<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- ---
OF 1934
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 333-9963
PIERCE LEAHY CORP.
(Exact name of registrant as specified in its charter)
New York 23-2588479
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
631 Park Avenue
King of Prussia, Pennsylvania 19406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 992-8200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
-----------------------------
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 1, 1997, the aggregate market value of the voting stock held by non-
affiliates of the Registrant was $0.
As of March 1, 1997, 900 shares of Class A Common Stock, $.01 par value, and
9,000 shares of Class B Common Stock, $.01 par value, were outstanding.
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<PAGE>
PART I
Item 1. Business.
- ------ --------
General
The Company is the largest archive records management company in North
America, as measured by its 42.3 million cubic feet of records currently under
management. The Company operates a total of 136 records management facilities
of which 123 are in the United States and 13 are in Canada.
The Company is a full-service provider of records management and related
services, enabling customers to outsource their data and records management
functions. The Company offers storage for all major media, including paper
(which has typically accounted for approximately 95% of the Company's storage
revenues), computer tapes, optical discs, microfilm, video tapes and X-rays. In
addition, the Company provides next day or same day records retrieval and
delivery, allowing customers prompt access to all stored material. The Company
also offers other data management services, including customer records
management programs, imaging services and records management consulting
services.
The Company serves a diversified group of over 19,000 customer accounts in a
variety of industries such as financial services, manufacturing, transportation,
healthcare and law. The Company's storage and related services are typically
provided pursuant to contracts that include recurring monthly storage fees,
which continue until such records are permanently removed (for which the Company
charges a fee), and additional charges for services such as retrieval on a per
unit basis.
Saved documents, or records, generally fall into two categories: active and
inactive. Active records refer to information that is frequently referenced and
usually stored on-site by the originator. Inactive records are not needed for
frequent access, but must be retained for future reference, legal requirements
or regulatory compliance. Inactive records are the principal focus of the
records management industry.
Acquisition History and Growth Strategy
The Company expects that acquisitions will remain an important part of the its
growth strategy. During 1996, the Company completed and integrated 12
acquisitions, totaling approximately 6.9 million cubic feet of records at the
time of acquisition. Since January 1, 1997, the Company has completed four
acquisitions, totalling approximately 1.5 million cubic feet of records at the
time of acquisition. In addition, the Company has signed a definitive
agreement to purchase a regional records management company for approximately
$62.0 million, which it intends to finance through borrowings under its credit
facility. The acquisition is subject to due diligence and other customary
conditions.
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<PAGE>
The following table summarizes certain information for each acquisition since
January 1, 1996:
<TABLE>
<CAPTION>
Existing/ Date of
Acquisition Location New Location Acquisition
- ----------- -------- ------------ -----------
<S> <C> <C> <C>
Brambles (Ottawa Division) Ottawa Existing March 1996
The File Cabinet Atlanta Existing March 1996
File Box Austin New April 1996
Security Archives Dallas Existing May 1996
Archives America of San San Diego New July 1996
Diego
Security Archives of Denver Denver New August 1996
Data Protection Services Birmingham New September 1996
Info-Stor Calgary Existing October 1996
Archives Denver Existing October 1996
InTrust Denver, Albuquerque, Existing/New October 1996
Colorado Springs,
Ft. Wayne
Security Archives of Las Las Vegas New October 1996
Vegas
Records Management Birmingham Existing December 1996
Security Archives & Wilmington Existing January 1997
Storage Company
The Records Center Tampa Existing January 1997
Data Archives Trenton Existing January 1997
Professional Records West Palm Beach Existing January 1997
Storage & Delivery
</TABLE>
Description of Services
The Company's records management services are focused on storage, retrieval
and data management of hard copy documents.
Storage
Storage revenues were 59% of total revenues during 1996. Nearly all of the
Company's storage fees are derived from hard copy storage. During 1996, the
Company generated 94% of its storage revenues from hard copy storage and 6% from
vault storage for special items such as computer tapes, X-rays, films or other
valuable items. Storage charges typically are billed monthly on a per cubic foot
basis.
The Company tracks all of its records stored in cartons, from initial pick-up
through permanent removal, with the use of its Pierce Leahy User Solution(R)
(PLUS(R)) computer system. Bar-coded boxes are packed by the customer and
transported by the Company's transportation department to the appropriate
facility where they are scanned and placed into storage at the locations
designated by PLUS(R). At such time, the Company's data input personnel enter
the data twice (i.e., double key verifying) to enhance the integrity of the
information entered into the system.
The Company offers secure, climate-controlled facilities for the storage of
non-paper forms of media such as computer tapes, optical discs, microfilm, video
tapes and X-rays. These types of media often require special facilities due to
the nature of the records. The Company's storage fees for non-paper media are
higher than for typical paper storage. The Company also provides ancillary
services for non-paper records in the same manner as it provides for its hard
copy storage operations.
Service and Product Sales
The Company's principal services include adding records to storage, temporary
removal of records from storage to support a customer's need to review the
files, replacing temporarily removed records and permanent withdrawals from
storage or destruction of records. Pick-up and delivery of customer records can
be tailored to a customer's specific needs and range from standard service
(typically requests received
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<PAGE>
by 10:30 a.m. are delivered or picked up that afternoon and requests received by
3:30 p.m. are delivered or picked up the next day) to emergency service
(typically within three hours or less). Pick-up and delivery operations are
supported by the Company's fleet of over 400 owned or leased vehicles. The
Company charges for pick-up and delivery services on a per-unit basis depending
on the immediacy of delivery requested.
A small percentage of the Company's customers manage their records on a file
by file basis, allowing the customer direct access and traceability of a
specific file (rather than on a box by box basis). The Company provides data
entry services to such customers to input the file by file listings into the
PLUS(R) system.
The Company also offers a records destruction service, which provides
customers with a secure, controlled program to periodically review and remove
records which no longer need to be retained. Although boxes destroyed no longer
generate monthly storage fees, the Company charges for the destruction of
records and increases its available shelving space as a result.
In addition to providing traditional storage, customers may contract with the
Company to manage their on-site records or file services center. Such management
services generally include providing Company personnel to manage the customer's
active files (including records storage and tracking) at the customer's
facilities, supplemented by off-site storage at the Company's facilities. As
part of this service, the Company can use its own internally developed file
management software, or maintain the customer's existing system. The Company
also provides consulting and other services on an individualized basis,
including advisory work for customers setting up in-house records management
systems. In addition, the Company sells cardboard boxes and other storage
containers to its customers.
Customer Service
Customer calls are routed into one of the Company's two centralized customer
service departments located in the Company's U.S. and Canadian corporate
headquarters. Both customer service departments are staffed and can receive
customer calls 24 hours a day, seven days a week. Routine pick-up and delivery
requests are dispatched directly by customer service representatives to local
facilities as directed by PLUS(R).
As a complement to its centralized customer service departments, the Company
provides client service representatives to work with existing customers at the
local level. In addition to maintaining personal contacts with customers, the
local client service representatives help meet the Company's customers' changing
records management needs through advice in efficient recordkeeping procedures,
and, when appropriate, by offering the sale of additional services.
Management Information Systems
The Company believes that PLUS(R), its core management information system, is
the most sophisticated records management system in the industry, and provides
the Company with a significant customer service and cost advantage in attracting
and retaining major accounts with records storage needs in multiple locations
and acquiring other records management companies. The Company's centralized
customer service and billing functions eliminate the need for redundant
functions at individual facilities. In addition, the PLUS(R) system enables the
Company to offer its customers full life cycle records management, from file
creation to destruction, and coordinates inventory control, order entry,
billing, material sales, service activity, accounts receivable and management
reporting on a centralized basis.
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<PAGE>
PLUS(R) utilizes database technology, proprietary software and extensive bar
coding in a flexible, enterprise-wide, client/server environment.
PLUS(R) offers several additional features which enhance the Company's
customer support functions. The system is continuously updated when any account
activity is undertaken, providing customers with real time access to information
regarding box location and retrievals. The PLUS(R) system is flexible and allows
the Company to design and implement customized records management solutions for
various industries utilizing a set of standardized options. The PLUS(R) system's
on-line customer support network allows certain customers to place orders for
both records storage and retrieval directly from their own in-house terminals
resulting in a more efficient system of records management.
Sales and Marketing
During the past five years, the Company has invested significant effort in
developing its sales and marketing department. Sales representatives are trained
to sell a "total systems approach," in which a customer's records management
requirements are surveyed and evaluated in order to determine the file
management system which best meets the customer's needs and offer
recommendations on how to implement such a system.
The Company's sales and marketing department is divided into five regions:
Northeast; South; Midwest; West; and Canada. The Company's Vice President, Sales
and Marketing directs five regional sales managers who are each responsible for
one of the regions. In addition, the Company's sales force is divided between
sales representatives who focus on large accounts which are frequently multi-
location and a recently expanded group of sales representatives who focus on
smaller, single-location customers. The sales force is primarily compensated on
a commission basis with incentives tied to the Company's sales goals. The
Company also uses telemarketing, direct response and print advertising to assist
in its marketing programs.
Customers
The Company serves a diversified group of over 19,000 customers accounts in a
variety of industries, including financial services, manufacturing,
transportation, healthcare and law. The Company tracks customer accounts, which
are based on invoices. Accordingly, depending on how invoices have been arranged
at the request of a customer, one customer may have multiple customer accounts.
None of the Company's customers accounted for more than 3% of the Company's
total revenues during 1996. The Company services all types of customers from
small to medium size companies (such as professional groups and law firms that
often have one location) to Fortune 500 companies that have operations in
multiple locations.
The Company's contracts with larger, typically multi-location customers
usually provide for an initial term of five or more years, and contracts with
other customers typically provide for initial terms of one or two years. Both
types of contracts generally provide for annual renewals thereafter (with either
party having the right to terminate the contract). Customers are generally
charged monthly storage fees until their records are destroyed or permanently
removed, for which fees are charged.
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<PAGE>
Competition
The Company competes with numerous records management companies in all
geographic areas in which it operates. The Company believes that competition
for customers is based on price, reputation for reliability, quality of service
and scope and scale of technology, and believes that it generally competes
effectively based on these factors. Management believes that, except for Iron
Mountain Incorporated, all of these competitors have records management revenues
significantly lower than those of the Company. The Company believes that the
trend towards consolidation in the industry will continue and the Company also
faces competition in identifying attractive acquisition candidates. In addition,
the Company faces competition from the internal document handling capability of
its current and potential customers.
The substantial majority of the Company's revenues are derived from the
storage of paper records and from related services. 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 disc.
Employees
As of December 31, 1996, the Company had 1,553 employees, including 209
employees in Canada. None of the Company's employees is covered by a collective
bargaining agreement. Management considers its employee relations to be good.
Insurance
The Company carries comprehensive property insurance covering replacement
costs of real and personal property. Subject to certain limitations and
deductibles, such policies also cover extraordinary expenses associated with
business interruption and damage or loss from flood or earthquakes (in certain
geographic areas), and losses at the Company's facilities up to approximately
$225 million.
Environmental Matters
The Company's properties and operations may be subject to liability under
various environmental laws, regardless of fault, for the investigation, removal
or remediation of soil or groundwater, on or off-site, resulting from the
release or threatened release of hazardous materials, as well as damages to
natural resources. The owner or operator of contaminated property may also be
subject to claims for damages and remediation costs from third parties based
upon the migration of any hazardous materials to other properties.
At certain of the properties owned or leased by the Company, petroleum
products or other hazardous materials, are or were stored in underground storage
tanks ("USTs"). Some formerly used USTs have been removed; others were abandoned
in place. The Company believes all of the USTs are registered, where required
under applicable law. The Company also is aware of the presence in some of its
facilities of asbestos-containing materials, but believes that no action is
presently required to be taken as a result of such material.
At the Company's New Jersey facility, certain contamination has been
discovered resulting from operations of the prior owner thereof. The prior
owner, which has agreed to be responsible for the cost of such remediation, is
completing remediation of the property under a consent order with the New Jersey
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Department of Environmental Protection ("NJDEP"). The prior owner has posted a
$1.1 million letter of credit with the NJDEP. The Company has purchased an
environmental liability insurance policy covering the cleanup costs to the
Company, if any, resulting from any on- or off-site environmental condition
existing at the time of the Company's acquisition of this property, with a
$250,000 deductible and policy limits of $4 million per occurrence/$8 million in
the aggregate, provided the claim first arises during the term of the policy,
which is August 10, 1995 through August 11, 1998.
The Company has not received any written notice from any governmental
authority or third party asserting, and is not otherwise aware of, any material
noncompliance, liability or claim under environmental laws applicable to the
Company other than as described above. No assurance can be given that there are
no environmental conditions for which the Company may be liable in the future or
that future regulatory action, or compliance with future environmental laws,
will not require the Company to incur costs that could have a material adverse
effect on the Company's financial condition or results of operations.
-7-
<PAGE>
Item 2. Properties.
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The Company operates a total of 136 records management facilities of which 123
are in the United States and 13 are in Canada. Of the 8.6 million square feet
of floor space (representing over 67 million cubic feet of storage capacity) in
the Company's records storage facilities, approximately 33% and 67% (39% and 61%
on a cubic footage basis) are in owned and leased facilities, respectively. The
Company's facilities are located as follows:
<TABLE>
<CAPTION>
Records
Management Cubic Feet
Region Facilities of Capacity
------ ---------- -----------
<S> <C> <C>
United States
Southern Region......................... 23 7.3 million
(includes Alabama, Florida,
Georgia, North Carolina and
Tennessee)
Northern Region......................... 45 38.7 million
(includes Connecticut, Delaware,
Maryland, Massachusetts, New Jersey,
New York, Ohio, Pennsylvania and
Virginia)
Midwest Region.......................... 38 11.1 million
(includes Colorado, Illinois,
Indiana, Michigan, Missouri,
New Mexico and Texas)
Western Region.......................... 17 4.5 million
(includes Arizona, California, --- ------------
Nevada and Washington)
Total U.S............................... 123 61.6 million
Canada.................................... 13 6.1 million
(includes Calgary, Montreal, Ottawa, --- ------------
Toronto and Vancouver)
Total................................... 136 67.7 million
=== ============
</TABLE>
Item 3. Legal Proceedings.
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The Company is involved in litigation from time to time in the ordinary course
of its business. In the opinion of management, no material legal proceedings
are pending to which the Company, or any of its property, is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
Not Applicable.
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<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ------ -----------------------------------------------------------------
Matters.
-------
Not Applicable.
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<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
(dollars in thousands)
----------------------
Year Ended December 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues
Storage $ 75,900 $ 55,501 $ 47,123 $ 42,122 $ 37,633
Service and storage material sales 53,848 39,895 35,513 31,266 25,202
----------- ------------ ----------- ----------- ------------
Total revenues 129,748 95,396 82,636 73,388 62,835
Cost of sales, excluding depreciation and
amortization 73,870 55,616 49,402 45,391 39,702
Selling, general and administrative 20,007 16,148 15,882 11,977 9,012
Depreciation and amortization 12,869 8,163 8,436 6,888 5,734
Consulting payments to related parties (a) -- 500 500 -- --
Non-recurring charges (b) 3,254 -- -- -- --
----------- ------------ ----------- ----------- -----------
Operating income 19,748 14,969 8,416 9,132 8,387
Interest expense 17,225 9,622 7,216 6,160 6,388
----------- ------------ ----------- ----------- ------------
Income before extraordinary charge 2,523 5,347 1,200 2,972 1,999
Extraordinary charge (c) 2,015 3,279 5,991 9,174 --
----------- ------------ ----------- ----------- ------------
Net income (loss) 508 2,068 (4,791) (6,202) 1,999
Accretion (cancellation) of redeemable warrants 1,561 889 16 (746) --
----------- ------------ ----------- ----------- ------------
Net income (loss) applicable to Common shareholders $ (1,053) $ 1,179 $ (4,807) $ (5,456) $ 1,999
=========== ============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
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1996 1995 1994 1993 1992
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ (23,933) $ (8,139) $ (5,202) $ (9,143) $ (11,656)
Total assets 234,820 131,328 79,746 74,621 65,869
Total debt (including redeemable warrants) 217,423 120,071 77,683 69,736 55,027
Shareholders' deficit (25,438) (18,201) (19,341) (14,508) (9,028)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Other Data:
Operating margin 17.7% 15.7% 10.2% 12.4% 13.3%
EBITDA (d) $ 35,871 $ 23,632 $ 17,352 $ 16,020 $ 14,121
EBITDA margin 27.7% 24.8% 21.0% 21.8% 22.5%
</TABLE>
a) Represents aggregate payments made to eight Pierce family members.
b) Represents non-recurring charges in 1996 of $2.8 million paid to a
related party partnership to assume the partnership's position in certain
leases with third parties and of $.5 million for the establishment of an
annual pension for Leo W. Pierce, Sr. and his spouse.
c) Represents loss on early extinguishment of debt due to refinancings in
1996, 1995, 1994 and 1993. Amounts include write-off of unamortized
deferred financing costs and discount, along with prepayment penalties and
other costs.
<PAGE>
Item 6. Selected Financial Data (Continued)
d) "EBITDA" is defined as net income (loss) before interest expense, taxes,
depreciation and amortization, consulting payments to related parties, non-
recurring charges, and extraordinary charge. EBITDA is not a measure of
performance under GAAP. While EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance GAAP, or as a
measure of profitability or liquidity, management understands that EBITDA is
customarily used as a criteria in evaluating records management companies.
Moreover, substantially all of the Company's financing agreements, including
the Notes, contain covenants in which EBITDA is used as a measure of
financial performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of other measures of
performance determined in accordance with GAAP and the Company's sources and
applications of cash flows.
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operations.
-------------
General
The Company is the largest archive records management company in North
America, as measured by its 42.3 million cubic feet of records currently under
management. The Company's operations date to 1957 when its predecessor company,
L.W. Pierce Co., Inc., was founded to provide filing systems and related
equipment to companies in the Philadelphia area. The Company expanded primarily
through internal growth until 1990, when it acquired Leahy Business Archives
which effectively doubled its size. Since 1992, the Company has pursued an
expansion strategy combining growth from new and existing customers with the
completion and successful integration of 26 acquisitions through 1996 and the
completion of four acquisitions since January 1, 1997.
Another tool for measuring the performance of records management companies is
EBITDA. Substantially all of the Company's financing agreements, including its
11-1/8% Senior Subordinated Notes due 2006 (the "Notes"), contain covenants in
which EBITDA is used as a measure of financial performance. However, EBITDA
should not be considered an alternative to operating or net income (as
determined in accordance with generally accepted accounting principles ("GAAP"))
as an indicator of the Company's performance or to cash flow from operations (as
determined in accordance with GAAP) as a measure of liquidity.
The following table illustrates the growth in stored cubic feet from existing
customers, new customers and acquisitions from 1992 through 1996:
Net Additions of Cubic Feet of Storage by Category
(cubic feet in thousands)
Year Ended December 31,
-----------------------------------------
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Additions of Cubic Feet:
Customer Accounts(a)....... 2,096 2,660 2,695 2,740 3,956
Acquisitions............... 294 117 440 4,623 6,931
------ ------ ------ ------ ------
Total....................... 2,390 2,777 3,135 7,363 10,887
% Increase From:
Customer Accounts(a)....... 15% 16% 14% 12% 13%
Acquisitions............... 2% 1% 2% 21% 24%
------ ------ ------ ------ ------
Total...................... 17% 17% 16% 33% 37%
Cubic Feet Under Management:
Beginning of Period........ 13,858 16,248 19,025 22,160 29,523
End of Period.............. 16,248 19,025 22,160 29,523 40,410
</TABLE>
- --------------
(a) Net of permanent removals. Includes effect of a records destruction program
of 372,000 and 475,000 cubic feet of records in 1995 and 1996, respectively,
for a major customer, as recommended by the Company pursuant to a consulting
agreement with the Company.
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<PAGE>
Revenues
The Company's revenues consist of storage revenues (58.5% of total revenues in
1996), and related service and storage material sales revenues (41.5% of total
revenues in 1996). The Company provides records storage and related services
under annual or multi-year contracts that typically provide for recurring
monthly storage fees which continue until such records are permanently removed
(for which the Company charges a service fee) and service charges based on
activity with respect to such records.
While the Company's total revenues have increased from 1994 to 1996, total
revenue per annual average cubic foot during such period has declined. The
decline is principally attributable to (i) increases in sales to large volume
accounts under long-term contracts with discounted rates, which generate lower
revenue per cubic foot, but typically generate increased operating income, (ii)
renegotiation of contracts with existing customers to provide for longer term
contracts at lower rates, and (iii) competition.
Operating Expenses and Productivity
Operating expenses consist primarily of cost of sales, selling, general and
administrative expenses, and depreciation and amortization. Cost of sales are
comprised mainly of wages and benefits, facility occupancy costs, equipment
costs and supplies. The major components of selling, general and administrative
expenses are management, administrative, marketing and data processing wages and
benefits and also include travel, communication and data processing expenses,
professional fees and office expenses.
The Company's depreciation and amortization charges result primarily from the
capital-intensive nature of its business and the acquisitions the Company has
completed. The principal components of depreciation relate to shelving,
facilities and leasehold improvements, equipment for new facilities and computer
systems. Amortization primarily relates to the amortization of intangible assets
associated with acquisitions, including goodwill, and to the amortization of
client acquisition costs. The Company has accounted for all of its acquisitions
under the purchase method. Since the purchase price for records management
companies is usually substantially in excess of the fair market value of their
assets, these purchases have given rise to significant goodwill and,
accordingly, significant levels of amortization. Although amortization is a
non-cash charge, it does decrease reported net income.
Capital Expenditures and Client Acquisition Costs
The majority of the Company's capital expenditures are related to expansion.
The largest single component is the purchase of shelving which is directly
related to the addition of new records. Shelving has a relatively long life and
rarely needs to be replaced. Most of the Company's storage facilities (both in
number and square feet) are leased, but the Company will purchase facilities on
an opportunistic basis. The Company's data processing capital expenditures are
also largely related to growth.
In connection with the acquisition of new large volume accounts, the Company
often incurs client acquisition costs, primarily sales commissions and move-in
costs. Client acquisition costs are capitalized and amortized over six years.
In 1996, the Company incurred $6.5 million of client acquisition costs.
Amortization of client acquisition costs amounted to $1.7 million in 1996.
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<PAGE>
Extraordinary Charge
To provide capital to fund its growth oriented business strategy, the Company
has incurred substantial indebtedness. The Company has completed several
expansions of its credit facilities, primarily utilizing bank debt, which have
resulted in one-time charges including the repurchase of warrants and the write-
off of deferred financing costs of $6.0 million, $3.3 million and $2.0 million
in 1994, 1995 and 1996, respectively.
Results of Operations
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated statements of operations, expressed as a
percentage of revenue. There can be no assurance that the trends in revenue
growth or operating results shown below will continue in the future.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
<S> <C> <C> <C>
1994 1995 1996
----- ----- -----
Revenues:
Storage............................................... 57.0% 58.2% 58.5%
Service and storage material sales.................... 43.0 41.8 41.5
----- ----- -----
Total revenues......................................... 100.0 100.0 100.0
Cost of sales, excluding depreciation and amortization. 59.8 58.3 57.0
Selling, general and administrative.................... 19.2 16.9 15.4
Depreciation and amortization.......................... 10.2 8.6 9.9
Consulting payments to related parties................. 0.6 0.5 0
Non-recurring charges.................................. 0 0 2.5
----- ----- -----
Operating income...................................... 10.2 15.7 15.2
Interest expense....................................... 8.7 10.1 13.3
----- ----- -----
Income (loss) before extraordinary charge............. 1.5 5.6 1.9
Extraordinary charge................................... 7.3 3.4 1.5
----- ----- -----
Net income (loss)..................................... (5.8%) 2.2% 0.4%
===== ===== =====
Other Data:
EBITDA................................................. 21.0% 24.8% 27.7%
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Total revenues increased from $95.4 million in 1995 to $129.7 million in 1996,
an increase of $34.3 million or 36.0%. Revenues from acquisitions represented
$25.7 million or 74.9% of this increase, including $16.3 million from a full
year of operations of five acquisitions made in 1995 and $9.4 million from a
partial year of operations of twelve acquisitions made in 1996. Approximately
$8.6 million or 25.1% of the total revenue growth resulted from sales to new
customers and increases in cubic feet stored from existing customers.
Storage revenues increased from $55.5 million in 1995 to $75.9 million in
1996, an increase of $20.4 million or 36.8%. Service and storage material sales
revenues increased from $39.9 million in 1995 to $53.8 million in 1996, an
increase of $13.9 million or 35.0%.
Cost of sales (excluding depreciation and amortization) increased from $55.6
million in 1995 to $73.9 million in 1996, an increase of $18.3 million or 32.8%,
but decreased as a percentage of total revenues
-14-
<PAGE>
from 58.3% in 1995 to 57.0% in 1996. The $18.3 million increase was due
primarily to increases in wages and benefits resulting from an increased number
of employees and to increases in facility occupancy costs associated with the
growth in business. The decrease as a percentage of total revenue was due
primarily to increased operating and storage efficiencies.
Selling, general and administrative expenses increased from $16.1 million in
1995 to $20.0 million in 1996, an increase of $3.9 million or 23.9%, and
decreased as a percentage of total revenues from 16.9% in 1995 to 15.4% in 1996.
The decrease as a percentage of total revenues was due to operating efficiencies
and the implementation of programs to control and reduce certain administrative
expenses. The purchase of certain real estate interests from affiliates in
August 1996 contributed $0.9 million to the reduction in cost of sales or 0.7%
as a percentage of revenues.
Depreciation and amortization expenses increased from $8.2 million in 1995 to
$12.9 million in 1996, an increase of $4.7 million or 57.7%, and increased as a
percentage of total revenues from 8.6% in 1995 to 9.9% in 1996. This increase
was the result of increased capital expenditures for shelving and improvements
to record management facilities and information systems and the amortization of
goodwill from the Company's acquisitions.
The Company incurred non-recurring charges of $3.3 million in 1996 in
connection with the assumption of leasehold interests in certain facilities from
affiliated parties and with the establishment of a pension for L.W. Pierce, Sr.
See Item 11, "Executive Compensation--Compensation Committee Interlocks and
Insider Participation."
As a result of the foregoing factors, excluding the non-recurring charges in
1996, operating income increased from $15.0 million in 1995 to $23.0 million in
1996, an increase of 53.7%, and increased as a percentage of total revenues from
15.7% in 1995 to 17.7% in 1996. The increase reflected the growth in the
Company's business, economies of scale and increased operating efficiencies.
Interest expense increased from $9.6 million in 1995 to $17.2 million in 1996,
an increase of $7.6 million or 79.0%, due primarily to higher levels of
indebtedness. The Company recorded extraordinary charges of $3.3 million in
1995 and $2.0 million in 1996 related to the early extinguishment of debt as a
result of refinancing and expanding its existing credit agreement in 1995 and
again in 1996.
As a result of the foregoing factors, net income was $0.5 million in 1996
compared to net income of $2.1 million in 1995.
EBITDA increased from $23.6 million in 1995 to $35.9 million in 1996, an
increase of $12.3 million or 51.8%, and increased as a percentage of total
revenues from 24.8% in 1995 to 27.7% in 1996. The increase as a percentage of
the total revenues reflected growth in the Company's business, economies of
scale and increased operating efficiencies.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total revenues increased from $82.6 million in 1994 to $95.4 million in 1995,
an increase of $12.8 million or 15.4%. Almost one-half of the total revenue
growth resulted from sales to new customers and increases in cubic feet stored
from existing customers, partially offset by the reduction of records of a major
customer pursuant to a records destruction program recommended by the Company
pursuant to a consulting agreement with the Company. Five acquisitions completed
from February 1995 to October 1995 accounted for $6.6 million (or 51.6%) of the
increase.
-15-
<PAGE>
Storage revenues increased from $47.1 million in 1994 to $55.5 million in
1995, an increase of $8.4 million or 17.8%. Service and storage material sales
revenues increased from $35.5 million in 1994 to $39.9 million in 1995, an
increase of $4.4 million or 12.3%.
Cost of sales (excluding depreciation and amortization) increased from $49.4
million in 1994 to $55.6 million in 1995, an increase of $6.2 million or 12.6%,
but decreased as a percentage of total revenues from 59.8% in 1994 to 58.3% in
1995. The $6.2 million increase was due primarily to increases in storage volume
and the associated cost of additional storage capacity. The decrease as a
percentage of total revenues was due primarily to increased operating and
storage efficiencies, in part reflecting the full implementation of the PLUS(R)
system during the first quarter of 1995.
Selling, general and administrative expenses increased from $15.9 million in
1994 to $16.1 million in 1995, an increase of $0.2 million or 1.7%, and
decreased as a percentage of total revenues from 19.2% in 1994 to 16.9% in 1995.
The decrease as a percentage of total revenues was due to operating efficiencies
and the implementation of programs to control and reduce certain administrative
expenses.
Depreciation and amortization expenses decreased from $8.4 million in 1994 to
$8.2 million in 1995, a decrease of $0.2 million or 3.2%, and decreased as a
percentage of total revenues from 10.2% in 1994 to 8.6% in 1995. This decrease,
both in dollars and as a percentage of total revenues, was due primarily to the
Company's revision of the estimated useful lives of certain long-term assets,
effective January 1, 1995, to more accurately reflect the estimated economic
lives of the related assets and to be more in conformity with industry
practices. The aggregate effect of adopting these revised lives was to decrease
amortization and depreciation expense by approximately $4.9 million. This change
more than offset what would have been an increase in depreciation charges
resulting from capital expenditures for shelving and improvements to records
management facilities and information systems and the amortization of goodwill
from the Company's acquisitions.
As a result of the foregoing factors, operating income increased from $8.4
million in 1994 to $15.0 million in 1995, an increase of 77.9%, and increased as
a percentage of the total revenues from 10.2% in 1994 to 15.7% in 1995. The
increases reflect the growth in the Company's business, economies of scale and
increased operating efficiencies.
Interest expense increased from $7.2 million in 1994 to $9.6 million in 1995,
an increase of $2.4 million or 33.3%, due primarily to higher levels of
indebtedness. The Company recorded extraordinary charges of $6.0 million in 1994
and $3.3 million in 1995 related to the early extinguishment of debt as a result
of refinancing and expanding its then existing credit agreement in 1994 and
again in 1995.
As a result of the foregoing factors, net income was $2.1 million in 1995
compared to a net loss of $4.8 million in 1994.
EBITDA increased from $17.4 million in 1994 to $23.6 million in 1995, an
increase of $6.2 million or 36.2%, and increased as a percentage of total
revenues from 21.0% in 1994 to 24.8% in 1995. The increase as a percentage of
total revenues reflected growth in the Company's business, economies of scale
and increased operating efficiencies.
-16-
<PAGE>
Liquidity and Capital Resources
The Company's primary sources of capital have been cash flows from operations
and borrowings under various revolving credit facilities and other senior
indebtedness. Historically, the Company's primary uses of capital have been
acquisitions, capital expenditures and client acquisition costs.
Capital Investments
For 1994, 1995 and 1996, capital expenditures were $6.4 million, $16.3 million
and $23.5 million, respectively, and client acquisition costs were $1.9 million,
$2.2 million and $6.5 million, respectively.
In 1997, the Company expects its aggregate capital expenditures will
approximate $30 million. Of this amount, approximately $10 million is expected
to be related to the purchase of facilities. Of the remaining $20 million,
shelving for new records is the largest anticipated expenditure.
Acquisitions
In order to capitalize on industry consolidation opportunities, the Company
has actively pursued acquisitions since the beginning of 1994, which has
significantly impacted liquidity and capital resources. From 1994 to 1996, the
Company acquired 21 records management companies for an aggregate cash purchase
price of $104.3 million. Since the beginning of 1997, the Company has made four
acquisitions for an aggregate cash purchase price of $18.5 million. In
addition, the Company has signed a definitive agreement to purchase a regional
records management company for approximately $62.0 million, which it intends to
finance through borrowings under its credit facility. The acquisition is subject
to due diligence and other customary conditions. The Company has historically
financed its acquisitions with borrowings under its credit agreements and with
cash flows from existing operating activities. During 1996, the Company also
issued $200.0 million principal amount of Notes, a small portion of which was
used to fund acquisitions.
To the extent that future acquisitions are financed by additional borrowings
under the Company's credit facility or other types of indebtedness, the
resulting increase in debt and interest expense could have a negative effect on
such measures of liquidity as debt to equity.
Sources of Funds
Net cash flows provided by operating activities were $11.0 million, $17.5
million and $26.4 million for 1994, 1995 and 1996, respectively. The $6.5
million increase from 1994 to 1995 was primarily comprised of a $6.9 million
increase in net income and a $3.4 million decrease in working capital offset in
part by a $2.7 million decline in extraordinary charges. The $8.9 million
increase from 1995 to 1996 was primarily comprised of a $4.7 million increase in
depreciation and amortization and a $6.8 million decrease in working capital,
offset by a $1.6 million decrease in net income and a $1.3 million decline in
extraordinary charges.
Net cash flows used in investing activities were $13.9 million, $51.3 million
and $108.8 million for 1994, 1995 and 1996, respectively. The uses of such cash
flows were primarily for acquisitions, capital expenditures and client
acquisition expenditures detailed above.
Net cash flows provided by financing activities were $2.8 million, $34.2
million and $82.9 million for 1994, 1995 and 1996, respectively. In 1994, the
Company's previous credit facility was expanded
-17-
<PAGE>
to $120.0 million and included a substantial acquisition facility. In 1995, the
Company's previous credit facility was expanded to $170.0 million, including a
substantial acquisition facility, and provided funds for the acquisition of PLC
Command in Canada. In July 1996, the Company issued $200.0 million of 11-1/8%
Senior Subordinated Notes due 2006 (the "Notes") and used the net proceeds to
retire all of the debt outstanding under the Company's previous credit facility,
to purchase certain properties from affiliates of the Company, to redeem stock
from a shareholder of the Company, to fund an acquisition and for general
corporate purposes. In August 1996, the Company entered into its current Credit
Facility which provides $100.0 million in U.S. dollar borrowings and Cdn $35.0
million in Canadian dollar borrowings.
The Credit Facility contains a number of financial and other covenants
restricting the Company's ability to incur additional indebtedness and make
certain types of expenditures. Covenants in the Indenture governing the Notes
also restrict borrowings under the Credit Facility. As of December 31, 1996,
$5.3 million was outstanding under the Credit Facility and the Company could
have borrowed an additional $28.9 million under the Credit Facility in
accordance with the debt incurrence limitations. Additionally, to the extent
the Company makes acquisitions, it would have additional availability under the
Credit Facility based upon the pro forma EBITDA of such acquisitions. The
effective interest rate on the Credit Facility, as of December 31, 1996, was
approximately 6%.
Future Capital Needs
Management believes that cash flow from operations in conjunction with
borrowings under the Credit Facility and possible other sources of financing
will be sufficient for the foreseeable future to meet working capital
requirements and to make possible future acquisitions and capital expenditures.
Depending on the pace and size of future possible acquisitions, the Company may
elect to seek additional debt or equity financing. There can be no assurance
that the Company will be able to obtain any future financing, if required, or
that the terms for any such future financing would be favorable to the Company.
Forward-Looking Statements
This Report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended, and is subject to the safe-harbor created by such sections.
Such forward-looking statements concern the Company's operations, economic
performance and financial condition, including in particular its acquisitions
and their integration into the Company's existing operations. Such statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions; changes in customer preferences; competition; changes in technology;
the integration of any acquisitions; changes in business strategy; the
indebtedness of the Company; quality of management, business abilities and
judgment of the Company's personnel; the availability, terms and deployment of
capital; and various other factors referenced in this Report. The forward-
looking statements are made as of the date of this Report, and the Company
assumes no obligation to update the forward-looking statements or to update the
reasons why actual results could differ from those projected in the forward-
looking statements.
-18-
<PAGE>
Item 8. Financial Statements.
- ------ --------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants............................... 20
Consolidated Balance Sheets............................................ 21
Consolidated Statements of Operations.................................. 22
Consolidated Statements of Shareholders' Deficit....................... 23
Consolidated Statements of Cash Flows.................................. 24
Notes to Consolidated Financial Statements............................. 25
</TABLE>
-19-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pierce Leahy Corp.:
We have audited the accompanying consolidated balance sheets of Pierce Leahy
Corp. (a New York corporation) and Subsidiary as of December 31, 1996 and 1995,
and the related consolidated statements of operations, shareholders' deficit and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pierce Leahy Corp. and
Subsidiary as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 28, 1997
20
<PAGE>
PIERCE LEAHY CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31
-------------------------------------
ASSETS 1996 1995
------ ----------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,254 $ 722
Accounts receivable, net of allowance for
doubtful accounts of $795 and $487 17,828 14,182
Inventories 611 762
Prepaid expenses and other 688 1,025
---------------- ----------------
Total current assets 20,381 16,691
---------------- ----------------
PROPERTY AND EQUIPMENT 158,154 109,755
Less- Accumulated depreciation and amortization (45,020) (35,328)
---------------- ----------------
Net property and equipment 113,134 74,427
---------------- ----------------
OTHER ASSETS:
Intangible assets, net 97,544 38,621
Other 3,761 1,589
---------------- ----------------
Total other assets 101,305 40,210
---------------- ----------------
$ 234,820 $ 131,328
================ ================
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,310 $ 1,478
Current portion of noncompete obligations 466 200
Accounts payable 6,757 4,641
Accrued expenses 20,563 9,533
Deferred revenues 9,218 8,978
---------------- ---------------
Total current liabilities 44,314 24,830
LONG-TERM DEBT 209,330 116,812
NONCOMPETE OBLIGATIONS 317 517
DEFERRED RENT 2,841 2,814
DEFERRED INCOME TAXES 3,456 3,492
COMMITMENTS AND CONTINGENCIES (Note 9)
REDEEMABLE WARRANTS -- 1,064
SHAREHOLDERS' DEFICIT (25,438) (18,201)
---------------- ----------------
$ 234,820 $ 131,328
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31
-----------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Storage $ 75,900 $ 55,501 $ 47,123
Service and storage material sales 53,848 39,895 35,513
------------- ------------- -------------
Total revenues 129,748 95,396 82,636
------------- ------------- -------------
OPERATING EXPENSES:
Cost of sales, excluding depreciation and
amortization 73,870 55,616 49,402
Selling, general and administrative 20,007 16,148 15,882
Depreciation and amortization 12,869 8,163 8,436
Consulting payments to related parties -- 500 500
Non-recurring charges 3,254 -- --
------------- ------------- ------------
Total operating expenses 110,000 80,427 74,220
------------- ------------- -------------
Operating income 19,748 14,969 8,416
INTEREST EXPENSE 17,225 9,622 7,216
------------- ------------- -------------
Income before extraordinary item 2,523 5,347 1,200
EXTRAORDINARY CHARGE--Loss on early
extinguishment of debt 2,015 3,279 5,991
------------- ------------- -------------
NET INCOME (LOSS) 508 2,068 (4,791)
ACCRETION OF REDEEMABLE WARRANTS 1,561 889 16
------------- ------------- -------------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $ (1,053) $ 1,179 $ (4,807)
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE>
PIERCE LEAHY CORP.
------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
------------------------------------------------
(in thousands)
--------------
<TABLE>
<CAPTION>
Common Stock
------------ Additional
Class Class Paid-in Accumulated
A B Capital Deficit Total
----- ----- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ -- $ -- $ 24 $ (14,532) $ (14,508)
Accretion of redeemable
warrants -- -- -- (16) (16)
Net loss -- -- -- (4,791) (4,791)
Distributions to shareholders -- -- -- (26) (26)
----- ----- ------- ------------ ------------
BALANCE, DECEMBER 31, 1994 -- -- 24 (19,365) (19,341)
Accretion of redeemable
warrants -- -- -- (889) (889)
Net income -- -- -- 2,068 2,068
Distributions to shareholders -- -- -- (39) (39)
----- ----- ------- ------------ ------------
BALANCE, DECEMBER 31, 1995 -- -- 24 (18,225) (18,201)
Accretion of redeemable
warrants -- -- -- (1,561) (1,561)
Repurchase of Class A
common stock (Note 7) -- -- -- (1,450) (1,450)
Deemed distribution due to
purchase of real estate and
other assets from related
parties (Note 10) -- -- -- (4,132) (4,132)
Net income -- -- -- 508 508
Distributions to shareholders -- -- -- (602) (602)
----- ----- ------- ------------ ------------
BALANCE, DECEMBER 31, 1996 $ -- $ -- $ 24 $ (25,462) $ (25,438)
===== ===== ======= ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 508 $ 2,068 $ (4,791)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Extraordinary charge 2,015 3,279 5,991
Depreciation and amortization 12,869 8,163 8,436
Gain on sale of property and equipment (32) -- --
Amortization of deferred financing costs 516 533 1,068
Imputed interest on long-term debt and
noncompete obligation -- -- 229
Increase in deferred rent 302 29 50
Foreign currency adjustment of long-term debt 31 -- --
Change in assets and liabilities, net of the effects
from the purchase of businesses--
(Increase) decrease in-
Accounts receivable, net (2,408) (360) (2,061)
Inventories 150 (347) (46)
Prepaid expenses and other 747 57 (91)
Other assets (486) (536) 255
Increase (decrease) in-
Accounts payable 1,630 (978) 1,763
Accrued expenses 10,732 4,693 (170)
Deferred revenues (8) 921 367
Deferred income taxes (128) -- --
----------- ----------- -----------
Net cash provided by operating activities 26,438 17,522 11,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for businesses acquired, net of cash acquired (61,176) (28,355) (4,663)
Capital expenditures (23,493) (16,288) (6,352)
Purchase of real estate and other assets from related parties (11,018) -- --
Client acquisition costs (6,477) (2,245) (1,905)
Deposits on pending acquisitions (850) -- --
Increase in intangible assets (5,618) (4,274) (943)
Payments on noncompete agreements (333) (153) (70)
Proceeds from sale of property and equipment 123 -- --
----------- ----------- -----------
Net cash used in investing activities (108,842) (51,315) (13,933)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on revolving line of credit 5,237 (900) (7,700)
Proceeds from issuance of long-term debt 210,229 128,420 76,850
Payments on long-term debt and capital lease obligations (118,570) (90,958) (61,195)
Prepayment penalties and cancellation of warrants (2,625) -- (1,781)
Payment of debt financing costs (9,283) (2,366) (3,385)
Repurchase of Common stock (1,450) -- --
Distributions to shareholders (602) (39) (26)
----------- ----------- -----------
Net cash provided by financing activities 82,936 34,157 2,763
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 532 364 (170)
CASH, BEGINNING OF YEAR 722 358 528
----------- ----------- -----------
CASH, END OF YEAR $ 1,254 $ 722 $ 358
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE--CASH PAID FOR INTEREST $ 7,443 $ 8,356 $ 6,738
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
PIERCE LEAHY CORP.
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996
-----------------
(In thousands except share data)
--------------------------------
1. BACKGROUND:
----------
Pierce Leahy Corp. and its majority-owned subsidiary, Pierce Leahy Command
Company (together, the "Company"), stores and services business records for
clients throughout the United States and Canada. The Company also sells storage
containers and provides records management consulting services and imaging
services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Pierce Leahy Corp.
and its 99%-owned subsidiary, Pierce Leahy Command Company. All intercompany
accounts and transactions have been eliminated in consolidation. The minority
interest in Pierce Leahy Command Company is not material to the consolidated
financial statements.
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 amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories
- -----------
Inventories, which consist of storage containers, are stated at the lower of
cost (first-in, first-out) or market.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is provided using
straight-line and accelerated methods over the estimated useful lives of the
assets.
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, estimated at 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 Statement of
25
<PAGE>
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Client Acquisition Costs
- ------------------------
The unreimbursed costs of moving the records of new clients into the Company's
facilities and sales commissions related to new client contracts have been
capitalized and are included in intangible assets in the accompanying balance
sheets (see Note 4). All such costs are being amortized on a straight-line basis
over six years, which represent the average initial contract term.
Deferred Rent
- -------------
Certain of the Company's leases for warehouse space provide for scheduled rent
increases over the lease terms. The Company recognizes rent expense on a
straight-line basis over the lease terms, with the excess of the rent charged to
expense over the amount paid recorded as deferred rent in the accompanying
balance sheets.
Health Insurance Reserve
- ------------------------
The Company self-insures for benefit claims under a health insurance plan
provided to employees. The self-insurance was limited to $100 and $75 in claims
per insured individual per year in 1996 and 1995, respectively, and a liability
for claims incurred but not reported is reflected in the accompanying balance
sheets. Specific stop loss insurance coverage is maintained to cover claims in
excess of the coverage per insured individual per year.
Income Taxes
- ------------
The Company is a Subchapter S corporation and, therefore, any taxable income or
loss for federal income tax purposes is passed through to the shareholders.
While not subject to federal income taxes, the Company is subject to income
taxes in certain states. The Company reports certain expenses in different
periods for financial reporting and income tax purposes. In addition, the
carrying value of certain assets acquired exceeded their tax bases. If the
Subchapter S corporation status was terminated, a net deferred income tax
liability of approximately $6,600 would need to be recorded.
The Tax Reform Act of 1986 provides for a tax at the corporate level on gains
realized on asset sales for a specified period following the election of
Subchapter S status. Deferred taxes have been provided for taxes which may be
triggered if the Company disposes of certain assets acquired in connection with
an acquisition.
Revenue Recognition
- -------------------
Storage and service revenues are recognized in the month the respective service
is provided. Storage material sales are recognized when shipped to the customer.
Deferred revenues represent amounts invoiced for storage services in advance of
the rendering of the services. The costs of storage and service revenues are not
separately distinguishable, as the revenue producing activities are
interdependent and costs are not directly attributable or allocable in a
meaningful way to those activities.
26
<PAGE>
Change in Accounting Estimates
- ------------------------------
Effective January 1, 1995, the Company revised its estimates of the useful lives
of certain long-term assets, as management re-evaluated in 1995 the appropriate
useful lives of these types of assets given the significant increase in the
level of capital expenditures and payments for businesses acquired (see Note 13)
over prior years. The revised useful lives were determined based on an analysis
of the Company's actual experiences in the use of such assets, along with other
information gained during the acquisition process and the availability of other
industry data. The revised useful lives are as follows:
<TABLE>
<CAPTION>
Useful Life (Years)
---------------------
Long-Term Asset Old New
------------------------- ------- -------
<S> <C> <C>
Buildings 25 40
Warehouse equipment 12 12-20
Client acquisition costs 3 6
Other intangibles 3 10
Goodwill 5-20 30
</TABLE>
The change in accounting estimates was effective January 1, 1995, and the
aggregate effect of adopting these revised lives was to decrease amortization
and depreciation expense and increase net income for the year ended December 31,
1995 by approximately $4,868.
Foreign Currency Translation
- ----------------------------
The balance sheets and statements of operations of the Canadian operations are
translated into U.S. dollars using the rates of exchange at period end. All
foreign currency transaction gains and losses are included in operations in the
period in which they occur. The cumulative translation adjustment at December
31, 1996 and 1995 was not material to the consolidated financial statements.
New Accounting Pronouncements
- -----------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The
Company has adopted the disclosure requirement of this pronouncement for the
year ended December 31, 1996 (see Note 8). The adoption of this pronouncement
had no impact on the Company's consolidated statements of operations.
Fair Value of Financial Instruments
- -----------------------------------
For certain of the Company's financial instruments, including accounts
receivable, accounts payable and accrued expenses, management believes that the
carrying amounts approximate fair value due to their short maturities. The
carrying amount and estimated fair value of the Company's Senior Subordinated
Notes at December 31, 1996 were $200,000 and $182,648. The fair value of the
Senior Subordinated Notes was estimated based on the quoted market prices
offered for the Company's publicly traded debt securities.
27
<PAGE>
3. PROPERTY AND EQUIPMENT:
----------------------
<TABLE>
<CAPTION>
December 31
-----------------------------
Life 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Land -- $ 7,353 $ 4,780
Buildings and improvements 10-40 years 57,296 35,758
Warehouse equipment (primarily shelving) 12-20 years 71,773 53,943
Data processing equipment and software 7 years 14,363 10,684
Furniture and fixtures 7 years 3,823 2,970
Transportation equipment 5 years 3,546 1,620
------------- --------------
158,154 109,755
Less- Accumulated depreciation
and amortization (45,020) (35,328)
------------- --------------
Net property and equipment $ 113,134 $ 74,427
============= ==============
</TABLE>
Depreciation expense was $6,652, $4,325 and $5,066 for the years ended December
31, 1996, 1995, and 1994, respectively.
4. INTANGIBLE ASSETS:
-----------------
<TABLE>
<CAPTION>
December 31
-----------------------------
1996 1995
------------- --------------
<S> <C> <C>
Goodwill $ 69,417 $ 25,857
Client acquisition costs 15,157 8,680
Noncompete agreements 11,287 6,980
Deferred financing costs 9,267 2,248
Other intangible assets 13,377 9,399
------------- --------------
118,505 53,164
Less- Accumulated amortization (20,961) (14,543)
------------ -----------
Net intangible assets $ 97,544 $ 38,621
============ ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------
Accumulated Net Book
Life Cost Amortization Value
------------- ------------ ------------------ ------------
<S> <C> <C> <C> <C>
Goodwill 30 years $ 69,417 $ (3,817) $ 65,600
Client acquisition costs 6 years 15,157 (5,052) 10,105
Noncompete agreements 1 - 7 years 11,287 (6,976) 4,311
Deferred financing costs 10 years 9,267 (385) 8,882
Other intangible assets 3 - 15 years 13,377 (4,731) 8,646
------------ ------------------ ------------
$ 118,505 $ (20,961) $ 97,544
============ ================== ============
</TABLE>
28
<PAGE>
Amortization of all intangible assets, other than deferred financing costs which
are charged to interest expense, was $6,217, $3,838 and $3,370 for the years
ended December 31, 1996, 1995, and 1994, respectively. Amortization of deferred
financing costs was $516, $533, and $1,068 for the years ended December 31,
1996, 1995, and 1994, respectively. Capitalized client acquisition costs were
$6,477, $2,245, and $1,905 and related amortization expense was $1,688, $909 and
$1,536 for the years ended December 31, 1996, 1995, and 1994, respectively.
The Company continually evaluates whether events or circumstances have occurred
that indicate that the remaining useful lives of the intangible assets should be
revised or that the remaining balance of such assets may not be recoverable. As
of December 31, 1996, the Company believes that no revisions to the remaining
useful lives or write-downs of intangible assets are required.
5. ACCRUED EXPENSES:
----------------
<TABLE>
<CAPTION>
December 31
------------------------------------
1996 1995
----------------- ---------------
<S> <C> <C>
Accrued salaries and commissions $ 2,613 $ 2,190
Accrued vacation 2,866 2,140
Accrued interest 9,840 583
Other 5,244 4,620
----------------- ---------------
$ 20,563 $ 9,533
================= ===============
</TABLE>
6. LONG-TERM DEBT:
--------------
<TABLE>
<CAPTION>
December 31
------------------------------------
1996 1995
----------------- ---------------
<S> <C> <C>
11-1/8% Senior Subordinated Notes, due 2006 $ 200,000 $ --
Canadian Revolver, interest at prime (5.4% at
December 31, 1996) 5,327 --
Seller Notes 7,600 --
Mortgage Notes 3,679 --
Borrowings under previous credit agreement
(repaid in July 1996) -- 118,208
Other 34 82
----------------- ---------------
216,640 118,290
Less- Current portion (7,310) (1,478)
----------------- ----------------
$ 209,330 $ 116,812
================= ================
</TABLE>
29
<PAGE>
In July 1996, the Company issued $200,000 of Senior Subordinated Notes (the
"Notes") in a private offering. The Notes are general unsecured obligations of
the Company, subordinated in right of payment to the senior indebtedness of the
Company and senior in right of payment to any current or future subordinated
indebtedness. The Notes mature on July 15, 2006, and bear interest at 11-1/8%
per year , payable semiannually in arrears on January 15 and July 15, commencing
January 15, 1997. The proceeds from the sale of the Notes were used to retire
certain existing indebtedness of the Company under its previous credit
facilities, to purchase certain properties from related party partnerships (see
Note 10), to redeem stock from a shareholder (see Note 7), to fund an
acquisition and for general purposes. The Company must comply with all financial
and operating covenants under the indenture for the Notes while the Notes are
outstanding.
In August 1996, the Company entered into a new credit facility (the "Credit
Facility") providing a revolving line of credit of U.S. $100 million in
borrowings and CDN $35 million in borrowings by the Company's Canadian
subsidiary. The Credit Facility is senior to all other indebtedness the Company
may have and is secured by the stock of the Company's shareholders. Borrowings
under the facility bear interest at prime plus an applicable margin, or at LIBOR
plus an applicable margin, at the option of the Company. In addition to interest
and other customary fees, the Company is obligated to remit a fee of 0.375% per
year on unused commitments, payable quarterly. The aggregate available
commitment under the Credit Facility will be reduced on a quarterly basis,
beginning September 30, 1999. The Credit Facility matures on June 30, 2002,
unless previously terminated. The Company must comply with all financial and
operating covenants under the Credit Facility during the term of the agreement.
The Company's available borrowing capacity under the Credit Facility is
contingent upon the Company meeting certain financial ratios and other criteria.
The highest amount outstanding under the current Canadian revolver during the
year ended December 31, 1996, was $5,691. The average amount outstanding on the
Canadian revolver during the year was $5,037, while the weighted average
interest rate was 5.8%. There were no borrowings under the current U.S. revolver
in 1996. The highest amount outstanding under the previous credit facility for
the year ended December 31, 1996 was $6,582, the average amount outstanding was
$3,251, and the weighted average interest rate was 9.62%.
In connection with certain acquisitions completed in 1996, notes for $7,600 were
issued to the sellers. The notes bear interest at 5% per year and $7,100 was
repaid in 1997. The remaining note is due in 1998.
In connection with the purchase of real estate from related parties (see Note
10) and an acquisition completed in 1996, the Company assumed $1,114 and $2,630
of mortgage notes, respectively. The notes bear interest at 10.5% and 8%,
respectively, and require monthly principal and interest payments of $20 and
$22, with balloon payments due in 2002 and 2001, respectively.
30
<PAGE>
Future scheduled principal payments on the Company's long-term debt at December
31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 7,310
1998 705
1999 207
2000 218
2001 231
2002 and thereafter 207,969
----------
$ 216,640
----------
</TABLE>
Upon entering into the previous credit facilities in 1994 and 1993, the Company
issued warrants to certain lenders to purchase common stock. Warrants to
purchase 52 shares at $3 per share were issued in 1994 and 217 shares at $.01
per share were issued in 1993. Management assigned an initial value of $87 to
the 1994 warrants and $338 to the 1993 warrants for financial reporting
purposes. The Company called the warrants in February 1996 at an amount which
was determined by a formula defined in the credit agreement. The change in value
of the redeemable warrants from the initial value has been accreted through a
charge to shareholders' deficit in the accompanying financial statements. The
warrants were redeemed for $2,625 in 1996 and there are no outstanding warrants
at December 31, 1996.
Debt refinancings occurred in 1996, 1995 and 1994, resulting in the write-off of
previously deferred financing costs of $2,015, $2,779 and $3,980, respectively,
and prepayment and other charges (including the write-off of unamortized debt
discount) of $500 in 1995 and $2,011 in 1994. Such write-offs and charges have
been recorded as extraordinary items in the accompanying consolidated statements
of operations.
7. COMMON STOCK:
------------
At December 31, 1996 and 1995, the Company's common stock was comprised of the
following:
<TABLE>
<CAPTION>
Class A Class B
----------- -----------
<S> <C> <C>
Par value $ .01 $ .01
Shares authorized 1,000,000 1,000,000
Shares issued and outstanding--1996 900 9,000
Shares issued and outstanding--1995 1,000 9,000
</TABLE>
In 1996, the Company redeemed 100 shares of Class A common stock for $1,450 and
canceled these shares.
31
<PAGE>
8. STOCK OPTIONS:
-------------
In September 1994, the Company established a nonqualified stock option plan
which provides for the granting to key employees of options to purchase an
aggregate of 1,141 shares of common stock. The shares available for grant were
increased by 269 in December 1996. Options to purchase 340 shares at $6 per
share were granted on January 1, 1996 and options to purchase 567 shares at $5
per share were granted on January 1, 1995. An additional option grant for 145
shares at $5 per share was made on January 1, 1997. Option grants, when vested,
are exercisable at the earlier of the tenth anniversary of the date of grant or
the first date on which the Company ceases to be an S Corporation, and have an
exercise price equal to the fair market value of the common stock on the date of
grant. Fair market value is determined based on a formula, as defined in the
option plan. The options vest in five equal annual installments beginning on the
first anniversary of the date of grant. At December 31, 1996, options for 113
shares were vested. As of December 31, 1996 and 1995, no options were
exercisable.
At December 31, 1996, the total options outstanding are 907 with exercise prices
between $5 to $6 and a weighted average exercise price of $6. The options
contain no expiration dates, however, no options are exercisable. The fair value
of each option grant is estimated on the date of the grant using the
Black-Scholes option pricing model with the following assumptions used for the
grants in 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Risk free interest rates 5.6% 8.0%
Expected lives of options 7 years 7 years
Expected dividend yields N/A N/A
Expected volatility 15% 15%
</TABLE>
The fair value of each option granted in 1996 and 1995 is $2, as determined
under the provisions of Statement of Financial Accounting Standards No. 123. The
Company's net income would have been reduced and the following pro forma results
would have been reported had compensation cost been recorded for the fair value
of the options granted:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net income, as reported $ 508 $ 2,068
Pro forma net income 91 1,799
</TABLE>
The Statement of Financial Accounting Standards No. 123 method of accounting is
applied only to options granted after January 1, 1995. The resulting pro forma
compensation cost may not be representative of the amount to be expected in
future years due to the vesting schedule of the options.
32
<PAGE>
9. COMMITMENTS AND CONTINGENCIES:
-----------------------------
Operating Leases
- ----------------
At December 31, 1996, the Company was obligated under noncancelable operating
leases, including the related-party leases discussed below, for warehouse space,
office equipment and transportation equipment. These leases expire at various
times through 2015 and require minimum rentals, subject to escalation, as
follows:
<TABLE>
<S> <C>
1997 $ 22,632
1998 21,136
1999 18,870
2000 16,761
2001 15,566
2002 and thereafter 39,487
----------
$ 134,452
==========
</TABLE>
Rent expense was approximately $17,008, $14,098, and $12,262 for the years ended
December 31, 1996, 1995 and 1994, respectively. Some of the leases for warehouse
space provide for purchase options on the facilities at certain dates.
The Company leases office and warehouse space at prices which, in the opinion of
management, approximate market rates from entities which are owned by certain
shareholders, officers and employees of the Company. Rent expense on these
leases was approximately $9,019, $8,201, and $7,658 for the years ended December
31, 1996, 1995, and 1994, respectively. A significant portion of the related
party rent expense was reduced through the purchase of certain real estate and
the buy-out of certain lease interests in July 1996 (see Note 10).
Other Matters
- -------------
The Company has entered into a consulting agreement with a shareholder of the
Company and consulting agreements with several of the former owners of acquired
businesses (see Note 12). These agreements require the following minimum
payments:
<TABLE>
<S> <C>
1997 $ 480
1998 98
1999 40
2000 40
2001 40
2002 and thereafter 130
----------
$ 828
==========
</TABLE>
The Company is party to various claims arising in the ordinary course of
business. Although the ultimate outcome of these matters is presently not
determinable, management, after consultation with legal counsel, does not
believe that the resolution of these matters will have a material adverse effect
on the Company's financial position or results of operations.
33
<PAGE>
10. RELATED PARTY TRANSACTIONS:
--------------------------
In July 1996, the Company purchased certain real estate previously leased and
other assets from two partnerships, whose partners are shareholders of the
Company. The payment for the purchased real estate and other assets was $11,018
plus the assumption of a $1,114 mortgage. Since the transaction was with related
parties, the real estate was recorded at its depreciated cost and the deferred
rent liability on the leases was eliminated as a credit to shareholders'
deficit. The $4,312 difference between the purchase price and the depreciated
cost was charged to shareholders' deficit as a deemed distribution. In addition,
the Company bought out certain lease commitments from a related party
partnership for $2,764. This lease buy-out cost was recorded as a non-recurring
charge in the 1996 consolidated statement of operations.
The Company had an agreement with a shareholder of the Company that required
payments of $60 per year for five years upon the death of the shareholder. The
present value of this benefit was recorded as a liability by the Company. In
July 1996, the Company decided to make monthly pension payments to the
shareholder and terminated the previous agreement. The pension payments are $8
per month until the death of the shareholder or his spouse. The $490 difference
between the present value of this benefit and the liability previously reported
was recorded as a non-recurring charge in the 1996 consolidated statement of
operations.
The Company paid financial advisory fees to an investment banking firm of which
a director of the Company is the managing director. The fees were approximately
$800, $700 and $800 in 1996, 1995 and 1994, respectively.
In December 1993, the Company borrowed $80 from a shareholder which bears
interest at 7%. The note was repaid in 1996.
11. EMPLOYEE BENEFIT PLANS:
----------------------
The Company maintains a discretionary profit sharing and a 401 (k) plan for
substantially all full-time employees over the age of 20-1/2 and with more than
1,000 hours of service. Participants in the 401(k) plan may elect to defer a
specified percentage of their compensation on a pretax basis. The Company is
required to make matching contributions equal to 25% of the employee's
contribution up to a maximum of 2% of the employee's annual compensation.
Participants become vested in the Company's matching contribution over three to
seven years. The expense relating to these plans was $1,122, $591, and $506 for
the years ended December 31, 1996, 1995 and 1994, respectively.
12. STOCK PURCHASE AGREEMENTS:
-------------------------
The Company and certain shareholders are parties to an agreement which provides
that, in the event of a shareholder's desire to transfer his ownership interest,
the other shareholders party to the agreement and/or the Company have the right
of first refusal to purchase the stock under the terms specified in the
agreement. The agreement also provides that, in the event of a shareholder's
death, the Company will purchase the stock from the estate of the deceased under
the terms and at the amount per share, subject to periodic adjustment, specified
in the agreement. The purchase would be funded, in part, from the proceeds of
insurance policies currently in place ($37,700 face value).
34
<PAGE>
13. ACQUISITIONS:
------------
In 1995, the Company completed five acquisitions of records management
businesses for an aggregate cash purchase price of $28,994. The most significant
of these acquisitions was for $16,022 in October 1995; all others were
individually less than $5,000. In 1996, the Company completed 12 acquisitions
for an aggregate cash purchase price of $62,165 (of which $14,000 was for one
transaction in May 1996 and $13,500 was for another transaction in October
1996). In addition to these cash payments, an acquisition in 1995 provided for a
$800 noncompete obligation payable over three years and an acquisition during
1996 provided for a $400 noncompete obligation payable over one year. The
noncompete liability at December 31, 1996 was $783. Each of these acquisitions
was accounted for using the purchase method of accounting and, accordingly, the
results of operations for each acquisition have been included in the
consolidated results of the Company from the respective acquisition dates. The
excess of the purchase price over the underlying fair value of the assets and
liabilities acquired has been allocated to goodwill ($17,549 and $43,062 in 1995
and 1996, respectively) and is being amortized over the estimated benefit period
of 30 years. In connection with certain of the acquisitions, the Company entered
into consulting agreements with several of the former owners of the acquired
businesses which require aggregate commitments of $498 at December 31, 1996 (see
Note 9).
A summary of the cash paid for the purchase price as of the acquisitions is as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Fair value of assets acquired $ 82,515 $ 36,171
Liabilities assumed (1,896) (7,177)
Cash acquired (1,013) (639)
---------- ----------
Net cash paid $ 79,606 $ 28,355
========== ==========
</TABLE>
Included in the 1996 amounts are $18,917 of fair value of assets acquired, $464
of liabilities assumed, $23 of cash acquired and $18,430 of net cash paid on
acquisitions that were completed subsequent to December 31, 1996.
The following unaudited pro forma information shows the results of the Company's
operations for the years ended December 31, 1996 and 1995 as though each of the
completed acquisitions had occurred as of January 1, 1995:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Total revenues $ 150,788 $ 139,755
Net income 1,721 2,357
</TABLE>
35
<PAGE>
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, 1995, 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 companies.
Subsequent to December 31, 1996, the Company signed a definitive agreement to
purchase a regional records management company for approximately $62,000, which
it intends to finance through borrowings under its credit facility. The
acquisition is subject to due diligence and customary conditions.
36
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------ ---------------------------------------------------------------
Financial Disclosure.
--------------------
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ------- --------------------------------------------------
Set forth below is certain information regarding the Company's directors,
executive officers and other significant management personnel:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Leo W. Pierce, Sr........ 78 Chairman of the Board
J. Peter Pierce.......... 50 President, Chief Executive Officer and Director
Douglas B. Huntley....... 36 Vice President, Chief Financial Officer and Director
Joseph A. Nezi........... 50 Vice President, Sales and Marketing
David Marsh.............. 48 Vice President, Chief Information Officer
Ross M. Engelman......... 33 Vice President, Operations--South
J. Michael Gold.......... 37 Vice President, Operations--Northeast
Christopher J. Williams.. 37 Vice President, Operations--West
Leo W. Pierce, Jr........ 52 Vice President, Contracts Administration and
Director
Michael J. Pierce........ 46 Vice President, Equipment Sales and Distribution
Group and Director
Raul A. Fernandez........ 46 Vice President, Information Services
Joseph P. Linaugh........ 47 Vice President, Treasurer
Thomas Grogan............ 42 Vice President and Controller
Lisa G. Goldschmidt...... 28 General Counsel
Alan B. Campell.......... 46 Director
Delbert S. Conner........ 67 Director
</TABLE>
Leo W. Pierce, Sr. has served as Chairman of the Board of the Company since
its formation in 1957. Mr. Pierce served as the Chief Executive Officer of the
Company from formation to January 1995 and as its President from formation to
January 1984. Prior to forming the Company, Mr. Pierce was a sales
representative for Lefebure Corporation and an accountant for Price Waterhouse.
Mr. Pierce holds a B.A. degree from St. John's University.
J. Peter Pierce has served as President and Chief Executive Officer of the
Company since January 1995 and has been a director since the early 1970s. Mr.
Pierce served as President and Chief Operating Officer of the Company from
January 1984 to January 1995, prior to which time he served in various other
capacities with the Company, including as Vice President of Operations, General
Manager of Connecticut, New York and New Jersey and Sales Executive. Mr. Pierce
attended the University of Pennsylvania and served in the United States Marine
Corps.
Douglas B. Huntley has served as Chief Financial Officer since January 1994
and a director of the Company since September 1994. From May 1993 until December
1993, Mr. Huntley served as Assistant
-37-
<PAGE>
to the President of the Company. From August 1989 to March 1993, he was an
Executive Advisor and a Project Manager of Rockwell International in connection
with a multi-billion dollar NASA contract. Prior thereto, Mr. Huntley was an
accountant for Deloitte Haskin & Sells. Mr. Huntley holds a B.S. degree from
Bucknell University and an M.B.A. from the University of Pennsylvania, Wharton
School of Business and is a Certified Public Accountant.
Joseph A. Nezi has served as Vice President, Sales and Marketing of the
Company since September 1991. From July 1990 to September 1991, Mr. Nezi was
the Vice President, Sales and Marketing of Delaware Valley Wholesale Florist
where he was responsible for the sales and marketing of a firm with $30 million
of sales. Prior thereto, Mr. Nezi was the President and General Manager of
Pomerantz and Company following 17 years in various sales positions of
increasing responsibility with Xerox. Mr. Nezi holds a B.A. degree from
Villanova University.
David Marsh has served as Vice President and Chief Information Officer of the
Company since January 1995 and was Assistant to the President of the Company
from November 1994 to December 1994. From August 1986 to May 1994, Mr. Marsh
was Manager--Corporate Relations for the Massachusetts Institute of Technology
where he was responsible for the management and development of MIT's
relationships with U.S. and European information technology, communications and
service companies. Prior to August 1986, Mr. Marsh held positions of President
of MEA Management Systems, Director of Corporate Strategic Planning with Public
Service Company of New Hampshire, Senior Consultant with Booz, Allen & Hamilton
and Second Vice President with the Chase Manhattan Bank. Mr. Marsh holds a B.S.
degree from University of Salford, U.K. and S.M. degrees in Management and
Nuclear Engineering from MIT.
Ross M. Engelman has served as Vice President, Operations--South since October
1994. From June 1993 to October 1994, Mr. Engelman was Vice President,
Information Systems and from September 1991 to June 1993, he was Assistant to
the President of the Company. From August 1985 to September 1991, Mr. Engelman
was a management consultant with Andersen Consulting. Mr. Engelman holds a
B.S.E. degree from the University of Pennsylvania, Wharton School of Business.
J. Michael Gold has served as Vice President, Operations--Northeast of the
Company since June 1993. Prior thereto, Mr. Gold was Vice President, Operations
from February 1992 to June 1993, Vice President, New York Metropolitan Region
from January 1990 to February 1992 and General Manager of the New Jersey Archive
from April 1985 to February 1989. Prior to joining the Company, Mr. Gold was
the Budget Administration Manager for SmithKline Beecham. Mr. Gold holds a B.A.
degree from Villanova University.
Christopher J. Williams has served as Vice President, Operations--West since
June 1993. From February 1992 to June 1993, Mr. Williams was the Company's Vice
President, Information Services. Prior thereto, Mr. Williams held a number of
additional positions with the Company since he joined it in 1980, including most
recently as General Manager of the New York Archive and Regional Vice President-
- -New England. Mr. Williams holds a B.S. degree from Western New England
College.
Leo W. Pierce, Jr. has served as Vice President, Contract Administration of
the Company since January 1990 and as a director since the early 1970s. Mr.
Pierce has been affiliated with the Company since its inception in various
capacities, including as manager of the Philadelphia Archive and Vice President,
Facilities Management. Mr. Pierce holds a B.A. degree from LaSalle University.
-38-
<PAGE>
Michael J. Pierce has served as Vice President, Equipment Sales and
Distribution Group of the Company since February 1990 and as a director since
the early 1970s. Mr. Pierce has been affiliated with the Company since its
inception in various sales capacities. Mr. Pierce attended Temple University
and served in the United States Army.
Raul A. Fernandez has served as Vice President, Information Systems of the
Company since February 1990. From March 1988 to February 1990, Mr. Fernandez
was Director of Information Systems. Prior to joining the Company, Mr.
Fernandez was employed by RCA Pictures Division and Sperry-Unisys as District
Manager. Mr. Fernandez holds a B.A. degree from Kings College.
Joseph P. Linaugh has served as Vice President and Treasurer of the Company
since January 1994. From January 1990 to December 1993, Mr. Linaugh served as
Vice President, Chief Financial Officer and a director of the Company. Prior to
joining the Company, Mr. Linaugh worked in various financial positions with
private and publicly held companies and for Laventhol & Horwath in public
accounting. Mr. Linaugh holds a B.S. degree from LaSalle University and is a
Certified Public Accountant.
Thomas Grogan has served as Vice President and Controller of the Company since
January 1994. From April 1985 to December 1993, Mr. Grogan was the Company's
Vice President of Finance and Administration. Prior to joining the Company, Mr.
Grogan worked for Dunn, Dunn and Associates in public accounting from May 1979
to March 1985 and in private industry from June 1977 to April 1979. Mr. Grogan
holds a B.S. degree from Widener College and is a Certified Public Accountant.
Lisa G. Goldschmidt has served as General Counsel of the Company since October
1995. From September 1992 to October 1995, Ms. Goldschmidt was an attorney at
Reed Smith Shaw & McClay. Ms. Goldschmidt holds a B.A. and a J.D. degree from
the University of Pennsylvania.
Alan B. Campell has served as a director of the Company since September 1994.
Mr. Campell is one of the founders of Campell Vanderslice Furman, an investment
banking firm, and has been a Managing Director of the firm since its formation
in 1986. Prior thereto, Mr. Campell was a Vice President at Chase Manhattan
Bank, N.A. Mr. Campell holds a B.A. degree from Brown University and an M.A.
from the University of Southern California.
Delbert S. Conner has served as a director of the Company since September
1990. Since May 1995, Mr. Conner has served as the Vice Chairman of USCO
Distribution Services, Inc. on a semi-retired basis. From January 1994 through
April 1995, he was the Vice Chairman of USCO on a full-time basis and its
President and Chief Executive Officer from February 1983 to December 1993. Mr.
Conner holds a B.S. degree from Bryant College.
Messrs. J. Peter Pierce, Leo W. Pierce, Jr. and Michael J. Pierce are
brothers. Leo W. Pierce, Sr. is their father. For purposes of the above
biographical information, the Company includes L.W. Pierce Company, Inc., the
predecessor to Pierce Leahy.
Board Committees
The Company's Board of Directors appointed a Compensation Committee in
September 1994. The Compensation Committee is comprised of Leo W. Pierce, Sr.,
J. Peter Pierce and Alan B. Campell. The Compensation Committee recommends to
the Board both salary levels and bonuses for the officers of the Company. The
Compensation Committee also reviews and makes recommendations with respect to
the Company's existing and proposed compensation plans, and serves as the
committee responsible for
-39-
<PAGE>
administrating the Company's non-qualified stock option plan (the "Plan").
Until September 1994, the Compensation Committee's functions were exercised by
the Board of Directors.
All directors receive reimbursement of reasonable out-of-pocket expenses
incurred in connection with meetings of the Board of Directors. Mr. Conner also
receives $3,500 for each meeting of the Board of Directors which he attends. No
other director receives separate compensation for services rendered as a
director.
Item 11. Executive Compensation.
- ------- ----------------------
The following table sets forth the compensation received by the Company's
Chief Executive Officer and the five other highest paid executive officers
(together with the Chief Executive Officer, the "Named Executive Officers") for
services to the Company in 1995 and 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------- --------------
Other Securities
Name and Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
------------------------ ----- -------- ------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
J. Peter Pierce................. 1996 $251,485 $93,400 -- -- $6,967(a)
President and Chief Executive 1995 186,800 93,400 -- -- 6,681(a)
Officer
Ross M. Engelman................ 1996 130,500 65,000 -- 51 5,216(b)
Vice President, 1995 130,422 65,000 -- 85 4,813(b)
Operations--South
J. Michael Gold................. 1996 130,000 65,000 -- 51 3,739(c)
Vice President, 1995 129,905 65,000 -- 85 3,417(c)
Operations--Northeast
Douglas B. Huntley.............. 1996 130,000 65,000 -- 51 5,231(d)
Vice President and 1995 129,520 65,000 -- 85 4,802(d)
Chief Financial Officer
Joseph A. Nezi.................. 1996 130,000 92,370(e) -- 35 6,256(f)
Vice President, 1995 133,020 97,841(e) -- 85 5,748(f)
Sales and Marketing
Christopher J. Williams......... 1996 130,000 65,000 -- 51 5,339(g)
Vice President, 1995 129,905 65,000 -- 85 5,089(g)
Operations--West
</TABLE>
- --------------
(a) Included in such amounts for 1996 and 1995, respectively, are $2,268 and
$2,310 representing an employer match under the 401(k) Plan, $1,699 and
$1,371 in net premiums for a guaranteed term life insurance policy on behalf
of Mr. Pierce and $3,000 and $3,000 representing contributions made by the
Company under the Profit Sharing Plan.
(b) Included in such amounts for 1996 and 1995, respectively, are $2,249 and
$2,107 representing an employer match under the 401(k) Plan, $158 and $98 in
net premiums for a guaranteed term life insurance policy on behalf of Mr.
Engelman and $2,809 and $2,608 representing contributions made by the
Company under the Profit Sharing Plan.
(c) Included in such amounts for 1996 and 1995, respectively, are $750 and $700
representing an employer match under the 401(k) Plan, $191 and $119 in net
premiums for a guaranteed term life insurance policy on behalf of Mr. Gold
and $2,798 and $2,598 representing contributions made by the Company under
the Profit Sharing Plan.
(d) Included in such amounts for 1996 and 1995, respectively, are $2,250 and
$2,093 representing an employer match under the 401(k) Plan, $191 and $119
in net premiums for a guaranteed term life insurance policy on behalf of Mr.
Huntley and $2,790 and $2,590 representing contributions made by the Company
under the Profit Sharing Plan.
-40-
<PAGE>
(e) Includes $27,370 and $32,842 paid as commissions in 1996 and 1995,
respectively.
(f) Included in such amounts for 1996 and 1995, respectively, are $2,260 and
$2,310 representing an employer match under the 401(k) Plan, $996 and $438
in net premiums for a guaranteed term life insurance policy on behalf of Mr.
Nezi and $3,000 and $3,000 representing contributions made by the Company
under the Profit Sharing Plan.
(g) Included in such amounts for 1996 and 1995, respectively, are $2,250 and
$2,066 representing an employer match under the 401(k) Plan, $191 and $125
in net premiums for a guaranteed term life insurance policy on behalf of Mr.
Williams and $2,898 and $2,898 representing contributions made by the
Company under the Profit Sharing Plan.
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning stock options
granted to the Named Executive Officers during 1996 (all of which were granted
on January 1, 1996).
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------
Potential Realizable
Number of Value at Assumed
Securities % of Total Annual Rates of Stock
Underlying Options Price Appreciation For
Options Granted to Exercise Option Term(b)
Granted Employees in Price Expiration ----------------------
Name (#)(a) 1996 ($/Share) Date 5% 10%
---- ---------- ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
J. Peter Pierce................. -- -- -- -- -- --
Ross M. Engelman................ 51 15.0 $6,209 * $199,145 $504,673
J. Michael Gold................. 51 15.0 6,209 * 199,145 504,673
Douglas B. Huntley.............. 51 15.0 6,209 * 199,145 504,673
Joseph A. Nezi.................. 35 10.3 6,209 * 136,668 346,344
Christopher J. Williams......... 51 15.0 6,209 * 199,145 504,673
</TABLE>
- --------------
* The options have no specified expiration date.
(a) All options were granted under the Plan and are for the purchase of shares
of Class B Common Stock of the Company. The options vest in five equal
annual installments commencing on the first anniversary of the date of
grant, and vested options become exercisable on the earlier of ten years
from the date of grant or the date the Company is no longer a Subchapter S
corporation. The Company may make loans with respect to vested options.
(b) Illustrates the value that might be received upon exercise of options
immediately prior to the assumed expiration of their term at the specified
compounded rates of appreciation based on the market price for the Class B
Common Stock when the options were granted. There is no established trading
market for the Class B Common Stock and, accordingly, the market price is
based upon the formula set forth in the Plan based upon a multiple of
EBITDA, as well as the amount of cash, cash equivalents, outstanding
indebtedness and other obligations of the Company. Since the options
granted to the Named Executive Officers do not have a specified expiration
date, for purposes of calculating the assumed appreciation, the options have
been deemed to expire ten years from the date of grant.
-41-
<PAGE>
Stock Option Exercises and Holdings
The following table sets forth the value of options held by each of the Named
Executive Officers at December 31, 1996. None of the Named Executives exercised
any options during 1996.
Aggregated Option Exercises in 1996 and
Option Values At December 31, 1996.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1996(a) December 31, 1996(b)
-------------------- --------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable/Unexercisable(c) Exercisable/Unexercisable
----- -------- -------- ---------------------------- -------------------------
<S> <C> <C> <C> <C>
J. Peter Pierce............... -- -- -- / -- -- / --
Ross M. Engelman.............. -- -- -- / 136 -- / $0
J. Michael Gold............... -- -- -- / 136 -- / 0
Douglas B. Huntley............ -- -- -- / 136 -- / 0
Joseph A. Nezi................ -- -- -- / 120 -- / 0
Christopher J. Williams....... -- -- -- / 136 -- / 0
</TABLE>
- -----------------
(a) All options are for the purchase of shares of Class B Common Stock.
(b) There is no established market for the Class B Common Stock and,
accordingly, the values are based on the exercise price of options granted
on January 1, 1997 in accordance with the formula set forth in the Plan.
(c) As of December 31, 1996, none of the options were exercisable although of
such totals, options to purchase 44 shares of Common Stock were vested for
Messrs. Engelman, Gold, Huntley and Williams and options to purchase 41
shares of Common Stock were vested for Mr. Nezi. Pursuant to the terms of
the Nonqualified Option Plan, vested options become exercisable on the
earlier of ten years from the date of grant or the date the Company is no
longer a Subchapter S corporation.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors is comprised of Leo W.
Pierce, Sr., J. Peter Pierce and Alan B. Campell. Leo W. Pierce, Sr. is the
former Chief Executive Officer and President of the Company and J. Peter Pierce
is the Company's Chief Executive Officer and President.
In August, 1996, the Company purchased for $14.8 million all of the interests
of the two partnerships owned by members of the Pierce family in six facilities
previously leased to the Company and 16 facilities previously subleased, as well
as minority interests in five other properties currently leased by the Company.
The purchase price was based on third party appraisals or the recent acquisition
price for the six facilities and management's estimates of the value of the
leasehold and minority ownership interests based on the net present value of the
cash flows generated by such interests. The leases and subleases were entered
into during the period from March 1980 to April 1995. The aggregate rental
payments for the leases and subleases were $7,658,000, $8,201,000 and $4,624,000
in 1994, 1995 and the portion of 1996 prior to the purchase, respectively.
-42-
<PAGE>
The Company also leases from four separate limited partnerships its corporate
headquarters in King of Prussia, Pennsylvania and its facilities in Suffield,
Connecticut, Orlando, Florida and Charlotte, North Carolina. J. Peter Pierce,
the Company's President and Chief Executive Officer, is the general partner of
three of the limited partnerships and members of the Pierce family and certain
other officers and directors of the Company and their affiliates own substantial
limited partnership interests in each of the four limited partnerships. The
lease on the Company's corporate headquarters expires on April 30, 2003, without
any renewal options. The leases for the Suffield, Orlando and Charlotte
facilities terminate on December 31, 2005, October 31, 2004 and August 31, 2001,
respectively. Each of such leases contains two five-year renewal options. The
aggregate rental payments by the Company for such properties during 1994, 1995
and 1996 were $531,000, $773,000 and $894,000, respectively.
The Company believes that the terms of its leases with the related parties are
as favorable to the Company as those generally available from unaffiliated third
parties. There are no plans by the Company to lease additional facilities from
officers, directors or other affiliated parties.
In December 1993, the Company's Chairman, Leo W. Pierce, Sr., advanced $80,000
to the Company. The Company repaid the loan, together with interest at 7%, in
three equal installments in December 1994, December 1995 and May 1996. In July,
1996, the Company redeemed 100 shares of Class A Common Stock from Mr. Pierce
for an aggregate price of $1.45 million, which price was based on the Company's
EBITDA. The Company previously undertook to pay $60,000 per year for a five-year
period to Mr. Pierce's spouse upon his death. The Company replaced this
arrangement by providing an annual pension in the amount of $96,000 to Mr.
Pierce and then to his spouse, if she survives him.
Alan B. Campell is a managing director of Campell Vanderslice Furman ("CVF"),
an investment banking firm that has provided investment banking services to the
Company since 1992. Mr. Campell became a director of the Company in 1994.
During 1994, 1995 and 1996, the Company paid CVF $0.8 million, $0.7 million and
$0.8 million, respectively, with respect to investment banking services.
-43-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
The following table sets forth, as of March 1, 1997, information as to the
Company's stock beneficially owned by (i) each director of the Company, (ii)
each Named Executive Officer, (iii) all directors and executive officers of the
Company as a group, and (iv) each person who is known by the Company to be the
beneficial owner of more than 5% of the Company's Class A Common Stock, the only
class of voting stock outstanding.
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
----------------------- -----------------------
Percentage of Percentage
Beneficial of Voting
Percent of Percent of Ownership of Power of all
No. of Class A No. of Class B all Common Common
Name(a) Shares(b) Shares Shares(b) Shares Stock Stock
------- --------- ------ --------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Leo W. Pierce, Sr........................ 386 42.9% -- -- 3.9% 42.9%
J. Peter Pierce (c)...................... 94 10.4 1,480 16.4% 15.9 10.4
Leo W. Pierce, Jr. (d)................... 94 10.4 1,300 14.4 14.1 10.4
Michael J. Pierce (e).................... 74 8.2 1,265 14.1 13.5 8.2
Mary E. Pierce........................... 54 6.0 1,265 14.1 12.8 6.0
Barbara P. Quinn (f)..................... 54 6.0 1,265 14.1 12.8 6.0
Constance P. Buckley (g)................. 54 6.0 1,255 13.9 12.8 6.0
Maurice Cox, Jr. (h)..................... 90 10.0 1,170 13.0 12.7 10.0
Alan B. Campell.......................... -- -- -- -- -- --
Delbert S. Conner........................ -- -- -- -- -- --
Ross M. Engelman......................... -- -- -- -- -- --
J. Michael Gold.......................... -- -- -- -- -- --
Douglas B. Huntley....................... -- -- -- -- -- --
Joseph A. Nezi........................... -- -- -- -- -- --
Christopher J. Williams.................. -- -- -- -- -- --
All Directors and Executive Officers as
a Group (13 persons).................. 644 73.3% 4,045 44.9% 47.8% 73.3%
</TABLE>
- -----------------------
(a) The address of all persons in this table who are shown to beneficially own
5% or more of the Class A Common Stock, unless otherwise specified, is c/o
Pierce Leahy Corp., 631 Park Avenue, King of Prussia, Pennsylvania 19406.
(b) As used in this table, "beneficial ownership" means sole or shared power to
vote or direct the voting of a security, or the sole or shared investment
power with respect to a security (i.e., the power to dispose, or direct the
disposition, of a security). A person is deemed for any date to have
"beneficial ownership" of any security that such person has a right to
acquire within 60 days after such date. For purposes of computing the
percentage of outstanding shares held by each person named above, any
security that such person has the right to acquire within 60 days of the
date of calculation is deemed to be outstanding, but is not deemed to be
outstanding for purposes of computing the percentage ownership of any other
person.
(c) Includes 340 shares of Class B Common Stock held by or for the benefit of
Mr. Pierce's children, 118 shares held in a trust for the benefit of Mr.
Pierce's wife and 411 shares held in a trust for the benefit of Mr.
Pierce's family.
(d) Includes 321 shares of Class B Common Stock held for the benefit of Mr.
Pierce's children.
(e) Includes 158 shares of Class B Common Stock held for the benefit of Mr.
Pierce's child.
(f) Includes 553 shares of Class B Common Stock held for the benefit of Ms.
Quinn's children.
(g) Includes 238 shares of Class B Common Stock held for the benefit of Ms.
Buckley's children.
(h) The address of Mr. Cox is 731 E. Manoa Road, Havertown, Pennsylvania 19083.
Includes 10 shares of Class A Common Stock and 320 shares of Class B Common
Stock held by Mr. Cox's wife and 182 shares held by or for the benefit of
Mr. Cox's children.
-44-
<PAGE>
Shareholders Agreement
The Company and its shareholders, with the exception of Leo W. Pierce, Sr.
(collectively, with the exclusion of Mr. Pierce, the "Shareholders"), are
parties to a buy/sell agreement which imposes certain restrictions on the
issuance and transfer of the Company's stock. Transfers of the Company's stock
during a Shareholder's lifetime may only be made to (i) lineal descendants of
Mr. Pierce and his wife, (ii) any trust for the benefit of any such lineal
descendant, provided that at least one trustee of such trust at all times is a
lineal descendant of Mr Pierce and his wife or (iii) to the spouse of a lineal
descendant of Mr. Pierce and his wife as custodian under a Uniform Transfers to
Minors Act for a lineal descendant of Mr. Pierce and his wife who has not
attained age 21 (collectively, "Permitted Transferees"). Shareholders are
permitted to make testamentary transfers to Permitted Transferees or to any
trust for the benefit of a lineal descendant of Mr. Pierce and his wife,
provided that at least one trustee of such trust at all times is a lineal
descendant of Mr. Pierce and his wife.
Within 270 days after a permitted testamentary transfer, the transferee may
elect to require the Company to purchase all or any part of the stock that was
acquired in such testamentary transfer. Upon the death of a Shareholder (other
than in the event of a permitted testamentary transfer), commencement of
bankruptcy or similar proceeding by or against a Shareholder, receipt by a
Shareholder of a bona fide written offer from a person other than a Permitted
Transferee to acquire all of the Shareholder's stock or a transfer or attempted
transfer by a Shareholder of any of his stock in violation of the buy/sell
agreement, the Company and the remaining Shareholders have the option to
purchase all or any of the stock owned by the affected Shareholder; provided,
however, that the Company is required to purchase any such stock not purchased
under such options, to the extent not prohibited by law or agreement. The
purchase price for such purchases is the agreed value, to be determined at least
annually by a qualified third party appraiser selected by the Company, except
that with respect to bona fide offers from third parties, the purchaser may
elect either the offer price or the agreed value. The purchase of stock by the
Company and/or remaining Shareholders following the death of a Shareholder or a
permitted testamentary transfer shall be funded, to the extent available, with
the proceeds of any life insurance policies received by the Company and/or
remaining Shareholders on the deceased Shareholder or transferor, respectively.
The Company currently maintains life insurance policies on the lives of various
of the Shareholders with an aggregate death benefit of $37.7 million.
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
The Company has entered into a consulting agreement with Maurice Cox, Jr., a
shareholder of the Company, to provide consulting services to the Company
through 2004 for an annual payment of $40,000.
In December 1994, the Company loaned $60,000 to J. Michael Gold, its Vice
President, Operations--Northeast. During 1996, an additional $38,516 was loaned
to Mr. Gold. The entire principal amount of $98,516, together with interest
accruing at a rate of 8.875%, was outstanding as of February 28, 1997.
See also Item 11, "Executive Compensation--Compensation Committee Interlocks
and Insider Participation."
-45-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- ------- ---------------------------------------------------------------
(a) The following documents are filed as part of this Report.
1. Financial Statements:
<TABLE>
Page
----
<S> <C>
Report of Independent Public Accountants................................. 20
Consolidated Balance Sheets.............................................. 21
Consolidated Statement of Operations..................................... 22
Consolidated Statement of Shareholders' Deficit.......................... 23
Consolidated Statements of Cash Flows.................................... 24
Notes to Consolidated Financial Statements............................... 25
</TABLE>
2. Financial Statement Schedules:
------------------------------
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits:
---------
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits.
------ -----------------------
<S> <C>
3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement
on Form S-4, File No. 333-9963)
3.2 Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-4, File No. 333-9963)
10.1* Pierce Leahy Corp. Non-Qualified Stock Option Plan (incorporated
by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-4, File No. 333-9963)
10.2 Amended and Restated Buy/Sell Agreement dated as of July 17,
1996 by and among the Company and certain of its shareholders
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-4, File No. 333-9963)
</TABLE>
-46-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits.
------ -----------------------
<S> <C>
10.3 Credit Agreement, dated as of August 13, 1996, among the
Company, Pierce Leahy Command Company, the several lenders from
time to time parties thereto, Canadian Imperial Bank of
Commerce, as Canadian Administrative Agent, and Canadian
Imperial Bank of Commerce, New York Agency, as U.S.
administrative agent, together with certain collateral documents
attached thereto, including the form of US$ Note, the form of
Canadian$ Note, the form of the U.S. Global Guarantee and
Security Agreement made by the Company, certain of its
affiliates and subsidiaries and its shareholders in favor of the
U.S. Administrative Agent, the form of Canadian Security
Agreement between Pierce Leahy Command Company and the Canadian
Administrative Agent and the form of Pledge and Intercreditor
Agreement among certain of the Company's affiliates, the US
Administrative Agent and the Canadian Administrative Agent
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-4, File No. 333-9963)
10.4 Indenture, dated as of July 15, 1996, among the Company, as
issuer, and United States Trust Company of New York, as trustee
(incorporated by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-4, File No. 333-9963)
10.5 Share Purchase Agreement dated September 30, 1995 between the
Company and Moore Corporation Limited (incorporated by reference
to Exhibit 10.5 to the Company's Registration Statement on Form
S-4, File No. 333-9963)
10.6 Stock Purchase Agreement dated April 17, 1996 among the Company
and Security Archives, Inc. and Patrick G. Clayton, Carol A.
Clayton and Byron Wood Clayton (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on
Form S-4, File No. 333-9963)
10.7** Stock Purchase Agreement dated as of February 27, 1997 between
the Company, Records Management Services, Inc. and certain
shareholders of Records Management Services, Inc.
21** Subsidiaries of the Registrant
27** Financial Data Schedule
</TABLE>
- ------------------------
* Compensatory plan required to be filed pursuant to Item 601(b)(10)(iii) of
Regulation S-K.
** Filed herewith.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated October 30, 1996.
-47-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PIERCE LEAHY CORP.
By: /s/ J. Peter Pierce
--------------------------------
J. Peter Pierce, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Leo W. Pierce, Sr. Chairman of the Board of March 10, 1997
- ------------------------- Directors
Leo W. Pierce, Sr.
/s/ J. Peter Pierce President, Chief Executive March 10, 1997
- ------------------------- Officer and Director
J. Peter Pierce (Principal Executive Officer)
/s/ Douglas B. Huntley Vice President, Chief Financial March 10, 1997
- ------------------------- Officer and Director
Douglas B. Huntley (Principal Financial and
Accounting Officer)
/s/ Leo W. Pierce, Jr. Director March 10, 1997
- -------------------------
Leo W. Pierce, Jr.
/s/ Michael J. Pierce Director March 10, 1997
- -------------------------
Michael J. Pierce
/s/ Alan B. Campell Director March 10, 1997
- -------------------------
Alan B. Campell
/s/ Delbert S. Conner Director March 10, 1997
- -------------------------
Delbert S. Conner
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pierce Leahy Corp.:
We have audited in accordance with generally accepted auditing standards , the
consolidated financial statements for Pierce Leahy Corp. and have issued our
report thereon dated February 28, 1997, which is included in this Form 10-K. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule of valuation and qualifying accounts
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 28, 1997
S-1
<PAGE>
PIERCE LEAHY CORP.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance, Charges Balance,
Beginning of to Deductions End of
Period Expense from Reserve Period
------------ ------- ------------ ------
<S> <C> <C> <C> <C>
December 31, 1996:
Reserve for doubtful accounts $487 $467 $159 $795
December 31, 1995:
Reserve for doubtful accounts $554 $418 $485 $487
December 31, 1994:
Reserve for doubtful accounts $513 $180 $139 $554
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits.
------ -----------------------
<S> <C>
3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement
on Form S-4, File No. 333-9963)
3.2 Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-4, File No. 333-9963)
10.1* Pierce Leahy Corp. Non-Qualified Stock Option Plan (incorporated
by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-4, File No. 333-9963)
10.2 Amended and Restated Buy/Sell Agreement dated as of July 17, 1996
by and among the Company and certain of its shareholders
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-4, File No. 333-9963)
10.3 Credit Agreement, dated as of August 13, 1996, among the Company,
Pierce Leahy Command Company, the several lenders from time to
time parties thereto, Canadian Imperial Bank of Commerce, as
Canadian Administrative Agent, and Canadian Imperial Bank of
Commerce, New York Agency, as U.S. administrative agent, together
with certain collateral documents attached thereto, including the
form of US$ Note, the form of Canadian$ Note, the form of the
U.S. Global Guarantee and Security Agreement made by the Company,
certain of its affiliates and subsidiaries and its shareholders
in favor of the U.S. Administrative Agent, the form of Canadian
Security Agreement between Pierce Leahy Command Company and the
Canadian Administrative Agent and the form of Pledge and
Intercreditor Agreement among certain of the Company's
affiliates, the US Administrative Agent and the Canadian
Administrative Agent (incorporated by reference to Exhibit 10.4
to the Company's Registration Statement on Form S-4, File No.
333-9963)
10.4 Indenture, dated as of July 15, 1996, among the Company, as
issuer, and United States Trust Company of New York, as trustee
(incorporated by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-4, File No. 333-9963)
10.5 Share Purchase Agreement dated September 30, 1995 between the
Company and Moore Corporation Limited (incorporated by reference
to Exhibit 10.5 to the Company's Registration Statement on Form
S-4, File No. 333-9963)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits.
------ -----------------------
<S> <C>
10.6 Stock Purchase Agreement dated April 17, 1996 among the Company
and Security Archives, Inc. and Patrick G. Clayton, Carol A.
Clayton and Byron Wood Clayton (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form S-4,
File No. 333-9963)
10.7** Stock Purchase Agreement dated as of February 27, 1997 between
the Company, Records Management Services, Inc. and certain
shareholders of Records Management Services, Inc.
21** Subsidiaries of the Registrant
27** Financial Data Schedule
____________________
</TABLE>
* Compensatory plan required to be filed pursuant to Item 601(b)(10)(iii) of
Regulation S-K.
** Filed herewith.
<PAGE>
Exhibit 10.7
------------
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
RECORDS MANAGEMENT SERVICES, INC.
an Illinois corporation,
ALL OF ITS SHAREHOLDERS
AND
PIERCE LEAHY CORP.
a New York corporation
February 27, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I PURCHASE AND SALE OF SHARES.................................. 1
Section 1.1 Purchase and Sale of Shares.................................. 1
Section 1.2 Purchase Price............................................... 1
Section 1.3 Date, Time and Place of Closing.............................. 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS............... 2
Section 2.1 Status....................................................... 2
Section 2.2 Corporate Authority; Effective Agreement..................... 2
Section 2.3 Management Agreements........................................ 3
Section 2.4 Liabilities.................................................. 3
Section 2.5 Real Estate.................................................. 3
Section 2.6 Personal Property............................................ 4
Section 2.7 Trade Names, Trademarks and Service Marks.................... 4
Section 2.8 Taxes........................................................ 4
Section 2.9 Legal Matters................................................ 7
Section 2.10 Contracts, Leases, Agreements and Other Commitments.......... 7
Section 2.11 Employees and Employment Contracts........................... 8
Section 2.12 Consents..................................................... 9
Section 2.13 No Other Assets.............................................. 10
Section 2.14 Financial Statements and Accounts Receivable................. 10
Section 2.15 Suppliers; Conflicts of Interest. .......................... 10
Section 2.16 No Material Change........................................... 11
Section 2.17 Actions Since Balance Sheet Date............................. 11
Section 2.18 Permits and Licenses......................................... 11
Section 2.19 Compliance with Laws......................................... 12
Section 2.20 Environmental Matters........................................ 12
Section 2.21 Statements and Other Documents Not Misleading................ 13
Section 2.22 Subsidiaries and Joint Ventures.............................. 13
Section 2.23 Directors, Officers, Bank Accounts........................... 13
Section 2.24 Insurance.................................................... 13
Section 2.25 Litigation................................................... 13
Section 2.26 No Payments to Shareholders or Others........................ 13
Section 2.27 Ownership of Capital Stock of RMS............................ 14
Section 2.28 Survival of Representations and Warranties................... 14
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER................................ 15
Section 3.1 Personal Authority; Effective Agreement.................................... 15
Section 3.2 Ownership of Capital Stock of RMS.......................................... 15
Section 3.3 Survival of Representations and Warranties................................. 15
ARTICLE IV CONDUCT OF BUSINESS PENDING CLOSING........................................ 15
Section 4.1 Conduct of Business Pending Closing........................................ 15
ARTICLE V FURTHER COVENANTS AND AGREEMENTS........................................... 17
Section 5.1 Access to Information...................................................... 17
Section 5.2 Non-Competition............................................................ 17
Section 5.3 Cooperation................................................................ 18
Section 5.4 Notice of Breach or Default................................................ 18
Section 5.5 Consents................................................................... 18
ARTICLE VI CONDITIONS TO OBLIGATIONS OF PURCHASER..................................... 18
Section 6.1 No Material Adverse Change................................................. 18
Section 6.2 Representations and Warranties............................................. 19
Section 6.3 Performance of Agreements.................................................. 19
Section 6.4 Opinion of Counsel......................................................... 19
Section 6.5 No Actions, Etc............................................................ 19
Section 6.6 Lenders' Approval.......................................................... 19
Section 6.7 Consents; Lease Estoppels; Subordination and Non-Disturbance Agreements.... 19
Section 6.8 Environmental Audit........................................................ 19
Section 6.9 Delivery of Schedules...................................................... 19
Section 6.10 Due Diligence.............................................................. 20
Section 6.11 Deliveries................................................................. 20
ARTICLE VII CONDITIONS TO OBLIGATIONS OF THE COMPANY AND SHAREHOLDERS.................. 20
Section 7.1 Representations and Warranties............................................. 20
Section 7.2 Performance of Agreements.................................................. 20
Section 7.3 No Actions, Etc............................................................ 20
Section 7.4 Deliveries................................................................. 20
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VIII CLOSING ...................................................... 20
Section 8.1 Deliveries by the Company and the Shareholders................ 20
Section 8.2 Purchaser's Deliveries........................................ 22
Section 8.3 Parties to Bear Own Expenses.................................. 22
ARTICLE IX INDEMNIFICATION............................................... 22
Section 9.1 Indemnifications.............................................. 22
ARTICLE X TERMINATION OF AGREEMENT...................................... 24
Section 10.1 Termination................................................... 24
Section 10.2 Status of Agreement after Termination......................... 25
ARTICLE XI GENERAL....................................................... 25
Section 11.1 Notices....................................................... 25
Section 11.2 Broker's Commission........................................... 26
Section 11.3 Headings...................................................... 26
Section 11.4 Entire Agreement.............................................. 26
Section 11.5 Severability.................................................. 26
Section 11.6 Counterpart Execution......................................... 26
Section 11.7 Governing Law................................................. 26
Section 11.8 Waiver........................................................ 27
Section 11.9 Further Assurances............................................ 27
Section 11.10 Assignability; Effect......................................... 27
Section 11.11 Knowledge of the Shareholders................................. 27
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT is entered into as of this 27th day of
February, 1997, by and among RECORDS MANAGEMENT SERVICES, INC., an Illinois
corporation with its principal offices at 833 West Jackson Boulevard, Chicago,
Illinois 60607 ("RMS"), the persons listed on Exhibit A (collectively, the
---------
"Principal Shareholders"), the persons listed on Exhibit B hereto who have
---------
signed or subsequently sign this Agreement (all such persons listed on
Exhibit B, the "Other Shareholders," and together with the Principal
- ---------
Shareholders, the "Shareholders"), and PIERCE LEAHY CORP., a New York
corporation with its principal offices at 631 Park Avenue, King of Prussia,
Pennsylvania 19406 ("Purchaser").
W I T N E S S E T H:
--------------------
RMS, together with all of its wholly-owned subsidiaries listed on Exhibit C
---------
hereto (the "Subsidiaries," and together with RMS, either individually or
collectively, the "Company") are engaged in the business of records storage and
management of business type records (the "Business"). The Principal Shareholders
are all members of the Board of Directors of the Company or are otherwise active
in the business. The Shareholders own all of the issued and outstanding shares
of capital stock of the Company and options to purchase shares of Common Stock.
The Purchaser desires to purchase, and the Principal Shareholders and the Other
Shareholders who have signed this Agreement (collectively, the "Selling
Shareholders") desire to sell, all of their shares of capital stock of the
Company as well as all shares of Common Stock that may be issued to them in
connection with the exercise of outstanding options (collectively, the
"Shares").
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
---------------------------
Section 1.1 Purchase and Sale of Shares. On the Closing Date (as
---------------------------
hereinafter defined below), the Selling Shareholders will sell, assign, convey,
transfer and deliver to Purchaser, and Purchaser will purchase and acquire from
the Selling Shareholders, all of their the Shares, free and clear of all liens,
security interests, pledges, claims and encumbrances of every kind, nature and
description.
<PAGE>
Section 1.2 Purchase Price.
--------------
(a) Purchase Price. The parties hereto agree that the per share
--------------
consideration to be paid for each Share shall be based on the agreed value for
all outstanding Shares as of the Closing Date (the "Total Purchase Price"),
which shall be equal to $62,000,000 minus (x) the aggregate of all bank debt and
notes payable of the Company, a list and description of which are set forth on
Schedule 1.2, in such amounts as shall actually be due to pay such amounts in
- ------------
full at Closing (including any prepayment penalties) plus any such amounts which
have been repaid by the Company prior to the Closing (including any pre-payment
penalties) (collectively, the "Offsetting Obligations"), (y) the Additional
Severance Amount (as hereinafter defined) and (z) the Aggregate Stock
Appreciation Rights Payments (as hereinafter defined). The purchase price per
share to be paid for each Share purchased hereunder (the "Per Share Purchase
Price") shall be equal to the Total Purchase Price divided by the number of
Shares outstanding as of the Closing Date. At Closing, Purchaser shall pay an
amount equal to an estimate of the Per Share Purchase Price (based upon the
assumption that the Additional Severance Amount will equal the Maximum Severance
Amount, as hereinafter defined, that is being placed into escrow pursuant to
Section 1.2(b)) times the number of Shares being purchased hereunder (the
"Aggregate Paid Purchase Price") which Purchaser shall pay as follows:
(i) Purchaser has already paid $500,000 to certain of the
Selling Shareholders on account of the Selling
Shareholders as a nonrefundable deposit on the Purchase
Price;
(ii) On February 28, 1997, upon the satisfactory completion
of the financial portion of its due diligence conducted
pursuant to Section 7.10 hereof, Purchaser shall pay
another $500,000 to an account designated by the
Principal Shareholders on account of Selling
Shareholders as a further nonrefundable deposit on the
Purchase Price;
(iii) At the Closing, Purchaser shall pay to the Escrow Agent
under the Escrow Agreement attached hereto as
Exhibit D, out of the Aggregate Paid Purchase Price
---------
payable to the Principal Shareholders, an amount equal
to $2,000,000 to serve as security for the
indemnification obligations of the Principal
Shareholders under Article X hereof, to be held and
distributed by the Escrow Agent pursuant to the terms
of the Escrow Agreement; and
(iv) At the Closing, Purchaser shall pay to an account
designated by the Principal Shareholders, by wire
transfer of funds, the balance of the Aggregate Paid
Purchase Price, subject to adjustment for Shares issued
upon exercise of Options (as hereinafter defined) as
provided in Section 1.2(c) below.
2
<PAGE>
(b) Selling Shareholders Sharing of Expenses. The Selling
----------------------------------------
Shareholders shall share pro rata, according to the number of Shares sold to
Purchaser, all of the expenses incurred by or on behalf of the Selling
Shareholders (such as the expenses to be borne by the Selling Shareholders set
forth in Sections 6.12 and 9.3). The Principal Shareholders shall be entitled to
deduct such amounts from the Aggregate Paid Purchase Price prior to distributing
the pro rata portion thereof to each Selling Shareholder.
(c) Payment of Maximum Severance Amount into Escrow. At the
-----------------------------------------------
Closing, in addition to the amounts payable under Section 1.2(a), Purchaser
shall pay to the Escrow Agent under the Escrow Agreement, an amount equal to the
Maximum Severance Amount set forth on Schedule 6.11 hereto for the purposes set
-------------
forth in Section 6.11, to be held and distributed by the Escrow Agent pursuant
to the terms of the Escrow Agreement.
(d) At the Closing, with respect to any Options held by a Selling
Shareholder which are exercised on or before the Closing Date but as of the
Closing have not yet been paid fully for by the optionee Selling Shareholder,
Purchaser shall deduct from the Aggregate Paid Purchase Price to be paid to such
optionee Selling Shareholder the aggregate unpaid exercise price of such Options
payable to RMS and pay such aggregate exercise price to RMS on behalf of such
Selling Shareholder.
Section 1.3 Date, Time and Place of Closing. The transactions provided
-------------------------------
for by this Agreement shall be consummated (the "Closing") at 10:00 a.m., local
time, on or before March 31, 1997, at the offices of Edward X. Clinton, Esquire,
19 S. LaSalle Street, Chicago, IL 60603, or at such other place and time as
Purchaser and the Principal Shareholders shall mutually agree; provided,
however, that at the request of Purchaser, the Closing may be delayed until not
later than the later of (a) April 30, 1997, or (b) five business days after the
condition set forth in Sections 7.12 and 8.5 (relating to the Hart-Scott-Rodino
filing) has been satisfied. The date and time of Closing is hereinafter called
the "Closing Date."
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS
------------------------------------------------------------
As a material inducement to Purchaser to enter into this Agreement and
purchase the Shares, the Principal Shareholders, jointly and severally, and if
the transactions contemplated hereby are not consummated, the Company and the
Principal Shareholders, jointly and severally, make the following
representations and warranties to Purchaser:
Section 2.1 Status. RMS is a corporation duly organized, validly existing
------
and in good standing under the laws of the State of Illinois and is qualified to
do business in Missouri which are the only two jurisdictions where the nature of
its properties or operations requires such qualification, and RMS has full power
and authority to own its properties and to carry on the Business as presently
conducted by it. Each of the Subsidiaries is a corporation duly organized,
3
<PAGE>
validly existing and in good standing under the laws of its State of
incorporation, and qualified to do business in the other States, listed on
Exhibit C for such Subsidiary, which except as otherwise set forth on Exhibit C
- --------- ---------
are the only jurisdictions where the nature of such Subsidiary's properties or
operations requires such qualification, and each such Subsidiary has full power
and authority to own its properties and to carry on the Business as presently
conducted by it.
Section 2.2 Corporate Authority; Effective Agreement. The Board of
----------------------------------------
Directors of RMS have, and as of the Closing the Shareholders will have, duly
authorized and approved the execution and delivery of this Agreement and any and
all agreements, documents or instruments to be executed and/or delivered in
connection herewith (collectively, the "Purchase Documents") and to perform
their respective obligations hereunder and thereunder. No other action by RMS,
the Shareholders or otherwise is required in connection with the foregoing. This
Agreement has been duly executed and delivered by RMS and, by the Closing Date,
will have been duly executed and delivered by the Selling Shareholders, and
constitutes the legal, valid and binding obligations of RMS and, as of the
Closing Date, will constitute the legal, valid and binding obligations of the
Selling Shareholders, enforceable against each of them in accordance with its
terms. The Purchase Documents will constitute the valid and binding obligations
of RMS and each of the Selling Shareholders, as applicable, enforceable against
each of them in accordance with their respective terms. The execution, delivery
and performance of this Agreement by RMS and the Selling Shareholders and the
consummation of the transactions provided for herein do not and will not: (a)
conflict with, violate or result in the breach of any of the terms or conditions
of, or constitute a default under (i) the Articles of Incorporation or By-laws
of RMS or any of its Subsidiaries or any contract, agreement, commitment,
indenture, mortgage, pledge, note, bond, license, permit or other instrument or
obligation to which the Company or any of the Shareholders is a party or by
which the Company or any of the Shareholders or any of their respective assets
or properties are bound or affected, or (ii) any law, regulation, ordinance or
decree to which the Company or any of the Shareholders or any of their
respective assets or properties are bound or subject; or (b) result in the
creation or imposition of any lien, security interest, charge, encumbrance,
restriction or right, including rights of termination or cancellation, in or
with respect to, or otherwise adversely effect, the Company, any of the
Shareholders or the Business except that the Company must obtain the approval of
Bank of America Illinois as set forth on Schedule 2.12. The minute books and
-------------
stock records of the Company are complete and accurate in all material respects
and all signatures included therein are the genuine signatures of the persons
whose signatures are required. True and correct copies of the Articles of
Incorporation and By-Laws of the Company, including all amendments thereto, and
the minute books and stock books of the Company have been delivered to
Purchaser.
Section 2.3 Management Agreements. Schedule 2.3 attached hereto contains a
--------------------- ------------
list by account number only of the top 25 customers of the Company along with
copies of the written agreements pursuant to which such customers' files and
records are stored, held and maintained by the Company in cartons, containers
(including materials stored in vaults) or otherwise (each such written customer
agreement hereinafter referred to as a "Management Agreement"), with the names
and addresses of such customers redacted from such Management Agreements, but
which are true, correct in all other respects. At Closing, the Company will
4
<PAGE>
update Schedule 2.3 so as to provide to Purchaser (a) a list of all customers
------------
whose files and records are stored, held and maintained by Seller in cartons and
containers (including materials stored in vaults) or otherwise, (b) a true,
correct and accurate copy of all forms of Management Agreement used by the
Company and a list of all customers whose Management Agreements contain
specifically negotiated changes from such forms along with a description of each
such change, and (c) true, correct and accurate copies of the above-mentioned
Management Agreements for the Company's top 25 customers which include the names
and addresses of the customers on such Management Agreements. The rights and
benefits of the Company under and pursuant to all of its Management Agreements
are presently the property of the Company and will be the property of the
Company at the Closing, except for items or files returned to customers in the
ordinary course of business from the date first above written until the Closing
Date. No Management Agreement has been pledged as collateral or is subject to
any security agreement, lease, conditional sales contract or other title
retention or security arrangement.
Section 2.4 Liabilities. The Company has no liabilities (including, but
-----------
not limited to, accounts payable) except as and to the extent reflected in (a)
the Financial Statements (as defined below) or (b) as set forth on Schedule 2.4
------------
attached hereto.
Section 2.5 Real Estate.
-----------
(a) The Company has no interest in any real estate except that the
Company leases, as tenant, the premises described on Schedule 2.5-1 attached
--------------
hereto (the "Leased Premises") and the Company owns the property described on
Schedule 2.5-2 as owned by the Company (the "Owned Premises," and together with
- --------------
the Leased Premises, the "Premises").
(b) True, complete and correct copies of the lease agreements
pertaining to the Leased Premises are described on Schedule 2.5-3 and have been
--------------
delivered to Buyer and initialled by Seller for identification (individually a
"Lease" and collectively the "Leases"). The Company has paid all amounts due and
is not in default under any of the Leases, and there exists no condition or
event which, with the passage of time, the giving of notice or both, will
constitute a default under or breach of any of the Leases.
(c) The transfer of the Shares to Purchaser will not constitute a
default under any of the Leases, except as described on Schedule 2.5-4, and the
--------------
Company shall obtain the consent of the landlord for the Leases described on
Schedule 2.5-4.
- --------------
(d) The Company knows of no pending or proposed eminent domain
proceeding or assessment for public improvements with respect to any of the
Premises which could adversely affect the use, operation or value of the
Business or the Assets.
(e) The Company has received no notice from any insurance carrier
or landlord for any of the Premises notifying the Company of the need to
undertake any repairs, alterations or construction or to take any action with
respect to any of the Premises.
5
<PAGE>
(f) Except as described on Schedule 2.5-5, each of the Premises
--------------
and all of the buildings, fixtures and improvements owned or leased by the
Company, and all heating and air conditioning equipment, plumbing, electrical
and other mechanical facilities which are part of, or located on or in, such
buildings or improvements are in good operating condition and repair, and do not
require any repairs other than normal routine maintenance to maintain them in
good operating condition and repair.
(g) All taxes currently due and payable with respect to the Owned
Premises have been paid, the Owned Premises each constitute a separate tax
parcel and each are separately assessed for real estate tax purposes and there
is no abatement in effect with respect to all or any portion of the real estate
taxes.
(h) All contractors, subcontractors and other persons or entities
furnishing work, labor, materials or supplies for any development or
construction work done at any of the Premises have been paid in full and there
are no claims against the Company or the Premises in connection therewith.
(i) Title to the Owned Premises is free and clear of all liens,
restrictions, easements, encumbrances, leases, tenancies and other title
objections, except for the "Permitted Encumbrances," which shall mean the items
set forth as exceptions to title on the existing policies of Owner's fee
identified by number for each Owned Premises on Schedule 2.5-6 attached hereto.
--------------
Section 2.6 Personal Property. Schedule 2.6 attached hereto is a list of
----------------- ------------
the personal property which is owned or being used by the Company ("Personal
Property"), including, without limitation, specific listings of all material
equipment (including all telecommunications and computer equipment included),
all vehicles and all storage racking, and a description of inventory items, such
as folding cartons, containers and other storage materials, fixtures,
furnishings and other equipment and items of personal property. The Personal
Property also includes lists of all customers of the Business and the books and
records (whether electronically maintained or otherwise) which will provide
Purchaser with the ability to generate such lists, as well as all business
addresses, post office boxes, telephone, telex and telecopier numbers and
marketing and administrative data. Also included among the Personal Property is
the computerized records management and billing system currently utilized by the
Company to manage the Business. The Company has good and marketable title to,
and is the absolute owner of, all of the Personal Property, free and clear of
all liens and encumbrances, except for a lien imposed on such assets by the Bank
of America Illinois in connection with the Company's debt to such bank listed on
Schedule 1.2 (which lien shall be released upon payment of such amount and
- ------------
termination of the Company's line of credit and term loan with such bank), and
except the Company leases or licenses the Personal Property described as leased
or licensed, as the case may be, by the Company on Schedule 2.6. All of the
------------
Personal Property material to the operation of the Business is in good operating
condition and repair and does not require any repairs other than normal routine
maintenance to maintain such Personal Property in good operating condition and
repair. The aggregate replacement value of the Personal Property that
6
<PAGE>
is not in good operating condition and repair does not constitute a material
portion of the value of the Personal Property.
Section 2.7 Trade Names, Trademarks and Service Marks. The corporate
-----------------------------------------
names of RMS and each of the Subsidiaries and the trade names, trademarks,
service marks, copyrights and Internet addresses and sites listed on Schedule
--------
2.7 are the only names, trademarks, service marks, copyrights and Internet
- ---
addresses and sites which are used by the Company in the operation of the
Business (collectively, the "Names"). The Company is the sole and exclusive
owner of its trade names, trademarks, service marks and copyrights and has the
sole and exclusive right to use the trade names, trademarks, service marks and
copyrights. No claim has been asserted against the Company that its corporate
name or any of its trade names, trademarks, service marks or copyrights conflict
with the trade names, trademarks, service marks, copyrights, corporate names or
other proprietary rights of others, and the Shareholders have no knowledge of
any basis for any such claim or conflict. The Company does not own any patents,
and has no patent applications pending and, to the Shareholders' knowledge, the
Company is not engaged in any activity which infringes upon any patent, patent
application, trademark, trade name, service mark, copyright or proprietary right
of any other party. Except as set forth on Schedule 2.7, within the past five
------------
years, the Company has not done business under or been known by any name other
than the Names.
Section 2.8 Taxes.
-----
(a) For purposes of this Agreement: "Tax" and "Taxes" shall mean
any federal, state (including the District of Columbia), local, foreign
(including possessions or territories of the United States) or other tax
(whether income, excise, sales or use, ad valorem, franchise, real or personal
property, transfer, employment, or any other kind of tax no matter how
denominated), or any assessment, customs duty, levy, impost, withholding, or
other governmental charge in the nature of a tax, and shall include all
additions to tax, interest, penalties and fines with respect thereto. "Return"
and "Returns" shall mean all reports, estimates, information statements and
returns of any nature, including amended versions of any of the foregoing,
relating to or required to be filed in connection with any Taxes pursuant to the
statutes or regulations of any federal, state, local or foreign government
taxing authority. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(b) The Company files consolidated federal income tax returns
under Section 1501 et seq. of the Code.
(c) There have been or will have been filed all Returns that
are required to be filed on or before the Closing Date (giving regard to valid
extensions) by the Company, in each case in respect of the Company or its
businesses. All of such Returns are or will be true, accurate and complete in
all material respects. Schedule 2.8 contains a list of all such Returns required
------------
to be filed since January 1, 1993; true and correct copies of such Returns as
filed (including any amended Returns) have been or will upon request of
Purchaser be provided to Purchaser. None of such Returns contains (or is
required to contain) a disclosure statement
7
<PAGE>
under Section 6662(d) of the Code (or any predecessor provision) or any similar
provision of state, local or foreign law which is necessary to avoid penalties
under Sections 6662(b) or 6662(d) of the Code.
(d) All Taxes for which the Company is or will be liable (or
that are imposed in respect to the Company) and that are due on or before the
Closing Date (including without limitation Taxes shown to be due on all Returns
filed on or before the Closing Date and any Taxes for which the Company is
liable in relation to the transactions contemplated herein) have been paid or
will be paid in full on or before the Closing Date, and all Taxes which are
required to be withheld or collected by the Company have been duly withheld and
collected and, to the extent required, have been paid to the appropriate
governmental authority or properly deposited as required by applicable law. The
Balance Sheet accurately reflects accruals or reserves for all liabilities for
Taxes accrued by the Company on or prior to the date of the Balance Sheet. Since
the date of the Balance Sheet, the Company has not incurred or accrued any
liability for Taxes other than in connection with transactions in the ordinary
course of business, and neither has changed its method of accounting for Taxes
or any method of accounting used in calculating Taxes.
(e) As of the date of this Agreement, no taxing authority has
asserted or threatened to assert any deficiency or assessment, or proposed
(formally or informally) any adjustment, for any Taxes against the Company,
except for the Taxes listed on Schedule 2.8, and the Principal Shareholders do
------------
not know of any audit or investigation by any taxing authority with respect to
any Tax liability of the Company except as set forth on Schedule 2.8. In the
------------
event the Company or any of the Principal Shareholders becomes aware of any such
asserted or threatened deficiency or assessment, or any investigation or audit,
between the date of this Agreement and the Closing Date, the Principal
Shareholders will immediately notify Purchaser of same.
(f) As of the Closing Date, the Company will not be required
to file any foreign Return and will not be subject to any foreign Tax. Schedule
--------
2.8 sets forth all foreign returns required to be filed by the Company since
- ---
January 1, 1990 and all foreign Taxes, if any, for which the Company has been
liable since January 1, 1990 or will be liable as of the Closing Date.
(g) Except as set forth on Schedule 2.8, neither the
------------
Shareholders nor the Company has entered into, or will, at any time, enter into
any contract or arrangement with any "disqualified individual" within the
meaning of Section 280G(c) of the Code with respect to the Company which may
result in the making of any "parachute payment" within the meaning of Section
280G(b)(2) of the Code to any such "disqualified individual."
(h) Schedule 2.8 sets forth the amount, as of the date of the
------------
Balance Sheet, of (A) all federal, state or local net operating loss, tax credit
or charitable contribution carryovers available to the Company and (B) the tax
basis of the Company's assets, by reasonable category, reflected in the Balance
Sheet, and includes an explanation of how such
8
<PAGE>
items are reflected in the Balance Sheet. The Company has provided to Purchaser
complete and materially accurate workpapers supporting the "Deferred Taxes" or
similar account on the Balance Sheet.
(i) Schedule 2.8 sets forth all federal income tax elections
------------
that have been made or will be made by the Shareholders and the Company with
respect to the Company with respect to any period ending on or prior to the
Closing Date that will apply to any subsequent period.
(j) The Company is not a party to nor has it assumed (i) any
"safe harbor" lease described in Section 168(f)(8) of the Internal Revenue Code
of 1954; (ii) any "corporate acquisition indebtedness" as defined in Section
279(b) of the Code or any obligations described in Section 279(a) of the Code;
(iii) any agreement with respect to industrial development bonds or similar
tax-exempt obligations the tax characteristics of which may be affected by the
transactions contemplated by this Agreement; (iv) any waiver or agreement
extending the statute of limitations with respect to any Tax; (v) any tax
sharing or similar agreement; or (vi) any power of attorney currently in force
with respect to Taxes.
(k) None of the following has been filed with respect to the
Company: (i) a consent described in Section 341(f) of the Code; (ii) any deemed
or actual elections under Section 338 of the Code; or (iii) any request for a
ruling by a Tax authority or similar matter.
(l) The Company and the Principal Shareholders shall, and
shall cause the Company's accountants to, cooperate with Purchaser and its
independent public accountants for the purpose of providing Purchaser with (i)
the procedures followed for filing state and local sales and use Tax Returns by
or on behalf of the Company; (ii) the procedures followed for filing real,
personal and intangible property Tax Returns by or on behalf of the Company; and
(iii) the method used by or on behalf of the Company for determining whether a
nexus exists in a particular jurisdiction for purposes of income, franchise,
sales and use Taxes, including the manner in which the Company solicits and
maintains business in each jurisdiction in which it has or does business.
(m) The Company has provided to Purchaser a true and correct
copy of any and all correspondence of the Company with the Internal Revenue
Service (the "Service"), including but not limited to all Revenue Agent Response
letters prepared by the Service with respect to the Taxes owed and Returns
prepared by the Company since January 1, 1990.
(n) The Company is not, and has not been at any time during
the five-year period ending on the Closing Date, a "United States real property
holding corporation" as defined in Section 897(c) of the Code and applicable
regulations thereunder.
Section 2.9 Legal Matters. Except as set forth on Schedule 2.9, the
------------- ------------
Company is not a party to or, to the Principal Shareholders' knowledge,
threatened with, any suit, action, arbitration or other legal or administrative
proceeding or governmental inquiry or investigation by which the Company, its
assets or the Business could be materially adversely affected. There
9
<PAGE>
are no judgments, orders, decrees or awards before any court, department,
commission, board, instrumentality or arbitrator which affects the Company, its
assets or the Business.
Section 2.10 Contracts, Leases, Agreements and Other Commitments. The
---------------------------------------------------
Company is not a party to or bound by any written, oral or implied contract,
agreement, lease, power of attorney, guaranty, surety agreement, or other
commitment except for the following (collectively, the "Corporation
Agreements"):
(a) the Management Agreements described on Schedule 2.3;
------------
(b) the Leases described on Schedule 2.5;
------------
(c) agreements involving a maximum possible liability or
obligation on the part of the Company of less than $50,000
each and less than $150,000 in the aggregate; and
(d) the agreements listed on Schedule 2.10(d) attached hereto.
----------------
True, correct and complete copies of all of the Corporation Agreements,
including all amendments thereto, have been delivered to Purchaser. All of the
Corporation Agreements are valid, binding and enforceable against the respective
parties thereto in accordance with their respective terms. Except as shown on
Schedule 2.10, the Company and all other parties to all of the Corporation
- -------------
Agreements have performed all of the material obligations required to be
performed under the Corporation Agreements, and neither the Company nor any
other party is in default or in arrears under the terms thereof, and no
condition exists or event has occurred which, with the giving of notice or lapse
of time or both, would constitute a material default under such Corporation
Agreements. None of the terms or provisions of any Company Agreement materially
adversely affects the Business. Except as set forth on Schedule 2.10, all rights
-------------
of the Company under the Corporation Agreements extending beyond the Closing
Date shall continue unimpaired and unchanged after the Closing Date, without (i)
the consent of any person (except for any consent(s) which have been obtained
and are set forth on Schedule 2.12) or (ii) the payment of any penalty, the
--------------
incurrence of any additional obligations or the change of any term. Schedule
--------
2.10(d) also contains a listing of all outstanding written and oral proposals,
- -------
bids, offers, guaranties, advances or credit granted which, if accepted, could
impose any material debts, obligations or liabilities upon Purchaser or the
Company after the Closing Date.
Section 2.11 Employees and Employment Contracts.
----------------------------------
(a) Employees. Schedule 2.11(a) is a complete and accurate list
--------- ----------------
as of January 31, 1997 of all employees of the Business and their positions,
salaries, vacation benefits (both maximum annual and accrued and outstanding as
of a recent date), original date of hire and classification as full time, part
time or on lay-off or other type of leave. The Company shall deliver at the
Closing Schedule 2.11(a) revised to reflect changes therein up to the date of
----------------
the Closing. The Company has delivered to Purchaser complete and correct copies
of all personnel
10
<PAGE>
policies, handbooks, written procedures and forms of employment applications
relating to the employees of the Company, including without limitation the
Company's severance policy.
(b) Union Representation; Compliance With Employment Law. The
----------------------------------------------------
Company is not a party to any union agreement or collective bargaining
agreement, or, except as set forth on Schedule 2.11(b), to any written or oral
----------------
employment agreement with any of its employees, and is in compliance with all
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours. The Company is not aware of any union organizing
activity involving its employees or the Business. There is no complaint filed or
threatened to be filed against the Company before any federal, state or local
governmental or quasi-governmental agency or authority alleging violation of law
(federal, state or local) relating to employment practices or discrimination in
employment.
(c) Employee Benefit Plans.
----------------------
(i) Except as set forth on Schedule 2.11(c)(i), the Company
-------------------
does not maintain, sponsor, contribute to or have any liability under any
agreement, plan, practice or program, whether written or oral, providing for
bonus payments, child or dependent care benefits, death benefits, accidental
death and dismemberment benefits, deferred compensation benefits, disability or
other wage continuation benefits, educational assistance or tuition benefits,
health benefits, paid holiday benefits, incentive compensation payments, leave
of absence rights, medical expense payment or reimbursement benefits, retiree
medical benefits, retiree life insurance benefits, profit sharing, pension or
other retirement benefits, stock option, stock appreciation rights or stock
purchase benefits, severance or termination pay or benefits (including post-
employment consulting arrangements) or vacation. Items of the nature described
in the prior sentence, whether involving the Company or any entity which would
be considered a single employer with the Company under Paragraph 4001(b)(1) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Paragraph 414(b), (c) or (m) of the Code (an "ERISA Affiliate"), are
individually referred to as an "Employee Benefit Plan" and collectively referred
to as "Employee Benefit Plans." Schedule 2.11(c)(i) includes, but is not limited
-------------------
to, each plan involving employees of the Company and maintained or contributed
to by the Company or an ERISA Affiliate which is an "employee benefit plan" as
such term is defined in Paragraph 3(3) of ERISA. The Company has delivered to
Purchaser a true and complete copy of each Employee Benefit Plan covering
employees of the Company, including all texts, amendments and other agreements
(whether formal or informal) adopted in connection therewith. The Company has
provided Purchaser a true and complete copy of the most recently filed IRS Form
5500 (including Schedule B) for each Employee Benefit Plan (other than a multi-
employer plan) that is subject to Title IV of ERISA.
(ii) No employee or former employee of the Company or an ERISA
Affiliate, and no beneficiary thereof, participates in or has any rights to
benefits, with respect to employment with the Company under any agreement, plan,
practice or program not listed on Schedule 2.11(c)(ii). No person who is not a
--------------------
current or former employee (or a beneficiary or
11
<PAGE>
eligible dependent thereof) of the Company or an ERISA Affiliate participates in
or is entitled to any benefits under any plan listed on Schedule 2.11(c)(ii).
--------------------
(iii) No actions, suits or claims with respect to the Employee
Benefit Plans covering employees or former employees of the Company are pending
or to the Principal Shareholders' knowledge threatened, and except as set forth
in Schedule 2.11(c)(iii) with respect to routine claims for benefits, the
---------------------
Principal Shareholders have no knowledge of any facts which would reasonably be
expected to give rise to or result in any such action, suit or claim. The
Company and its ERISA Affiliates are in compliance with all material
requirements of applicable law relating to Employee Benefit Plans.
(iv) No Employee Benefit Plan covering employees of the Company
provides post-employment medical, health or life insurance benefits for present
or future retirees or present or future terminated employees, except for
continuation coverage provided pursuant to the requirements of Paragraph 4980B
of the Code or Paragraphs 601-608 of ERISA or a similar state law, or continued
coverage under an insurance policy for a period not to exceed 60 days following
termination of employment.
(v) Except for the defined benefit plan described on Schedule
--------
2.11(c)(v) that the Company formerly maintained, the Company does not now
- ----------
maintain or make contributions to and has not, at any time in the past,
maintained or made contributions to (A) any employee benefit plan which is
subject to the minimum funding requirements of the ERISA, or (B) any multi-
employer plan subject to the terms of the Multi-Employer Pension Amendment Act
of 1980. The Company has, and will in the future have, no liability for or
associated with the former defined benefit plan described on Section 2-11(c)(v).
------------------
Section 2.12 Consents. Except as set forth on Schedule 2.12, no notices,
-------- -------------
consents, approvals, licenses, permits or waivers are required to execute and
deliver this Agreement and to consummate the transactions provided for herein.
Except as set forth in Schedule 2.12, the consummation of the transactions
-------------
provided for in this Agreement will not result in an impairment or termination
of any of the Company's rights under any Corporation Agreement and do not
require the consent of or notice to any party.
Section 2.13 No Other Assets. The assets owned or leased by the Company
---------------
constitute all of the assets, property, rights and privileges which are used by
the Company in the operation of the Business or are required for the operation
of the Business.
Section 2.14 Financial Statements and Accounts Receivable.
--------------------------------------------
(a) Schedule 2.14(a) contains an audited balance sheet of the
----------------
Company at its fiscal year end of September 30, 1996 and an unaudited balance
sheet at December 31, 1996, and audited statements of earnings and cash flows of
the Company for the fiscal year ended September 30, 1996 and audited statements
of earnings and cash flows for the three months ended December 31, 1996. Such
statements have been prepared in accordance with generally
12
<PAGE>
accepted accounting principles consistently applied throughout the periods
reported upon, are correct and complete in all material respects, and present
fairly and accurately the financial position of the Company for the periods
reported upon. The balance sheets at September 30, 1996 and December 31, 1996
and the statements of earnings for the twelve months ended September 30, 1996
and the three months ended December 31, 1996 are sometimes herein called the
"Financial Statements." The balance sheet at December 31, 1996 is sometimes
herein called the "Balance Sheet."
(b) Accounts Receivable. Each of the accounts receivable of
-------------------
the Company constitutes a valid claim in the full amount thereof against the
debtor charged therewith on the books of the Company has been acquired in the
ordinary course of the Company's business, and no account receivable has arisen
from any transaction with the United States or any department or agency thereof.
The accounts receivable are fully collectible to the extent of the face value
thereof (less the aggregate amount of the reserve for doubtful accounts, if any,
reflected on the books of the Company with respect to such accounts). No account
debtor has any valid setoff, deduction or defense with respect thereto and no
account debtor has asserted any such setoff, deduction or defense.
Section 2.15 Suppliers; Conflicts of Interest.
--------------------------------
(a) Suppliers. Schedule 2.15(a) is a list of major suppliers
--------- ----------------
which have provided materials or services to the Company as of January 31, 1997.
The Company has not been notified of, nor to the Principal Shareholders'
knowledge, has there been any circumstance that would result in a termination or
cancellation of any agreement between the Company and any of its major
suppliers, distributors or customers. Prior to the Closing Date, the Company
shall cooperate with Purchaser in making or causing to be made such reasonable
inquiries of and written introductions to customers and suppliers of the
Business as Purchaser may reasonably deem necessary or advisable.
(b) Conflicts of Interest. Except as disclosed in Note 9 to
---------------------
the Company's audited Financial Statements or as otherwise shown on Schedule
--------
2.15(b), no partner, shareholder, director, officer or employee of the Company
- -------
or any relative or affiliate of any of the foregoing: (i) has any pecuniary
interest in any supplier or customer of the Company or in any other business
with which the Company conducts business or with which the Company is in
competition; (ii) has any interest in any property or assets used by the
Company; or (iii) has any contractual or other claim, express or implied, of any
kind whatsoever against the Company in connection with the Business.
Section 2.16 No Material Change. Since December 31, 1996, there has been
------------------
no material adverse change in the business, assets or financial condition of the
Company or the Business, except as the same may be caused by transactions in the
ordinary course of business which are not prohibited by this Agreement and which
are described on Schedule 2.16.
-------------
13
<PAGE>
Section 2.17 Actions Since Balance Sheet Date. Except as set forth on
--------------------------------
Schedule 2.17, since December 31, 1996, the Company:
- -------------
(a) has not taken any action outside of the ordinary course of
business;
(b) has not borrowed any money or become contingently liable
for any obligation or liability of others;
(c) has paid all of its debts and obligations as they became
due;
(d) has not incurred any debt, liability or obligation of any
nature to any party except for obligations arising in the ordinary course of
business;
(e) has used its best efforts to preserve its business
organization intact, to keep available the services of its employees, and to
preserve its relationships with its customers, suppliers and others with whom it
deals and has not changed any of its employment policies (including without
limitation severance policies);
(f) has not knowingly waived any right of substantial value;
(g) has not purchased or redeemed any shares of its capital
stock, or transferred, distributed or paid, directly or indirectly, any money or
other property or assets to the Shareholders (other than employment compensation
in the ordinary course of business and consistent with past practice); and
(h) has not sold or otherwise issued any shares of its capital
stock, except that there are outstanding options to purchase shares of the
Common Stock of RMS, as described in Schedule 2.17(h).
----------------
Section 2.18 Permits and Licenses. The Company holds all franchises,
--------------------
licenses, permits, consents, approvals, waivers and other authorizations
(collectively, the "Permits") which are necessary for the operation of the
Business and the occupancy of the Premises, including without limitation, all
Permits issued by federal, state or local governments and governmental agencies.
Exhibit 2.18 sets forth a complete list of all material Permits held by the
- ------------
Company. The Company is not in default, nor has the Company received any notice
of any claim of default, with respect to any of the Permits or of any notice of
any other claim or proceeding or threatened proceeding relating to any of the
Permits. All of the Permits are in full force and effect. The transactions
provided for in this Agreement will not result in the cancellation or
termination of any of the Permits, and no consent from or notice to any federal,
state or local government or governmental agency is required to transfer any
Permit to Purchaser.
Section 2.19 Compliance with Laws. The Company is in material
--------------------
compliance with all requirements of law, federal, state and local, and all
requirements of all governmental bodies
14
<PAGE>
or agencies having jurisdiction over it, the operations of the Business or any
of the Premises. The Company has not received any notice, not previously
complied with, from any federal, state or municipal authority or any insurance
or inspection body, that any of its properties, facilities, equipment or
business procedures or practices fails to comply with any applicable law,
ordinance, regulation, building or zoning law, or requirement of any public
authority or body. To the knowledge of the Principal Shareholders, there are no
regulations or legislation pending before any federal, state, local or foreign
governmental body or legislature which, if adopted, would have a materially
adverse effect on the Business.
Section 2.20 Environmental Matters. To the knowledge of the Principal
---------------------
Shareholders, except as set forth on Schedule 2.20, Hazardous Substances
-------------
(hereinafter defined) have not been used by the Company at any of the facilities
owned or used by the Company now or in the past, including without limitation
the Premises (collectively, "the Company's Facilities") during the Company's
occupancy thereof in any manner which: (i) violates federal, state or local
laws, ordinances or regulations governing the use, storage, treatment, disposal
of any element, compound, mixture, solution or substance, defined as a hazardous
substance in the Comprehensive Environmental Response Compensation and Liability
Act, 42 U.S.C. Section 9601, et seq. ("CERCLA"), or other applicable federal,
state or local law, ordinance or regulation, including, without limitation, any
applicable federal, state or local laws governing hazardous or toxic waste,
substance, oil or material (collectively, "Hazardous Substances"); (ii) requires
"removal" or "remediation" as those terms are defined in CERCLA; or (iii) if
found on any of the Company's Facilities, or, if improperly disposed of off of
any of the Company's Facilities would subject the owner or occupant of such
facility to damages, penalties, liability or an obligation to perform any work,
clean-up, removal, remediation, repair, construction, alteration, demolition,
renovation or installation in or in connection with such facility in order to
comply with any federal, state or local law, regulation, ordinance or order
concerning the environmental state, condition or quality of such facility
applicable to owners, operators or developers of real property ("Environmental
Cleanup Work"). To the knowledge of the Principal Shareholders, except as set
forth on Schedule 2.20, the Company is in compliance in all material respects
-------------
with all applicable federal, state and local environmental laws and regulations,
including, but not limited to, the Clean Air Act, 42 U.S.C. Section 7401, et
--
seq.; the Federal Water Pollution Control Act, as amended by the Clean Water Act
- ---
of 1977, 33 U.S.C. Section 1251, et seq.; the Resource Conservation and Recovery
-- ---
Act, 42 U.S.C. Section 6901, et seq.; CERCLA, as amended by the Superfund
-- ---
Amendments and Reauthorization Act ("SARA"); the Hazard Communication Standard,
29 CFR Section 1910.1200; and the Toxic Substances Control Act, 15 U.S.C.
Section 2601, et seq. To the knowledge of the Principal Shareholders, except as
set forth on Schedule 2.20, no notice from any governmental body has ever been
-------------
served upon the Company, its agents or employees and the Principal Shareholders
have no knowledge of any notice served upon the Company claiming any violation
of any of the aforesaid environmental laws on or in connection with any of the
Company's Facilities or with respect to the Business, or requiring or calling
attention to the need for any Environmental Cleanup Work, on or in connection
with any of the Company's Facilities in order to comply with any of the
aforesaid environmental laws. Except as set forth on Schedule 2.20, neither the
-------------
Company, its agents or employees, nor, to the knowledge of the Principal
Shareholders, any
15
<PAGE>
occupant, owner or prior owner or occupant of any of the Company's Facilities
has ever been informed of any threatened or proposed serving of any such
violation or corrective work order on or in connection with any of the Company's
Facilities or with respect to the Business. The Principal Shareholders shall not
be deemed to have knowledge of any notices being sent to any owner (other than
the Company), former owner or former occupant of any of the Premises unless any
of the persons included within the definition of the knowledge of the Principal
Shareholders has actual knowledge of any such notice having been sent or
received. There are no environmental or other real estate transfer statutes to
which either of the Owned Premises would be subject as a result of or in
connection with the consummation of the transactions contemplated by this
Agreement.
Section 2.21 Statements and Other Documents Not Misleading. Neither this
---------------------------------------------
Agreement, including all Exhibits and Schedules, nor any other financial
statements, documents or instruments delivered to Purchaser in connection with
this Agreement and the transactions contemplated by this Agreement, contains or
will contain any untrue statement of any material fact or omits or will omit to
state any material fact required to be stated to make such statement, document
or instrument not misleading.
Section 2.22 Subsidiaries and Joint Ventures.
-------------------------------
(a) The Subsidiaries set forth on Exhibit C constitute all of
---------
the direct and indirect subsidiaries of RMS. RMS owns all of the issued and
outstanding capital stock of each of the Subsidiaries, free and clear of all
liens, security interest, pledges, claims, options and other rights. There are
no options, warrants, rights or other instruments or agreements giving any
person the right to acquire any shares of capital stock in any of the
Subsidiaries, and there are no commitments to issue or execute any such options,
warrants, rights, instruments or agreements. No transfer of record ownership, or
beneficial interest in, any stock in any of the Subsidiaries will be made
between the dates hereof and the Closing Date.
(b) RMS and one of the Subsidiaries previously entered into a
joint venture general partnership known as Certified Document Destruction of
Illinois ("CDDI") with certain individuals otherwise unaffiliated with the
Company. CDDI was in the business of document destruction and is currently is
being liquidated. As part of that liquidation, CDDI sold certain of its assets
to Crown Recycling, and RMS and the Subsidiary involved in CDDI entered into an
agreement with Crown Recycling, a copy of which has been provided to Purchaser
pursuant to Section 2.10, for certain document destruction services. Except for
the Company's obligations under the Crown Recycling Agreement, and other than as
has been or is being fully satisfied or otherwise provided for in the
liquidation and which has been fully reserved for in the Financial Statements,
the Company has, and will hereafter have, no obligation arising out of or in any
way related to CDDI.
Section 2.23 Directors, Officers, Bank Accounts. Schedule 2.23 is a
---------------------------------- -------------
correct and complete list of (i) the directors of RMS and of each of the
Subsidiaries, (ii) the officers of RMS and each of the Subsidiaries, (iii) the
bank accounts and safe deposit boxes of RMS and of each
16
<PAGE>
of the Subsidiaries, and (iv) the persons authorized to sign checks drawn on
such accounts and to have access to such safe deposit boxes.
Section 2.24 Insurance. The Company maintains insurance policies bearing
---------
the numbers, for the terms, with the companies, in the amounts, providing the
general coverage, and with the premiums set forth on Schedule 2.24. All of such
-------------
policies are in full force and effect and the Company is not in default of any
provision thereof. The Company has not received notice from any issuer of any
such policies of its intention to cancel or refusal to renew any policy issued
by it.
Section 2.25 Litigation. Except as set forth in Schedule 2.25, the
---------- -------------
Company is not a party to nor to the Principal Shareholders' knowledge has it
been threatened with any suit, action, arbitration, administrative or other
proceeding or any governmental investigation. There is no judgment, decree,
award or order outstanding against the Company, and the Company is not
contemplating the institution of any suit, action, arbitration, administrative
or other proceeding. Except as set forth in Schedule 2.25, the Principal
-------------
Shareholders have no knowledge of any accident, injury or event that may result
in a claim for damages against the Company, including without limitation any
product liability claim.
Section 2.26 No Payments to Shareholders or Others. Except as set forth
-------------------------------------
on Schedule 2.26, since the Balance Sheet Date, there has not been any purchase
-------------
or redemption of any shares of stock of the Company or any transfer,
distribution or payment by it, directly or indirectly, of any money or other
property or assets to the Shareholders or to any other person, other than
payment of liabilities shown on the Balance Sheet on or after the scheduled
maturity or due date thereof, payment of compensation for services actually
rendered at rates not in excess of the rates prevailing on the date of the
Balance Sheet, payments due under the Corporation Agreements, and payments in
the ordinary course of business for goods and services.
Section 2.27 Ownership of Capital Stock of RMS. RMS has an authorized
---------------------------------
capital consisting of 1,000,000 shares of Common Stock of which 384,493 shares
are validly issued and outstanding, fully paid and non-assessable, and are owned
beneficially and of record by the Shareholders as set forth on Exhibits A and B.
----------------
Each of the Shareholders has good, marketable and unencumbered title to his
Shares, free and clear of all liens, security interests, pledges, claims,
options and rights of others. Except for the options to purchase stock in RMS
described on Schedule 2.17(h) (the "Options"), there are no options, warrants,
----------------
rights or other instruments or agreements giving any person the right to acquire
any shares of the capital stock of RMS nor are there any commitments to issue or
execute any such options, warrants, rights, instruments or agreements. Except
with respect to any Options which are properly exercised prior to the Closing
Date, no Shares will be issued, and no transfer of record ownership of, or
beneficial interest in, any of such shares will be made between the date hereof
and the Closing Date; provided, however, transfers of Shares as bona fide gifts
or charitable contributions may be made until the date which is three weeks from
the date of this Agreement. As of the Closing
17
<PAGE>
Date, any Options which remain unexercised will become null and void and the
Company will have no further obligations or liabilities with respect to such
Options.
Section 2.28 Survival of Representations and Warranties. The
------------------------------------------
representations, warranties and agreements of the Company and the Principal
Shareholders set forth in this Agreement or in any Exhibit or Schedule attached
hereto are made as of the date of this Agreement and shall be true, correct,
complete and accurate on and as of the Closing Date and at all times between the
date of this Agreement and the Closing Date. The representations and warranties
of the Principal Shareholders set forth in this Agreement or in any Exhibit or
Schedule shall survive the Closing Date and shall terminate on the second
anniversary of the Closing Date; provided, however, that the representations and
warranties of the Principal Shareholders in Sections 2.8 hereof shall survive
the Closing Date and shall terminate on the later to occur of (a) the second
anniversary of the Closing Date and (b) the date upon which the statute of
limitations from the applicable tax code, statute, ordinance or regulation
expires; and provided further that the representations and warranties of the
Principal Shareholders in Section 2.27 shall survive indefinitely.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS
----------------------------------------------------------
As a material inducement to Purchaser to enter into this Agreement and
purchase the Shares, each of the Selling Shareholders makes the following
representations and warranties with respect to himself or herself to Purchaser:
Section 3.1 Personal Authority; Effective Agreement. Such Selling
---------------------------------------
Shareholder has the right, power and authority to execute and deliver this
Agreement. This Agreement constitutes, or will upon execution constitute, the
legal, valid and binding obligation of such Selling Shareholder, enforceable
against such Selling Shareholder in accordance with its terms.
Section 3.2 Ownership of Capital Stock of RMS. Such Selling Shareholder
---------------------------------
has good, marketable and unencumbered title to such Selling Shareholder's
Shares, free and clear of all liens, security interests, pledges, claims,
options and rights of others.
Section 3.3 Survival of Representations and Warranties. The
------------------------------------------
representations, warranties and agreements of the Selling Shareholders set forth
in this Article III are made as of the date of this Agreement and shall be true,
correct, complete and accurate on and as of the Closing Date and at all times
between the date of this Agreement and the Closing Date. The representations and
warranties of the Selling Shareholders set forth in this Article III shall
survive indefinitely.
18
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
As a material inducement to the Company and the Selling Shareholders to
enter into this Agreement and to consummate the transactions provided for in
this Agreement, Purchaser hereby represents and warrants to the Selling
Shareholders that:
Section 4.1 Corporate Status. Purchaser is a corporation duly organized,
----------------
validly existing and in good standing under the laws of the State of New York
and has full power and authority to own its properties and to carry on the
business presently conducted by it.
Section 4.2 Corporate Authority. The Board of Directors of Purchaser has
-------------------
duly authorized and approved the execution and delivery of this Agreement and
the performance of the transactions provided for herein. No other corporate
action is required in connection herewith. This Agreement constitutes a legal,
valid and binding obligation of Purchaser and is enforceable against Purchaser
in accordance with its terms.
Section 4.3 Statements and Other Documents Not Misleading. Neither this
---------------------------------------------
Agreement, including all Exhibits and Schedules prepared by Purchaser, nor any
other financial statements, documents or instruments delivered by Purchaser to
the Company in connection with this Agreement and the transactions contemplated
by this Agreement, contains or will contain any untrue statement of any material
fact or omits or will omit to state any material fact required to be stated to
make such statement, document or instrument not misleading.
Section 4.4 Survival of Representations and Warranties. The
------------------------------------------
representations, warranties and agreements of Purchaser as set forth in this
Agreement are made as of the date of this Agreement and shall be true, correct
and accurate on and as of the Closing Date and at all times between the date of
this Agreement and the Closing Date. The representations and warranties of
Purchaser set forth in this Agreement shall survive the Closing Date and shall
terminate on the third anniversary of the Closing Date.
ARTICLE V
CONDUCT OF BUSINESS PENDING CLOSING
-----------------------------------
Section 5.1 Conduct of Business Pending Closing. The Company and the
-----------------------------------
Principal Shareholders agree that between the date hereof and the Closing Date,
the Company shall:
(a) not take or permit any action or omit to take any action
which would cause any of the representations and warranties of the Company
contained in this Agreement or in any Schedule or Exhibit to become untrue;
19
<PAGE>
(b) conduct its business in a good and diligent manner in
the ordinary and usual course of its business;
(c) not enter into any contract, agreement, commitment or
other arrangement with any party, other than contracts in the ordinary course of
its business, and not amend, modify or terminate any Corporation Agreement,
without the prior written consent of Purchaser;
(d) use their respective reasonable best efforts to preserve
the Company's business organization intact, to keep available the service of its
employees and to preserve its relationships with customers, suppliers and others
with whom it deals;
(e) not reveal to any party, other than Purchaser or its
authorized representatives ("Agents"), any of the business procedures and
practices followed by the Company in the conduct of the Business;
(f) maintain in full force and effect all insurance
currently maintained by the Company;
(g) keep the Premises and all of the Company's equipment and
tangible personal property in good operating repair and perform all necessary
repairs and maintenance;
(h) comply with all material provisions of any Corporation
Agreement applicable to it as well as with all applicable laws, rules and
regulations;
(i) not dispose of any assets except in the ordinary course
of business, or terminate any Corporation Agreement;
(j) not engage in any transaction with respect to the
Business which involves the expenditure or commitment of more than $50,000
without the prior written consent of the Purchaser;
(k) continue to maintain all of the Company's usual business
books and records in accordance with past practices;
(l) not amend the Company's Articles of Incorporation or By-
Laws;
(m) not declare or make any dividend or other payment on or
with respect to the Company's capital stock, redeem or otherwise acquire any
shares of their capital stock or issue any capital stock or any option, warrant
or right relating thereto, except RMS may issue shares of Common Stock upon the
proper exercise of any Option prior to the Closing Date and may issue the Stock
Appreciation Rights;
(n) not waive any right or cancel any claim;
20
<PAGE>
(o) not increase the compensation or rate of compensation
payable to any of the Company's employees, or change any employment or severance
policy, except that the Company may increase the salaries of R.L. Shaunnessey
and Steven Lubelfeld, retroactive to October 1, 1996, each in an amount not to
exceed $10,000 on an annualized basis;
(p) maintain the Company's corporate existence and not merge
or consolidate with any other entity;
(q) not place any additional encumbrances on any of the
assets of the Company other than in connection with purchase money financing of
capital expenditures permitted under Section 5.1(j) above or otherwise approved
in writing by Purchaser; and
(r) not borrow any money or become contingently liable for
any obligation or liability of others and not incur any debt, liability or
obligation of any nature to any party except for obligations under the Company's
existing banking arrangements, or obligations arising from the purchase of goods
or the rendition of services in the ordinary course of business.
ARTICLE VI
FURTHER COVENANTS AND AGREEMENTS
--------------------------------
Section 6.1 Access to Information. The Company shall give to
---------------------
Purchaser and its agents access to all of the properties and assets of the
Company and all of the Company's documents, books and records relating to its
current and past operations and to the Business, and shall permit Purchaser and
its agents to make copies thereof, and the Company shall permit Purchaser to
interview the Company's employees during reasonable business hours and upon
reasonable prior notice. Without limiting the generality of the foregoing, upon
the request of Purchaser, the Company shall, prior to Closing, provide Purchaser
or its agents access to the Company's books and records for the purpose of
enabling Purchaser (or its agents) to audit such books and records and prepare
audited financial statements of the Company if Purchaser determines it requires
such statements in connection with any federal or state securities laws.
Section 6.2 Non-Competition. To induce Purchaser to enter into this
---------------
Agreement and purchase the Shares:
(a) each Principal Shareholder (by execution of this
Agreement) agrees as an independent covenant that for a period of five years
following the Closing Date, neither such Principal Shareholder, nor any entity
owned, controlling or controlled, directly or indirectly, by such Principal
Shareholder, (i) shall engage in the business of records storage or facilites
management activities with regard to maintenance of business type records,
either as an owner, consultant, manager, associate, employee, partner, agent,
principal or otherwise, within 250 miles of any location at which the Company
conducts any portion of the Business as of the Closing Date or (ii) shall
solicit, induce, encourage or attempt to influence any client, customer,
21
<PAGE>
employee, consultant, independent contractor or supplier of the Company, the
Purchaser or any of its affiliates to cease to do business (or reduce the amount
of business) or terminate his or her employment with the Company, the Purchaser
or any of its affiliates; and
(b) each key employee of the Company listed on Schedule 6.2 who
------------
is an Other Shareholder (by execution of this Agreement) agrees as an
independent covenant that for a period of 18 months following the Closing Date,
neither such Other Shareholder, nor any entity owned, controlling or controlled,
directly or indirectly, by such Other Shareholder, (i) shall engage in the
business of records storage and management of business type records, either as
an owner, consultant, manager, associate, employee, partner, agent, principal or
otherwise, within 75 miles of any location at which the Company conducts any
portion of the Business as of the Closing Date or (ii) shall solicit, induce,
encourage or attempt to influence any client, customer, employee, consultant,
independent contractor or supplier of the Company, the Purchaser or any of its
affiliates to cease to do business (or reduce the amount of business) or
terminate his or her employment with the Company, the Purchaser or any of its
affiliates.
Each Principal Shareholder and each Other Shareholder listed on
Schedule 6.2 acknowledges that the restrictions contained in this Section 6.2
-----------
are reasonable and necessary to protect the legitimate interests of Purchaser,
and that any violation of this Section 6.2 will result in irreparable injury to
Purchaser and that money damages would not provide an adequate remedy to
Purchaser, and, therefore, Purchaser shall be entitled to preliminary and
permanent injunctive relief in any court of competent jurisdiction and to an
equitable accounting of all earnings, profits and other benefits arising from
such violation, which rights shall be cumulative and in addition to any other
rights or remedies to which Purchaser may be entitled. If any portion of the
covenants or agreements contained in this Section 6.2 or the application thereof
is held to be invalid or unenforceable, then the other portions of such
covenants or agreements or the application thereof shall not be affected and
shall be given full force and effect without regard to the invalid or
unenforceable portions. If any covenant or agreement herein is held to be
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
Section 6.3 Cooperation. Purchaser and the Company agree to execute and
-----------
deliver all other instruments and take all such other actions as either party
may reasonably request from time to time, before or after Closing and without
payment of further consideration, to effectuate the transactions provided herein
and to confer to Purchaser the benefits intended by such transactions. The
parties shall cooperate fully with each other and with their respective counsel
and accountants in connection with any steps required to be taken as part of
their respective obligations under this Agreement.
Section 6.4 Notice of Breach or Default. The Company and the Selling
---------------------------
Shareholders shall make reasonable efforts to give prompt notice to Purchaser,
and Purchaser shall make reasonable efforts to give prompt notice to the
Company, of (i) the occurrence or non-occurrence
22
<PAGE>
of any event of which such party has knowledge, whose occurrence or
non-occurrence does or would be likely to cause any representation or warranty
of such party contained in this Agreement to be untrue or inaccurate at any time
from the date hereof to the Closing Date or (ii) any failure, of which such
party has knowledge, of the Company or the Selling Shareholders, on the one
hand, or Purchaser, on the other hand, or any officer, director, employee or
agent of any of the foregoing, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 6.4 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
Section 6.5 Consents. The Company will use its best efforts to obtain
--------
all necessary third party or governmental consents necessary to consummate the
transactions provided for in this Agreement.
Section 6.6 Hart-Scott-Rodino Filing. As soon as practicable, Purchaser
------------------------
and the Company shall make all filings required under the Hart-Scott-Rodino
Anti-Trust Improvements Act of 1976, as amended (the "HSR Act"), with respect to
the transaction contemplated by this Agreement and Purchaser and the Company
shall use their respective best efforts to respond as promptly as practicable to
all inquiries received from the Federal Trade Commission or the AntiTrust
Division of the Department of Justice for any additional information or
documentation.
Section 6.7 Owned Premises Title Insurance. Between the date hereof and
------------------------------
the Closing Date, Purchaser shall have the right to determine whether the Owned
Premises are insurable as good and marketable at ordinary rates by any reputable
title insurance company or companies selected by Purchaser (the "Title Company")
pursuant to an ALTA Owner's Policy of Title Insurance ("Owner's Policy of Title
Insurance") and whether such Owner's Policy of Title Insurance can contain
endorsements, to the extent available in the jurisdiction concerned, insuring
that (a) the covenants, conditions and restrictions included in the permitted
encumbrances have not been violated and that a future violation thereof will not
cause a forfeiture or reversion of title, (b) non-imputation coverage
satisfactory to Purchaser, and (c) each Owned Premises complies with all
applicable zoning ordinances. The Company shall execute such affidavits and
indemnities in favor of the Title Company as Purchaser and the Title Company may
reasonably request with respect to such undertaking by Purchaser. The premium
for the Owner's Policy of Title Insurance and such endorsements, if obtained by
Purchaser, will be paid by Purchaser.
Section 6.8 Owned Premises Transfer Taxes. Any real estate transfer
-----------------------------
taxes in respect of the Owned Premises attributable to the transactions
contemplated hereby shall be the responsibility of the Selling Shareholders.
Section 6.9 Director and Officer Indemnification. For a period of two
------------------------------------
years from and after the Closing Date, Purchaser shall provide those persons who
were the duly elected officers and directors of RMS as of the date of this
Agreement with the same rights of indemnification as such persons would have
been entitled to under the By-Laws of RMS which
23
<PAGE>
were in effect as of the date of this Agreement. A copy of the provision of
RMS's By-Laws in effect as of the date of this Agreement relating to such
indemnification is attached hereto as Schedule 6.9. Notwithstanding the
------------
foregoing, nothing contained in this Section 6.9 is intended to, nor shall it,
limit, modify, offset or otherwise affect the Principal Shareholders' and/or the
Selling Shareholders' indemnification obligations in this Agreement.
Section 6.10 Exclusive Representations and Warranties. The
----------------------------------------
representatives and warranties by the Principal Shareholders, the Company and
the Selling Shareholders contained in this Agreement and in all of the Exhibits
and Schedules attached hereto are the sole and exclusive representations and
warranties of such parties to Purchaser in connection with the transactions
contemplated hereby; provided, however, that Purchaser shall be entitled to rely
on the truth, veracity and accuracy of the information provided by the Company
and/or the Principal Shareholders in response to a request by Purchaser or in
the conduct of Purchaser's due diligence investigation of the Company.
Section 6.11 Additional Severance Payments. RMS has a severance policy
-----------------------------
as set forth on Schedule 2.11(c)(i) attached hereto for employees who are
-------------------
terminated by the Company without cause. Purchaser hereby agrees that any of the
employees of the Company set forth on Schedule 6.11 (which schedule shall be
-------------
provided to Purchaser no later than one week prior to the Closing Date) whose
employment is terminated without cause by the Company or Purchaser within six
months after the Closing Date shall be paid as severance in addition to the
amount they would be entitled to under the Company's severance policy set forth
on Schedule 2.11(c)(i), the additional amount set forth opposite their
-------------------
respective name on such schedule (the aggregate of such amounts, plus applicable
taxes payable by the Company or Pierce with respect thereto, the "Maximum
Severance Amount"), less applicable taxes. The aggregate amount of all such
additional severance payments actually paid by the Company or Pierce, plus the
applicable taxes with respect thereto paid by the Company or Pierce, are
referred to herein as the "Additional Severance Amount."
Section 6.12 Stock Appreciation Rights. Prior to Closing, RMS will grant
-------------------------
to the employees of the Company set forth on Schedule 6.12, stock appreciation
-------------
rights (the "Stock Appreciation Rights") payable at Closing, with such terms and
conditions and having such value as set forth on such Schedule; provided that
payment of such Stock Appreciation Rights to the employees of the Company listed
on Schedule 6.2 is conditioned upon such employees' entering into at Closing,
------------
non-competition agreements containing substantially similar provisions to those
contained in Section 6.2(b). The aggregate amount of the payments made pursuant
to the Stock Appreciation Rights is referred to herein as the "Aggregate Stock
Appreciation Rights Payments."
Section 6.13 Environmental Audits. Seller shall order a Phase I
--------------------
environmental audit or assessment ("Environmental Audit") respecting each of the
Owned Premises, which shall be performed by a firm acceptable to Purchaser and
shall be paid for by the Selling Shareholders. In addition, Purchaser shall have
the right, at its own expense, to have additional Environmental Audits performed
on such other Premises as it shall deem appropriate.
24
<PAGE>
Section 6.14 Best Efforts by Principal Shareholders. Commencing upon the
--------------------------------------
execution of this Agreement by the Principal Shareholders and Purchaser, the
Principal Shareholders shall use their best efforts to: (a) have this Agreement
executed by additional Shareholders so that Shareholders holding at least 92% of
the Shares that might be outstanding as of the Closing Date (assuming for such
purpose that all Options are exercised) have executed this Agreement within
three weeks after the date hereof; (b) to have Shareholders holding at least 95%
of the Shares outstanding as of the Closing Date sell and transfer their Shares
to Purchaser pursuant to this Agreement at the Closing; and (c) assist Purchaser
in obtaining non-competition agreements from each of the persons set forth on
Schedule 6.2 either by having such persons sign this Agreement if they will be
- ------------
Shareholders of the Company as of the Closing Date or by signing non-competition
agreements with the Company and Purchaser containing substantially similar
provisions to those contained in Section 6.2(b) hereof.
Section 6.15 Morris West Limited Partnership Guarantee. The Principal
-----------------------------------------
Shareholders shall use their best efforts to obtain the release of the Company's
guarantee of a loan payable by Morris West Limited Partnership referred to in
Note 6 to the audited Financial Statements (the "Guarantee"). If the Principal
Shareholders are unable to obtain by and deliver to the Closing, the release of
the Guarantee, the Principal Shareholders hereby agree to jointly and severally
indemnify and hold harmless Purchaser and RMS from any claim, loss or other cost
arising out of or related to such Guarantee. Such indemnification shall be in
accordance with the terms and conditions of Article X, except that the Principal
Shareholders' indemnification obligations under this Section 6.14 shall not be
subject to the indemnity threshold set forth in Section 10(d)(v), the aggregate
indemnification limitation set forth in Section 10(d)(vi), or the time
limitation set forth in Section 10(d)(vii).
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PURCHASER
--------------------------------------
The obligation of Purchaser to purchase the Shares is subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any or all of which Purchaser may waive:
Section 7.1 No Material Adverse Change. During the period from the date
--------------------------
hereof to the Closing Date there shall not have been any material adverse change
in the business, assets, results of operations, financial condition or prospects
of the Company.
Section 7.2 Representations and Warranties. Each of the representations
------------------------------
and warranties of the Principal Shareholders and the Selling Shareholders set
forth in this Agreement and any Exhibit or Schedule hereto shall be true and
correct in all materials respects (with the foregoing materiality standard not
to be construed in a manner giving duplicative effect to any materiality
standard contained in the terms of any such representation or warranty) on and
as of the Closing Date as if made on and as of the Closing Date.
25
<PAGE>
Section 7.3 Performance of Agreements. The Company, the Principal
-------------------------
Shareholders and the Selling Shareholders shall have performed and complied with
all of their covenants and agreements contained in this Agreement which are
required to be performed or complied with on or prior to the Closing Date.
Section 7.4 Opinion of Counsel. Purchaser shall have received an opinion
------------------
from the Company's and Selling Shareholders' counsel, dated as of the Closing
Date, in form and content reasonably acceptable to Purchaser.
Section 7.5 No Actions, Etc. No litigation, governmental action or other
---------------
proceedings involving or potentially involving a liability, obligation or loss
on the part of the Company, or which by reason of the nature of the relief
sought might have a material adverse effect on the Business, shall be threatened
or commenced against the Company with respect to any matter, and no litigation,
governmental action or other proceeding shall be threatened or commenced against
any person with respect to the consummation of the transactions provided for
herein or which would affect the right of Purchaser or the Company to own any of
the assets of the Company or to operate the Business.
Section 7.6 Lenders' Approval. Purchaser shall have obtained the written
-----------------
consent and approval of its lenders to the transactions contemplated by this
Agreement; provided, however, Purchaser shall not be entitled to terminate this
Agreement pursuant to this Section 7.6 after the later of March 7, 1997 or two
weeks after the last date on which Purchaser shall be able to terminate this
Agreement based on its due diligence investigation pursuant to Section 7.10.
Section 7.7 Consents; Lease Estoppels. All consents of all third parties
-------------------------
required to consummate the transactions provided for in this Agreement,
including without limitation the consents set forth on Schedule 2.12, shall have
-------------
been obtained, and Purchaser shall have received estoppel certificates executed
by the landlords of the Leased Premises in forms reasonably acceptable to
Purchaser; provided that this provision shall be deemed satisfied with respect
to the Leased Premises for which American National Bank and Trust Company of
Chicago Trust No. 59447 Created by Trust Agreement dated October 31, 1983, the
sole beneficiary of which is Liberty Elk Grove Associates Limited Partnership is
the landlord, so long as the Principal Shareholders use their best efforts to
obtain an estoppel certificate from such landlord.
Section 7.8 Environmental Audit. The results of each of the
-------------------
Environmental Audits shall be acceptable in all respects to Purchaser.
Section 7.9 Delivery of Schedules. The parties have executed this
---------------------
Agreement without all of the Schedules having been delivered to Purchaser. The
Company shall have delivered to Purchaser all Schedules required by this
Agreement within ten days after the date hereof, and all such Schedules shall be
in form and content acceptable to Purchaser. The Schedules shall include all
documents required to be attached thereto.
26
<PAGE>
Section 7.10 Due Diligence. The parties have executed this Agreement
-------------
without Purchaser having completed his due diligence investigation of the
Company. Purchaser shall have completed its due diligence investigation relating
to the Company, its current and past operations and the Business and the results
of such investigation shall be satisfactory to Purchaser in its sole discretion;
provided, however, Purchaser shall not be able to terminate this Agreement
pursuant to this Section 7.10 after eight days after the date on which Purchaser
has received from the Company or the Principal Shareholders all of the Schedules
to this Agreement (including all documents to be attached thereto) other than
Schedule 6.11.
- -------------
Section 7.11 Deliveries. All documents required to be delivered by the
----------
Company or any Selling Shareholder to Purchaser at or prior to Closing shall
have been so delivered at or by Closing.
Section 7.12 Hart-Scott-Rodino Waiting Period. The applicable waiting
--------------------------------
period including any extension thereof, under the HSR Act shall have expired or
been terminated and neither the Department of Justice nor the Federal Trade
Commission shall have instituted any litigation to enjoin or delay the
consummation of the transactions contemplated hereby which is continuing.
Section 7.13 Certain Lease Extensions. The landlords for the Premises
------------------------
listed on Schedule 7.13 hereof, all of whom are affiliates of the Company or one
-------------
or more of the Shareholders, shall have agreed to negotiate lease extensions to
the existing leases for such Premises under the parameters for rental increases
and term extensions which are acceptable to Purchaser and consistent with those
set forth on Schedule 7.13.
-------------
Section 7.14 Non-Competition Agreements with Key Employees. Each of the
---------------------------------------------
persons set forth on Schedule 6.2 shall have entered into non-competition
------------
agreements with the Company and Purchaser either by signing this Agreement or by
signing non-competition agreements containing substantially similar provisions
to those contained in Section 6.2(b) hereof.
Section 7.15 Owner's Policy of Title Insurance Obtainable. The Owner's
--------------------------------------------
Policy of Title Insurance described in Section 6.7 shall be obtainable by
Purchaser.
Section 7.16 Minimum Shareholder Participation. Shareholders holding at
---------------------------------
least 92% of the Shares that may be outstanding as of the Closing Date (assuming
the exercise of all Options) must execute this Agreement within three weeks of
the date hereof and Shareholders holding at least 95% of the Shares must sell
and transfer their Shares to Purchaser at the Closing.
27
<PAGE>
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF COMPANY AND SELLING SHAREHOLDERS
-------------------------------------------------------------
The obligations of the Company and the Selling Shareholders to
consummate the transactions provided for in this Agreement are subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any or all of which the Selling Shareholders may waive:
Section 8.1 Representations and Warranties. Each of the representations
------------------------------
and warranties of Purchaser set forth in this Agreement and any Exhibit or
Schedule hereto shall be true and correct on and as of the Closing Date as if
made on and as of the Closing Date.
Section 8.2 Performance of Agreements. Purchaser shall have performed
-------------------------
and complied with all of its covenants and agreements contained in this
Agreement which are required to be performed or complied with on or prior to the
Closing Date.
Section 8.3 No Actions, Etc. No action, suit, proceeding or
---------------
investigation by or before any court, administrative agency or other
governmental authority shall have been instituted or threatened, the effect of
which would restrain, prohibit or invalidate the transactions contemplated by
this Agreement.
Section 8.4 Deliveries. All documents required to be delivered by
----------
Purchaser to the Company or the Selling Shareholders at or prior to the Closing
shall have been so delivered at or by Closing.
Section 8.5 Hart-Scott-Rodino Waiting Period. The applicable waiting
--------------------------------
period including any extension thereof, under the HSR Act shall have expired or
been terminated and neither the Department of Justice nor the Federal Trade
Commission shall have instituted any litigation to enjoin or delay the
consummation of the transactions contemplated hereby which is continuing.
ARTICLE IX
CLOSING
-------
Section 9.1 Deliveries by the Company and the Selling Shareholders. At
------------------------------------------------------
the Closing, the Company and the Selling Shareholders shall deliver to
Purchaser:
(a) one or more stock certificates representing all the issued
and outstanding capital stock of the Company being sold by the Selling
Shareholders duly endorsed in blank;
28
<PAGE>
(b) updated lists of the Selling Shareholders as of the Closing
Date, including a list of all Shareholders who exercised Options after the date
hereof, including the exercise price of such Options and the amounts, if any,
that has been received by the Company with respect to such Option exercises;
(c) the Escrow Agreement, duly executed by the Principal
Shareholders and the Escrow Agent;
(d) a certificate signed by each of the Principal Shareholders,
dated the Closing Date, confirming that: (i) all of the representations and
warranties of the Principal Shareholders contained in this Agreement and the
Exhibits and Schedules hereto are true and correct as of the Closing Date to the
same extent as if made on such date; (ii) all agreements and covenants of the
Company and the Selling Shareholders required by this Agreement to have been
performed or complied with on or prior to the Closing Date have been so
performed or complied with; and (iii) all corporate action required of the
Company and the Shareholders to authorize the consummation of the transactions
and agreements provided for herein have been taken;
(e) a certificate signed by the Secretary of the Company dated
the Closing Date, that all corporate action required of the Board of Directors
of the Company and the Shareholders to authorize and approve the consummation by
the Company of the transactions and agreements contemplated herein has been
taken, and setting forth copies of such actions and copies of the Company's By-
Laws, as in effect as of such date;
(f) "Good Standing" certificates and certified copies of the
Articles of Incorporation and all amendments thereto of RMS and each of the
Subsidiaries issued by the Department of State of their respective states of
incorporation, each dated as of a date within ten days prior to the Closing
Date, together with a letter from a third party service company reasonably
acceptable to Purchaser confirming that RMS and each of the Subsidiaries remains
in "good standing" on the Closing Date;
(g) Pay-off Statements showing the amounts due as of the Closing
Date to satisfy the Offsetting Obligations in full;
(h) a final, updated Schedule 6.11 setting forth the Maximum
-------------
Severance Amount;
(i) keys to all premises and to all automobiles and vehicles
owned or used by the Company;
(j) the opinion of the Company's and the Selling Shareholders'
counsel to which reference is made in Section 7.4 hereof;
(k) executed lease estoppels to which reference is made in
Section 7.7 hereof;
29
<PAGE>
(l) letters of resignation executed by each of the officers and
directors of the Company, effective as of the Closing Date;
(m) general releases in favor of the Company executed by each
director and officer of the Company, in form and substance reasonably
satisfactory to counsel for Purchaser, releasing the Company from all liability
to such person; and
(n) All other documents reasonably required to be delivered by
the Company or the Selling Shareholders at or prior to the Closing Date.
Section 9.2 Purchaser's Deliveries. At the Closing, Purchaser shall
----------------------
deliver or cause to be delivered to the Selling Shareholders or, with respect to
Section 9.2(a), to the Escrow Agent:
(a) $2,000,000 plus the Maximum Severance Amount to the Escrow
Agent, in accordance with the terms of the Escrow Agreement;
(b) the balance of the Aggregate Paid Purchase Price not
previously delivered pursuant to Section 1.2(a), by wire transfer, to an account
designated by the Principal Shareholders (which account shall be designated at
least three days prior to Closing);
(c) the Escrow Agreement, duly executed by Purchaser;
(d) a certificate signed by a duly authorized officer of
Purchaser, dated the Closing Date, confirming that: (i) all of the
representations and warranties of Purchaser contained in this Agreement are true
and correct as of the Closing Date to the same extent as if made on such date;
(ii) all agreements and covenants of Purchaser required by this Agreement to
have been performed or complied with on or prior to the closing Date have been
so performed or complied with; and (iii) all corporate action required by the
Board of Directors of Purchaser to authorize the consummation of the
transactions provide for herein have been taken; and
(e) all other documents reasonably required to be delivered by
Purchaser at or prior to the Closing Date.
Section 9.3 Parties to Bear Own Expenses. Whether or not the
----------------------------
transactions contemplated by this Agreement are consummated and except as
otherwise provided for herein, Purchaser shall bear its expenses and the Selling
Shareholders shall bear their and the Company's expenses relating to or arising
out of this Agreement, including, but not limited to, fees for attorneys,
accountants and other advisors.
30
<PAGE>
ARTICLE X
INDEMNIFICATION
---------------
Section 10.1 Indemnifications.
----------------
(a) Indemnification by the Principal Shareholders. The Principal
---------------------------------------------
Shareholders hereby agree to jointly and severally indemnify, defend and hold
harmless Purchaser and its directors, officers, agents and employees from and
against any and all losses, damages, liabilities and expenses, including,
without limitation, legal fees and court costs, to which any of them may become
subject as the result of:
(i) any material misrepresentation, breach of warranty, or
any non-fulfillment of any warranty, representation, covenant or agreement on
the part of the Company or the Principal Shareholders contained in this
Agreement or any indemnification obligation of the Company or the Principal
Shareholders in any other section of this Agreement;
(ii) any error contained in any statement, report,
certificate or other document or instrument delivered to Purchaser pursuant to
this Agreement or contained in any Exhibit or Schedule; and
(iii) any and all acts, suits, proceedings, demands,
assessments, judgments, reasonably attorneys' fees, costs and expenses incident
to any of the foregoing.
(b) Indemnification by the Selling Shareholders. The Selling
-------------------------------------------
Shareholders hereby agree to severally indemnify, defend and hold harmless
Purchaser and its directors, officers, agents and employees from and against any
and all losses, damages, liabilities and expenses, including, without
limitation, legal fees and court costs, to which any of them may become subject
as the result of:
(i) any breach of such Selling Shareholder's
representations and warranties set forth in Article III, or any non-fulfillment
of such Selling Shareholder's covenant to sell and deliver his or her Shares to
Purchaser free and clear of all liens, security interests, pledges, claims and
encumbrances whatsoever; and
(ii) any and all acts, suits, proceedings, demands,
assessments, judgments, reasonably attorneys' fees, costs and expenses incident
to any of the foregoing.
(c) Indemnification by Purchaser. Purchaser hereby agrees to
----------------------------
indemnify, defend and hold harmless the Shareholders from and against any and
all losses, damages, liabilities and expenses, including, without limitation,
legal fees and court costs, which any of them may become subject to as the
result of:
31
<PAGE>
(i) any material misrepresentation, breach of warranty, or
any non-fulfillment of any warranty, representation, covenant or agreement on
the part of Purchaser contained in this Agreement; and
(ii) any and all acts, suits, proceedings, demands,
assessments, judgments, reasonably attorneys' fees, costs and expenses incident
to any of the foregoing.
(d) Procedures for Establishment of Indemnification.
-----------------------------------------------
(i) In the event that any claim shall be asserted by any
party which, if sustained, would result in a right of a party to indemnification
hereunder (a "Loss"), the person entitled to indemnification hereunder (the
"Indemnitee"), within a reasonable time after learning of such claim, shall
notify the person obligated to provide indemnification hereunder with respect to
such claim (the "Indemnitor"), and shall extend to the Indemnitor a reasonable
opportunity to defend against such claim, at the Indemnitor's sole expense and
through legal counsel reasonably acceptable to the Indemnitee, provided that the
Indemnitor proceeds in good faith, expeditiously and diligently. No
determination shall be made pursuant to subparagraph (ii) below while such
defense is still being made until the earlier of (A) the resolution of said
claim by the Indemnitor with the claimant or (B) the termination of the defense
by the Indemnitor against such claim or the failure of the Indemnitor to
prosecute such defense in good faith and in an expeditious and diligent manner.
The Indemnitee shall be entitled to rely upon the opinion of its counsel as to
the occurrence of either of said events. The Indemnitee shall, at its option and
expense, have the right to participate in any defense undertaken by the
Indemnitor with legal counsel of its own selection. No settlement or compromise
of any claim which may result in a Loss may be made by the Indemnitor without
the prior written consent of the Indemnitee unless (A) prior to such settlement
or compromise the Indemnitor acknowledges in writing its obligation to pay in
full the amount of the settlement or compromise and all associated expenses and
(B) the Indemnitee is furnished with security reasonably satisfactory to the
Indemnitee that the Indemnitor will in fact pay such amount and expenses.
(ii) In the event that an Indemnitee asserts the existence
of any Loss, the Indemnitee shall give written notice to the Indemnitor of the
nature and amount of the Loss asserted. If the Indemnitor, within a period of 15
days after the giving of the Indemnitee's notice, shall not give written notice
to the Indemnitee announcing its intention to contest such assertion of the
Indemnitee (such notice by the Indemnitor being hereinafter called the "contest
notice"), such assertion of the Indemnitee shall be deemed accepted and the
amount of the Loss shall be deemed established. In the event, however, that a
contest notice is given to the Indemnitee within said 15-day period, then the
contested assertion of a Loss shall be settled by arbitration to be held in
Philadelphia, Pennsylvania in accordance with the rules of the American
Arbitration Association then obtaining. The determination of the arbitrator(s)
shall be delivered in writing to the Indemnitor and the Indemnitee and shall be
final, binding and conclusive upon all of the parties hereto, and the amount of
the Loss, if any, determined to exist, shall be deemed established.
Notwithstanding anything herein contained to the contrary, each party shall
32
<PAGE>
pay its own attorney's fees, costs and expenses incident to any arbitration
proceeding brought under this subparagraph 9(c)(ii).
(iii) The Indemnitee and the Indemnitor may agree in
writing, at any time, as to the existence and amount of a Loss, and, upon the
execution of such agreement, such Loss shall be deemed established.
(iv) Payments of any Loss shall be paid to the person
entitled thereto within ten business days following the establishment of the
Loss.
(v) Notwithstanding anything in this Section 10.1 to the
contrary, except with respect to the indemnification obligations relating to
Section 6.14, to which this Section does not apply, it is specifically
understood and agreed that unless and until the Principal Shareholder's
obligation under Section 10.1(a) exceeds the aggregate sum of $50,000, the
Principal Shareholders shall not be obligated to make any payments under Section
10.1(a). However, if claims made by Purchaser exceed the sum of $50,000, then
the indemnification and payment obligations of the Principal Shareholders
hereunder shall include all claims which Purchaser has asserted, inclusive of
the first $50,000 of claims.
(vi) Notwithstanding anything herein to the contrary,
except with respect to the indemnification obligations relating to Section 6.14,
to which this Section does not apply, the Principal Shareholders' obligations
under this Article X shall be limited, in the aggregate, to $31 million.
(vii) Except with respect to the indemnification obligations
relating to Section 6.14, to which this Section does not apply, no party shall
be liable to any other under this Article X for any claim relating to a breach
of any representation or warranty hereunder unless the claim is asserted in
accordance with this Article X within the time such representation or warranty
survives the Closing.
ARTICLE XI
TERMINATION OF AGREEMENT
------------------------
Section 11.1 Termination. This Agreement may be terminated, and the
-----------
transaction contemplated hereby may be abandoned, by written notice promptly
given to the other parties hereto, at any time prior to the Closing Date:
(a) by mutual written consent of the Boards of Directors
of Purchaser and the Company; or
33
<PAGE>
(b) by either Purchaser on the one hand or the Company
and the Selling Shareholders on the other hand if there shall have been a
material breach of any representation, warranty, covenant or agreement on the
part of the other set forth in this Agreement; or
(c) by either Purchaser or the Company if any permanent
injunction or other order of a court or competent authority or government agency
which prevents the consummation of the transaction shall have become final and
not appealable; or
(d) by either Purchaser or the Company if the transaction
shall not have been consummated on or before April 30, 1997 (except as provided
in Section 1.3 with respect to the Hart-Scott-Rodino approval); or
(e) by the Company if any of the conditions specified in
Article VIII has not been met or waived by the Company at any such time as such
conditions can no longer be satisfied; or
(f) by Purchaser if any of the conditions specified in
Article VII has not been met or waived by Purchaser at any such time as such
conditions can no longer be satisfied.
Section 11.2 Status of Agreement after Termination. Upon any termination
-------------------------------------
of this Agreement pursuant to Section 10.1, this Agreement shall be void and
have no effect, without any liability on the part of any party hereto or any
shareholders, directors or officers thereof; provided, however, such termination
shall not affect the liability of any party for the breach of any provision of
this Agreement.
ARTICLE XII
GENERAL
-------
Section 12.1 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be sent by certified mail, postage prepaid, return
receipt requested; by an overnight express courier service that provides written
confirmation of delivery; or by facsimile with confirmation, addressed as
follows:
34
<PAGE>
If to Company
or Selling
Shareholders: Paul C. Gearen, Chairman of the Board
Records Management Services, Inc.
c/o Nicolson Porter & List, Inc.
1300 West Higgens Road
Park Ridge, IL 60068-5764
Fax: 847-698-5167
With a copy to: Edward X. Clinton, Esquire
19 S. LaSalle Street
Chicago, IL 60603
Fax: 312-201-0737
If to Purchaser: J. Peter Pierce, President
Pierce Leahy Corporate Center
631 Park Avenue
King of Prussia, Pennsylvania 19406
Fax: 610-992-8394
With a copy to: Richard J. Busis, Esquire
Cozen and O'Connor
1900 Market Street
Philadelphia, PA 19103
Fax: 215-665-2013
Any party may change its address for receiving notice by giving notice
of a new address in the manner provided herein. Any notice so given, shall be
deemed to be delivered on the second (2nd) business day after the same is
deposited in the United States Mail, on the next business day if sent by
overnight courier, or on the same business day if sent by facsimile before the
close of business, or the next business day, if sent by facsimile after the
close of business.
Section 12.2 Broker's Commission. The Purchaser and the Principal
-------------------
Shareholders each agree to indemnify and hold harmless the other from and
against any and all liability, loss, damage, cost or expense (including court
costs and attorney fees) arising out of or relating to any claim that such party
and (in the case of the Principal Shareholders, that any Principal Shareholder,
Selling Shareholders, or the Company) entered into any brokerage agreement or
similar arrangement, whether oral or written.
Section 12.3 Headings. The descriptive article, section and paragraph
--------
headings set forth herein are inserted for convenience of reference only, do not
constitute a part of this Agreement and shall not control or affect the meaning
or construction of any provision of the within Agreement.
35
<PAGE>
Section 12.4 Entire Agreement. This Agreement, together with the
----------------
Exhibits and Schedules attached hereto, constitutes the entire agreement between
the parties pertaining to this subject matter and supersedes all prior or
contemporaneous agreements and understandings of the parties relating to the
same. This Agreement may be amended only in writing signed by both parties.
Section 12.5 Severability. If any term or provision of this Agreement or
------------
any application thereof shall be invalid or unenforceable, the remainder of this
Agreement and any other application of such term or provision shall not be
affected thereby.
Section 12.6 Counterpart Execution. This Agreement may be executed in
---------------------
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. This Agreement
shall become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the parties reflected hereon as
the signatories.
Section 12.7 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of Pennsylvania without reference
to choice of law principles thereof.
Section 12.8 Waiver. Any of the terms or conditions of this Agreement
------
may be waived at any time by the party entitled to the benefit thereof, but only
by written notice signed by the party waiving such terms or conditions.
Section 12.9 Further Assurances. Both parties will take such reasonable
------------------
steps as are necessary to consummate the transactions contemplated herein.
Section 12.10 Assignability; Binding Effect. This Agreement may not be
-----------------------------
assigned by either party without the prior written consent of the other party,
except that Purchaser may assign this Agreement to a subsidiary of Purchaser
provided that Purchaser remains liable for its obligations hereunder. This
Agreement shall be binding upon the parties hereto, and their successors and
permitted assigns.
Section 12.11 Knowledge of the Principal Shareholders. For purposes of
----------------------------------------
this Agreement, the phrase "to the knowledge of Principal Shareholders" or the
like shall refer to the knowledge after due inquiry of (a) any of the Principal
Shareholders or (b) any of the directors or officers of the Company.
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
RECORDS MANAGEMENT SERVICES, INC.
an Illinois corporation, the Company
By: /s/ Paul C. Gearen
----------------------------------------------
Name: Paul C. Gearen
Title: Chairman of the Board
/s/ Matthew Cheresh
-------------------------------------------------
MATTHEW CHERESH
/s/ Sidney Cheresh
-------------------------------------------------
SIDNEY CHERESH
/s/ Edward X. Clinton
-------------------------------------------------
EDWARD X. CLINTON
/s/ Jack Enter
-------------------------------------------------
JACK ENTER
/s/ James E. Gearen
-------------------------------------------------
JAMES E. GEAREN
/s/ Paul C. Gearen
-------------------------------------------------
PAUL C. GEAREN
/s/ Robert L. Shaunnessey
-------------------------------------------------
ROBERT L. SHAUNNESSEY
PIERCE LEAHY CORP.,
a New York corporation, Purchaser
By: /s/ Douglas B. Huntley
----------------------------------------------
Name: Douglas B. Huntley
Title: Vice President and Chief Financial Officer
37
<PAGE>
SELLING SHAREHOLDER/KEY EMPLOYEE SIGNATURE PAGE
The undersigned hereby executes a counterpart of this Stock Purchase
Agreement as a Shareholder of Records Management Services, Inc. as of the date
first above written, and by executing this Agreement, acknowledges receipt of
this Agreement and that he/she has read, understands and agrees to the
provisions relating to the undersigned. The undersigned further acknowledges
that he/she is a key employee listed on Schedule 6.2 to this Agreement and that
------------
he/she agrees to be bound by the non-competition and other provisions of Section
6.2(b) of this Agreement.
--------------------------------------
Selling Shareholder's Signature
--------------------------------------
Selling Shareholders's Name
(Please print or type)
38
<PAGE>
Exhibit 21
----------
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Pierce Leahy Command Company, a Nova Scotia unlimited liability company
PLC Command I, L.P., a Pennsylvania limited partnership
PLC Command II, L.P., a Pennsylvania limited partnership
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 722 1,254
<SECURITIES> 0 0
<RECEIVABLES> 14,669 18,623
<ALLOWANCES> 487 795
<INVENTORY> 762 611
<CURRENT-ASSETS> 16,691 20,381
<PP&E> 109,755 158,154
<DEPRECIATION> 35,328 45,020
<TOTAL-ASSETS> 131,328 234,820
<CURRENT-LIABILITIES> 24,830 44,314
<BONDS> 117,329 209,647
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (17,137) (25,438)
<TOTAL-LIABILITY-AND-EQUITY> 131,328 234,820
<SALES> 0 0
<TOTAL-REVENUES> 95,396 129,748
<CGS> 0 0
<TOTAL-COSTS> 80,427 110,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 418 467
<INTEREST-EXPENSE> 9,622 17,225
<INCOME-PRETAX> 5,347 2,523
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 5,347 2,523
<DISCONTINUED> 0 0
<EXTRAORDINARY> 3,279 2,015
<CHANGES> 0 0
<NET-INCOME> 2,068 508
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
