, Inc. and Subsidiaries
for the period February 1, 1995 to December 31, 1995 and for the year ended
December 31, 1996, appearing in Iron Mountain's Current Reports on Form 8-K
dated October 30, 1997 and November 25, 1997, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
therein, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Arcus Technology Services, Inc.
(Successor Company) for the year ended December 31, 1996 and the five months
ended December 31, 1995 and the consolidated financial statements of Arcus,
Inc. (Predecessor Company) for the seven months ended July 31, 1995 and the
year ended December 31, 1994, appearing in Iron Mountain's Current Reports on
Form 8-K dated October 30, 1997 and November 25, 1997, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
included therein, and are incorporated by reference herein in reliance upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Arcus Group, Inc. for the two
years in the period ended December 31, 1996, appearing in Iron Mountain's
Current Reports on Form 8-K dated October 30, 1997 and November 25, 1997, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereof included therein, and are incorporated by reference herein in
reliance upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Arcus Group, Inc. for the year
ended December 31, 1994, included in Iron Mountain's Current Report on Form 8-K
dated November 25, 1997, have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report.
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Prospective investors may rely only on the information contained in this
Prospectus Supplement. Neither Iron Mountain Incorporated nor any underwriter
has authorized anyone to provide prospective investors with different or
additional information. This Prospectus Supplement is not an offer to sell nor
is it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in this Prospectus
Supplement is correct only as of the date of this Prospectus Supplement,
regardless of the time of delivery of this Prospectus Supplement or any sale of
these securities.
------------------------------
TABLE OF CONTENTS
------------------------------
<TABLE>
<CAPTION>
Prospectus Supplement
Page
-----
<S> <C>
Prospectus Supplement Summary ........................ S-1
Risk Factors ......................................... S-8
Acquisitions ......................................... S-9
Use of Proceeds ...................................... S-12
Price Range of Common Stock .......................... S-12
Dividend Policy ...................................... S-13
Capitalization ....................................... S-14
Pro Forma Condensed Consolidated Financial
Information ....................................... S-15
Selected Consolidated Financial and Operating
Information ....................................... S-26
Management's Discussion and Analysis of
Financial Condition and Results of Operations ..... S-28
Business ............................................. S-40
Management ........................................... S-56
Principal Stockholders ............................... S-61
Underwriting ......................................... S-63
Legal Matters ........................................ S-65
Experts .............................................. S-65
Incorporation of Certain Information by Reference S-66
Where You Can Find Additional Information ............ S-67
Index to Financial Statements ........................ F-1
Prospectus
Available Information ................................ ii
Incorporation of Certain Documents by Reference....... iii
Risk Factors ......................................... 1
The Company .......................................... 5
Use of Proceeds ...................................... 5
Ratio of Earnings to Fixed Charges ................... 6
Description of Debt Securities ....................... 6
Description of Capital Stock ......................... 15
Description of Depositary Shares ..................... 21
Description of Warrants .............................. 24
DGCL and Certain Provisions of the Restated
Certificate and the By-Laws ....................... 24
Description of Indebtedness .......................... 26
Plan of Distribution ................................. 27
Legal Matters ........................................ 28
Experts .............................................. 28
</TABLE>
5,000,000 Shares
[IRON MOUNTAIN LOGO]
IRON MOUNTAIN
INCORPORATED
Common Stock
-------------------------------------------------------
PROSPECTUS SUPPLEMENT
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Bear, Stearns & Co. Inc.
William Blair & Company
Prudential Securities
Wasserstein Perella
Securities, Inc.
May 11, 1999
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