<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1997
REGISTRATION NO. 333-23121
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
PIERCE LEAHY CORP.
(exact name of registrant as specified in its charter)
PENNSYLVANIA 4226 23-2588479
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
631 PARK AVENUE
KING OF PRUSSIA, PENNSYLVANIA 19406
(610) 992-8200
(Address, including zip code, and telephone number, including area code, of
the registrant's principal executive offices)
DOUGLAS B. HUNTLEY
CHIEF FINANCIAL OFFICER
631 PARK AVENUE
KING OF PRUSSIA, PENNSYLVANIA 19406
(610) 992-8200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
RICHARD J. BUSIS, ESQUIRE JOSEPH A. COCO, ESQUIRE
COZEN AND O'CONNOR SKADDEN, ARPS, SLATE, MEAGHER & FLOM
1900 MARKET STREET LLP
PHILADELPHIA, PENNSYLVANIA 19103 919 THIRD AVENUE
NEW YORK, NEW YORK 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 27, 1997
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
[LOGO OF PIERCE LEAHY APPEARS HERE]
5,312,614 SHARES
PIERCE LEAHY CORP.
COMMON STOCK
--------
Of the 5,312,614 shares of Common Stock of Pierce Leahy Corp. (the "Company")
offered hereby, 5,100,000 shares are being sold by the Company and 212,614
shares are being sold by certain shareholders of the Company (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Shareholders.
Of the 5,312,614 shares of Common Stock offered hereby, 4,250,091 shares are
being offered for sale in the United States and Canada (the "U.S. Equity
Offering") by the U.S. Underwriters (as defined herein) and 1,062,523 shares
are being offered in a concurrent international offering (the "International
Equity Offering" and, together with the U.S. Equity Offering, the "Equity
Offerings") outside the United States and Canada by the Managers (as defined
herein).
Prior to the Equity Offerings, there has not been a public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $15.00 and $18.00 per share. See "Underwriting"
for information relating to the factors considered in determining the initial
public offering price.
Concurrently with the Equity Offerings, the Company is offering $100,000,000
aggregate principal amount of % Senior Subordinated Notes due 2007 by a
separate prospectus (the "Notes Offering" and together with the Equity
Offerings, the "Offerings"). The consummation of the Equity Offerings is not
conditioned upon the consummation of the Notes Offering.
The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol "PLH," subject to official notice of issuance.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the U.S. Underwriters and the
Managers, see "Underwriting."
(2) Before deducting expenses estimated at $725,000, all of which are payable
by the Company.
(3) The Company and certain of the Selling Shareholders have granted the U.S.
Underwriters a 30-day option to purchase up to an aggregate of 796,892
additional shares of Common Stock solely to cover over-allotments, if any.
See "Underwriting." If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Shareholders will be $ , $ , $ and $ ,
respectively.
--------
The shares of Common Stock are being offered by the several U.S. Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about ,
1997 at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
--------
SMITH BARNEY INC.
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
, 1997
<PAGE>
[OUTSIDE GATEFOLD ARTWORK]
[Four color map of the United States and Canada with 45 plots indicating
North American Coverage]
CERTAIN PERSONS PARTICIPATING IN THE EQUITY OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTTING, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
[INSIDE GATEFOLD ARTWORK]
[Four color collage of 12 photographs, together with an illustrated flow
plan depicting the storage and retrieval process for a box]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements contained elsewhere in this Prospectus. Except as otherwise
indicated by the context, references to the "Company" include Pierce Leahy
Corp. and its consolidated subsidiaries. Management is not aware of any
definitive information about the size or nature of the North American records
management market (vended and unvended, active and inactive). Estimates of such
numbers and percentages contained in this Prospectus have been developed by the
Company from internal sources and reflect the Company's current estimates;
however, no assurance can be given regarding the accuracy of such estimates.
Unless otherwise indicated, the information in this Prospectus assumes (i) no
exercise of the U.S. Underwriters' over-allotment option and (ii) gives effect
to the Stock Recapitalization (as hereinafter defined) and the Offerings. In
addition, unless otherwise indicated, the pro forma financial information
regarding the Company in this Prospectus does not include the acquisition of
Advanced File Storage Systems described under "Business--The 1997 Acquisitions"
or the Recent Acquisitions described under "Business--Recent Acquisitions."
THE COMPANY
The Company is the largest archive records management company in North
America, as measured by its 50 million cubic feet of records currently under
management. The Company operates a total of 161 records management facilities
of which 148 are in the United States, serving 58 markets, including the 16
largest U.S. markets. In addition, the Company operates 13 records management
facilities in five of Canada's six largest markets.
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 believes it is the most technologically advanced records
management company in the industry by virtue of its Pierce Leahy User
Solution(R) (PLUS(R)) computer system. The PLUS(R) system fully integrates the
Company's records management, data retrieval and billing functions on a
centralized basis through the use of proprietary, real-time software. The
PLUS(R) system assists the Company in efficiently managing records in multiple
locations for national and local customers, rapidly integrating acquisitions of
records management companies and maintaining a low-cost operating structure.
The Company serves a diversified group of over 22,000 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.
The Company's revenues and operating income before non-recurring charges (on
a pro forma basis as defined herein) for the year ended December 31, 1996 were
$167.8 million and $23.4 million, respectively. From 1992 to 1996, the
Company's revenues and operating income before non-recurring charges grew at
compound annual growth rates of 19.9% and 28.7%, respectively. The Company
attributes this growth to the expansion of its business with new and existing
customers, which has been primarily driven by the trend towards outsourcing of
records management functions by companies and the ongoing consolidation of the
fragmented records management industry. The Company has successfully acquired
and integrated 26 companies from 1992 to 1996.
3
<PAGE>
The Company's growth strategy is to expand its business in new and existing
markets through (i) targeting new customers, (ii) growing with existing
customers and (iii) continuing its acquisition program. The Company has adopted
the following approaches to pursue its growth objectives:
. Targeting New Customers. The Company has a dual sales strategy focused on
both larger, typically multi-location accounts and smaller accounts, with
a dedicated sales force for each. The Company's sales and marketing force
has increased from 41 persons at the end of 1995 to 73 persons currently.
For large regional and national accounts, the Company believes its
national presence, sophisticated systems and low-cost operating structure
provide a competitive advantage. These organizations are increasingly
outsourcing such noncore activities, which enables their management to
focus on their core business and to reduce space requirements and records
management costs. For smaller accounts, the Company combines the cost
benefits of its centralized systems with quality local service. From 1992
to 1996, the average annual growth rate of cubic feet of storage from new
customers was approximately 8%.
. Growing with Existing Customers. The Company services its existing
customers through both a centralized customer service organization and
local client service representatives. Existing customers typically
generate additional records annually which are stored with the Company.
From 1992 to 1996, the average annual growth rate of cubic feet of
storage from existing customers was approximately 6%.
. Continuing Acquisition Program. The Company believes that the records
management industry is highly fragmented and offers substantial
opportunity for consolidation. The Company targets potential acquisitions
both in the markets it already services and in new markets which it is
not yet servicing. From 1992 to 1996, the Company successfully completed
and integrated 26 acquisitions, totalling approximately 12.4 million
cubic feet of records at the time of acquisition. Since January 1, 1997,
the Company has completed eight acquisitions, totalling approximately 7.2
million cubic feet of records at the time of acquisition. As a result of
its centralized organizational structure and the PLUS(R) system, the
Company has been able to rapidly achieve significant economies of scale
in its acquisitions. From 1992 to 1996, the average annual growth rate of
cubic feet of storage from acquisitions was approximately 10%. See
"Business--Acquisition and Growth Strategy."
The Company's growth strategy is supported by an operating strategy which
emphasizes providing premium standardized services while maintaining a low-cost
operating structure. As a result, the Company's operating income before non-
recurring charges as a percentage of total revenues increased from 13.3% in
1992 to 17.7% in 1996. The Company expects to continue its growth and enhance
its position by implementing its strategy based on the following elements:
. Using Sophisticated Centralized Systems to Provide High Quality
Service. In tandem with the Company's centralized customer service
organization and local field support personnel, the Company utilizes its
PLUS(R) system to provide a high and consistent level of service (24
hours a day, seven days a week) to its customers on a national and local
basis, including providing its customers with real-time access to the
database. Although PLUS(R) is centralized, the system permits local
management flexibility through a variety of pre-programmed options to
customize the system and enhance its utility to different types of
customers.
. Maintaining its Position as a Low-Cost Provider through Economies of
Scale. The Company strives to remain a low-cost operator through
achieving economies of scale in labor, real estate, transportation,
computer systems and administrative expenses. The PLUS(R) system allows
the Company to enhance the efficiency of its facilities while reducing
fixed and operating costs. This system eliminates the need to designate
permanent locations for an individual customer's records within a
facility by using sophisticated bar-coding technology which enables
records to be stored wherever space is available and to be positioned
within the Company's facilities based on retrieval frequency, thereby
reducing labor costs. PLUS(R) is similarly valuable in helping to achieve
cost savings in acquisitions.
4
<PAGE>
THE RECORDS MANAGEMENT INDUSTRY
According to a 1994 study by the Association of Commercial Record Centers
(the "ACRC"), an industry trade group with over 500 members, approximately
2,800 companies offer records storage and related services in North America.
The Company believes that only 25% of the potential market outsources its
records management functions and that approximately 75% is still "unvended," or
internally managed. The Company estimates that the North American vended
records management industry generates annual revenues in excess of $1.0
billion. Management believes that the industry is highly fragmented, with most
industry participants operating on a regional or local 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, which the Company estimates
comprise approximately 80% of all records, are the principal focus of the
records management industry.
The Company believes that the records management industry is characterized by
the following trends:
. Industry Consolidation. The records management industry is undergoing a
period of consolidation as larger, better capitalized industry
participants acquire smaller regional or local participants. Management
believes that consolidation is primarily driven by the needs of large
customers for fully integrated coverage and the ability to realize
economies of scale, especially with respect to labor, real estate,
transportation, computer systems and administrative expenses. Industry
consolidation also provides private owners of smaller records management
companies the ability to obtain liquidity.
. Movement Towards Outsourcing. Outsourcing of internal records management
functions represents the largest single source of new business for
records management companies. The Company believes that as more
organizations become aware of the advantages of professional records
management, such as net cost reductions and enhanced levels of service,
the records management industry will continue to gain a growing portion
of the unvended segment. The Company also believes that the establishment
of national providers with well-known brand names will help to accelerate
this trend.
. Increasing Production of Paper. Increasingly widespread technologies such
as facsimiles, copiers, personal computers, laser printers and advanced
software packages have enabled organizations to create, copy and
distribute documents more easily and broadly. In spite of new "paperless"
technologies (including the Internet and "e-mail"), information remains
predominantly paper based. Additionally, the cost of storing records on
paper is currently less expensive than the cost of converting paper
records to, and storing on, other media (e.g., computer media, imaging,
microfilm, CD-Rom and optical disc).
. Expanded Record Keeping Needs. While technology has augmented the growth
of paper generation, several external forces and concerns have played an
important role in organizations' decisions to store and retain access to
records. For example, the continued growth of regulatory requirements and
the proliferation of litigation has resulted in increased volumes and
lengthened holding periods of documents. Retained records are also
remaining in storage for extended periods of time because the process of
determining which records to destroy is time consuming and often more
costly in the short-term than continued storage.
ACQUISITIONS
Since January 1997, the Company has acquired eight records management
companies, adding an aggregate of 7.2 million cubic feet of records (an
increase of approximately 18% from December 31, 1996) at the time of
acquisition, including the acquisition of Records Management Services, Inc.
("RMS") on April 2, 1997 and two acquisitions since May 1997 (collectively,
excluding the two most recent acquisitions, the "1997 Acquisitions").
5
<PAGE>
The acquisition of RMS added 5.2 million cubic feet of records in eight cities,
of which three were in new markets for the Company and five were in existing
markets. The two acquisitions completed since May 1997 are sometimes referred
to herein as the "Recent Acquisitions."
During 1996, the Company acquired 12 records management companies, adding an
aggregate of 6.9 million cubic feet of records at the time of acquisition, the
majority of which were completed during the second half of 1996.
CONCURRENT OFFERING
Concurrent with the Equity Offerings, the Company is offering, by separate
prospectus, $100,000,000 aggregate principal amount of % Senior Subordinated
Notes due 2007 (the "1997 Notes"). The Equity Offerings are not conditioned
upon the consummation of the offering of the 1997 Notes.
RISK FACTORS
Prospective purchasers should consider carefully the information set forth
under the caption "Risk Factors," and all other information set forth in this
Prospectus, in evaluating the shares offered hereby and the Company.
THE EQUITY OFFERINGS
<TABLE>
<S> <C>
Total number of shares of Common Stock 5,312,614 shares
offered...............................
By the Company(1)
U.S. Equity Offering................. 4,080,000 shares
International Equity Offering........ 1,020,000 shares
Total.............................. 5,100,000 shares
By the Selling Shareholders(1)
U.S. Equity Offering................. 170,091 shares
International Equity Offering........ 42,523 shares
Total.............................. 212,614 shares
Common Stock to be outstanding after
the Equity Offerings(1)(2)............ 15,585,090 shares
Use of proceeds........................ The net proceeds of the Equity
Offerings will be primarily used to
redeem a portion of the Company's 11
1/8% Senior Subordinated Notes due
2006 (the "1996 Notes"). The net
proceeds of the Notes Offering will be
primarily used to repay outstanding
borrowings under the Company's credit
facility. Any remaining proceeds of
the Offerings will be used for general
corporate purposes, including possible
acquisitions. See "Use of Proceeds."
New York Stock Exchange Symbol......... PLH
</TABLE>
- --------
(1) Does not include shares that are subject to the U.S. Underwriters' over-
allotment option.
(2) Does not include 1,114,174 shares of Common Stock issuable upon exercise of
outstanding options. See "Management--Stock Incentive Plan."
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical and pro forma financial data, insofar as it
relates to each of the five years in the period ended December 31, 1996, has
been derived from the audited Consolidated Financial Statements, including the
consolidated balance sheets at December 31, 1995 and 1996 and the related
consolidated statements of operations for each of the three years in the period
ended December 31, 1996 and the notes thereto appearing elsewhere in this
Prospectus. The summary historical and pro forma consolidated statements of
operations and balance sheet data as of and for the three months ended March
31, 1997 and the summary historical statements of operations data for the three
months ended March 31, 1996 have been derived from unaudited consolidated
financial statements which, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the results of the unaudited interim period. Results for the
three months ended March 31, 1997 are not necessarily indicative of results
that may be expected for the entire year.
The following summary pro forma statements of operations, other data and
balance sheet give effect to, among other things, acquisitions completed in
1996, the 1997 Acquisitions (other than Advanced File Storage Systems ("AFSS"))
(all such 1996 and 1997 acquisitions (other than AFSS), the "1996 and 1997
Acquisitions"), the termination of the Company's status as a Subchapter S
corporation for income tax purposes and the impact of the Offerings, as if each
of these items had occurred on January 1, 1996 or as of March 31, 1997 in the
case of the balance sheet. The summary pro forma statements of operations and
balance sheet do not reflect the acquisition of AFSS or the Recent
Acquisitions, which are not significant.
The pro forma items and certain management assumptions and adjustments are
described in the accompanying notes hereto. This pro forma information is not
necessarily indicative of the results that would have occurred had the 1996 and
1997 Acquisitions, the Subchapter S corporation termination and the Offerings
been completed on the dates indicated or of the Company's actual or future
results or financial position. The summary historical and pro forma
consolidated statements of operations, other data and balance sheets should be
read in conjunction with the information contained in the Company's
Consolidated Financial Statements and the notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Selected Historical and Pro Forma Consolidated Statements of Operations, Other
Data and Balance Sheets" and "Pro Forma Financial Data" included elsewhere in
this Prospectus.
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------------- ------------------------------
PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996(A) 1996 1997 1997(A)
------- ------- ------- ------- -------- --------- ------- ------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
Storage................ $37,633 $42,122 $47,123 $55,501 $ 75,900 $ 98,885 $16,969 $23,322 $26,112
Service and storage
material sales........ 25,202 31,266 35,513 39,895 53,848 68,953 12,730 16,910 18,519
------- ------- ------- ------- -------- -------- ------- ------- -------
Total revenues......... 62,835 73,388 82,636 95,396 129,748 167,838 29,699 40,232 44,631
Cost of sales, excluding
depreciation and
amortization........... 39,702 45,391 49,402 55,616 73,870 93,299 17,406 22,298 24,948
Selling, general and
administrative......... 9,012 11,977 15,882 16,148 20,007 33,018 4,856 6,762 8,052
Depreciation and
amortization........... 5,734 6,888 8,436 8,163 12,869 18,169 2,572 4,214 4,808
Consulting payments to
related parties(b)..... -- -- 500 500 -- -- 125 -- --
Non-recurring
charges(c)............. -- -- -- -- 3,254 3,254 -- -- --
Foreign currency
translation............ -- -- -- -- -- -- -- 182 182
------- ------- ------- ------- -------- -------- ------- ------- -------
Operating income....... 8,387 9,132 8,416 14,969 19,748 20,098 4,740 6,776 6,641
Interest expense........ 6,388 6,160 7,216 9,622 17,225 25,250 2,846 6,712 6,728
------- ------- ------- ------- -------- -------- ------- ------- -------
Income before income
taxes and
extraordinary charge.. 1,999 2,972 1,200 5,347 2,523 (5,152) 1,894 64 (87)
Income taxes............ -- -- -- -- -- (350)(d) -- -- 372 (d)
Extraordinary
charge(e).............. -- 9,174 5,991 3,279 2,015 -- -- -- --
------- ------- ------- ------- -------- -------- ------- ------- -------
Net income (loss)....... 1,999 (6,202) (4,791) 2,068 508 (4,802) 1,894 64 (459)
Accretion (cancellation)
of redeemable
warrants............... -- (746) 16 889 1,561 -- 1,561 -- --
------- ------- ------- ------- -------- -------- ------- ------- -------
Net income (loss)
applicable to Common
shareholders........... $ 1,999 $(5,456) $(4,807) $ 1,179 $ (1,053) $ (4,802) $ 333 $ 64 $ (459)
======= ======= ======= ======= ======== ======== ======= ======= =======
Pro forma data
(unaudited):
Pro forma adjustment
for income taxes
excluding
extraordinary charge.. $ 1,659 (d) $ 291 (d)
Historical income
(loss) before
extraordinary charge,
as adjusted for pro
forma income taxes.... $ 864 $ (227)
Historical income
(loss) before
extraordinary charge
per Common share, as
adjusted for pro forma
income taxes.......... $ .08 (f) $ (.02)(f)
Historical net loss
applicable to Common
shareholders, as
adjusted for pro forma
income taxes.......... $ (1,958) $ (227)
Historical net loss
applicable to Common
shareholders per
Common share, as
adjusted for pro forma
income taxes.......... $ (.18)(f) $ (.02)(f)
Shares used in
computing per share
amounts............... 10,612 10,550
Pro forma net loss
applicable to Common
shareholders per
Common share.......... $ (.45)(g) $ (.04)(g)
Pro forma shares used
in computing per share
amount................ 10,612 10,550
OTHER DATA:
Total revenue growth
rate................... 12.9% 16.8% 12.6% 15.4% 36.0% 75.9% 33.6% 35.5% 50.3%
Operating income (before
non-recurring charges)
margin................. 13.3% 12.4% 10.2% 15.7% 17.7% 13.9% 16.0% 16.8% 14.9%
EBITDA(h)............... $14,121 $16,020 $17,352 $23,632 $ 35,871 $ 41,521 $ 7,437 $11,172 $11,631
EBITDA, as adjusted(i).. -- -- -- -- -- $ 52,342 -- -- $13,642
EBITDA margin........... 22.5% 21.8% 21.0% 24.8% 27.6% 24.7% 25.0% 27.8% 26.1%
EBITDA, as adjusted
margin................. -- -- -- -- -- 31.2% -- -- 30.6%
Capital
expenditures(j)........ $ 5,565 $ 5,827 $ 6,352 $16,288 $ 23,493 -- $ 3,553 $10,794 --
Cubic feet of storage
under management at end
of period (000s)....... 16,248 19,025 22,160 29,523 40,410 47,091 (k) 31,088 43,354 48,526 (k)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------------
PRO FORMA FOR
ACTUAL ACQUISITION OF RMS(L) PRO FORMA(M)
-------- --------------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital deficit........... $ (6,778) $ (6,363) $ (463)
Total assets...................... 266,462 330,921 337,306
Total long-term debt.............. 254,170 316,170 249,095
Shareholders' equity (deficit).... (25,394) (25,394) 39,466
</TABLE>
8
<PAGE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(a) Gives effect to the (i) 1996 and 1997 Acquisitions, (ii) termination of the
Company's status as a Subchapter S corporation and (iii) impact of the
Offerings, as if each of these items had occurred on January 1, 1996. See
"Pro Forma Financial Data" and Note 2 of the Notes to Consolidated
Financial Statements. The pro forma statements of operations and balance
sheets do not reflect the acquisition of AFSS or the Recent Acquisitions,
which are not significant. Upon termination of the Company's status as a
Subchapter S corporation, the Company will record a deferred income tax
provision of approximately $6,600 for the tax effect of differences in the
basis of assets and liabilities for financial reporting and income tax
purposes. This deferred income tax provision has not been reflected in the
Pro Forma Condensed Consolidated Statement of Operations. Also not
reflected in the Pro Forma Condensed Consolidated Statement of Operations
is the extraordinary charge for the early extinguishment of a portion of
the 1996 Notes that will occur in the quarter in which the redemption
occurs (see (e) below) and an unusual charge of approximately $1,752
(pretax), or $.07 per share, for the write-off of the estimated unamortized
compensation expense associated with options granted on January 1, 1997,
due to the acceleration of vesting upon the completion of the Offerings.
(b) Represents aggregate payments made to eight Pierce family members.
(c) Represents non-recurring charges in 1996 of $2,764 paid to a related party
partnership to assume the partnership's position in certain leases with
third parties and of $490 for the establishment of an annual pension for
Leo W. Pierce, Sr. and his spouse.
(d) The Company has historically been taxed as a Subchapter S corporation. Such
status will be terminated in connection with the completion of the Equity
Offerings. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 2 of Notes to Consolidated Financial
Statements.
(e) Represents loss on early extinguishment of debt due to refinancings in
1993, 1994, 1995 and 1996. Amounts include write-off of unamortized
deferred financing costs and discount, along with prepayment penalties and
other costs. A similar charge for the early extinguishment of a portion of
the 1996 Notes of approximately $9,975 (pretax), or $.39 per share, will
occur in the quarter in which the redemption occurs. Such charge has not
been reflected in the Pro Forma Condensed Consolidated Statement of
Operations. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(f) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of historical net loss per share as adjusted for
pro forma income taxes. Excluding the non-recurring charges incurred in
1996, pro forma net income and net income per share as adjusted for income
taxes would have been $27 and $0, respectively.
(g) Excluding $10,821 and $2,011 of operating expenses included in the pro
forma statements of operations for 1996 and for the three months ended
March 31, 1997, respectively, specifically identified by management that
would not have been incurred had the 1996 and 1997 Acquisitions occurred as
of January 1, 1996 and had such cost savings been fully implemented as of
such date, and excluding the non-recurring charges incurred in 1996, pro
forma net income and net income per share would have been $3,765 and $.34,
respectively, in 1996 and $768 and $.07 for the three months ended March
31, 1997.
(h) "EBITDA" is defined as net income (loss) before interest expense, taxes,
depreciation and amortization, consulting payments to related parties, non-
recurring charges, foreign currency translation, 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 (as hereinafter
defined), 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.
(i) EBITDA, as adjusted is defined as EBITDA plus $10,821 and $2,011 of
operating expenses included in the pro forma statements of operations in
1996 and for the three months ended March 31, 1997, respectively,
specifically identified by management that would not have been incurred had
the 1996 and 1997 Acquisitions occurred as of January 1, 1996 and such cost
savings been fully implemented as of such date. See Note (b) of Notes to
Pro Forma Condensed Consolidated Statement of Operations. Management
expects to realize additional cost savings beyond the $10,821 and $2,011
specifically identified.
(j) Capital expenditures for 1996 are comprised of $11.0 million for new
shelving, $4.0 million for leasehold and building improvements, $3.8
million for new facility purchases and related improvements, $2.9 million
for data processing and $1.8 million for the purchase of transportation,
warehouse and office equipment. Of the total 1996 capital expenditures,
management estimates that approximately $2.5 million was for upgrading and
restructuring of existing facilities to accommodate growth or for
maintenance capital expenditures. The 1996 capital expenditures do not
include $11.0 million paid for real estate and other assets acquired from
related parties (see Note 10 of Notes to Consolidated Financial
Statements).
(k) The pro forma cubic feet of storage as of December 31, 1996 and March 31,
1997 includes cubic feet of storage from the 1997 Acquisitions completed
since such date (excluding AFSS).
(l) Gives effect to the acquisition of RMS as if it had occurred on March 31,
1997. See "Pro Forma Financial Data," and "Use of Proceeds."
(m) Gives effect to the (i) acquisition of RMS, (ii) termination of the
Company's Subchapter S corporation status and (iii) impact of the
Offerings, as if each of these items had occurred on March 31, 1997. See
"Pro Forma Financial Data," "Use of Proceeds," and Note 2 to Notes to
Consolidated Financial Statements.
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<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should consider carefully the
following risk factors, in addition to the other information set forth in this
Prospectus, before making an investment.
HIGH LEVEL OF INDEBTEDNESS AND LEVERAGE; ABILITY TO SERVICE DEBT
As of March 31, 1997, on a pro forma basis after giving effect to the 1997
Acquisitions completed after such date, the Recent Acquisitions, the Offerings
and the estimated use of the net proceeds therefrom, the Company's
consolidated indebtedness would have been approximately $257.2 million and its
shareholders' equity would have been $39.5 million. This level of indebtedness
will have important consequences to holders of the Common Stock, including:
(i) a substantial part of the Company's anticipated cash flow from operations
will be required for the payment of principal and interest; (ii) the Company's
ability to obtain additional financing in the future may be limited; (iii) the
Company's leveraged position and covenants contained in the 1996 Notes, the
1997 Notes (together with the 1996 Notes, the "Notes") and the Credit Facility
(as defined herein) (or any replacement thereof) could limit its ability to
expand and make capital improvements and acquisitions; and (iv) the Company's
level of indebtedness could make it more vulnerable to economic downturns,
limit its ability to withstand competitive pressures, and limit its
flexibility in reacting to changes in its industry and economic conditions
generally. See "Description of Certain Indebtedness."
The Company's ability to meet its debt service obligations will be dependent
upon its future operating performance (including the performance of any
acquired businesses), debt levels and financial results which, in turn, will
be subject to general economic conditions and to financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control. Although management believes that the Company's cash flow from
operations and available borrowings under the Credit Facility will be
sufficient to meet its anticipated requirements for capital expenditures,
working capital and future debt service requirements, there can be no
assurance that the Company will generate cash flows at levels sufficient to
meet these requirements. To the extent that the Company's existing resources
and future earnings are insufficient to fund the Company's activities or to
repay indebtedness, the Company may need to raise additional funds through
public or private financings. If additional funds are raised through the
issuance of equity securities, the percentage ownership of the Company's
shareholders at that time would be diluted. Further, such equity securities
may have rights, preferences or privileges senior to those of the Common
Stock. See "Description of Capital Stock."
RISKS ASSOCIATED WITH ACQUISITIONS
One of the Company's strategies is to acquire records management businesses
that will complement its existing operations or provide it with an entree into
areas it does not presently serve. There can be no assurance that the Company
will be able to acquire or profitably manage additional acquisitions or
successfully integrate them into the Company. Furthermore, certain risks are
inherent in the Company's acquisition strategy, such as increasing leverage
and debt service requirements, diversion of management time and attention, and
combining disparate company cultures and facilities, which could adversely
affect the Company's operating results. The success of any acquisition will
depend in part on the Company's ability to integrate effectively the acquired
records management business into the Company. See "Business--Acquisition and
Growth Strategy."
The size, timing and integration of possible future acquisitions may cause
substantial fluctuations in operating results from quarter to quarter. As a
result, operating results for any quarter may not be indicative of results
that may be achieved for any subsequent quarter or for a full fiscal year.
Further, there can be no assurance that acquisitions will not have an adverse
effect on the Company's operating results, particularly in quarters
immediately following the consummation of such transactions, while the
operations of the acquired businesses are being integrated into the Company's
operations. Once integrated, acquisitions may not achieve levels of net sales
or profitability comparable to those achieved by the Company's existing
operations, or otherwise perform
10
<PAGE>
as expected. In addition, earnings may be adversely affected by transaction-
related expenses in the quarter in which an acquisition is consummated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company may, in the future, utilize equity as all or a
portion of the consideration for future acquisitions. Any such issuances will
dilute the percentage ownership of the Company's shareholders at such time.
Further, such equity securities may have rights, preferences or privileges
senior to those of the Common Stock. See "Description of Capital Stock."
COMPETITION
The Company faces competition from numerous competitors in all geographic
areas where it operates. The Company believes that competition for customers
is based on price, reputation for reliability, and quality and scope of
service and technology. As a result of this competition, the records
management industry has for the past several years experienced downward
pricing pressures. Should a further downward trend in pricing occur or
continue for an extended period of time, it could have a material adverse
effect on the Company's results of operations. The Company also competes for
acquisition candidates. Some of the Company's competitors possess greater
financial and other resources than the Company. If any such competitor were to
devote additional resources to the records storage business and/or such
acquisition candidates or to focus its strategy on the Company's areas of
operation, the Company's results of operations could be adversely affected.
The Company also faces competition from the internal document handling
capability of its current and potential customers. There can be no assurance
that these organizations will outsource more of their document management
needs or that they will not bring in-house some or all of the functions they
currently outsource. See "Business--The Records Management Industry" and
"Business--Competition."
ALTERNATIVE TECHNOLOGIES
The substantial majority of the Company's revenues have been derived from
the storage of paper documents and from related services. Such storage
requires significant physical space. Alternative technologies for generating,
capturing, managing, transmitting and storing information have been developed,
many of which require significantly less space than paper. Such technologies
currently include computer media, imaging, microfilming, audio/video tape,
film, CD-Rom and optical disc. None of these technologies has replaced paper
as the principal means for storing information. However, there can be no
assurance that one or more non-paper-based technologies (whether now existing
or developed in the future) may not in the future reduce or supplant the use
of paper as a preferred medium, which could in turn adversely affect the
Company's business.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends, in part, upon the efforts, abilities and
expertise of its executive officers and other key employees, including in
particular, J. Peter Pierce, the Company's President and Chief Executive
Officer. The Company has no employment contracts with any of its executive
officers. There can be no assurance that the Company will be able to retain
such officers, the loss of any of whom could have a material adverse effect
upon the Company. See "Management."
CASUALTY
The Company currently maintains and intends to continue to maintain, to the
extent such insurance is available on commercially reasonable terms,
comprehensive liability, fire, flood and earthquake (where appropriate) and
extended coverage insurance with respect to the properties that it now owns or
leases or that it may in the future own or lease, with customary limits and
deductibles. Certain types of loss, however, may not be fully insurable on a
cost-effective basis. In the future, should uninsured losses or damages occur,
the Company could lose both its investment in and anticipated profits from the
affected property and may continue to be obligated on any leasehold
obligations, mortgage indebtedness or other obligations related to such
property. As a result, any such material loss could materially adversely
affect the Company. See "Business--Insurance."
11
<PAGE>
ENVIRONMENTAL MATTERS
As of June 1, 1997, the Company owned or leased approximately 10 million
square feet of facilities. Under various federal, state, local and foreign
environmental laws, regulations and ordinances ("environmental laws"), the
Company's properties and operations may subject it to liability for the costs
of investigation, removal or remediation of soil and groundwater, on or off-
site, contaminated by hazardous substances and other contaminants or hazardous
materials such as petroleum products ("hazardous materials"), as well as
damages to natural resources. Certain such laws impose cleanup responsibility
and liability without regard to whether the owner or operator of the real
estate or business thereon knew of or was responsible for the contamination,
and whether or not operations at the property have been discontinued or title
to the property has been transferred. In addition, the presence of such
materials, or the failure to properly remediate such property, may adversely
affect the current property owner's or operator's ability to sell, rent or use
such property or to borrow using such property as collateral. The owner or
operator of contaminated property also may be subject to statutory and common
law claims by third parties based on any damages and costs resulting from off-
site migration of the contamination.
Certain environmental laws govern the removal, encapsulation or disturbance
of asbestos-containing materials ("ACMs") in buildings. Such laws may impose
liability for improper handling and release of ACMs and third parties may seek
to recover from owners or operators of real estate for personal injury
associated with exposure to such materials. Certain facilities operated by the
Company contain ACMs.
Certain of the properties formerly or currently owned or operated by the
Company were previously used for industrial or other purposes that involved
the use or storage of hazardous materials or the generation and disposal of
hazardous wastes, and the use of underground storage tanks ("USTs") for
hazardous materials. The Company has from time to time conducted certain
environmental investigations, and remedial activities have been performed, at
certain of its former and current properties, but an in-depth environmental
review of each of the properties and related operations has not been conducted
by or on behalf of the Company. In connection with its former and current
ownership or operation of certain properties and businesses, the Company may
be subject to environmental liability as discussed above and as more
specifically described under "Business--Environmental Matters."
The Company has not received any written notice from any governmental
authority or third party asserting, and is not otherwise aware of, any
material environmental non-compliance, liability or claim relating to
hazardous materials or otherwise under any environmental laws applicable to
the Company in connection with any of its present or former properties or
operations other than as described under "Business--Environmental Matters."
However, no assurance can be given that there are no environmental conditions
for which the Company might be liable in the future or that future regulatory
action, or compliance with future environmental laws, will not require the
Company to incur costs with respect to its properties or operations that could
have a material adverse effect on the Company's financial condition or results
of operations.
CONTROL BY EXISTING SHAREHOLDERS
Prior to the Equity Offerings, all of the outstanding stock of the Company
was owned by members of the Pierce family. Substantially all of the members of
the Pierce family, who are expected to own approximately 66% of the shares of
Common Stock outstanding after the Equity Offerings, have indicated their
intention to enter into a ten-year voting trust agreement (the "Voting Trust
Agreement") pursuant to which all of the shares subject to the Voting Trust
Agreement will be voted at the direction of Leo W. Pierce, Sr. and J. Peter
Pierce (the "Voting Trustees"). Consequently, the Voting Trustees will be able
to elect the Company's directors, to determine the outcome of corporate
actions requiring shareholder approval and otherwise to control the business
affairs of the Company. See "Principal and Selling Shareholders--Voting Trust
Agreement."
SHARES ELIGIBLE FOR FUTURE SALE
The Company can make no prediction as to the effect, if any, that sales of
additional shares of Common Stock or the availability of shares for future
sale will have on the market price of the Common Stock. Sales in
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<PAGE>
the public market of substantial amounts of Common Stock after the Equity
Offerings (including shares issued upon the exercise of outstanding options)
or the perception that such sales could occur may adversely affect the market
price of the Common Stock and may make it more difficult for the Company to
sell equity securities or equity related securities in the future at a time
and price it deems appropriate. After giving effect to the sale of the shares
of Common Stock offered hereby, the Company will have outstanding 15,585,090
shares of Common Stock. Of these shares, 5,312,614 shares of Common Stock sold
in the Equity Offerings will be freely tradeable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), except for any
shares purchased by "affiliates," as that term is defined under the Securities
Act, of the Company. The remaining 10,272,476 shares are "restricted
securities" within the meaning of Rule 144 promulgated under the Securities
Act and will be eligible for sale pursuant to Rule 144 immediately after the
closing of the Equity Offerings subject, in the case of affiliates, to
applicable volume and other restrictions contained therein.
The Company, its executive officers and directors, the Selling Shareholders
and certain other shareholders of the Company have agreed that, for a period
of 180 days after the date of this Prospectus (the "lock-up period"), they
will not, without the prior consent of Smith Barney Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock subject to
certain limited exceptions, including the issuance of shares by the Company in
connection with possible future acquisitions. Such consent permitting shares
to be sold before the expiration of the lock-up period may be granted without
prior notice to the other shareholders of the Company or to any public market
in which the Common Stock trades. See "Shares Eligible for Future Sale."
ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY
OF STOCK PRICE
Prior to the Equity Offerings, there has been no public market for the
Common Stock and there can be no assurance an active trading market will
develop or be sustained. The initial offering price for the Common Stock was
determined by negotiations among the Company, the Representatives (as
hereinafter defined) and the Managers, and may not be indicative of the market
price of the Common Stock after the Equity Offerings. See "Underwriting" for a
discussion of the factors considered in determining the initial public
offering price. From time to time after the Equity Offerings, there may be
significant volatility in the market price of the Common Stock. Quarterly
operating results of the Company, deviations in results of operations from
estimates of securities analysts, changes in general conditions in the economy
or the records management industry or other developments affecting the Company
or its competitors could cause the market price of the Common Stock to
fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities and that have been unrelated to the operating
performance of such companies. Any such fluctuations that occur following
completion of the Equity Offerings may adversely affect the market price of
the Common Stock.
DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock in the amount of $24.58 per share (after giving effect
to the underwriting discounts and commissions and estimated offering expenses,
at an assumed initial public offering price of $16.50 per share). See
"Dilution." In the event the Company issues additional shares of Common Stock
in the future, including shares that may be issued in connection with future
acquisitions, purchasers of Common Stock in the Equity Offerings may
experience further dilution in the net tangible book value per of Common
Stock.
FORWARD-LOOKING STATEMENTS
This Prospectus 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 the 1997 Acquisitions and their integration into the
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<PAGE>
Company's existing operations. Such statements involve known and unknown
risks, uncertainties and other factors, including those identified under this
"Risk Factors" section and elsewhere in this Prospectus 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 Prospectus. See
"Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." The forward-looking statements are made
as of the date of this Prospectus, 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.
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation and Bylaws contain certain
provisions that may have the effect of discouraging certain transactions
involving an actual or threatened change of control of the Company. Such
provisions could limit the price that certain investors might be willing to
pay in the future for shares of Common Stock. In addition, shares of preferred
stock may be issued by the Board of Directors without shareholder approval on
such terms and conditions, and having such rights, privileges and preferences,
as the Board of Directors may determine. The rights of the holders of the
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any preferred stock that may be issued in the future. The
Company has no current plans to issue any shares of preferred stock. See
"Description of Capital Stock."
NO DIVIDENDS
The Company does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future and intends to retain any future earnings for
use in its business. Additionally, the Company's ability to pay cash dividends
is limited by the terms of the Notes and the Credit Facility.
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<PAGE>
THE COMPANY
The Company was incorporated in Pennsylvania in March 1997 and is the
successor by merger immediately preceding the Offerings to Pierce Leahy Corp.
which was incorporated in New York in 1990 ("PLC"). From inception, PLC had an
authorized capitalization consisting of two classes of Common Stock: Class A
Common Stock which was voting and Class B Common Stock which was nonvoting.
Immediately preceding the merger, PLC effected a stock split and
recapitalization pursuant to which each outstanding share of Class A and Class
B Common Stock was converted into shares of voting Common Stock. Immediately
thereafter, PLC was redomesticated into Pennsylvania pursuant to the merger.
Such transactions are collectively referred to herein as the "Stock
Recapitalization."
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. L.W. Pierce Co., Inc. expanded
primarily through internal growth until 1990 when it acquired Britannia
Security Group, Inc. (doing business as Leahy Business Archives), which
approximately doubled the size of the Company. PLC was formed at that time
from the consolidation of the predecessor company with Leahy Business
Archives.
From its incorporation in 1990, PLC had elected to be taxed as a corporation
under Subchapter S (a "Subchapter S corporation") of the Internal Revenue Code
of 1986, as amended (the "Code"). As a result of the Equity Offerings, PLC's
status as a Subchapter S corporation will terminate. In connection with tax
liabilities of the Company's former Subchapter S shareholders for the portion
of 1997 during which the Company was a Subchapter S corporation, the Company
is obligated to make distributions to such shareholders to cover their tax
liabilities related to the Company. See "Management--Compensation Committee
Interlocks and Insider Participation."
The Company's Canadian business is operated by Pierce Leahy Command Company
("PLC Command"), a Nova Scotia unlimited liability company. As a result of
PLC's status as a Subchapter S corporation prior to the Equity Offerings, all
of the capital stock of PLC Command is owned by two limited partnerships. Two
separate corporations owned by J. Peter Pierce are the general partner of each
partnership, respectively, and the Company has a 99% limited partnership
interest in each partnership. Accordingly, the Company has an indirect 99%
equity interest in PLC Command.
The principal executive offices of the Company are located at 631 Park
Avenue, King of Prussia, Pennsylvania 19406, and its telephone number is (610)
992-8200.
CONCURRENT OFFERING
Concurrent with the Equity Offerings, the Company is offering, by separate
prospectus, $100,000,000 aggregate principal amount of % Senior Subordinated
Notes due 2007 (the "1997 Notes"). The 1997 Notes are redeemable, at the
option of the Company, at any time on or after , 2002, at specified
prices plus accrued interest. The Equity Offerings are not conditioned upon
the consummation of the offering of the 1997 Notes (the "Notes Offering").
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USE OF PROCEEDS
The net proceeds to the Company from the sale of 5,100,000 shares of Common
Stock by the Company in the Equity Offerings, after deducting underwriting
discounts and commissions and estimated offering expenses, are estimated to be
approximately $77.5 million ($86.2 million if the U.S. Underwriters' over-
allotment option is exercised in full), assuming an initial public offering
price of $16.50 per share. The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholders. The Company expects to use
approximately $77.0 million of the net proceeds of the Equity Offerings to
repurchase a portion of the 1996 Notes (as defined below). Under the Indenture
for the 1996 Notes, up to an aggregate of $70.0 million principal amount of
the $200.0 million principal amount of 1996 Notes outstanding may be redeemed
by the Company with the net proceeds of the Equity Offerings at 110% of the
principal amount plus any accrued but unpaid interest to the date of
redemption. The 1996 Notes bear interest at 11 1/8% per annum and are due July
15, 2006. See "Description of Certain Indebtedness--The 1996 Notes." The Notes
were issued primarily to retire certain existing indebtedness of the Company
under its previous credit facility.
The net proceeds from the sale of the 1997 Notes, after deducting
underwriting discounts and commissions and estimated offering expenses, are
estimated to be approximately $96.5 million. The Company expects to use
substantially all of the net proceeds of the Notes Offering to repay
outstanding borrowings under the U.S. dollar portion of its Credit Facility.
As of June 1, 1997, the effective interest rate on the U.S. dollar portion of
the Credit Facility was approximately 7.7%. The borrowings under the Credit
Facility which will be repaid by the net proceeds of the sale of the Notes
were primarily used to fund the Company's acquisitions in 1996 and the 1997
Acquisitions, including the acquisition of RMS. See "Business--Acquisition
History and Growth Strategy" and "Business--The 1997 Acquisitions."
The balance of any net proceeds from the Offerings will be used for general
corporate purposes, including possible acquisitions.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends in the foreseeable
future. The current policy of the Company's Board of Directors is to retain
any earnings to support operations and to finance the expansion of the
Company's business. In addition, the Credit Facility and the indentures
governing the Notes contain provisions limiting the Company's ability to pay
cash dividends on the Common Stock. See "Description of Certain Indebtedness."
Prior to the Offerings, the Company has been taxed as a Subchapter S
corporation and has made distributions to its former Subchapter S shareholders
with respect to taxes related to the Company. After the Equity Offerings, the
Company will no longer be taxed as a Subchapter S corporation. The Company
will, however, make distributions to its former Subchapter S shareholders with
respect to any taxes related to the Company during the period it was taxed as
a Subchapter S corporation.
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DILUTION
The deficit in net tangible book value of the Company as of March 31, 1997
(after giving effect to the Stock Recapitalization) was $(139.3) million or
$(13.28) per share. Deficit in net tangible book value per share represents
the amount by which the Company's liabilities exceeds its tangible assets,
divided by the number of shares of Common Stock then outstanding.
Net tangible book value dilution per share represents the difference between
the amount per share paid by purchasers of the 5,100,000 shares of Common
Stock offered by the Company in the Equity Offerings and the deficit in net
tangible book value per share of Common Stock immediately after completion of
the Equity Offerings. After giving effect to the sale of the shares of Common
Stock offered by the Company and the Notes Offering (assuming an initial
public offering price of $16.50 per share in the Equity Offerings and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses and after giving effect to the 1996 and 1997 Acquisitions),
the pro forma deficit in net tangible book value of the Company as of March
31, 1997 would have been $(126.0) million or $(8.08) per share. This
represents an immediate increase in pro forma net tangible book value of $5.20
per share to existing shareholders and an immediate dilution in net tangible
book value of $24.58 per share to purchasers of Common Stock in the Equity
Offerings as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $16.50
Deficit in net tangible book value per share at March
31, 1997............................................... $(13.28)
Increase per share attributable to new investors........ 5.20
-------
Pro forma net tangible book value per share after the
Equity Offerings......................................... (8.08)
------
Dilution per share to new investors....................... $24.58
======
</TABLE>
The following table sets forth, as of March 31, 1997, the difference between
the existing shareholders and new investors (assuming an initial public
offering price of $16.50 per share) with respect to the number of shares
owned, the total consideration paid and the average price per share paid to
the Company. The table does not give effect to the sale of Common Stock by the
Selling Shareholders.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders...... 10,485,090 67.3% $ 24,000 -- % $ --
New investors(1)(2)........ 5,100,000 32.7 84,150,000 100.0 16.50
---------- ----- ----------- -----
Total.................... 15,585,090 100.0% $84,174,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Excludes as of March 31, 1997, stock options to purchase a total of
1,114,174 shares of Common Stock. To the extent such options are
exercised, there may be further dilution to new investors.
(2) Sales by Selling Shareholders in the Equity Offerings will reduce the
number of shares held by existing shareholders to 10,272,476 or 65.9% of
the total number of shares of Common Stock to be outstanding after the
Equity Offerings (10,039,601 or 62.2% if the over-allotment option is
exercised in full), and will increase the number of shares held by new
investors to 5,312,614 or 34.1% of the total number of shares of Common
Stock outstanding after the Equity Offerings (6,109,506 or 37.8% if the
over-allotment option is exercised in full).
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1997 (i) on an actual basis, (ii) on a pro forma basis to give effect to
the acquisition of RMS as if it had occurred as of March 31, 1997 and (iii) as
further adjusted to give effect to the sale by the Company of 5,100,000 shares
of Common Stock in the Equity Offerings at an assumed initial public offering
price of $16.50 per share, the sale of the 1997 Notes in the Notes Offering
and the application of the estimated net proceeds from the Offerings as
described under "Use of Proceeds." This table should be read in conjunction
with the Company's Pro Forma Financial Data and Consolidated Financial
Statements and notes thereto and the other information included elsewhere in
this Prospectus (amounts in thousands):
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-------------------------------
PRO FORMA
FOR THE
ACQUISITION
ACTUAL OF RMS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
Cash.......................................... $ 1,064 $ 1,240 $ 1,240
======== ======== ========
Credit Facility (a)........................... $ 49,900 $111,900 $ 14,825
11 1/8% Senior subordinated notes due 2006.... 200,000 200,000 130,000
% Senior subordinated notes due 2007........ -- -- 100,000
Seller notes.................................. 500 500 500
Other indebtedness............................ 4,362 4,362 4,362
Less--Current portion......................... (592) (592) (592)
-------- -------- --------
Total long-term debt (b).................... 254,170 316,170 249,095
-------- -------- --------
Preferred stock (c)........................... -- -- --
Common stock (d).............................. -- -- 156
Additional paid-in capital.................... 24 24 77,379
Accumulated deficit (e)....................... (25,418) (25,418) (38,069)
-------- -------- --------
Total shareholders' equity (deficit)........ (25,394) (25,394) 39,466
-------- -------- --------
Total capitalization...................... $228,776 $290,776 $288,561
======== ======== ========
</TABLE>
- --------
(a) Does not include $7,500 of additional borrowings under the Credit Facility
for the acquisitions of AFSS and the Recent Acquisitions.
(b) See Note 6 of the Notes to Financial Statements for information concerning
the Company's debt obligations.
(c) In connection with the Recapitalization, the Company authorized 10,000,000
shares of undesignated Preferred Stock.
(d) Actual outstanding Common Stock consisted of Class A and Class B Common
Stock.
(e) Does not include an unusual charge that will occur in the quarter in which
the Offerings are completed of approximately $1,752 (pretax) for the
write-off of the estimated unamortized compensation expense associated
with options granted on January 1, 1997, due to the acceleration of
vesting upon the completion of the Offerings.
18
<PAGE>
PRO FORMA FINANCIAL DATA
The unaudited pro forma condensed consolidated balance sheet as of March 31,
1997 gives effect to, among other things, the Offerings, the acquisition of
RMS and termination of the Company's status as a Subchapter S corporation as
if they occurred on March 31, 1997. The unaudited pro forma condensed
consolidated statements of operations for the year ended December 31, 1996 and
for the three months ended March 31, 1997 give effect to, among other things,
the Offerings and the 1996 and 1997 Acquisitions for periods prior to their
acquisition by the Company, as if they occurred on January 1, 1996. The pro
forma condensed consolidated balance sheet and statements of operations do not
reflect the acquisition of AFSS or the Recent Acquisitions, which are not
significant.
The Offerings, the 1996 and 1997 Acquisitions, the Subchapter S termination
and certain management assumptions and adjustments are described in the
accompanying notes hereto. This pro forma information is not necessarily
indicative of the results that would have occurred had the 1996 and 1997
Acquisitions, the Subchapter S termination and the Offerings been completed on
the dates indicated or of the Company's actual or future results or financial
position. The unaudited pro forma condensed consolidated balance sheet and
statements of operations should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto, as of December 31, 1996
and for each of the three years in the period ended December 31, 1996,
appearing elsewhere in this Prospectus.
The unaudited pro forma condensed consolidated balance sheet at March 31,
1997 and the unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1996 and for the three months ended
March 31, 1997 assume the completion of the Notes Offering and the application
of the net proceeds therefrom. The consummation of the Equity Offerings is not
conditioned upon consummation of the Notes Offering.
19
<PAGE>
PIERCE LEAHY CORP.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA FOR
ACQUISITION OF RMS(A)
----------------------
PRO FORMA ADJUSTMENTS
RMS PRO FORMA FOR FROM THE
ACTUAL HISTORICAL ADJUSTMENTS RMS OFFERINGS PRO FORMA
-------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................... $ 1,064 $ 176 $ -- $ 1,240 $ 174,075 (f) $ 1,240
(167,075)(f)
(7,000)(g)
Accounts receivable.... 21,473 2,370 -- 23,843 -- 23,843
Inventories............ 687 133 -- 820 -- 820
Prepaid expenses and
other................. 1,171 195 -- 1,366 -- 1,366
Deferred income taxes.. -- 21 (21)(c) -- 3,900 (g) 5,900
2,000 (h)
-------- ------- ------- -------- --------- --------
Total current assets.. 24,395 2,895 (21) 27,269 5,900 33,169
PROPERTY AND EQUIPMENT,
net.................... 124,420 6,120 4,380 (b) 134,920 -- 134,920
OTHER ASSETS, primarily
intangibles............ 117,647 1,103 49,982 (c) 168,732 3,460 (f) 169,217
(2,975)(g)
-------- ------- ------- -------- --------- --------
$266,462 $10,118 $54,341 $330,921 $ 6,385 $337,306
======== ======= ======= ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of
long-term debt and
noncompete
obligations........... $ 592 $ 630 (630)(d) $ 592 $ -- $ 592
Accounts payable....... 3,558 1,258 -- 4,816 -- 4,816
Accrued expenses....... 16,586 1,201 -- 17,787 -- 17,787
Deferred revenues...... 10,437 -- -- 10,437 -- 10,437
-------- ------- ------- -------- --------- --------
Total current
liabilities.......... 31,173 3,089 (630) 33,632 -- 33,632
LONG-TERM DEBT AND
NONCOMPETE 254,170 3,702 58,298 (d) 316,170 100,000 (f) 249,095
OBLIGATIONS............ (167,075)(f)
DEFERRED RENT........... 3,070 -- -- 3,070 -- 3,070
DEFERRED INCOME TAXES... 3,443 -- -- 3,443 8,600 (h) 12,043
SHAREHOLDERS' EQUITY (25,394) 3,327 (3,327)(e) (25,394) 77,535 (f) 39,466
(DEFICIT).............. (9,975)(g)
3,900 (g)
(6,600)(h)
-------- ------- ------- -------- --------- --------
$266,462 $10,118 $54,341 $330,921 $ 6,385 $337,306
======== ======= ======= ======== ========= ========
</TABLE>
The accompanying notes are an integral part of this statement.
20
<PAGE>
PIERCE LEAHY CORP.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
(a) The Company acquired RMS after March 31, 1997 (see "Business--Acquisition
History and Growth Strategy") for $62,000, including transaction costs.
The pro forma adjustments reflect the application of the purchase method
of accounting to the historical balance sheet of RMS.
(b) Reflects the step-up to the estimated fair value of land ($400), warehouse
equipment ($7,000), and buildings ($3,100).
(c) Intangible assets of goodwill ($48,425), noncompete agreement ($2,000),
and other intangibles ($510) result from the preliminary allocation of the
purchase price. These intangibles are subject to adjustment based on the
final allocation of the purchase price to the net assets acquired. Also,
RMS's pre-existing intangibles ($635) and deferred income tax benefits
($339) were not allocated value in purchase accounting. Management
believes that the final allocation of the purchase price will not differ
materially from the preliminary estimated amounts.
(d) Reflects the Company's borrowing of $62,000 under the Credit Facility to
fund the acquisition of RMS and the repayment of $4,332 of debt of RMS.
(e) Elimination of the historical equity accounts of RMS.
(f) Reflects the sale of 5,100,000 shares of Common Stock resulting in
estimated net proceeds to the Company of $77,535 (at an assumed public
offering price of $16.50 per share and after deducting discounts and
commissions and estimated offering expenses of $6,615) and net proceeds of
$96,540 from the Notes Offering (after deducting underwriting discounts
and commissions and estimated offering expenses of $3,460). A substantial
portion of the Equity Offerings will be used to redeem $70,000 of the 1996
Notes. The proceeds from the Notes Offering will be used to repay existing
Senior Indebtedness of $49,900 at March 31, 1997 and a portion ($47,175)
of the Senior Indebtedness of $62,000 incurred in connection with the
acquisition of RMS.
(g) Represents the payment of the $7,000 (pretax) prepayment penalty to be
incurred in connection with the redemption of a portion of the 1996 Notes
and the related write-off of $2,975 (pretax) in related unamortized
deferred financing costs. This extraordinary charge of $9,975 (pretax)
relating to the early extinguishment of debt will be recorded in the
quarter in which the redemption occurs. A tax benefit of approximately
$3,900 will be recorded for these charges.
(h) The Company operates as a Subchapter S corporation and will terminate such
status in connection with the Equity Offerings. Upon the termination of
the Company's status as a Subchapter S corporation, the Company will
record a deferred income tax provision of approximately $6,600 for the tax
effect of the differences in the basis of assets and liabilities for
financial reporting and income tax purposes. This deferred tax provision
will be recorded in the quarter in which the Subchapter S status
terminates.
21
<PAGE>
PIERCE LEAHY CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
FOR FOR ADJUSTMENTS PRO FORMA
ACTUAL ACQUISITIONS(A) ACQUISITIONS(B) ACQUISITIONS FROM OFFERINGS (B)
-------- --------------- --------------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $129,748 $38,090 $ -- $167,838 $ -- $167,838
-------- ------- -------- -------- ------ --------
OPERATING EXPENSES
Cost of sales, excluding
depreciation and
amortization........... 73,870 19,429 -- 93,299 -- 93,299
Selling, general and
administrative......... 20,007 13,011 -- 33,018 -- 33,018
Depreciation and
amortization........... 12,869 2,085 3,215 (c) 18,169 -- 18,169
Non-recurring charges... 3,254 -- -- 3,254 -- 3,254
-------- ------- -------- -------- ------ --------
Total operating
expenses............. 110,000 34,525 3,215 147,740 -- 147,740
-------- ------- -------- -------- ------ --------
Operating income...... 19,748 3,565 (3,215) 20,098 -- 20,098
INTEREST EXPENSE........ 17,225 1,341 8,764 (d) 27,330 (2,080) 25,250 (e)
-------- ------- -------- -------- ------ --------
Income (loss) before
income taxes and
extraordinary
charge............... 2,523 2,224 (11,979) (7,232) 2,080 (5,152)
INCOME TAXES............ -- -- -- -- (350)(f) (350)(f)
-------- ------- -------- -------- ------ --------
INCOME (LOSS) BEFORE
EXTRAORDINARY CHARGE... $ 2,523 $ 2,224 $(11,979) $ (7,232) $2,430 $ (4,802)
======== ======= ======== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE>
PIERCE LEAHY CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA ADJUSTMENTS
RMS FOR RMS FOR RMS FROM PRO FORMA
ACTUAL ACQUISITION(A) ACQUISITION(B) ACQUISITION OFFERINGS (B)
------- -------------- -------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $40,232 $4,399 $ -- $44,631 $ -- $44,631
------- ------ ------- ------- ------- -------
OPERATING EXPENSES
Cost of sales, excluding
depreciation and
amortization........... 22,298 2,650 -- 24,948 -- 24,948
Selling, general and
administrative......... 6,762 1,290 -- 8,052 -- 8,052
Depreciation and
amortization........... 4,214 238 356 (c) 4,808 -- 4,808
Non-recurring charges... -- -- -- -- -- --
Foreign currency
translation............ 182 -- -- 182 -- 182
------- ------ ------- ------- ------- -------
Total operating
expenses............. 33,456 4,178 356 37,990 -- 37,990
------- ------ ------- ------- ------- -------
Operating income...... 6,776 221 (356) 6,641 -- 6,641
INTEREST EXPENSE........ 6,712 104 (1,369)(d) 8,185 (1,457) 6,728 (e)
------- ------ ------- ------- ------- -------
Income (loss) before
income taxes and
extraordinary
charge............... 64 117 (1,725) (1,544) 1,457 (87)
INCOME TAXES............ -- 41 (41) -- 372 372 (f)
------- ------ ------- ------- ------- -------
INCOME (LOSS) BEFORE
EXTRAORDINARY CHARGE... $ 64 $ 76 $(1,684) $(1,544) $ 1,085 $ (459)
======= ====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
23
<PAGE>
PIERCE LEAHY CORP.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) Represents the historical results of operations of the 1996 and 1997
Acquisitions for the periods from January 1, 1996 to their dates of
acquisition by the Company. See "Business--Acquisition and Growth
Strategy."
(b) Management expects to achieve cost savings from the 1996 and 1997
Acquisitions as a result of the factors described below. The Pro Forma
Condensed Consolidated Statements of Operations for the year ended
December 31, 1996 and three months ended March 31, 1997 reflect only the
cost savings actually achieved in 1996 and to date in 1997 from the
acquisitions and none of the additional expected savings. Because most of
the 1996 acquisitions occurred in the second half of 1996, and there is
typically a lag after an acquisition to fully realize such savings, the
Company expects to achieve additional savings from the 1996 and 1997
Acquisitions.
The integration of an acquired company entails, among other things,
converting the database of stored records to the PLUS(R) system,
reorganizing archive operating activities and eliminating certain back
office activities which can be handled through the PLUS(R) system or the
Company's centralized corporate organization. Cost savings start to be
realized a short time after an acquisition. Management has specifically
identified approximately $10,821 and $2,011 of estimated operating expenses
included in the pro forma 1996 and three months ended March 31, 1997
statements of operations, respectively, that would not have been incurred
had the acquisitions occurred as of January 1, 1996 and had such cost
savings been fully implemented as of such date. These savings relate to (i)
the termination of certain employees due to the efficiency of the PLUS(R)
system and integration and consolidation of facilities, (ii) a reduction in
warehouse rent expense related to facilities the Company has vacated or will
vacate or has negotiated changes in lease terms and (iii) a reduction of
other operating costs due to the Company's economies of scale. Management
expects to realize additional cost savings beyond the $10,821 and $2,011
specifically identified.
(c) A pro forma adjustment has been made to reflect additional depreciation
and amortization expense based on the fair market value of the assets
acquired, as if the 1996 and 1997 Acquisitions had occurred as of January
1, 1996. Such depreciation and amortization has been recorded in
accordance with the Company's accounting policies as stated in Notes 3 and
4 of Notes to Consolidated Financial Statements. The purchase price
allocation may change upon the final appraisal of the fair market value of
the net assets acquired. However, management believes that any change in
value will not materially impact the amount of depreciation and
amortization recorded.
(d) Represents interest expense of $8,764 and $1,369 in 1996 and for the three
months ended March 31, 1997, respectively, on debt incurred to finance the
1996 and 1997 Acquisitions, using an effective annual interest rate of
8.3% and 9.5%, respectively.
(e) Reflects interest expense on $200,000 of 1996 Notes at 11 1/8%, $100,000
of 1997 Notes at an assumed rate, net interest expense of $149 and $393 on
other pro forma indebtedness, commitment fees on existing Senior
Indebtedness of $471 and $113 and amortization of deferred financing costs
of $1,238 and $311, offset by the elimination of interest expense on
$70,000 of the 1996 Notes that will be redeemed from the proceeds of the
Equity Offerings and elimination of $322 and $79 of related amortization
of the deferred financing costs in 1996 and for the three months ended
March 31, 1997, respectively. The redemption of the 1996 Notes will
require a prepayment penalty equal to 10% of the portion of the 1996 Notes
redeemed and the write-off of deferred financing costs of approximately
$2,975, which will be recorded in the quarter in which the redemption
occurs and has not been reflected in the Pro Forma Condensed Consolidated
Statements of Operations.
(f) The Company operates as a Subchapter S corporation for income tax purposes
and will terminate such status in connection with the Equity Offerings.
The pro forma income taxes represent taxes on the pro forma loss before
income taxes and extraordinary charge after addback of all pro forma non-
deductible expenses of approximately $4,000 in 1996 and $1,000 for the
three months ended March 31, 1997.
24
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED STATEMENTS OF
OPERATIONS, OTHER DATA AND BALANCE SHEETS
The following selected consolidated statements of operations and balance
sheets, insofar as it relates to each of the five years in the period ended
December 31, 1996, have been derived from the Consolidated Financial
Statements of the Company which have been audited by Arthur Andersen LLP,
independent public accountants. The report of Arthur Andersen LLP with respect
to the Company's Consolidated Financial Statements for the years ended
December 31, 1994, 1995 and 1996 appears elsewhere in this Prospectus. The
selected historical and pro forma consolidated statements of operations and
balance sheet data as of and for the three months ended March 31, 1997 and the
summary historical statement of operations data for the three months ended
March 31, 1996 have been derived from unaudited consolidated financial
statements which, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the results of the unaudited interim period. Results for the three months
ended March 31, 1997 are not necessarily indicative of results that may be
expected for the entire year.
The following selected pro forma statements of operations, other data and
balance sheet give effect to, among other things, the 1996 and 1997
Acquisitions, the termination of the Company's status as a Subchapter S
corporation for income tax purposes and the impact of the Offerings, as if
each of these items had occurred on January 1, 1996 or as of March 31, 1997 in
the case of the balance sheet. The selected pro forma statements of operations
and balance sheet do not reflect the acquisition of AFSS or the Recent
Acquisitions, which are not significant.
The pro forma items are described in the accompanying notes hereto. The pro
forma information should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto as of December 31, 1996
and for the three years in the period then ended, appearing elsewhere in this
Prospectus. This pro forma information is not necessarily indicative of the
results that would have occurred had the 1996 and 1997 Acquisitions, the
Subchapter S corporation termination and the Offerings been completed on the
dates indicated or the Company's actual or future results or financial
position.
The information set forth below should be read in conjunction with the Pro
Forma Condensed Consolidated Financial Statements, the Company's Consolidated
Financial Statements and the related notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.
25
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED STATEMENTS OF
OPERATIONS, OTHER DATA AND BALANCE SHEETS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------------- ------------------------------
PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996(A) 1996 1997 1997(A)
------- ------- ------- ------- -------- --------- ------- ------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
Storage................ $37,633 $42,122 $47,123 $55,501 $ 75,900 $ 98,885 $16,969 $23,322 $26,112
Service and storage
material sales........ 25,202 31,266 35,513 39,895 53,848 68,953 12,730 16,910 18,519
------- ------- ------- ------- -------- -------- ------- ------- -------
Total revenues......... 62,835 73,388 82,636 95,396 129,748 167,838 29,699 40,232 44,631
Cost of sales, excluding
depreciation and
amortization........... 39,702 45,391 49,402 55,616 73,870 93,299 17,406 22,298 24,948
Selling, general and
administrative......... 9,012 11,977 15,882 16,148 20,007 33,018 4,856 6,762 8,052
Depreciation and
amortization........... 5,734 6,888 8,436 8,163 12,869 18,169 2,572 4,214 4,808
Consulting payments to
related parties(b)..... -- -- 500 500 -- -- 125 -- --
Non-recurring
charges(c)............. -- -- -- -- 3,254 3,254 -- -- --
Foreign currency
translation............ -- -- -- -- -- -- -- 182 182
------- ------- ------- ------- -------- -------- ------- ------- -------
Operating income....... 8,387 9,132 8,416 14,969 19,748 20,098 4,740 6,776 6,641
Interest expense........ 6,388 6,160 7,216 9,622 17,225 25,250 2,846 6,712 6,728
------- ------- ------- ------- -------- -------- ------- ------- -------
Income before income
taxes and
extraordinary charge.. 1,999 2,972 1,200 5,347 2,523 (5,152) 1,894 64 (87)
Income taxes............ -- -- -- -- -- (350)(d) -- -- 372 (d)
Extraordinary
charge(e).............. -- 9,174 5,991 3,279 2,015 -- -- -- --
------- ------- ------- ------- -------- -------- ------- ------- -------
Net income (loss)....... 1,999 (6,202) (4,791) 2,068 508 (4,802) 1,894 64 (459)
Accretion (cancellation)
of redeemable
warrants............... -- (746) 16 889 1,561 -- 1,561 -- --
------- ------- ------- ------- -------- -------- ------- ------- -------
Net income (loss)
applicable to Common
shareholders........... $ 1,999 $(5,456) $(4,807) $ 1,179 $ (1,053) $ (4,802) $ 333 $ 64 $ (459)
======= ======= ======= ======= ======== ======== ======= ======= =======
Pro forma data
(unaudited):
Pro forma adjustment
for income taxes
excluding
extraordinary charge.. $ 1,659 (d) $ 291 (d)
Historical income
(loss) before
extraordinary charge,
as adjusted for pro
forma income taxes.... $ 864 $ (227)
Historical income
(loss) before
extraordinary charge
per Common share, as
adjusted for pro forma
income taxes.......... $ .08 (f) $ (.02)(f)
Historical net loss
applicable to Common
shareholders, as
adjusted for pro forma
income taxes.......... $ (1,958) $ (227)
Historical net loss
applicable to Common
shareholders per
Common share, as
adjusted for pro forma
income taxes.......... $ (.18)(f) $ (.02)(f)
Shares used in
computing per share
amounts............... 10,612 10,550
Pro forma net loss
applicable to Common
shareholders per
Common share.......... $ (.45)(g) $(.04)(g)
Pro forma shares used
in computing per share
amount................ 10,612 10,550
OTHER DATA:
Total revenue growth
rate................... 12.9% 16.8% 12.6% 15.4% 36.0% 75.9% 33.6% 35.5% 50.3%
Operating income (before
non-recurring charges)
margin................. 13.3% 12.4% 10.2% 15.7% 17.7% 13.9% 16.0% 16.8% 14.9%
EBITDA(h)............... $14,121 $16,020 $17,352 $23,632 $ 35,871 $ 41,521 $ 7,437 $11,172 $11,631
EBITDA, as adjusted
(i).................... -- -- -- -- -- $ 52,342 -- -- $13,642
EBITDA margin........... 22.5% 21.8% 21.0% 24.8% 27.6% 24.7% 25.0% 27.8% 26.1%
EBITDA, as adjusted
margin................. -- -- -- -- -- 31.2% -- -- 30.6%
Capital
expenditures(j)........ $ 5,565 $ 5,827 $ 6,352 $16,288 $ 23,493 -- $ 3,553 $10,794 --
Cubic feet of storage
under management at end
of period (000s)....... 16,248 19,025 22,160 29,523 40,410 47,091 (k) 31,088 43,354 48,526 (k)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------------------ ----------------------
PRO FORMA(L)
1992 1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
deficit................ $(11,656) $ (9,143) $ (5,202) $ (8,139) $(23,933) $ (6,778) $ (463)
Total assets............ 65,869 74,621 79,746 131,328 234,820 266,462 337,306
Total debt (including
redeemable warrants)... 55,027 69,736 77,683 120,071 217,423 254,762 249,687
Shareholders' equity
(deficit).............. (9,028) (14,508) (19,341) (18,201) (25,438) (25,394) 39,466
</TABLE>
26
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS, OTHER DATA AND BALANCE SHEETS
(a) Gives effect to the (i) 1996 and 1997 Acquisitions, (ii) termination of
the Company's status as a Subchapter S corporation and (iii) impact of the
Offerings, as if each of these items had occurred on January 1, 1996. See
"Pro Forma Financial Data" and Note 2 of the Notes to Consolidated
Financial Statements. The pro forma statements of operations and balance
sheet do not reflect the acquisition of AFSS and the Recent Acquisitions,
which are not significant. Upon the termination of the Company's status as
a Subchapter S corporation, the Company will record a deferred income tax
provision of approximately $6,600 for the tax effect of differences in the
basis of assets and liabilities for financial reporting and income tax
purposes. This deferred income tax provision has not been reflected in the
Pro Forma Condensed Consolidated Statement of Operations. Also not
reflected in the Pro Forma Condensed Consolidated Statement of Operations
is the extraordinary charge for the early extinguishment of a portion of
the 1996 Notes that will occur in the quarter in which the redemption
occurs (see (e) below) and an unusual charge of approximately $1,752
(pretax), or $.07 per share, for the write-off of the estimated
unamortized compensation expense associated with options granted on
January 1, 1997, due to the acceleration of vesting upon the completion of
the Offerings.
(b) Represents aggregate payments made to eight Pierce family members.
(c) Represents non-recurring charges in 1996 of $2,764 paid to a related party
partnership to assume the partnership's position in certain leases with
third parties and of $490 for the establishment of an annual pension for
Leo W. Pierce, Sr. and his spouse.
(d) The Company has historically been taxed as a Subchapter S corporation.
Such status will be terminated in connection with the completion of the
Equity Offerings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 2 of Notes to Consolidated
Financial Statements.
(e) Represents loss on early extinguishment of debt due to refinancings in
1993, 1994, 1995 and 1996. Amounts include write-off of unamortized
deferred financing costs and discount, along with prepayment penalties and
other costs. A similar charge for the early extinguishment of a portion of
the 1996 Notes of approximately $9,975 (pretax), or $.39 per share, will
occur in the quarter in which the redemption occurs. Such charge has not
been reflected in the Pro Forma Condensed Consolidated Statement of
Operations. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(f) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of historical net loss per share as adjusted
for pro forma income taxes. Excluding the non-recurring charges incurred
in 1996, pro forma net income and net income per share as adjusted for
income taxes would have been $27 and $0, respectively.
(g) Excluding $10,821 and $2,011 of operating expenses included in the pro
forma statements of operations for 1996 and for the three months ended
March 31, 1997, respectively, specifically identified by management that
would not have been incurred had the 1996 and 1997 Acquisitions occurred
as of January 1, 1996 and had such cost savings been fully implemented as
of such date, and excluding the non-recurring charges incurred in 1996,
pro forma net income and net income per share would have been $3,765 and
$.34, respectively, in 1996 and $768 and $.07 for the three months ended
March 31, 1997.
(h) "EBITDA" is defined as net income (loss) before interest expense, taxes,
depreciation and amortization, consulting payments to related parties,
non-recurring charges, foreign currency translation, 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.
(i) EBITDA, as adjusted is defined as EBITDA plus $10,821 and $2,011 of
operating expenses in 1996 and the three months ended March 31, 1997,
respectively, specifically identified by management that would not have
been incurred had the 1996 and 1997 Acquisitions occurred as of January 1,
1996 and such cost savings been fully implemented as of such date. See
Note (b) of Notes to Pro Forma Condensed Consolidated Statements of
Operations. Management expects to realize additional cost savings beyond
the $10,821 and $2,011 specifically identified.
(j) Capital expenditures for 1996 are comprised of $11.0 million for new
shelving, $4.0 million for leasehold and building improvements, $3.8
million for new facility purchases and related improvements, $2.9 million
for data processing and $1.8 million for the purchase of transportation,
warehouse and office equipment. Of the total 1996 capital expenditures,
management estimates that approximately $2.5 million was for upgrading and
restructuring of existing facilities to accommodate growth or for
maintenance capital expenditures. The 1996 capital expenditures do not
include $11.0
27
<PAGE>
million paid for real estate and other assets acquired from related parties
(see Note 10 of Notes to the Consolidated Financial Statements).
(k) The pro forma cubic feet of storage as of March 31, 1997 includes cubic
feet of storage from the 1997 Acquisitions completed since such date
(excluding AFSS).
(l) Gives effect to the (i) acquisition of RMS, (ii) termination of the
Company's Subchapter S corporation status upon completion of the Equity
Offerings and (iii) impact of the Offerings, as if each of these items had
occurred on March 31, 1997. See "Pro Forma Financial Data," "Use of
Proceeds" and Note 2 to Notes to Consolidated Financial Statements.
28
<PAGE>
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 50 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 eight acquisitions since January 1, 1997. The Company's
ability to pursue this acquisition strategy was substantially enhanced by the
implementation of the PLUS(R) system which began at the end of 1993 and was
completed in the beginning of 1995, and the expansion of the Company's credit
facilities beginning in 1994.
The Company has experienced significant growth in its revenues and operating
income as a result of its successful expansion and acquisition strategy.
During the five-year period ended December 31, 1996, revenues increased from
$62.8 million to $129.7 million, representing a compound annual growth rate of
19.9%. The Company has also made substantial investments in its facilities and
management information systems, the benefits of which are now being realized
through economies of scale and increased operating efficiencies. The Company's
operating income as a percentage of total revenues improved from 13.3% in 1992
to 15.2% in 1996 (17.7% excluding the non-recurring charges in 1996), while
operating income increased from $8.4 million in 1992 to $19.7 million in 1996
($23.0 million excluding the non-recurring charges in 1996). This increase
represents a compound annual growth rate of 23.9% as reported and 28.7%
excluding the non-recurring charges incurred in 1996. As the Company's volume
of business grows, the Company believes its substantial investment in
infrastructure will be amortized over a larger base of business, creating
further economies of scale.
The Company's net income (loss) was $2.0 million, $(6.2) million, $(4.8)
million, $2.1 million and $.5 million in 1992, 1993, 1994, 1995 and 1996,
respectively. Although the Company's operating income has increased over the
five-year period, net income (loss) has fluctuated as a result of increases in
interest expense and extraordinary charges related to the early extinguishment
of debt due to refinancings in 1993, 1994, 1995 and 1996.
Another tool for measuring the performance of records management companies
is EBITDA. Substantially all of the Company's financing agreements, including
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 Company's EBITDA as a percentage of total revenues
improved from 22.5% in 1992 to 27.6% in 1996, while EBITDA increased from
$14.1 million in 1992 to $35.9 million in 1996, representing a compound annual
growth rate of 26.2%.
29
<PAGE>
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)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------ MARCH 31,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Additions of Cubic Feet:
New Customer
Accounts(a).......... 995 1,494 1,038 2,018 2,994 746
Existing Customer
Accounts(b).......... 1,101 1,166 1,657 722 (c) 962 (c) 586
Acquisitions.......... 294 117 440 4,623 6,931 1,612
------ ------ ------ ------ ------ ------
Total............... 2,390 2,777 3,135 7,363 10,887 2,944
% Increase From:
New Customer
Accounts(a).......... 7% 9% 5% 9% 10% *
Existing Customer
Accounts(b).......... 8% 7% 9% 3%(c) 3%(c) *
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 40,410
End of Period......... 16,248 19,025 22,160 29,523 40,410 43,354
</TABLE>
- --------
* Not applicable.
(a) For the first twelve months after the establishment of a customer account,
records added to such account are classified as additions to new customer
accounts in the period in which they are received.
(b) Net of permanent removals.
(c) Includes effect of a records destruction program of 372 and 475 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.
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. The Company's current
average monthly storage rate is approximately $0.186 per cubic foot (or $2.23
per year). Permanent removal fees typically range from $2.00 to $5.75 per
cubic foot. Since there are relatively little direct ongoing marketing, labor
or capital expenditures associated with storing a box of records, recurring
storage fees contribute significantly to the Company's operating results.
While the Company's total revenues have increased at a compound annual
growth rate of 19.9% from 1992 to 1996, total revenue per annual average cubic
foot during such period has declined 8.4% from $4.17 to $3.82.* 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. Declines in revenues per
cubic foot have been more than offset by improvements in operating
efficiencies and greater productivity as demonstrated by the increase in
EBITDA and EBITDA as a percentage of total revenues over the same period.
- --------
* For periods through 1994, average cubic feet is the average of cubic feet
at the beginning and the end of the period; for periods beginning on or
after January 1, 1995, average cubic feet is the average of the cubic feet
at the end of each month in such period.
30
<PAGE>
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.
In recent years, the Company has undertaken several steps to reduce
operating expenses, particularly labor and facility occupancy costs, which are
its two highest cost components. From 1992 to 1996, annual operating expenses
(before depreciation, amortization and consulting payments) per average annual
cubic foot declined 14.8% from $3.24 to $2.76.*
The installation of the PLUS(R) system (which took approximately five years
and over $8 million to develop and implement and an additional $2.1 million to
upgrade and expand capacity) has significantly reduced the Company's labor
requirements by streamlining administrative and warehouse work processes,
thereby reducing the labor required to process customer orders. The PLUS(R)
system also has increased the speed at which the Company can obtain labor
efficiencies when acquiring new records management companies, which in
conjunction with the Company's centralized corporate administrative functions,
has generally enabled the company to integrate several acquisition sites
concurrently and to reduce the workforce of acquired businesses by at least
20%.
The following table illustrates the Company's improvement in labor
productivity from 1992 to 1996:
ANALYSIS OF LABOR PRODUCTIVITY
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cubic Feet Under Management Per
Employee(a).......................... 19,961 23,033 24,405 24,521 26,021
EBITDA Per Employee(b)................ $18,162 $19,537 $20,014 $22,379 $26,022
Number of Employees at End of Period.. 814 826 908 1,204 1,553
</TABLE>
- --------
(a) Based on end of period cubic footage under management and end of period
number of employees.
(b) Based on the average of the number of employees at the beginning and end
of period.
The Company has begun to operate in larger, more efficient regional
facilities in some areas which generate economies of scale in both labor and
facility occupancy costs. For example, in 1995 the Company secured two new
facilities, one in New Jersey and one in Massachusetts, which expanded the
Company's storage capacity by 17 million cubic feet. The Company is in the
process of consolidating certain individual warehouses into these facilities
and anticipates realizing further economics of scale as it consolidates other
warehouses over the next two or three years as existing leases expire. This
added capacity is expected to satisfy the Company's growth requirements in its
Northeast region for several years. The Company intends to pursue this
consolidation strategy, when feasible, in other locations. Primarily as a
result of the new facilities in New Jersey and Massachusetts, warehouse
utilization has declined to approximately 64% at the end of 1996 from
historical levels of 70% to 80%. Increases in utilization rates at existing
facilities generally result in increased operating income because of the
relatively minimal incremental operating costs associated with such increased
utilization.
- --------
* For periods through 1994, average cubic feet is the average of cubic feet
at the beginning and the end of the period; for periods beginning on or
after January 1, 1995, average cubic feet is the average of the cubic feet
at the end of each month in such period.
31
<PAGE>
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. The marginal cost of adding a cubic
foot of storage capacity in an existing facility is approximately $2.60, of
which approximately $2.00 is attributable to shelving costs. Shelving has a
relatively long life and rarely needs to be replaced. The remaining $.60 is
attributed to the installation of lighting and security systems and other
storage related modifications. 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 1996, capital expenditures of $23.5 million consisted of $11.0 million
for new shelving, $4.0 million for leasehold and building improvements, $3.8
million for new facility purchases and related improvements, $2.9 million for
data processing, and $1.8 million for the purchase of transportation,
warehouse and office equipment. Of the total 1996 capital expenditures,
management estimates that approximately $2.5 million was for maintenance
capital expenditures.
In addition, in August 1996 in connection with the offering of the 1996
Notes, the Company purchased certain real estate interests and other assets
from affiliates for $14.9 million, of which $11.0 million was for the purchase
of facilities.
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.
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.
In connection with the use of the proceeds from the Equity Offerings, the
Company will incur a prepayment penalty of $7.0 million (pretax) to redeem a
portion of the 1996 Notes. In addition, approximately $3.0 million (pretax) of
unamortized deferred financing costs will be written off. This extraordinary
charge of approximately $10.0 million (pretax) will be recorded in the quarter
in which the redemption occurs. Upon the completion of the Equity Offerings,
the Company's status as a Subchapter S corporation will terminate and a
deferred income tax provision of approximately $6.6 million will be recorded.
In addition, due to the acceleration of the vesting of certain options which
will occur upon the completion of the Equity Offerings, the Company will also
record an unusual charge of approximately $1.8 million (pretax) the estimated
unamortized compensation expense associated with stock options granted on
January 1, 1997 in the quarter in which the Offerings are consummated. See
Note 8 of Notes to Consolidated Financial Statements.
32
<PAGE>
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>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ----------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
REVENUES:
Storage.................. 57.0% 58.2% 58.5% 57.1% 58.0%
Service and storage
material sales.......... 43.0 41.8 41.5 42.9 42.0
-------- -------- -------- ------- -------
Total revenues......... 100.0 100.0 100.0 100.0 100.0
Cost of sales, excluding
depreciation and
amortization.............. 59.8 58.3 57.0 58.6 55.4
Selling, general and
administrative............ 19.2 16.9 15.4 16.3 16.8
Depreciation and
amortization.............. 10.2 8.6 9.9 8.7 10.5
Consulting payments to
related parties........... 0.6 0.5 0 0.4 0
Foreign currency
translation............... 0 0 0 0 0.4
Non-recurring charges...... 0 0 2.5 0 0
-------- -------- -------- ------- -------
Operating income......... 10.2 15.7 15.2 16.0 16.9
Interest expense........... 8.7 10.1 13.3 9.6 16.7
-------- -------- -------- ------- -------
Income before
extraordinary charge.... 1.5 5.6 1.9 6.4 0.2
Extraordinary charge....... 7.3 3.4 1.5 0 0
-------- -------- -------- ------- -------
Net income (loss)........ (5.8)% 2.2% 0.4% 6.4% 0.2%
======== ======== ======== ======= =======
OTHER DATA:
EBITDA................... 21.0% 24.8% 27.6% 25.0% 27.8%
Operating income before
non-recurring charges
and foreign currency
translation............. 10.2% 15.7% 17.7% 16.0% 17.3%
</TABLE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1997
Total revenues increased from $29.7 million for the first quarter of 1996 to
$40.2 million for the first quarter of 1997, an increase of $10.5 million, or
35.5%. Sixteen acquisitions completed from March 1996 to January 1997
accounted for $7.2 million, or 68.6%, of such increase in total revenues. The
balance of the revenue growth resulted from sales to new customers and from
net increases in cubic feet stored from existing customers.
Storage revenues increased from $17.0 million for the first quarter of 1996
to $23.3 million for the first quarter of 1997, an increase of $6.3 million,
or 37.4%. Service and storage material sales revenues increased from $12.7
million for the first quarter of 1996 to $16.9 million for the first quarter
of 1997, an increase of $4.2 million, or 32.8%.
Cost of sales (excluding depreciation and amortization) increased from $17.4
million in the three months ended March 31, 1996 to $22.3 million in the three
months ended March 31, 1997, an increase of $4.9 million, or 28.1%, but
decreased as a percentage of total revenues from 58.6% in 1996 to 55.4% in
1997. The $4.9 million increase in cost of sales resulted primarily from an
increase in cubic feet stored from internal growth and acquisitions. The
decrease in cost of sales as a percentage of total revenues was due primarily
to the realization of operating efficiencies.
Selling, general and administrative expenses increased from $4.9 million for
the first quarter of 1996 to $6.8 million for the first quarter of 1997, an
increase of $1.9 million, or 39.3%, and increased as a percentage of revenues
from 16.3% for the first quarter of 1996 to 16.8% for the first quarter of
1997. The dollar increase was primarily attributable to increases in
administrative staffing, including increases due to acquisitions. The increase
as a percentage of total revenues was due primarily to increased marketing
expenses related to the recent expansion of the sales and marketing force and
employee training.
Depreciation and amortization expense increased from $2.6 million for the
first quarter of 1996 to $4.2 million for the first quarter of 1997, an
increase of $1.6 million, or 63.8%, and increased as a percentage of
33
<PAGE>
revenues from 8.7% for the first quarter of 1996 to 10.5% for the first
quarter of 1997. The increase was primarily attributable to the additional
depreciation and amortization expense related to the sixteen acquisitions
completed from March 1996 to January 1997, plus capital expenditures for
buildings, shelving, improvements to records management facilities and
information systems, and client acquisition costs.
Interest expense increased from $2.8 million for the first quarter of 1996
to $6.7 million for the first quarter of 1997, an increase of $3.9 million, or
135.8%. The increase was primarily attributable to increased indebtedness
related to financing acquisitions and capital expenditures, as well as the
higher interest rate on the Company's 11 1/8% Senior Subordinated Notes
compared to the bank debt repaid upon the issuance of such Notes.
As a result of the foregoing factors, the Company had net income of $1.9
million (6.4% of revenues) for the first quarter of 1996 compared to net
income of $0.1 million (.2% of revenues) for the first quarter of 1997.
EBITDA increased from $7.4 million for the first quarter of 1996 to $11.2
million for the first quarter of 1997, an increase of $3.8 million, or 50.2%.
As a percentage of revenues, EBITDA increased from 25.0% for the first quarter
of 1996 to 27.8% for the first quarter of 1997.
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%.
The annual average cubic feet stored increased from approximately 25.1
million in 1995 to approximately 34.0 million in 1996, an increase of 35.5% as
a result of acquisitions, new customer accounts and growth from existing
customer accounts.
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 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.
34
<PAGE>
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 Leo W.
Pierce, Sr. See "Management--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 27.6% 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.
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%.
The annual average cubic feet stored increased from approximately 20.6
million in 1994 to approximately 25.1 million in 1995, an increase of 21.8% as
a result of acquisitions, new customer accounts and growth from existing
customer accounts.
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
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<PAGE>
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.
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.
The net proceeds from the Equity Offerings will be primarily used to redeem
a portion of the 1996 Notes, and the net proceeds of the Notes Offering will
be primarily used to repay outstanding amounts under the Credit Facility. The
result of the use of proceeds from the Offerings will be to reduce the
Company's leverage and improve its financial flexibility. As of March 31,
1997, on a pro forma basis after giving effect to the 1997 Acquisitions
completed after such date, the Recent Acquisitions, the Offerings and the
estimated use of the net proceeds therefrom, the Company's consolidated
indebtedness would have been approximately $257.2 million. As of March 31,
1997, the Company's consolidated indebtedness was $254.8 million, and adjusted
for the 1997 Acquisitions completed after such date and the Recent
Acquisitions, the Company's consolidated indebtedness would have been $324.3
million. The Company believes that future cash flows from operations, together
with borrowings under the Credit Facility and any net proceeds of the
Offerings not used to repay indebtedness, will be sufficient to fund future
working capital needs, capital expenditure requirements and debt service
requirements of the Company for the foreseeable future.
Capital Investments
For 1994, 1995 and 1996 and the three months ended March 31, 1997, capital
expenditures were $6.4 million, $16.3 million, $23.5 million and $10.8
million, respectively, and client acquisition costs were $1.9 million, $2.2
million, $6.5 million and $1.8 million, respectively. Capital expenditures for
1996 were comprised of $11.0 million for new shelving, $4.0 million for
leasehold and building improvements, $3.8 million for new facility purchases
and related improvements, $2.9 million for data processing, and $1.8 million
for the purchase of transportation, warehouse and office equipment.
In addition, in August 1996 in connection with the offering of the 1996
Notes, the Company purchased certain real estate interests and other assets
from affiliates for $14.9 million, of which $11.0 million was for the purchase
of facilities.
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<PAGE>
In 1997, the Company expects its aggregate capital expenditures will
approximate $34 million. Of this amount, approximately $10 million is expected
to be related to the purchase of facilities. Of the remaining $24 million,
over 85% is anticipated to be growth related, principally for shelving for new
records.
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 $97.6 million. Since the beginning of 1997, the Company has
made eight acquisitions for an aggregate cash purchase price of $88.5 million.
The Company has historically financed its acquisitions with borrowings under
its credit agreements and the 1996 Notes and with cash flows from existing
operating activities. In the past, the Company has relied solely upon cash as
consideration for its acquisitions; however, following the Offerings, the
Company may also use equity securities or a combination of cash and equity
securities to purchase other records management companies.
To the extent that future acquisitions are financed by additional borrowings
under its 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.
Certain Effects Resulting from Acquisitions
As a result of its substantial acquisition experience, the Company has
developed a standardized program by which it integrates acquired companies
into its existing infrastructure. The integration of an acquired company
entails, among other things, converting the database of stored records to the
PLUS(R) system, reorganizing archive operating activities and eliminating
certain back office activities which can be handled through the PLUS(R) system
or the Company's centralized corporate organization. Certain savings start to
be realized a short time after an acquisition. The pro forma operating
expenses reflected in the Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1996 and the three months ended
March 31, 1997 would have been reduced by an estimated $10,821 and $2,011,
respectively, for specifically identified items had the acquisitions completed
in 1996 and the 1997 Acquisitions occurred as of January 1, 1996 and had such
cost savings been fully implemented as of such date. See Note (b) to the Pro
Forma Condensed Consolidated Statement of Operations. These savings relate to
(i) the termination of certain employees due to the efficiency of the PLUS(R)
system and integration and consolidation of facilities, (ii) a reduction in
warehouse rent expense related to facilities the Company has vacated or will
vacate or has negotiated changes in lease terms and (iii) a reduction of other
operating costs due to the Company's economies of scale. Management expects to
realize additional cost savings beyond the $10,821 and $2,011 specifically
identified.
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, and net cash
flows used in operating activities was $5.5 million for the three months ended
March 31, 1997. 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, $108.8 million and $31.9 million, for 1994, 1995, 1996 and the three
months ended March 31, 1997, 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, $82.9 million and $37.3 million, for 1994, 1995, 1996 and the three
months ended March 31, 1997, respectively. In 1994, the Company's
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<PAGE>
previous credit facility was expanded 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 the 1996 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 the Credit Facility which provides $100.0 million in U.S. dollar
borrowings and Cdn $35.0 million in Canadian dollar borrowings. The amount of
U.S. dollar borrowings provided for under the Credit Facility was subsequently
increased to $110.0 million. 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 Indentures governing the Notes also restrict borrowings under the Credit
Facility. As of March 31, 1997, after giving effect to the 1997 Acquisitions
completed after such date, the Recent Acquisitions and pro forma for the
Offerings and the application of the estimated net proceeds therefrom (at an
assumed initial public offering price of $16.50 per share), the Company could
have borrowed $66.9 under the Credit Facility. The interest rate on the Credit
Facility, pro forma for the Offerings, the 1997 Acquisitions completed after
such date and the Recent Acquisitions, would have been 7.7%. Although there
can be no assurances, the Company anticipates that subsequent to the
Offerings, it will amend its Credit Facility to permit, at the Company's
option, an increase in the total availability of U.S. dollar borrowings of up
to an aggregate of $150.0 million and to change certain other provisions of
the Credit Facility. See "Description of Certain Indebtedness--Credit
Facility."
Future Capital Needs
Management believes that cash flow from operations in conjunction with the
net proceeds of the Offerings and borrowings under the Credit Facility 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.
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<PAGE>
BUSINESS
GENERAL
The Company is the largest archive records management company in North
America, as measured by its 50 million cubic feet of records currently under
management. The Company operates a total of 161 records management facilities
of which 148 are in the United States, serving 58 markets, including the 16
largest U.S. markets. In addition, the Company operates 13 records management
facilities in five of Canada's six largest markets.
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 believes it is the most technologically advanced records
management company in the industry by virtue of its Pierce Leahy User
Solution(R) (PLUS(R)) computer system. The PLUS(R) system fully integrates the
Company's records management, data retrieval and billing functions on a
centralized basis through the use of proprietary, real time software. The
PLUS(R) system assists the Company in efficiently managing records in multiple
locations for national and local customers, rapidly integrating acquisitions
of records management companies and maintaining a low-cost operating
structure. The Company serves a diversified group of over 22,000 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.
The Company's revenues and operating income before non-recurring charges (on
a pro forma basis as defined herein) for the year ended December 31, 1996 were
$167.8 million and $23.4 million, respectively. From 1992 to 1996, the
Company's revenues and operating income before non-recurring charges grew at
compound annual growth rates of 19.9% and 28.7%, respectively. The Company
attributes this growth to the expansion of its business with new and existing
customers, which has been primarily driven by the trend towards outsourcing of
records management functions by companies and the ongoing consolidation of the
fragmented records management industry. The Company has successfully acquired
and integrated 26 companies from 1992 to 1996.
The Company's growth strategy is to expand its business in new and existing
markets through (i) targeting new customers, (ii) growing with existing
customers and (iii) continuing its acquisition program. The Company has
adopted the following approaches to pursue its growth objectives:
Targeting New Customers. The Company has a dual sales strategy focused on
both larger, typically multi-location accounts and smaller accounts, with a
dedicated sales force for each. The Company's sales and marketing force has
increased from 41 persons at the end of 1995 to 73 persons currently. For
large regional and national accounts, the Company believes its national
presence, sophisticated systems and low-cost operating structure provide a
competitive advantage. These organizations are increasingly outsourcing such
noncore activities, which enables their management to focus on their core
business and to reduce space requirements and records management costs. For
smaller accounts, the Company combines the cost benefits of its centralized
systems with quality local service. From 1992 to 1996, the average annual
growth rate of cubic feet of storage from new customers was approximately 8%.
Growing with Existing Customers. The Company services its existing customers
through both a centralized customer service organization and local client
service representatives. Existing customers typically
39
<PAGE>
generate additional records annually which are stored with the Company. From
1992 to 1996, the average annual growth rate of cubic feet of storage from
existing customers was approximately 6%.
Continuing Acquisition Program. The Company believes that the records
management industry is highly fragmented and offers substantial opportunity
for consolidation. The Company targets potential acquisitions both in the
markets it already services and in new markets which it is not yet servicing.
From 1992 to 1996, the Company successfully completed and integrated 26
acquisitions, totalling approximately 12.4 million cubic feet of records at
the time of acquisition. Since January 1, 1997, the Company has completed
eight acquisitions, totalling approximately 7.2 million cubic feet of records
at the time of acquisition. As a result of its centralized organizational
structure and the PLUS(R) system, the Company has been able to rapidly achieve
significant economies of scale in its acquisitions. From 1992 to 1996, the
average annual growth rate of cubic feet of storage from acquisitions was
approximately 10%. See "--Acquisition and Growth Strategy."
The Company's growth strategy is supported by an operating strategy which
emphasizes providing premium standardized services while maintaining a low-
cost operating structure. As a result, the Company's operating income before
non-recurring charges as a percentage of total revenues increased from 13.3%
in 1992 to 17.7% in 1996 and 13.9% in 1996 on a pro forma basis. The Company
expects to continue its growth and enhance its position by implementing its
strategy based on the following elements:
Using Sophisticated Centralized Systems to Provide High Quality Service. In
tandem with the Company's centralized customer service organization and local
field support personnel, the Company utilizes its PLUS(R) system to provide a
high and consistent level of service (24 hours a day, seven days a week) to
its customers on a national and local basis, including providing its customers
with real-time access to the database. Although PLUS(R) is centralized, the
system permits local management flexibility through a variety of pre-
programmed options to customize the system and enhance its utility to
different types of customers. For example, PLUS(R) offers (i) specialized
inventory reporting formats (e.g., by insurance policy, law case file number
or mortgage file), (ii) specialized invoicing (e.g., to local division with
information reporting to the customer's corporate office, and vice versa, and
departmental invoicing), (iii) pre-set inventory review dates based on the
assigned retention period for a particular class of document and (iv)
authorized users with security passwords.
Maintaining its Position as a Low-Cost Provider through Economies of
Scale. The Company strives to remain a low-cost operator through achieving
economies of scale in labor, real estate, transportation, computer systems and
administrative expenses. The PLUS(R) system allows the Company to enhance the
efficiency of its facilities while reducing fixed and operating costs. This
system eliminates the need to designate permanent locations for an individual
customer's records within a facility, by using sophisticated bar-coding
technology which enables records to be stored wherever space is available and
to be positioned within the Company's facilities based on retrieval frequency,
thereby reducing labor costs. PLUS(R) is similarly valuable in helping to
achieve cost savings in acquisitions.
THE RECORDS MANAGEMENT INDUSTRY
According to a 1994 study by the Association of Commercial Record Centers
(the "ACRC"), an industry trade group with over 500 members, approximately
2,800 companies offer records storage and related services in North America.
The Company believes that only 25% of the potential market outsources its
records management functions and that approximately 75% is still "unvended,"
or internally managed. The Company estimates that the North American vended
records management industry generates annual revenues in excess of $1.0
billion. Management believes that the industry is highly fragmented, with most
industry participants operating on a regional or local basis.
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<PAGE>
[DRAWING SHOWING FILING SPACE UTILIZATION OF FILE
CABINET AND STORAGE BOXES APPEARS HERE]
Filing cabinets are an inefficient way to store inactive records. Professional
records management companies can store twice the amount of records in the same
amount of space and do so in real estate that is typically substantially less
expensive than prime office space.
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, which the Company estimates comprise approximately 80% of
all records, are the principal focus of the records management industry.
The Company believes that the records management industry is characterized by
the following trends:
Industry Consolidation. The records management industry is undergoing a
period of consolidation as larger, better capitalized industry participants
acquire smaller regional or local participants. Management believes that
consolidation is primarily driven by the needs of large customers for fully
integrated coverage and the ability to realize economies of scale, especially
with respect to labor, real estate, transportation and computer systems and
administrative expenses. Industry consolidation also provides private owners of
smaller records management companies the ability to obtain liquidity.
Movement Towards Outsourcing. Outsourcing of internal records management
functions represents the largest single source of new business for records
management companies. The Company believes that as more organizations become
aware of the advantages of professional records management, such as net cost
reductions and enhanced levels of service, the records management industry
will continue to gain a growing portion of the unvended segment. The Company
also believes that the establishment of national providers with well-known
brand names will help to accelerate this trend.
Increasing Production of Paper. Increasingly widespread technologies such as
facsimiles, copiers, personal computers, laser printers and advanced software
packages have enabled organizations to create, copy and distribute documents
more easily and broadly. In spite of new "paperless" technologies (including
the Internet and "e-mail"), information remains predominantly paper based.
Additionally, the cost of storing records on paper is currently less expensive
than the cost of converting paper records to, and storing on, other media
(e.g., computer media, imaging, microfilm, CD-Rom and optical disc).
Expanded Record Keeping Needs. While technology has augmented the growth of
paper generation, several external forces and concerns have played an
important role in organizations' decisions to store and retain access to
records. For example, the continued growth of regulatory requirements and the
proliferation of litigation has resulted in increased volumes and lengthened
holding periods of documents. Retained records are also remaining in storage
for extended periods of time because the process of determining which records
to destroy is time consuming and often more costly in the short-term than
continued storage.
ACQUISITION HISTORY AND GROWTH STRATEGY
The Company believes that the consolidation trend occurring in the North
American records management industry will continue and that acquisitions will
remain an important part of the Company's growth strategy. Acquisitions
provide the Company with the ability to expand and achieve additional
economies of scale. From 1992 to 1996, the Company successfully completed and
integrated 26 acquisitions, totaling approximately 12.4 million cubic feet of
records at the time of acquisition. Since January 1, 1997, the Company has
completed eight acquisitions, totalling approximately 7.2 million cubic feet
of records at the time of acquisition. As a result of its
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<PAGE>
substantial acquisition experience, the Company has developed a standardized
program through which it integrates acquired companies into its existing
infrastructure. In each of these acquisitions, staffing levels were initially
reduced with further reductions typically taking place in the following months
as general and administrative functions were integrated into the Company's
centralized operating system.
The following table summarizes certain information for each acquisition
completed since 1990:
<TABLE>
<CAPTION>
EXISTING/ DATE OF
ACQUISITION LOCATION NEW LOCATION ACQUISITION
- ----------- -------- ------------ --------------
<S> <C> <C> <C>
Leahy Business Archives Multiple* Existing/New February 1990
Muhlenhaupt Records
Management Long Island Existing April 1992
Arcus Data New York Existing July 1992
File Away Baltimore/Washington, D.C. Existing July 1992
Taylor Document Richmond New August 1992
Data Management of
Tennessee Nashville New April 1993
Command Records Chicago Existing June 1994
Fidelity Archives Philadelphia Existing July 1994
ProFilers Jacksonville New October 1994
Fileminders Jacksonville New October 1994
Vital Archives New York Existing February 1995
Bestway Archival
Services Miami Existing May 1995
Curtis Archives Seattle New August 1995
Command Records Service Canada** New October 1995
AMK Documents Phoenix New October 1995
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
Diego San Diego New July 1996
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,
Colorado Springs, Ft. Wayne Existing/New October 1996
Security Archives of Las
Vegas Las Vegas New October 1996
Records Management Birmingham Existing December 1996
Security Archives &
Storage Company Wilmington Existing January 1997
The Records Center Tampa Existing January 1997
Data Archives Trenton Existing January 1997
Professional Records
Storage & Delivery West Palm Beach Existing January 1997
Advanced File Storage
Systems Jacksonville Existing April 1997
Records Management
Services Multiple*** Existing/New April 1997
Austin File Room Austin Existing May 1997
Corporate Storage Chicago Existing June 1997
</TABLE>
- --------
*Los Angeles, Houston, New York, New Jersey, Boston, Connecticut, Chicago,
Dallas and Miami/Ft. Lauderdale.
**Toronto, Montreal, Vancouver, Ottawa and Calgary.
***Chicago, Indianapolis, Cincinnati, Los Angeles, Phoenix, Houston, New York
and St. Louis.
The Company's centralized organizational structure and management
information systems are essential elements for both the successful integration
of acquired records management operations and the ability of the Company to
achieve economies of scale. The rapid conversion of an acquired company's
records into the PLUS(R) system and the integration of all corporate functions
(order processing, accounting, payroll, etc.) into the Company's corporate
organization in an efficient, standardized process allows the Company to
realize cost savings as a result of reduced labor and overhead costs and
improved facility utilization. The Company also believes that its centralized
approach permits better quality measurement and control procedures than a
decentralized approach to integrating acquisitions. See "Risk Factors--Risks
Associated with Acquisitions."
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<PAGE>
The Company targets potential acquisitions both in locations it already
services (existing markets) and in new areas which it is not yet servicing.
Existing market acquisitions typically provide the highest degree of operating
leverage as a result of eliminating redundant overhead, such as overlapping
delivery runs, and when economically feasible, consolidating with an existing
Company facility in the same market. New market acquisitions allow the Company
to both expand its business generally and enhance its ability to serve multi-
location customer accounts. These acquisitions are typically either the result
of following an existing customer into a new location or are on a more
opportunistic basis when an attractive acquisition comes to the attention of
the Company. Once in the new area, the Company seeks to obtain records from
its existing multi-location customers which may have operations in that area.
Additionally, operating in the new locations assists the Company's sales force
in more effectively targeting new customers in that area.
In the past, the Company has relied solely upon cash as consideration for
its acquisitions; however, following the Offerings, the Company may also use
equity securities or a combination of cash and equity securities to purchase
other records management companies.
THE 1997 ACQUISITIONS
In January 1997, the Company successfully completed and has subsequently
integrated four acquisitions with facilities in Wilmington, Tampa, Trenton and
West Palm Beach. In April 1997, the Company completed the acquisition of
Advanced File Storage Systems with facilities in Jacksonville, Florida and the
acquisition of RMS with facilities in Chicago, Indianapolis, Cincinnati, Los
Angeles, Phoenix, Houston, New York and St. Louis. The aggregate cash
consideration paid for the 1997 Acquisitions was approximately $82.1 million.
RECENT ACQUISITIONS
In May 1997, the Company completed the acquisition of Austin File Room with
facilities in Austin, Texas and in June 1997, the Company completed the
acquisition of Corporate Storage with facilities in Chicago. The aggregate
cash consideration paid for the Recent Acquisitions was approximately $6.4
million.
DESCRIPTION OF SERVICES
The Company's records management services are focused on storage, retrieval
and data management of hard copy documents.
Storage
Storage revenues have averaged 58% of total revenues during the Company's
last five fiscal years. 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 PLUS(R) 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
43
<PAGE>
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 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. The Company
believes its ability to manage destruction programs for customers efficiently
through the PLUS(R) system also enhances its ability to attract large
accounts.
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. The Company currently
employs approximately 70 customer service representatives. Routine pick-up and
delivery requests are dispatched directly by customer service representatives
to local facilities as directed by PLUS(R).
PLUS(R), in tandem with a centralized order processing organization and
local field support personnel, enables the Company to provide a high and
consistent level of service (24 hours a day, seven days a week) to its
customers in a cost-effective manner. The centralized order entry system
allows (i) efficient workload balancing as the daily "peak" call-in periods
can be spread over three time zones, (ii) centralized quality control
monitoring to increase delivery of consistent and high-quality service, and
(iii) the employment of Spanish- speaking customer service representatives
whose language skills can serve any of the Company's U.S. customers, primarily
for its operations in Florida, Texas and California.
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.
44
<PAGE>
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. PLUS(R) utilizes database
technology, proprietary software and extensive bar coding in a flexible,
enterprise-wide, client/server environment.
During 1993, the Company completed an extensive two and one-half year
development program and began to install the PLUS(R) system in each of its
facilities. The Company invested approximately $8 million in developing
PLUS(R), primarily in conjunction with Andersen Consulting, together with
input from Hewlett Packard, Racal, Progress and Symbol Technologies. The
system has been designed on a modular basis which provides the Company with
the ability to expand the system's capacity as its business grows. The Company
also has devised certain backups designed to protect against loss of data and
computer failures. Company-wide installation of PLUS(R) commenced at the end
of 1993 and was completed during the first quarter of 1995. Since initial
development, the Company has also invested an additional $2.1 million to
upgrade and expand the capacity of the PLUS(R) system and to further increase
its functionality.
Implementation of the PLUS(R) system has improved the Company's operating
efficiency by streamlining a number of its daily work processes:
. PLUS(R) allows the Company real time access to locate each unit of a
customer's records, regardless of geographic location, through an
enterprise-wide, shared database and to centrally receive and dispatch
pick-up and delivery orders to the appropriate location for processing.
Management believes that no other records management system in the
industry offers such real time access for multiple locations.
. The PLUS(R) system reduces the number of employees required to handle the
inbound/outbound movement of boxes through the use of sophisticated
algorithms which allow archive employees to process multiple customer
requests in an efficient manner.
. PLUS(R) facilitates the integration of acquired records management
companies in an efficient, standardized process. By converting the
acquired company's records into the PLUS(R) system, the Company is able
to reduce the labor and overhead costs associated with the acquisition,
resulting in cost savings.
. The PLUS(R) system assists the Company in efficiently utilizing its
storage space by eliminating the need for permanent locations for
individual records. At any one time, approximately 2% of total cubic feet
of records managed by the Company are temporarily returned to customers,
freeing up storage space which PLUS(R) enables the Company to use
productively. When a box is temporarily returned to a customer, a new box
may be placed in the original box's location. Upon return of the original
box to the Company, PLUS(R) automatically assigns the box a new location
within a facility in the market in which the Company determines to store
the box.
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. PLUS(R) can also perform sophisticated searches to locate
inventory items even when the customers do not have the specific number of the
box they are seeking. In addition, the Company has recently initiated a trial
program, PLUS(R) Link, which is designed to transfer information directly
between the Company's centralized database and a customer's local file room.
45
<PAGE>
In marketing its services, the Company believes it can point to the
following direct benefits to a customer of the PLUS(R) system:
. Through the PLUS(R) system central data base, a customer is able to
obtain real time access to any file listing which is stored in any
location. In addition to the benefits of immediate access to file listing
information, this centralized data base is likely to reduce the time
required to locate a file that a client might have stored in one of
several locations.
. With PLUS(R), a file can be retained in any Company warehouse and
delivered only if and when it is needed at a specific location. Customers
with multiple locations typically do not have large enough records
management requirements to justify their own dedicated warehouse in each
area. In order to increase the efficiency of warehouse facilities, such
companies sometimes require operations in disparate locations to ship
their records to a central or a regional warehouse. This process
increases the costs as such companies must pay to ship files a
substantial distance to inactive storage and incur additional costs, and
typically time delay, to subsequently return the files to the initial
location.
. Through utilization of the PLUS(R) system, customers eliminate the need
for expensive in-house computer systems and programming support staff to
maintain an inventory management system. Companies which store their own
records typically cannot achieve the economies of scale available to the
Company.
SALES AND MARKETING
During the past five years, the Company has invested significant effort in
developing its sales and marketing department, which is comprised of 73
employees in the United States and Canada, excluding any additions that may
result from the acquisition of RMS. 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. From 1992 to 1996, the
Company's sales representatives secured over 3,600 new customer accounts
comprising over 8.5 million cubic feet of records from new accounts.
NEW CUSTOMER ACCOUNT GROWTH*
[BAR GRAPH OF NEW CUSTOMER ACCOUNT GROWTH APPEARS HERE]*
<TABLE>
<CAPTION>
Cubic feet in millions:
<S> <C>
1994 - 1,038
1995 - 2,018
1996 - 2,994
</TABLE>
*For the first twelve months after the establishment of a customer account,
records added to such account are classified as additions to new customer
accounts in the period in which they are received.
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
46
<PAGE>
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 22,000 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 any of the last three years. 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 provides
records management services to approximately one-half of the Fortune 500
companies and has 50 customers with over 100,000 cubic feet of records under
management with the Company. Larger companies with multiple locations that
have performed their own records management services to date are a principal
focus for new customers by the Company. The Company believes that its presence
in multiple locations in conjunction with the PLUS(R) system enable it to
provide the sophisticated file management services frequently required by such
customers.
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. In addition, services such as
file retrieval are separately charged. During 1996, approximately 3% of cubic
feet of records under management by the Company were permanently removed
(other than as part of an organized records destruction program). The Company
believes this relatively low attrition rate is due to a number of factors,
including satisfaction with the Company's services as well as the effort and
expense of transferring records to another service provider or back in-house.
FACILITIES
The Company operates a total of 161 records management facilities of which
148 are in the United States, serving 58 markets, including the 16 largest
U.S. markets, and 13 facilities in Canada serving five of Canada's six largest
markets. Of the 10.2 million square feet of floor space (representing over 75
million cubic feet of storage capacity) in the Company's records storage
facilities, approximately 36% and 64% (41% and 59% 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....................................... 27 7.4 million
(includes Alabama, Florida,
Georgia, North Carolina and
Tennessee)
Northern Region....................................... 48 39.4 million
(includes Connecticut, Delaware,
Maryland, Massachusetts, New Jersey,
New York, Ohio, Pennsylvania and
Virginia)
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
RECORDS
MANAGEMENT CUBIC FEET
REGION FACILITIES OF CAPACITY
------ ---------- ------------
<S> <C> <C>
Midwest Region........................................ 53 16.8 million
(includes Colorado, Illinois,
Indiana, Michigan, Missouri,
New Mexico and Texas)
Western Region........................................ 20 5.4 million
(includes Arizona, California, ------ ------------
Nevada and Washington)
Total U.S............................................. 148 69.0 million
Canada.................................................. 13 6.1 million
(includes Calgary, Montreal, Ottawa, ------ ------------
Toronto and Vancouver)
Total................................................. 161 75.1 million
====== ============
</TABLE>
In response to certain opportunities that arose, the Company has made
significant new facility investments, substantially increasing the Company's
available storage capacity in its Northeast region. During 1995, the Company
purchased a storage facility in New Jersey with 12 million cubic feet of
storage capacity and leased (with an option to purchase) a storage facility in
Massachusetts with five million cubic feet of storage capacity. The Company is
in the process of consolidating certain individual warehouses into these
facilities and will consolidate other warehouses over the next two or three
years as existing leases expire. The addition of these facilities provides the
Company with substantial excess storage capacity in such region and is
expected to satisfy the Company's facility expansion requirements in its
Northeast region for several years. The Company intends to consolidate
facilities in other locations when appropriate. Primarily as a result of the
new facilities in New Jersey and Massachusetts, warehouse utilization has
declined to approximately 66% from historical levels of 70% to 80%.
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. Management believes that conversion of paper
documents into these smaller storage media is currently not cost-effective for
inactive records, primarily due to the high labor cost of preparing and
converting the documents for imaging.
EMPLOYEES
As of May 10, 1997, the Company had 1,952 employees, including 242 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
48
<PAGE>
associated with business interruption and damage or loss from fire, 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 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 ACMs, 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 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.
LEGAL PROCEEDINGS
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.
49
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information regarding the Company's directors,
executive officers and other significant management personnel:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Leo W. Pierce, Sr................... 78 Chairman of the Board
J. Peter Pierce..................... 51 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............. 38 Vice President, Operations--West
Leo W. Pierce, Jr................... 52 Vice President, Contracts Administration
and Director
Michael J. Pierce................... 47 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
Ronald P. Muhlenhaupt............... 42 Vice President, Assistant to the President
Lisa G. Goldschmidt................. 29 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 as a director of the Company since September 1994. From May 1993 until
December 1993, Mr. Huntley served as Assistant 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.
50
<PAGE>
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 as 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.
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
51
<PAGE>
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.
Ronald P. "Rip" Muhlenhaupt has served as Vice President, Assistant to the
President since October 1994, with responsibility for the Customer Response
Group and corporate communications, as well as company-wide training and
education initiatives for both customers and staff. From April 1992 to October
1994, Mr. Muhlenhaupt was Vice President, Corporate Development. Mr.
Muhlenhaupt provided service as Creative Consultant from November 1989 to
April 1992 when he joined the Company upon the acquisition, by Pierce Leahy,
of the records management division of his family-owned business, The
Muhlenhaupt Corporation, where he was President. Mr. Muhlenhaupt holds a B.S.
degree from Fairfield University.
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 the Company. See "The Company."
BOARD OF DIRECTORS
As of the closing of the Offerings, the Company's Board of Directors will be
classified into three classes with staggered three-year terms, each class to
contain as nearly as possible one-third of the number of members of the Board.
One class of directors will be elected for a three-year term at each annual
meeting of shareholders commencing in 1998. It is currently contemplated that
within 90 days after the closing of the Offerings, Leo W. Pierce, Jr. and
Michael J. Pierce will resign and the Board of Directors will add one or two
independent directors to the Board. The terms of J. Peter Pierce, Michael J.
Pierce and Alan B. Campell will expire at the 1998 annual meeting of
shareholders; the terms of Douglas B. Huntley and Delbert S. Conner will
expire at the 1999 annual meeting of shareholders; and the terms of Leo W.
Pierce, Sr. and Leo W. Pierce, Jr. will expire at the 2000 annual meeting of
shareholders.
The Company's Board of Directors has a Compensation Committee, which prior
to the Offerings has been 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 administrating the Company's Nonqualified Option Plan (as
hereinafter defined).
Following the Offerings, the Board of Directors intends to reconstitute the
Compensation Committee and establish an Audit Committee, each of which will be
comprised of two or more directors. It is anticipated that the Compensation
Committee and the Audit Committee will be comprised of Mr. Conner and a second
nonemployee director. The Compensation Committee is expected to determine
compensation for executive officers of the Company and administer the
Company's stock option plans. The Audit Committee is expected to
52
<PAGE>
recommend the appointment of the Company's independent public accountants and
review the scope and results of audits and internal accounting controls.
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. It is currently anticipated that any other outside
directors added to the Board of Directors will be compensated similarly to Mr.
Conner, although the Board may in the future consider using stock options or a
combination of cash and stock options to compensate outside directors.
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 1995 186,800 93,400 -- -- 6,681(a)
Executive Officer
Ross M. Engelman........ 1996 130,500 65,000 -- 54,014 5,216(b)
Vice President, 1995 130,422 65,000 -- 90,024 4,830(b)
Operations--South
J. Michael Gold......... 1996 130,000 65,000 -- 54,014 3,739(c)
Vice President, 1995 129,905 65,000 -- 90,024 3,417(c)
Operations--Northeast
Douglas B. Huntley...... 1996 130,000 65,000 -- 54,014 5,231(d)
Vice President and 1995 129,520 65,000 -- 90,024 4,802(d)
Chief Financial Officer
Joseph A. Nezi.......... 1996 130,000 92,370(e) -- 32,068 6,256(f)
Vice President, Sales 1995 133,020 97,841(e) -- 90,024 5,748(f)
and Marketing
Christopher J. 1996 130,000 65,000 -- 54,014 5,339(g)
Williams...............
Vice President, 1995 129,905 65,000 -- 90,024 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 (as defined
herein), $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 (as defined herein).
(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
53
<PAGE>
behalf of Mr. Huntley and $2,790 and $2,590 representing contributions made
by the Company under the Profit Sharing Plan.
(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 $2,898 representing contributions made by the
Company under the Profit Sharing Plan.
OPTION GRANTS IN 1996
The following table sets forth certain information concerning stock options
granted to the Named Executive Officers during 1996 (all of which were granted
on January 1, 1996) after giving effect to the Stock Recapitalization.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(B)
GRANTED EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME (#)(A) 1996 ($/SHARE) DATE 5% 10%
---- ---------- ------------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
J. Peter Pierce......... -- -- -- -- -- --
Ross M. Engelman........ 54,014 15.0% $5.86 * $ 199,145 $ 504,673
J. Michael Gold......... 54,014 15.0 5.86 * 199,145 504,673
Douglas B. Huntley...... 54,014 15.0 5.86 * 199,145 504,673
Joseph A. Nezi.......... 37,068 10.3 5.86 * 136,668 346,344
Christopher J.
Williams............... 54,014 15.0 5.86 * 199,145 504,673
</TABLE>
- --------
* The options have no specified expiration date.
(a) All options were granted under the Nonqualified Option Plan. 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. See "--Stock Incentive Plan."
(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 Common
Stock when the options were granted. At the time of grant, there was no
established trading market for the Common Stock and, accordingly, the
market price is based upon the formula set forth in the Nonqualified
Option Plan which is 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.
54
<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 after giving effect to the Stock
Recapitalization. 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 SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996(A)
---------------------------- -------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED EXERCISABLE/UNEXERCISABLE(B) EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------- ---------------------------- -------------------------
<S> <C> <C> <C> <C>
J. Peter Pierce......... -- -- --/-- --/--
Ross M. Engelman........ -- -- --/144,038 --/$0
J. Michael Gold......... -- -- --/144,038 --/ 0
Douglas B. Huntley...... -- -- --/144,038 --/ 0
Joseph A. Nezi.......... -- -- --/127,092 --/ 0
Christopher J.
Williams............... -- -- --/144,038 --/ 0
</TABLE>
- --------
(a) There was no established market for the Common Stock as of December 31,
1996, 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 Nonqualified Option Plan.
(b) As of December 31, 1996, none of the options were exercisable although of
such totals, options to purchase 46,812 shares of Common Stock were vested
for each of Messrs. Engelman, Gold, Huntley and Williams and options to
purchase 43,423 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. Accordingly, upon the
consummation of the Offerings and the termination of the Company's status
as a Subchapter S corporation, the vested options set forth above will
become exercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offerings, the Compensation Committee of the Board of Directors
has been 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 $14.9 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.
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
55
<PAGE>
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 voting Class A Common Stock
(equivalent to 105,910 shares of Common Stock after the Stock
Recapitalization) from Mr. Pierce for an aggregate price of $1.45 million,
which price was based on the Company's EBITDA. The Company had previously
undertaken 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.
The Company has entered into a tax indemnification agreement with the
current shareholders of the Company which provides for: (i) the distribution
to such shareholders of cash equal to the product of the Company's taxable
income for the period from January 1, 1997 until the date the Offerings are
completed and the sum of the highest effective federal and state income tax
rate applicable to any current shareholder (or in the case of shareholders
that are trusts, any beneficiaries), less any prior distributions to such
shareholders to pay taxes for such period, and (ii) an indemnification of such
shareholders for any losses or liabilities with respect to any additional
taxes (including interest, penalties and legal fees) resulting from the
Company's operations during the period in which it was a Subchapter S
corporation.
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. CVF will receive a fee estimated to be
approximately $ in connection with the Offerings.
STOCK INCENTIVE PLAN
The Company established a Nonqualified Stock Option Plan (the "Nonqualified
Option Plan") in September 1994 to provide incentives to Key Employees
(defined below) who contribute significantly to the strategic and long-term
performance objectives and growth of the Company. The Nonqualified Option Plan
is administered by the Compensation Committee of the Board of Directors.
The Nonqualified Option Plan provides for the issuance of stock options not
intended to qualify as incentive stock options under Section 422 of the Code
("NQSOs") to "Key Employees," defined as employees of the Company who are
members of a select group of management or highly compensated employees. As of
December 31, 1996, there were nine Key Employees. Under the Nonqualified
Option Plan, options exercisable for an aggregate of 380,217 shares of Common
Stock are available for grant. The exercise price per share of Common Stock of
options granted under the Nonqualified Option Plan shall be equal to or
greater than the fair market value of the Common Stock as of the last day of
the calendar quarter coinciding with or immediately preceding the date of the
grant. Options granted under the Nonqualified Option Plan become exercisable,
to the extent they are vested, at the earlier of the tenth anniversary of the
date of grant or the date the Company is no longer a Subchapter S Corporation.
56
<PAGE>
The Board, in its sole discretion, may direct the Company to make a loan to
a Key Employee whose Vested Percentage (defined below) with respect to one or
more stock options is at least 60%. The maximum amount of any such loan shall
be 25% of the amount which would be payable to the Key Employee had he
terminated employment other than on account of death or total and permanent
disability as of the date of the loan as set forth in the following paragraph.
Vested Percentage is based upon the options vesting in five equal annual
installments commencing on the first anniversary of the date of grant;
provided, however, that 100% shall be deemed to be vested in the case of a Key
Employee who terminates employment on account of death or total and permanent
disability.
If a Key Employee's employment is terminated for any reason, each stock
option which has not been exercised shall terminate; provided, however, that
if a Key Employee terminates employment after the Class B Common Stock has
become readily tradeable in an established securities market, other than
pursuant to a termination for cause, his option shall not expire until the end
of the 90-day period following the date of termination. Upon termination of
employment (other than for cause or when the Class B Common Stock is tradeable
in an established securities market), the Company is required to pay the Key
Employee the Vested Percentage of the value of any options held by the Key
Employee. The value of the options for this purpose is equal to the aggregate
fair market value of the underlying shares (determined by a formula set forth
in the Nonqualified Option Plan), less (i) the principal amount of any
outstanding loans pursuant to the Nonqualified Option Plan and (ii) the
aggregate exercise price of the underlying shares.
1997 STOCK OPTION PLAN
In April 1997, the Company adopted its 1997 Stock Option Plan (the "1997
Plan") which provides for grants of stock options ("Options") to selected
employees, officers, directors, consultants and advisers of the Company. By
encouraging stock ownership, the Company seeks to attract, retain and motivate
such persons and to encourage them to devote their best efforts to the
business and financial success of the Company.
The 1997 Plan authorizes up to 1,500,000 shares of Common Stock (subject to
adjustment in certain circumstances) for issuance pursuant to the terms of the
1997 Plan. If Options expire or are terminated for any reason without being
exercised, the shares of Common Stock subject to such Options again will be
available for grant.
The 1997 Plan may be administered by the Board of Directors (the "Board") or
by a committee of the Board (references to the "Committee" refers to the
committee, if one is appointed, and otherwise to the Board). Grants under the
1997 Plan may consist of (i) options intended to qualify as incentive stock
options ("ISOs") within the meaning of Section 422 of the Code or (ii) NQSOs.
Options may be granted to any employee (including officers and directors) of
the Company, members of the Board who are not employees and consultants and
advisers who perform services to the Company or any of its subsidiaries ("Key
Advisers"). During any calendar year, no grantee may receive Options for more
than 500,000 shares of Common Stock.
The option price of any ISO granted under the 1997 Plan will not be less
than the fair market value of the underlying shares of Common Stock on the
date of grant. The option price of a NQSO will be determined by the Committee,
in its sole discretion, and may be greater than, equal to or less than the
fair market value of the underlying shares of Common Stock on the date of
grant. The Committee will determine the term of each Option, provided that the
exercise period may not exceed ten years from the date of grant. The option
price of an ISO granted to a person who owns more than 10% of the total
combined voting power of all classes of stock of the Company must be at least
equal to 110% of the fair market value of Common Stock on the date of grant,
and the ISO's term may not exceed five years. A grantee may pay the option
price (i) in cash, (ii) by delivering shares of Common Stock owned by the
grantee for more than six months and having a fair market value on the date of
exercise equal to the option price, or (iii) by such other method as the
Committee may approve. The Committee may impose on Options such vesting and
other conditions as the Committee deems appropriate. Options may be exercised
while the grantee is an employee, Key Adviser or member of the Board or within
a specified period after termination of the grantee's employment or services.
57
<PAGE>
In the event of a change of control (as defined in the 1997 Plan), all
outstanding Options will become fully exercisable.
All Options will be granted subject to any applicable federal, state and
local withholding requirements; the Company can deduct from wages paid to the
grantee any such taxes required to be withheld with respect to the Options. If
the Company so permits, a grantee may choose to satisfy the Company's income
tax withholding obligation with respect to an Option by having shares withheld
up to an amount that does not exceed the grantee's maximum marginal tax rate
for federal, local and state taxes.
The Board may amend or terminate the 1997 Plan at anytime; provided that,
the Board may not (a) change the class of individuals eligible to receive an
ISO, (b) increase the maximum number of shares as to which Options may be
granted or (c) make any other change or amendment to which shareholder
approval is required in order to satisfy the conditions set forth in Rule 16b-
3 promulgated under the Exchange Act or Section 162(m) of the Code, in each
case without obtaining shareholder approval. To date, no Options have been
granted under the 1997 Plan. The 1997 Plan will terminate in April 2007,
unless terminated earlier by the Board or extended by the Board with approval
of the shareholders.
401(K) PLAN; PROFIT SHARING PLAN
The Company has a savings and investment plan under Section 401(k) of the
Code (the "401(k) Plan") and a profit sharing plan also under Section 401(k)
(the "Profit Sharing Plan"). The 401(k) Plan covers 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 into the 401(k) Plan on a pre-tax basis. The
Company is required to make matching contributions under the 401(k) Plan equal
to 25% of the employee's contributions up to a maximum of 2% of the employee's
annual compensation. The contributions to the 401(k) Plan by a participant
vest immediately. Participants earn a vested right to their matching
contributions in increasing amounts over a period of five years, commencing
after three full years of employment. After seven years of service, the
participant's right to his or her matching contribution is fully vested.
Thereafter, the participant may receive a distribution of the entire value of
his or her account upon termination of employment or upon retirement,
disability or death.
The Profit Sharing Plan covers substantially all full-time employees over
the age of 21 with more than 1,000 hours of service. The Company may make
discretionary profit sharing contributions in amounts as the Board of
Directors of the Company may determine. The Company's contributions under the
Profit Sharing Plan have historically ranged from 2-3% of a participant's
annual eligible income. Participants are not permitted to contribute to the
Profit Sharing Plan directly. Participants earn a vested right to their profit
sharing contribution in increasing amounts over a period of five years,
commencing after three full years of employment. After seven years of service,
the participant's right to his or her profit sharing contribution is fully
vested. Thereafter, the participant may receive a distribution of the entire
value of his or her account upon termination of employment or upon retirement,
disability or death.
CERTAIN 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. As of May 31, 1997, $77,000 of the principal amount,
together with interest accruing at a rate of 8.875%, was outstanding.
See also "Management--Compensation Committee Interlocks and Insider
Participation."
58
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of June 15, 1997, after giving effect to
the Stock Recapitalization, certain information regarding the ownership of
Common Stock by (i) each person known by the Company to beneficially own 5% or
more of the outstanding shares of Common Stock, (ii) each Selling Shareholder,
(iii) each director and Named Executive Officer and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERINGS AFTER THE OFFERINGS(1)
------------------------------ SHARES --------------------------------
NAME NUMBER PERCENTAGE TO BE SOLD NUMBER PERCENTAGE
- ---- ------------- ----------------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Leo W. Pierce, Sr.(2)... 10,485,090(3) 100.0% -- 10,272,476(3) 65.9%
J. Peter Pierce(2)...... 10,485,090(3) 100.0 -- 10,272,476(3) 65.9
Leo W. Pierce, Jr.(4)... 1,476,386 14.1 58,250 1,418,136 9.1
Michael J. Pierce(5).... 1,418,135 13.5 -- 1,418,135 9.1
Mary E. Pierce.......... 1,396,953 13.3 -- 1,396,953 9.0
Barbara P. Quinn(6)..... 1,396,954 13.3 40,564 1,356,390 8.7
Constance P. Buck-
ley(7)................. 1,386,362 13.2 56,715 1,329,647 8.5
Kathryn Cox(8).......... 1,334,461 12.7 17,475 1,277,376 8.2
Maurice Cox, Jr.(9)..... 1,334,461 12.7 39,610 1,277,376 8.2
Alan B. Campell......... -- -- -- -- --
Delbert S. Conner....... -- -- -- -- --
Ross M. Engelman........ -- -- -- 46,812(10) *
J. Michael Gold......... -- -- -- 46,812(10) *
Douglas B. Huntley...... -- -- -- 46,812(10) *
Joseph A. Nezi.......... -- -- -- 43,423(10) *
Christopher J. Wil-
liams.................. -- -- -- 46,812(10) *
All directors and
executive officers as a
group (13 persons)..... 10,485,090 100.0% -- 10,555,255(11) 66.5%
</TABLE>
- --------
* Less than 1%
(1) In the event the U.S. Underwriters' over-allotment option is exercised in
full, Leo W. Pierce, Jr., Barbara P. Quinn and Maurice Cox, Jr. will
beneficially own 1,324,871 shares (8.2%), 1,256,390 shares (7.8%) and
1,237,766 shares (7.7%), respectively, of the shares outstanding after the
Equity Offerings, and all directors and executive officers as a group will
beneficially own 10,322,380 (62.8%).
(2) The business address for Leo W. Pierce, Sr., J. Peter Pierce, Leo W.
Pierce, Jr., Michael J. Pierce, Mary E. Pierce, Barbara P. Quinn,
Constance P. Buckley and Kathryn Cox is c/o Pierce Leahy Corp., 631 Park
Avenue, King of Prussia, Pennsylvania 19406. The address for Maurice Cox,
Jr. is 731 E. Manoa Road, Havertown, Pennsylvania 19083.
(3) Messrs. Leo W. Pierce, Sr. and J. Peter Pierce are the Voting Trustees of
the Voting Trust Agreement described below. Substantially all of the
members of the Pierce family are expected to enter into the Voting Trust
Agreement, and, accordingly, the beneficial ownership of the Voting
Trustees includes 10,485,090 and 10,272,476 shares of stock to be held by
members of the Pierce family before and after the Offerings, respectively,
of which 408,813 shares are owned directly by Leo W. Pierce, Sr. and
746,668 shares are owned directly by J. Peter Pierce.
(4) Includes 311,376 shares of Common Stock held for the benefit of Mr.
Pierce's children.
(5) Includes 151,981 shares of Common Stock held for the benefit of Mr.
Pierce's child.
(6) Includes 585,683 shares of Common Stock held for the benefit of Ms.
Quinn's children.
(7) Includes 252,066 shares of Common Stock held for the benefit of Ms.
Buckley's children.
(8) Includes 792,207 shares of Common Stock held by Ms. Cox's husband and
192,751 shares held by or for the benefit of Ms. Cox's children.
(9) Includes 349,503 shares of Common Stock held by Mr. Cox's wife and 192,751
shares held by or for the benefit of Mr. Cox's children.
(10) Consists of options to purchase shares of Common Stock which will become
exercisable upon termination of the Company's Subchapter S corporation
status in connection with the Offerings.
(11) Includes 10,272,476 shares of Common Stock beneficially owned by Messrs.
Leo W. Pierce, Sr. and J. Peter Pierce pursuant to the Voting Trust
Agreement and options to purchase an aggregate of 282,779 shares of
Common Stock that will become exercisable upon termination of the
Company's Subchapter S corporation status in connection with the
Offerings.
59
<PAGE>
VOTING TRUST AGREEMENT
Prior to the Offerings, all of the outstanding capital stock of the Company
was owned by members of the Pierce family. Substantially all of the members of
the Pierce family, who are expected to own approximately 66% of the shares of
Common Stock to be outstanding after the Offerings, have indicated their
intention to enter into a ten-year voting trust agreement (the "Voting Trust
Agreement") which appoints Leo W. Pierce, Sr. and J. Peter Pierce as the
Voting Trustees (the "Voting Trustees"). All shares subject to the Voting
Trust Agreement shall be voted at the direction of the Voting Trustees. In the
event the Voting Trustees cannot agree on how to vote with respect to a
certain matter, one-half of the shares subject to the Voting Trust Agreement
will be voted according to the direction of each Voting Trustee. In the event
that a Voting Trustee becomes unable or unwilling to continue serving as a
Voting Trustee, the remaining Voting Trustee will act as sole Voting Trustee.
The Voting Trust Agreement will terminate in the event both Trustees become
unable or unwilling to continue serving as Voting Trustees. The Voting Trust
Agreement does not place any restriction on the transfer of shares held
subject to the Voting Trust Agreement; such shares will be released from the
Voting Trust Agreement upon their transfer to a person not subject to the
Voting Trust Agreement.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 80,000,000 shares of
Common Stock, par value $.01 per share, and 10,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Immediately prior to
the Offerings, there were 10,485,090 shares of Common Stock outstanding. No
shares of Preferred Stock are currently outstanding.
Prior to the Stock Recapitalization, the Company had outstanding two classes
of Common Stock: Class A Common Stock, which was voting, and Class B Common
Stock, which was nonvoting. In connection with the Stock Recapitalization, all
of the shares of Class A and Class B Common Stock were converted into an
aggregate of 10,485,090 shares of Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on each
matter to be decided by the shareholders and do not have cumulative voting
rights. Accordingly, the holders of a majority of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election. The holders of Common Stock have no preemptive, redemption or
conversion rights. The holders of Common Stock will be entitled to receive
ratably such dividends, if any, as the Board of Directors may declare from
time to time out of funds legally available for such purpose. In the event of
liquidation, dissolution or winding up of the affairs of the Company, after
payment or provision for payment of all of the Company's debts and obligations
and any preferential distributions to holders of Preferred Stock, if any, the
holders of the Common Stock will be entitled to share ratably in the Company's
remaining assets. All outstanding shares of Common Stock are, and the Common
Stock offered hereby will be, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
shareholders, to provide for the issuance of shares of Preferred Stock as a
class without series or in one or more series, to establish the number of
shares in each class or series and to fix the designations, powers,
preferences and rights of each such class or series and the qualifications,
limitations or restrictions thereof. Because the Board of Directors has the
power to establish the preferences and rights of each class or series of
Preferred Stock, the Board of Directors may afford the holders of any class or
series of Preferred Stock preferences, powers and rights, voting or otherwise,
senior to the rights of holders of Common Stock. The issuance of Preferred
Stock could have the effect of delaying or preventing a change in control of
the Company. As of the date of this Prospectus, the Company has not authorized
the issuance of any Preferred Stock and there are no plans, agreements or
understandings for the issuance of any shares of Preferred Stock.
CERTAIN PROVISIONS OF PENNSYLVANIA LAW AND THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS
The Company is subject to the provisions of Section 2538 and Sections 2551-
2556 of the Pennsylvania Business Corporation Law of 1988, as amended (the
"PBCL"), which in certain cases provide for supermajority shareholder approval
of business combinations involving the Company and any "interested
shareholder" (as defined in such statute and includes generally, in the case
of Section 2538, shareholders who are a party to the business combination or
who are treated differently from other shareholders, and, in the case of
Sections 2551-2556, shareholders beneficially owning 20% or more of the voting
power of a "registered" corporation, such as the Company). In addition,
Sections 2551-2556 also impose certain restrictions on business combinations
involving the Company and any "interested shareholder." The term "business
combination" includes a merger, asset sale or other transaction involving an
interested shareholder.
The PBCL also provides that the directors of a corporation, making decisions
concerning takeovers or any other matters, may consider, to the extent that
they deem appropriate, among other things, (i) the effects of any proposed
transaction upon any or all groups affected by such action, including, among
others, shareholders,
61
<PAGE>
employees, suppliers, customers and creditors, (ii) the short-term and long-
term interests of the corporation and (iii) the resources, intent and conduct
of the person seeking control.
The Company's Bylaws provide that the Company's Board of Directors is to be
composed of three classes, with staggered three-year terms, each class to
contain as nearly as possible one-third of the number of members of the Board.
Accordingly, at each annual meeting of shareholders, only approximately one-
third of the Company's directors will be elected.
Certain other provisions of the Company's Articles of Incorporation and
Bylaws could also have the effect of preventing or delaying any change in
control of the Company, including (i) the advance notification procedures
governing certain shareholder nominations of candidates for the Board of
Directors and for certain other shareholder business to be conducted at an
annual meeting, (ii) the absence of authority for shareholders to call special
shareholder meetings of the Company, except in certain limited circumstances
mandated by the PBCL, and (iii) the absence of authority for shareholder
action by written consent by less than all of the Company's shareholders.
These provisions, the classified board and "supermajority" voting rights,
could have the effect of making it more difficult for a third party to
acquire, or discouraging a third party from seeking to acquire, control of the
Company.
As permitted by the PBCL, the Bylaws provide that a director shall not be
personally liable in such capacity for monetary damages for any action taken,
or any failure to take any action, unless the director breaches or fails to
perform the duties of his office under the PBCL, and the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness. These
provisions of the Bylaws, however, do not apply to the responsibility or
liability of a director pursuant to any criminal statute, or to the liability
of a director for the payment of the Company's taxes pursuant to local,
Pennsylvania or federal law. These provisions offer persons who serve on the
Board of Directors of the Company protection against awards of monetary
damages for negligence in the performance of their duties.
The Bylaws also provide that every person who is or was a director or
officer of the Company, or a director, officer, employee, agent, partner or
fiduciary of, or in any other capacity for any corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which he served as
such at the request or for the benefit of the Company, shall be indemnified by
the Company to the fullest extent permitted by law against all expenses and
liabilities reasonably incurred by or imposed upon him, in connection with any
proceeding to which he may be made, or threatened to be made, a party, or in
which he may become involved by reason of his being or having been a director
or officer of the Company, or a director, officer, employee, agent, partner or
fiduciary of, or in any other capacity for such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
whether or not he is a director or officer of the Company or a director,
officer, employee, agent, partner or fiduciary of, or in any other capacity
for such other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise at the time the expenses or liabilities are
incurred.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock will be State Street
Bank and Trust Company.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
THE 1996 NOTES
General. In July 1996, the Company issued $200,000,000 principal amount of
11 1/8% Senior Subordinated Notes due 2006 (the "Original Notes"). In November
1996, the Company exchanged the Original Notes for $200,000,000 principal
amount of 11 1/8% Senior Subordinated Notes due 2006 (the "1996 Notes"), which
are substantially identical to the Original Notes except that the 1996 Notes
are registered under the Securities Act. The 1996 Notes mature on July 15,
2006, and bear interest at 11 1/8% per annum, payable semi-annually in arrears
on January 15 and July 15.
The following is a summary of the material terms of the Company's 1996 Notes
and is qualified in its entirety by reference to the indenture governing the
1996 Notes (the "1996 Indenture"). The 1996 Notes are general unsecured
obligations of the Company, subordinated in right of payment to Senior
Indebtedness of the Company (as defined in the 1996 Indenture).
Redemption. Except as set forth in the following sentence, the Company may
not redeem the 1996 Notes prior to July 15, 2001. The Company may redeem up to
an aggregate of $70,000,000 principal amount of the 1996 Notes at any time
prior to July 15, 1999 with the net proceeds of the one or more Public Equity
Offerings (as defined in the 1996 Indenture) at a redemption price equal to
110% of the aggregate principal amount so redeemed plus accrued interest to
the Redemption Date. After July 15, 2001, the Company may redeem the 1996
Notes in whole or in part at specified redemption prices (expressed as a
percentage of principal amount), together, in each case, with accrued and
unpaid interest to the Redemption Date. The Company expects to use a
substantial portion of the net proceeds of the Equity Offerings to redeem
$70,000,000 principal amount of the 1996 Notes. See "Use of Proceeds."
Covenants; Events of Default. The 1996 Indenture contains provisions which,
among other things, limit (i) the incurrence of additional debt, (ii) the
payment of dividends on and issuance of any Capital Stock of a Restricted
Subsidiary (as defined in the 1996 Indenture), (iii) the payment of cash
dividends by the Company, (iv) the use of proceeds from the sale of assets,
(v) transactions with affiliates, (vi) the creation of liens, (vii) the
creation of investments, (viii) the creation of subsidiaries and (ix) sale and
lease-back transactions.
The 1996 Indenture provides that an Event of Default will occur upon, among
other occurrences, (i) a default by the Company for 30 days in the payment of
any interest installment due and payable on the 1996 Notes, (ii) a default in
payment of the principal when due on the 1996 Notes or upon the failure to
redeem or purchase the 1996 Notes when required, (iii) a default by the
Company or by any of its domestic subsidiaries that may become a guarantor of
the 1996 Notes in performance of any covenant or agreement in the 1996
Indenture after written notice to the Company by the trustee under the 1996
Indenture or the holders of not less than 25% in aggregate principal amount of
the 1996 Notes, and (iv) the occurrence of a default of $3.0 million or more
with respect to any Indebtedness of the Company or any Restricted Subsidiary.
Guarantee. The 1996 Notes are secured on a second priority basis, by a
pledge of 65% of the capital stock of the Company's Canadian subsidiary
subordinate to a pledge of such shares in favor of the lenders and the
administrative agent under the Credit Facility and senior to a pledge of such
shares in favor of the holders of the 1997 Notes. The 1996 Notes will be
guaranteed, pari passu with the 1997 Notes, on an unsecured senior
subordinated basis, by any future domestic subsidiaries of the Company.
THE 1997 NOTES
General. Concurrent with the Equity Offerings, the Company will issue
$100,000,000 principal amount of % Senior Subordinated Notes due 2007 (the
"1997 Notes") pursuant to the Notes Offering. The 1997 Notes will be
substantially similar to the 1996 Notes. The 1997 Notes mature on , 2007
and bear interest at %, payable semi-annual in arrears on and .
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<PAGE>
The following is a summary of the material terms of the 1997 Notes and is
qualified in its entirety by reference to the indenture governing the 1997
Notes (the "1997 Indenture"). The 1997 Notes will be general unsecured
obligations of the Company, subordinated in right of payment to senior
indebtedness of the Company (as defined in the 1997 Indenture).
Redemption. Except as set forth in the following sentence, the Company may
not redeem the 1997 Notes prior to , 2002. The Company may redeem up to an
aggregate of $35 million principal amount of the 1997 Notes at any time prior
to , 2000 with the net proceeds of the one or more Public Equity Offerings
(as defined in the 1997 Indenture) at a redemption price equal to % of the
aggregate principal amount so redeemed plus accrued interest to the Redemption
Date. After , 2002, the Company may redeem the 1997 Notes in whole or in
part at specified redemption prices (expressed as a percentage of principal
amount), together, in each case, with accrued and unpaid interest to the
Redemption Date.
Covenants; Events of Default. The 1997 Indenture will contain provisions
which, among other things, limit (i) the incurrence of additional debt, (ii)
the payment of dividends on and issuance of any Capital Stock of a Restricted
Subsidiary (as defined in the 1997 Indenture), (iii) the payment of cash
dividends by the Company, (iv) the use of proceeds from the sale of assets,
(v) transactions with affiliates, (vi) the creation of liens, (vii) the
creation of investments, (viii) the creation of subsidiaries and (ix) sale and
lease-back transactions.
The 1997 Indenture will provide that an Event of Default will occur upon,
among other occurrences, (i) a default by the Company for 30 days in the
payment of any interest installment due and payable on the 1997 Notes, (ii) a
default in payment of the principal when due on the 1997 Notes or upon the
failure to redeem or purchase the 1997 Notes when required, (iii) a default by
the Company or by any of its domestic subsidiaries that may become a guarantor
of the 1997 Notes in performance of any covenant or agreement in the 1997
Indenture after written notice to the Company by the trustee under the 1997
Indenture or the holders of not less than 25% in aggregate principal amount of
the 1997 Notes, and (iv) the occurrence of a default of $3.0 million or more
with respect to any Indebtedness of the Company or any Restricted Subsidiary.
Guarantee. The 1997 Notes will be secured on a third priority basis, by a
pledge of 65% of the capital stock of the Company's Canadian subsidiary
subordinate to pledges of such stock in favor of the lenders and the
administrative agent under the Credit Facility and in favor of the holders of
the 1996 Notes. The 1997 Notes will be guaranteed, pari passu with the 1996
Notes, on an unsecured senior subordinated basis, by any future domestic
subsidiaries of the Company.
CREDIT FACILITY
In August 1996, the Company and its Canadian subsidiary entered into the
Credit Facility with Canadian Imperial Bank of Commerce ("CIBC" or "Agent") as
the Agent, and the syndicate banks, providing for a senior secured revolving
line of credit in an aggregate principal amount of $100 million in U.S. dollar
borrowings and Cdn $35 million in Canadian dollar borrowings by the Company's
Canadian subsidiary. The amount of U.S. dollar borrowings provided for under
the Credit Facility was subsequently increased to $110 million. The following
is a summary of the material terms of the Credit Facility and does not purport
to be complete and is subject to and qualified by reference to the Credit
Facility which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
The Credit Facility matures on June 30, 2002, unless previously terminated,
and the aggregate available commitment under the Credit Facility will be
reduced incrementally on a quarterly basis, beginning September 30, 1999.
Borrowings under the U.S. dollar portion of the Credit Facility bear
interest at a rate equal to, at the option of the Company, either (i) the base
rate (which is based on as the Federal Funds rate or the prime rate most
recently announced by the Agent) or (ii) LIBOR, in each case plus an
applicable margin determined by reference to the ratio of Total Net Debt to
EBITDA of the Company (as defined in the Credit Facility). Borrowings under
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<PAGE>
the Canadian Dollar portion of the Credit Facility also bear interest based on
various methods plus an applicable margin.
The obligations of the Company under the Credit Facility are unconditionally
guaranteed, jointly and severally, by all subsidiaries of the Company. The
obligations of the Company and such guarantors under the Credit Facility are
secured primarily by a first priority pledge of the stock of all material
subsidiaries of the Company and a first priority lien on all of the assets of
the Company and such guarantors. Obligations under the Canadian facility are
guaranteed by the Company.
The Credit Facility contains, among other things, covenants restricting the
ability of the Company and its subsidiaries to dispose of assets, pay
dividends, repurchase or redeem capital stock and indebtedness, create liens,
make capital expenditures, make certain investments or acquisitions, enter
into transactions with affiliates and otherwise restrict corporate activities.
The Credit Facility also contains a number of financial covenants. Although
there can be no assurances, the Company anticipates that subsequent to the
Offerings, it will amend its Credit Facility to permit, at the Company's
option, an increase in the total availability of U.S. dollar borrowings of up
to an aggregate of $150 million and to change certain other provisions of the
Credit Facility.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Equity Offerings, there has not been any public market for the
Common Stock. Upon completion of the Equity Offerings, the Company will have
15,585,090 shares of Common Stock outstanding, assuming no exercise of
1,114,174 outstanding options under the Plan. Of these shares, the 5,312,614
shares registered in the Equity Offerings will be freely tradable without
restriction under the Securities Act, except any shares purchased by persons
deemed to be "affiliates" of the Company which will be subject to certain
resale limitations of Rule 144 under the Securities Act. The remaining shares
of Common Stock outstanding upon completion of the Equity Offerings, including
those shares issued pursuant to the exercise of outstanding options, will be
"restricted securities" within the meaning of Rule 144. Such securities, as
well as any Common Stock held by any person deemed to be an affiliate of the
Company, may be sold only if registered under the Securities Act or sold in
accordance with an available exemption from registration. For purposes of Rule
144, an "affiliate" of an issuer is a person that, directly or indirectly,
through the use of one or more intermediaries, controls, or is controlled by
or is under common control with such issuer.
In general, under Rule 144 as it shall be in effect after the Equity
Offerings, a person who has beneficially owned shares for at least one year,
including an "affiliate," as that term is defined in the Act, is entitled to
sell within any three-month period a number of shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock
(approximately 156,000 shares after giving effect to the Equity Offerings), or
the average weekly trading volume during the four calendar weeks preceding
filing of notice of such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. A person who is not an affiliate
at any time during the three months preceding a sale, and who has beneficially
owned shares for at least two years, is entitled to sell such shares under
Rule 144(k) without regard to the volume limitations, manner of sale
provisions or public information requirements.
In addition to the 5,312,614 shares offered hereby, all of the shares of
Common Stock owned by current shareholders of the Company will be eligible for
sale under Rule 144 of the Securities Act, subject, in the case of affiliates,
to applicable volume and other restrictions contained therein and subject to
the 180-day lock-up period for certain shareholders as described under
"Underwriting." In addition, the Company expects to file a registration
statement covering shares issuable under the stock option plans.
Sales of substantial amounts of Common Stock in the public market after the
restrictions lapse, or the perception that such sales could occur, could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future. The Company can make no prediction as to
the effect, if any, that
65
<PAGE>
sales of shares of its Common Stock, or the availability of shares for future
sale, will have on the market price of the Common Stock prevailing from time
to time. Such sales may also make it more difficult for the Company to sell
equity securities or equity-related securities in the future at a time and
price which it deems appropriate.
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. SHAREHOLDERS
The following is a general discussion of certain U.S. federal tax
consequences of the acquisition, ownership and disposition of Common Stock by
a holder that, for U.S. federal income tax purposes, is not a "United States
person" (a "Non-U.S. Holder"). This discussion is based upon the U.S. federal
tax law now in effect, which is subject to change, possibly retroactively. For
purposes of this discussion, a "U.S. person" means a citizen or resident of
the United States; a corporation, partnership, or other entity created or
organized in the United States or under the laws of the United States or of
any political subdivision thereof; an estate whose income is includable in
gross income for U.S. federal income tax purposes regardless of its source; or
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S. trustees
have the authority to control all substantial decisions of the trust. This
discussion does not consider any specific facts or circumstances that may
apply to a particular Non-U.S. Holder. Prospective investors are urged to
consult their tax advisors regarding the U.S. federal tax consequences of
acquiring, holding and disposing of Common Stock, as well as any tax
consequences that may arise under the laws of any foreign, state, local or
other taxing jurisdiction.
DIVIDENDS
Dividends paid to a Non-U.S. Holder will generally be subject to withholding
of U.S. federal income tax at the rate of 30% unless the dividend is
effectively connected with the conduct of a trade or business within the
United States by the Non-U.S. Holder, in which case the dividend will be
subject to the U.S. federal income tax or net income that applies to U.S.
persons generally (and, with respect to corporate holders and under certain
circumstances, the branch profits tax). Non-U.S. Holders should consult any
applicable income tax treaties that may provide for a lower rate of
withholding or other rules different from those described above. A Non-U.S.
Holder may be required to satisfy certain certification requirements in order
to claim treaty benefits or otherwise claim a reduction of or exemption from
withholding under the foregoing rules.
GAIN ON DISPOSITION
A Non-U.S. Holder will generally not be subject to U.S. federal income tax
on gain recognized on a sale or other disposition of Common Stock unless (i)
the gain is effectively connected with the conduct of a trade or business
within the United States by the Non-U.S. Holder, (ii) in the case of a Non-
U.S. Holder who is a nonresident alien individual and holds the Common Stock
as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year and certain other requirements are met or (iii)
the Company is or becomes a "United States real property holding corporation"
for U.S. federal income tax purposes (in which case the gain realized by a
more than 5% holder will generally be treated as effectively connected with a
trade or business in the United States and subject to withholding). The
Company believes that it is not currently a United States real property
holding corporation, but no assurances can be given in this regard. Gain that
is effectively connected with the conduct of a trade or business within the
United States by the Non-U.S. Holder will be subject to the U.S. federal
income tax on net income that applies to U.S. persons generally (and, with
respect to corporate holders and under certain circumstances, the branch
profits tax) but will not be subject to withholding. Non-U.S. Holders should
consult any applicable treaties that may provide for different rules.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for U.S. federal estate tax purposes) of the
United States at the date of death will be included in such individual's
estate for U.S. federal estate tax purposes unless an applicable estate tax
treaty provides otherwise.
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<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Internal Revenue Service and to each
Non-U.S. Holder the amount of dividends paid to and the tax withheld with
respect to, such holder, regardless of whether any tax was actually withheld.
This information may also be made available to the tax authorities of a
country in which the Non-U.S. Holder resides.
Certain U.S. information reporting requirements and backup withholding tax
will generally not apply to dividends paid on the Common Stock to a Non-U.S.
Holder at an address outside the United States. Payments by a U.S. office of a
broker of the proceeds of a sale of the Common Stock is subject to both backup
withholding at a rate of 31% and information reporting unless the holder
certifies its Non-U.S. Holder status under penalties of perjury or otherwise
establishes an exemption. Information reporting requirements (but not backup
withholding) will also apply to payments of the proceeds of sales of the
Common Stock by non-U.S. offices of U.S. brokers, or foreign brokers with
certain types of relationships to the U.S. unless the broker has documentary
evidence in its records that the holder is a Non-U.S. Holder and certain other
conditions are met, or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
Holder's U.S. federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
UNDERWRITING
Under the terms and subject to the conditions stated in the U.S.
Underwriting Agreement dated the date hereof, each of the underwriters of the
United States and Canadian offering (the "U.S. Offering") of Common Stock
named below (the "U.S. Underwriters"), for whom Smith Barney Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and PaineWebber Incorporated are
acting as the Representatives (the "Representatives"), has severally agreed to
purchase, and the Company and the Selling Shareholders have agreed to sell to
each U.S. Underwriter, the aggregate number of shares of Common Stock set
forth opposite the name of such U.S. Underwriter.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
- ---------------- ---------
<S> <C>
Smith Barney Inc. .............
Merrill Lynch, Pierce, Fenner &
Smith
Incorporated..........
PaineWebber Incorporated.......
</TABLE>
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
- ---------------- ---------
<S> <C>
.......................
.......................
---------
Total................... 4,250,091
=========
</TABLE>
Under the terms and subject to the conditions contained in the International
Underwriting Agreement dated the date hereof, each of the managers of the
concurrent international offering of Common Stock named below (the
"Managers"), for whom Smith Barney Inc., Merrill Lynch International Limited
and PaineWebber International (U.K.) Ltd. are acting as lead managers (the
"Lead Managers"), has severally agreed to purchase, and the Company and the
Selling Shareholders have agreed to sell to each Manager, the aggregate number
of shares of Common Stock set forth opposite the name of such Manager below:
<TABLE>
<CAPTION>
NUMBER
MANAGER OF SHARES
- ------- ---------
<S> <C>
Smith Barney Inc. ...........
Merrill Lynch International
Limited.....................
PaineWebber International
(U.K.) Ltd. ................
</TABLE>
<TABLE>
<CAPTION>
NUMBER
MANAGER OF SHARES
- ------- ---------
<S> <C>
.......................
.......................
---------
Total................... 1,062,523
=========
</TABLE>
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<PAGE>
The U.S. Underwriters and the Managers (collectively, the "Underwriters")
initially propose to offer part of the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and part to certain dealers at a price that represents a concession
not in excess of $ . per share below the public offering price. The U.S.
Underwriters and the Managers may allow, and such dealers may reallow, a
concession not in excess of $ . per share to the other U.S. Underwriters
or Managers, respectively, or to certain other dealers. After the initial
offering of the shares to the public, the public offering price and such
concessions may be changed by the U.S. Underwriters and the Managers. The
Representatives and the Lead Managers have advised the Company that the U.S.
Underwriters and the Managers do not intend to confirm any shares to any
accounts over which they exercise discretionary authority.
The Company and certain Selling Shareholders have granted to the U.S.
Underwriters an option, exercisable for thirty days from the date of this
Prospectus, to purchase up to an aggregate of 564,017 and 232,875 additional
shares of Common Stock, respectively, at the public offering price set forth
on the cover page of this Prospectus less the underwriting discounts and
commissions. The U.S. Underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with the sale of
the shares offered hereby. To the extent such option is exercised, each U.S.
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite each U.S. Underwriter's name in the preceding table
bears to the total number of shares listed in such table.
The Company, its executive officers and directors, the Selling Shareholders
and certain other shareholders of the Company have agreed that, for a period
of 180 days from the date of this Prospectus, they will not without the prior
written consent of Smith Barney Inc., offer, sell, contract to sell, or
otherwise dispose of, any shares of Common Stock of the Company or any
securities convertible into, or exercisable or exchangeable for, Common Stock
of the Company, subject to certain limited exceptions, including the issuance
of shares by the Company for possible acquisitions.
The U.S. Underwriters and the Managers have entered into an Agreement
Between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter
has agreed that, as part of the distribution of the 4,250,091 shares offered
in the U.S Offering (together with the 796,892 shares which may be offered to
cover over-allotments) (i) it is not purchasing any such shares for the
account of anyone other than a U.S. or Canadian Person (as defined below) and
(ii) it has not offered or sold and will not offer, sell, resell or deliver,
directly or indirectly, any of such shares or distribute any prospectus
relating to the United States and Canadian offering outside the United States
or Canada to anyone other than a U.S. or Canadian Person. In addition, each
Manager has agreed that as part of the distribution of the 1,062,523 shares
offered in the International Offering (i) it is not purchasing any such shares
for the account of any U.S. or Canadian Person and (ii) it has not offered or
sold, and will not offer, sell, resell or deliver, directly or indirectly, any
of such shares or distribute any prospectus relating to the International
Offering in the United States or Canada or to any U.S. or Canadian Person.
Each Manager has agreed that it will offer to sell shares only in compliance
with all relevant requirements of any applicable law.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S.
Underwriters and Managers, including (i) certain purchases and sales between
the U.S. Underwriters and the Managers, (ii) certain offers, sales, resales,
deliveries or distributions to or through investment advisors or other persons
exercising investment discretion, (iii) purchases, offers or sales by a U.S.
Underwriter who is acting as Manager or by a Manager who is also acting as a
U.S. Underwriter and (iv) other transactions specifically approved by the
Representatives and the Lead Managers. As used herein, "U.S. or Canadian
Person" means any resident or national of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or any estate or trust, the income of
which is subject to United States or Canadian income taxation regardless of
the source of its income (other than the foreign branch of any U.S. or
Canadian Person), and includes any United States or Canadian branch of a
person other than a U.S. or Canadian Person.
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<PAGE>
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the Equity Offerings, creating a short position in the Common
Stock for their own account. In addition, to cover over-allotments or to
stabilize the price of the Common Stock, the Underwriters may bid for, and
purchase, shares of Common Stock, in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an
underwriter of a dealer for distributing the Common Stock in the Equity
Offerings, if the syndicate repurchases previously distributed Common Stock in
transactions to cover syndicate short positions, in stabilization transactions
or otherwise. Any of these activities may stabilize or maintain the market
price of the Common Stock above independent market levels. The Underwriters
are not required to engage in these activities, and may end any of these
activities at any time.
Any offer of shares in Canada will only be made pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada
in which such offer is made.
Each Manager has represented and agreed during the period of six months from
the date hereof (i) that it has not offered or sold and will not offer or sell
in the United Kingdom any shares except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments
(whether as principal or agent) for the purposes of their businesses or in
other circumstances which do not constitute an offer to the public in the
United Kingdom for the purpose of the Public Offers of Securities Regulation
1995 (the "Regulations"), (ii) that it has complied and will comply with all
applicable provisions of the Regulations and of the Financial Services Act
1986 with respect to anything done by it in relation to the shares in, from,
or otherwise involving the United Kingdom and (iii) that it has only issued or
passed on and will only issue or pass on to any person in the United Kingdom
any document received by it in connection with the issue of these shares if
that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom such documents may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction by the Company, the
Selling Shareholders or the Managers that would permit an offering to the
general public of the shares offered hereby in any jurisdiction other than the
United States.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the Managers of such number of
shares as may be mutually agreed. The price of any shares so sold shall be the
public offering price as then in effect for shares being sold by the U.S.
Underwriters and the Managers, less all or any part of the selling concession
unless otherwise determined by mutual agreement. To the extent that there are
sales between the U.S. Underwriters and the Managers pursuant to the Agreement
Between U.S. Underwriters and Managers, the number of shares initially
available for sale by the U.S. Underwriters and by the Managers may be more or
less than the number of shares appearing on the front cover of this
Prospectus.
The Underwriting Agreements provide that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option
described above) if any such shares are taken.
Prior to the Equity Offerings, there has not been any public market for the
Common Stock of the Company. Consequently, the initial public offering price
for the shares of Common Stock included in the Equity Offerings has been
determined by negotiations between the Company and the Representatives. Among
the factors
69
<PAGE>
considered in determining such price were the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for
growth of the Company's revenues and earnings, the current state of the
economy in the United States and the current level of economic activity in the
industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies which are
comparable to the Company.
The Company, the Selling Shareholders, the U.S. Underwriters and the
Managers have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act.
CVF will receive a fee estimated to be approximately $ in connection
with the Offerings.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cozen and O'Connor, Philadelphia, Pennsylvania. Two members of
Cozen and O'Connor are limited partners in certain limited partnerships that
lease facilities to the Company. Certain legal matters will be passed upon for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.
EXPERTS
The consolidated financial statements and schedules of Pierce Leahy Corp. as
of December 31, 1995 and 1996, and for each of the three years in the period
ended December 31, 1996, included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
giving said reports.
The financial statements of Security Archives, Inc. as of June 30, 1994 and
1995, and for the years then ended, included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of Records Management Services, Inc. as of
September 30, 1996 and for the year then ended, included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
70
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the Common Stock offered hereby (including all amendments and
supplements thereto, the "Registration Statement"). As permitted by the rules
and regulations of the Commission, this Prospectus, which constitutes part of
the Registration Statement, omits certain information, exhibits and
undertakings contained in the Registration Statement. For further information
with respect to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. The
Registration Statement (and the exhibits and schedules thereto), as well as
such reports and other information filed by the Company with the Commission,
may be inspected and copied at the Public Reference Section of the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at Room 1400, 75 Park
Place, New York, New York 10007 and Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, Illinois 60661. Copies of such materials may
be obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Copies of such material will be available for inspection at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
Such information can also be reviewed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR") which is publicly available
through the Commission's Web Site on the Internet (http:\\www.sec.gov).
71
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of Pierce Leahy Corp.:
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Shareholders' Deficit......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Financial Statements of Security Archives, Inc............................. F-17
Financial Statements of Records Management Services, Inc. ................. F-23
</TABLE>
F-1
<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, 1995 and
1996, 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, 1995 and 1996, 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.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
February 28, 1997 (except for the
recapitalization discussed in Note 2,
as to which the date is June 25, 1997)
F-2
<PAGE>
PIERCE LEAHY CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------ MARCH 31
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash......................................... $ 722 $ 1,254 $ 1,064
Accounts receivable, net of allowance for
doubtful accounts of $487, $795 and $982... 14,182 17,828 21,473
Inventories.................................. 762 611 687
Prepaid expenses and other................... 1,025 688 1,171
-------- -------- --------
Total current assets....................... 16,691 20,381 24,395
-------- -------- --------
PROPERTY AND EQUIPMENT......................... 109,755 158,154 171,234
Less--Accumulated depreciation and
amortization................................ (35,328) (45,020) (46,814)
-------- -------- --------
Net property and equipment................. 74,427 113,134 124,420
-------- -------- --------
OTHER ASSETS:
Intangible assets, net....................... 38,621 97,544 113,873
Other........................................ 1,589 3,761 3,774
-------- -------- --------
Total other assets......................... 40,210 101,305 117,647
-------- -------- --------
$131,328 $234,820 $266,462
======== ======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt............ $ 1,478 $ 7,310 $ 205
Current portion of noncompete obligations.... 200 466 387
Accounts payable............................. 4,641 6,757 3,558
Accrued expenses............................. 9,533 20,563 16,586
Deferred revenues............................ 8,978 9,218 10,437
-------- -------- --------
Total current liabilities.................. 24,830 44,314 31,173
LONG-TERM DEBT................................. 116,812 209,330 253,868
NONCOMPETE OBLIGATIONS......................... 517 317 302
DEFERRED RENT.................................. 2,814 2,841 3,070
DEFERRED INCOME TAXES.......................... 3,492 3,456 3,443
COMMITMENTS AND CONTINGENCIES (Note 9)
REDEEMABLE WARRANTS............................ 1,064 -- --
SHAREHOLDERS' DEFICIT.......................... (18,201) (25,438) (25,394)
-------- -------- --------
$131,328 $234,820 $266,462
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS
DECEMBER 31 ENDED MARCH 31
--------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- ---------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Storage.................. $47,123 $55,501 $ 75,900 $ 16,969 $ 23,322
Service and storage
material sales.......... 35,513 39,895 53,848 12,730 16,910
------- ------- ---------- --------- -----------
Total revenues......... 82,636 95,396 129,748 29,699 40,232
------- ------- ---------- --------- -----------
OPERATING EXPENSES:
Cost of sales, excluding
depreciation and
amortization............ 49,402 55,616 73,870 17,406 22,298
Selling, general and
administrative.......... 15,882 16,148 20,007 4,856 6,762
Depreciation and
amortization............ 8,436 8,163 12,869 2,572 4,214
Consulting payments to
related parties......... 500 500 -- 125 --
Non-recurring charges.... -- -- 3,254 -- --
Foreign currency
translation............. -- -- -- -- 182
------- ------- ---------- --------- -----------
Total operating
expenses.............. 74,220 80,427 110,000 24,959 33,456
------- ------- ---------- --------- -----------
Operating income....... 8,416 14,969 19,748 4,740 6,776
INTEREST EXPENSE........... 7,216 9,622 17,225 2,846 6,712
------- ------- ---------- --------- -----------
Income before
extraordinary item.... 1,200 5,347 2,523 1,894 64
EXTRAORDINARY CHARGE--Loss
on early extinguishment of
debt...................... 5,991 3,279 2,015 -- --
------- ------- ---------- --------- -----------
NET INCOME (LOSS).......... (4,791) 2,068 508 1,894 64
ACCRETION OF REDEEMABLE
WARRANTS.................. 16 889 1,561 1,561 --
------- ------- ---------- --------- -----------
NET INCOME (LOSS)
APPLICABLE TO COMMON
SHAREHOLDERS.............. $(4,807) $ 1,179 $ (1,053) $ 333 $ 64
======= ======= ========== ========= ===========
PRO FORMA DATA (UNAUDITED)
(Note 2):
Historical net income
(loss) applicable to
Common shareholders..... $ (1,053) $ 64
Pro forma provision for
income taxes............ 905 291
========== ===========
Pro forma net loss....... $ (1,958) $ (227)
========== ===========
Pro forma net loss per
share................... $ (.18) $ (.02)
========== ===========
Shares used in computing
pro forma net loss per
share................... 10,611,650 10,549,870
========== ===========
Supplemental pro forma
net income per share.... $ .19 $ .06
========== ===========
Shares used in computing
supplemental pro forma
net income per share.... 15,711,449 15,611,270
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------- ADDITIONAL CUMULATIVE
CLASS CLASS PAID-IN ACCUMULATED TRANSLATION
A B CAPITAL DEFICIT ADJUSTMENT TOTAL
------ ------ ---------- ----------- ----------- --------
<S> <C> <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)
Change in cumulative
translation
adjustment
(unaudited).......... -- -- -- -- (20) (20)
Net income
(unaudited).......... -- -- -- 64 -- 64
------ ------ ---- -------- ---- --------
BALANCE, MARCH 31, 1997
(unaudited).......... $ -- $ -- $ 24 $(25,398) $(20) $(25,394)
====== ====== ==== ======== ==== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PIERCE LEAHY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31 MARCH 31
----------------------------- -----------------
1994 1995 1996 1996 1997
-------- -------- --------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)........... $ (4,791) $ 2,068 $ 508 $ 1,894 $ 64
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities--
Extraordinary charge....... 5,991 3,279 2,015 -- --
Depreciation and
amortization.............. 8,436 8,163 12,869 2,421 4,214
Loss (gain) on sale of
property and equipment.... -- -- (32) -- 3
Amortization of deferred
financing costs........... 1,068 533 516 111 233
Imputed interest on long-
term debt and noncompete
obligation................ 229 -- -- -- --
Increase in deferred rent.. 50 29 302 43 229
Foreign currency adjustment
of long-term debt......... -- -- 31 79 (110)
Change in assets and
liabilities, net of the
effects from the purchase
of businesses--
(Increase) decrease in--
Accounts receivable...... (2,061) (360) (2,408) (1,402) (2,968)
Inventories.............. (46) (347) 150 107 (75)
Prepaid expenses and
other................... (91) 57 747 (580) (450)
Other assets............. 255 (536) (486) 162 (9)
Increase (decrease) in--
Accounts payable......... 1,763 (978) 1,630 39 (3,754)
Accrued expenses......... (170) 4,693 10,732 (628) (4,038)
Deferred revenues........ 367 921 (8) 244 1,125
Deferred income taxes.... -- -- (128) -- (13)
-------- -------- --------- ------- --------
Net cash provided by (used
in) operating
activities............... 11,000 17,522 26,438 2,490 (5,549)
-------- -------- --------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for businesses
acquired, net of cash
acquired................... (4,663) (28,355) (61,176) (2,865) (18,463)
Capital expenditures........ (6,352) (16,288) (23,493) (3,553) (10,794)
Purchase of real estate and
other assets from related
parties.................... -- -- (11,018) -- --
Client acquisition costs.... (1,905) (2,245) (6,477) (1,108) (1,788)
Deposits on pending
acquisitions............... -- -- (850) -- --
Increase in intangible
assets..................... (943) (4,274) (5,618) (763) (706)
Payments on noncompete
agreements................. (70) (153) (333) (50) (155)
Proceeds from sale of
property and equipment..... -- -- 123 -- --
-------- -------- --------- ------- --------
Net cash used in investing
activities............... (13,933) (51,315) (108,842) (8,339) (31,906)
-------- -------- --------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings (payments) on
revolving line of credit... (7,700) (900) 5,237 4,236 44,628
Proceeds from issuance of
long-term debt............. 76,850 128,420 210,229 1,700 --
Payments on long-term debt
and capital lease
obligations................ (61,195) (90,958) (118,570) (335) (7,213)
Prepayment penalties and
cancellation of warrants... (1,781) -- (2,625) -- --
Payment of debt financing
costs...................... (3,385) (2,366) (9,283) -- (150)
Repurchase of Common stock.. -- -- (1,450) -- --
Distributions to
shareholders............... (26) (39) (602) -- --
-------- -------- --------- ------- --------
Net cash provided by
financing activities..... 2,763 34,157 82,936 5,601 37,265
-------- -------- --------- ------- --------
NET INCREASE (DECREASE) IN
CASH........................ (170) 364 532 (248) (190)
CASH, BEGINNING OF PERIOD.... 528 358 722 722 1,254
-------- -------- --------- ------- --------
CASH, END OF PERIOD.......... $ 358 $ 722 $ 1,254 $ 474 $ 1,064
======== ======== ========= ======= ========
SUPPLEMENTAL DISCLOSURE--CASH
PAID FOR INTEREST........... $ 6,738 $ 8,356 $ 7,443 $ 3,594 $ 11,768
======== ======== ========= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
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:
Interim Consolidated Financial Statements
The consolidated balance sheet as of March 31, 1997 and the consolidated
statements of operations for the three months ended March 31, 1996 and 1997
are unaudited and, in the opinion of management of the Company, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results for those interim periods. The results of
operations for the three months ended March 31, 1996 and 1997 are not
necessarily indicative of the results to be expected for the full year.
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 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. The Company assesses whether amortization using a six year
average initial contract term significantly varies by means of applying a
specific contract basis. Such difference has not been material.
F-7
<PAGE>
PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $75 and $100 in
claims per insured individual per year in 1995 and 1996, 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.
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.
Recapitalization
On June 25, 1997, the Company effected a stock split, reclassified its Class
A and Class B common stock as common stock, authorized 10,000,000 shares of
undesignated preferred stock and increased its authorized common stock to
80,000,000 shares. All references in the accompanying financial statements to
the number of common shares and per-share amounts have been retroactively
restated to reflect the stock split.
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.
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.
F-8
<PAGE>
PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1995 and 1996 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 estimated fair
value of the Senior Subordinated Notes at March 31, 1997 was $183,486. 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.
Pro Forma Statement of Operations
Upon completion of the equity offerings referred to in this prospectus, the
Company will terminate its status as a Subchapter S Corporation and will be
subject to federal and state income taxes thereafter. Accordingly, for
informational purposes, the accompanying statements of operations for the year
ended December 31, 1996 and three months ended March 31, 1997 include an
unaudited pro forma provision of $905 and $291, respectively, for the income
taxes which would have been recorded if the Company had not been a Subchapter
S Corporation, based on the tax laws in effect during the period. The pro
forma income tax provisions reflect the add back of all non-deductible
expenses, which primarily relate to goodwill amortization on stock
acquisitions.
Based on the tax effect of the cumulative difference between the financial
reporting and income tax bases of assets and liabilities at December 31, 1996,
a deferred income tax provision of approximately $6,600 would have been
recorded had the Subchapter S Corporation status been terminated at that time.
The actual deferred income tax provision to be recorded will reflect the
effect of operations of the Company for the period from January 1, 1997
through the termination of its Subchapter S Corporation status.
Pro Forma Net Loss Per Share
Pro forma net loss per share was calculated by dividing pro forma net loss
by the weighted average number of shares of common stock outstanding. Pursuant
to the requirements of the Securities and Exchange Commission, common stock
equivalents issued by the Company during the 12 months immediately preceding
the equity offerings contemplated by this prospectus have been included in the
calculation of the shares used in computing pro forma net loss per share as if
they were outstanding for the period presented (using the treasury stock
method and an assumed equity offerings price of $16.50 per share). All other
common stock equivalents have been excluded from the calculation as the impact
is anti-dilutive.
Supplemental Pro Forma Net Income Per Share
Supplemental pro forma net income per share is based on the weighted average
number of shares of common stock and common stock equivalents used in the
calculation of pro forma net loss per share and the other common stock
equivalents previously excluded, plus the number of shares that would need to
be issued in the equity offerings contemplated by this prospectus to repay
$70,000 of Senior Subordinated Notes and the related prepayment penalties of
$7,000, at an assumed equity offerings price of $16.50 per share. Pro forma
net
F-9
<PAGE>
PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
loss is reduced by $4,947 and $1,237 for the year ended December 31, 1996 and
the three months ended March 31, 1997, respectively, for the elimination of
interest expense, net of tax, on the Senior Subordinated Notes including the
amortization of a portion of deferred financing costs. The redemption will
result in an extraordinary charge of approximately $6,085, net of tax, in the
quarter in which the redemption occurs.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31
------------------ MARCH 31
LIFE 1995 1996 1997
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Land............................. -- $ 4,780 $ 7,353 $ 8,138
Buildings and improvements....... 10-40 years 35,758 57,296 64,042
Warehouse equipment (primarily
shelving)....................... 12-20 years 53,943 71,773 75,827
Data processing equipment and
software........................ 7 years 10,684 14,363 15,186
Furniture and fixtures........... 7 years 2,970 3,823 3,908
Transportation equipment......... 5 years 1,620 3,546 4,133
-------- -------- --------
109,755 158,154 171,234
Less--Accumulated depreciation
and amortization................ (35,328) (45,020) (46,814)
-------- -------- --------
Net property and equipment..... $ 74,427 $113,134 $124,420
======== ======== ========
</TABLE>
Depreciation expense was $5,066, $4,325, $6,652, $1,305 and $1,794 for the
years ended December 31, 1994, 1995, and 1996 and for the three months ended
March 31, 1996 and 1997, respectively.
4. INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31
------------------ MARCH 31
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Goodwill....................................... $ 25,857 $ 69,417 $ 85,307
Client acquisition costs....................... 8,680 15,157 16,945
Noncompete agreements.......................... 6,980 11,287 11,706
Deferred financing costs....................... 2,248 9,267 9,416
Other intangible assets........................ 9,399 13,377 14,113
-------- -------- --------
53,164 118,505 137,487
Less--Accumulated amortization................. (14,543) (20,961) (23,614)
-------- -------- --------
Net intangible assets........................ $ 38,621 $ 97,544 $113,873
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------
ACCUMULATED NET BOOK
LIFE COST AMORTIZATION VALUE
---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Goodwill.......................... 30 years $ 85,307 $ (4,574) $ 80,733
Client acquisition costs.......... 6 years 16,945 (5,645) 11,300
Noncompete agreements............. 1-7 years 11,706 (7,242) 4,464
Deferred financing costs.......... 10 years 9,416 (618) 8,798
Other intangible assets........... 3-15 years 14,113 (5,535) 8,578
-------- -------- --------
$137,487 $(23,614) $113,873
======== ======== ========
</TABLE>
F-10
<PAGE>
PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amortization of all intangible assets, other than deferred financing costs
which are charged to interest expense, was $3,370, $3,838, $6,217, $1,116 and
$2,420 for the years ended December 31, 1994, 1995, and 1996 and for the three
months ended March 31, 1996 and 1997, respectively. Amortization of deferred
financing costs was $1,068, $533, $516, $111 and $233 for the years ended
December 31, 1994, 1995, and 1996 and for the three months ended March 31,
1996 and 1997, respectively. Capitalized client acquisition costs were $1,905,
$2,245, $6,477, $1,108 and $1,788 and related amortization expense was $1,536,
$909, $1,688, $297 and $593 for the years ended December 31, 1994, 1995, 1996
and for the three months ended March 31, 1996 and 1997, 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
-------------- MARCH 31
1995 1996 1997
------ ------- --------
<S> <C> <C> <C>
Accrued salaries and commissions..................... $2,190 $ 2,613 $ 3,582
Accrued vacation..................................... 2,140 2,866 3,005
Accrued interest..................................... 583 9,840 4,784
Other................................................ 4,620 5,244 5,215
------ ------- -------
$9,533 $20,563 $16,586
====== ======= =======
</TABLE>
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31
------------------ MARCH 31
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
11 1/8% Senior Subordinated Notes, due 2006.. $ -- $200,000 $200,000
U.S. Revolver, interest at prime (9.75% at
March 31, 1997)............................. -- -- 49,900
Canadian Revolver, interest at prime (5.4% at
December 31, 1996).......................... -- 5,327 --
Seller Notes................................. -- 7,600 500
Mortgage Notes............................... -- 3,679 3,607
Borrowings under previous credit agreement
(repaid in July 1996)....................... 118,208 -- --
Other........................................ 82 34 66
-------- -------- --------
118,290 216,640 254,073
Less--Current portion........................ (1,478) (7,310) (205)
-------- -------- --------
$116,812 $209,330 $253,868
======== ======== ========
</TABLE>
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
F-11
<PAGE>
PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 1993 and 1994, the
Company issued warrants to certain lenders to purchase common stock. Warrants
to purchase 229,825 shares at $.01 per share were issued in 1993 and 55,073
shares at $2.68 per share were issued in 1994.
Management assigned an initial value of $338 to the 1993 warrants and $87 to
the 1994 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 1994, 1995 and 1996, resulting in the write-
off of previously deferred financing costs of $3,980, $2,779 and $2,015,
respectively, and prepayment and other charges (including the write-off of
unamortized debt discount) of $2,011 in 1994 and $500 in 1995. Such write-offs
and charges have been recorded as extraordinary items in the accompanying
consolidated statements of operations.
F-12
<PAGE>
PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. CAPITAL STOCK:
At December 31, 1995 and 1996, and March 31, 1997 the Company's capital
stock was comprised of the following:
<TABLE>
<CAPTION>
PREFERRED COMMON
---------- ----------
<S> <C> <C>
Par value........................................... $ .01 $ .01
Shares authorized................................... 10,000,000 80,000,000
Shares issued and outstanding December 31, 1995..... -- 10,591,000
Shares issued and outstanding December 31, 1996..... -- 10,485,090
Shares issued and outstanding March 31, 1997........ -- 10,485,090
</TABLE>
In 1996, the Company redeemed 105,910 shares of common stock for $1,450 and
canceled these shares.
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 1,208,453 shares of common stock. The shares available for grant
were increased by 284,898 in December 1996. Options to purchase 600,510 shares
at $5.10 per share were granted on January 1, 1995 and options to purchase
360,094 shares at $5.86 per share were granted on January 1, 1996. 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 119,678 shares were vested. As of December 31,
1995 and 1996, no options were exercisable.
At December 31, 1996, the total options outstanding are 960,604 with
exercise prices between $5.10 to $5.86 and a weighted average exercise price
of $5.38. 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 1995 and 1996.
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Risk free interest rates................................... 8.0% 5.6%
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 1995 and 1996 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>
1995 1996
------ ----
<S> <C> <C>
Net income, as reported....................................... $2,068 $508
Pro forma net income.......................................... $1,799 $ 91
</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.
On January 1, 1997, the Company granted options to acquire 153,570 shares of
common stock at $5.09 per share. The deferred compensation related to these
options will be amortized over the vesting period. Due to the
F-13
<PAGE>
PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acceleration of the vesting of these options which will occur upon the
completion of the equity offerings contemplated by this prospectus, the
Company will record a charge of approximately $1,752 for the estimated
unamortized compensation on these options, using an assumed equity offerings
price of $16.50 per share.
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 $12,262, $14,098, and $17,008 for the years
ended December 31, 1994, 1995 and 1996, 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 $7,658, $8,201, and $9,019 for the years
ended December 31, 1994, 1995, and 1996, 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.
F-14
<PAGE>
PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $4,132 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 $506, $591, and $1,122 for the years ended December 31, 1994, 1995 and
1996, 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). The stock purchase agreement will be terminated upon completion of the
equity offerings.
F-15
<PAGE>
PIERCE LEAHY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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).
Through March 31, 1997, the Company completed four acquisitions of record
management businesses for an aggregate purchase price of $18,512. The most
significant of these acquisitions was for $9,084 in January 1997; all others
were individually less than $5,000. Each of these acquisitions has been
accounted for using the purchase method of accounting. The $15,934 excess
purchase price over the underlying fair value of the assets and liabilities
acquired has been allocated to goodwill.
A summary of the cash paid for the purchase price as of the acquisitions is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
1995 1996 MARCH 31, 1997
------- ------- --------------
<S> <C> <C> <C>
Fair value of assets acquired............. $36,171 $63,598 $19,322
Liabilities assumed....................... (7,177) (1,432) (810)
Cash acquired............................. (639) (990) (49)
------- ------- -------
Net cash paid........................... $28,355 $61,176 $18,463
======= ======= =======
</TABLE>
The following unaudited pro forma information shows the results of the
Company's operations for the years ended December 31, 1995 and 1996 and for
the three months ended March 31, 1997 as though each of the completed
acquisitions had occurred as of January 1, 1995:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED
------------------------ MARCH 31,
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Total revenues...................... $ 154,438 $ 167,838 $44,631
Net income (loss)................... $ (9,239) $ (7,232) $(1,544)
</TABLE>
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the actual results of operations had the
acquisitions taken place as of January 1, 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.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Security Archives, Inc.:
We have audited the accompanying balance sheets of Security Archives, Inc.
as of June 30, 1995 and 1994, and the related statements of income and
retained earnings and of cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Security Archives, Inc. as of June 30,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed in Notes 1, 2 and 4 to the financial statements, during 1994,
the Company changed its methods of accounting for investments in equity
securities and income taxes to conform with Statements of Financial Accounting
Standards No. 115 and No. 109, respectively.
Deloitte & Touche LLP
Dallas, Texas
August 14, 1995
F-17
<PAGE>
SECURITY ARCHIVES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents............. $ 465,058 $ 387,354 $ 703,129
Accounts receivable................... 205,599 245,839 253,966
Prepaid expenses...................... 169,191 243,886 325,272
----------- ----------- -----------
Total current assets................ 839,848 877,079 1,282,367
PROPERTY, PLANT AND EQUIPMENT:
Land.................................. 1,128,822 1,128,822 1,128,822
Buildings and improvements............ 2,533,200 2,646,548 3,260,627
Equipment............................. 4,106,862 4,430,263 4,449,706
----------- ----------- -----------
7,768,884 8,205,633 8,839,155
Less accumulated depreciation......... (3,892,935) (3,849,502) (3,845,308)
----------- ----------- -----------
3,875,949 4,356,131 4,993,847
INVESTMENTS--Available for sale (Note
2)..................................... 989,795 341,264 --
DEFERRED INCOME TAXES (Note 4).......... 13,495 -- --
OTHER ASSETS............................ 112,835 136,447 123,191
----------- ----------- -----------
TOTAL ASSETS........................ $ 5,831,922 $ 5,710,921 $ 6,399,405
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt
(Note 3)............................. $ 157,564 $ -- $ --
Accounts payable...................... 76,239 243,682 92,917
Accrued expenses...................... 123,201 153,768 107,788
Deferred income taxes (Note 4)........ 51,877 52,659 55,234
Other................................. 23,000 23,000 23,000
----------- ----------- -----------
Total current liabilities........... 431,881 473,109 278,939
LONG-TERM DEBT, NET OF CURRENT
MATURITIES (Note 3).................... 1,477,994 -- --
DEFERRED INCOME TAXES (Note 4).......... -- 3,485 6,699
COMMITMENTS (Note 5)....................
STOCKHOLDERS' EQUITY (Notes 3 and 5):
Common stock--par value $50 per share;
100 shares authorized and issued..... 5,000 5,000 5,000
Treasury stock--56 shares, at cost.... (2,475,958) (2,475,958) (2,475,958)
Unrealized losses on investments (Note
2)................................... (46,877) (10,384) --
Retained earnings..................... 6,439,882 7,715,669 8,584,725
----------- ----------- -----------
Total stockholders' equity.......... 3,922,047 5,234,327 6,113,767
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................. $ 5,831,922 $ 5,710,921 $ 6,399,405
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-18
<PAGE>
SECURITY ARCHIVES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED JUNE 30, ENDED MARCH 31,
------------------------------ ----------------------
1994 1995 1995 1996
-------------- -------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Storage charges....... $ 2,470,703 $ 2,812,673 $2,095,542 $2,295,615
Pickup and delivery... 840,040 857,638 652,376 593,938
Retrieval, refile and
catalog.............. 497,428 510,573 377,658 385,756
Document
disintegration....... 293,869 363,311 272,621 225,732
Cart service.......... 78,630 81,397 62,640 58,010
Deposit on boxes...... 71,326 70,151 55,112 59,601
Miscellaneous......... 105,141 287,997 162,965 322,105
-------------- -------------- ---------- ----------
4,357,137 4,983,740 3,678,914 3,940,757
EXPENSES:
Storage............... 553,977 651,482 483,724 393,011
Handling.............. 1,115,739 1,082,665 712,810 793,837
General and
administrative....... 1,085,490 1,192,996 1,000,197 1,462,215
-------------- -------------- ---------- ----------
2,755,206 2,927,143 2,196,731 2,649,063
-------------- -------------- ---------- ----------
OPERATING PROFIT........ 1,601,931 2,056,597 1,482,183 1,291,694
OTHER INCOME (EXPENSE):
Interest income....... 69,285 87,400 20,458 9,172
Interest expense...... (154,326) (112,938) (106,068) --
Other................. 60,684 (52,624) (16,082) 8,190
-------------- -------------- ---------- ----------
INCOME BEFORE INCOME
TAXES AND CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE... 1,577,574 1,978,435 1,380,491 1,309,056
PROVISION FOR INCOME
TAXES (Note 4)......... (616,491) (702,648) (485,000) (440,000)
-------------- -------------- ---------- ----------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE... 961,083 1,275,787 895,491 869,056
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE (Note 4)..... 53,283 -- -- --
-------------- -------------- ---------- ----------
NET INCOME.............. 1,014,366 1,275,787 895,491 869,056
RETAINED EARNINGS,
BEGINNING OF YEAR...... 5,425,516 6,439,882 6,439,882 7,715,669
-------------- -------------- ---------- ----------
RETAINED EARNINGS, END
OF YEAR................ $ 6,439,882 $ 7,715,669 $7,335,373 $8,584,725
============== ============== ========== ==========
</TABLE>
See notes to financial statements.
F-19
<PAGE>
SECURITY ARCHIVES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED JUNE 30, ENDED MARCH 31,
------------------------------ -----------------------
1994 1995 1995 1996
-------------- -------------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income............. $ 1,014,366 $ 1,275,787 $ 895,491 $ 869,056
Adjustments to
reconcile net income
to net cash provided
by operating
activities............
Depreciation........... 463,797 509,516 371,980 437,161
Loss (gain) on disposal
of assets............. (44,441) 28,454 -- 61,556
Loss on sale of
investments........... 19,435 24,813 20,615 10,384
Deferred income tax
expense............... 26,400 (3,747) 17,763 5,789
Changes in operating
assets and
liabilities:
(Increase) decrease in
accounts receivable.. 9,563 (40,240) (96,301) (8,127)
Decrease in income
taxes receivable..... 31,066 -- -- --
(Increase) decrease in
prepaid expenses..... (140,247) (74,695) 1,380 (81,386)
(Increase) decrease in
other assets......... (100,758) (23,612) 19,171 13,256
Increase (decrease) in
accounts payable..... 17,107 167,443 (33,472) (150,765)
Increase (decrease) in
accrued expenses..... (73,916) 30,567 108,681 (45,980)
Increase in other
liabilities.......... 23,000 -- -- --
-------------- -------------- ---------- -----------
Net cash provided by
operating
activities......... 1,245,372 1,894,286 1,305,308 1,110,944
-------------- -------------- ---------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property,
plant and equipment... (1,193,989) (1,018,150) (660,593) (1,136,433)
Proceeds from sale of
property.............. 79,771 -- -- --
Purchases of
investments........... (1,070,373) (58,250) (52,145) --
Proceeds from sale of
investments........... 1,012,178 739,968 20,316 341,264
-------------- -------------- ---------- -----------
Net cash used in
investing
activities......... (1,172,413) (336,432) (692,422) (795,169)
-------------- -------------- ---------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES--
Principal payments of
long-term debt......... (144,051) (1,635,558) (116,844) --
-------------- -------------- ---------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (71,092) (77,704) 496,042 315,775
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 536,150 465,058 465,058 387,354
-------------- -------------- ---------- -----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 465,058 $ 387,354 $ 961,100 $ 703,129
-------------- -------------- ---------- -----------
SUPPLEMENTAL DISCLOSURE:
Cash payments for:
Interest.............. $ 154,326 $ 112,938 $ 106,068 $ --
-------------- -------------- ---------- -----------
Income taxes.......... $ 413,255 $ 485,000 $ 400,000 $ 400,000
-------------- -------------- ---------- -----------
Noncash Investing
activities:
Unrealized loss on
investments.......... $ 46,877 $ 10,384 $ 12,576 $ --
============== ============== ========== ===========
</TABLE>
See notes to financial statements.
F-20
<PAGE>
SECURITY ARCHIVES, INC.
NOTES TO FINANCIAL STATEMENTS, YEARS ENDED JUNE 30, 1995 AND 1994
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE NINE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--Security Archives, Inc. (the "Company"), a Texas corporation, is
engaged in the storage, delivery, retrieval and destruction of documents for
companies in the north Texas area.
Interim Consolidated Financial Statements--The consolidated balance sheets
as of March 31, 1996 and the consolidated statements of operations for the
three months ended March 31, 1995 and 1996 are unaudited and, in the opinion
of management of the Company, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the results
for those interim periods. The results of operations for the three months
ended March 31, 1995 and 1996 are not necessarily indicative of the results to
be expected for the full year.
Investments--The Company adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"), effective June 30, 1994. Under SFAS 115, investments are
classified as held-to-maturity, available-for-sale, or trading, depending on
the Company's ability and intent with respect to the use of individual
securities. The Company's investments at June 30, 1995 and 1994, are
classified as available-for-sale and are carried at fair value.
Property, Plant and Equipment--Property, plant and equipment are carried at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets, ranging from 3 to 18 years. When
assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in income for the period. The cost of maintenance and repairs is
charged to expense as incurred; significant renewals and betterments are
capitalized. Deductions are made for retirements resulting from the renewals
or betterments.
Income Taxes--Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which changed the method of accounting for income taxes from the
deferred method to the liability method. Under the liability method, deferred
income taxes are recognized for the tax consequences of temporary differences
by applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities.
Cash Equivalents--The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents.
2. INVESTMENTS
The Company adopted SFAS 115 effective June 30, 1994. Investments at June
30, 1995 and 1994, consisting of shares of the Phoenix Tax-Exempt Bond
Portfolio, are classified as available-for-sale and have a cost of $357,438
and $1,063,968 and a fair value, as determined by quoted market prices, of
$341,264 and $989,795, at June 30, 1995 and 1994, respectively. The net
unrealized losses included in stockholders' equity at June 30, 1995 and 1994,
was $10,384 and $46,877, net of income taxes of $5,790 and $27,296,
respectively.
In fiscal year 1995, the Company sold shares with a cost of $764,781 for
$739,968, resulting in a realized loss of $24,813. The losses were calculated
using the average cost method.
F-21
<PAGE>
SECURITY ARCHIVES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT
Long-term debt at June 30, 1994, consisted of a 9% note payable to the
former majority stockholder for the purchase of 56 shares of common stock in
the amount of $1,635,558, of which $157,564 represented amounts due in 1995.
During June 1995, the Company paid off the note in full.
4. INCOME TAXES
Effective July 1, 1993, the Company adopted SFAS 109. The cumulative effect
of this accounting change has been credited to 1994 income as a separate item.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current federal......................................... $641,704 $471,383
Current state........................................... 78,706 58,260
Deferred................................................ (17,762) 86,848
-------- --------
Total................................................. $702,648 $616,491
======== ========
</TABLE>
Deferred income taxes at June 30, 1995 and 1994, principally related to the
use of accelerated depreciation methods for tax purposes on property, plant
and equipment and prepaid insurance.
The Company's effective income tax rate differs from the federal statutory
rate primarily from state income taxes (net of federal tax benefit).
5. COMMITMENTS
During 1989, the Company entered into a stock repurchase agreement with a
stockholder. Under the terms of the agreement, the Company will purchase the
stockholder's shares upon the stockholder's death at the greater of the book
value of the shares or the amount of the life insurance proceeds received by
the Company from a policy on the stockholder's life. Payment of the purchase
price would be made in quarterly payments over four years, bearing interest at
8% per annum. At June 30, 1995, the stockholder held 12 shares of stock at a
book value of $118,962 per share. The Company owns a $500,000 face value life
insurance policy on the stockholder.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Records Management Services, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Records
Management Services, Inc. and subsidiaries (the "Company") as of September 30,
1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Records Management Services,
Inc. and subsidiaries as of September 30, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As described in Note 1, the Company changed its method of accounting for
customer acquisition costs effective October 1, 1995.
DELOITTE & TOUCHE LLP
Chicago, Illinois
November 22, 1996
(January 10, 1997 as to Note 11)
F-23
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1997
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................... $ 453,842 $ 91,741
Accounts receivable (net of allowance for doubtful
accounts of $51,433
and $28,670)...................................... 2,117,947 2,751,542
Carton inventory................................... 120,940 41,220
Deposits........................................... 179,909 135,654
Deferred income tax benefit (Note 9)............... 20,500 20,500
Other current assets............................... 45,077 170,128
----------- -----------
Total current assets............................. 2,938,215 3,210,785
PROPERTY AND EQUIPMENT--Net.......................... 6,075,578 6,185,181
OTHER ASSETS:
Investment in partnership (Note 3)................. 148,738 --
Deferred customer acquisition costs (Note 1)....... 444,905 433,632
Deferred income tax benefit (net of valuation
allowance of $76,600)
(Note 9).......................................... 359,300 359,300
Goodwill........................................... 199,295 185,681
----------- -----------
Total other assets............................... 1,152,238 978,613
----------- -----------
TOTAL................................................ $10,166,031 $10,374,579
=========== ===========
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 1,264,004 $ 1,177,661
Accrued liabilities................................ 1,319,690 2,206,407
Notes payable to shareholders (Note 6)............. 225,000 250,000
Current portion of notes payable (Note 6).......... 48,395 140,491
Current portion of capital lease obligations (Note
7)................................................ 288,579 1,000,902
----------- -----------
Total current liabilities........................ 3,145,668 4,775,461
BANK REVOLVING CREDIT AND TERM LOANS (Note 6)........ 3,000,001 3,306,683
NOTES PAYABLE (Note 6)............................... 136,399 --
CAPITAL LEASE OBLIGATIONS (Note 7)................... 632,913 --
SHAREHOLDERS' EQUITY:
Common stock and additional paid-in capital, no
par; 1,000,000 shares authorized; 384,493 shares
outstanding (Note 10)............................. 151,738 235,620
Loan to shareholder for purchase of common stock... (71,899) (71,899)
Retained earnings.................................. 3,171,211 2,128,714
----------- -----------
Total shareholders' equity....................... 3,251,050 2,292,435
----------- -----------
TOTAL................................................ $10,166,031 $10,374,579
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31
SEPTEMBER 30, -----------------------
1996 1996 1997
------------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Storage............................... $10,533,695 $5,062,839 $ 5,668,388
Service............................... 6,515,598 3,113,313 3,799,227
----------- ---------- -----------
17,049,293 8,176,152 9,467,615
OPERATING EXPENSES:
Cost of storage and service, excluding
depreciation and amortization........ 10,885,766 4,827,790 6,080,516
Selling, general and administrative... 5,176,789 2,477,528 2,763,525
Special compensation charge........... -- -- 1,026,643
Depreciation and amortization......... 820,274 485,868 435,728
----------- ---------- -----------
16,882,829 7,791,186 10,306,412
----------- ---------- -----------
Operating income (loss)............. 166,464 384,966 (838,797)
OTHER INCOME (EXPENSE):
Interest income....................... 4,113 4,020 4,105
Interest expense...................... (374,594) (152,350) (207,805)
Loss on disposal of division.......... (225,000) -- --
Equity in income of partnership....... 4,834 -- --
----------- ---------- -----------
(590,647) (148,330) (203,700)
----------- ---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES....... (424,183) 236,636 (1,042,497)
PROVISION (CREDIT) FOR INCOME TAXES
(Note 9)............................... (125,400) 85,913 --
----------- ---------- -----------
NET INCOME (LOSS)....................... $ (298,783) $ 150,723 $(1,042,497)
=========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK AND
ADDITIONAL LOAN
PAID-IN TO RETAINED
CAPITAL SHAREHOLDER EARNINGS TOTAL
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1995........ $ 61,864 $ -- $3,469,994 $3,531,858
Issuance of common stock upon
exercise of options.......... 89,874 (71,899) -- 17,975
Net loss...................... -- -- (298,783) (298,783)
-------- -------- ---------- ----------
BALANCE, SEPTEMBER 30, 1996..... 151,738 (71,899) 3,171,211 3,251,050
Exercise of stock options
(unaudited).................. 83,882 -- -- 83,882
Net loss (unaudited).......... -- -- (1,042,497) (1,042,497)
-------- -------- ---------- ----------
BALANCE, MARCH 31, 1997
(unaudited).................... $235,620 $(71,899) $2,128,714 $2,292,435
======== ======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31
SEPTEMBER 30, -----------------------
1996 1996 1997
------------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ (298,783) $ 150,723 $(1,042,497)
Adjustments to reconcile net income
(loss) to net cash flows from
operating activities:
Deferred income tax provision........ (167,400) -- --
Depreciation and amortization........ 820,274 376,019 468,439
Equity in income of partnership...... (4,834) -- --
Provision for loss on disposal of
division............................ 225,000 -- --
Special compensation charge.......... -- -- 600,000
Changes in:
Accounts receivable................. 1,187 (116,993) (633,595)
Carton inventory.................... 3,081 (100,280) 79,720
Deposits and other current assets... 18,173 (184,047) (80,796)
Accounts payable.................... 192,400 318,682 (86,343)
Accrued liabilities................. 357,868 161,247 286,717
---------- ---------- -----------
Net cash flows from operating
activities........................ 1,146,966 605,351 (408,355)
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.... (1,262,224) (1,074,819) (407,284)
Customer acquisition costs............ (522,950) (383,779) (47,245)
Proceeds from sale of investment in
partnership.......................... -- -- 148,738
Repayment of loans to unconsolidated
partnership.......................... 91,500 -- --
---------- ---------- -----------
Net cash flows from investing
activities........................ (1,693,674) (1,458,598) (305,791)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under term
loan and revolving line of credit.... 925,001 916,667 306,682
Proceeds from notes payable to
shareholders......................... 225,000 -- 25,000
Proceeds from exercise of stock
options.............................. 17,975 -- 83,882
Payments under capital leases......... (217,007) (25,763) (63,519)
---------- ---------- -----------
Net cash flows from financing
activities........................ 950,969 890,904 352,045
---------- ---------- -----------
NET CHANGE IN CASH...................... 404,261 37,657 (362,101)
CASH--Beginning of year................. 49,581 49,581 453,842
---------- ---------- -----------
CASH--End of year....................... $ 453,842 $ 87,238 $ 91,741
========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for:
Interest............................. $ 334,089 $ 151,754 $ 210,315
Income taxes......................... 47,628 38,921 81,315
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES--
Year ended September 30, 1996:
The Company incurred equipment capital
lease obligations of $630,668.
The purchase price of a 1995
acquisition was adjusted, reducing
notes payable and goodwill by
$30,206.
The Company purchased all the tangible
assets of McClatchy Business Archives
for cash of $150,000 and notes
payable of $150,000.
The Company issued common stock valued
at $89,874 for cash of $17,975 and a
note receivable of $71,899.
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1996
(INFORMATION FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--Records Management Services, Inc. (Illinois) (the
"Company") is a provider of business records management services including
storage, consulting, micro-imaging and contract management services.
PRINCIPLES OF CONSOLIDATION--The accompanying financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts, transactions and profits have been eliminated.
The Company's 50% interest in an unconsolidated partnership is accounted for
by the equity method.
INTERIM FINANCIAL STATEMENTS--The consolidated balance sheet as of December
31, 1996 and the consolidated statements of operations and cash flows for the
three months ended December 31, 1996 and 1995 are unaudited and, in the
opinion of management of the Company, include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
results for those interim periods. The results of operations for the three
months ended December 31, 1996 and 1995 are not necessarily indicative of the
results to be expected for the full year.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT--Depreciation is computed using accelerated and
straight-line methods over the following estimated useful lives: buildings and
improvements, 31.5 years; equipment, 3-12 years.
GOODWILL--Goodwill represents the excess of purchase price of certain
subsidiaries over the fair value of net assets acquired and is amortized on a
straight-line basis over ten years. Accumulated amortization was $141,608 at
September 30, 1996.
CHANGE IN ACCOUNTING PRINCIPLE--Effective October 1, 1995, the Company began
capitalizing customer acquisition costs. Costs, net of revenues received for
the initial transfer of the records, related to the acquisition of large
volume accounts (accounts consisting of 5,000 or more cartons) are capitalized
and amortized over the life of the related contract (currently ranging from
three to five years). Management believes such treatment to be preferable
because it conforms with prevalent industry practice. As of September 30,
1996, acquisition costs of $522,950 have been capitalized, including $105,600
capitalized in the three months ended December 31, 1995; accumulated
amortization totaled $78,045 at September 30, 1996.
2. ACQUISITION
Effective November 30, 1995, the Company acquired all of the records storage
business of McClatchy Business Archives ("McClatchy") of Houston, Texas, for
$300,000 in a transaction accounted for as a purchase. The purchase price
included $150,000 in cash and a $150,000 note payable to the seller (see Note
6).
F-28
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED SEPTEMBER 30, 1996
(INFORMATION FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED.)
3. UNCONSOLIDATED PARTNERSHIP
The Company owns a 50% partnership interest in Certified Document
Destruction of Illinois ("CDDI"). CDDI provided document destruction services
to the Company and others until it sold its business to Crown Recycling &
Waste Services, Inc. ("Crown") effective September 30, 1996 for approximately
$500,000. The Company's 50% share of the gain recognized on the sale was
$53,581 and its 50% share of CDDI's operating loss for fiscal year 1996 was
$48,747. In connection with the sale agreement, the Company agreed to provide
at least 15 million pounds of material for destruction or disposal by Crown
during the five-year period ending September 30, 2001 for a total cost, based
on current market prices, of approximately $600,000.
4. DISPOSAL OF GEORGIA DIVISION
The Company closed the Georgia division effective September 30, 1996.
Existing assets will be transferred to other divisions. Property rental
agreements were terminated and approximately $225,000 was accrued at September
30, 1996 for these and other costs.
5. BALANCE SHEET INFORMATION
Property and equipment as of December 31, 1996 comprises the following:
<TABLE>
<S> <C>
Land............................................................ $ 164,804
Buildings and improvements...................................... 2,645,666
Equipment....................................................... 9,415,568
-----------
12,226,038
Accumulated depreciation........................................ (6,150,460)
-----------
Property and equipment--net..................................... $ 6,075,578
===========
Accrued liabilities as of September 30, 1996 comprise the following:
Payroll......................................................... $ 246,327
Real estate taxes............................................... 272,791
401(k) plan contributions....................................... 335,094
Disposal of Georgia division.................................... 225,000
Other........................................................... 240,478
-----------
Total........................................................... $ 1,319,690
===========
</TABLE>
6. DEBT
Effective December 1, 1995, the Company entered into a $2,000,000 secured
term loan (the "Term Loan") agreement and a $1,200,000 secured revolving line
of credit agreement (the "Line") with a bank. The Term Loan and the Line
(collectively, the "Loans") bear interest due monthly at the prime rate plus
1%. The Term Loan also requires monthly principal payments of $11,111. All
unpaid principal is due February 1, 1997. At September 30, 1996, total
outstanding borrowings were $3,000,001.
The Term Loan is secured by first mortgages on certain real estate owned by
the Company. The Line is secured by a first priority lien on all of the
Company's assets. The Loans are cross-collateralized and cross-defaulted.
F-29
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED SEPTEMBER 30, 1996
(INFORMATION FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED.)
See Note 11 regarding refinancing of the Loans.
The $150,000 note payable issued in connection with the purchase of
McClatchy bears interest at 9% per annum and is payable in eight annual
installments of principal and interest of $27,101 (see Note 2). The $34,794
balance of a note payable issued in connection with a fiscal year 1995
acquisition is payable upon demand. Annual maturities of notes payable amount
to $48,395 for the year ending September 30, 1997 and range from $15,000 to
$19,200 for the succeeding four years.
In 1996, certain shareholders agreed to loan $300,000 to the Company, of
which $225,000 was advanced prior to September 30, 1996. The notes bear
interest at 11% per annum and are due on September 30, 1997.
7. LEASING ARRANGEMENTS
The Company has operating lease agreements for warehouse space expiring at
various dates through 2004. Leases covering a portion of the total leased
space are with entities controlled by directors and shareholders of the
Company. The leases contain renewal options for additional periods and
generally provide for rent adjustments based on changes in the Consumer Price
Index and actual real estate taxes and interest.
The Company has guaranteed payment of all principal and interest due on a
loan payable by Morris West Limited Partnership ("Morris West"), which is
owned by certain directors and shareholders of the Company, to LaSalle
National Bank in the amount of $640,000. Morris West is one of the related
entities from which the Company leases warehouse space.
The estimated future minimum rental payments required under the operating
leases as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>
RELATED UNRELATED
FISCAL YEAR ENTITIES ENTITIES TOTAL
----------- ---------- ---------- ----------
<S> <C> <C> <C>
1997........................................ $ 504,833 $ 913,224 $1,418,057
1998........................................ 314,833 866,368 1,181,201
1999........................................ 241,558 736,601 978,159
2000........................................ 69,833 656,319 726,152
2001........................................ 69,833 656,319 726,152
Thereafter.................................. 151,305 1,460,228 1,611,533
---------- ---------- ----------
Total................................... $1,352,195 $5,289,059 $6,641,254
========== ========== ==========
</TABLE>
During fiscal year 1996, the Company recorded rent expense totaling
$1,638,953, including $732,900 of rent to related entities.
F-30
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED SEPTEMBER 30, 1996
(INFORMATION FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED.)
The Company has entered into capitalized long-term leasing agreements for
shelving and various other equipment with an aggregate cost of $1,181,902 and
accumulated amortization of $137,297 at September 30, 1996. The future minimum
lease payments under the capitalized leases as of September 30, 1996 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1997.............................................................. $ 389,591
1998.............................................................. 373,042
1999.............................................................. 268,283
2000.............................................................. 54,730
2001.............................................................. 29,983
---------
1,115,629
Less amount representing interest................................. 194,137
---------
Present value of future minimum lease payments.................... 921,492
Less principal due in one year.................................... 288,579
---------
Total......................................................... $ 632,913
=========
</TABLE>
8. EMPLOYEE BENEFIT PLAN
Eligible employees participate in the Records Management Services, Inc.
401(k) Profit Sharing Plan. Company contributions, consisting of a
discretionary profit-sharing contribution and a partial matching of employee
contributions, totaled approximately $161,000 for the year ended September 30,
1996.
9. INCOME TAXES
The components of the income tax benefit for the year ended September 30,
1996 are as follows:
<TABLE>
<S> <C>
Current......................................................... $ 42,000
Deferred........................................................ (186,700)
---------
(144,700)
Change in valuation allowance................................... 19,300
---------
Total....................................................... $(125,400)
=========
A reconciliation of the U.S. federal statutory rate of 35% to the effective
rate of tax benefit for the year ended September 30, 1996 is as follows:
Statutory rate.................................................. 35.0%
Nondeductible expenses.......................................... (2.8)
Adjustment of valuation allowance............................... (4.5)
Other, net...................................................... 1.9
---------
Effective rate.................................................. 29.6%
=========
</TABLE>
F-31
<PAGE>
RECORDS MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED SEPTEMBER 30, 1996
(INFORMATION FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED.)
<TABLE>
The components of deferred tax assets as of September 30, 1996 are as
follows:
<S> <C>
Current:
Allowance for doubtful accounts................................. $ 20,500
========
Long-term:
AMT credit carry-forwards....................................... $100,500
Net operating loss carry-forwards............................... 522,100
Accrued expenses................................................ 222,800
Accumulated depreciation........................................ (372,600)
Other........................................................... (36,900)
Valuation allowance............................................. (76,600)
--------
Total......................................................... $359,300
========
</TABLE>
The valuation allowance relates to state operating loss carry-forwards of
subsidiaries that have not achieved profitable operations.
10. STOCK OPTIONS
In March 1996, the president of the Company exercised an option to purchase
4,993 shares of the Company's common stock at $18.00 per share in exchange for
cash of $17,975 (20%) and a note payable in the amount of $71,899 (80%). The
note bears interest at 6% per annum and requires monthly payments of principal
and interest of $607 from October 1996 until September 2002 when the remaining
principal ($51,143) is due.
The president of the Company holds two other options, each to purchase 4,993
shares at $12.00 per share. One option expires July 31, 1997, while the other
expires September 30, 1998.
11. SUBSEQUENT EVENTS
On January 10, 1997, the Company entered into a $2,500,000 secured term loan
agreement and a $1,500,000 secured revolving line of credit agreement bearing
interest at the prime rate. Proceeds were used to repay the existing Term Loan
and Line. The Term Loan requires monthly principal payments of $33,334. All
unpaid principal of both loans is due June 30, 1998. The Term Loan is secured
by certain equipment of the Company. The Line is secured by the Company's
accounts receivable. The loans are cross-collateralized and cross-defaulted.
In December 1996, the Company issued another option to the president of the
Company to purchase 4,993 shares at $12.00 per share. This option expires
November 30, 1999.
12. SALE AGREEMENT (UNAUDITED)
In 1997 the Company signed a definitive sale agreement with Pierce Leahy
Corp. In connection with this agreement, in March 1997 the Company's board of
directors granted certain employees stock appreciation rights relating to
prior services provided. The statement of operations for the six months ended
March 31, 1997 reflects a charge of approximately $600,000 relating to such
grants. In addition, a shareholder of the Company agreed to provide additional
severance payments to certain employees for prior services which totaled
approximately $427,000. The statement of operations also reflects this special
compensation charge.
F-32
<PAGE>
[Inside Back Cover Artwork]
[Three four-color photographs]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT
ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 10
The Company.............................................................. 15
Concurrent Offering...................................................... 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Dilution................................................................. 17
Capitalization........................................................... 18
Pro Forma Financial Data................................................. 19
Selected Historical and Pro Forma Consolidated Statements of Operations,
Other Data and Balance Sheets........................................... 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 29
Business................................................................. 39
Management............................................................... 50
Certain Transactions..................................................... 58
Principal and Selling Shareholders....................................... 59
Description of Capital Stock............................................. 61
Description of Certain Indebtedness...................................... 63
Shares Eligible for Future Sale.......................................... 65
Certain U.S. Tax Consequences to Non-U.S. Shareholders................... 66
Underwriting............................................................. 67
Legal Matters............................................................ 70
Experts.................................................................. 70
Available Information.................................................... 71
Index to Consolidated Financial Statements............................... F-1
</TABLE>
------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE EQUITY OFFERINGS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,312,614 SHARES
PIERCE LEAHY CORP.
COMMON STOCK
[LOGO OF PIERCE LEAHY APPEARS HERE]
--------
PROSPECTUS
, 1997
--------
SMITH BARNEY INC.
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 27, 1997
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
[LOGO OF PIERCE LEAHY APPEARS HERE]
5,312,614 SHARES
PIERCE LEAHY CORP.
COMMON STOCK
--------
Of the 5,312,614 shares of Common Stock of Pierce Leahy Corp. (the "Company")
offered hereby, 5,100,000 shares are being sold by the Company and 212,614
shares are being sold by certain shareholders of the Company (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Shareholders.
Of the 5,312,614 shares of Common Stock offered hereby, 1,062,523 shares are
being offered for sale in an international offering outside of the United
States and Canada (the "International Equity Offering") by the Managers (as
defined herein) and 4,250,091 shares are being offered in a concurrent offering
in the United States and Canada (the "U.S. Equity Offering" and together with
the International Equity Offering, the "Equity Offerings") by the U.S.
Underwriters (as defined herein).
Prior to the Equity Offerings, there has not been a public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $15 and $18 per share. See "Underwriting" for
information relating to the factors considered in determining the initial
public offering price.
Concurrently with the Equity Offerings, the Company is offering $100,000,000
aggregate principal amount of % Senior Subordinated Notes due 2007 by a
separate prospectus (the "Notes Offering" and together with the Equity
Offerings, the "Offerings"). The consummation of the Equity Offerings is not
conditioned upon the consummation of the Notes Offering.
This document may not be passed on in the United Kingdom to any person unless
that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom this document may otherwise lawfully be issued or passed on.
The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol "PLH," subject to official notice of issuance.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the Managers and the U.S.
Underwriters, see "Underwriting."
(2) Before deducting expenses estimated at $725,000, all of which are payable
by the Company.
(3) The Company and certain of the Selling Shareholders have granted the U.S.
Underwriters a 30-day option to purchase up to an aggregate of 796,892
additional shares of Common Stock solely to cover over-allotments, if any.
See "Underwriting." If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Shareholders will be $ , $ , $ and $ ,
respectively.
--------
The shares of Common Stock are being offered by the several Managers named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that certificates for the shares of Common
Stock offered hereby will be available for delivery on or about , 1997 at the
office of Smith Barney Inc., 333 West 34th Street, New York, New York 10001.
--------
SMITH BARNEY INC.
MERRILL LYNCH INTERNATIONAL
PAINEWEBBER INTERNATIONAL
, 1997
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
THOSE TO WHICH IT RELATES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 10
The Company.............................................................. 15
Concurrent Offering...................................................... 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Dilution................................................................. 17
Capitalization........................................................... 18
Pro Forma Financial Data................................................. 19
Selected Historical and Pro Forma Consolidated Statements of Operations,
Other Data and Balance Sheets........................................... 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 29
Business................................................................. 39
Management............................................................... 50
Certain Transactions..................................................... 58
Principal and Selling Shareholders....................................... 59
Description of Capital Stock............................................. 61
Description of Certain Indebtedness...................................... 63
Shares Eligible for Future Sale.......................................... 65
Certain U.S. Tax Consequences to Non-U.S. Shareholders................... 66
Underwriting............................................................. 67
Legal Matters............................................................ 70
Experts.................................................................. 70
Available Information.................................................... 71
Index to Consolidated Financial Statements............................... F-1
</TABLE>
-----------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE EQUITY OFFERINGS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,312,614 SHARES
PIERCE LEAHY CORP.
COMMON STOCK
[LOGO OF PIERCE LEAHY APPEARS HERE]
-------
PROSPECTUS
, 1997
-------
SMITH BARNEY INC.
MERRILL LYNCH INTERNATIONAL
PAINEWEBBER INTERNATIONAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth fees payable to the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc. and the New
York Stock Exchange and other expenses expected to be incurred in connection
with the issuance and distribution of the securities being registered. All of
the fees and expenses will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.................. $ 33,334
National Association of Securities Dealers, Inc. Filing Fee.......... 11,500
New York Stock Exchange Listing Fee.................................. 130,000
Legal Fees and Expenses.............................................. 150,000*
Accounting Fees and Expenses......................................... 200,000*
Blue Sky Fees and Expenses........................................... 5,000*
Transfer Agent Fees and Expenses..................................... 10,000*
Printing and Engraving Expenses...................................... 175,000*
Miscellaneous........................................................ 10,166*
--------
Total.............................................................. $725,000*
========
</TABLE>
- --------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subchapter D (Sections 1741 through 1750) of Chapter 17 the Pennsylvania
Business Corporation Law of 1988, as amended (the "PBCL"), contains provisions
for mandatory and discretionary indemnification of a corporation's directors,
officers, employees and agents (collectively "Representatives") and related
matters.
Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors, officers and other Representatives under certain
prescribed circumstances against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with a threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party or threatened to be made a party by reason of his being
a Representative of the corporation or serving at the request of the
corporation as a Representative of another corporation, partnership, joint
venture, trust or other enterprise, if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful.
Section 1742 provides for indemnification with respect to derivative and
corporate actions similar to that provided by Section 1741. However,
indemnification is not provided under Section 1742 in respect of any claim,
issue or matter as to which a Representative has been adjudged to be liable to
the corporation unless and only to the extent that the proper court determines
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, a Representative is fairly and reasonably
entitled to indemnity for the expenses that the court deems proper.
Section 1743 provides that indemnification against expenses is mandatory to
the extent that a Representative has been successful on the merits or
otherwise in defense of any such action or proceeding referred to in Section
1741 or 1742.
Section 1744 provides that unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation as authorized in
the specific case upon a determination that indemnification of a
II-1
<PAGE>
Representative is proper because the Representative met the applicable
standard of conduct, and such determination will be made by the board of
directors by a majority vote of a quorum of directors not parties to the
action or proceeding; if a quorum is not obtainable or if obtainable and a
majority of disinterested directors so directs, by independent legal counsel;
or by the shareholders.
Section 1745 provides that expenses incurred by a Representative in
defending any action or proceeding referred to in Subchapter D of Chapter 17
of the PBCL may be paid by the corporation in advance of the final disposition
of such action or proceeding upon receipt of an undertaking by or on behalf of
the Representative to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation.
Section 1746 provides generally that except in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by Subchapter D of
Chapter 17 of the PBCL shall not be deemed exclusive of any other rights to
which a Representative seeking indemnification or advancement of expenses may
be entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding that office.
Section 1747 grants a corporation the power to purchase and maintain
insurance on behalf of any Representative against any liability incurred by
him in his capacity as a Representative, whether or not the corporation would
have the power to indemnify him against that liability under Subchapter D of
Chapter 17 of the PBCL.
Sections 1748 and 1749 apply the indemnification and advancement of expenses
provisions contained in Subchapter D of Chapter 17 of the PBCL to successor
corporations resulting from consolidation, merger or division and to service
as a representative of a corporation or an employee benefit plan.
Section 7.2 of the Company's Bylaws provides indemnification to directors
and officers for all actions taken by them and for all failures to take action
to the fullest extent permitted by Pennsylvania law against all expense,
liability and loss reasonably incurred or suffered by them in connection with
any threatened, pending or completed action, suit or proceeding (including,
without limitation, an action, suit or proceeding by or in the right of the
Company), whether civil, criminal, administrative, investigative or through
arbitration. Section 7.2 also permits the Company, by action of its Board of
Directors, to indemnify officers, employees and other persons to the same
extent as directors. Amendments, repeals or modifications of Section 7.2 can
only be prospective and such changes require the affirmative vote of not less
than all of the directors then serving or holders of a majority of the
outstanding shares of stock of the Company entitled to vote in elections of
directors. Section 7.2 further permits the Company to maintain insurance, at
its expense, for the benefit of any person on behalf of whom insurance is
permitted to be purchased by Pennsylvania law against any such expenses,
liability or loss, whether or not the Company would have the power to
indemnify such person against such expense, liability or loss under
Pennsylvania or other law.
See Section 9 of the U.S. Underwriting Agreement and Section 9 of the
International Underwriting Agreement, filed as Exhibits 1.1 and 1.2 hereto,
respectively, pursuant to which the Underwriters agree to indemnify the
Company, its directors, officers and controlling persons against certain
liabilities, including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In April 1997, the Company undertook a recapitalization in which shares of
voting and nonvoting Common Stock were reclassified into one class of shares
of Common Stock. The Company was then redomesticated into Pennsylvania
pursuant to a merger (all such transactions, the "Stock Recapitalization").
The Stock Recapitalization was exempt from registration under Section 3(a)(9)
of the Securities Act of 1933 (the "Securities Act").
II-2
<PAGE>
In July 1996, the Company sold $200,000,000 aggregate principal amount of
11-1/8% Senior Subordinated Notes due 2006 (the "1996 Notes") to "qualified
institutional buyers," as defined in Rule 144A under the Securities Act. The
sale of the 1996 Notes was exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
1.1* Form of U.S. Underwriting Agreement
1.2* Form of International Underwriting Agreement
3.1** Articles of Incorporation of the Company
3.2** Bylaws of the Company
5** Opinion of Cozen and O'Connor
9** Form of Voting Trust Agreement by and among certain shareholders of
the Company
10.1 Pierce Leahy Corp. Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement on
Form S-4, File No. 333-9963)
10.2** Pierce Leahy Corp. 1997 Stock Option Plan
10.3 Credit Agreement, dated as of August 13, 1996, among the Company,
Pierce Leahy Command Company, the several lenders from time to time
parties thereto, Canadian Imperial Bank of Commerce, as Canadian Ad-
ministrative Agent, and Canadian Imperial Bank of Commerce, New York
Agency, as U.S. administrative agent, together with certain collateral
documents attached thereto, including the form of US$ 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 subsidi-
aries 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 (in-
corporated 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* Form of Indenture among the Company, as issuer, and The Bank of New
York, as trustee
10.6 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)
10.7 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)
10.8 Stock Purchase Agreement dated as of February 27, 1997 between the
Company, Records Management Services, Inc. and certain shareholders of
Records Management Services, Inc. (incorporated by reference to Ex-
hibit 10.7 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
10.9** Form of Tax Indemnification Agreement among the Company and certain of
its shareholders
10.10** First Amendment, dated as of October 23, 1996, to the Credit Agreement
10.11** Second Amendment and Consent, dated as of March 27, 1997, to the
Credit Agreement
10.12** Third Amendment, Consent and Waiver, dated as of May 22, 1997, to the
Credit Agreement
10.13* Fourth Amendment and Consent, dated as of June 26, 1996, to the Credit
Agreement
11** Statement re: computation of per share earnings
21** Subsidiaries of the Registrant
23.1 Consent of Cozen and O'Connor (included in Exhibit 5)
23.2* Consent of Arthur Andersen LLP
23.3* Consent of Deloitte & Touche LLP
23.4* Consent of Deloitte & Touche LLP
24** Power of Attorney
</TABLE>
- --------
* Filed herewith.
** Previously filed.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430(A) and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4),
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For determining any liability under the Securities Act, each post-
effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered in the
registration statement, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN KING OF PRUSSIA, PENNSYLVANIA, ON
JUNE 27, 1997.
Pierce Leahy Corp.
By: /s/ J. Peter Pierce
---------------------------------
J. PETER PIERCE,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the June 27, 1997
- ------------------------------------ Board of Directors
LEO W. PIERCE, SR.
/s/ J. Peter Pierce President, Chief June 27, 1997
- ------------------------------------ Executive Officer
J. PETER PIERCE and Director
(Principal
Executive Officer)
/s/ Douglas B. Huntley Vice President, June 27, 1997
- ------------------------------------ Chief Financial
DOUGLAS B. HUNTLEY Officer and
Director
(Principal
Financial and
Accounting
Officer)
* Director June 27, 1997
- ------------------------------------
LEO W. PIERCE, JR.
* Director June 27, 1997
- ------------------------------------
MICHAEL J. PIERCE
* Director June 27, 1997
- ------------------------------------
ALAN B. CAMPELL
* Director June 27, 1997
- ------------------------------------
DELBERT S. CONNER
/s/ J. Peter Pierce
By: ________________________________
J. PETER PIERCE
/s/ Douglas B. Huntley
By: ________________________________
DOUGLAS B. HUNTLEY
Attorneys-in-fact pursuant to the powers
of attorney previously provided as part
of this Registration Statement.
</TABLE>
II-5
<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. 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>
March 31, 1997 (unaudited):
Reserve for doubtful accounts...... $795 $234 $ 47 $982
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 $554
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
1.1* Form of U.S. Underwriting Agreement
1.2* Form of International Underwriting Agreement
3.1** Articles of Incorporation of the Company
3.2** Bylaws of the Company
5** Opinion of Cozen and O'Connor
9** Form of Voting Trust Agreement by and among certain shareholders of
the Company
10.1 Pierce Leahy Corp. Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement on
Form S-4, File No. 333-9963)
10.2** Pierce Leahy Corp. 1997 Stock Option Plan
10.3 Credit Agreement, dated as of August 13, 1996, among the Company,
Pierce Leahy Command Company, the several lenders from time to time
parties thereto, Canadian Imperial Bank of Commerce, as Canadian Ad-
ministrative Agent, and Canadian Imperial Bank of Commerce, New York
Agency, as U.S. administrative agent, together with certain collateral
documents attached thereto, including the form of US$ 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 subsidi-
aries 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 (in-
corporated 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* Form of Indenture among the Company, as issuer, and The Bank of New
York, as trustee
10.6 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)
10.7 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)
10.8 Stock Purchase Agreement dated as of February 27, 1997 between the
Company, Records Management Services, Inc. and certain shareholders of
Records Management Services, Inc. (incorporated by reference to Ex-
hibit 10.7 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
10.9** Form of Tax Indemnification Agreement among the Company and certain of
its shareholders
10.10** First Amendment, dated as of October 23, 1996, to the Credit Agreement
10.11** Second Amendment and Consent, dated as of March 27, 1997, to the
Credit Agreement
10.12** Third Amendment, Consent and Waiver, dated as of May 22, 1997, to the
Credit Agreement
10.13* Fourth Amendment and Consent, dated as of June 26, 1996, to the Credit
Agreement
11** Statement re: computation of per share earnings
21** Subsidiaries of the Registrant
23.1 Consent of Cozen and O'Connor (included in Exhibit 5)
23.2* Consent of Arthur Andersen LLP
23.3* Consent of Deloitte & Touche LLP
23.4* Consent of Deloitte & Touche LLP
24** Power of Attorney
</TABLE>
- --------
* Filed herewith.
** Previously filed.
<PAGE>
EXHIBIT 1.1
4,250,091 Shares
PIERCE LEAHY CORP.
Common Stock
U.S. UNDERWRITING AGREEMENT
---------------------------
June , 1997
SMITH BARNEY INC.
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Pierce Leahy Corp., a Pennsylvania corporation (the "Company"),
proposes to issue and sell an aggregate of 4,080,000 shares of its common stock,
par value $.01 per share, and the persons named in Part A of Schedule I hereto
(the "Selling Shareholders") propose to sell an aggregate of 170,091 shares of
common stock of the Company (together with the 4,080,000 shares of common stock
to be issued and sold by the Company, the "Firm Shares") to the several
Underwriters named in Schedule II hereto (the "U.S. Underwriters") for whom
Smith Barney Inc., Merrill Lynch & Co. and PaineWebber Incorporated, are acting
as representatives (the "Representatives"). In addition, solely for the purpose
of covering over-allotments, certain of the Selling Shareholders and the Company
propose to sell to the U.S. Underwriters, upon the terms and conditions set
forth in Section 2 hereof, up to an aggregate of an additional 796,892 shares
(the "Additional Shares") of the Company's common stock. The Company and the
Selling Shareholders are hereinafter sometimes referred to as the "Sellers."
The Firm Shares and the Additional Shares are hereinafter collectively referred
to as the "Shares." The Company's common stock, par value $.01 per share,
including the Shares and the International Shares (as defined herein), is
hereinafter referred to as the "Common Stock."
<PAGE>
It is understood that the Company and the Selling Shareholders are
concurrently entering into an International Underwriting Agreement, dated the
date hereof (the "International Underwriting Agreement"), providing for the sale
of 1,062,523 shares of the Common Stock (the "International Shares"), of which
1,020,000 shares will be sold by the Company and 42,523 will be sold by the
Selling Shareholders through arrangements with certain underwriters outside the
United States and Canada (the "Managers"), for whom Smith Barney Inc., Merrill
Lynch International and PaineWebber International are acting as lead Managers
(the "Lead Managers"). The International Shares and the Shares, collectively,
are herein called the "Underwritten Shares."
The Company and the Selling Shareholders also understand that the
Representatives and the Lead Managers have entered into an agreement (the
"Agreement Between U.S. Underwriters and Managers") contemplating the
coordination of certain transactions between the U.S. Underwriters and the
Managers and that, pursuant thereto and subject to the conditions set forth
therein, the U.S. Underwriters may purchase from the Managers a portion of the
International Shares or sell to the Managers a portion of the Shares. The
Company and the Selling Shareholders understand that any such purchases and
sales between the U.S. Underwriters and the Managers shall be governed by the
Agreement Between U.S. Underwriters and Managers and shall not be governed by
the terms of this Agreement or the International Underwriting Agreement.
The Company and the Selling Shareholders wish to confirm as follows
their respective agreements with you and the other several Underwriters on whose
behalf you are acting, in connection with the several purchases of the Shares by
the Underwriters.
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1, including prospectuses subject to
completion, relating to the Underwritten Shares. The term "Registration
Statement" as used in this Agreement means the registration statement (including
all financial schedules and exhibits), as amended at the time it becomes
effective, or, if the registration statement became effective prior to the
execution of this Agreement, as supplemented or amended prior to the execution
of this Agreement. If it is contemplated, at the time this Agreement is
executed, that a post-effective amendment to the registration statement will be
filed and must be declared effective
2
<PAGE>
before the offering of the Shares may commence, the term "Registration
Statement" as used in this Agreement means the registration statement as amended
by said post-effective amendment. If an abbreviated registration statement is
prepared and filed with the Commission in accordance with Rule 462(b) under the
Act ("an Abbreviated Registration Statement"), the term "Registration Statement"
as used in this Agreement includes the Abbreviated Registration Statement. The
term "Prospectuses" as used in this Agreement means the prospectuses in the
forms included in the Registration Statement, or, if the prospectuses included
in the Registration Statement omit information in reliance on Rule 430A under
the Act and such information is included in prospectuses filed with the
Commission pursuant to Rule 424(b) under the Act, the term "Prospectuses" as
used in this Agreement means the prospectuses in the forms included in the
Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectuses filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectuses" as used in this Agreement means
the prospectuses subject to completion in the forms included in the Registration
Statement at the time of the initial filing of the Registration Statement with
the Commission, and as such prospectuses shall have been amended from time to
time prior to the date of the Prospectuses.
It is understood that two forms of Prepricing Prospectus and two forms
of Prospectus are to be used in connection with the offering and sale of the
Underwritten Shares: a Prepricing Prospectus and a Prospectus relating to the
Shares that are to be offered and sold in the United States (as defined herein)
or Canada (as defined herein) to U.S. or Canadian Persons (the "U.S. Prepricing
Prospectus" and the "U.S. Prospectus," respectively), and a Prepricing
Prospectus and a Prospectus relating to the International Shares which are to be
offered and sold outside the United States or Canada to persons other than U.S.
or Canadian Persons (the "International Prepricing Prospectus" and the
"International Prospectus," respectively). The U.S. Prospectus and the
International Prospectus are herein collectively called the "Prospectuses," and
the U.S. Prepricing Prospectus and the International Prepricing Prospectus are
herein called the "Prepricing Prospectuses." For purposes of this Agreement:
"Rules and Regulations" means the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable; "U.S. or Canadian Person" means any
resident or national of the United States or Canada, any corporation,
partnership or other entity created or organized in or under the laws of the
United States or Canada or any estate or trust the income of which is subject to
3
<PAGE>
United States or Canadian income taxation regardless of the source of its income
(other than the foreign branch of any U.S. or Canadian Person), and includes any
United States or Canadian branch of a person other than a U.S. or Canadian
Person; "United States" means the United States of America (including the states
thereof and the District of Columbia) and its territories, its possessions and
other areas subject to its jurisdiction; and "Canada" means Canada and its
territories, its possessions and other areas subject to its jurisdiction.
2. Agreements to Sell and Purchase. Upon the basis of the
representations, warranties and agreements contained herein and subject to all
the terms and conditions set forth herein and to such adjustments as you may
determine to avoid fractional shares, the Company hereby agrees to issue and
sell to each U.S. Underwriter and each U.S. Underwriter agrees, severally and
not jointly, to purchase from the Company, at a purchase price of $ per
share (the "purchase price per share"), the number of Firm Shares that bears the
same proportion to the aggregate number of Firm Shares to be issued and sold by
the Company as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule II hereto (or such number of Firm Shares increased as
set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to
be sold by the Company and the Selling Shareholders.
Upon the basis of the representations, warranties and agreements
contained herein and subject to all the terms and conditions set forth herein
and to such adjustments as you may determine to avoid fractional shares, each
Selling Shareholder agrees to sell to each U.S. Underwriter and each U.S.
Underwriter agrees, severally and not jointly, to purchase from each Selling
Shareholder, at the purchase price per share, the number of Firm Shares that
bears the same proportion to the number of Firm Shares set forth opposite the
name of such Selling Shareholder in Schedule I hereto as the number of Firm
Shares set forth opposite the name of such U.S. Underwriter in Schedule II
hereto (or such number of Firm Shares increased as set forth in Section 12
hereof) bears to the aggregate number of Firm Shares to be sold by the Company
and the Selling Shareholders.
Upon the basis of the representations, warranties and agreements
contained herein and subject to all the terms and conditions set forth herein,
the Selling Shareholders listed in Part B of Schedule I hereto and the Company
also agree to sell to the U.S. Underwriters, and the U.S. Underwriters shall
have the right to purchase from such Selling Shareholders listed in Part B of
Schedule I hereto and the Company, at the purchase price per
4
<PAGE>
share, pursuant to an option (the "over-allotment option") which may be
exercised prior to 5:00 p.m., New York City time, on the 30th day after the date
of the U.S. Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange is
open for trading), up to an aggregate of 796,892 Additional Shares from (i) the
Selling Shareholders listed in Part B of Schedule I hereto (the maximum number
of Additional Shares that each of them agrees to sell upon the exercise by the
U.S. Underwriters of the over-allotment option is set forth opposite their
respective names in Part B of Schedule I) and (ii) the Company (the maximum
number of Additional Shares that the Company agrees to sell upon the exercise by
the U.S. Underwriters of the over-allotment option is set forth opposite its
name in Part B of Schedule II). The number of Additional Shares that the U.S.
Underwriters elect to purchase upon any exercise of the over-allotment option
shall be provided first, by each Selling Shareholder who has agreed to sell
Additional Shares in proportion to the respective maximum number of Additional
Shares that each such Selling Shareholder has agreed to sell and second, after
all Additional Shares of the Selling Shareholders have been sold, by the
Company. Upon any exercise of the over-allotment option, each U.S. Underwriter,
severally and not jointly, agrees to purchase from each Selling Shareholder who
has agreed to sell Additional Shares and, if applicable, the Company the number
of Additional Shares (subject to such adjustments as you may determine in order
to avoid fractional shares) that bears the same proportion to the number of
Additional Shares to be sold by each Selling Shareholder who has agreed to sell
Additional Shares first and then from the Company as the number of Firm Shares
set forth opposite the name of such U.S. Underwriter in Schedule II hereto (or
such number of Firm Shares increased as set forth in Section 12 hereof) bears to
the aggregate number of Firm Shares to be sold by the Selling Shareholders and
the Company.
Certificates in transferable form for the Shares that each of the
Selling Shareholders agrees to sell pursuant to this Agreement have been placed
in custody with State Street Bank and Trust Company (the "Custodian") for
delivery under this Agreement pursuant to a Custody Agreement and Power of
Attorney (the "Custody Agreement") executed by each of the Selling Shareholders
appointing J. Peter Pierce and Douglas B. Huntley as agents and attorneys-in-
fact (the "Attorneys-in-Fact"). Each Selling Shareholder agrees that (i) the
Shares represented by the certificates held in custody pursuant to the Custody
Agreement are subject to the interests of the U.S. Underwriters, the Company and
each other Selling Shareholder, (ii) the arrangements made by the Selling
Shareholders for such custody are, except as specifically provided in the
5
<PAGE>
Custody Agreement, irrevocable, and (iii) the obligations of the Selling
Shareholders hereunder and under the Custody Agreement shall not be terminated
by any act of such Selling Shareholder or by operation of law, whether by the
death or incapacity of any Selling Shareholder or the occurrence of any other
event or, if the Selling Shareholder is not a natural person, upon any
dissolution, winding up, distribution of assets or other event affecting the
legal existence of such Selling Shareholder. If any Selling Shareholder shall
die or be incapacitated or if any other event shall occur before the delivery of
the Shares hereunder or if the Selling Shareholder is not a natural person,
shall dissolve, wind up, distribute assets or if any other event affecting the
legal existence of such Selling Shareholder shall occur before the delivery of
the Shares hereunder, certificates for the Shares of such Selling Shareholder
shall be delivered to the Underwriters by the Attorneys-in-Fact in accordance
with the terms and conditions of this Agreement and the Custody Agreement as if
such death or incapacity, dissolution, winding up or distribution of assets or
other event had not occurred, regardless of whether or not the Attorneys-in-Fact
or any U.S. Underwriter shall have received notice of such death, incapacity,
dissolution, winding up or distribution of assets or other event. Each
Attorney-in-Fact is authorized, on behalf of each of the Selling Shareholders,
to execute this Agreement and any other documents necessary or desirable in
connection with the sale of the Shares to be sold hereunder by such Selling
Shareholder, to make delivery of the certificates for such Shares, to receive
the proceeds of the sale of such Shares, to give receipts for such proceeds, to
pay therefrom any expenses to be borne by such Selling Shareholder in connection
with the sale and public offering of such Shares, to distribute the balance
thereof to such Selling Shareholder, and to take such other action as may be
necessary or desirable in connection with the transactions contemplated by this
Agreement. Each Attorney-in-Fact agrees to perform his duties under the Custody
Agreement.
Each U.S Underwriter represents, warrants, covenants and agrees that,
except as contemplated under Section 2 of the Agreement Between U.S.
Underwriters and Managers dated the date hereof, (i) it is not purchasing any
Shares for the account of anyone other than a U.S. or Canadian Person, (ii) it
has not offered or sold, and will not offer, sell, resell or deliver, directly
or indirectly, any Shares or distribute any U.S. Prospectus outside the United
States or Canada or to anyone other than a U.S. or Canadian Person, and (iii)
any offer of Shares in Canada will be made only pursuant to an exemption from
the
6
<PAGE>
requirement to file a prospectus in the relevant province of Canada in which
such offer is made.
3. Terms of Public Offering. The Sellers have been advised by you that
the U.S. Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the U.S. Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the U.S.
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New
York City time, on , 1997 (the "Closing Date"). The place of closing
for the Firm Shares and the Closing Date may be varied by agreement among you,
the Company and the Attorneys-in-Fact.
Delivery to the U.S. Underwriters of and payment for any Additional
Shares to be purchased by the U.S. Underwriters shall be made at the
aforementioned office of Smith Barney Inc. at such time on such date (the
"Option Closing Date"), which may be the same as the Closing Date but shall in
no event be earlier than the Closing Date nor earlier than two nor later than
ten business days after the giving of the notice hereinafter referred to, as
shall be specified in a written notice from you on behalf of the U.S.
Underwriters to the Company of the U.S. Underwriters' determination to purchase
a number, specified in such notice, of Additional Shares. The place of closing
for any Additional Shares and the Option Closing Date for such Shares may be
varied by agreement between you and the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request by written notice, it being understood that a facsimile
transmission shall be deemed written notice, prior to 9:30 A.M., New York City
time, on the second business day preceding the Closing Date or any Option
Closing Date, as the case may be. Such certificates shall be made available to
you in New York City for inspection and packaging not later than 9:30 A.M., New
York City time, on the business day next preceding the Closing Date or the
Option Closing Date, as the case may be. The certificates and stock powers
evidencing the Firm Shares and any Additional Shares to be purchased hereunder
shall be delivered to you on the Closing Date or the Option Closing Date, as the
case may be, against payment of the purchase price therefor in
7
<PAGE>
immediately available funds as directed by the Company or the Attorneys-in-Fact,
as applicable.
5. Agreements of the Company. The Company agrees with the several U.S.
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Company will endeavor to cause the Registration Statement or such post-effective
amendment to become effective as soon as possible and will advise you promptly
and, if requested by you, will confirm such advice in writing, when the
Registration Statement or such post-effective amendment has become effective.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectuses or the Prospectuses or for additional information; (ii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, including the filing of any information, documents or reports
pursuant to the Exchange Act, that makes any statement of a material fact made
in the Registration Statement or the Prospectuses (as then amended or
supplemented) untrue or which requires the making of any additions to or changes
in the Registration Statement or the Prospectuses (as then amended or
supplemented) in order to state a material fact required by the Act or the
regulations thereunder to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Prospectuses (as then amended or supplemented) to comply with the Act or any
other law. If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible time.
(c) The Company will furnish to you, without charge, three signed
copies of the Registration Statement as originally filed with the Commission and
of each amendment thereto, including
8
<PAGE>
financial statements and all exhibits to the Registration Statement and will
also furnish to you, without charge, such number of conformed copies of the
Registration Statement as originally filed and of each amendment thereto, but
without exhibits, as you may reasonably request.
(d) The Company will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectuses of which you
shall not previously have been advised or to which you shall reasonably object
in writing after being so advised or (ii) so long as, in the written opinion of
counsel for the U.S. Underwriters (a copy of which shall be delivered to the
Company), a prospectus is required to be delivered in connection with sales by
any U.S. Underwriter or dealer, file any information, documents or reports
pursuant to the Exchange Act, without delivering a copy of such information,
documents or reports to you, as Representatives of the U.S. Underwriters, prior
to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to you, without charge, in such quantities
as you have reasonably requested or may hereafter reasonably request, copies of
each form of the U.S. Prepricing Prospectus. The Company consents to the use,
in accordance with the provisions of the Act and with the securities or Blue Sky
laws of the jurisdictions in which the Shares are offered by the several U.S.
Underwriters and by dealers, prior to the date of the U.S. Prospectus, of each
U.S. Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the written
opinion of counsel for the U.S. Underwriters a U.S. Prospectus is required by
the Act to be delivered in connection with sales by any U.S. Underwriter or
dealer, the Company will expeditiously deliver to each U.S. Underwriter and each
dealer, without charge, as many copies of the U.S. Prospectus (and of any
amendment or supplement thereto) as you may reasonably request for a period of
nine months after the date of this Agreement; provided, however, that if a
request for copies of the Prospectuses is made by any U.S. Underwriter or dealer
after such nine-month period, the costs associated with the preparing and filing
of any post-effective amendment to the Registration Statement or any amendment
or supplement to the Prospectuses and delivery of the Prospectuses (and of any
amendment or supplement thereto) shall be borne by such U.S. Underwriter or
dealer. The Company consents to the use of the U.S. Prospectus (and of any
9
<PAGE>
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several U.S. Underwriters and by all dealers to whom
Shares may be sold, both in connection with the offering and sale of the Shares
and for such period of time thereafter as the U.S. Prospectus is required by the
Act to be delivered in connection with sales by any U.S. Underwriter or dealer.
If during such period of time any event shall occur that in the judgment of the
Company or in the written opinion of counsel for the U.S. Underwriters is
required to be set forth in the U.S. Prospectus (as then amended or
supplemented) or should be set forth therein in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary to supplement or amend the U.S. Prospectus to
comply with the Act or any other law, the Company will make every reasonable
effort to prepare and, subject to the provisions of paragraph (d) above and this
paragraph (f), file with the Commission an appropriate supplement or amendment
thereto and will expeditiously furnish to the U.S. Underwriters and dealers a
reasonable number of copies thereof. Each U.S. Underwriter agrees that after
receipt of any supplement or amendment to the Prospectus, it will not deliver
the Prospectus other than as so supplemented or amended. In the event that the
Company and you, as Representatives of the several Underwriters, agree that the
Prospectus should be amended or supplemented, the Company, if reasonably
requested by you, will promptly issue a press release announcing or disclosing
the matters to be covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel for the U.S.
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several U.S. Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may reasonably
designate and will file such consents to service of process or other documents
necessary or appropriate in order to effect such registration or qualification;
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action that would subject it to taxation or to service of process in suits,
other than those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a twelve-
month period commencing after the effective date of the Registration Statement
and ending not later
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than 15 months thereafter, as soon as reasonably practicable after the end of
such period, which consolidated earnings statement shall satisfy the provisions
of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission or the New York Stock
Exchange and (ii) from time to time such other information concerning the
Company as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 hereof or by notice given by you terminating this
Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement
shall be terminated by the U.S. Underwriters because of any failure or refusal
on the part of the Company or any of the Selling Shareholders to comply, in any
material respect, with the terms or fulfill, in any material respect, any of the
conditions of this Agreement, the Company agrees to reimburse the
Representatives for all reasonable out-of-pocket expenses (including reasonable
fees and expenses of counsel for the U.S. Underwriters) incurred by you in
connection herewith.
(k) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectuses.
(l) If Rule 430A of the Act is employed, the Company will make every
reasonable effort to timely file the Prospectuses pursuant to Rule 424(b) under
the Act and will advise you of the time and manner of such filing.
(m) For a period of 180 days after the date hereof (the "Lock-up
Period"), the Company will not, without the prior written consent of Smith
Barney Inc., offer, sell, contract to sell or otherwise dispose of any Common
Stock (or any securities convertible into or exercisable or exchangeable for
Common Stock) or grant any options or warrants to purchase Common Stock that are
exercisable during the Lock-up Period, except for (i) sales to the U.S.
Underwriters pursuant to this Agreement and the Managers pursuant to the
International Underwriting Agreement, (ii) the issuance of Shares upon exercise
of outstanding options and (iii) the issuance of Shares in connection with
acquisitions, provided that the recipients of such Shares agree not to sell the
Shares during the Lock-up Period.
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(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current executive officers and directors and will make every reasonable effort
to furnish to you "lock-up" letters signed by each of its shareholders
designated by you.
(o) Except as stated in this Agreement and in the International
Underwriting Agreement and in the Prepricing Prospectuses and Prospectuses, the
Company has not taken, nor will it take, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares.
(p) The Company will use its best efforts to have the Common Stock
listed, subject to notice of issuance, on the New York Stock Exchange
concurrently with the effectiveness of the Registration Statement.
6. Agreements of the Selling Shareholders. Each of the Selling
Shareholders agrees with the several U.S. Underwriters as follows:
(a) Such Selling Shareholder will cooperate to the extent reasonably
necessary to cause the Registration Statement or any post-effective amendment
thereto to become effective at the earliest possible time.
(b) Such Selling Shareholder will pay all Federal and other taxes, if
any, on the transfer or sale of such Shares that are sold by such Selling
Shareholder to the U.S. Underwriters.
(c) Such Selling Shareholder will do or perform all things reasonably
required to be done or performed by such Selling Shareholder prior to the
Closing Date or any Option Closing Date, if applicable, to satisfy all
conditions precedent with respect to such Selling Shareholder to the delivery of
the Shares pursuant to this Agreement.
(d) Such Selling Shareholder has executed or will execute a "lock-up"
letter as provided in Section 5(n) above and will not sell, contract to sell or
otherwise dispose of any Common Stock, except as provided therein or for the
sale of Shares to the Underwriters pursuant to this Agreement, prior to the
expiration of the Lock-Up Period, without the prior written consent of Smith
Barney Inc.
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(e) Except as stated in this Agreement and the International
Underwriting Agreement and in the Prepricing Prospectuses and the Prospectuses,
such Selling Shareholder has not taken, nor will it take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(f) To the extent that any statements or omissions made in the
Registration Statement or the Prospectuses (as amended or supplemented, if
amended or supplemented) specifically refer to the information regarding a
Selling Shareholder under the caption "Principal and Selling Shareholders," such
Selling Shareholder will advise you promptly upon becoming aware, and if
requested by you, will confirm such advice in writing, within the period of time
referred to in Section 5(f) hereof, of any change in such information that comes
to the attention of such Selling Shareholder that makes any statement made in
the Registration Statement or the Prospectuses (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectuses (as then amended or supplemented) in
order to state a material fact required by the Act or the regulations thereunder
to be stated therein or necessary in order to make the statements therein not
misleading, or of the necessity to amend or supplement the Prospectuses (as then
amended or supplemented) to comply with the Act or any other law.
7. Representations and Warranties of the Company. The Company represents
and warrants to each U.S. Underwriter that:
(a) Each U.S. Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act; except that
this representation and warranty does not apply to statements in or omissions
from such U.S. Prepricing Prospectus (or any amendment or supplement thereto)
made in reliance upon and in conformity with information relating to any Selling
Shareholder or to any U.S. Underwriter or Manager furnished to the Company in
writing by a Selling Shareholder or a U.S. Underwriter through the
Representatives or by a Manager through the Lead Managers expressly for use
therein. The Commission has not issued any order preventing or suspending the
use of any Prepricing Prospectus.
(b) The Registration Statement in the form in which it became or
becomes effective, including the information deemed to be
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<PAGE>
part of the Registration Statement at the time of effectiveness pursuant to Rule
430A(b), and also in such form as it may be when any post-effective amendment
thereto shall become effective and the Prospectuses and any supplement or
amendment thereto when filed with the Commission under Rule 424(b) under the
Act, complied or will comply in all material respects with the provisions of the
Act and will not at any such times contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; except that this representation
and warranty does not apply to statements in or omissions from the Registration
Statement or the Prospectuses made in reliance upon and in conformity with
information relating to any Selling Shareholder or to any U.S. Underwriter or
Manager furnished to the Company in writing by a Selling Shareholder or a U.S.
Underwriter through the Representatives or by a Manager through the Lead
Managers expressly for use therein.
(c) All the outstanding shares of Common Stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable and
are free of any preemptive or similar rights; the Shares to be issued and sold
by the Company have been duly authorized and, when issued and delivered to the
U.S. Underwriters against payment therefor in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable and free of any preemptive
or similar rights; and the capital stock of the Company conforms to the
description thereof in the Registration Statement and the Prospectuses under the
caption "Description of Capital Stock."
(d) The Company is a corporation duly organized and validly subsisting
under the laws of the Commonwealth of Pennsylvania with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectuses. Within
fourteen days of the Closing Date the Company will be duly registered and
qualified to conduct its business and in good standing in each jurisdiction
where the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not (1) have a material adverse effect on the condition (financial
or other), business, properties, shareholders' equity or results of operations
of the Company and the Subsidiaries (as hereinafter defined), taken as a whole,
(2) materially adversely affect the issuance, validity or enforceability of the
Shares or (3) materially adversely affect the consummation of any of the
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<PAGE>
transactions contemplated by this Agreement (each of (1), (2) and (3) above, a
"Material Adverse Effect").
(e) All the Company's subsidiaries (as defined in Rule 1-02(x) of
Regulation S-X and as required to be identified by Item 601(b)(21) of Regulation
S-K) are listed in an exhibit to the Registration Statement (collectively, the
"Subsidiaries"). Each Subsidiary is either (i) a corporation duly organized,
validly existing and in good standing in the jurisdiction of its incorporation,
or (ii) a partnership duly organized and validly existing under the applicable
laws of the Commonwealth of Pennsylvania. Each Subsidiary has the requisite
corporate or partnership, as the case may be, power and authority to own, lease
and operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus, and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not individually or in the aggregate have a Material Adverse
Effect. All the outstanding shares of capital stock of each of the corporate
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and are 99% or greater owned by the Company directly, or
indirectly through one or more of the other Subsidiaries, free and clear of any
lien, adverse claim, security interest, equity or other encumbrance, other than
the pledge of such shares pursuant to the Pledge and Intercreditor Agreement, as
amended, and the Credit Facility (as defined in the Registration Statement).
(f) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any of its
Subsidiaries which are materially adverse to the Company and its Subsidiaries,
taken as a whole, or to which the Company or any of the Subsidiaries, or to
which any of their respective properties is subject, which are material to the
Company and its Subsidiaries, taken as a whole, that are required to be
described in the Registration Statement or the Prospectuses but are not
described as required.
(g) Neither the Company nor any of the Subsidiaries is (i) in
violation of its certificate or articles of incorporation or by-laws, or other
organizational documents, (ii) in violation of any statute, law, ordinance,
administrative or governmental rule or regulation applicable to the Company or
any of the Subsidiaries or of any ruling, judgment, injunction, order or decree
of any court or governmental agency or body having jurisdiction over the Company
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<PAGE>
or any of the Subsidiaries (except where any such violation or violations in the
aggregate would not have a Material Adverse Effect), or (iii) in default in any
material respect in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
in any material agreement, indenture, lease or other instrument to which the
Company or any of the Subsidiaries is a party or by which any of them or any of
their respective properties may be bound (except where any such default or
defaults in the aggregate would not have a Material Adverse Effect).
(h) Other than as will be obtained, waived or otherwise corrected
prior to the Closing Date, neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement or the International
Underwriting Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby and thereby (i) requires any consent, approval,
authorization or other order of or registration or filing with, any court,
regulatory body, administrative agency or other governmental body, agency or
official (except as may be required for the registration of the Shares under the
Act and the Exchange Act (which has been effected) and such as may be required
under state securities or foreign laws) or conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the certificate
or articles of incorporation or bylaws, or other organizational documents, of
the Company or any of the Subsidiaries or (ii) conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, any
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries is a party or by which any of them or any of their respective
properties may be bound, or violates or will violate any statute, law,
regulation or filing (except as may be required for the registration of the
Shares under the Act and the Exchange Act (which has been effected) and such as
may be required under state securities or foreign laws) or judgment, injunction,
order or decree applicable to the Company or any of the Subsidiaries or any of
their respective properties, or will result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
the Subsidiaries pursuant to the terms of any agreement or instrument to which
any of them is a party or by which any of them may be bound or to which any of
the property or assets of any of them is subject other than security interests
granted pursuant to the Credit Agreement, the 1996 Notes and the 1997 Notes (as
defined in the Registration Statement).
(i) The accountants, Arthur Andersen LLP and Deloitte & Touche LLP,
who have certified or shall certify the financial
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statements filed or to be filed as part of the Registration Statement or the
Prospectuses (or any amendment or supplement thereto) are independent public
accountants as required by the Act.
(j) The historical consolidated financial statements of the Company,
together with related schedules and notes forming part of the Registration
Statement and the Prospectuses (and any amendment or supplement thereto), and,
to the knowledge of the Company, the historical financial statements of Security
Archives, Inc. and Records Management Services, Inc., together with related
schedules and notes forming part of the Registration Statement and the
Prospectus (and any amendment or supplement thereto), comply with the
requirements of the Act and present fairly the consolidated financial position,
results of operations, cash flows and changes in financial position of the
Company and the Subsidiaries and Security Archives, Inc. and Records Management
Services, Inc., as the case may be, on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which they
apply; the statements and related schedules and notes of the Company and, to the
knowledge of the Company, the statements and related schedules and notes of
Security Archives, Inc. and Records Management Services, Inc., have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; the pro forma financial information, and the related notes thereto,
included in the Registration Statement and the Prospectuses (and any amendment
or supplement thereto) have been prepared in accordance with the applicable
requirements of the Act and the assumptions used in preparing such information
are reasonable; and the other historical and pro forma financial and statistical
information and data set forth in the Registration Statement and the
Prospectuses (and any amendment or supplement thereto) are accurately presented
in all material respects and prepared on a basis consistent with the books and
records of the Company and its Subsidiaries.
(k) The execution and delivery of, and the performance by the Company
of its obligations under, each of this Agreement and the International
Underwriting Agreement have been duly and validly authorized by the Company, and
each of this Agreement and the International Underwriting Agreement has been
duly executed and delivered by the Company and constitutes the valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except (i) the enforceability hereof or thereof may be limited
by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
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generally, (ii) the remedy of specific performance and other forms of equitable
relief may be subject to certain equitable defenses and to the discretion of the
court before which the proceedings may be brought and (iii) rights to indemnity
and contribution hereunder or thereunder may be limited by federal or state
securities laws or the public policy underlying such laws.
(l) Except as disclosed or contemplated in the Registration Statement
and the Prospectuses (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectuses (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock of the Company, or material increase in the short-term debt or long-term
debt, of the Company or any of the Subsidiaries, or any development having or
which may reasonably be expected to result in a Material Adverse Effect.
(m) Each of the Company and the Subsidiaries has good and valid title
to all property (real and personal) described in the Prospectuses as being owned
by it which is material to the business of the Company and its Subsidiaries
taken as a whole, free and clear of all liens, claims, security interests or
other encumbrances except such as are described in the Registration Statement
and the Prospectuses or in a document filed as an exhibit to the Registration
Statement and all the property described in the Prospectuses as being held under
lease by each of the Company and the Subsidiaries which is material to the
business of the Company and its Subsidiaries taken as a whole is held by it
under valid, subsisting and enforceable leases with only such exceptions as in
the aggregate do not interfere in any material respect with the conduct of the
business of the Company and the Subsidiaries, taken as a whole or the use made
or proposed to be made of such property by the Company or its Subsidiaries.
(n) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date or the Option Closing Date, if any, and (ii) completion
of the distribution of the Shares, will not distribute any offering material in
connection with the offering and sale of the Shares other than the Registration
Statement, the Prepricing Prospectuses, the Prospectuses or other materials, if
any, permitted by the Act.
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(o) Except as described in clause (d) above, the Company and each of
the Subsidiaries has such permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("Permits") as are necessary to own its
respective properties and to conduct its business in the manner described in the
Prospectuses, except where the failure to so possess would not, individually or
in the aggregate, have a Material Adverse Effect and subject to such
qualifications as may be set forth in the Prospectuses; the Company and each of
the Subsidiaries has fulfilled and performed all its material obligations with
respect to such Permits and no event has occurred that allows, or after notice
or lapse of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any such Permit,
subject in each case to such qualification as may be set forth in the
Prospectuses, except where any such revocation, termination or impairment would
not have a Material Adverse Effect.
(p) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(q) To the Company's knowledge, neither the Company nor any of its
Subsidiaries nor any employee or agent of the Company or any Subsidiary has made
any payment of funds of the Company or any Subsidiary or received or retained
any funds in violation of any law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the
Prospectuses.
(r) The Company and, to the Company's knowledge, each of the
Subsidiaries have filed all tax returns required to be filed or obtained
extensions therefor, which returns are true and correct in all material
respects, and neither the Company nor any Subsidiary is in default in the
payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto, except where the failure to file such returns
or to pay such taxes is not reasonably likely to have a Material Adverse Effect.
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(s) Except as described in the Prospectuses, no holder of any security
of the Company has any right to require registration of shares of Common Stock
or any other security of the Company because of the filing of the Registration
Statement or consummation of the transactions contemplated by this Agreement or
the International Underwriting Agreement, or otherwise. Except as described in
or contemplated by the Prospectuses, there are no outstanding options, warrants
or other rights calling for the issuance of, and there are no commitments, plans
or arrangements to issue, any shares of Common Stock of the Company or any
security convertible into or exchangeable or exercisable for Common Stock of the
Company.
(t) The Company and the Subsidiaries own or possess all patents,
trademarks, trademark registration, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectuses as being owned by them or any of them or necessary
for the conduct of their respective businesses, except where the lack of such
ownership or possession would not, individually or in the aggregate, have a
Material Adverse Effect, and the Company is not aware of any claim to the
contrary or any challenge by any other person to the rights of the Company and
the Subsidiaries with respect to the foregoing.
(u) The Company is not and, upon sale of the Shares to be issued and
sold in accordance herewith and upon application of the net proceeds to the
Company from such sale as described in the Prospectuses under the caption "Use
of Proceeds," will not be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act").
(v) The Company and, to the Company's knowledge, each of its
Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as the Company deems prudent
and customary to cover 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 fire,
flood or earthquakes (in certain geographic areas), and losses at the Company's
facilities up to approximately $225 million; neither the Company nor, to the
knowledge of the Company, any such Subsidiary has been refused any insurance
coverage sought or applied for; and neither the Company nor, to the knowledge of
the Company, any such Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost
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that would not have a Material Adverse Effect, except as described in or
contemplated by the Prospectuses.
(w) No Subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such Subsidiary's capital stock, from repaying to the Company
any loans or advances to such Subsidiary from the Company or from transferring
any of such Subsidiary's property or assets to the Company or any other
Subsidiary of the Company, except as described in or contemplated by the
Prospectuses.
(x) Except for the shares of capital stock or partnership interests of
each of the Subsidiaries owned by the Company and such Subsidiaries, neither the
Company nor any such Subsidiary owns any shares of stock or any other equity
securities of any corporation or has any equity interest in any firm,
partnership, association or other entity, except as described in or contemplated
by the Prospectuses.
(y) There are no labor disputes with the Company's employees or with
employees of the Subsidiaries that exist or, to the Company's knowledge, are
imminent that are reasonably likely to materially adversely affect the Company
and the Subsidiaries taken as a whole, and the Company is not aware of any
existing or imminent labor disturbance by any of its or the Subsidiaries'
principal suppliers, contractors or customers that are reasonably likely to have
a Material Adverse Effect.
(z) With respect to each employee benefit plan, program and
arrangement (including, without limitation, any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), maintained or contributed to by the Company or the
Subsidiaries, or with respect to which the Company or the Subsidiaries could
incur any liability under ERISA (collectively, the "Benefit Plans"), no event
has occurred and there exists no condition or set of circumstances in connection
with which the Company or the Subsidiaries could be reasonably likely to be
subject to any liability under the terms of such Benefit Plan or applicable law
(including, without limitation, ERISA and the Internal Revenue Code of 1986, as
amended (the "Code")) that could have a Material Adverse Effect.
(aa) The Company and, to the Company's knowledge, the Subsidiaries
are (i) (A) in compliance with any and all applicable foreign, federal, state
and local laws and regulations relating to the protection of human health and
safety, the environment or
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hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (B) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses, and (C) and are in compliance with all terms and
conditions of any such permit, license or approval, except, in each case, where
such noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a Material Adverse Effect; (ii) except as disclosed in the Registration
Statement or the Prospectuses, there is no civil, criminal or administrative
action, suit, demand, hearing, notice of violation or deficiency, investigation,
proceeding or notice of potential responsibility or liability or demand letter
or request for information pending, or to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries under any
Environmental Laws which, if determined adversely to the Company or any such
Subsidiary, would, individually or in the aggregate, be reasonably likely to
result in a Material Adverse Effect. Neither the Company nor, to the Company's
knowledge, any of the Subsidiaries has been named as a "potentially responsible
party" under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended ("CERCLA").
8. Representations and Warranties of the Selling Shareholders. Each
Selling Shareholder represents and warrants to each U.S. Underwriter that:
(a) Such Selling Shareholder now has, and on the Closing Date and any
Option Closing Date, if applicable, will have, valid and marketable title to the
Shares to be sold by such Selling Shareholder on such date, free and clear of
any lien, claim, security interest or other encumbrance, including, without
limitation, any restriction on transfer, except as otherwise described in the
Prospectuses.
(b) Such Selling Shareholder now has, and on the Closing Date and any
Option Closing Date, if applicable, will have, full legal right, power and
authorization, and any approval required by law (other than any approval under
federal or state securities or foreign laws), to sell, assign, transfer and
deliver such Shares in the manner provided in this Agreement and the
International Underwriting Agreement, and upon delivery of and payment for such
Shares hereunder, the several U.S. Underwriters will acquire valid and
marketable title to such Shares free and clear of any lien, claim, security
interest, or other encumbrance.
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(c) This Agreement, the International Underwriting Agreement and the
Custody Agreement have been duly authorized, executed and delivered by or on
behalf of such Selling Shareholder and are the valid and binding agreements of
such Selling Shareholder enforceable against such Selling Shareholder in
accordance with their terms, except that (i) the enforceability hereof or
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally, (ii) the remedy of specific performance and other forms of equitable
relief may be subject to certain equitable defenses and to the discretion of the
court before which the proceedings may be brought and (iii) rights to indemnity
and contribution hereunder or thereunder may be limited by federal or state
securities laws or the public policy underlying such laws.
(d) Neither the sale of the Shares, the execution, delivery or
performance of this Agreement, the International Underwriting Agreement or the
Custody Agreement by or on behalf of such Selling Shareholder nor the
consummation by or on behalf of such Selling Shareholder of the transactions
contemplated hereby and thereby (i) requires any consent, approval,
authorization or other order of, or registration or filing with, any court,
regulatory body, administrative agency or other governmental body, agency or
official (except as may be required for the registration of the Shares under the
Act and the Exchange Act and such as may be required under state securities or
foreign laws), or (ii) conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, any agreement, indenture, lease or
other instrument to which such Selling Shareholder is a party or by which such
Selling Shareholder is or may be bound (except any such agreements or other
instruments which will either be terminated or released upon the Closing
hereunder), or violates or will violate any statute, law, regulation or filing
or judgment, injunction, order or decree applicable to such Selling Shareholder,
or will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of such Selling Shareholder pursuant to the terms of
any agreement or instrument to which such Selling Shareholder is a party or by
which such Selling Shareholder may be bound or to which any of the property or
assets of such Selling Shareholder is subject.
(e) The information pertaining to such Selling Shareholder provided to
the Company for inclusion under the caption "Principal and Selling Shareholders"
in the Prospectuses, does not and will not contain an untrue statement of a
material fact or omit
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to state any material fact required to be stated therein or necessary to make
the statements therein not misleading.
(f) The representations and warranties of such Selling Shareholder in
the Custody Agreement are, and on the Closing Date and any Option Closing Date,
if applicable, will be, true and correct.
(g) Such Selling Shareholder has not taken, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares, except for the lock-up arrangements referred
to in the Prospectuses.
(h) Such Selling Shareholder has not distributed and, prior to the
later to occur of (i) the Closing Date or the Option Closing Date, if
applicable, and (ii) completion of the distribution of the Shares, will not
distribute any offering material in connection with the offering and sale of the
Shares.
9. Indemnification and Contribution. (a) The Company agrees to indemnify
and hold harmless you and each other U.S. Underwriter and each person, if any,
who controls any U.S. Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any U.S. Prepricing Prospectus or in the
Registration Statement or the U.S. Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information relating to any U.S. Underwriter or Manager furnished in writing to
the Company by or on behalf of any U.S. Underwriter through you or by or on
behalf of any Manager through a Lead Manager expressly for use in connection
therewith; provided, however, that the indemnification contained in this
paragraph (a) with respect to any U.S. Prepricing Prospectus shall not inure to
the benefit of any U.S. Underwriter (or to the benefit of any person controlling
such U.S. Underwriter) on account of any such loss, claim, damage, liability or
expense arising from the sale of the Shares by such
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U.S. Underwriter to any person if a copy of the U.S. Prospectus shall not have
been delivered or sent to such person within the time required by the Act and
the regulations thereunder, and the untrue statement or alleged untrue statement
or omission or alleged omission of a material fact contained in such U.S.
Prepricing Prospectus was corrected in the U.S. Prospectus, provided that the
Company has delivered the U.S. Prospectus to the several U.S. Underwriters in
requisite quantity on a timely basis to permit such delivery or sending. The
foregoing indemnity agreement shall be in addition to any liability which the
Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
U.S. Underwriter or any person controlling any U.S. Underwriter in respect of
which indemnity may be sought against the Company or any Selling Shareholder,
such U.S. Underwriter or such controlling person shall promptly notify the
parties against whom indemnification is being sought (the "indemnifying
parties"), and such indemnifying parties shall assume the defense thereof,
including the employment of counsel and payment of all fees and expenses;
provided, however, that the failure so to notify the indemnifying parties shall
not relieve the indemnifying parties from any obligation or liability except to
the extent that the indemnifying parties have been prejudiced materially by such
failure. Such U.S. Underwriter or any such controlling person shall have the
right to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such U.S. Underwriter or such controlling person
unless (i) the indemnifying parties have agreed in writing to pay such fees and
expenses, (ii) the indemnifying parties have failed to assume the defense and
employ counsel, or (iii) the named parties to any such action, suit or
proceeding (including any impleaded parties) include both such U.S. Underwriter
or such controlling person and the indemnifying parties and such U.S.
Underwriter or such controlling person shall have been advised by its counsel in
writing that representation of such indemnified party and any indemnifying party
by the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the indemnifying party shall not have the right to assume the defense
of such action, suit or proceeding on behalf of such U.S. Underwriter or such
controlling person). It is understood, however, that in the event that one or
more persons seeking indemnity exercises its right to employ separate counsel
pursuant to the preceding sentence, the indemnifying parties shall, in
connection with any one such action, suit or proceeding or separate
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but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to one local counsel in each such jurisdiction) at any
time for all such U.S. Underwriters and controlling persons, which firm shall be
designated in writing by Smith Barney Inc., and that all such fees and expenses
as required to be paid by the indemnifying parties hereunder shall be reimbursed
as they are incurred. The indemnifying parties shall not be liable for any
settlement of any such action, suit or proceeding effected without their written
consent, but if settled with such written consent, or if there be a final
judgment for the plaintiff in any such action, suit or proceeding, the
indemnifying parties agree to indemnify and hold harmless any U.S. Underwriter,
to the extent provided in the preceding paragraph, and any such controlling
person from and against any loss, claim, damage, liability or expense by reason
of such settlement or judgment.
(c) Each Selling Shareholder agrees, severally and not jointly, to
indemnify and hold harmless each of you and each other U.S. Underwriter and each
person, if any, who controls any U.S. Underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, the Company, its directors,
its officers who sign the Registration Statement, and any person who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
each U.S. Underwriter, but only with respect to the information furnished in
writing by or on behalf of such Selling Shareholder expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto; provided, however, the liability of a Selling
Shareholder under this paragraph (c) shall not exceed the proceeds received by
such Selling Shareholder from the sale of such Selling Shareholder's Shares
hereunder. If any action, suit or proceeding shall be brought against any U.S.
Underwriter, any such controlling person of any U.S. Underwriter, the Company,
any of its directors, any such officer, or any such controlling person of the
Company, based on the Registration Statement, the Prospectus or any Prepricing
Prospectus or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Selling Shareholder pursuant to this
paragraph (c), such Selling Shareholder shall have the rights and duties given
to the Company by paragraph (b) above (except that if the Company shall have
assumed the defense thereof such Selling Shareholder shall not be required to do
so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of
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such counsel shall be at such Selling Shareholder's expense), and each
Underwriter, each such controlling person of any U.S. Underwriter, the Company,
its directors, any such officer, and any such controlling person of the Company
shall have the rights and duties given to the U.S. Underwriters by paragraph (b)
above. The foregoing indemnity agreement shall be in addition to any liability
which any Selling Shareholder may otherwise have.
(d) Each U.S. Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, any person who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and the
Selling Shareholders, to the same extent as the foregoing indemnity from the
Company and the Selling Shareholders to each U.S. Underwriter, insofar as such
losses, claims, damages, liabilities and expenses arise out of or are based upon
the untrue statement or alleged untrue statement of a material fact contained in
any U.S. Prepricing Prospectus or in the Registration Statement or the U.S.
Prospectus or in any amendment or supplement thereto, or arise out of or are
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by such U.S.
Underwriter through you specifically for use therein. If any action, suit or
proceeding shall be brought against the Company, any of its directors, any such
officer, any such controlling person or any Selling Shareholder based on the
Registration Statement, the U.S. Prospectus or any U.S. Prepricing Prospectus,
or any amendment or supplement thereto, and in respect of which indemnity may be
sought against any U.S. Underwriter pursuant to this paragraph (d), such U.S.
Underwriter shall have the rights and duties given to the Company by paragraph
(b) above (except that if the Company or the Selling Shareholders shall have
assumed the defense thereof such U.S. Underwriter shall not be required to do
so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at such U.S.
Underwriter's expense), and the Company, its directors, any such officer, any
such controlling person, and the Selling Shareholders, shall have the rights and
duties given to the U.S. Underwriters by paragraph (b) above. The foregoing
indemnity agreement shall be in addition to any liability which any U.S.
Underwriter may otherwise have.
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(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a), (c) or (d) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders on the one hand and the U.S. Underwriters
on the other hand from the offering of the Shares, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Shareholders on the one hand and the U.S. Underwriters on the other hand
in connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholders on the one hand and the U.S. Underwriters on the other hand
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and the Selling
Shareholders bear to the total underwriting discounts and commissions received
by the U.S. Underwriters, in each case as set forth in the table on the cover
page of the U.S. Prospectus; provided that, in the event that the U.S.
Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company, the Selling
Shareholders or the U.S. Underwriters from the offering of the Shares shall
include the net proceeds (before deducting expenses) received by the Company,
and the underwriting discounts and commissions received by the U.S.
Underwriters, from the sale of such Additional Shares, in each case computed on
the basis of the respective amounts set forth in the notes to the table on the
cover page of the U.S. Prospectus. The relative fault of the Company and the
Selling Shareholders on the one hand and the U.S. Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Shareholders on the one hand or by the U.S. Underwriters on the other
hand and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
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(f) The Company, the Selling Shareholders and the U.S. Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by a pro rata allocation (even if the U.S.
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in paragraph (e) above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities and
expenses referred to in paragraph (e) above shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating any claim or
defending any such action, suit or proceeding. Notwithstanding the provisions
of this Section 9, no U.S. Underwriter shall be required to contribute any
amount in excess of the amount by which the total price of the Shares
underwritten by it and distributed to the public exceeds the amount of any
damages which such U.S. Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 9, no Selling Shareholder shall
be required to contribute any amount in excess of the total net proceeds of the
Shares sold by such Selling Shareholder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The U.S. Underwriters' obligations to contribute pursuant to
this Section 9 are several in proportion to the respective numbers of Firm
Shares set forth opposite their names in Schedule II hereto (or such numbers of
Firm Shares increased as set forth in Section 12 hereof) and not joint.
(g) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling
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Shareholders set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or on behalf of
any U.S. Underwriter or any person controlling any U.S. Underwriter, the
Company, its directors or officers or the Selling Shareholders, any director,
officer or partner of a Selling Shareholder or any person controlling the
Company or any Selling Shareholder, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement.
Notwithstanding any other provisions of this Agreement, if this Agreement
terminates prior to the purchase of the Shares by the U.S. Underwriters, the
Company and the Selling Shareholders shall not be liable for any lost profits. A
successor to any U.S. Underwriter or any person controlling any U.S.
Underwriter, or to the Company, its directors or officers, or to a Selling
Shareholder, any director, officer or partner of a Selling Shareholder or any
person controlling the Company or any Selling Shareholder, shall be entitled to
the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 9.
10. Conditions of U.S. Underwriters' Obligations. The several obligations
of the U.S. Underwriters to purchase the Firm Shares hereunder are subject to
the following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Registration Statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any U.S. Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectuses or
otherwise) shall have been complied with to your reasonable satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business,
properties, net worth, or results of operations of the Company and the
Subsidiaries taken as a whole not contemplated by the Prospectuses, which in
your reasonable
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opinion, as Representatives of the several U.S. Underwriters, would materially
adversely affect the market for the Shares, or (ii) any event or development
relating to or involving the Company or any officer or director of the Company
or any Selling Shareholder which makes any statement made in the Prospectuses
untrue or which, in the opinion of the Company and its counsel or the U.S.
Underwriters and their counsel, requires the making of any addition to or change
in the Prospectuses in order to state a material fact required by the Act or any
other law to be stated therein or necessary in order to make the statements
therein not misleading, if amending or supplementing the Prospectuses to reflect
such event or development would, in your opinion, as Representatives of the
several U.S. Underwriters, materially adversely affect the market for the
Shares.
(c) You shall have received on the Closing Date and any Option
Closing Date an opinion of Cozen and O'Connor, counsel for the Company and the
Selling Shareholders, dated the Closing Date, and any Option Closing Date, as
the case may be, and addressed to you, as Representatives of the several U.S.
Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated and validly
subsisting under the laws of the Commonwealth of Pennsylvania with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectuses, and is in the process of qualifying in the jurisdictions set forth
on Annex A to such opinion;
(ii) Each of the Subsidiaries organized under the laws of the
United States or a state thereof ("U.S. Subsidiary") is either (A) a corporation
duly organized and validly existing in good standing under the laws of the
jurisdiction of its organization, or (B) a limited partnership duly organized
under the laws of the Commonwealth of Pennsylvania;
(iii) The authorized and, to such counsel's knowledge,
outstanding capital stock of the Company is as set forth under the caption
"Capitalization" in the Prospectuses; and the authorized capital stock of the
Company conforms in all material respects as to legal matters to the description
thereof contained in the Prospectuses under the caption "Description of Capital
Stock";
(iv) To the knowledge of such counsel, all the shares of
capital stock of the Company outstanding prior to the
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issuance of the Shares to be issued and sold by the Company pursuant to the
Underwriting Agreements have been duly authorized and validly issued, and are
fully paid and nonassessable;
(v) The Underwritten Shares to be issued and sold to the U.S.
Underwriters and Managers by the Company under the U.S. Underwriting Agreement
and the International Underwriting Agreement have been duly authorized and, when
issued and delivered to the U.S. Underwriters and Managers against payment
therefor in accordance with the terms of the U.S. Underwriting Agreement and the
International Underwriting Agreement, respectively, will be validly issued
(assuming certificates for such Shares have been validly countersigned by the
transfer agent for the Common Stock), fully paid and nonassessable and free of
any (A) statutory preemptive rights or (B) to the knowledge of such counsel,
similar rights that entitle or will entitle any person to acquire any Shares
upon the issuance thereof by the Company;
(vi) The form of certificates for the Shares conforms to the
requirements of the Pennsylvania Business Corporation Law of 1988, as amended;
(vii) The Registration Statement and all post-effective amendments,
if any, have become effective under the Act and, to the knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose are pending before
or contemplated by the Commission; and, to such counsel's knowledge, any
required filing of the Prospectuses pursuant to Rule 424(b) has been made in
accordance with Rule 424(b);
(viii) The Company has the requisite corporate power and authority to
enter into the U.S. Underwriting Agreement and the International Underwriting
Agreement and to issue, sell and deliver the Underwritten Shares to be sold by
it to the U.S. Underwriters and Managers as provided therein, and each of the
U.S. Underwriting Agreement and the International Underwriting Agreement has
been duly authorized, executed and delivered by the Company;
(ix) Neither the Company nor, to the knowledge of such counsel, any
of the U.S. Subsidiaries is (A) in violation of its respective certificate of
incorporation or bylaws or other organizational documents or (B) to the
knowledge of such counsel, in default in the performance of any material
obligation, agreement or condition contained in any bond, debenture, note or
other evidence of indebtedness that is filed as an exhibit to the Registration
Statement, except as may be disclosed in the
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Prospectuses or where any such default or defaults in the aggregate would not,
singularly or in the aggregate, have a Material Adverse Effect;
(x) None of the offer, issuance, sale or delivery of the
Underwritten Shares, the execution, delivery or performance by the Company of
the U.S. Underwriting Agreement or the International Underwriting Agreement,
compliance by the Company with all provisions of this Agreement and the
International Underwriting Agreement, or consummation by the Company of the
transactions contemplated hereby or by the International Underwriting Agreement
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, the certificate of incorporation or bylaws or other
organizational document of the Company or any of the U.S. Subsidiaries or any
material agreement, indenture, lease or other instrument to which the Company is
a party or by which it or any of its properties is bound that is filed as an
exhibit to the Registration Statement, or, except as disclosed in the
Registration Statement, will, to such counsel's knowledge, result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the U.S. Subsidiaries under any such agreement,
indenture, lease or other instrument, nor, to such counsel's knowledge, will any
such action result in any violation of any existing law or regulation (assuming
compliance with all applicable state securities or Blue Sky laws and foreign
laws), or any ruling, judgment, injunction, order or decree of any court or
governmental entity or instrumentality known to such counsel, and applicable to
the Company, the U.S. Subsidiaries or any of their respective properties;
(xi) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency, or official is required on the part of the
Company (except as have been obtained under the Act or the Exchange Act or such
as may be required under state securities or Blue Sky laws and foreign laws) for
the valid issuance and sale of the Shares to the U.S. Underwriters as
contemplated by the U.S. Underwriting Agreement;
(xii) The Registration Statement and the Prospectuses and any
supplements or amendments thereto (except for the financial statements,
schedules, and notes thereto and other financial and statistical data included
therein, as to which such counsel need not express any opinion) comply as to
form in all material respects with the requirements of the Act;
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(xiii) To the knowledge of such counsel, (A) other than as described
or contemplated in the Prospectuses, there are no legal or governmental
proceedings pending or threatened against the Company or any of the U.S.
Subsidiaries, or to which the Company, the U.S. Subsidiaries or any of their
respective properties is subject, which are required to be described in the
Registration Statement or Prospectuses (or any amendment or supplement thereto)
and (B) there are no agreements, contracts, indentures, leases or other
instruments relating to the Company or any of the U.S. Subsidiaries, of a
character that are required to be described in the Registration Statement or the
Prospectuses (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement that are not described or filed as
required, as the case may be;
(xiv) To the knowledge of such counsel, the U.S. Underwriting
Agreement, the International Underwriting Agreement and the Custody Agreement
have each been duly executed and delivered by or on behalf of each of the
Selling Shareholders;
(xv) The statements in the Registration Statement and Prospectuses,
under the caption "Shares Eligible for Future Sale," insofar as they refer to
statements of law or legal conclusions, are accurate in all material respects;
(xvi) Except as described in the Prospectuses, such counsel does not
know of any outstanding option, warrant or other right calling for the issuance
of, and such counsel does not know of any commitment, plan or arrangement to
issue, any share of capital stock of the Company or any security convertible
into or exchangeable or exercisable for capital stock of the Company; and,
except as described in the Prospectuses, such counsel does not know of any
holder of any security of the Company or any other person who has the right,
contractual or otherwise, to cause the Company to sell or otherwise issue to
them, or permit them to underwrite the sale of, any of the Shares or the right
to have any Common Stock or other securities of the Company included in the
Registration Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the Act of Common Stock or
other securities of the Company;
(xvii) The Company is not now and upon the sale of the Shares to be
issued and sold in accordance herewith and upon application of the net proceeds
from such sale as described in the Prospectuses under the caption "Use of
Proceeds" will not be an "investment company" within the meaning of the 1940
Act;
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(xviii) Each Selling Shareholder has full legal right, power and
authority, and any approval required by law (except such as may be required
under state securities or Blue Sky laws or foreign laws), to sell, assign,
transfer and deliver good and valid title to the Shares which such Selling
Shareholder has agreed to sell pursuant to this Agreement and the International
Underwriting Agreement;
(xix) The execution and delivery of this Agreement and the sale of
the Shares by each Selling Shareholder to the Underwriters, and compliance by
such Selling Shareholder with the terms of this Agreement, including the
delivery to the Underwriters of certificates evidencing such shares and the
execution and delivery to the U.S. Underwriters of a stock power in blank, have
been duly authorized by all necessary action on the part of such Selling
Shareholder and, to the knowledge of such counsel, do not, and will not,
conflict with, or result in a breach of any of the terms and provisions of, or
constitute a default under (I) any statute, rule or regulation (assuming
compliance with all applicable state securities and Blue Sky laws or foreign
laws) relating to such Selling Shareholder or its legal status in each case,
that in the experience of such counsel are normally applicable to transactions
of the type provided for in this Agreement, (II) any material judgment, order,
rule, injunction or regulation of any court or governmental agency or body,
domestic or foreign, known to such counsel or (III) any material contract,
agreement or other instrument known to such counsel to which such Selling
Shareholder is a party or by which it or any of its properties are subject;
(xx) Upon delivery of the Shares to be sold by the Selling
Shareholders pursuant to this Agreement and payment therefor as contemplated
herein, the Underwriters will have acquired all rights of the Selling
Shareholder in the Shares free and clear of any security interest, mortgage,
lien, pledge, encumbrance or claim.
In addition, such counsel shall state that although counsel has not
undertaken, except as otherwise indicated in their opinion, to determine
independently, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements in the Registration Statement (except
to the extent set forth in paragraphs (iii) and (xv) above), such counsel has
participated in the preparation of the Registration Statement and the
Prospectuses, including general review and discussion of the contents thereof
and nothing has come to the attention of such counsel that would lead them to
believe that the Registration
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Statement at the time the Registration Statement became effective, or the
Prospectuses, as of their respective dates and as of the Closing Date or the
Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated or,
necessary to make the statements therein, in the case of the Prospectuses, in
the light of the circumstances under which they were made, not misleading or
that any amendment or supplement to the Prospectuses, as of its respective date,
and as of the Closing Date or the Option Closing Date, as the case may be,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated in the Prospectuses or necessary in order to make the
statements therein, in the case of the Prospectuses, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no statement with respect to the financial
statements, financial schedules, pro forma financial statements and the notes
thereto and other financial and statistical data included in the Registration
Statement or the Prospectuses).
In rendering their opinion as aforesaid, counsel may, as to factual
matters, rely, to the extent such counsel deems proper, upon written
certificates or statements of officers of the Company and the Selling
Shareholders. The foregoing opinion may be limited to the federal laws of the
United States of America and the Commonwealth of Pennsylvania, and counsel
rendering the foregoing opinion may rely as to questions of fact upon the
representations of the Selling Shareholders as set forth in this Agreement and
in the Custody Agreement.
(d) You shall have received on the Closing Date and any Option
Closing Date an opinion of Blake, Cassels & Graydon and/or Stewart McKelvey
Stirling Seals (as appropriate), Canadian counsel for the Canadian Subsidiary,
dated the Closing Date and any Option Closing Date, as the case may be, and
addressed to you, as Representatives of the several U.S. Underwriters, to the
effect that:
(i) The Canadian Subsidiary is a corporation duly organized
and validly existing under the laws of the jurisdiction of their organization
with full corporate power and authority to own, lease, and operate their
properties and to conduct its business as described in the Registration
Statement and the Prospectuses (and any amendment or supplement hereto); and all
the outstanding shares of capital stock of each of the Subsidiaries have been
duly authorized and validly issued, are fully paid and
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nonassessable, and is 99% indirectly owned by the Company registered in the name
of ___________.
(ii) The Canadian Subsidiary is not in violation of its
certificate of incorporation or bylaws or other organizational documents.
(iii) Neither the offer, issuance, sale or delivery of the
Underwritten Shares, nor the execution, delivery or performance by the Company
of this Agreement or the U.S. Underwriting Agreement or compliance by the
Company with all provisions of this Agreement and the U.S. Underwriting
Agreement, nor consummation by the Company of the transactions contemplated
hereby or by the U.S. Underwriting Agreement conflicts or will conflict with or
constitutes or will constitute a breach of, or default under, the certificate of
incorporation or bylaws, or other organizational document, or the Canadian
Subsidiary or to such counsel's knowledge, except as disclosed in the
Registration Statement, will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Canadian Subsidiary
under any material agreement, indenture, lease or other instrument, nor, to such
counsel's knowledge, will any such action result in any violation of any
existing law, regulation, ruling (assuming compliance with all applicable state
securities or Blue Sky laws and foreign laws), or any ruling, judgment,
injunction, order or decree of any court or governmental entity or
instrumentality known to such counsel, and applicable to the Canadian Subsidiary
or any of its respective properties.
(e) You shall have received on the Closing Date and any Option
Closing Date an opinion of Skadden, Arps, Slate, Meagher & Flom, LLP, counsel
for the U.S. Underwriters, dated the Closing Date and any Option Closing Date,
as the case may be, with respect to the matters referred to in clauses (v)
(other than subclause (B) thereof), (vii), (viii), (x) and the paragraph
immediately following clause (xx) of the foregoing paragraph (c) and such other
related matters as you may request.
(f) You shall have received letters addressed to you, as
Representatives of the several U.S. Underwriters, and dated the date hereof and
the Closing Date and any Option Closing Date from Arthur Andersen LLP,
independent certified public accountants, substantially in the forms heretofore
approved by you.
(g) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the
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<PAGE>
Company, shall be contemplated by the Commission at or prior to the Closing Date
or any Option Closing Date, as the case may be; (ii) there shall not have been
any material change in the capital stock of the Company nor any material
increase in the short-term or long-term debt of the Company (other than in the
ordinary course of business) from that set forth or contemplated in the
Registration Statement or the Prospectuses (or any amendment or Supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectuses
(or any amendment or supplement thereto), except as may otherwise be stated or
contemplated in the Registration Statement and Prospectuses (or any amendment or
supplement thereto), any material adverse change in the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the Company and the Subsidiaries taken as a whole; (iv) the Company and the
Subsidiaries shall not have any liabilities or obligations, direct or contingent
(whether or not in the ordinary course of business), that are material to the
Company and the Subsidiaries taken as a whole, other than those reflected in the
Registration Statement or the Prospectuses (or any amendment or supplement
thereto); and (v) all the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
on and as of the date hereof and on and as of the Closing Date or such Option
Closing Date, as the case may be, as if made on and as of the Closing Date or
any Option Closing Date, as the case may be, and you shall have received a
certificate, dated the Closing Date or such Option Closing Date, as the case may
be, and signed by the chief executive officer and the chief financial officer of
the Company (or such other officers as are acceptable to you), to the effect set
forth in this Section 10(g) and in Section 10(h) hereof.
(h) The Company shall not have failed at or prior to the Closing
Date or any Option Closing Date, as the case may be, to have performed or
complied in all material respects with any of its agreements herein contained
and required to be performed or complied with by it hereunder at or prior to the
Closing Date or such Option Closing Date.
(i) All the representations and warranties of the Selling
Shareholders contained in this Agreement and in the International Underwriting
Agreement shall be true and correct in all material respects, on and as of the
date hereof and on and as of the Closing Date or any Option Closing Date, as the
case may be, as if made on and as of the Closing Date or such Option Closing
Date, as the case may be, and you shall have received a certificate, dated the
Closing Date or such Option Closing Date, as
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<PAGE>
the case may be, and signed by or on behalf of each of the Selling Shareholders
to the effect set forth in this Section 10(i) and in Section 10(j) hereof.
(j) The Selling Shareholders shall not have failed at or prior to
the Closing Date or any Option Closing Date, if applicable, to have performed or
complied in all material respects with any of their agreements contained in this
Agreement or the International Underwriting Agreement and required to be
performed or complied with by them at or prior to the Closing Date or such
Option Closing Date, if applicable.
(k) The Sellers shall have furnished or caused to be furnished to
you such further certificates and documents as you shall have reasonably
requested.
(l) The Common Stock shall have been listed or approved for listing,
subject to notice of issuance, on the New York Stock Exchange.
(m) The closing under the International Underwriting Agreement shall
have occurred concurrently with the closing hereunder on the Closing Date.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Company or
any Attorney-in-Fact or any Selling Shareholder and delivered to you, as
Representatives of the U.S. Underwriters, or to counsel for the U.S.
Underwriters, shall be deemed a representation and warranty by the Company, the
Selling Shareholders or the particular Selling Shareholder, as the case may be,
to each U.S. Underwriter as to the statements made therein.
The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction on and as of any
Option Closing Date of the conditions set forth in this Section 10, except that,
if any Option Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in this Section 10 shall be dated the Option
Closing Date in question and the opinions or letters called for by paragraphs
(c), (d), (e) and (f) shall be revised to reflect the sale of Additional Shares.
39
<PAGE>
11. Expenses. The Company agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by the Company of
its obligations hereunder: (i) the printing (or reproduction) and filing with
the Commission and delivery (including postage, air freight (or reproduction)
for counting and packaging) of such copies of the Registration Statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Shares; (ii) the preparation, printing, authentication, issuance
and delivery of certificates for the Shares, including any stamp taxes in
connection with the original issuance and sale of the Shares by the Company;
(iii) the printing (or reproduction) and delivery of this Agreement, the
preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the original
issuance and sale of the Shares; (iv) the registration of the Common Stock under
the Exchange Act and the listing of the Shares on the New York Stock Exchange;
(v) the registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states as provided in Section 5(g)
hereof (including the reasonable fees, expenses and disbursements of counsel for
the Underwriters relating to the preparation, printing or reproduction, and
delivery of the preliminary and supplemental Blue Sky Memoranda and such
registration and qualification); (vi) the filing fees in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc.; (vii) the transportation and other expenses incurred by or on behalf of
representatives of the Company in connection with presentations to prospective
purchasers of the Shares; and (viii) the fees and expenses of the Company's
accountants and the fees and expenses of counsel (including local and special
counsel) for the Company. Each Selling Shareholder agrees to pay for any
transfer taxes on the sale by such Selling Shareholder of such Selling
Shareholder's Shares to the U.S. Underwriters.
12. Effective Date of Agreement. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the registration statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Company, by notifying you, or
by you, as Representatives of the
40
<PAGE>
several U.S. Underwriters, by notifying the Company and the Selling
Shareholders.
If any one or more of the U.S. Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting U.S.
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate number of Shares which the U.S.
Underwriters are obligated to purchase on the Closing Date, each non-defaulting
U.S. Underwriter shall be obligated, severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule II hereto bears to
the aggregate number of Firm Shares set forth opposite the names of all non-
defaulting U.S. Underwriters or in such other proportion as you may specify in
accordance with Section 20 of the Master Agreement Among Underwriters of Smith
Barney Inc., to purchase the Shares which such defaulting U.S. Underwriter or
Underwriters are obligated, but fail or refuse, to purchase. If any one or more
of the U.S. Underwriters shall fail or refuse to purchase Shares which it or
they are obligated to purchase on the Closing Date and the aggregate number of
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares which the U.S. Underwriters are obligated to purchase
on the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Shares by one or more non-defaulting U.S. Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting U.S. Underwriter or the Company (provided that if such
default occurs with respect to the Additional Shares after the Closing Date,
this Agreement will not terminate as to the Firm Shares or any Additional Shares
purchased prior to such termination). In any such case which does not result in
termination of this Agreement, either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting U.S. Underwriter
from liability in respect of any such default of any such Underwriter under this
Agreement. The term "U.S. Underwriter" as used in this Agreement includes, for
all purposes of this Agreement, any party not listed in Schedule II hereto
which, with your approval and the approval of the Company, purchases Shares
which a defaulting U.S. Underwriter is obligated, but fails or refuses, to
purchase.
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Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
U.S. Underwriter to the Company or any Selling Shareholder, by notice to the
Company, if prior to the Closing Date or any Option Closing Date (if different
from the Closing Date and then only as to the Additional Shares), as the case
may be, (i) trading in securities generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market shall have been suspended
or materially limited, (ii) a general moratorium on commercial banking
activities in New York shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the U.S.
Prospectus or to enforce contracts for the resale of the Shares by the U.S.
Underwriters.
Notice of such termination may be given by telegram, telecopy or
telephone and shall be subsequently confirmed by letter.
14. Information Furnished by the U.S. Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside front cover page, and the statements in the first through third, sixth
through ninth and thirteenth paragraphs under the caption "Underwriting" in any
U.S. Prepricing Prospectus and in the U.S. Prospectus constitute the only
information furnished by or on behalf of the U.S. Underwriters through you as
such information is referred to in Sections 7(b) and 9 hereof.
15. Miscellaneous. Except as otherwise provided in Sections 5, 12 and 13
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company or the Selling Shareholders
at the office of the Company at, 631 Park Avenue, King of Prussia, PA 19406,
Attention: President; or (ii) if to you, as Representatives of the several U.S.
Underwriters, care of Smith Barney Inc., 388 Greenwich Street,
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<PAGE>
New York, New York 10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
several U.S. Underwriters, the Company, its directors and officers, the other
controlling persons referred to in Section 9 hereof and the Selling Shareholders
and their respective successors and assigns, to the extent provided herein, and
no other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns"
as used in this Agreement shall include a purchaser from any U.S. Underwriter of
any of the Shares in his status as such purchaser.
16. Applicable Law; Counterparts. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Shareholders and the several U.S. Underwriters.
Very truly yours,
PIERCE LEAHY CORP.
By .......................
Name:
Title:
Each of the Selling Shareholders
named in Schedule I hereto
By ..........................
Attorney-in-Fact
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several U.S.
Underwriters named in Schedule II
hereto.
SMITH BARNEY INC.
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
As Representatives of the Several U.S. Underwriters
By SMITH BARNEY INC.
By ............................
Managing Director
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SCHEDULE I
PIERCE, LEAHY CORP.
Part A - Firm Shares
- --------------------
Number of
Selling Shareholders Firm Shares
-------------------- -----------
--------------
Total........
--------------
Part B - Additional Shares
- --------------------------
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<PAGE>
SCHEDULE II
PIERCE LEAHY CORP.
Part A - Firm Shares
- --------------------
Number of Number of
Underwriter Firm Shares Underwriter Firm Shares
----------- ----------- ----------- -----------
Smith Barney Inc. . . .
Merrill Lynch & Co. . .
PaineWebber Incorporated
Part B - Additional Shares
- --------------------------
-----------
Total.....
-----------
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EXHIBIT 1.2
1,062,523 Shares
PIERCE LEAHY CORP.
Common Stock
INTERNATIONAL UNDERWRITING AGREEMENT
------------------------------------
June __, 1997
SMITH BARNEY INC.
MERRILL LYNCH INTERNATIONAL
PAINEWEBBER INTERNATIONAL
As Lead Managers for the Several Managers
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Pierce Leahy Corp., a Pennsylvania corporation (the "Company"),
proposes to issue and sell an aggregate of 1,020,000 shares of its common stock,
par value $.01 per share, and the persons named in Schedule I hereto (the
"Selling Shareholders") propose to sell an aggregate of 42,523 shares of common
stock of the Company (together with the 1,020,000 shares of common stock to be
issued and sold by the Company, the "Shares") to the several Underwriters named
in Schedule II hereto (the "Managers") for whom Smith Barney Inc., Merrill Lynch
International and PaineWebber International are acting as representatives (the
"Lead Managers"). The Company and the Selling Shareholders are hereinafter
sometimes referred to as the "Sellers." The Company's common stock, par value
$.01 per share, including the Shares and the U.S. Shares (as defined herein), is
hereinafter referred to as the "Common Stock."
It is understood that the Company and the Selling Shareholders are
concurrently entering into a U.S. Underwriting Agreement, dated the date hereof
(the "U.S. Underwriting Agreement"), providing for the sale of 4,250,091 shares
of Common Stock (the "Firm U.S. Shares"), of which 4,080,000 shares will be sold
by the Company and 170,091 will be sold by the Selling Shareholders (plus an
option granted by certain of the Selling Shareholders and the Company to
purchase up to an additional 796,892 shares of Common Stock (the "Additional
U.S. Shares") solely for the purpose of covering over-allotments) through
<PAGE>
arrangements with certain underwriters in the United States and Canada (the
"U.S. Underwriters"), for whom Smith Barney Inc., Merrill Lynch & Co. and
PaineWebber Incorporated are acting as representatives (the "Representatives").
All shares of Common Stock proposed to be offered to the U.S. Underwriters
pursuant to the U.S. Underwriting Agreement, including the Firm U.S. Shares and
the Additional U.S. Shares, are herein called the "U.S. Shares"; the U.S. Shares
and the Shares, collectively, are herein called the "Underwritten Shares."
The Company and the Selling Shareholders also understand that the Lead
Managers and the Representatives have entered into an agreement (the "Agreement
Between U.S. Underwriters and Managers") contemplating the coordination of
certain transactions between the Managers and the U.S. Underwriters and that,
pursuant thereto and subject to the conditions set forth therein, the Managers
may purchase from the U.S. Underwriters a portion of the U.S. Shares or sell to
the U.S. Underwriters a portion of the Shares. The Company and the Selling
Shareholders understand that any such purchases and sales between the Managers
and the U.S. Underwriters shall be governed by the Agreement Between U.S.
Underwriters and Managers and shall not be governed by the terms of this
Agreement or the U.S. Underwriting Agreement.
The Company and the Selling Shareholders wish to confirm as follows
their respective agreements with you and the other several Managers on whose
behalf you are acting, in connection with the several purchases of the Shares by
the Underwriters.
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1, including prospectuses subject to
completion, relating to the Underwritten Shares. The term "Registration
Statement" as used in this Agreement means the registration statement (including
all financial schedules and exhibits), as amended at the time it becomes
effective, or, if the registration statement became effective prior to the
execution of this Agreement, as supplemented or amended prior to the execution
of this Agreement. If it is contemplated, at the time this Agreement is
executed, that a post-effective amendment to the registration statement will be
filed and must be declared effective before the offering of the Shares may
commence, the term "Registration Statement" as used in this Agreement means the
registration statement as amended by said post-effective amendment. If an
abbreviated registration statement is prepared and filed with the Commission in
accordance with Rule 462(b) under the Act ("an Abbreviated Registration
Statement"), the term "Registration Statement" as used in this Agreement
includes the Abbreviated Registration Statement. The term "Prospectuses" as
used in this
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Agreement means the prospectuses in the forms included in the Registration
Statement, or, if the prospectuses included in the Registration Statement omit
information in reliance on Rule 430A under the Act and such information is
included in prospectuses filed with the Commission pursuant to Rule 424(b) under
the Act, the term "Prospectuses" as used in this Agreement means the
prospectuses in the forms included in the Registration Statement as supplemented
by the addition of the Rule 430A information contained in the prospectuses filed
with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectuses"
as used in this Agreement means the prospectuses subject to completion in the
forms included in the Registration Statement at the time of the initial filing
of the Registration Statement with the Commission, and as such prospectuses
shall have been amended from time to time prior to the date of the Prospectuses.
It is understood that two forms of Prepricing Prospectus and two forms
of Prospectus are to be used in connection with the offering and sale of the
Underwritten Shares: a Prepricing Prospectus and a Prospectus relating to the
U.S. Shares that are to be offered and sold in the United States (as defined
herein) or Canada (as defined herein) or to U.S. or Canadian Persons (the "U.S.
Prepricing Prospectus" and the "U.S. Prospectus," respectively), and a
Prepricing Prospectus and a Prospectus relating to the Shares which are to be
offered and sold outside the United States or Canada to persons other than U.S.
or Canadian Persons (the "International Prepricing Prospectus" and the
"International Prospectus," respectively). The U.S. Prospectus and the
International Prospectus are herein collectively called the "Prospectuses," and
the U.S. Prepricing Prospectus and the International Prepricing Prospectus are
herein called the "Prepricing Prospectuses." For purposes of this Agreement:
"Rules and Regulations" means the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable; "U.S. or Canadian Person" means any
resident or national of the United States or Canada, any corporation,
partnership or other entity created or organized in or under the laws of the
United States or Canada or any estate or trust the income of which is subject to
United States or Canadian income taxation regardless of the source of its income
(other than the foreign branch of any U.S. or Canadian Person), and includes any
United States or Canadian branch of a person other than a U.S. or Canadian
Person; "United States" means the United States of America (including the states
thereof and the District of Columbia) and its territories, its possessions and
other areas subject to its jurisdiction; and "Canada" means Canada and its
territories, its possessions and other areas subject to its jurisdiction.
2. Agreements to Sell and Purchase. Upon the basis of the
representations, warranties and agreements contained herein and subject to all
the terms and conditions set forth herein and to
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<PAGE>
such adjustments as you may determine to avoid fractional shares, the Company
hereby agrees to issue and sell to each Manager and each Manager agrees,
severally and not jointly, to purchase from the Company, at a purchase price of
$______ per share (the "purchase price per share"), the number of Shares that
bears the same proportion to the aggregate number of Shares to be issued and
sold by the Company as the number of Shares set forth opposite the name of such
Manager in Schedule II hereto (or such number of Shares increased as set forth
in Section 12 hereof) bears to the aggregate number of Shares to be sold by the
Company and the Selling Shareholders.
Upon the basis of the representations, warranties and agreements contained
herein and subject to all the terms and conditions set forth herein and to such
adjustments as you may determine to avoid fractional shares, each Selling
Shareholder agrees to sell to each Manager and each Manager agrees, severally
and not jointly, to purchase from each Selling Shareholder, at the purchase
price per share, the number of Shares that bears the same proportion to the
number of Shares set forth opposite the name of such Selling Shareholder in
Schedule I hereto as the number of Shares set forth opposite the name of such
Manager in Schedule II hereto (or such number of Shares increased as set forth
in Section 12 hereof) bears to the aggregate number of Shares to be sold by the
Company and the Selling Shareholders.
Certificates in transferable form for the Shares that each of the Selling
Shareholders agrees to sell pursuant to this Agreement have been placed in
custody with State Street Bank and Trust Company (the "Custodian") for delivery
under this Agreement pursuant to a Custody Agreement and Power of Attorney (the
"Custody Agreement") executed by each of the Selling Shareholders appointing
J. Peter Pierce and Douglas B. Huntley, as agents and attorneys-in-fact (the
"Attorneys-in-Fact"). Each Selling Shareholder agrees that (i) the Shares
represented by the certificates held in custody pursuant to the Custody
Agreement are subject to the interests of the Managers, the Company and each
other Selling Shareholder, (ii) the arrangements made by the Selling
Shareholders for such custody are, except as specifically provided in the
Custody Agreement, irrevocable, and (iii) the obligations of the Selling
Shareholders hereunder and under the Custody Agreement shall not be terminated
by any act of such Selling Shareholder or by operation of law, whether by the
death or incapacity of any Selling Shareholder or the occurrence of any other
event or, if the Selling Shareholder is not a natural person, upon any
dissolution, winding up, distribution of assets or other event affecting the
legal existence of such Selling Shareholder. If any Selling Shareholder shall
die or be incapacitated or if any other event shall occur before the delivery of
the Shares hereunder, or if the Selling Shareholder is not a natural person,
shall dissolve, wind up, distribute assets or if any other event affecting the
legal existence of such Selling Shareholder shall
4
<PAGE>
occur before the delivery of the Shares hereunder, certificates for the Shares
of such Selling Shareholder shall be delivered to the Underwriters by the
Attorneys-in-Fact in accordance with the terms and conditions of this Agreement
and the Custody Agreement as if such death or incapacity, dissolution, winding
up or distribution of assets or other event had not occurred, regardless of
whether or not the Attorneys-in-Fact or any Manager shall have received notice
of such death, incapacity, dissolution, winding up or distribution of assets or
other event. Each Attorney-in-Fact is authorized, on behalf of each of the
Selling Shareholders, to execute this Agreement and any other documents
necessary or desirable in connection with the sale of the Shares to be sold
hereunder by such Selling Shareholder, to make delivery of the certificates for
such Shares, to receive the proceeds of the sale of such Shares, to give
receipts for such proceeds, to pay therefrom any expenses to be borne by such
Selling Shareholder in connection with the sale and public offering of such
Shares, to distribute the balance thereof to such Selling Shareholder, and to
take such other action as may be necessary or desirable in connection with the
transactions contemplated by this Agreement. Each Attorney-in-Fact agrees to
perform his duties under the Custody Agreement.
Each Manager represents, warrants, covenants and agrees that, except as
contemplated under Section 2 of the Agreement Between U.S. Underwriters and
Managers dated the date hereof, (i) it is not purchasing any Shares for the
account of any U.S. or Canadian Person, (ii) it has not offered or sold, and
will not offer, sell, resell or deliver, directly or indirectly, any Shares or
distribute any Prospectus in the United States or Canada or to any U.S. or
Canadian Person, and (iii) any offer of Shares will be made only pursuant to an
exemption from the requirement to file a prospectus in, or in compliance with
the laws of, the relevant jurisdiction in which such offer is made.
3. Terms of Public Offering. The Sellers have been advised by you that
the Managers propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the International Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the Managers
of and payment for the Shares shall be made at the office of Smith Barney Inc.,
388 Greenwich Street, New York, N.Y. 10013, at 10:00 A.M., New York City time,
on ___________, 1997 (the "Closing Date"). The place of closing for the Shares
and the Closing Date may be varied by agreement among you, the Company and the
Attorneys-in-Fact.
Certificates for the Shares to be purchased hereunder shall be registered
in such names and in such denominations as you shall request by written notice,
it being understood that a facsimile
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transmission shall be deemed written notice, prior to 9:30 A.M., New York City
time, on the second business day preceding the Closing Date. Such certificates
shall be made available to you in New York City for inspection and packaging not
later than 9:30 A.M., New York City time, on the business day next preceding the
Closing Date. The certificates and stock powers evidencing the Shares to be
purchased hereunder shall be delivered to you on the Closing Date against
payment of the purchase price therefor in immediately available funds as
directed by the Company or the Attorneys-in-Fact, as applicable.
5. Agreements of the Company. The Company agrees with the several
Managers as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Company will endeavor to cause the Registration Statement or such post-effective
amendment to become effective as soon as possible and will advise you promptly
and, if requested by you, will confirm such advice in writing, when the
Registration Statement or such post-effective amendment has become effective.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectuses or the Prospectuses or for additional information; (ii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, including the filing of any information, documents or reports
pursuant to the Exchange Act, that makes any statement of a material fact made
in the Registration Statement or the Prospectuses (as then amended or
supplemented) untrue or which requires the making of any additions to or changes
in the Registration Statement or the Prospectuses (as then amended or
supplemented) in order to state a material fact required by the Act or the
regulations thereunder to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Prospectuses (as then amended or supplemented) to comply with the Act or any
other law. If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible time.
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(c) The Company will furnish to you, without charge, three signed copies
of the Registration Statement as originally filed with the Commission and of
each amendment thereto, including financial statements and all exhibits to the
Registration Statement and will also furnish to you, without charge, such number
of conformed copies of the Registration Statement as originally filed and of
each amendment thereto, but without exhibits, as you may reasonably request.
(d) The Company will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectuses of which you
shall not previously have been advised or to which you shall reasonably object
in writing after being so advised or (ii) so long as, in the written opinion of
counsel for the Managers (a copy of which shall be delivered to the Company), a
prospectus is required to be delivered in connection with sales by any Manager
or dealer, file any information, documents or reports pursuant to the Exchange
Act, without delivering a copy of such information, documents or reports to you,
as Lead Managers for the Managers, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the Company has
delivered or will deliver to you, without charge, in such quantities as you have
reasonably requested or may hereafter reasonably request, copies of each form of
the International Prepricing Prospectus. The Company consents to the use, in
accordance with the provisions of the Act and with the securities laws of the
jurisdictions in which the Shares are offered by the several Managers and by
dealers, prior to the date of the International Prospectus, of each
International Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as possible
and thereafter from time to time for such period as in the written opinion of
counsel for the Managers an International Prospectus is required by the Act to
be delivered in connection with sales by any Manager or dealer, the Company will
expeditiously deliver to each Manager and each dealer, without charge, as many
copies of the International Prospectus (and of any amendment or supplement
thereto) as you may reasonably request for a period of nine months after the
date of this Agreement; provided, however, that if a request for copies of the
Prospectuses is made by any Manager or dealer after such nine-month period, the
costs associated with the preparing and filing of any post-effective amendment
to the Registration Statement or any amendment or supplement to the Prospectuses
and delivery of the Prospectuses (and of any amendment or supplement thereto)
shall be borne by such Manager or dealer. The Company consents to the use of
the International Prospectus (and of any amendment or supplement thereto) in
accordance with the provisions of the Act and with the securities laws of the
jurisdictions in which the Shares are offered by the several Managers and by all
dealers to whom Shares
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may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the International Prospectus is required by
the Act to be delivered in connection with sales by any Manager or dealer. If
during such period of time any event shall occur that in the judgment of the
Company or in the written opinion of counsel for the Managers is required to be
set forth in the International Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if it
is necessary to supplement or amend the International Prospectus in order to
comply with the Act or any other law, the Company will make every reasonable
effort to prepare and, subject to the provisions of paragraph (d) above and this
paragraph (f), file with the Commission an appropriate supplement or amendment
thereto, and will expeditiously furnish to the Managers and dealers a reasonable
number of copies thereof. Each Manager agrees that after receipt of any
supplement or amendment to the Prospectus, it will not deliver the Prospectus
other than as so supplemented or amended. In the event that the Company and
you, as Lead Managers for the several Managers, agree that the International
Prospectus should be amended or supplemented, the Company, if reasonably
requested by you, will promptly issue a press release announcing or disclosing
the matters to be covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel for the Managers
in connection with the registration or qualification of the Shares for offering
and sale by the several Managers and by dealers under the securities laws of
such jurisdictions as you may reasonably designate and will file such consents
to service of process or other documents necessary or appropriate in order to
effect such registration or qualification; provided that in no event shall the
Company be obligated to qualify to do business in any jurisdiction where it is
not now so qualified or to take any action that would subject it to taxation or
service of process in suits, other than those arising out of the offering or
sale of the Shares, in any jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security holders a
consolidated earnings statement, which need not be audited, covering a twelve-
month period commencing after the effective date of the Registration Statement
and ending not later than 15 months thereafter, as soon as reasonably
practicable after the end of such period, which consolidated earnings statement
shall satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company will furnish to
you (i) as soon as available, a copy of each report of the Company mailed to
stockholders or filed with the Commission or the New York Stock Exchange, and
(ii) from time to
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time such other information concerning the Company as you may reasonably
request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 hereof or by notice given by you terminating this
Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement
shall be terminated by the Managers because of any failure or refusal on the
part of the Company or any of the Selling Shareholders to comply, in any
material respect, with the terms or fulfill, in any material respect, any of the
conditions of this Agreement, the Company agrees to reimburse the Lead Managers
for all reasonable out-of-pocket expenses (including reasonable fees and
expenses of counsel for the Managers) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of the Shares to
be sold by it hereunder substantially in accordance with the description set
forth in the Prospectuses.
(l) If Rule 430A of the Act is employed, the Company will make every
reasonable effort to timely file the Prospectuses pursuant to Rule 424(b) under
the Act and will advise you of the time and manner of such filing.
(m) For a period of 180 days after the date hereof (the "Lock-up Period"),
the Company will not, without the prior written consent of Smith Barney Inc.,
offer, sell, contract to sell or otherwise dispose of any Common Stock (or any
securities convertible into or exercisable or exchangeable for Common Stock) or
grant any options or warrants to purchase Common Stock that are exercisable
during the Lock-up Period, except for (i) sales to the Managers pursuant to this
Agreement and the U.S. Underwriters pursuant to the U.S. Underwriting Agreement,
(ii) the issuance of shares upon exercise of outstanding options and (iii) the
issuance of shares in connection with acquisitions, provided that the recipients
of such shares agree not to sell the shares during the Lock-up Period.
(n) The Company has furnished or will furnish to you "lock-up" letters, in
form and substance satisfactory to you, signed by each of its current executive
officers and directors and will make every reasonable effort to furnish to you
"lock-up" letters signed by each of its shareholders designated by you.
(o) Except as stated in this Agreement and in the U.S. Underwriting
Agreement and in the Prepricing Prospectuses and Prospectuses, the Company has
not taken, nor will it take, directly or indirectly, any action designed to or
that might reasonably be expected to cause or result in stabilization or
manipulation of the
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price of the Common Stock to facilitate the sale or resale of the Shares.
(p) The Company will use its best efforts to have the Common Stock
listed, subject to notice of issuance, on the New York Stock Exchange
concurrently with the effectiveness of the Registration Statement.
6. Agreements of the Selling Shareholders. Each of the Selling
Shareholders agrees with the several Managers as follows:
(a) Such Selling Shareholder will cooperate to the extent reasonably
necessary to cause the Registration Statement or any post-effective amendment
thereto to become effective at the earliest possible time.
(b) Such Selling Shareholder will pay all Federal and other taxes, if
any, on the transfer or sale of such Shares that are sold by such Selling
Shareholder to the Managers.
(c) Such Selling Shareholder will do or perform all things reasonably
required to be done or performed by such Selling Shareholder prior to the
Closing Date to satisfy all conditions precedent with respect to such Selling
Shareholder to the delivery of the Shares pursuant to this Agreement.
(d) Such Selling Shareholder has executed or will execute a "lock-up"
letter as provided in Section 5(n) above and will not sell, contract to sell or
otherwise dispose of any Common Stock, except as provided therein or for the
sale of Shares to the Underwriters pursuant to this Agreement, prior to the
expiration of the Lock-Up Period, without the prior written consent of Smith
Barney Inc.
(e) Except as stated in this Agreement and the U.S. Underwriting
Agreement and in the Prepricing Prospectuses and the Prospectuses, such Selling
Shareholder has not taken, nor will it take, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares.
(f) To the extent that any statements or omissions made in the
Registration Statement or the Prospectuses (as amended or supplemented, if
amended or supplemented) specifically refer to the information regarding a
Selling Shareholder under the caption "Principal and Selling Shareholders," such
Selling Shareholder will advise you promptly upon becoming aware, and if
requested by you, will confirm such advice in writing, within the period of time
referred to in Section 5(f) hereof, of any change in such information that comes
to the attention of such Selling Shareholder that makes any statement made in
the Registration Statement or the
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Prospectuses (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectuses (as then amended or supplemented) in order to state a material fact
required by the Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectuses (as then amended or
supplemented) to comply with the Act or any other law.
7. Representations and Warranties of the Company. The Company represents
and warrants to each Manager that:
(a) Each International Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act; except that
this representation and warranty does not apply to statements in or omissions
from such International Prepricing Prospectus (or any amendment or supplement
thereto) made in reliance upon and in conformity with information relating to
any Selling Shareholder or to any U.S. Underwriter or Manager furnished to the
Company in writing by a Selling Shareholder or a Manager through the Lead
Managers or by a U.S. Underwriter through the Representatives expressly for use
therein. The Commission has not issued any order preventing or suspending the
use of any Prepricing Prospectus.
(b) The Registration Statement in the form in which it became or
becomes effective, including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A(b),
and also in such form as it may be when any post-effective amendment thereto
shall become effective and the Prospectuses and any supplement or amendment
thereto when filed with the Commission under Rule 424(b) under the Act, complied
or will comply in all material respects with the provisions of the Act and will
not at any such times contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; except that this representation and warranty
does not apply to statements in or omissions from the Registration Statement or
the Prospectuses made in reliance upon and in conformity with information
relating to any Selling Shareholder or to any U.S. Underwriter or Manager
furnished to the Company in writing by or on behalf of a Selling Shareholder or
a Manager through the Lead Managers or by a U.S. Underwriter through the
Representatives expressly for use therein.
(c) All the outstanding shares of Common Stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable and
are free of any preemptive or similar rights; the Shares to be issued and sold
by the Company have been duly authorized and, when issued and delivered to the
Managers
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against payment therefor in accordance with the terms hereof, will be validly
issued, fully paid and nonassessable and free of any preemptive or similar
rights; and the capital stock of the Company conforms to the description thereof
in the Registration Statement and the Prospectuses under the caption
"Description of Capital Stock."
(d) The Company is a corporation duly organized and validly subsisting
under the laws of the Commonwealth of Pennsylvania, with full corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectuses.
Within fourteen days of the Closing Date the Company will be duly registered and
qualified to conduct its business and in good standing in each jurisdiction
where the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not (1) have a material adverse effect on the condition (financial
or other), business, properties, shareholders' equity or results of operations
of the Company and the Subsidiaries (as hereinafter defined), taken as a whole,
(2) materially adversely affect the issuance, validity or enforceability of the
Shares or (3) materially adversely affect the consummation of any of the
transactions contemplated by this Agreement (each of (1), (2) and (3) above, a
"Material Adverse Effect").
(e) All the Company's subsidiaries (as defined in Rule 1-02(x) of
Regulation S-X and as required to be identified by Item 601(b)(21) of Regulation
S-K) are listed in an exhibit to the Registration Statement (collectively, the
"Subsidiaries"). Each Subsidiary is either (i) a corporation duly organized,
validly existing and in good standing in the jurisdiction of its incorporation
or (ii) a partnership duly organized and validly existing under the applicable
laws of the Commonwealth of Pennsylvania. Each Subsidiary has the requisite
corporate or partnership, as the case may be, power and authority to own, lease
and operate its properties and to conduct its business as described in the
Registration Statement and the Prospectuses, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not individually or in the aggregate have a Material
Adverse Effect. All the outstanding shares of capital stock of each of the
corporate Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable, and are 99% or greater owned by the Company directly, or
indirectly through one or more of the other Subsidiaries, free and clear of any
lien, adverse claim, security interest, equity or other encumbrance, other than
the pledge of such shares pursuant to the Pledge and Intercreditor Agreement, as
amended, and the Credit Facility (as defined in the Registration Statement).
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(f) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any of its
Subsidiaries which are materially adverse to the Company and its Subsidiaries,
taken as a whole, or to which the Company or any of the Subsidiaries, or to
which any of their respective properties is subject, which are material to the
Company and its Subsidiaries, taken as a whole, that are required to be
described in the Registration Statement or the Prospectuses but are not
described as required.
(g) Neither the Company nor any of the Subsidiaries is (i) in violation of
its certificate or articles of incorporation or by-laws, or other organizational
documents, (ii) in violation of any statute, law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any ruling, judgment, injunction, order or decree of any
court or governmental agency or body having jurisdiction over the Company or any
of the Subsidiaries (except where any such violation or violations in the
aggregate would not have a Material Adverse Effect), or (iii) in default in any
material respect in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
in any material agreement, indenture, lease or other instrument to which the
Company or any of the Subsidiaries is a party or by which any of them or any of
their respective properties may be bound (except where any such default or
defaults in the aggregate would not have a Material Adverse Effect).
(h) Other than as will be obtained, waived or otherwise corrected prior to
the Closing Date, neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement or the U.S. Underwriting Agreement by
the Company nor the consummation by the Company of the transactions contemplated
hereby and thereby (i) requires any consent, approval, authorization or other
order of or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except as
may be required for the registration of the Shares under the Act and the
Exchange Act (which has been effected) and such as may be required under state
securities or foreign laws) or conflicts or will conflict with or constitutes or
will constitute a breach of, or a default under, the certificate or articles of
incorporation or bylaws, or other organizational documents, of the Company or
any of the Subsidiaries or (ii) conflicts or will conflict with or constitutes
or will constitute a breach of, or a default under, any agreement, indenture,
lease or other instrument to which the Company or any of the Subsidiaries is a
party or by which any of them or any of their respective properties may be
bound, or violates or will violate any statute, law, regulation or filing
(except as may be required for the registration of the Shares under the Act and
the Exchange Act (which has been effected) and such as may be required under
state securities or foreign laws) or judgment, injunction, order or
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decree applicable to the Company or any of the Subsidiaries or any of their
respective properties, or will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which any
of them is a party or by which any of them may be bound or to which any of the
property or assets of any of them is subject other than security interests
granted pursuant to the Credit Agreement, the 1996 Notes and the 1997 Notes (as
defined in the Registration Statement).
(i) The accountants, Arthur Andersen LLP and Deloitte & Touche LLP, who
have certified or shall certify the financial statements filed or to be filed as
part of the Registration Statement or the Prospectuses (or any amendment or
supplement thereto) are independent public accountants as required by the Act.
(j) The historical consolidated financial statements of the Company,
together with related schedules and notes forming part of the Registration
Statement and the Prospectuses (and any amendment or supplement thereto), and,
to the knowledge of the Company, the historical financial statements of Security
Archives, Inc. and Records Management Services, Inc., together with related
schedules and notes forming part of the Registration Statement and the
Prospectuses (and any amendment or supplement thereto), comply with the
requirements of the Act and present fairly the consolidated financial position,
results of operations, cash flows and changes in financial position of the
Company and the Subsidiaries and Security Archives, Inc. and Records Management
Services, Inc., as the case may be, on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which they
apply; the statements and related schedules and notes of the Company and, to the
knowledge of the Company, the statements and related schedules and notes of
Security Archives, Inc. and Records Management Services, Inc., have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; the pro forma financial information, and the related notes thereto,
included in the Registration Statement and the Prospectuses (and any amendment
or supplement thereto) have been prepared in accordance with the applicable
requirements of the Act and the assumptions used in preparing such information
are reasonable; and the other historical and pro forma financial and statistical
information and data set forth in the Registration Statement and the
Prospectuses (and any amendment or supplement thereto) are accurately presented
in all material respects and prepared on a basis consistent with the books and
records of the Company and its Subsidiaries.
(k) The execution and delivery of, and the performance by the Company of
its obligations under, each of this Agreement and the U.S. Underwriting
Agreement have been duly and validly authorized by the Company, and each of this
Agreement and the U.S.
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Underwriting Agreement has been duly executed and delivered by the Company and
constitutes the valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, except (i) the enforceability
hereof or thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally, (ii) the remedy of specific
performance and other forms of equitable relief may be subject to certain
equitable defenses and to the discretion of the court before which the
proceedings may be brought and (iii) rights to indemnity and contribution
hereunder or thereunder may be limited by federal or state securities laws or
the public policy underlying such laws.
(l) Except as disclosed or contemplated in the Registration Statement and
the Prospectuses (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectuses (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock of the Company, or material increase in the short-term debt or long-term
debt, of the Company or any of the Subsidiaries, or any development having or
which may reasonably be expected to result in a Material Adverse Effect.
(m) Each of the Company and the Subsidiaries has good and valid title to
all property (real and personal) described in the Prospectuses as being owned by
it which is material to the business of the Company and its Subsidiaries taken
as a whole, free and clear of all liens, claims, security interests or other
encumbrances except such as are described in the Registration Statement and the
Prospectuses or in a document filed as an exhibit to the Registration Statement
and all the property described in the Prospectuses as being held under lease by
each of the Company and the Subsidiaries which is material to the business of
the Company and its Subsidiaries taken as a whole, is held by it under valid,
subsisting and enforceable leases with only such exceptions as in the aggregate
do not interfere in any material respect with the conduct of the business of the
Company and the Subsidiaries, taken as a whole or the use made or proposed to be
made of such property by the Company or its Subsidiaries.
(n) The Company has not distributed and, prior to the later to occur of
(i) the Closing Date and (ii) completion of the distribution of the Shares, will
not distribute any offering material in connection with the offering and sale of
the Shares other than the Registration Statement, the Prepricing Prospectuses,
the Prospectuses or other materials, if any, permitted by the Act.
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(o) Except as described in clause (d) above, the Company and each of the
Subsidiaries has such permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("Permits") as are necessary to own its
respective properties and to conduct its business in the manner described in the
Prospectuses, except where the failure to so possess would not, individually or
in the aggregate, have a Material Adverse Effect and subject to such
qualifications as may be set forth in the Prospectuses; the Company and each of
the Subsidiaries has fulfilled and performed all its material obligations with
respect to such Permits and no event has occurred that allows, or after notice
or lapse of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any such Permit,
subject in each case to such qualification as may be set forth in the
Prospectuses, except where any such revocation, termination or impairment would
not have a Material Adverse Effect.
(p) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(q) To the Company's knowledge, neither the Company nor any of its
Subsidiaries nor any employee or agent of the Company or any Subsidiary has made
any payment of funds of the Company or any Subsidiary or received or retained
any funds in violation of any law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the
Prospectuses.
(r) The Company and, to the Company's knowledge, each of the Subsidiaries
have filed all tax returns required to be filed or obtained extensions therefor,
which returns are true and correct in all material respects, and neither the
Company nor any Subsidiary is in default in the payment of any taxes which were
payable pursuant to said returns or any assessments with respect thereto, except
where the failure to file such returns or to pay such taxes is not reasonably
likely to have a Material Adverse Effect.
(s) Except as described in the Prospectuses, no holder of any security of
the Company has any right to require registration of shares of Common Stock or
any other security of the Company because of the filing of the Registration
Statement or consummation of the transactions contemplated by this Agreement or
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the U.S. Underwriting Agreement, or otherwise. Except as described in or
contemplated by the Prospectuses, there are no outstanding options, warrants or
other rights calling for the issuance of, and there are no commitments, plans or
arrangements to issue, any shares of Common Stock of the Company or any security
convertible into or exchangeable or exercisable for Common Stock of the Company.
(t) The Company and the Subsidiaries own or possess all patents,
trademarks, trademark registration, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectuses as being owned by them or any of them or necessary
for the conduct of their respective businesses, except where the lack of such
ownership or possession would not, individually or in the aggregate, have a
Material Adverse Effect, and the Company is not aware of any claim to the
contrary or any challenge by any other person to the rights of the Company and
the Subsidiaries with respect to the foregoing.
(u) The Company is not and, upon sale of the Shares to be issued and sold
in accordance herewith and upon application of the net proceeds to the Company
from such sale as described in the Prospectuses under the caption "Use of
Proceeds," will not be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act").
(v) The Company and, to the Company's knowledge, each of its Subsidiaries
are insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as the Company deems prudent and customary
to cover 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 fire, flood or
earthquakes (in certain geographic areas), and losses at the Company's
facilities up to approximately $225 million; neither the Company nor, to the
knowledge of the Company, any such Subsidiary has been refused any insurance
coverage sought or applied for; and neither the Company nor, to the knowledge of
the Company, any such Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse Effect,
except as described in or contemplated by the Prospectuses.
(w) No Subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such Subsidiary's capital stock, from repaying to the Company
any loans or advances to such Subsidiary from the Company or from transferring
any of such Subsidiary's property or assets to the
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Company or any other Subsidiary of the Company, except as described in or
contemplated by the Prospectuses.
(x) Except for the shares of capital stock or partnership interests of each
of the Subsidiaries owned by the Company and such Subsidiaries, neither the
Company nor any such Subsidiary owns any shares of stock or any other equity
securities of any corporation or has any equity interest in any firm,
partnership, association or other entity, except as described in or contemplated
by the Prospectuses.
(y) There are no labor disputes with the Company's employees or with
employees of the Subsidiaries that exist or, to the Company's knowledge, are
imminent that are reasonably likely to materially adversely affect the Company
and the Subsidiaries taken as a whole, and the Company is not aware of any
existing or imminent labor disturbance by any of its or the Subsidiaries'
principal suppliers, contractors or customers that are reasonably likely to have
a Material Adverse Effect.
(z) With respect to each employee benefit plan, program and arrangement
(including, without limitation, any "employee benefit plan" as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), maintained or contributed to by the Company or the Subsidiaries, or
with respect to which the Company or the Subsidiaries could incur any liability
under ERISA (collectively, the "Benefit Plans"), no event has occurred and there
exists no condition or set of circumstances in connection with which the Company
or the Subsidiaries could be reasonably likely to be subject to any liability
under the terms of such Benefit Plan or applicable law (including, without
limitation, ERISA and the Internal Revenue Code of 1986, as amended (the
"Code")) that could have a Material Adverse Effect.
(aa) The Company and, to the Company's knowledge, the Subsidiaries are (i)
(A) in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (B) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses, and (C) and are in compliance with all terms and
conditions of any such permit, license or approval, except, in each case, where
such noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a Material Adverse Effect; (ii) except as disclosed in the Registration
Statement or the Prospectuses, there is no civil, criminal or administrative
action, suit, demand, hearing, notice of violation or deficiency, investigation,
proceeding or notice of potential responsibility or liability or
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demand letter or request for information pending, or to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries under any
Environmental Laws which, if determined adversely to the Company or any such
Subsidiary, would, individually or in the aggregate, be reasonably likely to
result in a Material Adverse Effect. Neither the Company nor, to the Company's
knowledge, any of the Subsidiaries has been named as a "potentially responsible
party" under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended ("CERCLA").
8. Representations and Warranties of the Selling Shareholders. Each
Selling Shareholder represents and warrants to each Manager that:
(a) Such Selling Shareholder now has, and on the Closing Date will
have, valid and marketable title to the Shares to be sold by such Selling
Shareholder, free and clear of any lien, claim, security interest or other
encumbrance, including, without limitation, any restriction on transfer, except
as otherwise described in the Prospectuses.
(b) Such Selling Shareholder now has, and on the Closing Date will
have, full legal right, power and authorization, and any approval required by
law (other than any approval under federal or state securities or foreign laws),
to sell, assign, transfer and deliver such Shares in the manner provided in this
Agreement and the U.S. Underwriting Agreement, and upon delivery of and payment
for such Shares hereunder, the several Managers will acquire valid and
marketable title to such Shares free and clear of any lien, claim, security
interest, or other encumbrance.
(c) This Agreement, the U.S. Underwriting Agreement and the Custody
Agreement have been duly authorized, executed and delivered by or on behalf of
such Selling Shareholder and are the valid and binding agreements of such
Selling Shareholder enforceable against such Selling Shareholder in accordance
with their terms, except that (i) the enforceability hereof or thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally, (ii)
the remedy of specific performance and other forms of equitable relief may be
subject to certain equitable defenses and to the discretion of the court before
which the proceedings may be brought and (iii) rights to indemnity and
contribution hereunder or thereunder may be limited by federal or state
securities laws or the public policy underlying such laws.
(d) Neither the sale of the Shares, the execution, delivery or
performance of this Agreement, the U.S. Underwriting Agreement or the Custody
Agreement by or on behalf of such Selling Shareholder nor the consummation by or
on behalf of such Selling
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Shareholder of the transactions contemplated hereby and thereby (i) requires any
consent, approval, authorization or other order of, or registration or filing
with, any court, regulatory body, administrative agency or other governmental
body, agency or official (except as may be required for the registration of the
Shares under the Act and the Exchange Act and such as may be required under
state securities or foreign laws) or (ii) conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, any agreement,
indenture, lease or other instrument to which such Selling Shareholder is a
party or by which such Selling Shareholder is or may be bound (except any such
agreements or other instruments which will either be terminated or released upon
the Closing hereunder), or violates or will violate any statute, law, regulation
or filing or judgment, injunction, order or decree applicable to such Selling
Shareholder, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of such Selling Shareholder pursuant to
the terms of any agreement or instrument to which such Selling Shareholder is a
party or by which such Selling Shareholder may be bound or to which any of the
property or assets of such Selling Shareholder is subject.
(e) The information pertaining to such Selling Shareholder provided to
the Company for inclusion under the caption "Principal and Selling Shareholders"
in the Prospectuses, does not and will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(f) The representations and warranties of such Selling Shareholder in
the Custody Agreement are, and on the Closing Date will be, true and correct.
(g) Such Selling Shareholder has not taken, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares, except for the lock-up arrangements referred
to in the Prospectuses.
(h) Such Selling Shareholder has not distributed and, prior to the
later to occur of (i) the Closing Date and (ii) completion of the distribution
of the Shares, will not distribute any offering material in connection with the
offering and sale of the Shares.
9. Indemnification and Contribution. (a) The Company agrees to indemnify
and hold harmless you and each other Manager and each person, if any, who
controls any Manager within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of
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investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any International Prepricing
Prospectus or in the Registration Statement or the International Prospectus or
in any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to any U.S.
Underwriter or Manager furnished in writing to the Company by or on behalf of
any Manager through you or by or on behalf of any U.S. Underwriter through a
Representative expressly for use in connection therewith; provided, however,
that the indemnification contained in this paragraph (a) with respect to any
International Prepricing Prospectus shall not inure to the benefit of any
Manager (or to the benefit of any person controlling such Manager) on account of
any such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Manager to any person if a copy of the International Prospectus
shall not have been delivered or sent to such person within the time required by
the Act and the regulations thereunder, and the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact contained in
such International Prepricing Prospectus was corrected in the International
Prospectus, provided that the Company has delivered the International Prospectus
to the several Managers in requisite quantity on a timely basis to permit such
delivery or sending. The foregoing indemnity agreement shall be in addition to
any liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against any Manager
or any person controlling any Manager in respect of which indemnity may be
sought against the Company or any Selling Shareholder, such Manager or such
controlling person shall promptly notify the parties against whom
indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses; provided, however, that the
failure so to notify the indemnifying parties shall not relieve the indemnifying
parties from any obligation or liability except to the extent that the
indemnifying parties have been prejudiced materially by such failure. Such
Manager or any such controlling person shall have the right to employ separate
counsel in any such action, suit or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Manager or such controlling person unless (i) the indemnifying parties have
agreed in writing to pay such fees and expenses, (ii) the indemnifying parties
have failed to assume the defense and employ counsel, or (iii) the named parties
to any such action, suit or proceeding (including any impleaded
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parties) include both such Manager or such controlling person and the
indemnifying parties and such Manager or such controlling person shall have been
advised by its counsel in writing that representation of such indemnified party
and any indemnifying party by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed) due to actual or potential differing
interests between them (in which case the indemnifying party shall not have the
right to assume the defense of such action, suit or proceeding on behalf of such
Manager or such controlling person). It is understood, however, that in the
event that one or more persons seeking indemnity exercises its right to employ
separate counsel pursuant to the preceding sentence, the indemnifying parties
shall, in connection with any one such action, suit or proceeding or separate
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to one local counsel in each such jurisdiction) at any
time for all such Managers and controlling persons, which firm shall be
designated in writing by Smith Barney Inc., and that all such fees and expenses
as required to be paid by the indemnifying parties hereunder shall be reimbursed
as they are incurred. The indemnifying parties shall not be liable for any
settlement of any such action, suit or proceeding effected without their written
consent, but if settled with such written consent, or if there be a final
judgment for the plaintiff in any such action, suit or proceeding, the
indemnifying parties agree to indemnify and hold harmless any Manager, to the
extent provided in the preceding paragraph, and any such controlling person from
and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Selling Shareholder agrees, severally and not jointly, to
indemnify and hold harmless each of you and each other Manager and each person,
if any, who controls any Manager within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, the Company, its directors, its officers who
sign the Registration Statement, and any person who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act to the
same extent as the foregoing indemnity from the Company to each Manager, but
only with respect to the information furnished in writing by or on behalf of
such Selling Shareholder expressly for use in the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto;
provided, however, the liability of a Selling Shareholder under this paragraph
(c) shall not exceed the proceeds received by such Selling Shareholder from the
sale of such Selling Shareholder's Shares hereunder. If any action, suit or
proceeding shall be brought against any Manager, any such controlling person of
any Manager, the Company, any of its directors any such officer or any such
controlling person of the Company, based on the Registration
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Statement, the Prospectus or any Prepricing Prospectus or any amendment or
supplement thereto, and in respect of which indemnity may be sought against any
Selling Shareholder pursuant to this paragraph (c), such Selling Shareholder
shall have the rights and duties given to the Company by paragraph (b) above
(except that if the Company shall have assumed the defense thereof such Selling
Shareholder shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof, but the fees and expenses of
such counsel shall be at such Selling Shareholder's expense), and each Manager,
each such controlling person of any Manager, the Company, its directors, any
such officer, and any such controlling person of the Company shall have the
rights and duties given to the Managers by paragraph (b) above. The foregoing
indemnity agreement shall be in addition to any liability which any Selling
Shareholder may otherwise have.
(d) Each Manager agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement, any person who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act and the Selling Shareholders, to
the same extent as the foregoing indemnity from the Company and the Selling
Shareholders to each Manager, insofar as such losses, claims, damages,
liabilities and expenses arise out of or are based upon the untrue statement or
alleged untrue statement of a material fact contained in any International
Prepricing Prospectus or in the Registration Statement or the International
Prospectus or in any amendment or supplement thereto, or arise out of or are
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by such Manager
through you specifically for use therein. If any action, suit or proceeding
shall be brought against the Company, any of its directors, any such officer,
any such controlling person or any Selling Shareholder based on the Registration
Statement, the International Prospectus or any International Prepricing
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Manager pursuant to this paragraph (d), such
Manager shall have the rights and duties given to the Company by paragraph (b)
above (except that if the Company or the Selling Shareholders shall have assumed
the defense thereof such Manager shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof, but the fees
and expenses of such counsel shall be at such Manager's expense), and the
Company, its directors, any such officer, any such controlling person, and the
Selling Shareholders shall have the rights and duties given to the Managers by
paragraph (b) above. The foregoing indemnity agreement shall be in addition to
any liability which any Manager may otherwise have.
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(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a), (c) or (d) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders on the one hand and the Managers on the
other hand from the offering of the Shares, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Shareholders on
the one hand and the Managers on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Shareholders on
the one hand and the Managers on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Shareholders bear to the total
underwriting discounts and commissions received by the Managers, in each case as
set forth in the table on the cover page of the International Prospectus;
provided that, in the event that the Managers shall have purchased any
Additional Shares hereunder, any determination of the relative benefits received
by the Company, the Selling Shareholders or the Managers from the offering of
the Shares shall include the net proceeds (before deducting expenses) received
by the Company, and the underwriting discounts and commissions received by the
Managers, from the sale of such Additional Shares, in each case computed on the
basis of the respective amounts set forth in the notes to the table on the cover
page of the International Prospectus. The relative fault of the Company and the
Selling Shareholders on the one hand and the Managers on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Selling
Shareholders on the one hand or by the Managers on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(f) The Company, the Selling Shareholders and the Managers agree that
it would not be just and equitable if contribution pursuant to this Section 9
were determined by a pro rata allocation (even if the Managers were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (e) above.
The amount paid or payable by an indemnified
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party as a result of the losses, claims, damages, liabilities and expenses
referred to in paragraph (e) above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating any claim or defending
any such action, suit or proceeding. Notwithstanding the provisions of this
Section 9, no Manager shall be required to contribute any amount in excess of
the amount by which the total price of the Shares underwritten by it and
distributed to the public exceeds the amount of any damages which such Manager
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. Notwithstanding the provisions of
this Section 9, no Selling Shareholder shall be required to contribute any
amount in excess of the total net proceeds of the Shares sold by such Selling
Shareholder. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The Managers'
obligations to contribute pursuant to this Section 9 are several in proportion
to the respective numbers of Shares set forth opposite their names in Schedule
II hereto (or such numbers of Shares increased as set forth in Section 12
hereof) and not joint.
(g) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Shareholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Managers or any
person controlling any Manager, the Company, its directors or officers or the
Selling Shareholders, any director, officer or partner of a Selling Shareholder
or any person controlling the Company or any Selling Shareholder, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. Notwithstanding any other provisions of this
Agreement, if this Agreement terminates prior to the purchase of the Shares by
the Managers, the Company and the Selling Shareholders shall not be liable for
any lost profits. A successor to any Manager or any person controlling any
Manager, or to the Company, its directors or
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officers, or to a Selling Shareholder, any director, officer or partner of a
Selling Shareholder or any person controlling the Company or any Selling
Shareholder, shall be entitled to the benefits of the indemnity, contribution
and reimbursement agreements contained in this Section 9.
10. Conditions of Managers' Obligations. The several obligations of the
Managers to purchase the Shares hereunder are subject to the following
conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Registration Statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any Manager, threatened
by the Commission, and any request of the Commission for additional information
(to be included in the Registration Statement or the Prospectuses or otherwise)
shall have been complied with to your reasonable satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business,
properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole not contemplated by the Prospectuses, which in
your reasonable opinion, as Lead Managers of the several Managers, would
materially adversely affect the market for the Shares, or (ii) any event or
development relating to or involving the Company or any officer or director of
the Company or any Selling Shareholder which makes any statement made in the
Prospectuses untrue or which, in the opinion of the Company and its counsel or
the Managers and their counsel, requires the making of any addition to or change
in the Prospectuses in order to state a material fact required by the Act or any
other law to be stated therein or necessary in order to make the statements
therein not misleading, if amending or supplementing the Prospectuses to reflect
such event or development would, in your opinion, as Lead Managers for the
several Managers, materially adversely affect the market for the Shares.
(c) You shall have received on the Closing Date an opinion of Cozen
and O'Connor, counsel for the Company and the Selling Shareholders, dated the
Closing Date and addressed to you, as Lead Managers for the several Managers, to
the effect that:
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(i) The Company is a corporation duly incorporated and validly
subsisting under the laws of the Commonwealth of Pennsylvania with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectuses, and is in the process of qualifying in the jurisdictions set forth
on Annex A to such opinion;
(ii) Each of the Subsidiaries organized under the laws of the
United States or a state thereof (the "U.S. Subsidiaries") is either (A) a
corporation duly organized and validly existing in good standing under the laws
of the jurisdiction of its organization, or (B) a limited partnership duly
organized under the laws of the Commonwealth of Pennsylvania;
(iii) The authorized and, to such counsel's knowledge,
outstanding capital stock of the Company is as set forth under the caption
"Capitalization" in the Prospectuses; and the authorized capital stock of the
Company conforms in all material respects as to legal matters to the description
thereof contained in the Prospectuses under the caption "Description of Capital
Stock";
(iv) To the knowledge of such counsel, all the shares of
capital stock of the Company outstanding prior to the issuance of the Shares to
be issued and sold by the Company pursuant to the Underwriting Agreements have
been duly authorized and validly issued, and are fully paid and nonassessable;
(v) The Underwritten Shares to be issued and sold to the U.S.
Underwriters and Managers by the Company under the U.S. Underwriting Agreement
and the International Underwriting Agreement have been duly authorized and, when
issued and delivered to the U.S. Underwriters and Managers against payment
therefor in accordance with the terms of the U.S. Underwriting Agreement and the
International Underwriting Agreement, respectively, will be validly issued
(assuming certificates for such Shares have been validly countersigned by the
transfer agent for the Common Stock), fully paid and nonassessable and free of
any (A) statutory preemptive rights or (B) to the knowledge of such counsel,
similar rights that entitle or will entitle any person to acquire any Shares
upon the issuance thereof by the Company;
(vi) The form of certificates for the Shares conforms to the
requirements of the Pennsylvania Business Corporation Law of 1988, as amended;
(vii) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the knowledge of
such counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose are pending before
or contemplated
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by the Commission; and, to such counsel's knowledge, any required filing of the
Prospectuses pursuant to Rule 424(b) has been made in accordance with Rule
424(b);
(viii) The Company has the requisite corporate power and
authority to enter into this Agreement and the U.S. Underwriting Agreement and
to issue, sell and deliver the Underwritten Shares to be sold by it to the U.S.
Underwriters and Managers as provided herein and therein, and each of this
Agreement and the U.S. Underwriting Agreement has been duly authorized, executed
and delivered by the Company;
(ix) Neither the Company nor, to the knowledge of such counsel,
any of the U.S. Subsidiaries is (A) in violation of its respective certificate
of incorporation or bylaws or other organizational documents, or (B) to the
knowledge of such counsel in default in the performance of any material
obligation, agreement or condition contained in any bond, debenture, note or
other evidence of indebtedness that is filed as an exhibit to the Registration
Statement, except as may be disclosed in the Prospectuses or where any such
default or defaults in the aggregate would not, singularly or in the aggregate,
have a Material Adverse Effect;
(x) None of the offer, issuance, sale or delivery of the
Underwritten Shares, the execution, delivery or performance by the Company of
this Agreement or the U.S. Underwriting Agreement, compliance by the Company
with all provisions of this Agreement and the U.S. Underwriting Agreement, or
consummation by the Company of the transactions contemplated hereby or by the
U.S. Underwriting Agreement conflicts or will conflict with or constitutes or
will constitute a breach of, or a default under, the certificate of
incorporation or bylaws, or other organizational document, of the Company or any
of the U.S. Subsidiaries or any material agreement, indenture, lease or other
instrument to which the Company is a party or by which any of its properties is
bound that is filed as an exhibit to the Registration Statement, or except as
disclosed in the Registration Statement, will, to such counsel's knowledge,
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of the U.S. Subsidiaries under any such
agreement, indenture, lease or other instrument, or, to such counsel's
knowledge, will any such action result in any violation of any existing law or
regulation (assuming compliance with all applicable state securities or Blue Sky
laws and foreign laws), or any ruling, judgment, injunction, order or decree of
any court or governmental entity or instrumentality known to such counsel, and
applicable to the Company, the U.S. Subsidiaries or any of their respective
properties;
(xi) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory
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body, administrative agency or other governmental body, agency, or official is
required on the part of the Company (except as have been obtained under the Act
or the Exchange Act or such as may be required under state securities or Blue
Sky laws or foreign laws) for the valid issuance and sale of the Shares to the
Managers as contemplated by this Agreement;
(xii) The Registration Statement and the Prospectuses and any
supplements or amendments thereto (except for the financial statements,
schedules and notes thereto and other financial and statistical data included
therein, as to which such counsel need not express any opinion) comply as to
form in all material respects with the requirements of the Act;
(xiii) To the knowledge of such counsel, (A) other than as
described or contemplated in the Prospectuses, there are no legal or
governmental proceedings pending or threatened against the Company or any of the
U.S. Subsidiaries or to which the Company, the U.S. Subsidiaries or any of their
respective properties is subject, which are required to be described in the
Registration Statement or Prospectuses (or any amendment or supplement thereto)
and (B) there are no agreements, contracts, indentures, leases or other
instruments relating to the Company or any of the U.S. Subsidiaries of a
character that are required to be described in the Registration Statement or the
Prospectuses (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement that are not described or filed as
required, as the case may be;
(xiv) The statements in the Registration Statement and
Prospectuses under the caption "Shares Eligible for Future Sale," insofar as
they refer to statements of law or legal conclusions, are accurate in all
material respects;
(xv) Except as described in the Prospectuses, such counsel does
not know of any outstanding option, warrant or other right calling for the
issuance of, and such counsel does not know of any commitment, plan or
arrangement to issue, any share of capital stock of the Company or any security
convertible into or exchangeable or exercisable for capital stock of the
Company; and, except as described in the Prospectuses, such counsel does not
know of any holder of any security of the Company or any other person who has
the right, contractual or otherwise, to cause the Company to sell or otherwise
issue to them, or permit them to underwrite the sale of, any of the Shares or
the right to have any Common Stock or other securities of the Company included
in the Registration Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the Act of Common Stock or
other securities of the Company;
(xvi) The Company is not now and upon the sale of the Shares to
be issued and sold in accordance herewith and upon
29
<PAGE>
application of the net proceeds from such sale as described in the Prospectuses
under the caption "Use of Proceeds" will not be an "investment company" within
the meaning of the 1940 Act;
(xvii) Each Selling Shareholder has full legal right, power and
authority, and any approval required by law (except such as may be required
under state or foreign securities or Blue Sky laws or foreign laws), to sell,
assign, transfer and deliver good and valid title to the Shares which such
Selling Shareholder has agreed to sell pursuant to this Agreement and the U.S.
Underwriting Agreement;
(xviii) The execution and delivery of this Agreement and the sale
of the Shares by each Selling Shareholder to the Underwriters, and compliance by
such Selling Shareholder with the terms of this Agreement, including the
delivery to the Underwriters of certificates evidencing such shares and the
execution and delivery to the Underwriters of a stock power in blank, have been
duly authorized by all necessary action on the part of such Selling Shareholder
and, to the knowledge of such counsel, do not, and will not, conflict with, or
result in a breach of any of the terms and provisions of, or constitute a
default under (I) any statute, rule or regulation (assuming compliance with all
applicable state securities and Blue Sky laws or foreign laws) relating to such
Selling Shareholder or its legal status in each case, that in the experience of
such counsel are normally applicable to transactions of the type provided for in
this Agreement, (II) any material judgment, order, rule, injunction or
regulation of any court or governmental agency or body, domestic or foreign,
known to such counsel or (III) any material contract, agreement or other
instrument known to such counsel to which such Selling Shareholder is a party or
by which it or any of its properties are subject;
(xix) Upon delivery of the Shares to be sold by the Selling
Shareholders pursuant to this Agreement and payment therefor as contemplated
herein, the Underwriters will have acquired all rights of the Selling
Shareholder in the Shares free and clear of any security interest, mortgage,
lien, pledge, encumbrance or claim.
In addition, such counsel shall state that although counsel has not
undertaken, except as otherwise indicated in their opinion, to determine
independently, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements in the Registration Statement,
(except to the extent set forth in paragraphs (iii) and (xiv) above) such
counsel has participated in the preparation of the Registration Statement and
the Prospectuses, including general review and discussion of the contents
thereof, and nothing has come to the attention of such counsel that would lead
them to believe that the Registration Statement at the time the Registration
Statement became effective, or the Prospectuses, as of their respective dates
and as of the
30
<PAGE>
Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated or necessary to make the statements
therein, in the case of the Prospectuses, in the light of the circumstances
under which they were made, not misleading or that any amendment or supplement
to the Prospectuses, as of its respective date, and as of the Closing Date,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated in the Prospectuses or necessary in order to make the
statements therein, in the case of the Prospectuses, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no statement with respect to the financial
statements, financial schedules, pro forma financial statements and the notes
thereto and other financial and statistical data included in the Registration
Statement or the Prospectuses).
In rendering their opinion as aforesaid, counsel may, as to factual
matters, rely, to the extent such counsel deems proper, upon written
certificates or statements of officers of the Company and the Selling
Shareholders. The foregoing opinion may be limited to the federal laws of the
United States of America and the Commonwealth of Pennsylvania, and counsel
rendering the foregoing opinion may rely as to questions of fact upon the
representations of the Selling Shareholders as set forth in this Agreement and
in the Custody Agreement.
(d) You shall have received on the Closing Date opinions of Blake, Cassels
& Graydon and/or Stewart McKelvey Stirling Seals (as appropriate), Canadian
counsel for the Canadian Subsidiary, dated the Closing Date, and addressed to
you, as Representatives of the several U.S. Underwriters, to the effect that:
(i) The Canadian Subsidiary is a corporation duly organized and
validly existing under the laws of the jurisdiction of its organization with
full corporate power and authority to own, lease, and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectuses (and any amendment or supplement thereto); and all the outstanding
shares of capital stock of the Subsidiary have been duly authorized and validly
issued, are fully paid and nonassessable, and is 99% indirectly owned by the
Company, registered in the name of _____________________.
(ii) The Canadian Subsidiary is not in violation of its certificate
of incorporation or bylaws or other organizational documents.
(iii) Neither the offer, issuance, sale or delivery of the
Underwritten Shares, nor the execution, delivery or performance by the Company
of this Agreement or the U.S. Underwriting Agreement or compliance by the
Company with all provisions of this Agreement and the U.S. Underwriting
Agreement,
31
<PAGE>
nor consummation by the Company of the transactions contemplated hereby or by
the U.S. Underwriting Agreement conflicts or will conflict with or constitutes
or will constitute a breach of, or a default under, the certificate of
incorporation or bylaws, or other organizational document, of the Canadian
Subsidiary, or to such counsel's knowledge, except as disclosed in the
Registration Statement, will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Canadian Subsidiary
under any material agreement, indenture, lease or other instrument, nor, to such
counsel's knowledge, will any such action result in any violation of any
existing law, regulation, ruling (assuming compliance with all applicable state
securities or Blue Sky laws or foreign laws), or any ruling, judgment,
injunction, order or decree of any court or governmental entity or
instrumentality known to such counsel, and applicable to the Canadian Subsidiary
or any of its respective properties.
(e) You shall have received on the Closing Date an opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Managers, dated the
Closing Date and addressed to you as Lead Managers for the several Managers,
with respect to the matters referred to in clauses (v), (other than subclause
(B) thereof), (vii), (viii), (x) and the paragraph immediately following clause
(xix) of the foregoing paragraph (c) and such other related matters as you may
request.
(f) You shall have received letters addressed to you, as Lead
Managers for the several Managers, and dated the date hereof and the Closing
Date from Arthur Andersen LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
(g) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any material change in the capital stock of the Company nor any
material increase in the short-term or long-term debt of the Company (other than
in the ordinary course of business) from that set forth or contemplated in the
Registration Statement or the Prospectuses (or any amendment or Supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectuses
(or any amendment or supplement thereto), except as may otherwise be stated or
contemplated in the Registration Statement and Prospectuses (or any amendment or
supplement thereto), any material adverse change in the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the Company and the Subsidiaries taken as a whole; (iv) the Company and the
Subsidiaries shall not have any liabilities or obligations, direct or contingent
(whether or not in the ordinary course of business),
32
<PAGE>
that are material to the Company and the Subsidiaries, taken as a whole, other
than those reflected in the Registration Statement or the Prospectuses (or any
amendment or supplement thereto); and (v) all the representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects on and as of the date hereof and on and as of the Closing Date
as if made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company (or such other officers as are
acceptable to you), to the effect set forth in this Section 10(g) and in Section
10(h) hereof.
(h) The Company shall not have failed at or prior to the Closing Date
to have performed or complied in all material respects with any of its
agreements herein contained and required to be performed or complied with by it
hereunder at or prior to the Closing Date.
(i) All the representations and warranties of the Selling
Shareholders contained in this Agreement and in the U.S. Underwriting Agreement
shall be true and correct in all material respects on and as of the date hereof
and on and as of the Closing Date as if made on and as of the Closing Date, and
you shall have received a certificate, dated the Closing Date and signed by or
on behalf of each of the Selling Shareholders to the effect set forth in this
Section 10(i) and in Section 10(j) hereof.
(j) The Selling Shareholders shall not have failed at or prior to the
Closing Date to have performed or complied in all material respects with any of
their agreements contained in this Agreement or in the U.S. Underwriting
Agreement and required to be performed or complied with by them at or prior to
the Closing Date.
(k) The Sellers shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have reasonably requested.
(l) The Shares shall have been listed or approved for listing,
subject to notice of issuance, on the New York Stock Exchange.
(m) The closing under the U.S. Underwriting Agreement shall have
occurred on the Closing Date concurrently with the closing hereunder.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Company or any
Attorney-in-Fact or any Selling Shareholder and
33
<PAGE>
delivered to you, as Lead Managers for the several Managers, or to counsel for
the Managers, shall be deemed a representation and warranty by the Company, the
Selling Shareholders or the particular Selling Shareholder, as the case may be,
to each Manager as to the statements made therein.
11. Expenses. The Company agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by the Company of
its obligations hereunder: (i) the printing (or reproduction) and filing with
the Commission and delivery charges and charges for counting and packaging of
such copies of the Registration Statement, each International Prepricing
Prospectus, the International Prospectus and all amendments or supplements to
any of them, as may be reasonably requested for use in connection with the
offering and sale of the Shares; (ii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the original issuance and sale of the Shares by the Company;
(iii) the printing (or reproduction) and delivery of this Agreement, the
Agreement Among Managers, the Agreement Between U.S. Underwriters and Managers,
the International Selling Agreement, the Managers' Questionnaire, the
preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the original
issuance and sale of the Shares; (iv) the registration of the Common Stock under
the Exchange Act and the listing of the Shares on the New York Stock Exchange;
(v) the registration or qualification of the Shares for offer and sale under the
securities laws of the several jurisdictions as provided in Section 5(g) hereof
(including the reasonable fees, expenses and disbursements of counsel for the
Underwriters relating to the preparation, printing or reproduction, and delivery
of the preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vi) the filing fees in connection with any filings required to
be made with the National Association of Securities Dealers, Inc.; (vii) the
transportation and other expenses incurred by or on behalf of representatives of
the Company in connection with presentations to prospective purchasers of the
Shares; and (viii) the fees and expenses of the Company's accountants and the
fees and expenses of counsel (including local and special counsel) for the
Company. Each Selling Shareholder agrees to pay for any transfer taxes on the
sale by such Selling Shareholder of such Selling Shareholder's Shares to the
U.S. Underwriters.
12. Effective Date of Agreement. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the registration statement or such post-effective amendment
has been released by the Commission. Until such time as
34
<PAGE>
this Agreement shall have become effective, it may be terminated by the Company,
by notifying you, or by you, as Lead Managers for the several Managers, by
notifying the Company and the Selling Shareholders.
If any one or more of the Managers shall fail or refuse to purchase Shares
which it or they are obligated to purchase hereunder on the Closing Date, and
the aggregate number of Shares which such defaulting Manager or Managers are
obligated but fail or refuse to purchase is not more than one-tenth of the
aggregate number of Shares which the Managers are obligated to purchase on the
Closing Date, each non-defaulting Manager shall be obligated, severally, in the
proportion which the number of Shares set forth opposite its name in Schedule II
hereto bears to the aggregate number of Shares set forth opposite the names of
all non-defaulting Managers or in such other proportion as you may specify in
accordance with Section 20 of the Master Agreement Among Underwriters of Smith
Barney Inc., to purchase the Shares which such defaulting Manager or Managers
are obligated, but fail or refuse, to purchase. If any one or more of the
Managers shall fail or refuse to purchase Shares which it or they are obligated
to purchase on the Closing Date and the aggregate number of Shares with respect
to which such default occurs is more than one-tenth of the aggregate number of
Shares which the Managers are obligated to purchase on the Closing Date and
arrangements satisfactory to you and the Company for the purchase of such Shares
by one or more non-defaulting Managers or other party or parties approved by you
and the Company are not made within 36 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Manager or
the Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve any defaulting Manager from liability in
respect of any such default of any such Manager under this Agreement. The term
"Manager" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule II hereto which, with your approval
and the approval of the Company, purchases Shares which a defaulting Manager is
obligated, but fails or refuses, to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Manager to the Company or any Selling Shareholder, by notice to the Company, if
prior to the Closing Date (i) trading in securities generally on the New York
Stock Exchange,
35
<PAGE>
American Stock Exchange or the Nasdaq National Market shall have been suspended
or materially limited, (ii) a general moratorium on commercial banking
activities in New York shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the
International Prospectus or to enforce contracts for the resale of the Shares by
the Managers.
Notice of such termination may be given by telegram, telecopy or telephone
and shall be subsequently confirmed by letter.
14. Information Furnished by the Managers. The statements set forth in
the last paragraph on the cover page, the stabilization legend on the inside
front cover page, and the statements in the first through third, sixth through
ninth and thirteenth paragraphs under the caption "Underwriting" in any
International Prepricing Prospectus and in the International Prospectus,
constitute the only information furnished by or on behalf of the Managers
through you as such information is referred to in Sections 7(b) and 9 hereof.
15. Miscellaneous. Except as otherwise provided in Sections 5, 12 and 13
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company or the Selling Shareholders
at the office of the Company at 631 Park Avenue, King of Prussia, PA 19406,
Attention: President; or (ii) if to you, as Lead Managers for the several
Managers, care of Smith Barney Inc., 388 Greenwich Street, New York, New York
10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the several
Managers, the Company, its directors and officers, and the other controlling
persons referred to in Section 9 hereof and the Selling Shareholders and their
respective successors and assigns, to the extent provided herein, and no other
person shall acquire or have any right under or by virtue of this Agreement.
Neither the term "successor" nor the term "successors and assigns" as used in
this Agreement shall include a purchaser from any Manager of any of the Shares
in his status as such purchaser.
16. Applicable Law; Counterparts. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in
36
<PAGE>
counterparts, this Agreement shall not become effective unless at least one
counterpart hereof shall have been executed and delivered on behalf of each
party hereto.
37
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Shareholders and the several Managers.
Very truly yours,
PIERCE LEAHY CORP.
By
-----------------------
President and Chief
Executive Officer
Each of the Selling Shareholders
named in Schedule I hereto
By
-----------------------
Attorney-in-Fact
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Managers named in Schedule II
hereto.
SMITH BARNEY INC.
MERRILL LYNCH INTERNATIONAL
PAINEWEBBER INTERNATIONAL
As Lead Managers for the Several Managers
By SMITH BARNEY INC.
By
-----------------------------------
Managing Director
38
<PAGE>
SCHEDULE I
PIERCE LEAHY CORP.
<TABLE>
<CAPTION>
Number of
Selling Shareholders Shares
-------------------- ------
<S> <C>
--------------
Total........
--------------
</TABLE>
39
<PAGE>
SCHEDULE II
PIERCE LEAHY CORP.
<TABLE>
<CAPTION>
Number of Number of
Underwriter Shares Underwriter Shares
----------- ------ ----------- ------
<S> <C> <C> <C>
Smith Barney Inc. ...
Merrill Lynch International
PaineWebber International
Total....
==========
</TABLE>
40
<PAGE>
================================================================================
PIERCE LEAHY CORP., as Issuer,
and
The Bank of New York, as Trustee
---------------------------------------
INDENTURE
Dated as of July ___, 1997
---------------------------------------
$150,000,000
Senior Subordinated Notes due 2007
-----
<PAGE>
INDENTURE, dated as of July ___, 1997, between PIERCE LEAHY CORP., a
Pennsylvania corporation, as Issuer (the "Company"), and The Bank of New York, a
New York banking corporation, as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's ______% Senior
Subordinated Notes due 2007 (the "Notes").
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
-----------
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from a
Person.
"Acquisition EBITDA" means, without duplication, (i) EBITDA for the
last four fiscal quarters for which financial statements are available at the
date of determination (the "Acquisition EBITDA Period") with respect to a
business or Person which has been acquired by the Company or one of its
Restricted Subsidiaries or which is the subject of a binding acquisition
agreement requiring the calculation of EBITDA for purposes of Section 4.6 and,
in each case, with respect to which financial results on a consolidated basis
with the Company have not been made available for an entire fiscal quarter; plus
(ii) in connection with any such acquisition, projected quantifiable
improvements in operating results due to an established program of cost
reductions (consistent with the cost reductions actually achieved by the Company
in connection with prior acquisitions) adopted, in good faith, by the Company or
one of its Restricted Subsidiaries through a Board Resolution certified by an
Officers' Certificate filed with the Trustee (calculated on a pro forma basis
for the Acquisition EBITDA Period as if the program had been implemented at the
beginning of the Acquisition EBITDA Period), without giving effect to any
operating losses of the acquired Person. Each such Officers' Certificate shall
be signed
<PAGE>
by the Chief Financial Officer and another officer of the Company. The Trustee
may rely on such Officers' Certificate (subject to the provisions of Section 7.1
of this Indenture). Acquisition EBITDA of a business shall be a fixed number
determined as of the date the calculation of EBITDA for purposes of Section 4.6
is first required with respect to the acquisition of such business (the
"Determination Date") and shall be utilized from the Determination Date through
the date financial results are available for the first full fiscal quarter
following the acquisition (following which the actual EBITDA of such business or
Person shall be included in the EBITDA of the Company). For purposes of
determining Acquisition EBITDA with respect to the acquisition of a particular
business or Person, Acquisition EBITDA shall include not only the Acquisition
EBITDA of such business or Person, but also the Acquisition EBITDA of any
business previously acquired by the Company or the subject of a pending
acquisition agreement to the extent that, as of the Determination Date, the
financial results for such business or Person on a consolidated basis with the
Company for a full fiscal quarter subsequent to its acquisition by the Company
are not yet available.
"Adjusted EBITDA" means for any Person, without duplication, the sum
of (a) EBITDA of such Person and its Restricted Subsidiaries for the most recent
fiscal quarter for which internal financial statements are available, multiplied
by four and (b) Acquisition EBITDA.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser
of the amount by which (x) the fair value of the property of such Guarantor
exceeds the total amount of liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities (including, without limitation, any guarantees of Senior
Indebtedness)), but excluding liabilities under the Guarantee, of such Guarantor
at such date and (y) the present fair salable value of the assets of such
Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Guarantor on its debts (after giving effect to all
other fixed and contingent liabilities (including, without limitation, any
guarantees of Senior Indebtedness) and after giving effect to any collection
from any Subsidiary of such Guarantor in respect of the obligations of such
Subsidiary under the
2
<PAGE>
Guarantee), excluding Indebtedness in respect of the Guarantee, as they become
absolute and matured.
"Affiliate" of any specified Person means any other Person which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling" "controlled by," and "under common control with"), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Agent" means any Registrar, Paying Agent, co-registrar or agent for
service of notices and demands.
"Asset Sale" means the sale, transfer or other disposition (other than
to the Company or any of its Restricted Subsidiaries) in any single transaction
or series of related transactions involving assets with a fair market value in
excess of $500,000 of (a) any Capital Stock of or other equity interest in any
Restricted Subsidiary of the Company, (b) all or substantially all of the assets
of the Company or of any Restricted Subsidiary thereof, (c) real property of the
Company or a Restricted Subsidiary or (d) all or substantially all of the assets
of any business property, or part thereof, owned by the Company or any
Restricted Subsidiary thereof, or a division, line of business or comparable
business segment of the Company or any Restricted Subsidiary thereof; provided
--------
that Asset Sales shall not include (i) sales, leases, conveyances, transfers or
other dispositions to the Company or to a Restricted Subsidiary or to any other
Person if after giving effect to such sale, lease, conveyance, transfer or other
disposition such other Person becomes a Restricted Subsidiary, (ii) transactions
complying with Section 5.1 and (iii) transfers or other distributions of assets
which constitute (1) Permitted Investments or (2) Restricted Payments made in
compliance with Section 4.9.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Restricted Subsidiary from such Asset Sale
(including
3
<PAGE>
cash received as consideration for the assumption of liabilities incurred in
connection with or in anticipation of such Asset Sale), after (a) provision for
all income or other taxes measured by or resulting from such Asset Sale; (b)
payment of all brokerage commissions, underwriting and other fees and expenses
related to such Asset Sale, (c) provision for minority interest holders in any
Restricted Subsidiary as a result of such Asset Sale, (d) payments made to
retire Indebtedness secured by the assets subject to such Asset Sale and (e)
deduction of appropriate amounts to be provided by the Company or a Restricted
Subsidiary as a reserve, in accordance with GAAP, against any liabilities
associated with the assets sold or disposed of in such Asset Sale and retained
by the Company or a Restricted Subsidiary after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with the assets sold or disposed of in such Asset Sale,
and (ii) promissory notes and other non-cash consideration received by the
Company or any Restricted Subsidiary from such Asset Sale or other disposition
upon the liquidation or conversion of such notes or non-cash consideration into
cash.
"Attributable Indebtedness" in respect of a Sale and Lease-Back
Transaction means, as of the time of determination, the greater of (i) the fair
value of the property subject to such arrangement (as determined by the Board of
Directors) and (ii) the present value (discounted at a rate of interest implicit
in such transaction) of the total obligations of the lessee for rental payments
during the remaining term of the lease included in such Sale and Lease-Back
Transaction (including any period for which such lease has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale,
the aggregate Asset Sale Proceeds from such Asset Sale that have not been
applied in accordance with clause (iii)(a) or (iii)(b) of Section 4.10(a) and
which have not been the basis for an Excess Proceeds Offer in accordance with
clause (iii)(c) of Section 4.10(a).
"Board of Directors" means the board of directors of the Company or a
Guarantor, as appropriate, or any committee authorized to act therefor.
4
<PAGE>
"Board Resolution" means a copy of a resolution certified pursuant to
an Officers' Certificate to have been duly adopted by the Board of Directors of
the Company or a Guarantor, as appropriate, and to be in full force and effect,
and delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all shares
or other equivalents (however designated) of capital stock, partnership
interests or any other participation, right or other interest in the nature of
an equity interest in such Person or any option, warrant or other security
convertible into any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Change of Control" of the Company will be deemed to have occurred at
such time as (i) any Person (including a Person's Affiliates and associates),
other than a Permitted Holder, becomes the beneficial owner (as defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act) of more than 50% of the total voting power of the Company's Common Stock,
(ii) any Person (including a Person's Affiliates and associates), other than a
Permitted Holder, becomes the beneficial owner of more than 33 1/3% of the total
voting power of the Company's Common Stock, and the Permitted Holders
beneficially own, in the aggregate, a lesser percentage of the total voting
power of the Common Stock of the Company than such other Person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the Company,
(iii) there shall be consummated any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or pursuant to
which the Common Stock of the Company would be converted into cash, securities
or other property, other than a merger or consolidation of the Company in which
the holders of the Common Stock of the Company outstanding immediately prior to
the consolidation or merger hold, directly or indirectly, at least a majority of
the Common Stock of the surviving corporation
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immediately after such consolidation or merger, or (iv) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
shareholders of the Company has been approved by a majority of the directors
then still in office who either were directors at the beginning of such period
or whose election or recommendation for election was previously so approved)
cease to constitute a majority of the Board of Directors of the Company.
"Collateral" shall have the meaning assigned thereto in the Pledge
Agreement.
"Collateral Agent" shall have the meaning assigned thereto in the
Pledge Agreement.
"Common Stock" of any Person means all Capital Stock of such Person
that is generally entitled to (i) vote in the election of directors of such
Person or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management and policies of such Person.
"Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces such party pursuant to Article 5 of this
Indenture and thereafter means the successor.
"Company Request" means any written request signed in the name of the
Company by any two of the following: the Chief Executive Officer; the
President; any Vice President; the Chief Financial Officer; the Treasurer; or
the Secretary or any Assistant Secretary (but not both the Secretary and any
Assistant Secretary) of the Company.
"Consolidated Interest Expense" means, with respect to any Person, for
any period, the aggregate amount of interest which, in conformity with GAAP,
would be set forth opposite the caption "interest expense" or any like caption
on an income statement for such Person and its Subsidiaries on a consolidated
basis for such period (including, but not limited to, Redeemable Dividends,
whether paid or accrued, on Preferred Stock of a Subsidiary, imputed interest
included in Capitalized
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Lease Obligations, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, the net
costs associated with hedging obligations, the interest portion of any deferred
payment obligation, amortization of discount or premium, if any, and all other
non-cash interest expense (other than interest amortized to cost of sales))
plus, without duplication, all net capitalized interest for such period and all
interest paid under any guarantee of Indebtedness (including a guarantee of
principal, interest or any combination thereof) of any Person, plus the amount
of all dividends or distributions paid on Disqualified Capital Stock (other than
dividends paid or payable in shares of Capital Stock of the Company).
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the "other Person") in
- -------- -------
which the Person in question or any of its Subsidiaries has less than a 99%
interest (which interest does not cause the net income of such other Person to
be consolidated into the net income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or the Subsidiary, (b) the Net
Income of any Subsidiary of the Person in question, which Subsidiary is subject
to any restriction or limitation on the payment of dividends or the making of
other distributions (other than pursuant to the Notes or this Indenture) shall
be excluded to the extent of such restriction or limitation (provided that if
any such restriction or limitation by its terms takes effect upon the occurrence
of a default or event of default, such exclusion shall become effective only
upon the occurrence of such default or event of default which is continuing),
(c)(i) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition and (ii) any
net gain (but not loss) resulting from an Asset Sale by the Person in question
or any of its Subsidiaries other than in the ordinary course of business shall
be excluded and (d) extraordinary, unusual and non-recurring gains and losses
shall be excluded.
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"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 101 Barclay Street-21W, New York, New York 10286.
"Credit Facility" means the credit agreement or credit agreements in
existence on the date hereof by and among the Company, any or all of the
Restricted Subsidiaries and any one or more lenders from time to time parties
thereto, as the same may be amended, extended, increased, renewed, restated,
supplemented or otherwise modified (in whole or in part, and without limitation
as to amount, terms, conditions, covenants and other provisions) from time to
time, and any agreement or agreements governing Indebtedness incurred to
refinance, replace, restructure or refund in whole or in part the borrowings and
then maximum commitments under the Credit Facility or such agreement (whether
with the original administrative agent and lenders or other agents and lenders
or otherwise, and whether provided under the original Credit Facility or other
credit agreements or otherwise). The Company shall promptly notify in writing by
means of an Officers' Certificate the Trustee of any such refunding,
replacement, restructuring or refinancing of the Credit Facility.
"Default" means any event that is, or with the passing of time or
giving of notice or both would be, an Event of Default.
"Depository" means, with respect to the Notes issued in the form of
one or more Global Notes, The Depository Trust Company or another Person
designated as Depository by the Company, which Person must be a clearing agency
registered under the Exchange Act.
"Designated Senior Indebtedness," as to the Company or any Guarantor,
as the case may be, means any Senior Indebtedness (a) under the Credit Facility,
or (b) which at the time of determination exceeds $15,000,000 in aggregate
principal amount (or accreted value in the case of Indebtedness issued at a
discount) outstanding or available under a committed facility and (x) unless
such designation is prohibited by the Credit Facility, which is specifically
designated in the instrument evidencing
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<PAGE>
such Senior Indebtedness as "Designated Senior Indebtedness" by such Person and
(y) as to which the Trustee has been given written notice by means of an
Officers' Certificate of such designation.
"Disqualified Capital Stock" means any Capital Stock of the Company or
a Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes, for cash or securities constituting
Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock
shall be deemed to include (i) any Preferred Stock of a Restricted Subsidiary of
the Company and (ii) any Preferred Stock of the Company, with respect to either
of which, under the terms of such Preferred Stock, by agreement or otherwise,
such Restricted Subsidiary or the Company is obligated to pay current dividends
or distributions in cash during the period prior to the maturity date of the
Notes; provided, however, that Preferred Stock of the Company or any Restricted
-------- -------
Subsidiary thereof that is issued with the benefit of provisions requiring a
change of control offer to be made for such Preferred Stock in the event of a
Change of Control of the Company or Restricted Subsidiary, which provisions have
substantially the same effect as the provisions described in Section 4.19, shall
not be deemed to be Disqualified Capital Stock solely by virtue of such
provisions; and provided, further, that Capital Stock owned by the Company or a
-------- -------
Wholly-Owned Restricted Subsidiary shall not constitute Disqualified Capital
Stock.
"EBITDA" means, for any Person, for any period, an amount equal to (a)
the sum of (i) Consolidated Net Income for such period, plus (ii) the provision
for taxes for such period based on income or profits to the extent such income
or profits were included in computing Consolidated Net Income and any provision
for taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have not been excluded in the calcu-
9
<PAGE>
lation of Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles and other deferred
financing fees for such period on a consolidated basis, plus (vi) any other non-
cash items reducing Consolidated Net Income for such period, plus (vii)
Permitted Tax Distributions, except that with respect to the Company each of the
foregoing items shall be determined on a consolidated basis with respect to the
Company and its Restricted Subsidiaries only.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles consistently
applied as in effect in the United States from time to time.
"Guarantee" means, as the context may require, individually, a
guarantee, or collectively, any and all guarantees, of the Obligations of the
Company with respect to the Notes by each Guarantor, if any, pursuant to the
terms of Article 10 hereof, substantially in the form set forth in Exhibit C.
"Guarantor" means each Restricted Subsidiary of the Company that
hereafter becomes a Guarantor pursuant to Section 4.14, and "Guarantors" means
such entities, collectively.
"Guarantor Senior Indebtedness," as to any Guarantor, means the
principal of and premium, if any, and interest (including, without limitation,
interest accruing or that would have accrued but for the filing of a bankruptcy,
reorganization or other insolvency proceeding whether or not such interest
constitutes an allowable claim in such proceeding) on, and any and all other
fees, expense reimbursement obligations, indemnities and other amounts due
pursuant to the terms of all agreements, documents and instruments providing
for, creating, securing or evidencing or otherwise entered into in connection
with, (a) such Guarantor's direct incurrence of any Indebtedness or its
guarantee of all Indebtedness of the Company or any Restricted Subsidiaries, in
each case, owed to lenders under or in respect of the Credit Facility, (b) all
obligations of such Guarantor with respect to any Interest Rate Agreement or any
guarantee thereof, (c)
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all obligations of such Guarantor to reimburse any bank or other person in
respect of amounts paid under letters of credit, acceptances or other similar
instruments and all obligations of such Guarantor with respect to guarantees of
such reimbursement obligations, (d) all other Indebtedness of such Guarantor
which does not provide that it is to rank pari passu with or subordinate to the
---- -----
Guarantees and (e) all deferrals, renewals, extensions, replacements,
refundings, refinancings and restructurings of, and amendments, modifications
and supplements to, any of the Guarantor Senior Indebtedness described above.
Notwithstanding anything to the contrary in the foregoing, Guarantor Senior
Indebtedness will not include (i) Indebtedness of such Guarantor to any of its
Subsidiaries, (ii) Indebtedness represented by the Guarantees, (iii) any
Indebtedness which by the express terms of the agreement or instrument creating,
evidencing or governing the same is junior or subordinate in right of payment to
any item of Guarantor Senior Indebtedness, (iv) any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business or (v) Indebtedness (other than that described in clause (a)
above) incurred in violation of this Indenture.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording (other than previously recorded), as required
pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on
the balance sheet of such Person (and "incurrence," "incurred," "incurrable,"
and "incurring" shall have meanings correlative to the foregoing); provided that
--------
a change in GAAP that results in an obligation of such Person that exists at
such time becoming Indebtedness shall not be deemed an incurrence of such
Indebtedness.
"Indebtedness" means (without duplication), with respect to any
Person, any indebtedness at any time outstanding, secured or unsecured,
contingent or otherwise, which is for borrowed money (whether or not the
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recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or representing the balance deferred and unpaid of the purchase
price of any property (excluding, without limitation, any balances that
constitute accounts payable or trade payables, and other accrued liabilities
arising in the ordinary course of business) if and to the extent any of the
foregoing indebtedness would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, and shall also include, to the extent
not otherwise included (i) any Capitalized Lease Obligations, (ii) obligations
secured by a Lien to which the property or assets owned or held by such Person
is subject, whether or not the obligation or obligations secured thereby shall
have been assumed (provided, however, that if such obligation or obligations
-------- -------
shall not have been assumed, the amount of such Indebtedness shall be deemed to
be the lesser of the principal amount of the obligation or the fair market value
of the pledged property or assets), (iii) guarantees of items of other Persons
which would be included within this definition for such other Persons (whether
or not such items would appear upon the balance sheet of the guarantor, (iv) all
obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (provided that, in the case of
--------
any such letters of credit, the items for which such letters of credit provide
credit support are those of other Persons which would be included within this
definition for such other Persons), (v) in the case of the Company, Disqualified
Capital Stock of the Company or any Restricted Subsidiary thereof, and (vi)
obligations of any such Persons under any Interest Rate Agreement applicable to
any of the foregoing if and to the extent such Interest Rate Agreement
obligations would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP). The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent obligations, the
maximum liability upon the occurrence of the contingency giving rise to the
obligation, provided (i) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the principal amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at
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such time as determined in conformity with GAAP and (ii) that Indebtedness shall
not include any liability for Federal, state, local or other taxes.
Notwithstanding any other provision of the foregoing definition, any trade
payable arising from the purchase of goods or materials or for services obtained
in the ordinary course of business or contingent obligations arising out of
customary indemnification agreements with respect to the sale of assets or
securities shall not be deemed to be "Indebtedness" of the Company or any
Restricted Subsidiaries for purposes of this definition. Furthermore,
guarantees of (or obligations with respect to letters of credit supporting)
Indebtedness and Liens securing Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Indenture" means this Indenture as amended, restated or supplemented
from time to time.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Interest Rate Agreement" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business or acquired as part of the assets acquired by the Company in connection
with the acquisition of assets which is otherwise permitted by the terms of this
Indenture), loan or capital contribution to (by means of transfers of property
to others, payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person or the making of any
investment in any Person. Investments shall exclude (i) extensions of trade
credit on commercially reasonable terms in accordance with normal trade
practices and (ii) the repurchases or redemptions of securities of any Person by
such Person.
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"Issue Date" means the date the Notes are first issued by the Company
and authenticated by the Trustee under this Indenture.
"Lien" means, with respect to any property or assets of any Person,
any mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Maturity Date" means _________, 2007.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP minus Permitted
Tax Distributions with respect to such period, and excluding any foreign
currency translation gains or losses added or deducted, as applicable, in the
computation of Net Income.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by
the Company, the aggregate net proceeds received by the Company, after payment
of expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the Board of Directors, at the time of
receipt), (b) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into shares of Capital Stock of the
Company which is not Disqualified Capital Stock, the net book value of such
outstanding securities on the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder to the
Company upon such exchange, exercise, conversion or surrender, less any and all
payments made to the holders, e.g., on account of fractional shares and less all
----
expenses incurred by the Company in connection there-
14
<PAGE>
with) and (c) in the case of any issuance of any Indebtedness by the Company or
any Restricted Subsidiary, the aggregate net cash proceeds received by such
Person after payment of expenses, commissions, underwriting discounts and the
like incurred in connection therewith.
"1996 Notes" means the 11 1/8% Senior Subordinated Notes of the
Company due 2006.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.
"Notes" means the securities that are issued under this Indenture, as
amended, restated or supplemented from time to time pursuant to this Indenture.
"Obligations" means, with respect to any Indebtedness, any principal,
premium, interest, penalties, fees, indemnifications, reimbursements, damages
and other expenses payable under the documentation governing such Indebtedness.
"Officer" means the Chief Executive Officer, the President, any Vice
President, the Chief Financial Officer, the Treasurer, the Controller or the
Secretary of the Company or a Guarantor, or any other officer designated by the
Board of Directors, as the case may be.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chief Executive Officer, the President or any Vice
President and the Chief Financial Officer, the Controller or any Treasurer of
such Person that shall comply with applicable provisions of this Indenture.
"Opinion of Counsel" means a written opinion from legal counsel which
counsel is reasonably acceptable to the Trustee.
"Payment Default" means any default, whether or not any requirement
for the giving of notice, the lapse of time or both, or any other condition to
such default becoming an Event of Default has occurred, in the payment of
principal of (or premium, if any) or interest on or
15
<PAGE>
any other amount payable in connection with Designated Senior Indebtedness.
"Permitted Holders" means, collectively, Leo W. Pierce, Sr., his
children or other lineal descendants (whether adoptive or biological), the
spouses of any of the foregoing and any probate estate of any such individual
and any trust, so long as one or more of the foregoing individuals is the
principal beneficiary of such trust, and any other partnership, corporation or
other entity all of the partners, shareholders, members or owners of which are
any one or more of the foregoing.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Restricted Subsidiary
arising under or in connection with the Credit Facility in an amount not to
exceed $20 million above the amount that could be borrowed at the time of
determination under the first paragraph of Section 4.6;
(ii) Indebtedness of the Company's Canadian subsidiary (and related
guarantees) under the Credit Facility in an aggregate amount at any one
time outstanding not to exceed Cdn $30.3 million;
(iii) Indebtedness under the 1996 Notes and the guarantees thereof;
(iv) Indebtedness under the Notes and the Guarantees;
(v) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of this Indenture;
(vi) Indebtedness of the Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another
Restricted Subsidiary;
(vii) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property in the ordinary course of business which
Indebtedness and Capitalized Lease Obligations do not in
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the aggregate exceed 5% of the Company's consolidated total assets;
(viii) Interest Rate Agreements;
(ix) additional Indebtedness of the Company not to exceed $3,000,000
in principal amount outstanding at any time; and
(x) Refinancing Indebtedness.
"Permitted Investments" means, for any Person, Investments made on or
after the date of this Indenture consisting of:
(i) Investments by the Company, or by a Restricted Subsidiary
thereof, in the Company or a Restricted Subsidiary;
(ii) Temporary Cash Investments;
(iii) Investments by the Company, or by a Restricted Subsidiary
thereof, in a Person (or in all or substantially all of the business or
assets of a business or a Person), if as a result of such Investment (a)
such Person becomes a Restricted Subsidiary of the Company, (b) such Person
is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the
Company or a Restricted Subsidiary thereof or (c) such business or assets
are owned by the Company or a Restricted Subsidiary;
(iv) reasonable and customary loans made to employees not to exceed
$500,000 in the aggregate at any one time outstanding, plus any loans which
may be required to be made under the Company's Nonqualified Stock Option
Plan in an amount not to exceed $2,000,000;
(v) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to the Company or Restricted Subsidiary solely as partial
consideration for the
17
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consummation of an Asset Sale that is otherwise permitted by Section 4.10;
(vi) accounts receivable of the Company and its Restricted
Subsidiaries generated in the ordinary course of business;
(vii) Investments existing on the Issue Date; and
(viii) Investments for any purpose not to exceed $2,000,000.
"Permitted Liens" means (i) Liens on property or assets of, or any
shares of stock of or secured debt of, any Person or business existing at the
time such Person becomes a Restricted Subsidiary of the Company or at the time
such Person is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or at the time such business is acquired by the Company
or a Restricted Subsidiary, provided that such Liens are not incurred in
--------
anticipation of such Person becoming a Restricted Subsidiary of the Company or
merging into or consolidating with the Company or any of its Restricted
Subsidiaries or such business being acquired by the Company or a Restricted
Subsidiary, (ii) Liens securing Refinancing Indebtedness, provided that any such
--------
Lien does not extend to or cover any Property, shares or debt other than the
Property, shares or debt securing the Indebtedness so refunded, refinanced or
extended, (iii) Liens in favor of the Company or any of its Restricted
Subsidiaries, (iv) Liens securing industrial revenue bonds, (v) Liens to secure
Purchase Money Indebtedness that is otherwise permitted under this Indenture,
provided that (a) any such Lien is created solely for the purpose of securing
- --------
Indebtedness representing, or incurred to finance, refinance or refund, the cost
(including sales and excise taxes, installation and delivery charges and other
direct costs of, and other direct expenses paid or charged in connection with,
such purchase or construction) of such Property, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such costs, and (c)
such Lien does not extend to or cover any Property other than such item of
Property and any improvements on such item, (vi) statutory liens or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or
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other like Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate
proceedings, (vii) other Liens securing obligations incurred in the ordinary
course of business which obligations do not exceed $1,000,000 in the aggregate
at any one time outstanding, (viii) Liens for taxes, assessments or governmental
charges that are being contested in good faith by appropriate proceedings, (ix)
Liens securing Capitalized Lease Obligations permitted to be incurred under
clause (v) of the definition of "Permitted Indebtedness," provided that such
--------
Lien does not extend to any property other than that subject to the underlying
lease, (x) Liens securing Designated Senior Indebtedness, (xi) easements or
minor defects or irregularities in title and other similar charges or
encumbrances on Property not interfering in any material respect with the
Company's or any Restricted Subsidiary's use of such Property, (xii) Liens
existing on the date of this Indenture, (xiii) pledges or deposits made in the
ordinary course of business (a) in connection with (1) leases, performance bonds
and similar bonds or (2) workers' compensation, unemployment insurance and other
social security legislation or (b) securing the performance of surety bonds and
appeal bonds required in the ordinary course of business or in connection with
the enforcement of rights or claims of the Company or a Subsidiary thereof or
(2) in connection with judgments that do not give rise an Event of Default and
which do not exceed $3,000,000 in the aggregate, (xiv) Liens securing Interest
Rate Agreements entered into with any lender under the Credit Facility or any
Affiliate thereof and any guarantees thereof and (xv) any extensions,
substitutions, replacements or renewals of the foregoing.
"Permitted Tax Distributions" means with respect to any period for
which the Company is taxed as an S corporation or other pass-through entity for
Federal income tax purposes, distributions to the holders of Capital Stock of
the Company based on estimates of the highest amount of federal, state and local
income tax per share of Capital Stock that any holder of Capital Stock of the
Company would be required to pay as a result of the Company's being treated as a
pass-through entity for income tax purposes.
19
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"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"Pledge Agreement" means the Amended and Restated Pledge and
Intercreditor Agreement in the form attached as Exhibit D, as the same may be
amended, supplemented, restated or modified from time to time.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Public Equity Offering" means a public offering by the Company of
shares of its Capital Stock and any and all rights, warrants or options to
acquire such Capital Stock.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of Property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Redeemable Dividend" means, for any dividend or distribution with
regard to Disqualified Capital Stock, the quotient of the dividend or
distribution divided by the difference between one and the maximum statutory
federal income tax rate (expressed as a decimal number between 1 and 0) then
applicable to the issuer of such Disqualified Capital Stock.
"Redemption Date" when used with respect to any Note to be redeemed
means the date fixed for such redemption pursuant to this Indenture.
20
<PAGE>
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, renews, replaces or extends any Indebtedness of the Company
outstanding on the Issue Date or other Indebtedness permitted to be incurred by
the Company or its Restricted Subsidiaries pursuant to the terms of this
Indenture, whether involving the same or any other lender or creditor or group
of lenders or creditors, but only to the extent that (i) the Refinancing
Indebtedness is subordinated to the Notes to at least the same extent as the
Indebtedness being refunded, refinanced or extended, if at all, (ii) the
Refinancing Indebtedness is scheduled to mature either (a) no earlier than the
Indebtedness being refunded, refinanced or extended, or (b) after the maturity
date of the Notes, (iii) the portion, if any, of the Refinancing Indebtedness
that is scheduled to mature on or prior to the maturity date of the Notes has a
weighted average life to maturity at the time such Refinancing Indebtedness is
incurred that is equal to or greater than the weighted average life to maturity
of the portion of the Indebtedness being refunded, refinanced or extended that
is scheduled to mature on or prior to the maturity date of the Notes, (iv) such
Refinancing Indebtedness is in an aggregate principal amount that is equal to or
less than the sum of (a) the aggregate principal amount then outstanding under
the Indebtedness being refunded, refinanced or extended, (b) the amount of
accrued and unpaid interest, if any, and premiums owed, if any, not in excess of
preexisting prepayment provisions on such Indebtedness being refunded,
refinanced or extended and (c) the amount of customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness, and (v) such
Refinancing Indebtedness is incurred by the same Person that initially incurred
the Indebtedness being refunded, refinanced or extended, except that the Company
may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness
of any Wholly-Owned Subsidiary of the Company.
"Restricted Payment" means any of the following: (i) the declaration
or payment of any dividend or any other distribution or payment on Capital Stock
of the Company or any Restricted Subsidiary of the Company or any payment made
to the direct or indirect holders (in their capacities as such) of Capital Stock
of the Company or any Restricted Subsidiary of the Company (other than (x)
dividends or distributions payable solely in Capital
21
<PAGE>
Stock (other than Disqualified Capital Stock) or in options, warrants or other
rights to purchase Capital Stock (other than Disqualified Capital Stock), and
(y) in the case of Restricted Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Wholly-Owned Subsidiary of the
Company), (ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any of its Restricted Subsidiaries
(other than Capital Stock owned by the Company or a Wholly-Owned Subsidiary of
the Company, excluding Disqualified Capital Stock), (iii) the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment of, or the making of any principal payment on any Indebtedness which is
subordinated in right of payment to the Notes other than subordinated
Indebtedness acquired in anticipation of satisfying a scheduled sinking fund
obligation, principal installment or final maturity (in each case due within one
year of the date of acquisition), (iv) the making of any Investment or guarantee
of any Investment in any Person other than a Permitted Investment, (v) any
designation of a Restricted Subsidiary as an Unrestricted Subsidiary on the
basis of the Investment by the Company therein and (vi) forgiveness of any
Indebtedness of an Affiliate of the Company (other than a Restricted Subsidiary)
to the Company or a Restricted Subsidiary. For purposes of determining the
amount expended for Restricted Payments, cash distributed or invested shall be
valued at the face amount thereof and property other than cash shall be valued
at its fair market value in the good faith determination of the Board of
Directors. It is agreed that any payments made to Leo W. Pierce, Sr. or his
spouse pursuant to a pension obligation of the Company in the annual amount of
$96,000 shall not constitute a Restricted Payment.
"Restricted Subsidiary" means a Subsidiary of the Company other than
an Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The Board of Directors of the Company may
designate any Unrestricted Subsidiary or any Person that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred at the
time of such action), the Company could have incurred at least $1.00 of
additional Indebt-
22
<PAGE>
edness (other than Permitted Indebtedness) pursuant to Section 4.6.
"Sale and Lease-Back Transaction" means any arrangement with any
Person providing for the leasing by the Company or any Restricted Subsidiary of
the Company of any real or tangible personal Property, which Property (i) has
been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person in contemplation of such leasing and (ii) would
constitute an Asset Sale if such property had been sold in an outright sale
thereof.
"S&P" means Standard & Poor's Ratings Group and its successors.
"SEC" means the United States Securities and Exchange Commission as
constituted from time to time or any successor performing substantially the same
functions.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the principal of and premium, if any, and
interest (including, without limitation, interest accruing or that would have
accrued but for the filing of a bankruptcy, reorganization or other insolvency
proceeding whether or not such interest constitutes an allowable claim in such
proceeding) on, and any and all other fees, expense reimbursement obligations
and other amounts due pursuant to the terms of all agreements, documents and
instruments providing for, creating, securing or evidencing or otherwise entered
into in connection with (a) all Indebtedness of the Company owed to lenders
under or in respect of the Credit Facility, (b) all obligations of the Company
with respect to any Interest Rate Agreement, (c) all obligations of the Company
to reimburse any bank or other person in respect of amounts paid under letters
of credit, acceptances or other similar instruments, (d) all other Indebtedness
of the Company which does not provide that it is to rank pari passu with or
---- -----
subordinate to the Notes and (e) all deferrals, renewals, extensions,
replacements, refundings, refinancings and restructurings of, and amendments,
modifications and supplements to, any of the Senior Indebtedness described
above. Notwithstanding
23
<PAGE>
anything to the contrary in the foregoing, Senior Indebtedness will not include
(i) Indebtedness of the Company to any of its Subsidiaries, (ii) Indebtedness
represented by the Notes and the Guarantees, (iii) Indebtedness represented by
the 1996 Notes and the guarantees; (iv) any Indebtedness which by the express
terms of the agreement or instrument creating, evidencing or governing the same
is junior or subordinate in right of payment to any item of Senior Indebtedness,
(v) any trade payable arising from the purchase of goods or materials or for
services obtained in the ordinary course of business, or (vi) Indebtedness
(other than that described in clause (a) above) incurred in violation of this
Indenture.
"Subsidiary" of any specified Person means any corporation,
partnership, joint venture, association or other business entity, whether now
existing or hereafter organized or acquired, (i) in the case of a corporation,
of which more than 50% of the total voting power of the Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, officers or trustees thereof is held by such first-named Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the direction
of the management and policies of such entity by contract or otherwise or if in
accordance with GAAP such entity is consolidated with the first-named Person for
financial statement purposes.
"Temporary Cash Investments" means (i) Investments in marketable
direct obligations issued or guaranteed by the United States of America, or of
any governmental agency or political subdivision thereof, maturing within 365
days of the date of purchase; (ii) Investments in demand deposits or
certificates of deposit issued by a bank organized under the laws of the United
States of America or any state thereof or the District of Columbia, in each case
having capital, surplus and undivided profits totaling more than $500,000,000
and rated at least A by S&P and A-2 by Moody's, maturing within 365 days of
purchase; (iii) Investments not exceeding 365 days in duration in money market
funds that invest substantially all of such funds' assets in the Investments
described in clauses (i) and (ii) above; (iv) any security maturing not more
than 180 days after the date of acquisition,
24
<PAGE>
backed by a stand-by or direct pay letter of credit issued by a bank meeting the
qualifications described in clause (ii) above; or (v) commercial paper, maturing
not more than one year after the date of acquisition, issued by a corporation
(other than an Affiliate or Subsidiary of the Company) organized and existing
under the laws of the United States of America or any state thereof or the
District of Columbia with a rating, at the time as of which any investment
therein is made, of "P-1" by Moody's or "A-1" by S&P.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
77aaa-77bbbb) as in effect on the date of this Indenture (except as provided in
Section 8.3 hereof).
"Trust Officer" when used with respect to the Trustee, means any
officer or assistant officer of the Trustee assigned to the Corporate Trust
Administration department or similar department performing corporate trust work
of the Trustee or any successor to such department or, in the case of a
successor-Trustee, any officer of such successor Trustee performing corporate
trust functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Trustee" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means the
successor.
"Unrestricted Subsidiary" means (i) any Subsidiary of an Unrestricted
Subsidiary and (ii) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of the Company; provided that a Subsidiary organized or acquired after
---------
the Issue Date may be so classified as an Unrestricted Subsidiary only if such
classification is in compliance with the covenant set forth in Section 4.9
hereof. The Trustee shall be given prompt written notice by the Company of each
resolution adopted by the Board of Directors of the Company under this
provision, together with a copy of each such resolution adopted.
25
<PAGE>
"U.S. Government Obligations" means (i) securities that are direct
obligations of the United States of America for the payment of which its full
faith and credit are pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
--------
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or a specific payment of principal or
interest on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt.
"Wholly-Owned Subsidiary" means any Restricted Subsidiary 99% or more
of the outstanding Capital Stock (other than directors' qualifying shares) of
which are owned, directly or indirectly, by the Company.
Section 1.2. Other Definitions.
-----------------
The definitions of the following terms may be found in the sections
indicated as follows:
<TABLE>
<CAPTION>
Term Defined in Section
- ---- ------------------
<S> <C>
"Affiliate Transaction"............................................... 4.11
"Agent Members"....................................................... 2.14
"Bankruptcy Law"...................................................... .6.1
"Business Day"........................................................ 13.8
"Change of Control Offer"............................................. 4.19
"Change of Control Payment Date"...................................... 4.19
"Covenant Defeasance"...................................................9.3
"Custodian".............................................................6.1
"Event of Default"......................................................6.1
"Excess Proceeds Offer"............................................... 4.10
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
"Global Notes"...........................................................2.1
"Guarantee Payment Blockage Date".......................................10.7
"Guarantor Representative"..............................................10.7
"Initial Blockage Period"...............................................11.3
"Initial Guarantee Blockage Period".....................................10.7
"Legal Defeasance".......................................................9.2
"Legal Holiday".........................................................13.8
"Offer Period"..........................................................4.10
"Paying Agent"...........................................................2.3
"Payment Blockage Period"...............................................11.3
"Physical Notes".........................................................2.1
"Purchase Date".........................................................4.10
"Registrar"..............................................................2.3
"Reinvestment Date".....................................................4.10
"Representative"........................................................11.3
</TABLE>
Section 1.3. Incorporation by Reference of Trust
Indenture Act.
-----------------------------------
Whenever this Indenture refers to a provision of the TIA, the portion
of such provision required to be incorporated herein in order for this Indenture
to be qualified under the TIA is incorporated by reference in and made a part of
this Indenture. The following TIA terms used in this Indenture have the
following meanings:
"Commission" means the SEC.
"indenture securities" means the Notes.
"indenture securityholder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor on the indenture securities" means the Company, the
Guarantors or any other obligor on the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined in the TIA by reference to another statute or defined by SEC rule have
the meanings therein assigned to them.
27
<PAGE>
Section 1.4. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein, whether defined
expressly or by reference;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) words used herein implying any gender shall apply to every
gender; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article,
Section or Subdivision, unless expressly stated otherwise.
ARTICLE 2.
THE NOTES
Section 2.1. Dating; Incorporation of Form in Indenture.
------------------------------------------
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A which is incorporated in and made part of
this Indenture. The Notes may have notations, legends or endorsements required
by law, stock exchange rule or usage. The Company may use "CUSIP" numbers in
issuing the Notes. The Company shall approve the form of the Notes. Each Note
shall be dated the date of its authentication.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A, shall constitute, and are hereby expressly made, a part of
this
28
<PAGE>
Indenture and, to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
The Notes shall be issued in the form of one or more permanent global
notes in registered form, substantially in the form set forth in Exhibit A
("Global Notes"), deposited with the Trustee, as custodian for the Depository,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided and shall bear the legend set forth on Exhibit B. The aggregate
principal amount of any Global Note may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depository, as hereinafter provided.
Section 2.2. Execution and Authentication.
----------------------------
The aggregate principal amount of Notes which may be authenticated and
delivered under the Indenture is $150,000,000.
The Notes shall be executed on behalf of the Company by two Officers
of the Company or an Officer and an Assistant Secretary of the Company. Such
signatures may be either manual or facsimile. The Company's seal shall be
impressed, affixed, imprinted or reproduced on the Notes and may be in facsimile
form.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee authenticates the Note or at anytime thereafter, the
Note shall be valid nevertheless.
A Note shall not be valid until the Trustee manually signs the
certificate of authentication on the Note. Such signature shall be conclusive
evidence that the Note has been authenticated under this Indenture.
The Trustee or an authenticating agent shall authenticate Notes for
original issue in the aggregate principal amount of up to $150,000,000 upon a
Company Request. The aggregate principal amount of Notes outstanding at any
time may not exceed such amount except as provided in Section 2.7 hereof. The
Notes shall be issuable only in registered form without coupons and only
29
<PAGE>
in denominations of $1,000 and integral multiples thereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless limited by the terms of such appointment,
an authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. Such authenticating agent shall have the same
right as the Trustee in dealing with the Company or an Affiliate.
Section 2.3. Registrar and Paying Agent.
--------------------------
The Company shall appoint a registrar, which shall maintain an office
or agency where Notes may be presented for registration of transfer or for
exchange ("Registrar"), and a paying agent, which shall maintain an office or
agency located in the Borough of Manhattan, City of New York, State of New York
where Notes may be presented for payment ("Paying Agent") and shall maintain an
office or agency where notices and demands to or upon the Company in respect of
the Notes and this Indenture may be served. The Registrar shall keep a register
of the Notes and of their transfer and exchange. The Company may appoint one or
more co-registrars and one or more additional paying agents. Neither the
Company nor any Affiliate may act as Paying Agent. The Company may change any
Paying Agent, Registrar or co-registrar without notice to any Noteholder.
The Company shall enter into an appropriate agency agreement with any
Registrar or Paying Agent not a party to this Indenture. The agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Company shall notify the Trustee of the name and address of any such Agent. If
the Company fails to maintain a Registrar or Paying Agent, or agent for service
of notices and demands, or fails to give the foregoing notice, the Trustee shall
act as such and shall be entitled to appropriate compensation pursuant to
Section 7.7. The Company initially appoints the Trustee as Registrar, Paying
Agent and agent for service of notices and demands in connection with the Notes.
30
<PAGE>
Section 2.4. Paying Agent to Hold Money in Trust.
-----------------------------------
On or before each due date of the principal and interest on any Notes,
the Company shall deposit with the Paying Agent a sum sufficient to pay such
principal and interest so becoming due. Each Paying Agent shall hold in trust
for the benefit of the Noteholders or the Trustee all money held by the Paying
Agent for the payment of principal of or interest on the Notes (whether such
money has been paid to it by the Company or any other obligor on the Notes), and
the Company and the Paying Agent shall notify the Trustee of any default by the
Company (or any other obligor on the Notes) in making any such payment. Money
held in trust by the Paying Agent need not be segregated except as required by
law and in no event shall the Paying Agent be liable for any interest on any
money received by it hereunder. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee and the Trustee, may at any
time during the continuance of any Payment Default, upon written request to a
Paying Agent, require such Paying Agent to forthwith pay to the Trustee all sums
so held in trust by such Paying Agent together with a complete accounting of
such sums. Upon doing so, the Paying Agent shall have no further liability for
the money delivered to the Trustee.
Section 2.5. Noteholder Lists.
----------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Noteholders. If the Trustee is not the Registrar, the Company shall furnish to
the Trustee on or before each January 1 and July 1 in each year, and at such
other times as the Trustee may request in writing, a list in such form and as of
such date as the Trustee may reasonably require of the names and addresses of
Noteholders, including the aggregate principal amount of Notes held by each such
Noteholder.
Section 2.6. Transfer and Exchange.
---------------------
When a Note is presented to the Registrar with a request to register
the transfer thereof, the Registrar shall register the transfer as requested if
the requirements of applicable law are met and, when Notes are presented to the
Registrar with a request to exchange
31
<PAGE>
them for an equal principal amount of Notes of other authorized denominations,
the Registrar shall make the exchange as requested provided that every Note
presented or surrendered for registration of transfer or exchange shall be duly
endorsed or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed by the Holder
thereof or his attorney, duly authorized in writing. To permit registration of
transfers and exchanges, upon surrender of any Note for registration of transfer
or exchange at the office or agency maintained pursuant to Section 2.3 hereof,
the Company shall issue and execute and the Trustee shall authenticate and make
available for delivery Notes at the Registrar's request in the name of the
transferee or Holder, as the case may be, designated by the Registrar. Any
exchange or transfer shall be without any service charge to the Noteholder,
except that the Company may require payment by the Holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation to a
transfer or exchange, but this provision shall not apply to any exchange
pursuant to Section 2.9, 3.6 or 8.5 hereof. The Registrar shall not be required
to register transfers of Notes or to exchange Notes for a period of 15 days
before the day of mailing of the notice of redemption of any Notes to be
redeemed. The Registrar shall not be required to exchange or register transfers
of any Notes called or being called for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
Any Holder of the Global Note shall, by acceptance of such Global
Note, agree that transfers of the beneficial interests in such Global Note may
be effected only through a book entry system maintained by the Holder of such
Global Note (or its agent), and that ownership of a beneficial interest in the
Global Note shall be required to be reflected in a book entry.
Neither the Trustee nor the Registrar shall have any duty to monitor
the Company's compliance with or have any responsibility with respect to the
Company's compliance with any Federal or state securities laws.
Section 2.7. Replacement Notes.
-----------------
If a mutilated Note is surrendered to the Registrar or Trustee or if
the Holder of a Note presents
32
<PAGE>
evidence to the satisfaction of the Company and the Trustee that the Note has
been lost, destroyed or wrongfully taken and of the ownership thereof, the
Company shall issue and the Trustee shall authenticate a replacement Note if the
requirements of Section 8-405 of the New York Uniform Commercial Code as in
effect on the date of this Indenture are met. An indemnity bond may be required
by the Company or the Trustee that is sufficient in the judgment of the Company
and the Trustee to protect the Company, the Trustee or any Agent from any loss
which any of them may suffer if a Note is replaced. The Company and the Trustee
each may charge for its expenses (including reasonable attorneys' fees and
expenses) in replacing a Note. Every replacement Note is an additional
obligation of the Company.
Section 2.8. Outstanding Notes.
-----------------
Notes outstanding at any time are all Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for
cancellation, and those described in this Section 2.8 as not outstanding.
If a Note is replaced pursuant to Section 2.7, it ceases to be
outstanding until the Company and the Trustee receive proof satisfactory to each
of them that the replaced Note is held by a bona fide purchaser.
If a Paying Agent holds on a Redemption Date or Maturity Date money
sufficient to pay the principal of, premium, if any, and all accrued interest on
Notes payable on that date and is not prohibited from paying such money to the
Holders thereof pursuant to the terms of this Indenture, then on and after that
date such Notes cease to be outstanding and interest on them ceases to accrue.
Subject to Section 13.6, a Note does not cease to be outstanding
solely because the Company or an Affiliate holds the Note.
Section 2.9. Temporary Notes.
---------------
Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form, and shall carry all rights, benefits
33
<PAGE>
and privileges, of definitive Notes but may have variations that the Company
considers appropriate for temporary Notes. Without unreasonable delay, the
Company shall prepare and the Trustee shall authenticate definitive Notes in
exchange for temporary Notes presented to it.
Section 2.10. Cancellation.
------------
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee
shall cancel and retain or, upon written request of the Company, return to the
Company, in accordance with its normal practice, all Notes surrendered for
transfer, exchange, payment or cancellation. Subject to Section 2.7 hereof, the
Company may not issue new Notes to replace Notes in respect of which it has
previously paid all principal, premium and interest accrued thereon, or
delivered to the Trustee for cancellation.
Section 2.11. Defaulted Interest.
------------------
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted amounts, plus (to the extent permitted by law) any
interest payable on defaulted amounts pursuant to Section 4.1 hereof, to the
persons who are Noteholders on a subsequent special record date. The Company
shall fix the special record date and payment date in a manner satisfactory to
the Trustee and provide the Trustee at least 20 days notice of the proposed
amount of default interest to be paid and the special payment date. At least 15
days before the special record date, the Company shall mail or cause to be
mailed to each Noteholder at his address as it appears on the Notes register
maintained by the Registrar a notice that states the special record date, the
payment date (which shall be not less than five nor more than ten days after the
special record date), and the amount to be paid. In lieu of the foregoing
procedures, the Company may pay defaulted interest in any other lawful manner
satisfactory to the Trustee.
Section 2.12. Deposit of Moneys.
-----------------
34
<PAGE>
Prior to 10:00 a.m., New York City time, on each Interest Payment Date
and Maturity Date, the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date or Maturity Date, as the case may be, in a timely
manner which permits the Trustee to remit payment to the Holders on such
Interest Payment Date or Maturity Date, as the case may be. The principal and
interest on Global Notes shall be payable to the Depository or its nominee, as
the case may be, as the sole registered owner and the sole holder of the Global
Notes represented thereby. The principal and interest on Physical Notes shall
be payable at the office of the Paying Agent.
Section 2.13. CUSIP Number.
------------
The Company in issuing the Notes may use a "CUSIP" number(s), and if
so, the Trustee shall use the CUSIP number(s) in notices of redemption or
exchange as a convenience to Holders, provided that any such notice may state
--------
that no representation is made as to the correctness or accuracy of the CUSIP
number(s) printed in the notice or on the Notes, and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company will
promptly notify in writing the Trustee of any such CUSIP number used by the
Company in connection with the Notes and any change in such CUSIP number.
Section 2.14. Book-Entry Provisions for Global Notes.
--------------------------------------
(a) The Global Notes shall (i) be registered in the name of the
Depository or the nominee of such Depository, (ii) be delivered to the Trustee
as custodian for such Depository and (iii) bear the legend as set forth in
Exhibit B.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Note, and the Depository may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of the Global Note
for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trust-
35
<PAGE>
ee or any agent of the Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depository or
impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Note.
(b) Transfers of Global Notes shall be limited to transfer in whole,
but not in part, to the Depository, its successors or their respective nominees.
Certificated Notes (the "Physical Notes") shall be transferred to all beneficial
owners in exchange for their beneficial interests in Global Notes if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Note and a successor depositary is not appointed by
the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a written request from
the Depository to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute, and the Trustee shall upon receipt of a written order from the
Company authenticate and make available for delivery, one or more Physical Notes
of like tenor and amount.
(d) In connection with the transfer of Global Notes as an entirety to
beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed to
be surrendered to the Trustee for cancellation, and the Company shall execute,
and the Trustee shall authenticate and deliver, to each beneficial owner
identified by the Depository in writing in exchange for its beneficial interest
in the Global Notes, an equal aggregate principal amount of Physical Notes of
authorized denominations.
(e) The Holder of any Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is
36
<PAGE>
entitled to take under this Indenture, the Notes or the Guarantees.
ARTICLE 3.
REDEMPTION
Section 3.1. Notices to Trustee.
------------------
If the Company elects to redeem Notes pursuant to Section 3.7 hereof,
(i) at least 60 days prior to the Redemption Date in the case of a partial
redemption, (ii) at least 45 days prior to the Redemption Date in the case of a
total redemption or (iii) during such other period as the Trustee may agree to
in writing, the Company shall notify the Trustee in writing of the Redemption
Date, the principal amount of Notes to be redeemed and the redemption price, and
deliver to the Trustee an Officers' Certificate stating that such redemption
will comply with the conditions contained in Section 3.7 hereof, as appropriate.
Section 3.2. Selection by Trustee of Notes to Be Redeemed.
--------------------------------------------
In the event that fewer than all of the Notes are to be redeemed, the
Trustee shall select the Notes to be redeemed, if the Notes are listed on a
national securities exchange, in accordance with the rules of such exchange or,
if the Notes are not so listed, on either a pro rata basis or by lot, or such
other method as it shall deem fair and appropriate; provided, however, that if a
-------- -------
partial redemption is made with the proceeds of a Public Equity Offering,
selection of the Notes or portion thereof for redemption shall be made by the
Trustee on a pro rata basis, unless such a method is prohibited by law or by the
--- ----
rules of such national securities exchange. The Trustee shall promptly notify
the Company of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
The Trustee may select for redemption portions of the principal of the Notes
that have denominations larger than $1,000. Notes and portions thereof the
Trustee selects shall be redeemed in amounts of $1,000 or whole multiples of
$1,000. For all purposes of this Indenture unless the context otherwise
37
<PAGE>
requires, provisions of this Indenture that apply to Notes called for redemption
also apply to portions of Notes called for redemption.
Section 3.3. Notice of Redemption.
--------------------
At least 30 days, but no more than 60 days, before a Redemption Date,
the Company shall mail, or cause to be mailed, a notice of redemption by first-
class mail to each Holder of Notes to be redeemed at his or her last address as
the same appears on the registry books maintained by the Registrar pursuant to
Section 2.3 hereof.
The notice shall identify the Notes to be redeemed (including the
CUSIP numbers thereof) and shall state:
(1) the Redemption Date;
(2) the redemption price;
(3) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the Redemption Date and upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(6) that unless the Company defaults in making the redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
Redemption Date;
(7) the paragraph of Section 3.7 hereof pursuant to which the Notes called
for redemption are being redeemed; and
(8) the aggregate principal amount of Notes that are being redeemed.
38
<PAGE>
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's sole expense.
Section 3.4. Effect of Notice of Redemption.
------------------------------
Once the notice of redemption described in Section 3.3 is mailed,
Notes called for redemption become due and payable on the Redemption Date and at
the redemption price, including any premium, plus interest accrued to the
Redemption Date. Upon surrender to the Paying Agent, such Notes shall be paid
at the redemption price, including any premium, plus interest accrued to the
Redemption Date, provided that if the Redemption Date is after a regular
--------
interest payment record date and on or prior to the Interest Payment Date, the
accrued interest shall be payable to the Holder of the redeemed Notes registered
on the relevant record date, and provided, further, that if a Redemption Date is
-------- -------
a Legal Holiday, payment shall be made on the next succeeding Business Day and
no interest shall accrue for the period from such Redemption Date to such
succeeding Business Day.
Section 3.5. Deposit of Redemption Price.
---------------------------
On or prior to 10:00 A.M., New York City time, on each Redemption
Date, the Company shall deposit with the Paying Agent in immediately available
funds money sufficient to pay the redemption price of and accrued interest on
all Notes to be redeemed on that date other than Notes or portions thereof
called for redemption on that date which have been delivered by the Company to
the Trustee for cancellation.
On and after any Redemption Date, if money sufficient to pay the
redemption price of and accrued interest on Notes called for redemption shall
have been made available in accordance with the preceding paragraph and payment
thereof is not prohibited pursuant to the terms of this Indenture, the Notes
called for redemption will cease to accrue interest and the only right of the
Holders of such Notes will be to receive payment of the redemption price of and,
subject to the first proviso in Section 3.4, accrued and unpaid interest on such
Notes to the Redemption Date. If any Note called for redemption shall not be so
paid, interest will be paid, from the Redemption Date until such redemption
payment is made, on
39
<PAGE>
the unpaid principal of the Note and any interest not paid on such unpaid
principal, in each case, at the rate and in the manner provided in the Notes.
Section 3.6. Notes Redeemed in Part.
----------------------
Upon surrender of a Note that is redeemed in part, the Trustee shall
authenticate for a Holder a new Note equal in principal amount to the unredeemed
portion of the Note surrendered.
Section 3.7. Optional Redemption.
-------------------
(a) The Company, at its option, may redeem the Notes, in whole or in
part, at any time on or after ______, 2002 at the following redemption prices
(expressed as a percentage of principal amount), together, in each case, with
accrued and unpaid interest to the Redemption Date, if redeemed during the
twelve-month period beginning on ________ of each year listed below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . %
2003 . . . . . . . . . . . . . %
2004 . . . . . . . . . . . . . %
2005 and thereafter . . . . . 100.000%
</TABLE>
(b) Notwithstanding the foregoing, the Company, at its option, may
redeem in the aggregate up to 35% of the original principal amount of Notes at
any time and from time to time prior to ______, 2000 at a redemption price equal
to ___% of the aggregate principal amount so redeemed, plus accrued interest to
the Redemption Date, with the Net Proceeds of one or more Public Equity
Offerings; provided that at least $__________ aggregate principal amount of
--------
Notes originally issued remains outstanding immediately after the occurrence of
any such redemption pursuant to a Public Equity Offering and that any such
redemption occurs within 90 days following the closing of any such Public Equity
Offering.
40
<PAGE>
ARTICLE 4.
COVENANTS
Section 4.1. Payment of Notes.
----------------
The Company shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes and this Indenture. An
installment of principal or interest shall be considered paid on the date it is
due if the Trustee or Paying Agent holds on that date money designated for and
sufficient to pay such installment.
The Company shall pay interest on overdue principal (including post-
petition interest in a proceeding under any Bankruptcy Law) and overdue
interest, to the extent lawful, at the rate specified in the Notes.
Section 4.2. SEC Reports.
-----------
(a) The Company will file with the SEC all information, documents and
reports to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act, whether or not the Company is subject to such filing requirements, so long
as the SEC will accept such filings. The Company (at its own expense) will file
with the Trustee within 15 days after it files them with the SEC, copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company files with the SEC pursuant to Section 13 or 15(d)
of the Exchange Act. The Company shall also comply with the provisions of TIA
(S) 314(a). Delivery of such reports, information and documents to the Trustee
is for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
(b) The Company will transmit to all Holders, in the manner and to
the extent provided in TIA Section 313(c), within 30 days after the filing
thereof with the
41
<PAGE>
Trustee, such summaries of any information, documents and reports required to be
filed by the Company pursuant to paragraph (a) of this Section as may be
required by rules and regulations prescribed from time to time by the SEC.
Section 4.3. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead (as a defense or otherwise) or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of, premium, if any,
and/or interest on the Notes as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do so)
the Company hereby expressly waives all benefit or advantage of any such law,
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
Section 4.4. Compliance Certificate.
----------------------
(a) The Company shall deliver to the Trustee, within 100 days after
the end of each fiscal year and on or before 50 days after the end of the first,
second and third quarters of each fiscal year, an Officers' Certificate (one of
the signers of which shall be the principal executive officer, principal
financial officer or principal accounting officer of the Company) stating that a
review of the activities of the Company and its Subsidiaries during such fiscal
year or fiscal quarter, as the case may be, has been made under the supervision
of the signing Officers with a view to determining whether the Company has kept,
observed, performed and fulfilled its obligations under this Indenture, and
further stating, as to each such Officer signing such certificate, that to the
best of his or her knowledge the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Event of Default shall have occurred,
describing all or such
42
<PAGE>
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Notes are prohibited or, if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
(b) So long as (and to the extent) not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.2 above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements
nothing has come to their attention which would lead them to believe that the
Company has violated any provisions of this Article 4 or Article 5 of this
Indenture or, if any such violation has occurred, specifying the nature and
period of existence thereof, it being understood that such accountants shall not
be liable directly or indirectly for any failure to obtain knowledge of any such
violation.
(c) The Company will, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
Section 4.5. Taxes.
-----
The Company shall, and shall cause each of its Subsidiaries to, pay
prior to delinquency all material taxes, assessments, and governmental levies
except as contested in good faith and by appropriate proceedings.
Section 4.6. Limitation on Additional Indebtedness.
-------------------------------------
The Company will not, and will not permit any Restricted Subsidiary of
the Company to, directly or indirectly, incur any Indebtedness (including
Acquired Indebtedness) unless (a) after giving effect to the
43
<PAGE>
incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the ratio of total Indebtedness of the Company and its Restricted
Subsidiaries to the Company's Adjusted EBITDA is less than 6.0 to 1; provided,
--------
however, that if the Indebtedness which is the subject of a determination under
- -------
this provision is Acquired Indebtedness, or Indebtedness incurred in connection
with the simultaneous acquisition of any Person, business, property or assets,
then such ratio shall be determined by giving effect (on a pro forma basis, as
--- -----
if the transaction had occurred at the beginning of the four quarter period
ending at the end of the last fiscal quarter of such Person or business for
which financial statements are available) to the incurrence or assumption of
such Acquired Indebtedness or such other Indebtedness by the Company; and (b) no
Default or Event of Default shall have occurred and be continuing at the time or
as a consequence of the incurrence of such Indebtedness.
Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may incur Permitted Indebtedness; provided, that the Company will
--------
not incur any Permitted Indebtedness, without meeting the Indebtedness
incurrence provisions of the preceding paragraph, that ranks pari passu or
---- -----
junior in right of payment to the Notes and that has a maturity or mandatory
sinking fund payment prior to the maturity of the Notes.
Notwithstanding the two preceding paragraphs, the Company will not
permit any of its foreign Subsidiaries to incur any subordinated Indebtedness.
Section 4.7. Limitation on Preferred Stock of Restricted Subsidiaries.
--------------------------------------------------------
The Company will not permit any Restricted Subsidiary to issue any
Preferred Stock (except Preferred Stock to the Company or a Restricted
Subsidiary) or permit any Person (other than the Company or a Subsidiary) to
hold any such Preferred Stock unless the Company or such Restricted Subsidiary
would be entitled to incur or assume Indebtedness under Section 4.6 hereof in
the aggregate principal amount equal to the aggregate liquidation value of the
Preferred Stock to be issued; provided, however, that any Restricted Subsidiary
-------- -------
that guarantees the Notes pursuant to Section 4.14 shall be permit-
44
<PAGE>
ted to issue Preferred Stock that is not Disqualified Capital Stock.
Section 4.8. Limitation on Capital Stock of Restricted Subsidiaries.
------------------------------------------------------
The Company will not (i) sell, pledge, hypothecate or otherwise convey
or dispose of any Capital Stock of a Restricted Subsidiary (other than under the
terms of the Credit Facility, under the terms of any Designated Senior
Indebtedness or as permitted in Section 4.12 hereof) or (ii) permit any of its
Restricted Subsidiaries to issue any Capital Stock, other than to the Company or
a Wholly-Owned Subsidiary of the Company. The foregoing restrictions shall not
apply to an Asset Sale made in compliance with Section 4.10 hereof or the
issuance of Preferred Stock in compliance with Section 4.7 hereof.
Section 4.9. Limitation on Restricted Payments.
---------------------------------
The Company will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted
--- -----
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under Section 4.6 hereof; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared (except to the extent not
made on the payment date) or made after the Issue Date does not exceed the
sum of (1) 50% of the cumulative Consolidated Net Income of the Company
subsequent to the Issue Date (or minus 100% of any cumulative deficit in
Consolidated Net Income during such period) and (2) 100% of the aggregate
Net Proceeds and the fair market value of securities or other property
received by the Company from the issue or sale, after the Issue Date, of
Capital Stock (other than Disqualified Capital Stock or Capital Stock of
45
<PAGE>
the Company issued to any Subsidiary of the Company) of the Company or any
Indebtedness or other securities of the Company convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified
Capital Stock) of the Company which has been so converted or exercised or
exchanged, as the case may be, and (3) $3,000,000. For purposes of
determining under this clause (c) the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its fair market value.
Notwithstanding the foregoing, the provisions of this Section 4.9
shall not prohibit (i) the payment of any distribution within 60 days after the
date of declaration thereof, if at such date of declaration such payment would
comply with the provisions of this Indenture, (ii) the retirement of any shares
of Capital Stock of the Company or subordinated Indebtedness by conversion into,
or by or in exchange for, shares of Capital Stock (other than Disqualified
Capital Stock), or out of, the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of Capital Stock of
the Company (other than Disqualified Capital Stock), (iii) the redemption or
retirement of Indebtedness of the Company subordinated to the Notes in exchange
for, by conversion into, or out of the Net Proceeds of, a substantially
concurrent sale or incurrence of Indebtedness (other than any Indebtedness owed
to a Subsidiary) of the Company that is contractually subordinated in right of
payment to the Notes to at least the same extent as the subordinated
Indebtedness being redeemed or retired, (iv) the retirement of any shares of
Disqualified Capital Stock by conversion into, or by exchange for, shares of
Disqualified Capital Stock, or out of the Net Proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of other shares of
Disqualified Capital Stock, (v) Permitted Tax Distributions, (vi) additional
payments to employees of the Company for repurchases of, stock or repurchases
pursuant to the Company's Nonqualified Stock Option Plan; provided, however,
-------- -------
that the aggregate amount of all such payments under this clause (vi) does not
exceed $2,000,000 in the aggregate, exclusive of amounts funded by insurance
proceeds; and provided, further, that with respect to clause (vi) (other than
-------- -------
with respect to pay-
46
<PAGE>
ments funded by insurance proceeds) no Default or Event of Default shall have
occurred and be continuing at the time of any such distribution or payment or
will occur immediately after giving effect to any such distribution or payment;
and provided, further, that, in determining the aggregate amount of all
-------- -------
Restricted Payments made subsequent to the Issue Date, all distributions or
payments made pursuant to clause (vi) (exclusive of insurance proceeds) shall be
included.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.9 were computed, which calculations may
be based upon the Company's latest available financial statements, and that no
Default or Event of Default exists and is continuing and no Default or Event of
Default will occur immediately after giving effect to any Restricted Payments.
Section 4.10. Limitation on Certain Asset Sales.
---------------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or its
Restricted Subsidiaries, as the case may be, receives consideration at the time
of such sale or other disposition at least equal to the fair market value
thereof (as determined for Asset Sales other than eminent domain, condemnation
or similar government proceedings in good faith by the Company's board of
directors, and evidenced by a board resolution); (ii) not less than 85% of the
consideration received by the Company or its Subsidiaries, as the case may be,
is in the form of cash or Temporary Cash Investments; and (iii) the Asset Sale
Proceeds received by the Company or such Restricted Subsidiary are applied (a)
first, to the extent the Company elects, or is required, to prepay, repay or
purchase debt under any then existing Senior Indebtedness of the Company or any
Restricted Subsidiary within 180 days following the receipt of the Asset Sale
Proceeds from any Asset Sale; (b) second, to the extent of the balance of Asset
Sale Proceeds after application as described above, to the extent the Company
elects, to an investment in assets (including Capital Stock or other securities
purchased in connection with the acquisition of Capital Stock or property of
another
47
<PAGE>
Person) used or useful in businesses similar or ancillary to the business of the
Company or Restricted Subsidiary as conducted at the time of such Asset Sale,
provided that such investment occurs or the Company or a Restricted Subsidiary
enters into contractual commitments to make such investment, subject only to
customary conditions (other than the obtaining of financing), on or prior to the
181st day following receipt of such Asset Sale Proceeds (the "Reinvestment
Date") and Asset Sale Proceeds contractually committed are so applied within
270 days following the receipt of such Asset Sale Proceeds; and (c) third, if on
the Reinvestment Date with respect to any Asset Sale, the Available Asset Sale
Proceeds exceed $10 million, the Company shall apply an amount equal to such
Available Asset Sale Proceeds to an offer to repurchase the Notes, or any future
Indebtedness ranking pari passu with the Notes, which Indebtedness contains
similar provisions requiring the Company to repurchase such Indebtedness at a
purchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase (an "Excess
Proceeds Offer"); provided, however, that prior to making any such Excess
Proceeds Offer, the Company may, to the extent required pursuant to the terms of
Indebtedness outstanding as of the Issue Date, offer to use such Available Asset
Sale Proceeds to repurchase and use all or a portion of such Available Asset
Sale Proceeds to repurchase such Indebtedness. If an Excess Proceeds Offer is
not fully subscribed, the Company may retain the portion of the Available Asset
Sale Proceeds not required to repurchase Notes for general corporate purposes.
If the aggregate principal amount of Notes tendered pursuant to such Excess
Proceeds Offer is more than the amount of the Available Asset Sale Proceeds, the
Notes tendered will be repurchased on a pro rata basis or by such other method
as the Trustee shall deem fair and appropriate.
(b) If the Company is required to make an Excess Proceeds Offer, the
Company shall mail, within 30 days following the Reinvestment Date (or within
120 days following the Reinvestment Date if the Company is required to make an
offer to purchase Indebtedness (other than the Notes) outstanding as of the
Issue Date), a notice to the Holders stating, among other things: (1) that such
Holders have the right to require the Company to apply the Available Asset Sale
Proceeds to repurchase such Notes at a purchase price in cash equal to 100% of
48
<PAGE>
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase; (2) the purchase date (the "Purchase Date"), which shall be no
earlier than 30 days and not later than 60 days from the date such notice is
mailed; (3) the instructions, determined by the Company, that each Holder must
follow in order to have such Notes repurchased; and (4) the calculations used in
determining the amount of Available Asset Sale Proceeds to be applied to the
repurchase of such Notes. The Excess Proceeds Offer shall remain open for a
period of 20 Business Days following its commencement (the "Offer Period"). The
notice, which shall govern the terms of the Excess Proceeds Offer, shall state:
(1) that the Excess Proceeds Offer is being made pursuant to this
Section 4.10 and the length of time the Excess Proceeds Offer will remain
open;
(2) the purchase price and the Purchase Date;
(3) that any Note not tendered or accepted for payment will not be
purchased and will continue to accrue interest;
(4) that any Note accepted for payment pursuant to the Excess
Proceeds Offer shall cease to accrue interest on and after the Purchase
Date so long as payment thereof is not prohibited pursuant to the terms of
the Indenture;
(5) that Holders electing to have a Note purchased pursuant to any
Excess Proceeds Offer will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Company, a depositary, if appointed by the Company, or a
Paying Agent at the address specified in the notice at least three Business
Days before the Purchase Date;
(6) that Holders will be entitled to withdraw their election if the
Company, depositary or Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Note the Holder delivered for purchase and a statement that such
49
<PAGE>
Holder is withdrawing his election to have the Note purchased;
(7) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Available Asset Sale Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis (with such adjustments as may
be deemed appropriate by the Company so that only Notes in denominations of
$l,000, or integral multiples thereof, shall be purchased) or by such other
method as the Trustee shall deem fair and appropriate; and
(8) that Holders whose Notes were purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered.
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis or by such other method as the
Trustee shall deem fair and appropriate to the extent necessary, Notes or
portions thereof tendered pursuant to the Excess Proceeds Offer, and deposit
with the Paying Agent U.S. legal tender sufficient to pay the purchase price
plus accrued interest, if any, on the Notes to be purchased and deliver to the
Trustee an Officers' Certificate stating that such Notes or portions thereof
were accepted for payment by the Company in accordance with the terms of this
Section 4.10. The Paying Agent shall promptly (but in any case not later than 5
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Note tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Note, and
the Trustee shall authenticate and mail or make available for delivery such new
Note to such Holder equal in principal amount to any unpurchased portion of the
Note surrendered. Any Note not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Excess Proceeds Offer on the Purchase Date;
provided, however, that prior to making any such Excess Proceeds Offer, the
- -------- -------
Company may, to the extent required pursuant to the terms of Indebtedness
outstanding as of the Issue Date, offer to use such Available Asset Sale
Proceeds to repurchase and use all or a portion of such Available Asset Sale
50
<PAGE>
Proceeds to repurchase such Indebtedness. If an Excess Proceeds Offer is not
fully subscribed, the Company may retain the portion of the Available Asset Sale
Proceeds not required to repurchase Notes for general corporate purposes.
Section 4.11. Limitation on Transactions with Affiliates.
------------------------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate (including
entities in which the Company or any of its Restricted Subsidiaries own a
minority interest) or holder of 10% or more of the Company's Common Stock (an
"Affiliate Transaction") or extend, renew, waive or otherwise modify the terms
of any Affiliate Transaction entered into prior to the Issue Date unless (i)
such Affiliate Transaction is between or among the Company and its Wholly-Owned
Subsidiaries; (ii) such Affiliate Transaction is solely between or among Wholly-
Owned Subsidiaries of the Company; or (iii) the terms of such Affiliate
Transaction are fair and reasonable to the Company or such Restricted
Subsidiary, as the case may be, and the terms of such Affiliate Transaction are
at least as favorable as the terms which could be obtained by the Company or
such Restricted Subsidiary, as the case may be, in a comparable transaction made
on an arm's-length basis between unaffiliated parties; provided, however, that
-------- -------
the Company and its Restricted Subsidiaries may renew any then existing
Affiliate Transaction through either a renewal option or upon expiration of an
arrangement on substantially similar terms to those in effect immediately
preceding such expiration. In any Affiliate Transaction involving an amount or
having a value in excess of $1 million which is not permitted under clause (i)
or (ii) above, the Company must obtain a resolution of the Board of Directors
certifying that such Affiliate Transaction complies with clause (iii) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors. In transactions with a value
in excess of $3 million which are not permitted under clause (i) or (ii) above,
the Company must obtain a written opinion as to the fairness from a financial
point of view of such a
51
<PAGE>
transaction from an independent investment banking firm of national standing or
real estate firm of national standing (as the case may be).
(b) The limitations set forth in Section 4.11(a) will not apply to
(i) any Restricted Payment that is not prohibited by Section 4.9 hereof, (ii)
any transaction, approved by the Board of Directors of the Company in good
faith, with an officer, director, employee or consultant of the Company or of
any Subsidiary in his or her capacity as an officer, director, employee or
consultant entered into in the ordinary course of business, including
compensation, indemnity and employee benefit arrangements with any officer,
director, employee or consultant of the Company or of any Subsidiary, or (iii)
customary investment banking, underwriting, placement agent or financial advisor
fees paid in connection with services rendered to the Company or any Subsidiary.
Section 4.12. Limitations on Liens.
--------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any property
or asset of the Company or any Restricted Subsidiary or any shares of stock or
debt of any Restricted Subsidiary which owns property or assets, now owned or
hereafter acquired, in any case which secures Indebtedness pari passu with or
---- -----
subordinated to the Notes unless (i) if such Lien secures Indebtedness which is
pari passu with the Notes, then the Notes are secured on an equal and ratable or
- ---- -----
senior basis with the obligations so secured until such time as such obligation
is no longer secured by a Lien or (ii) if such Lien secures Indebtedness which
is subordinated to the Notes, any such Lien shall be subordinated to the Lien
granted to the Holders of the Notes in the same collateral to the same extent as
such subordinated Indebtedness is subordinated to the Notes.
Section 4.13. Limitations on Investments.
--------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any Investment other than (i) a Permitted Investment or
(ii) an Invest-
52
<PAGE>
ment that is made as a Restricted Payment in compliance with Section 4.9 hereof,
after the Issue Date.
Section 4.14. Limitation on Creation of Subsidiaries.
--------------------------------------
The Company shall not create or acquire, nor permit any of its
Restricted Subsidiaries to create or acquire, any Subsidiary other than (i) a
Restricted Subsidiary existing as of the date of this Indenture, (ii) a
Restricted Subsidiary that is acquired or created after the date of this
Indenture, or (iii) an Unrestricted Subsidiary; provided, however, that each
-------- -------
Restricted Subsidiary organized under the laws of the United States or any State
thereof or the District of Columbia acquired or created pursuant to clause (ii)
shall, at the time it has either assets or shareholder's equity in excess of
$5,000, execute a guarantee, in the form attached as Exhibit C to this Indenture
and reasonably satisfactory in form and substance to the Trustee (and with such
documentation relating thereto as the Trustee shall require, including, without
limitation, a supplement or amendment to this Indenture and an Opinion of
Counsel as to the enforceability of such Guarantee).
Section 4.15. Limitation on Other Senior Subordinated Debt.
--------------------------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, incur, contingently or otherwise, any
Indebtedness (other than the Notes and the Guarantees, as the case may be) that
is both (i) subordinate in right of payment to any Senior Indebtedness of the
Company or its Restricted Subsidiaries, as the case may be, and (ii) senior in
right of payment to the Notes and the Guarantees, as the case may be. For
purposes of this Section 4.15, Indebtedness is deemed to be senior in right of
payment to the Notes and the Guarantees, as the case may be, if it is not
explicitly subordinate in right of payment to Senior Indebtedness at least to
the same extent as the Notes and the Guarantees, as the case may be, are
subordinate to Senior Indebtedness.
Section 4.16. Limitation on Sale and Lease-Back Transactions.
----------------------------------------------
53
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The Company will not, and will not permit any Restricted Subsidiary
to, enter into any Sale and Lease-Back Transaction unless (i) the consideration
received in such Sale and Lease-Back Transaction is at least equal to the fair
market value of the property sold, as determined by a Board Resolution, and (ii)
the Company could incur the Attributable Indebtedness in respect of such Sale
and Lease-Back Transaction in compliance with Section 4.6.
Section 4.17. Payments for Consent.
--------------------
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all Holders of the Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
Section 4.18. Corporate Existence.
-------------------
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence, and the corporate, partnership or other existence of each Restricted
Subsidiary, in accordance with the respective organizational documents (as the
same may be amended from time to time) of each Restricted Subsidiary and the
rights (charter and statutory), licenses and franchises of the Company and its
Restricted Subsidiaries; provided, however, that the Company shall not be
-------- -------
required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any of its Restricted Subsidiaries, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders.
Section 4.19. Change of Control.
-----------------
54
<PAGE>
(a) Within 30 days of the occurrence of a Change of Control, the
Company shall notify the Trustee in writing of such occurrence and shall make an
offer to purchase (the "Change of Control Offer") the outstanding Notes at a
purchase price equal to 101% of the principal amount thereof plus any accrued
and unpaid interest thereon to the Change of Control Payment Date (as
hereinafter defined) (such applicable purchase price being hereinafter referred
to as the "Change of Control Purchase Price") in accordance with the procedures
set forth in this Section 4.19.
If the Credit Facility is in effect, or any amounts are owing
thereunder or in respect thereof, at the time of the occurrence of a Change of
Control, prior to the mailing of the notice to Holders described in paragraph
(b) below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full all obligations under or in respect of
the Credit Facility or offer to repay in full all obligations under or in
respect of the Credit Facility and repay the obligations under or in respect of
the Credit Facility of each lender who has accepted such offer or (ii) obtain
the requisite consent under Credit Facility to permit the repurchase of the
Notes pursuant to this Section 4.19. The Company must first comply with the
covenant described in the preceding sentence before it shall be required to
purchase Notes in the event of a Change of Control; provided that the Company's
---------
failure to comply with the covenant described in the preceding sentence
constitutes an Event of Default described in clause (3) under Section 6.1 hereof
if not cured within 60 days after the notice required by such clause.
(b) Within 30 days of the occurrence of a Change of Control, the
Company also shall (i) cause a notice of the Change of Control Offer to be sent
at least once to the Dow Jones News Service or similar business news service in
the United States and (ii) send by first-class mail, postage prepaid, to the
Trustee and to each Holder of the Notes, at the address appearing in the
register maintained by the Registrar of the Notes, a notice stating:
(i) that the Change of Control Offer is being made pursuant to this
Section 4.19 and that all Notes tendered will be accepted for payment, and
55
<PAGE>
otherwise subject to the terms and conditions set forth herein;
(ii) the Change of Control Purchase Price and the purchase date
(which shall be a Business Day no earlier than 20 Business Days and no
later than 60 Business Days from the date such notice is mailed (the
"Change of Control Payment Date"));
(iii) that any Note not tendered will not be purchased and will
continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the Change
of Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(v) that Holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the Business Day preceding
the Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw their acceptance if
the Paying Agent receives, not later than the close of business on the
third Business Day preceding the Change of Control Payment Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Notes delivered for purchase, and a statement that
such Holder is withdrawing his election to have such Notes purchased;
(vii) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, provided that each Note purchased and each such new
--------
Note issued shall be in an original principal amount in denominations of
$1,000 and integral multiples thereof;
56
<PAGE>
(viii) any other procedures that a Holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance; and
(ix) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment Notes or portions thereof or beneficial
interests under a Global Note properly tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the
Change of Control Purchase Price of all Notes or portions thereof or beneficial
interests so tendered and (iii) deliver or cause to be delivered to the Trustee
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof tendered to the Company. The Paying Agent shall promptly (1)
mail to each holder of Notes so accepted and (2) cause to be credited to the
respective accounts of the Holders under a Global Note of beneficial interest so
accepted payment in an amount equal to the Change of Control Purchase Price for
such Notes, and the Company shall execute and issue, and the Trustee shall
promptly authenticate and mail to such holder, a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered and shall issue a
Global Note equal in principal amount to any unpurchased portion of beneficial
interest so surrendered; provided that each such new Note shall be issued in an
--------
original principal amount in denominations of $1,000 and integral multiples
thereof.
(c) (i) If the Company or any Subsidiary thereof has issued any
outstanding (A) Indebtedness that is subordinated in right of payment to the
Notes or (B) Preferred Stock, and the Company or such Subsidiary is required to
make a change of control offer or to make a distribution with respect to such
subordinated Indebtedness or Preferred Stock in the event of a Change of
Control, the Company shall not consummate any such offer or distribution with
respect to such subordinated Indebtedness or Preferred Stock until such time as
the Company shall have paid the Change of Control Purchase Price in full to the
holders of Notes that have accepted the Company's Change of Control Offer and
shall otherwise have consummated the Change of Control Offer made to holders of
the Notes and (ii) the Company will not issue Indebtedness that is subordinated
in right of payment to
57
<PAGE>
the Notes or Preferred Stock with change of control provisions requiring the
payment of such Indebtedness or Preferred Stock prior to the payment of the
Notes in the event of a Change of Control under this Indenture.
In the event that a Change of Control occurs and the Holders of Notes
exercise their right to require the Company to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act
at that time, the Company will comply with the requirements of Rule 14e-1 as
then in effect with respect to such repurchase.
Section 4.20. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain an office or agency where Notes may be
surrendered for registration or transfer or exchange or for presentation for
payment and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company shall give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the address of the Trustee as set forth in Section 13.2.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations. The
Company shall give prompt written notice to the Trustee of such designation or
rescission and of any change in the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust Office of
the Trustee set forth in Section 13.2 as such office of the Company.
Section 4.21. Maintenance of Properties and Insurance.
---------------------------------------
(a) The Company shall cause all material properties used or useful to
the conduct of its business or the business of any of its Subsidiaries to be
maintained
58
<PAGE>
and kept in good condition, repair and working order (reasonable wear and tear
excepted) and supplied with all equipment deemed necessary in the good faith
judgment of the Officers of the Company and shall cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
its judgment may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times unless the
failure to so maintain such properties (together with all other such failures)
would not have a material adverse effect on the financial condition or results
of operations of the Company and its Subsidiaries, taken as a whole; provided,
--------
however, that nothing in this Section 4.21 shall prevent the Company or any
- -------
Subsidiary from discontinuing the operation or maintenance of any of such
properties, or disposing of any of them, if such discontinuance or disposal is
in the good faith judgment of the Board of Directors of the Company or the
Subsidiary concerned, as the case may be, desirable in the conduct of the
business of the Company or such Subsidiary, as the case may be, and is not
adverse in any material respect to the Holders.
(b) The Company shall provide or cause to be provided, for itself and
each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the reasonable, good faith opinion
of the Company are adequate and appropriate for the conduct of the business of
the Company and such Subsidiaries in a prudent manner, with reputable insurers
or with the government of the United States of America or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be customary, in the good faith judgment of the Company, for
corporations similarly situated in the industry, unless the failure to provide
such insurance (together with all other such failures) would not have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole.
ARTICLE 5.
SUCCESSOR CORPORATION
59
<PAGE>
Section 5.1. Limitation on Consolidation, Merger and Sale of Assets.
------------------------------------------------------
(a) The Company will not and will not permit any Guarantor to
consolidate with, merge with or into, or transfer all or substantially all of
its assets (as an entirety or substantially as an entirety in one transaction or
a series of related transactions), to any Person unless: (i) the Company or the
Guarantor, as the case may be, shall be the continuing Person, or the Person (if
other than the Company or the Guarantor) formed by such consolidation or into
which the Company or the Guarantor, as the case may be, is merged or to which
the properties and assets of the Company or the Guarantor, as the case may be,
are transferred shall be a corporation organized and existing under the laws of
the United States or any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all of the obligations of the
Company or the Guarantor, as the case may be, under the Notes and this
Indenture, and the obligations under this Indenture shall remain in full force
and effect; (ii) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and (iii) immediately after giving effect to such transaction on a
pro forma basis the Company or such Person could incur at least $1.00 additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.6 hereof,
provided, however, that a Guarantor may merge into the Company or another
- -------- -------
Guarantor without complying with this clause (iii).
(b) In connection with any consolidation, merger or transfer of
assets contemplated by this Section 5.1, the Company shall deliver or cause to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer and the supplemental indenture in
respect thereto comply with this Section 5.1 and that all conditions precedent
herein provided for relating to such transaction or transactions have been
complied with.
Section 5.2. Successor Person Substituted.
----------------------------
60
<PAGE>
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company or any Guarantor in accordance
with Section 5.1 above, the successor corporation formed by such consolidation
or into which the Company is merged or to which such transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company or such Guarantor under this Indenture with the same effect as if
such successor corporation had been named as the Company or such Guarantor
herein, and thereafter the predecessor corporation shall be relieved of all
obligations and covenants under this Indenture and the Notes.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
-----------------
An "Event of Default" occurs if
(1) there is a default in the payment of any principal of, or
premium, if any, on the Notes when the same becomes due and payable at
maturity, upon acceleration, redemption or otherwise, whether or not such
payment is prohibited by the provisions of Article 11 hereof;
(2) there is a default in the payment of any interest on any Note
when the same becomes due and payable and the Default continues for a
period of 30 days, whether or not such payment is prohibited by the
provisions of Article 11 hereof;
(3) the Company or any Guarantor defaults in the observance or
performance of any other covenant in the Notes or this Indenture for 60
days after written notice from the Trustee to the Company or written notice
from the Holders of not less than 25% in aggregate principal amount of the
Notes then outstanding to the Company and the Trustee;
(4) there is a default in the payment at final maturity of principal
in an aggregate amount of $3,000,000 or more with respect to any
Indebtedness
61
<PAGE>
of the Company or any Restricted Subsidiary thereof which default shall not
be cured, waived or postponed pursuant to an agreement with the holders of
such Indebtedness within 60 days after written notice, or the acceleration
of any such Indebtedness aggregating $3,000,000 or more which acceleration
shall not be rescinded or annulled within 20 days after written notice to
the Company of such Default by the Trustee or to the Company and the
Trustee by any Holder;
(5) a court of competent jurisdiction enters a final judgment or
judgments which can no longer be appealed for the payment of money in
excess of $3,000,000 (which are not paid or covered by third party
insurance by financially sound insurers that have not disclaimed coverage)
against the Company or any Restricted Subsidiary thereof and such judgment
remains undischarged, for a period of 60 consecutive days during which a
stay of enforcement of such judgment shall not be in effect;
(6) the Company or any Restricted Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in
an involuntary case,
(C) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(D) makes a general assignment for the benefit of its creditors,
or
(E) generally is not paying its debts as they become due; or
(7) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Restricted
Subsidiary in an involuntary case,
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(B) appoints a Custodian of the Company or any Restricted
Subsidiary or for all or substantially all of the property of the
Company or any Restricted Subsidiary, or
(C) orders the liquidation of the Company or any Restricted
Subsidiary,
and, in each case, the order or decree remains unstayed and in effect
for 60 consecutive days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
Subject to the provisions of Sections 7.1 and 7.2, the Trustee shall
not be charged with knowledge of any Default or Event of Default unless written
notice thereof shall have been given to a Trust Officer at the Corporate Trust
Office by the Company or any other Person.
Section 6.2. Acceleration.
------------
If an Event of Default (other than an Event of Default arising under
Section 6.1(6) or (7) with respect to the Company) occurs and is continuing, the
Trustee by notice to the Company, or the Holders of not less than 25% in
aggregate principal amount of the Notes then outstanding by written notice to
the Company and the Trustee, may declare to be immediately due and payable the
entire principal amount of all the Notes then outstanding plus premium, if any,
and accrued but unpaid interest to the date of acceleration and (i) such amounts
shall become immediately due and payable or (ii) if there are any amounts
outstanding under or in respect of the Credit Facility, such amounts shall
become due and payable upon the first to occur of an acceleration of amounts
outstanding under or in respect of the Credit Facility or five Business Days
after receipt by the Company and the Representative of notice of the
acceleration of the Notes; provided, however, that after such acceleration but
-------- -------
before a judgment or decree based on such acceleration is obtained by the
Trustee, the Holders of a majority in aggregate principal amount of the out-
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standing Notes may rescind and annul such acceleration and its consequences if
all existing Events of Default, other than the nonpayment of accelerated
principal, premium, if any, or interest that has become due solely because of
the acceleration, have been cured or waived and if the rescission would not
conflict with any judgment or decree. No such rescission shall affect any
subsequent Default or impair any right consequent thereto. In case an Event of
Default specified in Section 6.1 (6) or (7) with respect to the Company occurs,
the principal, premium, if any, and interest amount with respect to all of the
Notes shall be due and payable immediately without any declaration or other act
on the part of the Trustee or the Holders of the Notes.
Section 6.3. Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of, or premium, if any, and interest on the Notes or to
enforce the performance of any provision of the Notes or this Indenture and may
take any necessary action requested of it as Trustee to settle, compromise,
adjust or otherwise conclude any proceedings to which it is a party.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Noteholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Section 6.4. Waiver of Past Defaults and
Events of Default.
---------------------------
Subject to Sections 6.2, 6.7 and 8.2 hereof, the Holders of a majority
in principal amount of the Notes then outstanding have the right to waive any
existing Default or Event of Default or compliance with any provision of this
Indenture or the Notes. Upon any such waiver, such Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
64
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cured for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereto.
Section 6.5. Control by Majority.
-------------------
The Holders of a majority in principal amount of the Notes then
outstanding may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee by this Indenture. The Trustee, however, may refuse to
follow any direction that conflicts with law or this Indenture or that the
Trustee determines may be unduly prejudicial to the rights of another Noteholder
not taking part in such direction, and the Trustee shall have the right to
decline to follow any such direction if the Trustee, being advised by counsel,
determines that the action so directed may not lawfully be taken or if the
Trustee in good faith shall, by a Trust Officer, determine that the proceedings
so directed may involve it in personal liability; provided that the Trustee may
--------
take any other action deemed proper by the Trustee which is not inconsistent
with such direction.
Section 6.6. Limitation on Suits.
-------------------
Subject to Section 6.7 below, a Noteholder may not institute any
proceeding or pursue any remedy with respect to this Indenture or the Notes
unless:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer, and if requested, provide to the
Trustee indemnity reasonably satisfactory to the Trustee against any loss,
liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
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(5) no direction inconsistent with such written request has been
given to the Trustee during such 60 day period by the Holders of a majority
in aggregate principal amount of the Notes then outstanding.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over another
Noteholder.
Section 6.7. Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal of, or premium, if any, and
interest of the Note on or after the respective due dates expressed in the Note,
or to bring suit for the enforcement of any such payment on or after such
respective dates, is absolute and unconditional and shall not be impaired or
affected without the consent of the Holder.
Section 6.8. Collection Suit by Trustee.
--------------------------
If an Event of Default in payment of principal, premium or interest
specified in Section 6.1(1) or (2) hereof occurs and is continuing, the Trustee
may recover judgment in its own name and as trustee of an express trust against
the Company or the Guarantors (or any other obligor on the Notes) for the whole
amount of unpaid principal and accrued interest remaining unpaid, together with
interest on overdue principal and, to the extent that payment of such interest
is lawful, interest on overdue installments of interest, in each case at the
rate then borne by the Notes, and such further amounts as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, including all sums due and owing to the Trustee pursuant to Section
7.7.
Section 6.9. Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
66
<PAGE>
counsel) and the Noteholders allowed in any judicial proceedings relative to the
Company or the Guarantors (or any other obligor upon the Notes), its creditors
or its property and shall be entitled and empowered to collect and receive any
monies or other property payable or deliverable on any such claims and to
distribute the same after deduction of its reasonable charges and expenses to
the extent that any such charges and expenses are not paid out of the estate in
any such proceedings and any custodian in any such judicial proceeding is hereby
authorized by each Noteholder to make such payments to the Trustee, and in the
event that the Trustee shall consent to the making of such payments directly to
the Noteholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
or reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Noteholder in any such proceedings.
Section 6.10. Priorities.
----------
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.7 hereof;
SECOND: to Noteholders for amounts due and unpaid on the Notes for
principal, premium, if any, and interest as to each, ratably, without preference
or priority of any kind, according to the amounts due and payable on the Notes;
and
THIRD: to the Company or, to the extent the Trustee collects any amount
from any Guarantor, to such Guarantor.
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The Trustee may fix a record date and payment date for any payment to
Noteholders pursuant to this Section 6.10. The Trustee shall give the Company
prior notice of any such record date and payment date; provided, however, that
-------- -------
the failure to give any such notice shall not affect the establishment of such
record date or payment date or any payment to Noteholders pursuant to this
Section 6.10.
Section 6.11. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7 hereof or a suit by Holders of more than 10% in
principal amount of the Notes then outstanding.
Section 6.12. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
ARTICLE 7.
TRUSTEE
Section 7.1. Duties of Trustee.
-----------------
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(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the same circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are specifically
set forth in this Indenture and no others and no implied covenants or
obligations shall be read into this Indenture against the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture but, in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture (but need not confirm or
investigate the accuracy of mathematical calculations or other facts stated
therein).
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.1.
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in
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good faith in accordance with a direction received by it pursuant to
Sections 6.2 and 6.5 hereof.
(4) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its rights or powers if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
satisfactory to it against such risk or liability is not reasonably assured
to it.
(d) Whether or not therein expressly so provided, paragraphs (a),
(b), (c), (e) and (f) of this Section 7.1 shall govern every provision of this
Indenture that in any way relates to the Trustee.
(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity reasonably satisfactory to it against any
loss, liability, expense or fee.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company or
any Guarantor. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by the law.
Section 7.2. Rights of Trustee.
-----------------
Subject to Section 7.1 hereof:
(1) The Trustee may rely on and shall be protected in acting or
refraining from acting upon any document reasonably believed by it to be
genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel, or both, which shall
conform to the provisions of Section 13.5 hereof. The Trustee shall be
protected and shall not be liable for any action it takes or omits to take
in good faith in reliance on such certificate or opinion.
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(3) The Trustee may act through agents and attorneys and shall not be
responsible for the misconduct or negligence of any agent or attorney
(other than the negligence or willful misconduct of an agent who is an
employee of the Trustee) appointed by it with due care.
(4) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers; provided that the Trustee's conduct does not
--------
constitute negligence or bad faith.
(5) The Trustee may consult with counsel of its selection, and the
advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection from liability in respect of any
action taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.
Section 7.3. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may make loans to, accept deposits from,
perform services for or otherwise deal with the Company or any Guarantor, or any
Affiliates thereof, with the same rights it would have if it were not Trustee.
Any Agent may do the same with like rights. The Trustee, however, shall be
subject to Sections 7.10 and 7.11 hereof.
Section 7.4. Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Company's use of the proceeds from the sale of Notes or any money paid to the
Company pursuant to the terms of this Indenture and it shall not be responsible
for any statement in the Notes or any document used in connection with the sale
of the Notes other than its certificate of authentication.
Section 7.5. Notice of Defaults.
------------------
If a Default occurs and is continuing and if it is actually known
to the Trustee, the Trustee shall mail
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to each Noteholder notice of the Default within 90 days after it occurs.
Except in the case of a Default in payment of the principal of, or premium,
if any, or interest on any Note, the Trustee may withhold the notice if and
so long as the board of directors of the Trustee, the executive committee
or any trust committee of such board and/or its Trust Officers in good
faith determine(s) that withholding the notice is in the interests of the
Noteholders.
Section 7.6. Reports by Trustee to Holders.
-----------------------------
If required by TIA (S) 313(a), within 60 days after March 1 of
any year, commencing March 1, 1998, the Trustee shall mail to each
Noteholder a brief report dated as of such March 1 that complies with TIA
(S) 313(a); provided that no such report need be transmitted if no such
--------
events listed in TIA (S) 313(a) have occurred within such period. The
Trustee also shall comply with TIA (S) 313(b)(2). The Trustee shall also
transmit by mail all reports as required by TIA (S) 313(c) and TIA (S)
313(d).
A copy of each report at the time of its mailing to Noteholders
shall be filed with the SEC and each stock exchange on which the Notes are
listed. The Company shall promptly notify the Trustee when the Notes are
listed on any stock exchange.
Section 7.7. Compensation and Indemnity.
--------------------------
The Company and the Guarantors shall pay to the Trustee from time
to time such reasonable compensation as shall be agreed in writing between
the Company and the Trustee for its services hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation
of a trustee of an express trust). The Company and the Guarantors shall
reimburse the Trustee upon request for all reasonable disbursements,
expenses and advances incurred or made by it in connection with its duties
under this Indenture, including the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.
The Company and the Guarantors shall indemnify each of the
Trustee and any predecessor Trustee for, and hold it harmless against, any
and all loss, damage, claim, liability, reasonable expense (including but
not
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limited to reasonable attorneys' fees and expenses) or taxes (other than
taxes based on the income of the Trustee) incurred by it in connection with
the acceptance or performance of its duties under this Indenture including
the reasonable costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder (including, without limitation, settlement
costs). The Trustee shall notify the Company and the Guarantors in writing
promptly of any claim asserted against the Trustee for which it may seek
indemnity. However, the failure by the Trustee to so notify the Company
and the Guarantors shall not relieve the Company or the Guarantors of their
obligations hereunder.
Notwithstanding the foregoing, the Company and the Guarantors
need not reimburse the Trustee for any expense or indemnify it against any
loss or liability incurred by the Trustee through its negligence or bad
faith. To secure the payment obligations of the Company and the Guarantors
in this Section 7.7, the Trustee shall have a lien prior to the Notes on
all money or property held or collected by the Trustee in its capacity as
such, except such money or property held in trust to pay principal of and
interest on particular Notes. The obligations of the Company and the
Guarantors under this Section 7.7 to compensate and indemnify the Trustee
and each predecessor Trustee and to pay or reimburse the Trustee and each
predecessor Trustee for expenses, disbursements and advances shall be joint
and several liabilities of the Company and each of the Guarantors and shall
survive the satisfaction and discharge of this Indenture, including the
termination or rejection hereof in any bankruptcy proceeding to the extent
permitted by law.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(6) or (7) hereof occurs, the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
For purposes of this Section 7.7, the term "Trustee" shall
include any trustee appointed pursuant to Article 9.
Section 7.8. Replacement of Trustee.
----------------------
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The Trustee may resign by so notifying the Company and the Guarantors
in writing, such resignation to become effective upon the appointment of a
successor Trustee. The Holders of a majority in principal amount of the
outstanding Notes may remove the Trustee by notifying the removed Trustee in
writing and may appoint a successor Trustee with the Company's written consent
which consent shall not be unreasonably withheld. The Company may remove the
Trustee at its election if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of a majority in principal amount of the outstanding Notes may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately following
such delivery, the retiring Trustee shall, subject to its rights under Section
7.7 hereof, transfer all property held by it as Trustee to the successor
Trustee, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A
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successor Trustee shall mail notice of its succession to each Noteholder.
Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the
Company's obligations under Section 7.7 hereof shall continue for the benefit of
the retiring Trustee.
Section 7.9. Successor Trustee by Consolidation,
Merger or Conversion.
--------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation or national banking association, subject to Section 7.10 hereof, the
successor corporation or national banking association without any further act
shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1) and (2) in every respect. The Trustee shall
have a combined capital and surplus of at least $100,000,000 as set forth in its
most recent published annual report of condition. The Trustee shall comply with
(S) TIA (S) 310(b), including the provision in (S) 310(b)(1); provided that
--------
there shall be excluded from the operation of TIA (S) 310(b)(1) any indenture or
indentures under which other securities, or certificates of interest or
participation in other securities, of the Company or the Guarantors are
outstanding if the requirements for exclusion set forth in TIA (S) 310(b)(1) are
met.
Section 7.11. Preferential Collection of
Claims Against Company.
----------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
Section 7.12. Paying Agents.
-------------
The Company shall cause each Paying Agent other than the Trustee to
execute and deliver to it and the Trustee an instrument in which such agent
shall agree
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with the Trustee, subject to the provisions of this Section 7.12:
(A) that it will hold all sums held by it as agent for the payment of
principal of, or premium, if any, or interest on, the Notes (whether such
sums have been paid to it by the Company or by any obligor on the Notes) in
trust for the benefit of Holders of the Notes or the Trustee;
(B) that it will at any time during the continuance of any Event of
Default, upon written request from the Trustee, deliver to the Trustee all
sums so held in trust by it together with a full accounting thereof; and
(C) that it will give the Trustee written notice within three (3)
Business Days of any failure of the Company (or by any obligor on the
Notes) in the payment of any installment of the principal of, premium, if
any, or interest on, the Notes when the same shall be due and payable.
ARTICLE 8.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.1. Without Consent of Holders.
--------------------------
The Company and the Guarantors, if any, when authorized by a Board
Resolution of each of them, and the Trustee may modify, waive, amend, restate or
supplement this Indenture, the Pledge Agreement or the Notes without notice to
or consent of any Noteholder:
(1) to comply with Section 5.1 hereof;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) to comply with any requirements of the SEC under the TIA;
(4) to cure any ambiguity, defect or inconsistency, or to make any
other change that does not materially and adversely affect the rights of
any Noteholder; or
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(5) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes.
The Trustee is hereby authorized to join with the Company and the
Guarantors, if any, in the execution of any supplemental indenture authorized or
permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations which may be therein contained, but the Trustee
shall not be obligated to enter into any such supplemental indenture which
adversely affects its own rights, duties or immunities under this Indenture.
Section 8.2. With Consent of Holders.
-----------------------
The Company, the Guarantors, if any, and the Trustee may modify,
amend, waive or supplement this Indenture, the Pledge Agreement or the Notes
with the written consent of the Holders of not less than a majority in aggregate
principal amount of the outstanding Notes without notice to any Noteholder. The
Holders of not less than a majority in aggregate principal amount of the
outstanding Notes may waive compliance in a particular instance by the Company
with any provision of this Indenture or the Notes without notice to any
Noteholder. Subject to Section 8.4, without the consent of each Noteholder
affected, however, an amendment, supplement or waiver, including a waiver
pursuant to Section 6.4, may not:
(1) reduce the amount of Notes whose Holders must consent to an
amendment, modification, supplement or waiver to this Indenture, the Pledge
Agreement or the Notes;
(2) reduce the rate of or change the time for payment of interest on
any Note;
(3) reduce the principal of or premium on or change the stated
maturity of any Note;
(4) make any Note payable in money other than that stated in the Note
or change the place of payment from New York, New York;
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(5) change the amount or time of any payment required by the Notes or
reduce the premium payable upon any redemption of the Notes in accordance
with Section 3.7 hereof, or change the time before which no such redemption
may be made;
(6) waive a default in the payment of the principal of, or interest
on, or redemption payment with respect to, any Note (including any
obligation to make a Change of Control Offer or, after the Company's
obligation to purchase Notes arises thereunder, an Excess Proceeds Offer or
modify any of the provisions or definitions with respect to such offers);
(7) make any changes in Sections 6.4 or 6.7 hereof or this sentence
of Section 8.2; or
(8) affect the ranking of the Notes in a manner adverse to the
Holders.
After a modification, amendment, supplement or waiver under this
Section 8.2 becomes effective, the Company shall mail to the Holders a notice
briefly describing the modification, amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such modification,
amendment, supplement or waiver.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, modification,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
Section 8.3. Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to or supplement of this Indenture or the Notes shall
comply with the TIA as then in effect.
Section 8.4. Revocation and Effect of Consents.
---------------------------------
Until a modification, amendment, supplement, waiver or other action
becomes effective, a consent to it by a Holder of a Note is a continuing consent
conclusive
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and binding upon such Holder and every subsequent Holder of the same Note or
portion thereof, and of any Note issued upon the transfer thereof or in exchange
therefor or in place thereof, even if notation of the consent is not made on any
such Note. Any such Holder or subsequent Holder, however, may revoke the
consent as to his Note or portion of a Note, if the Trustee receives the notice
of revocation before the date the modification, amendment, supplement, waiver or
other action becomes effective.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any modification,
amendment, supplement, or waiver. If a record date is fixed, then,
notwithstanding the preceding paragraph, those Persons who were Holders at such
record date (or their duly designated proxies), and only such Persons, shall be
entitled to consent to such modification, amendment, supplement, or waiver or to
revoke any consent previously given, whether or not such Persons continue to be
Holders after such record date. No such consent shall be valid or effective for
more than 90 days after such record date unless the consent of the requisite
number of Holders has been obtained.
After a modification, amendment, supplement, waiver or other action
becomes effective, it shall bind every Noteholder, unless it makes a change
described in any of clauses (1) through (8) of Section 8.2 hereof. In that
case, the modification, amendment, supplement, waiver or other action shall bind
each Holder of a Note who has consented to it and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note.
Section 8.5. Notation on or Exchange of Notes.
--------------------------------
If a modification, amendment, supplement or waiver changes the terms
of a Note, the Trustee may request the Holder of the Note to deliver it to the
Trustee. In such case, the Trustee shall place an appropriate notation on the
Note about the changed terms and return it to the Holder. Alternatively, if the
Company or the Trustee so determines, the Company in exchange for the Note shall
issue and the Trustee shall authenticate and make available for delivery a new
security that reflects the changed terms. Failure to make the appropri-
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ate notation or issue a new Note shall not affect the validity and effect of
such modification, amendment, supplement or waiver.
Section 8.6. Trustee to Sign Amendments, etc.
--------------------------------
The Trustee shall sign any modification, amendment, supplement or
waiver authorized pursuant to this Article 8 if the modification, amendment,
supplement or waiver does not adversely affect the rights, duties, liabilities
or immunities of the Trustee. If it does, the Trustee may, but need not, sign
it. In signing or refusing to sign such modification, amendment, supplement or
waiver, the Trustee shall be entitled to receive and, subject to Section 7.1
hereof, shall be fully protected in relying upon an Officers' Certificate and an
Opinion of Counsel stating that such modification, amendment, supplement or
waiver is authorized or permitted by this Indenture and such supplemental
indenture constitutes the legal, valid and binding obligation of the Company and
the Guarantors enforceable against each of them in accordance with its terms
(subject to customary exceptions). The Company or any Guarantor may not sign a
modification, amendment or supplement until the Board of Directors of the
Company or such Guarantor, as appropriate, approves it.
ARTICLE 9.
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.1. Discharge of Indenture.
----------------------
The Company and the Guarantors, if any, may terminate their
obligations under the Notes, the Guarantees, if any, and this Indenture, except
the obligations referred to in the last paragraph of this Section 9.1, if there
shall have been cancelled by the Trustee or delivered to the Trustee for
cancellation all Notes theretofore authenticated and delivered (other than any
Notes that are asserted to have been destroyed, lost or stolen and that shall
have been replaced as provided in Section 2.7 hereof) and the Company has paid
all sums payable by it hereunder or deposited all required sums with the
Trustee.
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After such delivery the Trustee upon request shall acknowledge in
writing the discharge of the Company's and the Guarantors' obligations under the
Notes, the Guarantees and this Indenture except for those surviving obligations
specified below.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company in Sections 2.7, 7.7, 9.5, 9.6 and 9.8 hereof shall
survive.
Section 9.2. Legal Defeasance.
----------------
The Company may at its option, by Board Resolution, be discharged from
its obligations with respect to the Notes and the Guarantors, if any, discharged
from their obligations under the Guarantees, if any, on the date the conditions
set forth in Section 9.4 below are satisfied (hereinafter, "Legal Defeasance").
For this purpose, such Legal Defeasance means that the Company shall be deemed
to have paid and discharged the entire indebtedness represented by the Notes and
to have satisfied all its other obligations under such Notes and this Indenture
insofar as such Notes are concerned (and the Trustee, at the expense of the
Company, shall, subject to Section 9.6 hereof, execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of
outstanding Notes to receive solely from the trust funds described in Section
9.4 hereof and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest on such Notes when such payments
are due, (B) the Company's obligations with respect to such Notes under Sections
2.3, 2.4, 2.5, 2.6, 2.7, 2.8 and 4.20 hereof, (C) the rights, powers, trusts,
duties, and immunities of the Trustee hereunder (including claims of, or
payments to, the Trustee under or pursuant to Section 7.7 hereof) and (D) this
Article 9. Subject to compliance with this Article 9, the Company may exercise
its option under this Section 9.2 with respect to the Notes notwithstanding the
prior exercise of its option under Section 9.3 below with respect to the Notes.
Section 9.3. Covenant Defeasance.
-------------------
At the option of the Company, pursuant to a Board Resolution, the
Company and the Guarantors, if any,
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shall be released from their respective obligations under Sections 4.2 through
4.19 hereof, inclusive, and clause (a) (iii) of Section 5.1 hereof with respect
to the outstanding Notes on and after the date the conditions set forth in
Section 9.4 hereof are satisfied (hereinafter, "Covenant Defeasance") and the
Notes shall thereafter be deemed to not be outstanding for purposes of any
direction, waiver, consent, declaration or act of the Holders (and the
consequences thereof) in connection with such covenants but shall continue to be
outstanding for all other purposes hereunder. For this purpose, such Covenant
Defeasance means that the Company and the Guarantors, if any, may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such specified Section or portion thereof, whether directly or
indirectly by reason of any reference elsewhere herein to any such specified
Section or portion thereof or by reason of any reference in any such specified
Section or portion thereof to any other provision herein or in any other
document, but the remainder of this Indenture and the Notes shall be unaffected
thereby.
Section 9.4. Conditions to Defeasance or Covenant
Defeasance.
------------------------------------
The following shall be the conditions to application of Section 9.2 or
Section 9.3 hereof to the outstanding Notes:
(1) the Company shall irrevocably have deposited or caused to be deposited
with the Trustee (or another trustee satisfying the requirements of Section 7.10
hereof who shall agree to comply with the provisions of this Article 9
applicable to it) as funds in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of the Notes, (A) money in an amount, or (B) U.S.
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide, not
later than the due date of any payment, money in an amount, or (C) a combination
thereof, sufficient, in the opinion of a nationally-recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied by
the Trustee (or
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other qualifying trustee) to pay and discharge, the principal of, premium, if
any, and accrued interest on the outstanding Notes at the maturity date of such
principal, premium, if any, or interest, or on dates for payment and redemption
of such principal, premium, if any, and interest selected in accordance with the
terms of this Indenture and of the Notes;
(2) no Event of Default or Default with respect to the Notes shall have
occurred and be continuing on the date of such deposit, or shall have occurred
and be continuing at any time during the period ending on the 91st day after the
date of such deposit or, if longer, ending on the day following the expiration
of the longest preference period under any Bankruptcy Law applicable to the
Company in respect of such deposit (it being understood that this condition
shall not be deemed satisfied until the expiration of such period);
(3) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute default under any other agreement or
instrument to which the Company is a party or by which it is bound;
(4) the Company shall have delivered to the Trustee an Opinion of Counsel
stating that, as a result of such Legal Defeasance or Covenant Defeasance,
neither the trust nor the Trustee will be required to register as an investment
company under the Investment Company Act of 1940, as amended;
(5) in the case of an election under Section 9.2 above, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue Service
a ruling to the effect that or (ii) there has been a change in any applicable
Federal income tax law with the effect that, and such opinion shall confirm
that, the Holders of the outstanding Notes or persons in their positions will
not recognize income, gain or loss for Federal income tax purposes solely as a
result of such Legal Defeasance and will be subject to Federal income tax on the
same amounts, in the same manner, including as a result of prepayment, and at
the same times as would have been the case if such Legal Defeasance had not
occurred;
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(6) in the case of an election under Section 9.3 hereof, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the outstanding Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such Covenant Defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred;
(7) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Legal Defeasance under Section 9.2
above or the Covenant Defeasance under Section 9.3 hereof (as the case may be)
have been complied with; and
(8) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit under clause (1) was not made by the
Company with the intent of defeating, hindering, delaying or defrauding any
creditors of the Company or others.
Section 9.5. Deposited Money and U.S. Government Obli-
gations to Be Held in Trust; Other
Miscellaneous Provisions.
----------------------------------------
All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 9.4 hereof in respect of
the outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent as the Trustee may determine, to the
Holders of such Notes, of all sums due and to become due thereon in respect of
principal, premium, if any, and accrued interest, but such money need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no duty to invest such money or U.S. Government Obligations.
The Company and the Guarantors shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed against the U.S.
Government Obligations deposited pursuant to Section 9.4 hereof or the
principal, premium, if any, and interest received in respect thereof other than
any such tax, fee or other
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charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 9 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 9.4 hereof which, in the opinion of a nationally-recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 9.6. Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 9.1, 9.2 or 9.3 hereof by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the obligations of the Company and any Guarantor under this
Indenture, the Notes and the Guarantees, if any, shall be revived and reinstated
as though no deposit had occurred pursuant to this Article 9 until such time as
the Trustee or Paying Agent is permitted to apply all such money or U.S.
Government Obligations in accordance with Section 9.1 hereof; provided, however,
-------- -------
that if the Company or any Guarantors have made any payment of, principal of,
premium, if any, or accrued interest on any Notes because of the reinstatement
of their obligations, the Company or such Guarantors, as the case may be, shall
be subrogated to the rights of the Holders of such Notes to receive such payment
from the money or U.S. Government Obligations held by the Trustee or Paying
Agent.
Section 9.7. Moneys Held by Paying Agent.
---------------------------
In connection with the satisfaction and discharge of this Indenture,
all moneys then held by any Paying Agent under the provisions of this Indenture
shall, upon demand of the Company, be paid to the Trustee, or if sufficient
moneys have been deposited pursuant to Section 9.4 hereof, to the Company (or,
if such moneys had been deposited by any Guarantors, to such Guaran-
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tors), and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys.
Section 9.8. Moneys Held in Trust.
--------------------
Any moneys deposited with the Trustee or any Paying Agent or then held
by the Company or any Guarantors in trust for the payment of the principal of,
or premium, if any, or interest on any Note that are not applied but remain
unclaimed by the Holder of such Note for two years after the date upon which the
principal of, or premium, if any, or interest on such Note shall have
respectively become due and payable shall be paid to the Company or, if
appropriate, the Guarantors, upon Company Request, or if such moneys are then
held by the Company or any Guarantors in trust, such moneys shall be released
from such trust; and all liability of the Trustee or such Paying Agent with
respect to such trust money shall thereupon cease; provided, however, that the
-------- -------
Trustee or any such Paying Agent, before being required to make any such
repayment, may, at the expense of the Company and the Guarantors, if any, either
mail to each Noteholder affected, at the address shown in the register of the
Notes maintained by the Registrar pursuant to Section 2.3 hereof, or cause to be
published once a week for two successive weeks, in a newspaper published in the
English language, customarily published each Business Day and of general
circulation in The City of New York, New York, a notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such mailing or publication, any unclaimed balance of
such moneys then remaining will be repaid to the Company. After payment to the
Company or the Guarantors, if any, or the release of any money held in trust by
the Company or any Guarantors, as the case may be, Noteholders entitled to the
money must look only to the Company and any Guarantors for payment as general
creditors unless applicable abandoned property law designates another person.
ARTICLE 10.
GUARANTEE OF NOTES
Section 10.1. Guarantee.
---------
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Subject to the provisions of this Article 10, each Guarantor, by
execution of the Guarantee, will jointly and severally unconditionally guarantee
to each Holder and to the Trustee, on behalf of the Holders, (i) the due and
punctual payment of the principal of, and premium, if any, and interest on each
Note, when and as the same shall become due and payable, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal of, and premium, if any, and interest on the Notes, to the
extent lawful, and the due and punctual performance of all other Obligations of
the Company to the Holders or the Trustee all in accordance with the terms of
such Note and this Indenture, and (ii) in the case of any extension of time of
payment or renewal of any Notes or any of such other Obligations, that the same
will be promptly paid in full when due or performed in accordance with the terms
of the extension or renewal, at stated maturity, by acceleration or otherwise.
Each Guarantor, by execution of the Guarantee, will agree that its obligations
thereunder and hereunder shall be absolute and unconditional, irrespective of,
and shall be unaffected by, any invalidity, irregularity or unenforceability of
any such Note or this Indenture, any failure to enforce the provisions of any
such Note or this Indenture, any waiver, modification or indulgence granted to
the Company with respect thereto by the Holder of such Note or the Trustee, or
any other circumstances which may otherwise constitute a legal or equitable
discharge of a surety or such Guarantor.
Each Guarantor, by execution of the Guarantee, will waive diligence,
presentment, filing of claims with a court in the event of merger or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest or notice with respect to any such Note or the Indebtedness evidenced
thereby and all demands whatsoever, and will covenant that the Guarantee will
not be discharged as to any such Note except by payment in full of the principal
thereof, premium if any, and interest thereon and as provided in Section 9.1
hereof. Each Guarantor, by execution of the Guarantee, will further agree that,
as between such Guarantor, on the one hand, and the Holders and the Trustee, on
the other hand, (i) the maturity of the Obligations guaranteed by the Guarantee
may be accelerated as provided in Article 6 hereof for the purposes of the
Guarantee, notwithstanding any stay, injunction or other prohibition
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preventing such acceleration in respect of the Obligations guaranteed thereby,
and (ii) in the event of any declaration of acceleration of such Obligations as
provided in Article 6 hereof, such Obligations (whether or not due and payable)
shall forthwith become due and payable by each Guarantor for the purpose of the
Guarantee. In addition, without limiting the foregoing provisions, upon the
effectiveness of an acceleration under Article 6 hereof, the Trustee shall
promptly make a demand for payment on the Notes under the Guarantee provided for
in this Article 10 and not discharged. Failure to make such demand shall not
affect the validity or enforceability of the Guarantee upon any Guarantor.
A Guarantee shall not be valid or become obligatory for any purpose
with respect to a Note unless the certificate of authentication on such Note
shall have been signed by or on behalf of the Trustee.
Section 10.2. Execution and Delivery of Guarantees.
------------------------------------
A Guarantee shall be executed on behalf of a Guarantor by the manual
or facsimile signature of an Officer of such Guarantor. A guarantee need not be
affixed to a Note, and the validity and enforceability of any Guarantee shall
not be affected by the fact that it is not so affixed.
If an Officer of a Guarantor whose signature is on the Guarantee no
longer holds that office, such Guarantee shall be valid nevertheless.
Section 10.3. Limitation of Guarantee.
-----------------------
The obligations of each Guarantor will be limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor (including, without limitation, any guarantees of
Senior Indebtedness) and after giving effect to any collections from or payments
made by or on behalf of any other Guarantor in respect of the obligations of
such other Guarantor under its Guarantee or pursuant to its contribution
obligations under this Indenture, result in the obligations of such Guarantor
under the Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under Federal or state law. Each Guarantor that makes a payment or
distribution under a Guarantee shall
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be entitled to a contribution from each other Guarantor in a pro rata amount
based on the Adjusted Net Assets of each Subsidiary Guarantor.
Section 10.4. Release of Guarantor.
--------------------
A Guarantor shall be released from all of its obligations under its
Guarantee if:
(i) the Guarantor has sold all or substantially all of its assets or
the Company and its Restricted Subsidiaries have sold all of the Capital
Stock of the Guarantor owned by them, in each case in a transaction in
compliance with Sections 4.10 and 5.1 hereof to the extent applicable; or
(ii) the Guarantor merges with or into or consolidates with, or
transfers all or substantially all of its assets to, the Company or another
Guarantor in a transaction in compliance with Section 5.1 hereof;
and in each such case, the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to such transactions have been complied
with.
Section 10.5. Guarantee Obligations Subordinated
------------------------------------
to Guarantor Senior Indebtedness.
--------------------------------
Each Guarantor, by execution of the Guarantee, will covenant and
agree, and each Holder of Notes, by its acceptance thereof, likewise covenants
and agrees, that to the extent and in the manner hereinafter set forth in this
Article 10, the Indebtedness represented by the Guarantee and the payment of any
Obligations pursuant to the Guarantee by such Guarantor are hereby expressly
made subordinate and subject in right of payment as provided in this Article 10
to the prior indefeasible payment and satisfaction in full in cash or, as
acceptable to the holders of Guarantor Senior Indebtedness of such Guarantor, in
any other manner, of all existing and future Guarantor Senior Indebtedness of
such Guarantor.
This Section 10.5 and the following Sections 10.6 through 10.11 shall
constitute a continuing offer
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to all Persons who, in reliance upon such provisions, become holders of or
continue to hold Guarantor Senior Indebtedness of any Guarantor; and such
provisions are made for the benefit of the holders of Guarantor Senior
Indebtedness of each Guarantor; and such holders are made obligees hereunder and
they or each of them may enforce such provisions.
Section 10.6. Payment Over of Proceeds upon Dissolu-
--------------------------------------
tion, etc., of a Guarantor.
--------------------------
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to any Guarantor or to its
creditors, as such, or to its assets, whether voluntary or involuntary, or (b)
any liquidation, dissolution or other winding-up of any Guarantor, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
or (c) any general assignment for the benefit of creditors or any other
marshaling of assets or liabilities of any Guarantor, then and in any such
event:
(1) the holders of all Guarantor Senior Indebtedness of such Guarantor
shall be entitled to receive payment and satisfaction in full in cash or,
as acceptable to the holders of such Guarantor Senior Indebtedness, in any
other manner, of all amounts due on or in respect of all such Guarantor
Senior Indebtedness, before the Holders of the Notes are entitled to
receive or retain, pursuant to the Guarantee of such Guarantor, any payment
or distribution of any kind or character by such Guarantor on account of
any of its Obligations on its Guarantee; and
(2) any payment or distribution of assets of such Guarantor of any
kind or character, whether in cash, property or securities, by set-off or
otherwise, to which the Holders or the Trustee would be entitled but for
the subordination provisions of this Article 10 shall be paid by the
liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holders of Guarantor Senior
Indebtedness of such Guarantor or their representative or
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representatives or to the trustee or trustees under any indenture under
which any instruments evidencing any of such Guarantor Senior Indebtedness
may have been issued, ratably according to the aggregate amounts remaining
unpaid on account of such Guarantor Senior Indebtedness held or represented
by each, to the extent necessary to make payment in full in cash or, as
acceptable to the holders of such Guarantor Senior Indebtedness of such
Guarantor, in any other manner, of all such Guarantor Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Guarantor Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of
this Section 10.6, the Trustee or the Holder of any Note shall have
received any payment or distribution of assets of such Guarantor of any
kind or character, whether in cash, property or securities, including,
without limitation, by way of set-off or otherwise, in respect of any of
its Obligations on its Guarantee before all Guarantor Senior Indebtedness
of such Guarantor is paid and satisfied in full in cash or such payment and
satisfaction thereof in cash is provided for, then and in such event such
payment or distribution upon written notice to the Trustee or the Holder of
such Note, as the case may be, shall be held by the Trustee or the Holder
of such Note, as the case may be, in trust for the benefit of the holders
of such Guarantor or Senior Indebtedness and shall be immediately paid over
or delivered forthwith to the liquidating trustee or agent or other Person
making payment or distribution of assets of such Guarantor for application
to the payment of all such Guarantor Senior Indebtedness remaining unpaid,
to the extent necessary to pay all of such Guarantor Senior Indebtedness in
full in cash or, as acceptable to the holders of such Guarantor Senior
Indebtedness, any other manner, after giving effect to any concurrent
payment or distribution to or for the holders of such Guarantor Senior
Indebtedness.
The consolidation of a Guarantor with, or the merger of a Guarantor
with or into, another Person or the liquidation or dissolution of a Guarantor
following the transfer of all of its assets (as an entirety or substan-
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tially as an entirety) to another Person upon the terms and conditions set forth
in Article 5 hereof shall not be deemed a dissolution, winding-up, liquidation,
reorganization, assignment for the benefit of creditors or marshaling of assets
and liabilities of such Guarantor for the purposes of this Article 10 if the
Person formed by such consolidation or the surviving entity of such merger or
the Person which acquires by transfer such assets (as an entirety or
substantially as an entirety) shall, as a part of such consolidation, merger or
transfer comply with the conditions set forth in such Article 5 hereof.
Section 10.7. Suspension of Guarantee Obligations When Guarantor Senior
Indebtedness in Default.
---------------------------------------------------------
(a) Unless Section 10.6 hereof shall be applicable, after the
occurrence of a Payment Default, no payment or distribution of any assets or
securities of a Guarantor (or any Restricted Subsidiary or Subsidiary of such
Guarantor) of any kind or character (including, without limitation, cash,
property and any payment or distribution which may be payable or deliverable by
reason of the payment of any other Indebtedness of such Guarantor being
subordinated to its Obligations on its Guarantee) may be made by or on behalf of
such Guarantor (or any Restricted Subsidiary or Subsidiary of such Guarantor),
including, without limitation, by way of set-off or otherwise, for or on account
of its Obligations on its Guarantee, and neither the Trustee nor any holder or
owner of any Notes shall take or receive from any Guarantor (or any Restricted
Subsidiary or Subsidiary of such Guarantor), directly or indirectly in any
manner, payment in respect of all or any portion of its Obligations on its
Guarantee following the delivery by the representative of the holders of
Guarantor Senior Indebtedness (the "Guarantor Representative") to the Trustee of
written notice of (i) the occurrence of a Payment Default on Designated Senior
Indebtedness which constitutes Guarantor Senior Indebtedness or (ii) the
occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness
which constitutes Guarantor Senior Indebtedness and the acceleration of the
maturity of such Designated Senior Indebtedness in accordance with its terms,
and in any such event, such prohibition shall continue until such Payment
Default is cured, waived in writing or ceases to exist or such acceleration has
been rescinded
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or otherwise cured. At such time as the prohibition set forth in the preceding
sentence shall no longer be in effect, subject to the provisions of the
following paragraph (b), such Guarantor shall resume making any and all required
payments in respect of its Obligations under its Guarantee.
(b) Unless Section 10.6 hereof shall be applicable, upon the
occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness
which constitutes Guarantor Senior Indebtedness of any Guarantor, no payment or
distribution of any assets or securities of such Guarantor of any kind or
character (including, without limitation, cash, property and any payment or
distribution which may be payable or deliverable by reason of the payment of any
other Indebtedness of such Guarantor being subordinated to its Obligations on
its Guarantee) shall be made by such Guarantor, including, without limitation,
by way of set-off or otherwise, for or on account of any of its Obligations on
its Guarantee, and neither the Trustee nor any holder or owner of any Notes
shall take or receive from any Guarantor (or any Restricted Subsidiary or
Subsidiary of such Guarantor), directly or indirectly in any manner, payment in
respect of all or any portion of its Obligations on its Guarantee for a period
(a "Guarantee Payment Blockage Period") commencing on the date of receipt by the
Trustee of written notice from the Guarantor Representative of such Non-Payment
Event of Default, unless and until (subject to any blockage of payments that may
then be in effect under the preceding paragraph (a)) the earliest to occur of
the following events: (x) more than 179 days shall have elapsed since the date
of receipt of such written notice by the Trustee, (y) such Non-Payment Event of
Default shall have been cured or waived in writing or shall have ceased to exist
or such Designated Senior Indebtedness shall have been paid in full in cash and
the Trustee has been so notified either by the Guarantor Representative or such
Guarantor or (z) such Guarantee Payment Blockage Period shall have been
terminated by written notice to such Guarantor or the Trustee from the Guarantor
Representative, after which, in the case of clause (x), (y) or (z), such
Guarantor shall resume making any and all required payments in respect of its
Obligations on its Guarantee, including any missed payments. Notwithstanding
any other provisions of this Indenture, no event of default with respect to
Designated
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Senior Indebtedness which constitutes Guarantor Senior Indebtedness (other than
a Payment Default) which existed or was continuing on the date of the
commencement of any Guarantee Payment Blockage Period initiated by the Guarantor
Representative shall be, or be made, the basis for the commencement of a second
Guarantee Payment Blockage Period initiated by the Guarantor Representative
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days. In no event shall a Guarantee Payment Blockage
Period extend beyond 179 days from the date of the receipt by the Trustee of the
notice referred to in this Section 10.7(b) or, in the event of a Non-Payment
Event of Default which formed the basis for a Payment Blockage Period under
Section 11.3(b) hereof, 179 days from the date of the receipt by the Trustee of
the notice referred to Section 11.3(b) (the "Initial Guarantee Blockage
Period"). Any number of additional Guarantee Payment Blockage Periods may be
commenced during the Initial Guarantee Blockage Period; provided, however, that
-------- -------
no such additional Guarantee Payment Blockage Period shall extend beyond the
Initial Guarantee Blockage Period. After the expiration of the Initial
Guarantee Blockage Period, no Guarantee Payment Blockage Period may be commenced
under this Section 10.7(b) and no Payment Blockage Period may be commenced under
Section 11.3(b) hereof until at least 180 consecutive days have elapsed from the
last day of the Initial Guarantee Blockage Period.
(c) In the event that, notwithstanding the foregoing, the Trustee or
the Holder of any Note shall have received any payment from a Guarantor
prohibited by the foregoing provisions of this Section 10.7, then and in such
event such payment shall be paid over and delivered forthwith to the Guarantor
Representative initiating the Guarantee Payment Blockage Period, in trust for
distribution to the holders of Guarantor Senior Indebtedness or, if no amounts
are then due in respect of Guarantor Senior Indebtedness, promptly returned to
the Guarantor, or as a court of competent jurisdiction shall direct.
Section 10.8. Subrogation to Rights of Holders
of Guarantor Senior Indebtedness.
---------------------------------
Upon the payment in full of all amounts payable under or in respect of
all Guarantor Senior Indebtedness
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of a Guarantor, the Holders shall be subrogated to the rights of the holders of
such Guarantor Senior Indebtedness to receive payments and distributions of
cash, property and securities of such Guarantor made on such Guarantor Senior
Indebtedness until all amounts due to be paid under the Guarantee shall be paid
in full. For the purposes of such subrogation, no payments or distributions to
holders of Guarantor Senior Indebtedness of any cash, property or securities to
which Holders of the Notes or the Trustee would be entitled except for the
provisions of this Article 10, and no payments over pursuant to the provisions
of this Article 10 to holders of Guarantor Senior Indebtedness by Holders of the
Notes or the Trustee, shall, as among each Guarantor, its creditors other than
holders of Guarantor Senior Indebtedness and the Holders of the Notes, be deemed
to be a payment or distribution by such Guarantor to or on account of such
Guarantor Senior Indebtedness.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article 10 shall have been
applied, pursuant to the provisions of this Article 10, to the payment of all
amounts payable under Guarantor Senior Indebtedness, then and in such case, the
Holders shall be entitled to receive from the holders of such Guarantor Senior
Indebtedness at the time outstanding any payments or distributions received by
such holders of Guarantor Senior Indebtedness in excess of the amount sufficient
to indefeasibly pay all amounts payable under or in respect of such Guarantor
Senior Indebtedness in full in cash.
Section 10.9. Guarantee Subordination Provisions
Solely to Define Relative Rights.
----------------------------------
The subordination provisions of this Article 10 are and are intended
solely for the purpose of defining the relative rights of the Holders of the
Notes on the one hand and the holders of Guarantor Senior Indebtedness on the
other hand. Nothing contained in this Article 10 or elsewhere in this Indenture
or in the Notes is intended to or shall (a) impair, as among each Guarantor, its
creditors other than holders of its Guarantor Senior Indebtedness and the
Holders of the Notes, the obligation of such Guarantor, which is absolute and
unconditional, to make payments to the Holders in respect of its Obligations on
its Guarantee in accordance with its terms; or
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(b) affect the relative rights against such Guarantor of the Holders of the
Notes and creditors of such Guarantor other than the holders of the Guarantor
Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Note from
exercising all remedies otherwise permitted by applicable law upon a Default or
an Event of Default under this Indenture, subject to the rights, if any, under
this Article 10 of the holders of Guarantor Senior Indebtedness (1) in any
insolvency or bankruptcy case or proceeding, or any receivership, liquidation,
arrangement, reorganization or other similar case or proceeding in connection
therewith or any liquidation, dissolution or other winding-up, or any assignment
for the benefit of creditors or other marshaling of assets and liabilities
referred to in Section 10.6 hereof, to receive, pursuant to and in accordance
with such Section, cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder, or (2) under the conditions specified
in Section 10.7 hereof, to prevent any payment prohibited by such Section or
enforce their rights pursuant to Section 10.7(c) hereof.
The failure by any Guarantor to make a payment in respect of its
obligations on its Guarantee by reason of any provision of this Article 10 shall
not be construed as preventing the occurrence of a Default or an Event of
Default hereunder.
Section 10.10. Application of Certain
Article 11 Provisions.
----------------------
The provisions of Sections 11.4, 11.7, 11.8, 11.9, 11.10, 11.12 and
11.13 hereof shall apply, mutatis mutandis, to each Guarantor and their
------- --------
respective holders of Guarantor Senior Indebtedness and the rights, duties and
obligations set forth therein shall govern the rights, duties and obligations of
each Guarantor, the holders of Guarantor Senior Indebtedness, the Holders and
the Trustee with respect to the Guarantee and all references therein to Article
11 hereof shall mean this Article 10.
Section 10.11 Rights of Trustee as a Holder of Guarantor
Senior Indebtedness; Preservation of
Trustee's Rights.
------------------------------------------
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The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article 10 with respect to any Guarantor Senior
Indebtedness which may at any time be held by it, to the same extent as any
other holder of Guarantor Senior Indebtedness, and nothing in this Indenture
shall deprive the Trustee of any of its rights as such holder. Nothing in this
Article 10 shall apply to claims of, or payments to, the Trustee under or
pursuant to Section 7.7 hereof.
ARTICLE 11.
SUBORDINATION OF NOTES
Section 11.1. Notes Subordinate to Senior Indebtedness.
----------------------------------------
The Company covenants and agrees, and each Holder of Notes, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article 11, the Indebtedness
represented by the Notes and the payment of the principal of, premium, if any,
and interest on the Notes are hereby expressly made subordinate and subject in
right of payment as provided in this Article 11 to the prior indefeasible
payment and satisfaction in full in cash or, as acceptable to the holders of
Senior Indebtedness, in any other manner, of all existing and future Senior
Indebtedness.
This Article 11 shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of or continue to hold
Senior Indebtedness; and such provisions are made for the benefit of the holders
of Senior Indebtedness; and such holders are made obligees hereunder and they or
each of them may enforce such provisions.
Section 11.2. Payment Over of Proceeds upon
Dissolution, etc.
-----------------------------
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, whether voluntary
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or involuntary or (b) any liquidation, dissolution or other winding-up of the
Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any general assignment for the benefit of
creditors or any other marshalling of assets or liabilities of the Company, then
and in any such event:
(1) the holders of Senior Indebtedness shall be entitled to receive
payment and satisfaction in full in cash or, as acceptable to the holders
of Senior Indebtedness, in any other manner, of all amounts due on or in
respect of all Senior Indebtedness, before the Holders of the Notes are
entitled to receive or retain any payment or distribution of any kind or
character on account of principal of, premium, if any, or interest on the
Notes; and
(2) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, by set-off or
otherwise, to which the Holders or the Trustee would be entitled but for
the provisions of this Article 11 shall be paid by the liquidating trustee
or agent or other Person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or otherwise,
directly to the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under
which any instruments evidencing any of such Senior Indebtedness may have
been issued, ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held or represented by each, to the
extent necessary to make payment in full in cash or, as acceptable to the
holders of Senior Indebtedness, in any other manner, of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution, or provision therefor, to the holders of such
Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of
this Section 11.2, the Trustee or the Holder of any Note shall have
received any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of
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principal of, premium, if any, and interest on the Notes before all Senior
Indebtedness is paid and satisfied in full in cash or such payment and
satisfaction thereof in cash is provided for, then and in such event such
payment or distribution upon written notice to the Trustee or the Holder of
such Note, as the case may be, shall be held by the Trustee or the Holder
of such Note, as the case may be, in trust for the benefit of the holders
of such Senior Indebtedness and shall be immediately paid over or delivered
forthwith to the liquidating trustee or agent or other Person making
payment or distribution of assets of the Company for application to the
payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full in cash or, as acceptable
to the holders of Senior Indebtedness, any other manner, after giving
effect to any concurrent payment or distribution, or provision therefor, to
or for the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company
with or into, another Person or the liquidation or dissolution of the Company
following the transfer of all its assets (as an entirety or substantially as an
entirety) to another Person upon the terms and conditions set forth in Article 5
hereof shall not be deemed a dissolution, winding-up, liquidation,
reorganization, assignment for the benefit of creditors or marshaling of assets
and liabilities of the Company for the purposes of this Article 11 if the Person
formed by such consolidation or the surviving entity of such merger or the
Person which acquires by transfer such assets (as an entirety or substantially
as an entirety) shall, as a part of such consolidation, merger or transfer,
comply with the conditions set forth in such Article 5 hereof.
Section 11.3. Suspension of Payment When Senior
Indebtedness in Default.
---------------------------------
(a) Unless Section 11.2 hereof shall be applicable, after the
occurrence of a Payment Default no payment or distribution of any assets or
securities of the Company or any Restricted Subsidiary of any kind or character
(including, without limitation, cash, property and any payment or distribution
which may be payable or deliverable by reason of the payment of any other
Indebt-
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edness of the Company being subordinated to the payment of the Notes by the
Company) may be made by or on behalf of the Company or any Restricted
Subsidiary, including, without limitation, by way of set-off or otherwise, for
or on account of principal of, premium, if any, or interest on the Notes, or for
or on account of the purchase, redemption, defeasance or other acquisition of
the Notes, and neither the Trustee nor any holder or owner of any Notes shall
take or receive from the Company or any Restricted Subsidiary, directly or
indirectly in any manner, payment in respect of all or any portion of Notes
following the delivery by the representative of the holders of Designated Senior
Indebtedness (the "Representative") to the Trustee of written notice of (i) the
occurrence of a Payment Default on Designated Senior Indebtedness or (ii) the
occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness
and the acceleration of the maturity of Designated Senior Indebtedness in
accordance with its terms, and in any such event, such prohibition shall
continue until such Payment Default is cured, waived in writing or ceases to
exist or such acceleration has been rescinded or otherwise cured; provided that
--------
nothing in this sentence shall be deemed to affect the right of the Holders to
receive solely from the funds deposited in trust pursuant to clause (1) of
Section 9.4 hereof prior to the date of such Payment Default and as more fully
set forth in such Section payments or distributions in respect of the principal
of, premium, if any, and interest on the Notes in connection with any Legal
Defeasance or Covenant Defeasance. At such time as the prohibition set forth in
the preceding sentence shall no longer be in effect, subject to the provisions
of the following paragraph (b), the Company shall resume making any and all
required payments in respect of the Notes, including any missed payments.
(b) Unless Section ll.2 hereof shall be applicable, upon the
occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness,
no payment or distribution of any assets or securities of the Company of any
kind or character (including, without limitation, cash, property and any payment
or distribution which may be payable or deliverable by reason of the payment of
any other Indebtedness of the Company being subordinated to the payment of the
Notes by the Company) shall be made by or on behalf of the Company, including,
without limita-
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tion, by way of set-off or otherwise, for or on account of any principal of,
premium, if any, or interest on the Notes or for or on account of the purchase,
redemption, defeasance or other acquisition of Notes, and neither the Trustee
nor any holder or owner of any Notes shall take or receive from the Company,
directly or indirectly in any manner, payment in respect of all or any portion
of the Notes, for a period (a "Payment Blockage Period") commencing on the date
of receipt by the Trustee of written notice from the Representative of such Non-
Payment Event of Default unless and until (subject to any blockage of payments
that may then be in effect under the preceding paragraph (a)) the earliest to
occur of the following events: (x) more than 179 days shall have elapsed since
the date of receipt of such written notice by the Trustee, (y) such Non-Payment
Event of Default shall have been cured or waived in writing or shall have ceased
to exist or such Designated Senior Indebtedness shall have been paid in full in
cash and the Trustee has been so notified by either the Representative or the
Company or (z) such Payment Blockage Period shall have been terminated by
written notice to the Company or the Trustee from the Representative, after
which, in the case of clause (x), (y) or (z), the Company shall resume making
any and all required payments in respect of the Notes, including any missed
payments. Notwithstanding any other provisions of this Indenture, no event of
default with respect to Designated Senior Indebtedness (other than a Payment
Default) which existed or was continuing on the date of the commencement of any
Payment Blockage Period initiated by the Representative shall be, or be made,
the basis for the commencement of a second Payment Blockage Period initiated by
the Representative unless such event of default shall have been cured or waived
for a period of not less than 90 consecutive days. In no event shall a Payment
Blockage Period extend beyond 179 days from the date of the receipt by the
Trustee of the notice referred to in this Section 11.3(b) (the "Initial Blockage
Period"). Any number of additional Payment Blockage Periods may be commenced
during the Initial Blockage Period; provided, however, that no such additional
-------- -------
Payment Blockage Period shall extend beyond the Initial Blockage Period. After
the expiration of the Initial Blockage Period, no Payment Blockage Period may be
commenced under this Section 11.3(b) and no Guarantee Payment Blockage Period
may be commenced under Section
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10.7(b) hereof until at least 180 consecutive days have elapsed from the last
day of the Initial Blockage Period.
(c) In the event that, notwithstanding the foregoing, the Trustee or
the Holder of any Note shall have received any payment prohibited by the
foregoing provisions of this Section 11.3, then and in such event such payment
shall be paid over and delivered forthwith to the Representative initiating the
Payment Blockage Period, in trust for distribution to the holders of Senior
Indebtedness or, if no amounts are then due in respect of Senior Indebtedness,
promptly returned to the Company, or otherwise as a court of competent
jurisdiction shall direct.
Section 11.4. Trustee's Relation to Senior
Indebtedness.
----------------------------
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article 11, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall
not be liable to any holder of Senior Indebtedness if it shall mistakenly pay
over or deliver to Holders, the Company or any other Person moneys or assets to
which any holder of Senior Indebtedness shall be entitled by virtue of this
Article 11 or otherwise.
Section 11.5. Subrogation to Rights of Holders
of Senior Indebtedness.
--------------------------------
Upon the payment in full of all Senior Indebtedness, the Holders of
the Notes shall be subrogated to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of,
premium, if any, and interest on the Notes shall be paid in full. For purposes
of such subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, property or securities to which the Holders of the
Notes or the Trustee would be entitled except for the provisions of this Article
11,
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and no payments pursuant to the provisions of this Article 11 to the holders of
Senior Indebtedness by Holders of the Notes or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Indebtedness and the Holders
of the Notes, be deemed to be a payment or distribution by the Company to or on
account of the Senior Indebtedness.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article 11 shall have been
applied, pursuant to the provisions of this Article 11, to the payment of all
amounts payable under the Senior Indebtedness of the Company, then and in such
case the Holders shall be entitled to receive from the holders of such Senior
Indebtedness at the time outstanding any payments or distributions received by
such holders of such Senior Indebtedness in excess of the amount sufficient to
indefeasibly pay all amounts payable under or in respect of such Senior
Indebtedness in full in cash.
Section 11.6. Provisions Solely to Define Relative
Rights.
------------------------------------
The provisions of this Article 11 are and are intended solely for the
purpose of defining the relative rights of the Holders of the Notes on the one
hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Notes is
intended to or shall (a) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Notes, the obligation of
the Company, which is absolute and unconditional, to pay to the Holders of the
Notes the principal of, premium, if any, and interest on the Notes as and when
the same shall become due and payable in accordance with their terms, or (b)
affect the relative rights against the Company of the Holders of the Notes and
creditors of the Company other than the holders of Senior Indebtedness or (c)
prevent the Trustee or the Holder of any Note from exercising all remedies
otherwise permitted by applicable law upon a Default or an Event of Default
under this Indenture, subject to the rights, if any, under this Article 11 of
the holders of Senior Indebtedness (1) in any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, arrangement, reorganization or
other similar case or proceeding
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in connection therewith, or any liquidation, dissolution or other winding-up, or
any assignment for the benefit of creditors or other marshaling of assets and
liabilities referred to in Section 11.2 hereof, to receive, pursuant to and in
accordance with such Section, cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder, or (2) under the conditions specified
in Section 11.3, to prevent any payment prohibited by such Section or enforce
their rights pursuant to Section 11.3(c) hereof.
The failure to make a payment on account of principal of, premium, if
any, or interest on the Notes by reason of any provision of this Article 11
shall not be construed as preventing the occurrence of a Default or an Event of
Default hereunder.
Section 11.7. Trustee to Effectuate Subordination.
-----------------------------------
Each Holder of a Note by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes, including, in the
event of any dissolution, winding-up, liquidation or reorganization of the
Company whether in bankruptcy, insolvency, receivership proceedings, or
otherwise, the timely filing of a claim for the unpaid balance of the
indebtedness of the Company owing to such Holder in the form required in such
proceedings and the causing of such claim to be approved. If the Trustee does
not file such a claim prior to 30 days before the expiration of the time to file
such a claim, the holders of Senior Indebtedness, or any Representative, may
file such a claim on behalf of Holders of the Notes.
Section 11.8. No Waiver of Subordination Provisions.
-------------------------------------
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by the Company with the terms, provisions and covenants
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of this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this Section
11.8, the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the Notes,
without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provided in this Article 11 or the
obligations hereunder of the Holders of the Notes to the holders of Senior
Indebtedness, do any one or more of the following: (1) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same (or any agreement under which
Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (3) release any Person liable in any manner for the collection or
payment of Senior Indebtedness; and (4) exercise or refrain from exercising any
rights against the Company and any other Person; provided, however, that in no
-------- -------
event shall any such actions limit the right of the Holders of the Notes to take
any action to accelerate the maturity of the Notes pursuant to Article 6 hereof
or to pursue any rights or remedies hereunder or under applicable laws if the
taking of such action does not otherwise violate the terms of this Indenture.
Section 11.9. Notice to Trustee.
-----------------
(a) The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee at its Corporate Trust Office in respect of the Notes.
Notwithstanding the provisions of this Article 11 or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment to or by the Trustee in
respect of the Notes, unless and until the Trustee shall have received written
notice thereof from the Company or a holder of Senior Indebtedness or from any
trustee, fiduciary or agent therefor; and, prior to the receipt of any such
written notice, the Trustee, subject to the provisions of this
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Section 11.9, shall be entitled in all respects to assume that no such facts
exist.
(b) Subject to the provisions of Section 7.1 hereof, the Trustee shall
be entitled to rely on the delivery to it of a written notice to the Trustee and
the Company by a Person representing itself to be a holder of Senior
Indebtedness (or a trustee, fiduciary or agent therefor) to establish that such
notice has been given by a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor); provided, however, that failure to give such
-------- -------
notice to the Company shall not affect in any way the ability of the Trustee to
rely on such notice. In the event that the Trustee determines in good faith
that further evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 11, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article 11, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 11.10. Reliance on Judicial Order or
Certificate of Liquidating Agent.
--------------------------------
Upon any payment or distribution of assets of the Company referred to
in this Article 11, the Trustee, subject to the provisions of Section 7.1
hereof, and the Holders shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or
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amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article 11.
Section 11.11. Rights of Trustee as a Holder of
Senior Indebtedness; Preservation
of Trustee's Rights.
---------------------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article 11 with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder. Nothing in this Article 11 shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof.
Section 11.12. Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 11 shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article 11 in addition to or in place of the Trustee.
Section 11.13. No Suspension of Remedies.
-------------------------
Nothing contained in this Article 11 shall limit the right of the
Trustee or the Holders of Notes to take any action to accelerate the maturity of
the Notes pursuant to Article 6 or to pursue any rights or remedies hereunder or
under applicable law, subject to the rights, if any, under this Article 11 of
the holders, from time to time, of Senior Indebtedness.
ARTICLE 12.
SECURITY
Section 12.1. Pledge Agreement.
----------------
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Each Holder, by accepting any Notes, agrees to all of the terms and
provisions of the Pledge Agreement as the same may be in effect or may be
amended from time to time and authorizes and directs the Collateral Agent under
the Pledge Agreement to act as secured party with respect thereto. The due and
punctual payment of the principal of and interest on the Notes when and as the
same shall be due and payable, whether on an Interest Payment Date, at maturity,
by acceleration, call for redemption or otherwise, and interest on the overdue
principal and interest, if any, of the Notes and payment and performance of all
other obligations of the Company to the Holders or the Trustee under this
Indenture and the Notes, according to the terms hereunder or thereunder, shall,
subject to the prior Liens described therein, be secured as provided in the
Pledge Agreement. The security interest in the Collateral of the Holders of the
Notes shall be junior in priority to such security interest in the Collateral
securing indebtedness under the Credit Agreement (as defined in the Pledge
Agreement) and the 1996 Notes (as defined in the Pledge Agreement), and any
renewals, extensions, replacements, refundings, refinancings and restructurings
thereof, and amendments, modifications and supplements thereto and any other
Senior Indebtedness that may have a lien on the Collateral.
Section 12.2. Certificates and Opinions.
-------------------------
The Company shall cause (a) TIA (S) 314(b), relating to an Opinion of
Counsel regarding the lien of the Pledge Agreement and (b), TIA (S) 314(d),
relating to an Officers' Certificate or other documents regarding the fair value
of the Collateral (as defined in the Pledge Agreement), to be complied with to
the extent applicable. Any determinations regarding fair value shall be made by
an independent appraiser or other expert.
Section 12.3. Authorization of Actions to Be
Taken by the Collateral Agent Under
the Pledge Agreement.
-----------------------------------
The Collateral Agent may (but shall not be obligated to), in its sole
discretion and without the consent of the Holders of the Notes, take all actions
it deems necessary or appropriate in order to (a) enforce or effect the Pledge
Agreement and (b) collect and receive
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any and all amounts payable in respect of the obligations of the Company
hereunder as provided therein.
Such actions shall include, but not be limited to, advising,
instructing or otherwise directing any agent appointed by it in connection with
enforcing or effecting any term or provision of the Pledge Agreement. Subject to
the provisions of the Pledge Agreement, the Collateral Agent shall have power to
institute and to maintain such suits and proceedings as it may deem expedient to
prevent any impairment of the Collateral by any acts which may be unlawful or in
violation of the Pledge Agreement, and such suits and proceedings as the
Collateral Agent may deem expedient to preserve or protect its interests and the
interests of any parties secured by the Collateral (including power to institute
and maintain suits or proceedings to restrain the enforcement of or compliance
with any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security under the Pledge
Agreement or be prejudicial to the interests of any parties secured by the
Collateral or of the Collateral Agent).
Section 12.4. Authorization of Receipt of Funds by
the Trustee Under the Pledge Agreement.
--------------------------------------
The Trustee is authorized to execute and deliver the Pledge Agreement,
receive any funds for the benefit of Holders distributed under the Pledge
Agreement, to make further distributions of such funds to the Holders according
to the provisions of this Indenture, and otherwise take or refrain from taking
any action permitted or required to be taken or refrained from taking by the
Trustee, in its capacity as such, pursuant to the provisions of the Pledge
Agreement. In receiving any such funds or otherwise taking or refraining from
taking any such action, the Trustee shall be deemed to be acting pursuant to
this Indenture and shall have the benefit of all of the protections, limitations
on liability and exculpations afforded to it as Trustee under this Indenture.
Section 12.5. Termination of Security Interest.
--------------------------------
Upon the payment in full of all obligations of the Company under this
Indenture and the Notes, or in the
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event of an earlier termination of the Pledge Agreement pursuant to the terms
thereof, the Trustee shall, at the request of the Company together with an
Officers' Certificate to such effect, deliver notification to the Collateral
Agent that such obligations have been paid in full or, if the Collateral Agent
is not the pledgee, send a certificate executed by a Trust Officer to such
pledgee, stating that such obligations have been paid in full.
ARTICLE 13.
MISCELLANEOUS
Section 13.1. Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
Section 13.2. Notices.
-------
Any notice or communication shall be given in writing and delivered in
person, sent by facsimile, delivered by commercial courier service or mailed by
first-class mail, postage prepaid, addressed as follows:
If to the Company or any Guarantor:
Pierce Leahy Corp.
631 Park Avenue
King of Prussia, Pennsylvania 19406
Attention: Chief Financial Officer
Fax Number: 610-992-8394
Copy to:
Cozen and O'Connor
1900 Market Street
Philadelphia, Pennsylvania 19103
Attention: Richard J. Busis, Esq.
Fax Number: 215-665-2013
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If to the Trustee:
The Bank of New York
101 Barclay Street - 21W
New York, New York 10286
Attention: Corporate Trust Administration
Fax Number: (212) 815-5915
Such notices or communications shall be effective when received and
shall be sufficiently given if so given within the time prescribed in this
Indenture.
The Company, any Guarantors or the Trustee by written notice to the
others may designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Noteholder shall be mailed to
him by first-class mail, postage prepaid, at his address shown on the register
kept by the Registrar. If a notice or communication to a Noteholder is mailed
in the manner provided above, it shall be deemed duly given on the date so
deposited in the mail, whether or not the addressee receives it.
Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other Noteholders.
In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impossible to mail any notice as required
by this Indenture, then such method of notification as shall be made with the
approval of the Trustee shall constitute a sufficient mailing of such notice.
Section 13.3. Communications by Holders with Other Holders.
--------------------------------------------
Noteholders may communicate pursuant to TIA (S) 312 (b) with other
Noteholders with respect to their rights under this Indenture or the Notes. The
Company, the Guarantors, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S) 312(c).
<PAGE>
Section 13.4. Certificate and Opinion as to Conditions
Precedent.
----------------------------------------
Upon any request or application by the Company or any Guarantor to the
Trustee to take any action under this Indenture, the Company shall furnish to
the Trustee at the request of the Trustee:
(1) an Officers' Certificate (which shall include the statements set
forth in Section 13.5 below) in form and substance reasonably satisfactory
to the Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel (which shall include the statements set
forth in Section 13.5 below) in form and substance reasonably satisfactory
to the Trustee stating that, in the opinion of such counsel, all such
conditions precedent have been complied with.
Section 13.5. Statements Required in Certificate
and Opinion.
----------------------------------
Each certificate and opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, it or he has made
such examination or investigation as is necessary to enable it or him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
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(4) a statement as to whether or not, in the opinion of such Person,
such covenant or condition has been complied with.
Section 13.6. When Treasury Notes Disregarded.
-------------------------------
In determining whether the Holders of the required aggregate principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, any Guarantor or any other obligor on the Notes or by any
Affiliate of any of them shall be disregarded as though they were not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes which the Trustee actually knows are so owned shall be so disregarded.
Notes so owned which have been pledged in good faith shall not be disregarded if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to the Notes and that the pledgee is not the Company, a
Guarantor or any other obligor upon the Notes or any Affiliate of any of them.
Section 13.7. Rules by Trustee and Agents.
---------------------------
The Trustee may make reasonable rules for action by or meetings of
Noteholders. The Registrar and Paying Agent may make reasonable rules for their
functions.
Section 13.8. Business Days; Legal Holidays.
-----------------------------
A "Business Day" is a day that is not a Legal Holiday. A "Legal
Holiday" is a Saturday, a Sunday, a federally-recognized holiday or a day on
which banking institutions are not required to be open in the State of New York.
If a payment date is a Legal Holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
Section 13.9. Governing Law.
-------------
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCI-
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PLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES.
Section 13.10. No Adverse Interpretation of
Other Agreements.
----------------------------
This Indenture may not be used to interpret another indenture, loan,
security or debt agreement of the Company or any Subsidiary thereof. No such
indenture, loan, security or debt agreement may be used to interpret this
Indenture.
Section 13.11. No Recourse Against Others.
--------------------------
No recourse for the payment of the principal of or premium, if any, or
interest on any of the Notes, or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company or any Guarantor in this Indenture or in any
supplemental indenture, or in any of the Notes, or because of the creation of
any Indebtedness represented thereby, shall be had against any shareholder,
officer, director, partner, affiliate, beneficiary or employee, as such, past,
present or future, of the Company or of any successor corporation or against the
property or assets of any such shareholder, officer, employee, partner,
affiliate, beneficiary or director, either directly or through the Company or
any Guarantor, or any successor corporation thereof, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly understood that this Indenture and the
Notes are solely obligations of the Company and any Guarantors, and that no such
personal liability whatever shall attach to, or is or shall be incurred by, any
shareholder, officer, employee, partner, affiliate, beneficiary or director of
the Company or any Guarantor, or any successor corporation thereof, because of
the creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or the Notes or
implied therefrom, and that any and all such personal liability of, and any and
all claims against every shareholder, officer, employee, partner, affiliate,
beneficiary and director, are hereby expressly waived and released as a
114
<PAGE>
condition of, and as a consideration for, the execution of this Indenture and
the issuance of the Notes. It is understood that this limitation on recourse is
made expressly for the benefit of any such shareholder, employee, officer,
partner, affiliate, beneficiary or director and may be enforced by any one or
all of them.
Section 13.12. Successors.
----------
All agreements of the Company and the Guarantors in this Indenture and
the Notes shall bind their respective successors. All agreements of the Trustee,
any additional trustee and any Paying Agents in this Indenture shall bind its
successor.
Section 13.13. Multiple Counterparts.
---------------------
The parties may sign multiple counterparts of this Indenture. Each
signed counterpart shall be deemed an original, but all of them together
represent one and the same agreement.
Section 13.14. Table of Contents, Headings, etc.
--------------------------------
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 13.15. Separability.
------------
Each provision of this Indenture shall be considered separable and if
for any reason any provision which is not essential to the effectuation of the
basic purpose of this Indenture or the Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
115
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed, and the Company's corporate seal to be hereunto affixed and attested,
all as of the date and year first written above.
PIERCE LEAHY CORP.
By:
----------------------------
Name:
Title:
ATTEST:
- ------------------------
Name:
Title:
The Bank of New York,
as Trustee
By:
----------------------------
Name:
Title:
116
<PAGE>
EXHIBIT A
---------
(FACE OF NOTE)
[FORM OF NOTE]
A-1
<PAGE>
CUSIP ________
Number
PIERCE LEAHY CORP.
___% SENIOR SUBORDINATED NOTE DUE 2007
Pierce Leahy Corp., a New York corporation (the "Company", which term
includes any successor corporation) for value received promises to pay to
_______________ or registered assigns the principal sum of ______________
Dollars, on _________, 2007.
Interest Payment Dates: _________ and __________, commencing __________,
199__
Record Dates: __________ and ___________
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
PIERCE LEAHY CORP.
By:
---------------------------------
By:
---------------------------------
[SEAL]
Certificate of Authentication:
This is one of the ____% Senior
Subordinated Notes due 2007 referred
to in the within-mentioned Indenture
Dated:
The Bank of New York,
as Trustee
By:
-------------------------
Authorized Signatory
A-3
<PAGE>
(REVERSE SIDE)
PIERCE LEAHY CORP.
____% SENIOR SUBORDINATED NOTE DUE 2007
1. INTEREST.
Pierce Leahy Corp., a Pennsylvania corporation (the "Company"),
promises to pay interest on the principal amount of this Note semiannually on
________ and ________ of each year (each an "Interest Payment Date"), commencing
on ________, 199__, at the rate of ____% per annum. Interest will be computed
on the basis of a 360-day year of twelve 30-day months. Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of the original issuance of the Notes.
The Company shall pay interest on overdue principal, and on overdue
premium, if any, and overdue interest, to the extent lawful, at the rate equal
to 1% per annum in excess of the rate borne by the Notes.
2. METHOD OF PAYMENT.
The Company will pay interest on this Note provided for in Paragraph 1
above (except defaulted interest) to the person who is the registered Holder of
this Note at the close of business on the ______ or _______ preceding the
Interest Payment Date (whether or not such day is a Business Day). The Holder
must surrender this Note to a Paying Agent to collect principal payments. The
Company will pay principal, premium, if any, and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts; provided, however, that the Company may pay principal, premium,
-------- -------
if any, and interest by check payable in such money. It may mail an interest
check to the Holder's registered address.
3. PAYING AGENT AND REGISTRAR.
Initially, The Bank of New York, a New York banking corporation (the
"Trustee"), will act as Paying Agent and Registrar. The Company may change any
Paying
A-4
<PAGE>
Agent or Registrar without notice to the Holders of the Notes. Neither the
Company nor any of its Subsidiaries or Affiliates may act as Paying Agent but
may act as registrar or co-registrar.
4. INDENTURE; RESTRICTIVE COVENANTS.
The Company issued this Note under an Indenture dated as of _______,
1997 (the "Indenture") by and between the Company and the Trustee. The terms of
this Note include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
77aaa-77bbbb) as in effect on the date of the Indenture. This Note is subject to
all such terms, and the Holder of this Note is referred to the Indenture and
said Trust Indenture Act for a statement of them. All capitalized terms in this
Note, unless otherwise defined, have the meanings assigned to them by the
Indenture.
The Notes are general unsecured obligations of the Company limited to
up to $150,000,000 aggregate principal amount. The Indenture imposes certain
restrictions on, among other things, the incurrence of indebtedness, the
incurrence of liens and the issuance of preferred stock by the Company and its
subsidiaries, mergers and sale of assets, the payments of dividends on, or the
repurchase of, capital stock of the Company and its subsidiaries, certain other
restricted payments by the Company and it subsidiaries, certain transactions
with, and investments in, its affiliates, certain sale and lease-back
transactions and a provision regarding change-of-control transactions. The
restrictions are subject to a number of important qualifications and exceptions.
5. SUBORDINATION.
The Indebtedness represented by the Notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the prior
indefeasible payment and satisfaction in full in cash of all existing and future
Senior Indebtedness as defined in the Indenture, and this Note is issued subject
to such provisions. Each Holder of this Note, by accepting the same, (a) agrees
to and shall be bound by such provisions, (b) authorizes and directs the
Trustee, on behalf of such Holder, to take such action as may be necessary
A-5
<PAGE>
or appropriate to effectuate the subordination as provided in the Indenture and
(c) appoints the Trustee attorney-in-fact of such Holder for such purpose;
provided, however, that the Indebtedness evidenced by this Note shall cease to
- -------- -------
be so subordinate and subject in right of payment upon any defeasance of this
Note referred to in Paragraph 17 below.
6. OPTIONAL REDEMPTION.
The Company, at its option, may redeem the Notes, in whole or in part,
at any time on or after ______, 2002 at the redemption prices set forth in
Section 3.7 of the Indenture, together, in each case, with accrued and unpaid
interest to the redemption date.
In addition, the Company, at its option, may redeem Notes out of the
Net Proceeds of one or more Public Equity Offerings at the redemption price, in
the amount and under the terms set forth in the Indenture.
7. NOTICE OF REDEMPTION.
Notice of redemption will be mailed via first class mail at least 30
days but not more than 60 days prior to the redemption date to each Holder of
Notes to be redeemed at its registered address as it shall appear on the
register of the Notes maintained by the Registrar. On and after any Redemption
Date, interest will cease to accrue on the Notes or portions thereof called for
redemption unless the Company shall fail to redeem any such Note.
8. OFFERS TO PURCHASE.
The Indenture requires that certain proceeds from Asset Sales be used,
subject to further limitations contained therein, to make an offer to purchase
certain amounts of Notes in accordance with the procedures set forth in the
Indenture. The Company is also required to make an offer to purchase Notes upon
occurrence of a Change of Control in accordance with procedures set forth in the
Indenture.
A-6
<PAGE>
9. DENOMINATIONS, TRANSFER, EXCHANGE.
The Notes are in registered form without coupons in denominations of
$1,000 and integral multiples thereof. A Holder may register the transfer or
exchange of Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange any Note
selected for redemption for a period of 15 days before the day of mailing of the
notice of redemption of any such Notes to be redeemed or any Note after it is
called for redemption in whole or in part, except the unredeemed portion of any
Note being redeemed in part.
10. PERSONS DEEMED OWNERS.
The registered Holder of this Note may be treated as the owner of it
for all purposes.
11. UNCLAIMED MONEY.
If money for the payment of principal, premium or interest on any Note
remains unclaimed for two years, the Trustee or Paying Agent will pay the money
back to the Company at its request. After that, Holders entitled to money must
look only to the Company for payment as general creditors unless an "abandoned
property" law designates another person.
12. AMENDMENT, SUPPLEMENT AND WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be
modified, amended or supplemented by the Company, the Guarantors, if any, and
the Trustee with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding and any existing default or compliance with
any provision may be waived in a particular instance with the consent of the
Holders of a majority in principal amount of the Notes then outstanding.
Without the consent of Holders, the Company, the Guarantors, if any, and the
Trustee may amend the Indenture or the Notes or supplement the Indenture for
certain specified purposes including providing for
A-7
<PAGE>
uncertificated Notes in addition to certificated Notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
materially and adversely affect the rights of any Holder.
13. SUCCESSOR ENTITY.
When a successor corporation assumes all the obligations of its
predecessor under the Notes and the Indenture and immediately before and
thereafter no Default exists and certain other conditions are satisfied, the
predecessor corporation will be released from those obligations.
14. DEFAULTS AND REMEDIES.
Events of Default are set forth in the Indenture. If an Event of
Default (other than an Event of Default pursuant to Section 6.1(6) or (7) of the
Indenture with respect to the Company) occurs and is continuing, the Trustee by
notice to the Company, or the Holders of not less than 25% in aggregate
principal amount of the Notes then outstanding by written notice to the Company
and the Trustee, may declare to be immediately due and payable the entire
principal amount of all the Notes then outstanding plus accrued but unpaid
interest to the date of acceleration and (i) such amounts shall become
immediately due and payable or (ii) if there are any amounts outstanding under
or in respect of the Credit Facility, such amounts shall become due and payable
upon the first to occur of an acceleration of amounts outstanding under or in
respect of the Credit Facility or five Business Days after receipt by the
Company and the Representative of notice of the acceleration of the Notes;
provided, however, that after such acceleration but before judgment or decree
- -------- -------
based on such acceleration is obtained by the Trustee, the Holders of a majority
in aggregate principal amount of the outstanding Notes may rescind and annul
such acceleration and its consequences if all existing Events of Default, other
than the nonpayment of principal, premium or interest that has become due solely
because of the acceleration, have been cured or waived and if the rescission
would not conflict with any judgment or decree. No such rescission shall affect
any subsequent Default or impair any right consequent thereto. In case an Event
of Default specified in Section 6.1(6) or (7) of the Indenture with respect to
the Compa-
A-8
<PAGE>
ny occurs, such, principal amount, together with premium, if any, and interest
with respect to all of the Notes, shall be due and payable immediately without
any declaration or other act on the part of the Trustee or the Holders of the
Notes. The Trustee may withhold from Holders notice of any continuing default
(except a default in payment of principal, premium, if any, or interest) if it
determines that withholding notice is in their interests.
15. TRUSTEE DEALINGS WITH THE COMPANY.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company, any Guarantor or their Affiliates, and may otherwise deal with the
Company, any Guarantor or their Affiliates, as if it were not Trustee.
16. NO RECOURSE AGAINST OTHERS.
As more fully described in the Indenture, a director, officer,
employee, partner, affiliate, beneficiary or shareholder, as such, of the
Company or any Guarantor shall not have any liability for any obligations of the
Company or any Guarantor under the Notes or the Indenture or for any claim based
on, in respect or by reason of, such obligations or their creation. The Holder
of this Note by accepting this Note waives and releases all such liability. The
waiver and release are part of the consideration or the issuance of this Note.
17. DEFEASANCE AND COVENANT DEFEASANCE.
The Indenture contains provisions for defeasance of the entire
indebtedness on this Note and for defeasance of certain covenants in the
Indenture upon compliance by the Company with certain conditions set forth in
the Indenture.
18. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder of a Note
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship
A-9
<PAGE>
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
19. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on Uniform
Note Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of the Notes. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
20. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES.
THE COMPANY WILL FURNISH TO ANY HOLDER OF A NOTE UPON WRITTEN REQUEST
AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: PIERCE
LEAHY CORP., 631 Park Avenue, King of Prussia, Pennsylvania 19406, Attention:
Chief Financial Officer.
21. AUTHENTICATION.
This Note shall not be valid until the Trustee manually signs the
Certificate of Authentication on the other side of this Note.
A-10
<PAGE>
ASSIGNMENT
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agent to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
Date: Your Signature:
------------------- --------------------------
-----------------------------------------
(Sign exactly as your name appears on the
other side of this Note)
Signature Guarantee: -----------------------------------------
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by
the Company pursuant to Section 4.10 or Section 4.19 of the Indenture, check the
appropriate box:
[_] Section 4.10 [_] Section 4.19
If you want to have only part of the Note purchased by the Company
pursuant to Section 4.10 or Section 4.19 of the Indenture, state the amount you
elect to have purchased:
$
-------------------
(multiple of $1,000)
Date:
---------------
Your Signature:
---------------------------------------
(Sign exactly as your name appears on the face of this
Note)
- --------------------
Signature Guaranteed
<PAGE>
EXHIBIT B
---------
FORM OF LEGEND FOR GLOBAL NOTES
Any Global Note authenticated and delivered hereunder shall bear a
legend in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN
THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE
(OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF
THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
B-1
<PAGE>
EXHIBIT C
----------
FORM OF GUARANTEE
The undersigned (the "Guarantor") hereby unconditionally guarantees,
on a senior subordinated basis, jointly and severally with all other guarantors
under the Indenture dated as of _______, 1997 by and between Pierce Leahy Corp.,
a Pennsylvania corporation, and The Bank of New York, as trustee (as amended,
restated or supplemented from time to time, the "Indenture"), to the extent set
forth in the Indenture and subject to the provisions of the Indenture, (a) the
due and punctual payment of the principal of and interest on the Notes, whether
at maturity, by acceleration or otherwise, the due and punctual payment of
interest on overdue principal, and, to the extent permitted by law, interest,
and the due and punctual performance of all other obligations of the Company to
the Noteholders or the Trustee all in accordance with the terms set forth in
Article 10 of the Indenture, and (b) in case of any extension of time of payment
or renewal of any Notes or any of such other obligations, that the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of the Guarantor to the Noteholders and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in Article
10 of the Indenture and reference is hereby made to the Indenture for the
precise terms and limitations of this Guarantee.
Guarantor:
By:
------------------------------------
Name:
Title:
C-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE................... 1
Section 1.1. Definitions................................................ 1
Section 1.2. Other Definitions.......................................... 26
Section 1.3. Incorporation by Reference of Trust Indenture Act.......... 27
Section 1.4. Rules of Construction...................................... 28
ARTICLE 2. THE NOTES.................................................... 28
Section 2.1. Dating; Incorporation of Form in Indenture................. 28
Section 2.2. Execution and Authentication............................... 29
Section 2.3. Registrar and Paying Agent................................. 30
Section 2.4. Paying Agent to Hold Money in Trust........................ 31
Section 2.5. Noteholder Lists........................................... 31
Section 2.6. Transfer and Exchange...................................... 31
Section 2.7. Replacement Notes.......................................... 32
Section 2.8. Outstanding Notes.......................................... 33
Section 2.9. Temporary Notes............................................ 33
Section 2.10. Cancellation............................................... 34
Section 2.11. Defaulted Interest......................................... 34
Section 2.12. Deposit of Moneys.......................................... 34
Section 2.13. CUSIP Number............................................... 35
Section 2.14. Book-Entry Provisions for Global Notes..................... 35
ARTICLE 3. REDEMPTION................................................... 37
Section 3.1. Notices to Trustee......................................... 37
Section 3.2. Selection by Trustee of Notes to Be Redeemed............... 37
Section 3.3. Notice of Redemption....................................... 38
Section 3.4. Effect of Notice of Redemption............................. 39
Section 3.5. Deposit of Redemption Price................................ 39
Section 3.6. Notes Redeemed in Part..................................... 40
Section 3.7. Optional Redemption........................................ 40
i
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<TABLE>
<S> <C> <C>
ARTICLE 4. COVENANTS.................................................... 41
Section 4.1. Payment of Notes........................................... 41
Section 4.2. SEC Reports................................................ 41
Section 4.3. Waiver of Stay, Extension or Usury Laws.................... 42
Section 4.4. Compliance Certificate..................................... 42
Section 4.5. Taxes...................................................... 43
Section 4.6. Limitation on Additional Indebtedness...................... 43
Section 4.7. Limitation on Preferred Stock of Restricted Subsidiaries... 44
Section 4.8. Limitation on Capital Stock of Restricted Subsidiaries..... 45
Section 4.9. Limitation on Restricted Payments.......................... 45
Section 4.10. Limitation on Certain Asset Sales.......................... 47
Section 4.11. Limitation on Transactions with Affiliates................. 51
Section 4.12. Limitations on Liens....................................... 52
Section 4.13. Limitations on Investments................................. 52
Section 4.14. Limitation on Creation of Subsidiaries..................... 53
Section 4.15. Limitation on Other Senior Subordinated Debt............... 53
Section 4.16. Limitation on Sale and Lease-Back Transactions............. 53
Section 4.17. Payments for Consent....................................... 54
Section 4.18. Corporate Existence........................................ 54
Section 4.19. Change of Control.......................................... 54
Section 4.20. Maintenance of Office or Agency............................ 58
Section 4.21. Maintenance of Properties and Insurance.................... 58
ARTICLE 5. SUCCESSOR CORPORATION........................................ 59
Section 5.1. Limitation on Consolidation, Merger and Sale of Assets..... 59
Section 5.2. Successor Person Substituted............................... 60
ARTICLE 6. DEFAULTS AND REMEDIES........................................ 61
Section 6.1. Events of Default.......................................... 61
Section 6.2. Acceleration............................................... 63
Section 6.3. Other Remedies............................................. 64
Section 6.4. Waiver of Past Defaults and Events of Default.............. 64
Section 6.5. Control by Majority........................................ 64
Section 6.6. Limitation on Suits........................................ 65
Section 6.7. Rights of Holders to Receive Payment....................... 66
Section 6.8. Collection Suit by Trustee................................. 66
Section 6.9. Trustee May File Proofs of Claim........................... 66
</TABLE>
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<TABLE>
<S> <C> <C>
Section 6.10. Priorities................................................. 67
Section 6.11. Undertaking for Costs...................................... 68
Section 6.12. Restoration of Rights and Remedies......................... 68
ARTICLE 7. TRUSTEE...................................................... 68
Section 7.1. Duties of Trustee.......................................... 68
Section 7.2. Rights of Trustee.......................................... 70
Section 7.3. Individual Rights of Trustee............................... 71
Section 7.4. Trustee's Disclaimer....................................... 71
Section 7.5. Notice of Defaults......................................... 71
Section 7.6. Reports by Trustee to Holders.............................. 72
Section 7.7. Compensation and Indemnity................................. 72
Section 7.8. Replacement of Trustee..................................... 73
Section 7.9. Successor Trustee by Consolidation, Merger or Conversion... 74
Section 7.10. Eligibility; Disqualification.............................. 75
Section 7.11. Preferential Collection of Claims Against Company.......... 75
Section 7.12. Paying Agents.............................................. 75
ARTICLE 8. AMENDMENTS, SUPPLEMENTS AND WAIVERS.......................... 76
Section 8.1. Without Consent of Holders................................. 76
Section 8.2. With Consent of Holders.................................... 77
Section 8.3. Compliance with Trust Indenture Act........................ 78
Section 8.4. Revocation and Effect of Consents.......................... 78
Section 8.5. Notation on or Exchange of Notes........................... 79
Section 8.6. Trustee to Sign Amendments, etc............................ 79
ARTICLE 9. DISCHARGE OF INDENTURE; DEFEASANCE........................... 80
Section 9.1. Discharge of Indenture..................................... 80
Section 9.2. Legal Defeasance........................................... 81
Section 9.3. Covenant Defeasance........................................ 81
Section 9.4. Conditions to Defeasance or Covenant Defeasance............ 82
Section 9.5. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions.............. 84
Section 9.6. Reinstatement.............................................. 85
Section 9.7. Moneys Held by Paying Agent................................ 85
Section 9.8. Moneys Held in Trust....................................... 85
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 10. GUARANTEE OF NOTES........................................... 86
Section 10.1. Guarantee.................................................. 86
Section 10.2. Execution and Delivery of Guarantees....................... 88
Section 10.3. Limitation of Guarantee.................................... 88
Section 10.4. Release of Guarantor....................................... 88
Section 10.5. Guarantee Obligations Subordinated to Guarantor Senior
Indebtedness............................................... 89
Section 10.6. Payment Over of Proceeds upon Dissolution, etc., of a
Guarantor.................................................. 90
Section 10.7. Suspension of Guarantee Obligations When Guarantor
Senior Indebtedness in Default............................. 92
Section 10.8. Subrogation to Rights of Holders of Guarantor Senior
Indebtedness............................................... 94
Section 10.9. Guarantee Subordination Provisions Solely to Define
Relative Rights............................................ 95
Section 10.10. Application of Certain Article 11 Provisions............... 96
Section 10.11. Rights of Trustee as a Holder of Guarantor Senior
Indebtedness; Preservation of Trustee's Rights............. 96
ARTICLE 11. SUBORDINATION OF NOTES....................................... 97
Section 11.1. Notes Subordinate to Senior Indebtedness................... 97
Section 11.2. Payment Over of Proceeds upon Dissolution, etc............. 97
Section 11.3. Suspension of Payment When Senior Indebtedness in
Default.................................................... 99
Section 11.4. Trustee's Relation to Senior Indebtedness..................102
Section 11.5. Subrogation to Rights of Holders of Senior Indebtedness....102
Section 11.6. Provisions Solely to Define Relative Rights................103
Section 11.7. Trustee to Effectuate Subordination........................104
Section 11.8. No Waiver of Subordination Provisions......................104
Section 11.9. Notice to Trustee..........................................105
Section 11.10. Reliance on Judicial Order or Certificate of
Liquidating Agent..........................................106
Section 11.11. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights...........................106
Section 11.12. Article Applicable to Paying Agents........................107
Section 11.13. No Suspension of Remedies..................................107
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 12. SECURITY.....................................................107
Section 12.1. Pledge Agreement...........................................107
Section 12.2. Certificates and Opinions..................................108
Section 12.3. Authorization of Actions to Be Taken by the Collateral
Agent Under the Pledge Agreement...........................108
Section 12.4. Authorization of Receipt of Funds by the Trustee Under
the Pledge Agreement.......................................109
Section 12.5. Termination of Security Interest...........................109
ARTICLE 13. MISCELLANEOUS................................................110
Section 13.1. Trust Indenture Act Controls...............................110
Section 13.2. Notices....................................................110
Section 13.3. Communications by Holders with Other Holders...............111
Section 13.4. Certificate and Opinion as to Conditions Precedent.........111
Section 13.5. Statements Required in Certificate and Opinion.............112
Section 13.6. When Treasury Notes Disregarded............................112
Section 13.7. Rules by Trustee and Agents................................113
Section 13.8. Business Days; Legal Holidays..............................113
Section 13.9. Governing Law..............................................113
Section 13.10. No Adverse Interpretation of Other Agreements..............113
Section 13.11. No Recourse Against Others.................................113
Section 13.12. Successors.................................................114
Section 13.13. Multiple Counterparts......................................114
Section 13.14. Table of Contents, Headings, etc...........................115
Section 13.15. Separability...............................................115
</TABLE>
v
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- --------------------------------------------------------------------
<S> <C> <C> <C>
310 (a)(1)......................................... 7.10
(a)(2)......................................... 7.10
(a)(3)......................................... N.A.
(a)(4)......................................... N.A.
(b)............................................ 7.8; 13.2
(b)(1)......................................... 7.10
(b)(9)......................................... 7.10
(c)............................................ N.A.
311 (a)............................................ 7.11
(b)............................................ 7.11
(c)............................................ N.A.
312 (a)............................................ 2.5
(b)............................................ 13.3
(c)............................................ 13.3
313 (a)............................................ 7.6
(b)(1)......................................... 7.6
(b)(2)......................................... 7.6
(c)............................................ 13.2
(d)............................................ 7.6
314 (a)............................................4.2; 4.4; 13.2
(b)............................................ 12.2
(c)(1).......................................12.2; 13.4; 13.5
(c)(2).......................................12.2; 13.4; 13.5
(c)(3)......................................... N.A.
(d)............................................ 12.2
(e)............................................ 12.3; 13.5
(f)............................................ N.A.
315 (a)............................................ 7.1; 7.2
(b)............................................ 7.5; 13.2
(c)............................................ 7.1
(d)............................................6.5; 7.1; 7.2
(e)............................................ 6.11
316 (a) (last sentence)............................ 13.6
(a)(1)(A)...................................... 6.5
(a)(1)(B)...................................... 6.4
(a)(2)......................................... 8.2
(b)............................................ 6.7
(c)............................................ 8.4
317 (a)(1)......................................... 6.8
(a)(2)......................................... 6.9
(b)............................................ 7.12
318 (a)............................................ 13.1
</TABLE>
N.A. means Not Applicable
- ------------------
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
vi
<PAGE>
FOURTH AMENDMENT AND CONSENT, dated as of June 25, 1997 (this
"Amendment and Consent"), to the Credit Agreement, dated as of August 13,
---------------------
1996 (as the same may be amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among PIERCE LEAHY CORP., a New York
----------------
corporation (the "Company"), PIERCE LEAHY COMMAND COMPANY, a company
-------
organized and existing under the laws of the Province of Nova Scotia (the
"Canadian Borrower" and, together with the Company and its successors, the
------------------
"Borrowers"), the several banks and other financial institutions from time
---------
to time parties thereto (the "Lenders"), Canadian Imperial Bank of
-------
Commerce, New York Agency, as US Administrative Agent for the US$ Lenders
thereunder, and Canadian Imperial Bank of Commerce, as Canadian
Administrative Agent for the C$ Lenders thereunder.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make certain loans and other extensions of credit to the Borrowers; and
WHEREAS, the Borrowers have requested, and, upon this Amendment and
Consent becoming effective, the Lenders have agreed, that certain
provisions of the Credit Agreement be amended and certain transactions be
consented to, all in the manner provided for in this Amendment and Consent;
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. Defined Terms. Terms defined in the Credit Agreement and used herein
-------------
shall have the meanings given to them in the Credit Agreement.
II. Amendment to Section 11 of the Credit Agreement. Section 11 of the
-----------------------------------------------
Credit Agreement is hereby amended by adding thereto the following
subsection:
"11.18 Release of Certain Liens. The Lenders hereby agree to, and
------------------------
authorize and direct the Administrative Agents to execute and deliver
on their behalf all documents necessary or advisable in connection
with, the release of any and all Liens on the Capital Stock of the
Company arising pursuant to the Credit Agreement or any Loan Document
and the release of each of the Shareholders (as defined in the US
Global Guarantee and Security Agreement) from their covenants,
agreements, representations and warranties contained in the US Global
Guarantee and Security Agreement and any other Loan Document."
<PAGE>
2
III. Consent. The Lenders hereby consent to: (a) the Company's
-------
redomestication into Pennsylvania pursuant to its merger (the "Merger")
------
with and into Pierce Leahy Inc., a Pennsylvania corporation which will
change its name to "Pierce Leahy Corp." in the Merger; (b) the stock split
and recapitalization (the "Stock Recapitalization") to be effected by the
----------------------
Company immediately prior to the Merger, in which each outstanding share of
Class A and Class B Common Stock of the Company will be converted into
shares of one class of voting Common Stock of the Company; (c) the offering
by the Company of its Senior Subordinated Notes due 2007 (the "1997 Notes")
in an aggregate principal amount up to US$150,000,000 (the "Notes
-----
Offering"), to be issued pursuant to an Indenture between the Company and
--------
The Bank of New York, as trustee, provided that the terms and conditions
--------
thereof are in substantially the form of the draft of June 23, 1997 of such
Indenture; (d) the non-compliance by the Company with the requirements of
subsection 4.4(c) of the Credit Agreement in connection with the Notes
Offering and the concurrent public offerings by the Company and certain
shareholders of the Company of shares of the Company's Common Stock (i) in
the United States of America and Canada and (ii) internationally
(collectively, the "Equity Offerings"); (e) the termination by the Company
----------------
in contemplation of the Equity Offerings of its status as an S corporation
as defined in Section 1361 of the Code; (f) the use of substantially all of
the proceeds of the Equity Offerings to redeem up to $70 million principal
amount of the Company's 11-1/8% Senior Subordinated Notes due 2006 at a
price equal to 110% of their principal amount thereof plus accrued interest
through the date of redemption; (g) the granting of a third priority lien
on the stock of the Canadian Borrower to the holders of the 1997 Notes and
the amendment and restatement of the Pledge and Intercreditor Agreement to
reflect such lien; (h) the termination of the Shareholders' Agreement; and
(i) the execution of the Voting Trust Agreement and the tax indemnity
agreement described in the prospectus relating to the Equity Offering.
IV. Conditions to Effectiveness. This Amendment and Consent shall become
---------------------------
effective as of the date first above written (the "Amendment and Consent
---------------------
Effective Date") upon the Borrowers, each of the Guarantors, the US
--------------
Administrative Agent and the Required Lenders having executed and delivered
to the US Administrative Agent this Amendment and Consent.
V. General.
-------
1. Representations and Warranties. To induce the US Administrative Agent
------------------------------
and the Lenders parties hereto to enter into this Amendment and Consent,
the Company hereby represents and warrants to the US Administrative Agent
and each of the Lenders as of the Amendment and Consent Effective Date that
the representations and warranties made by the Company in the Loan
Documents are true and correct in all material respects on and as of the
Amendment and Consent Effective Date, after giving effect to the
effectiveness of this Amendment and Consent, as if made on and as of the
Amendment and Consent Effective Date (other than any representations and
warranties made as of a specific date, which continue to be true and
correct in all material respects as of such date).
<PAGE>
3
2. Payment of Expenses. The Company agrees to pay or reimburse the US
-------------------
Administrative Agent for all of its reasonable out-of-pocket costs and
expenses incurred in connection with this Amendment and Consent, any other
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and
disbursements of counsel to the US Administrative Agent.
3. No Other Amendments and Consents; Confirmation. Except as expressly
----------------------------------------------
amended, modified and supplemented hereby, the provisions of the Credit
Agreement and the other Loan Documents are and shall remain in full force
and effect.
4. Governing Law; Counterparts.
---------------------------
(a) This Amendment and Consent and the rights and obligations of the
parties hereto shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York.
(b) This Amendment and Consent may be executed by one or more of the
parties to this Agreement on any number of separate counterparts, and all
of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Amendment and Consent
signed by all the parties shall be lodged with each of the Company and the
US Administrative Agent. This Amendment and Consent may be delivered by
facsimile transmission of the relevant signature pages hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Consent to be duly executed and delivered by their respective proper and
duly authorized officers as of the day and year first above written.
PIERCE LEAHY CORP.
By:
----------------------------------
Title:
PIERCE LEAHY COMMAND COMPANY
By:
----------------------------------
Title:
<PAGE>
4
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY
as US Administrative Agent and as a Lender
By:
----------------------------------------
Title: Director, CIBC Wood Gundy Securities
Corp., AS AGENT
BANK OF IRELAND GRAND CAYMAN
as a Lender
By:
----------------------------------------
Title:
CREDIT LYONNAIS NEW YORK BRANCH
as a Lender
By:
----------------------------------------
Title:
FLEET NATIONAL BANK
as a Lender
By:
----------------------------------------
Title:
THE FIRST NATIONAL BANK OF MARYLAND
as a Lender
By:
----------------------------------------
Title:
HELLER FINANCIAL
as a Lender
By:
----------------------------------------
Title:
<PAGE>
5
STATE STREET BANK AND TRUST COMPANY
as a Lender
By:
----------------------------------------
Title:
THE BANK OF NEW YORK
as a Lender
By:
----------------------------------------
Title:
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned, as a Guarantor under that certain US Global
Guarantee and Security Agreement, dated as of August 13, 1996 (as amended,
supplemented or otherwise modified from time to time), made by each of such
Guarantors in favor of the US Administrative Agent, hereby acknowledges and
consents to the execution and delivery of this Fourth Amendment and Consent to
which this Acknowledgment and Consent is attached and hereby reaffirms its
obligations as a Guarantor under said US Global Guarantee and Security
Agreement.
PIERCE LEAHY CORP.
By:_____________________________________
Title:
PLC COMMAND I, INC.
By:_____________________________________
Title:
PLC COMMAND II, INC.
By:_____________________________________
Title:
PLC COMMAND I, L.P.
By PLC Command I, Inc., as its general partner
By:_____________________________________
Title:
PLC COMMAND II, L.P.
By PLC Command II, Inc., as its general partner
By:_____________________________________
Title:
<PAGE>
FORM OF
AMENDED AND RESTATED PLEDGE AND INTERCREDITOR AGREEMENT
AMENDED AND RESTATED PLEDGE AND INTERCREDITOR AGREEMENT, dated as of July
__, 1997, by and among (a) PLC COMMAND I, L.P., a Pennsylvania limited
partnership ("PLC I"), PLC COMMAND II, L.P., a Pennsylvania limited partnership
-----
("PLC II" and, together with PLC I, the "Pledgors"), (b) CANADIAN IMPERIAL BANK
------ --------
OF COMMERCE, NEW YORK AGENCY, as collateral agent (together with its successors
in such capacity, the "Collateral Agent") for (i) the lenders (the "Lenders")
---------------- -------
from time to time parties to the Credit Agreement (as hereinafter defined) and
CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, as administrative agent (in
such capacity, the "Administrative Agent") for the Lenders, (ii) the holders
--------------------
from time to time (the "1996 Holders") of the 11 1/8% Senior Subordinated Notes
------------
due 2006 (collectively, the "1996 Notes") issued pursuant to the 1996 Indenture
----------
(as defined below) of PIERCE LEAHY CORP., a Pennsylvania corporation as
successor by merger with a New York corporation having the same name (the
"Company"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York corporation,
- --------
as trustee (together with its successors in such capacity, the "1996 Trustee")
------------
for the 1996 Holders in accordance with the 1996 Indenture, and (iii) the
holders from time to time (the "1997 Holders") of the Company's __% Senior
------------
Subordinated Notes due 2007 (collectively, the "1997 Notes") issued from time to
----------
time pursuant to the 1997 Indenture (as defined below) of the Company and THE
BANK OF NEW YORK, a New York banking corporation, as trustee (together with its
successors in such capacity, the "1997 Trustee") for the 1997 Holders in
------------
accordance with the 1997 Indenture, (c) the Administrative Agent, (d) the 1996
Trustee and (e) the 1997 Trustee. The 1996 Holders and the 1997 Holders are
collectively referred to herein as the "Holders," the 1996 Notes and the 1997
-------
Notes are collectively referred to herein as the "Notes," the 1996 Indenture and
-----
the 1997 Indenture are collectively referred to herein as the "Indentures," and
----------
the 1996 Trustee and the 1997 Trustee are collectively referred to herein as the
"Trustees."
--------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, dated as of August 13, 1996 (as
amended, supplemented or otherwise modified from time to time, the "Credit
------
Agreement"), among the Company, Pierce Leahy Command Company, a Nova Scotia
- ---------
unlimited liability company (together with the Company, the "Borrowers"), the
---------
Lenders and the administrative agents named therein, including, without
limitation, the Administrative Agent (the "Administrative Agents"), the Lenders
---------------------
have agreed to make loans (the "Loans") to the Borrowers upon the terms and
-----
subject to the conditions set forth therein;
WHEREAS, pursuant to the Indenture, dated as of July 15, 1996 (as amended,
supplemented or otherwise modified from time to time (the " 1996 Indenture"),
---------------
between the
<PAGE>
2
Company and the 1996 Trustee, the Company has issued the 1996 Notes to the 1996
Holders, upon the terms and subject to the conditions set forth therein;
WHEREAS, pursuant to the Pledge and Intercreditor Agreement, dated as of
August 13, 1996, by and among the Pledgor, the Collateral Agent, the
Administrative Agent and the 1996 Trustee (the "Existing Pledge and Inter-
---------------------------
creditor Agreement"), the Pledgors granted to the Collateral Agent (a) for the
- ------------------
benefit of the Lenders and the Administrative Agent, a first priority lien on
the Pledged Stock and (b) for the benefit of the 1996 Holders and the 1996
Trustee, a second priority lien on the Pledged Stock;
WHEREAS, pursuant to the Indenture, dated as of ___________, 1997 (as
amended, supplemented or otherwise modified from time to time, the "1997
----
Indenture"), between the Company and the 1997 Trustee, the Company has issued
- ---------
the 1997 Notes to the 1997 Holders, upon the terms and subject to the conditions
set forth therein;
WHEREAS, in connection with the 1997 Indenture, the Company has agreed to
cause each Pledgor to grant to the Collateral Agent for the benefit of the 1997
Holders and the 1997 Trustee a third priority lien on the Pledged Stock;
WHEREAS, each Pledgor is a Subsidiary of the Company, and it is to the
advantage of each Pledgor that the 1997 Holders purchase the 1997 Notes from the
Company;
WHEREAS, the Lenders have consented to the grant to the Collateral Agent
for the benefit of the 1997 Holders and the 1997 Trustee of a third priority
lien on the Pledged Stock;
WHEREAS, the parties hereto have agreed to amend and restate the Existing
Pledge and Intercreditor Agreement to (a) provide for the grant to the
Collateral Agent for the benefit of the 1997 Holders and the 1997 Trustee of a
third priority lien on the Pledged Stock and (b) make certain other changes to
the Existing Pledge and Intercreditor Agreement;
WHEREAS, each Pledgor is the legal and beneficial owner of the shares of
the Pledged Stock pledged by it hereunder; and
WHEREAS, (a) pursuant to the Credit Agreement, the Administrative Agent has
been granted the authority to act on behalf of all Lenders with respect to
matters specified herein, including the execution and delivery of this Amended
and Restated Pledge and Intercreditor Agreement; (b) pursuant to the 1996
Indenture, the 1996 Trustee has been granted the authority to act on behalf of
all 1996 Holders with respect to matters specified therein, including the
execution and delivery of this Amended and Restated Pledge and Intercreditor
Agreement; and (c) pursuant to the 1997 Indenture, the 1997 Trustee has been
granted the authority to act on behalf of all 1997 Holders with respect to
matters specified therein,
<PAGE>
3
including the execution and delivery of this Amended and Restated Pledge and
Intercreditor Agreement.
NOW, THEREFORE, in consideration of the premises, and for other good and
valuable consideration the receipt and adequacy of which is hereby acknowledged,
the parties hereby agree that the Existing Pledge and Intercreditor Agreement
shall be amended and restated to read in its entirety as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms defined in
-------------
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement, and the following terms shall have the following meanings:
"Agreement": this Amended and Restated Pledge and Intercreditor
---------
Agreement, as the same may be amended, supplemented or otherwise modified
from time to time.
"Code": the Uniform Commercial Code from time to time in effect in
----
the State of New York.
"Collateral": the Pledged Stock and all Proceeds.
----------
"Collateral Account": any account established to hold money Proceeds,
------------------
maintained under the sole dominion and control of the Collateral Agent,
subject to withdrawal by the Collateral Agent for the account of the
Secured Parties only as provided in Section 9(a).
"Default": until the Senior Payout Date, the meaning ascribed to such
-------
term in the Credit Agreement and, after the Senior Payout Date but prior to
the Senior Subordinated Payout Date, the meaning ascribed to such term in
the 1996 Indenture and, after the Senior Payout Date and the Senior
Subordinated Payout Date, the meaning ascribed to such term in the 1997
Indenture.
"Event of Default": until the Senior Payout Date, the meaning
----------------
ascribed to such term in the Credit Agreement and, after the Senior Payout
Date but prior to the Senior Subordinated Payout Date, the meaning ascribed
to such term in the 1996 Indenture and, after the Senior Payout Date and
the Senior Subordinated Payout Date, the meaning ascribed to such term in
the 1997 Indenture.
"Insolvency Event: (i) Either Pledgor commencing any case, proceeding
----------------
or other action (x) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization,
conservatorship or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with
<PAGE>
4
respect to it or its debts, or (y) seeking appointment of a receiver,
trustee, custodian, conservator or other similar official for it or for all
or any substantial part of its assets, or either Pledgor making a general
assignment for the benefit of its creditors; or (ii) there being commenced
against either Pledgor any case, proceeding or other action of a nature
referred to in clause (i) above which (x) results in the entry of an order
for relief or any such adjudication or appointment or (y) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there being commenced against either Pledgor any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) either Pledgor taking any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clauses (i), (ii) or (iii) above.
"Issuer": Pierce Leahy Command Company, a company incorporated under
------
the laws of Nova Scotia.
"Junior Subordinated Secured Obligations": the unpaid principal of
---------------------------------------
and interest on the 1997 Notes and all other obligations and liabilities of
the Company to the 1997 Trustee and the 1997 Holders (including, without
limitation, interest accruing at the then applicable rate provided in the
1997 Indenture after the maturity of the 1997 Notes and interest accruing
at the then applicable rate provided in the 1997 Indenture after the filing
of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to either Borrower, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under,
out of, or in connection with the 1997 Notes, the 1997 Indenture or this
Agreement.
"Junior Subordinated Secured Parties": collectively, the 1997 Trustee
-----------------------------------
and the 1997 Holders.
"Pledged Stock": the shares of capital stock listed on Schedule 1
------------- ----------
hereto, together with all stock certificates, options or rights of any
nature whatsoever with respect to the Issuer's Capital Stock that may be
issued or granted by the Issuer to either Pledgor in respect of the Pledged
Stock while this Agreement is in effect.
"Proceeds": all "proceeds" as such term is defined in Section 9-
--------
306(1) of the Uniform Commercial Code in effect in the State of New York on
the date hereof and, in any event, shall include, without limitation, all
dividends or other income from the Pledged Stock, collections thereon or
distributions with respect thereto.
<PAGE>
5
"Secured Obligations": the collective reference to the Senior Secured
-------------------
Obligations and the Subordinated Secured Obligations.
"Secured Parties": collectively, the Senior Secured Parties and the
---------------
Subordinated Secured Parties.
"Securities Act": the Securities Act of 1933, as amended.
--------------
"Senior Payout Date": the date upon which the Senior Secured
------------------
Obligations shall have been paid in full and the Commitments under the
Credit Agreement shall have expired or been terminated.
"Senior Secured Obligations": the collective reference to:
--------------------------
(a) unpaid principal of and interest on the Loans and all other
obligations and liabilities of the Borrowers to the Administrative Agents
and the Lenders (including, without limitation, interest accruing at the
then applicable rate provided in the Credit Agreement after the maturity of
the Loans and interest accruing at the then applicable rate provided in the
Credit Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating
to either Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, the Credit
Agreement, this Agreement, the other Loan Documents or any other document
made, delivered or given in connection therewith;
(b) all obligations and liabilities of each Pledgor which may arise
under or in connection with this Agreement or any other Loan Document to
which such Pledgor is a party; and
(c) all obligations of the Borrowers with respect to any Interest Rate
Protection Agreement entered into with any Lender or any affiliate thereof.
"Senior Secured Parties": collectively, the Administrative Agents, the
----------------------
Lenders and, in connection with the obligations described in clause (c) of
the definition of Senior Secured Obligations, affiliates of Lenders.
"Senior Subordinated Payout Date": the date upon which the Senior
-------------------------------
Subordinated Secured Obligations shall have been paid in full.
"Senior Subordinated Secured Obligations": the unpaid principal of
---------------------------------------
and interest on the 1996 Notes and all other obligations and liabilities of
the Company to the 1996 Trustee and the 1996 Holders (including, without
limitation, interest accruing
<PAGE>
6
at the then applicable rate provided in the 1996 Indenture after the
maturity of the 1996 Notes and interest accruing at the then applicable
rate provided in the 1996 Indenture after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to either Borrower, whether or not a claim for post-
filing or post-petition interest is allowed in such proceeding), whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in
connection with, the 1996 Notes, the 1996 Indenture or this Agreement.
"Senior Subordinated Secured Parties": collectively, the 1996 Trustee
-----------------------------------
and the 1996 Holders.
"Subordinated Secured Obligations": the collective reference to the
--------------------------------
Senior Subordinated Secured Obligations and the Junior Subordinated Secured
Obligations.
"Subordinated Secured Parties": collectively, the Senior Subordinated
----------------------------
Secured Parties and the Junior Subordinated Secured Parties.
(b) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
(c) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
2. Pledge; Grant of Security Interests. (a) Each Pledgor hereby confirms
-----------------------------------
and reaffirms its mortgage, pledge and assignment of the Collateral to the
Collateral Agent, for the benefit of the Senior Secured Parties, and its grant
to the Collateral Agent, for the benefit of the Senior Secured Parties, of a
security interest in the Collateral, in each case as collateral security on a
first priority basis for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the Senior
Secured Obligations.
(b) Each Pledgor hereby confirms and reaffirms its mortgage, pledge and
assignment of the Collateral to the Collateral Agent, for the benefit of the
Senior Subordinated Secured Parties, and its grant to the Collateral Agent, for
the benefit of the Senior Subordinated Secured Parties, of a security interest
in the Collateral, in each case as collateral security on a second priority
basis for the prompt and complete payment and performance when due (whether at
the stated maturity, by acceleration or otherwise) of the Senior Subordinated
Secured Obligations.
<PAGE>
7
(c) Each Pledgor hereby mortgages, pledges and assigns the Collateral to
the Collateral Agent, for the benefit of the Junior Subordinated Secured
Parties, and grants to the Collateral Agent, for the benefit of the Junior
Subordinated Secured Parties, a security interest in the Collateral, in each
case as collateral security on a third priority basis for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Junior Subordinated Secured Obligations.
(d) As set forth in the separate granting clauses contained in Sections
2(a), (b) and (c), it is the intent of the parties hereto that this Agreement
shall confirm, reaffirm and create three separate and distinct Liens in favor
of the Collateral Agent, the first for the benefit of the Senior Secured
Parties, the second for the benefit of the Senior Subordinated Secured Parties,
and the third for the benefit of the Junior Subordinated Secured Parties.
3. Subordination of Lien of Subordinated Secured Parties; Bailment. (a)
---------------------------------------------------------------
The 1996 Trustee acknowledges and agrees that (1) any interest that it or any
1996 Holder has or may have in the Collateral shall be junior and subordinate to
the interest of the Senior Secured Parties; (2) prior to the Senior Payout Date,
it will not take any action to enforce any rights it may have hereunder, without
the prior written consent of the Administrative Agent; and (3) prior to the
Senior Payout Date, any consent given in accordance with the terms of this
Agreement by the Collateral Agent at the direction of the Administrative Agent
to any amendment, waiver or other modification in respect of the obligations of
each Pledgor hereunder shall be binding upon the Senior Subordinated Secured
Parties with respect to any similar obligations of each Pledgor hereunder as
fully as if such consent had been given by the Senior Subordinated Secured
Parties.
(b) The 1996 Trustee appoints and authorizes the Collateral Agent, and the
Collateral Agent accepts such appointment and authorization by the 1996 Trustee,
to act as the agent of, and bailee for, the Senior Subordinated Secured Parties
to hold for the benefit of the Senior Subordinated Secured Parties those shares
of the Pledged Stock evidenced by certificates, subject, however, to the prior
security interest therein and rights thereto and to the proceeds thereof of the
Senior Secured Parties.
(c) The 1997 Trustee acknowledges and agrees that (1) any interest that it
or any 1997 Holder has or may have in the Collateral shall be junior and
subordinate to the interests of the Senior Secured Parties and the Senior
Subordinated Secured Parties; (2) prior to (x) the Senior Payout Date and (y)
the Senior Subordinated Payout Date, it will not take any action to enforce any
rights it may have hereunder, without the prior written consent of the
Administrative Agent and the 1996 Trustee or, if the Senior Payout Date shall
have occurred, of the 1996 Trustee; (3) prior to the Senior Payout Date, any
consent given in accordance with the terms of this Agreement by the Collateral
Agent at the direction of the Administrative Agent to any amendment, waiver or
other modification in respect of the obligations of each Pledgor hereunder shall
be binding upon the Junior Subordinated Secured Parties with respect to any
similar obligations of each Pledgor hereunder as fully as if such
<PAGE>
8
consent had been given by the Junior Subordinated Secured Parties; and (4) after
the Senior Payout Date but prior to the Senior Subordinated Payout Date, any
consent given in accordance with the terms of this Agreement by the Collateral
Agent at the direction of the 1996 Trustee to any amendment, waiver or other
modification in respect of the obligations of each Pledgor hereunder shall be
binding upon the Junior Subordinated Secured Parties with respect to any similar
obligations of each Pledgor hereunder as fully as if such consent had been given
by the Junior Subordinated Secured Parties.
(d) The 1997 Trustee appoints and authorizes the Collateral Agent, and the
Collateral Agent accepts such appointment and authorization by the 1997 Trustee,
to act as the agent of, and bailee for, the Junior Subordinated Secured Parties
to hold for the benefit of the Junior Subordinated Secured Parties those shares
of the Pledged Stock evidenced by certificates, subject, however, to the prior
security interests therein and the respective rights thereto and to the proceeds
thereof of the Senior Secured Parties and the Senior Subordinated Secured
Parties.
4. Stock Powers. Concurrently with the delivery to the Collateral Agent
------------
of each certificate representing one or more shares of Pledged Stock, each
Pledgor has delivered an undated stock power, or such other instrument of
transfer as may have been reasonably requested by the Collateral Agent, covering
such certificate, duly executed in blank by such Pledgor with, if the Collateral
Agent so requested, signature guaranteed.
5. Representations and Warranties. Each Pledgor hereby represents and
------------------------------
warrants that:
(a) Such Pledgor has the partnership power and authority and the legal
right to execute and deliver, to perform its obligations under, and to grant the
first, second and third priority security interests in the Collateral pursuant
to, this Agreement and has taken all necessary action to authorize its
execution, delivery and performance of, and grant each of the security interests
in the Collateral pursuant to, this Agreement.
(b) This Agreement constitutes a legal, valid and binding obligation of
such Pledgor, enforceable in accordance with its terms, except as enforceability
may be affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
(c) The execution, delivery and performance of this Agreement will not
violate any provision of any Requirement of Law or Contractual Obligation of
such Pledgor and will not result in the creation or imposition of any Lien on
any of the properties or revenues of such Pledgor pursuant to any Requirement of
Law or Contractual Obligation of such Pledgor, except the security interests
created by this Agreement.
<PAGE>
9
(d) No consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority, and no consent of any
other Person (including, without limitation, any stockholder or creditor of such
Pledgor), is required in connection with the execution, delivery, performance,
validity or enforceability of this Agreement.
(e) No litigation, investigation or proceeding of or before any arbitrator
or Governmental Authority is pending or, to the knowledge of such Pledgor,
threatened by or against such Pledgor or against any of its properties or
revenues with respect to this Agreement or any of the transactions contemplated
hereby.
(f) The shares of Pledged Stock constitute 65% of the issued and
outstanding shares of all classes of the Capital Stock of the Issuer.
(g) All the shares of the Pledged Stock have been duly and validly issued
and are fully paid and nonassessable.
(h) Such Pledgor is the record and beneficial owner of, and has good and
marketable title to, the shares of Pledged Stock pledged by such Pledgor, free
of any and all Liens or options in favor of, or claims of, any other Person,
except for the separate and distinct security interests granted to the Senior
Secured Parties, the Senior Subordinated Secured Parties and the Junior
Subordinated Secured Parties.
(i) The stock certificates evidencing the Pledged Stock having been
delivered to the Collateral Agent and assuming continuous possession by the
Collateral Agent of such certificates, each of the security interests granted
pursuant to this Agreement constitutes a separate, distinct and valid perfected
security interest in the Pledged Stock in favor of the Collateral Agent, for the
benefit of the Senior Secured Parties, the Senior Subordinated Secured Parties
and the Junior Subordinated Secured Parties, respectively, enforceable in
accordance with its terms against all creditors of such Pledgor and any Persons
purporting to purchase any shares of Pledged Stock from such Pledgor.
6. Covenants. Each Pledgor covenants and agrees with the Collateral Agent
---------
and the Secured Parties that, from and after the date of this Agreement until
this Agreement is terminated and the security interests created hereby are
released:
(a) If such Pledgor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights to Capital Stock, whether in addition to, in substitution of, as a
conversion of, or in exchange for any shares of the Pledged Stock, or otherwise
in respect thereof, such Pledgor shall accept the same as the agent of the
Collateral Agent and the Secured Parties, hold the same in trust for the
Collateral Agent and the Secured Parties
<PAGE>
10
and deliver the same forthwith to the Collateral Agent in the exact form
received, duly indorsed by such Pledgor to the Collateral Agent, if required,
together with an undated stock power, or such other instrument of transfer as
may be reasonably requested by the Collateral Agent, covering such certificate
duly executed in blank by such Pledgor and with, if the Collateral Agent so
requests, signature guaranteed, to be held by the Collateral Agent, subject to
the terms hereof, as additional collateral security for the Secured Obligations.
Any sums paid upon or in respect of the Pledged Stock upon the liquidation or
dissolution of the Issuer shall be paid over to the Collateral Agent to be held
by it hereunder as additional collateral security for the Secured Obligations,
and in case any distribution of capital shall be made on or in respect of the
Pledged Stock or any property shall be distributed upon or with respect to the
Pledged Stock pursuant to the recapitalization or reclassification of the
capital of the Issuer or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Collateral Agent to be held by it
hereunder as additional collateral security for the Secured Obligations, unless,
in either case, such sums or property are distributed or otherwise paid to the
holders of the equity interests of such Pledgor. Subject to the "unless" clause
at the end of the previous sentence, if any sums of money or property so paid or
distributed in respect of the Pledged Stock shall be received by such Pledgor,
such Pledgor shall, until such money or property is paid or delivered to the
Collateral Agent, hold such money or property in trust for the Secured Parties,
segregated from other funds of such Pledgor, as additional collateral security
for the Secured Obligations.
(b) Without the prior written consent of the Administrative Agent (if the
Senior Payout Date shall not have occurred), the 1996 Trustee (if the Senior
Payout Date shall have occurred but the Senior Subordinated Payout Date shall
not have occurred) or the 1997 Trustee (if the Senior Payout Date and the Senior
Subordinated Payout Date shall have occurred), such Pledgor will not (1) vote to
enable, or take any other action to permit, the Issuer to issue any stock or
other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any stock or
other equity securities of any nature of the Issuer except as permitted in the
Credit Agreement or the respective Indenture, as the case may be, (2) sell,
assign, transfer, exchange, or otherwise dispose of, or grant any option with
respect to, the Collateral except as permitted in the Credit Agreement or the
respective Indenture, as the case may be, (3) create, incur or permit to exist
any Lien or option in favor of, or any claim of any Person with respect to, any
of the Collateral, or any interest therein, except for the security interests
created by this Agreement and except for any Lien on the Collateral which is
junior to the Liens created hereby and which is created pursuant to an amendment
and restatement of this Agreement in form and substance satisfactory to, and
executed by, each of the parties hereto pursuant to which such junior Lien is
subordinated to all prior Liens on terms and conditions substantially similar to
those pursuant to which the Liens created hereby in favor of the Junior
Subordinated Secured Obligations are subordinated to the Liens created hereby in
favor of the Senior Secured Parties and the Senior Subordinated Secured Parties
or (4) enter into any agreement or undertaking restricting the right or ability
of such Pledgor or the Collateral Agent to sell,
<PAGE>
11
assign or transfer any of the Collateral except as provided for in this
Agreement, the Credit Agreement and the Indentures.
(c) Such Pledgor shall not take any action inconsistent with maintaining
(i) the security interest created by Section 2(a) of this Agreement as a first
priority, perfected security interest, (ii) the security interest created by
Section 2(b) of this Agreement as a second priority, perfected security interest
and (iii) the security interest created by Section 2(c) of this Agreement as a
third priority, perfected security interest and, in each case of clauses (i),
(ii) and (iii), shall defend such security interest against claims and demands
of all Persons whomsoever.
(d) At any time and from time to time, upon the written request of the
Collateral Agent, and at the sole expense of such Pledgor, such Pledgor will
promptly and duly execute and deliver such further instruments and documents and
take such further actions as the Collateral Agent may reasonably request for the
purposes of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note, other instrument or chattel paper, such note, instrument or
chattel paper shall be immediately delivered to the Collateral Agent, duly
endorsed in a manner satisfactory to the Collateral Agent, to be held as
Collateral pursuant to this Agreement.
(e) Such Pledgor shall pay, and save the Collateral Agent and the Secured
Parties harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other similar
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
7. Cash Dividends; Voting Rights. Unless an Event of Default shall have
-----------------------------
occurred and be continuing and the Collateral Agent shall have given notice to
the Pledgors of the Collateral Agent's intent to exercise its corresponding
rights pursuant to Section 9 below, each Pledgor shall be permitted to receive
all cash dividends or other distributions paid in the normal course of business
of the Issuer, to the extent permitted in the Credit Agreement, in respect of
the Pledged Stock and to exercise all voting and corporate rights with respect
to the Pledged Stock; provided, however, that no vote shall be cast or corporate
-------- -------
right exercised or other action taken which, in the Collateral Agent's
reasonable judgment, would impair the Pledged Stock or which would be
inconsistent with or result in any violation of any provision of the Credit
Agreement, any other Loan Document, any Notes, the Indentures or this Agreement.
8. Rights of the Secured Parties and the Collateral Agent. (a) All money
------------------------------------------------------
Proceeds received by the Collateral Agent hereunder shall be held by the
Collateral Agent for the benefit of the Secured Parties in a Collateral Account.
All Proceeds while held by the Collateral Agent in a Collateral Account (or by
each Pledgor in trust for the Collateral Agent
<PAGE>
12
and the Secured Parties) shall continue to be held as collateral security for
all the Secured Obligations and shall not constitute payment thereof until
applied as provided in Section 10(c).
(b) If an Event of Default shall occur and be continuing and the
Collateral Agent shall give notice of its intent to exercise any of such rights
to each Pledgor (1) the Collateral Agent shall have the right to receive any and
all cash dividends paid in respect of the Pledged Stock and make application
thereof to the Secured Obligations in the order provided in Section 10(c), and
(2) all shares of the Pledged Stock shall be registered in the name of the
Collateral Agent or its nominee, and the Collateral Agent or its nominee may
thereafter exercise (A) all voting, corporate and other rights pertaining to
such shares of the Pledged Stock at any meeting of shareholders of the Issuer or
otherwise and (B) any and all rights of conversion, exchange, subscription and
any other rights, privileges or options pertaining to such shares of the Pledged
Stock as if it were the absolute owner thereof (including, without limitation,
the right to exchange at its discretion any and all of the Pledged Stock upon
the merger, consolidation, reorganization, recapitalization or other fundamental
change in the corporate structure of the Issuer, or upon the exercise by either
Pledgor or the Collateral Agent of any right, privilege or option pertaining to
such shares of the Pledged Stock, and in connection therewith, the right to
deposit and deliver any and all of the Pledged Stock with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as the Collateral Agent may determine), all without liability
except to account for property actually received by it, but the Collateral Agent
shall have no duty to any pledgee to exercise any such right, privilege or
option and shall not be responsible for any failure to do so or delay in so
doing.
9. Remedies. (a) If an Event of Default shall have occurred and be
--------
continuing, at any time at the Collateral Agent's election, the Collateral Agent
may apply all or any part of Proceeds held in any Collateral Account in payment
of the Secured Obligations in such order as provided in Section 10(c).
(b) If an Event of Default shall have occurred and be continuing, the
Collateral Agent, on behalf of the Secured Parties, may exercise, in addition to
all other rights and remedies granted in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party with respect to the
Collateral under the Code. Without limiting the generality of the foregoing,
the Collateral Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon either Pledgor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, in the over-the-counter
market, at any
<PAGE>
13
exchange, broker's board or office of the Collateral Agent or any Lender or
Holder or elsewhere upon such terms and conditions as it may deem advisable and
at such prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. The Collateral Agent or any other
Secured Party shall have the right upon any such public sale or sales, and, to
the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in either Pledgor, which right or equity is hereby waived or
released. The Collateral Agent shall apply any Proceeds from time to time held
by it and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred in respect thereof or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral or
the rights of the Collateral Agent and the Secured Parties hereunder, including,
without limitation, reasonable attorneys' fees and disbursements of counsel to
the Collateral Agent, to the payment in whole or in part of the Secured
Obligations, in the order provided in Section 10(c), and only after such
application and after the payment by the Collateral Agent of any other amount
required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need the Collateral Agent account for the surplus, if
any, to the Pledgors. To the extent permitted by applicable law, each Pledgor
waives all claims, damages and demands it may acquire against the Collateral
Agent or any other Secured Party arising out of the exercise by them of any
rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least 10 days before such sale or other disposition.
10. Rights in Collateral; Application of Payments and Proceeds. (a)
----------------------------------------------------------
Notwithstanding anything to the contrary contained in any agreement, document or
instrument in favor of the Senior Subordinated Secured Parties and/or the Junior
Subordinated Secured Parties and irrespective of:
(1) the time, order or method of attachment or perfection of the
security interests created hereby,
(2) the time or order of filing or recording of financing statements
or other documents filed or recorded to perfect security interests in any
Collateral,
(3) anything contained in any filing or agreement to which the Senior
Secured Parties, the Senior Subordinated Secured Parties and/or the Junior
Subordinated Secured Parties now or hereafter may be a party, and
(4) the rules for determining priority under the Code or any other
law governing the relative priorities of secured creditors,
any security interest in the Collateral in favor of the Senior Secured Parties
has and shall have priority, to the extent of any unpaid Senior Secured
Obligations, over any security interest in
<PAGE>
14
such Collateral in favor of the Senior Subordinated Secured Parties and the
Junior Subordinated Secured Parties, and any security interest in the Collateral
in favor of the Senior Subordinated Secured Parties has and shall have priority,
to the extent of any unpaid Senior Subordinated Secured Obligations, over any
security interest in such Collateral in favor of the Junior Subordinated Secured
Parties.
(b) In exercising rights and remedies with respect to the Collateral, the
Collateral Agent may enforce the provisions hereof and exercise remedies
hereunder, all in such order and in such manner as the Senior Secured Parties
may determine in the exercise of their sole business judgment. Such exercise
and enforcement shall include, without limitation, the rights to collect, sell,
dispose of or otherwise realize upon all or any part of the Collateral, to incur
expenses in connection with such collection, sale, disposition or other
realization and to exercise all the rights and remedies of a secured lender
under the Code of any applicable jurisdiction. The Subordinated Secured Parties
hereby (1) waive any right that they may have (whether by contract, by law or
otherwise) to require the Collateral Agent to give notice of any collection,
sale, disposition or other realization of or upon any or all of the Collateral
contemplated by this Agreement or any such right the Subordinated Secured
Parties may have to object to or otherwise contest any such collection, sale,
disposition or other realization of or upon any or all of the Collateral by the
Senior Secured Parties (including, without limitation, any requirement that the
Collateral Agent foreclose upon such Collateral under applicable law) and (2)
agree not to contest or otherwise challenge any such collection, sale,
disposition or other realization of or upon all or any of the Collateral or to
assert any claim or defense that any such collection, sale, disposition or other
realization of or upon all or any part of the Collateral was not commercially
reasonable or otherwise failed to comply in any respect with applicable law. It
is understood and agreed that, for purposes of this paragraph, after the Senior
Payout Date, the term "Senior Secured Parties", when used in this paragraph,
shall be deemed to mean the Senior Subordinated Secured Parties and the term
"Subordinated Secured Parties", when used in this paragraph, shall be deemed to
mean the Junior Subordinated Secured Parties.
(c) Any money, property or securities realized upon the sale, disposition
or other realization by the Collateral Agent or the Subordinated Secured
Parties, as the case may be, upon all or any part of the Collateral (including,
without limitation, any payment or distribution of assets of either Pledgor
consisting of, or in respect of, Collateral, whether in cash, property or
securities during the continuance of an Insolvency Event with respect to such
Pledgor) (collectively, "Realizations"), shall be applied in the following
------------
order:
(1) First, to the payment in full of all reasonable costs and
-----
expenses (including, without limitation, attorneys' reasonable fees and
disbursements) paid or incurred by the Collateral Agent in connection with
such Realization or the protection of its rights and interests in the
Collateral;
<PAGE>
15
(2) Second, to the Administrative Agent to be applied to the payment
------
in full of all Senior Secured Obligations then due and payable in such
order as the Administrative Agent may elect in its sole discretion;
(3) Third, to the 1996 Trustee to be applied to the payment in full
-----
of all Senior Subordinated Secured Obligations then due and payable in such
order as the 1996 Trustee may elect in its sole discretion;
(4) Fourth, to the 1997 Trustee to be applied to the payment in full
------
of all Junior Subordinated Secured Obligations then due and payable in such
order as the 1997 Trustee may elect in its sole discretion; and
(5) Fifth, to pay to the applicable Pledgor, or its representative or
-----
as a court of competent jurisdiction may direct, any surplus then
remaining.
(d) Prior to the Senior Payout Date, the Subordinated Secured Parties
shall not (1) enforce or apply any security interest in all or any of the
Collateral, (2) collect or receive any proceeds of any of the Collateral or
otherwise enforce or apply any security interest in the proceeds of any of the
Collateral; or (3) in any other manner interfere with the security interest
granted in favor of the Senior Secured Parties in any of the Collateral (or the
proceeds thereof). In addition, the Subordinated Secured Parties hereby (x)
agree not to assert prior to the Senior Payout Date any claim for marshalling;
(y) consent to the collection, sale, disposition or other realization of or upon
all or any of the Collateral by the Collateral Agent prior to the Senior Payout
Date free of any security interest therein in favor of the Subordinated Secured
Parties; and (z) at the sole cost and expense of the Pledgors, agree to execute
prior to the Senior Payout Date all such releases and other documents that the
Administrative Agent may reasonably request in writing to facilitate the
collection, sale, disposition or other realization of or upon any or all of the
Collateral by the Collateral Agent (including, without limitation, the
termination of any security interests in any of the Collateral in favor of the
Subordinated Secured Parties concurrently with such sale, disposition or other
realization).
(e) If any payment or distribution, whether consisting of money, property
or securities, from any Realizations is collected or received by the
Subordinated Secured Parties in respect of the Subordinated Secured Obligations
in violation of Section 10(d), the Subordinated Secured Parties shall forthwith
deliver the same to the Collateral Agent, in the form received, duly indorsed to
the Collateral Agent, if required, to be applied to the payment or prepayment of
the Senior Secured Obligations until the Senior Secured Obligations are paid in
full. Until so delivered, such payment or distribution shall be held in trust
by the Subordinated Secured Parties as the property of the Senior Secured
Parties, segregated from other funds and property held by the Subordinated
Secured Parties.
<PAGE>
16
(f) Prior to the Senior Subordinated Payout Date, the Junior Subordinated
Secured Parties shall not (1) enforce or apply any security interest in all or
any of the Collateral, (2) collect or receive any proceeds of any of the
Collateral or otherwise enforce or apply any security interest in the proceeds
of any of the Collateral; or (3) in any other manner interfere with the security
interest granted in favor of the Senior Subordinated Secured Parties in any of
the Collateral (or the proceeds thereof). In addition, the Junior Subordinated
Secured Parties hereby (x) agree not to assert prior to the Senior Subordinated
Payout Date any claim for marshalling; (y) consent to the collection, sale,
disposition or other realization of or upon all or any of the Collateral by the
Collateral Agent prior to the Senior Subordinated Payout Date free of any
security interest therein in favor of the Senior Subordinated Secured Parties;
and (z) at the sole cost and expense of the Pledgors, agree to execute after the
Senior Payout Date but prior to the Senior Subordinated Payout Date all such
releases and other documents that the 1996 Trustee may reasonably request in
writing to facilitate the collection, sale, disposition or other realization of
or upon any or all of the Collateral by the Collateral Agent (including, without
limitation, the termination of any security interests in any of the Collateral
in favor of the Junior Subordinated Secured Parties concurrently with such sale,
disposition or other realization).
(g) If any payment or distribution, whether consisting of money, property
or securities, from any Realizations is collected or received by the Junior
Subordinated Secured Parties after the Senior Payout Date in respect of the
Junior Subordinated Secured Obligations in violation of Section 10(f), the
Junior Subordinated Secured Parties shall forthwith deliver the same to the
Collateral Agent, in the form received, duly indorsed to the Collateral Agent,
if required, to be applied to the payment or prepayment of the Senior
Subordinated Secured Obligations until the Senior Subordinated Secured
Obligations are paid in full. Until so delivered, such payment or distribution
shall be held in trust by the Junior Subordinated Secured Parties as the
property of the Senior Subordinated Secured Parties, segregated from other funds
and property held by the Junior Subordinated Secured Parties.
11. Release of Pledged Stock. The Collateral Agent agrees that it will
------------------------
not release or otherwise dispose of any of the Pledged Stock or other Collateral
except (a) to the 1996 Trustee or the 1997 Trustee in accordance with the terms
hereof, unless instructed by the applicable Trustee to the contrary, or (b) in
the exercise of its remedies under the terms hereof or (c) to the respective
Pledgor upon satisfaction of all Secured Obligations.
12. Obligations of the Collateral Agent. (a) Unless the Collateral Agent
-----------------------------------
has theretofore received a written notice from each of the 1996 Trustee and the
1997 Trustee to the effect that the Senior Subordinated Secured Obligations and
the Junior Subordinated Secured Obligations, respectively, have been paid in
full, if the Collateral Agent shall have resigned as collateral agent hereunder,
not later than the tenth business day following the Senior Payout Date, the
Collateral Agent will deliver at the cost and expense of the Pledgors, directly
to the successor collateral agent appointed in accordance with Section 15(h) or,
if prior to such tenth business day the Collateral Agent shall not have received
notification of
<PAGE>
17
the identity of such successor collateral agent, to the 1996 Trustee (or, if the
Collateral Agent shall have received a written notice from the 1996 Trustee to
the effect that the Senior Subordinated Secured Obligations have been paid in
full, to the 1997 Trustee), all the certificates representing the Pledged Stock
and all other documents and instruments evidencing or relating to the Collateral
then remaining in the possession of the Collateral Agent, together with any
necessary instruments of assignment or transfer pertaining thereto. Each
Pledgor agrees to give written notice to each of the 1996 Trustee and the 1997
Trustee of the Senior Payout Date within three business days thereof, and, after
receipt of such notice, the Senior Subordinated Secured Parties (unless the
Senior Subordinated Payout Date has occurred) or (if the Senior Subordinated
Payout Date has occurred) the Junior Subordinated Secured Parties agree to
promptly give written notice to the Collateral Agent requesting delivery of the
Pledged Stock and such other documents and instruments. In no event shall the
Collateral Agent relinquish control over such certificates representing the
Pledged Stock or any such other documents and instruments after the Senior
Payout Date, except as set forth in this Section or Section 11(c).
(b) Unless the 1996 Trustee has theretofore received a written notice from
the 1997 Trustee to the effect that the Junior Subordinated Secured Obligations
have been paid in full, if the 1996 Trustee shall have resigned as successor
collateral agent hereunder, not later than the tenth business day following the
Senior Subordinated Payout Date, the 1996 Trustee will deliver at the cost and
expense of the Pledgors, directly to the successor collateral agent appointed in
accordance with Section 15(h) or, if prior to such tenth business day the 1996
Trustee shall not have received notification of the identity of such successor
collateral agent, to the 1997 Trustee, all the certificates representing the
Pledged Stock and all other documents and instruments evidencing or relating to
the Collateral then remaining in the possession of the 1996 Trustee, together
with any necessary instruments of assignment or transfer pertaining thereto.
Each Pledgor agrees to give written notice to the 1997 Trustee of the Senior
Subordinated Payout Date within three business days thereof, and, after receipt
of such notice, the Junior Subordinated Secured Parties agree to promptly give
written notice to the 1996 Trustee requesting delivery of the Pledged Stock and
such other documents and instruments. In no event shall the 1996 Trustee
relinquish control over such certificates representing the Pledged Stock or any
such other documents and instruments after the Senior Subordinated Payout Date,
except as set forth in this Section or in Section 11(c).
(c) In taking any action hereunder (including the giving of consents and
waivers hereunder) prior to the Senior Payout Date, the Collateral Agent shall
not be obligated to consider the interests of the Subordinated Secured Parties
except as set forth in Section 12(a) or Section 21. In taking any action
hereunder (including the giving of consents and waivers hereunder) prior to the
Senior Subordinated Payout Date, the 1996 Trustee, or its designee, shall not be
obligated to consider the interests of the Junior Subordinated Secured Parties
except as set forth in Section 12(b) or Section 21.
<PAGE>
18
13. Dispositions of Collateral. Notwithstanding any provision to the
--------------------------
contrary contained in any agreement, document or instrument in favor of the
Subordinated Secured Parties or to which any of the Subordinated Secured Parties
is a party, the parties hereto agree as follows:
(a) Upon the occurrence of any sale, lease, transfer or other
disposition of any of the Collateral (a "Disposition"), as between the
-----------
Senior Secured Parties and the Subordinated Secured Parties, until the
Senior Payout Date, all Collateral, including all proceeds thereof and all
prepayments or distributions in respect thereof, shall be distributed or
applied or paid to the Administrative Agent, acting on behalf of the Senior
Secured Parties, for application to the Senior Secured Obligations without
obtaining any further consent or agreement of the Subordinated Secured
Parties and in any manner as the Administrative Agent may determine, and
the Subordinated Secured Parties shall be deemed to have consented to such
Disposition and no further consent thereto or notice or accounting in
respect thereof on the part of any such Person shall be required, and,
until the Senior Payout Date, none of such Collateral shall be distributed
or paid to (or retained by) the Subordinated Secured Parties for
application to the Subordinated Secured Obligations, and the Subordinated
Secured Parties shall not have any right to restrict or permit, or approve
or disapprove, any Disposition of all or any portion or item of the
Collateral.
(b) Upon a Disposition, as between the Senior Subordinated Secured
Parties and the Junior Subordinated Secured Parties, after the Senior
Payout Date and until the Senior Subordinated Payout Date, all Collateral,
including all proceeds thereof and all prepayments or distributions in
respect thereof, shall be distributed or applied or paid to the 1996
Trustee, acting on behalf of the Senior Subordinated Secured Parties, for
application to the Senior Subordinated Secured Obligations without
obtaining any further consent or agreement of the Junior Subordinated
Secured Parties and in any manner as the 1996 Trustee may determine, and
the Junior Subordinated Secured Parties shall be deemed to have consented
to such Disposition and no further consent thereto or notice or accounting
in respect thereof on the part of any such Person shall be required, and
until the Senior Subordinated Payout Date, none of such Collateral shall be
distributed or paid to (or retained by) the Junior Subordinated Secured
Parties for application to the Junior Subordinated Secured Obligations, and
the Junior Subordinated Secured Parties shall not have any right to
restrict or permit, or approve or disapprove, any Disposition of all or any
portion or item of the Collateral.
(c) If the Collateral Agent is in possession of any proceeds from any
Disposition of any Collateral following the Senior Payout Date, the
Collateral Agent shall deliver such remaining proceeds to: (x) the 1996
Trustee if any Senior Subordinated Secured Obligations shall be then
outstanding (which each Pledgor hereby irrevocably consents to); (y) the
1997 Trustee if any Junior Subordinated Secured Obligations shall be then
outstanding (which each Pledgor hereby irrevocably
<PAGE>
19
consents to) and the Collateral Agent has received a written notice from
the 1996 Trustee to the effect that the Senior Subordinated Secured
Obligations have been paid in full; and (z) each Pledgor or its successors
or assigns, if the Collateral Agent has received a written notice from the
1996 Trustee and the 1997 Trustee to the effect that the Senior
Subordinated Secured Obligations or the Junior Subordinated Secured
Obligations, as the case may be, have been paid in full and the 1996
Trustee and the 1997 Trustee shall agree in writing, or to whomever may be
lawfully entrusted to receive the same as a court of competent jurisdiction
shall so direct.
(d) The Senior Subordinated Secured Parties and the Junior
Subordinated Secured Parties will, immediately upon the request of the
Administrative Agent acting on behalf of the Lenders at any time prior to
the Senior Payout Date, release or otherwise terminate and discharge their
respective subordinated liens in any Collateral to the extent such
Collateral is the subject of a Disposition, and will deliver to the
Collateral Agent all documents and instruments reasonably deemed by the
Collateral Agent to be necessary or appropriate in connection therewith.
In the event that the Collateral Agent, acting on behalf of the Senior
Secured Parties at any time prior to the Senior Payout Date, settles,
adjusts or compromises any claim in respect of all or any portion or item
of Collateral, including, without limitation, any settlement, adjustment or
compromise made in connection with any bankruptcy, reorganization or
insolvency proceeding by or against either Pledgor or a Subsidiary of
either of them, or accepts or is required to accept substitute or
replacement collateral in exchange for or in lieu of or in full or partial
settlement of any Collateral, the Subordinated Secured Parties shall be
bound by any such settlement, adjustment or compromise, and shall,
immediately upon the request of the Collateral Agent, confirm their consent
to the same and release any claim that the Subordinated Secured Parties
might otherwise have in respect of such Collateral; provided that the
Senior Subordinated Secured Parties shall be granted a lien and security
interest in any such substitute or replacement Collateral on a second
priority basis and the Junior Subordinated Secured Parties shall be granted
a lien and security interest in any such substitute or replacement
Collateral on a third priority basis, which liens and security interests
shall constitute subordinated liens.
(e) The Junior Subordinated Secured Parties will, immediately upon
the request of the 1996 Trustee at any time after the Senior Payout Date
but prior to the Senior Subordinated Payout Date, release or otherwise
terminate and discharge their respective subordinated liens in any
Collateral to the extent such Collateral is the subject of a Disposition,
and will deliver to the Collateral Agent all documents and instruments
reasonably deemed by the Collateral Agent to be necessary or appropriate in
connection therewith. In the event that the Collateral Agent, acting on
behalf of the Senior Subordinated Secured Parties at any time after the
Senior Payout Date but prior to the Senior Subordinated Payout Date,
settles, adjusts or compromises any claim in respect of all or any portion
or item of Collateral, including, without limitation, any
<PAGE>
20
settlement, adjustment or compromise made in connection with any
bankruptcy, reorganization or insolvency proceeding by or against either
Pledgor or a Subsidiary of either of them, or accepts or is required to
accept substitute or replacement collateral in exchange for or in lieu of
or in full or partial settlement of any Collateral, the Junior Subordinated
Secured Parties shall be bound by any such settlement, adjustment or
compromise, and shall, immediately upon the request of the Collateral
Agent, confirm their consent to the same and release any claim that the
Junior Subordinated Secured Parties might otherwise have in respect of such
Collateral; provided that the Junior Subordinated Secured Parties shall be
granted a lien and security interest in any such substitute or replacement
Collateral on a second priority basis, which lien and security interest
shall constitute a subordinated lien and security interest.
14. Irrevocable Authorization and Instruction to Issuer. Each Pledgor
---------------------------------------------------
hereby authorizes and instructs the Issuer to comply with any instruction
received by it from the Collateral Agent in writing that (a) states that an
Event of Default has occurred and is continuing and (b) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from either Pledgor, and such Pledgor agrees that the Issuer shall
be fully protected in so complying.
15. The Collateral Agent. (a) Appointment. Each Secured Party hereby
-------------------- -----------
irrevocably designates and appoints the Collateral Agent as the agent of such
Secured Party under this Agreement, and each such Secured Party irrevocably
authorizes the Collateral Agent to take such action on its behalf under the
provisions of this Agreement and to exercise such powers and perform such duties
as are expressly delegated to the Collateral Agent by the terms of this
Agreement, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Collateral Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any other Secured
Party, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Collateral Agent.
(b) Delegation of Duties. The Collateral Agent may execute any of its
--------------------
duties under this Agreement by or through agents or attorneys-in-fact and shall
be entitled to advice of counsel concerning all matters pertaining to such
duties. The Collateral Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys in-fact selected by it with reasonable
care.
(c) Exculpatory Provisions. None of the Collateral Agent or any of its
----------------------
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(1) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement (except for its or such
Person's own gross negligence or willful misconduct) or (2) responsible in any
manner to any of the Secured Parties for any recitals, statements,
representations or warranties made by either Pledgor or any officer thereof
contained in this
<PAGE>
21
Agreement or in any certificate, report, statement or other document referred to
or provided for in, or received by such Collateral Agent under or in connection
with, this Agreement or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or for any failure of either
Pledgor to perform its obligations hereunder. The Collateral Agent shall not be
under any obligation to any other Secured Party to ascertain or to inquire as to
the observance or performance of any of the agreements contained in, or
conditions of, this Agreement, or to inspect the properties, books or records of
either Pledgor.
(d) Reliance by Collateral Agent. The Collateral Agent shall be entitled
----------------------------
to rely, and shall be fully protected in relying, upon any Note, writing,
resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrowers), independent accountants and other
experts selected by the Collateral Agent. The Collateral Agent may deem and
treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with such Collateral Agent. The Collateral Agent shall be fully justified
in failing or refusing to take any action under this Agreement unless it shall
first receive such advice or concurrence of the Required Lenders (or, at any
time after the Senior Payout Date but prior to the Senior Subordinated Payout
Date, the 1996 Trustee or, at any time after the Senior Payout Date and the
Senior Subordinated Payout Date, the 1997 Trustee), as it deems appropriate or
it shall first be indemnified to its satisfaction by the Senior Secured Parties
and/or the Subordinated Secured Parties against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
such action. The Collateral Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement in accordance with a
request of the Required Lenders (or, at any time after the Senior Payout Date
but prior to the Senior Subordinated Payout Date, the 1996 Trustee or, at any
time after the Senior Payout Date and the Senior Subordinated Payout Date, the
1997 Trustee), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Secured Parties and all future holders of
the Loans.
(e) Notice of Default. The Collateral Agent shall not be deemed to have
-----------------
knowledge or notice of the occurrence of any Default or Event of Default unless
the Collateral Agent has received notice from a Lender (if the Senior Payout
Date shall not have occurred), the 1996 Trustee (if the Senior Payout Date shall
have occurred but the Senior Subordinated Payout Date shall not have occurred)
or by the 1997 Trustee (if the Senior Payout Date and the Senior Subordinated
Payout Date shall have occurred) or the Company referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". In the event that the Collateral Agent receives such a
notice, the Collateral Agent shall give notice thereof to the Pledgors and the
Senior Secured Parties (if the Senior Payout Date shall not have occurred), the
Senior Subordinated Secured Parties (if the Senior Payout Date shall have
occurred but the Senior Subordinated Payout Date shall not
<PAGE>
22
have occurred) or the Junior Subordinated Secured Parties (if the Senior Payout
Date and the Senior Subordinated Payout Date shall have occurred). The
Collateral Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Lenders (if the Senior
Payout Date shall not have occurred) or by the 1996 Trustee (if the Senior
Payout Date shall have occurred but the Senior Subordinated Payout Date shall
not have occurred) or by the 1997 Trustee (if the Senior Payout Date and the
Senior Subordinated Payout Date shall have occurred); provided that unless and
--------
until the Collateral Agent shall have received such directions, the Collateral
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as they
shall deem advisable in the best interests of the Senior Secured Parties (if the
Senior Payout Date shall not have occurred), the Senior Subordinated Secured
Parties (if the Senior Payout Date shall have occurred but the Senior
Subordinated Payout Date shall not have occurred) or the Junior Subordinated
Secured Parties (if the Senior Payout Date and the Senior Subordinated Payout
Date shall have occurred).
(f) Non-Reliance on Collateral Agent. Each other Secured Party expressly
--------------------------------
acknowledges that none of the Collateral Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Collateral Agent
hereinafter taken shall be deemed to constitute any representation or warranty
by the Collateral Agent to any Secured Party. Except for notices, reports and
other documents expressly required to be furnished to the Secured Parties by the
Collateral Agent hereunder, the Collateral Agent shall not have any duty or
responsibility to provide any other Secured Party with any credit or other
information concerning the business, operations, property, condition (financial
or otherwise), prospects or creditworthiness of either Pledgor which may come
into the possession of the Collateral Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
(g) Collateral Agent in Its Individual Capacity. The Collateral Agent and
-------------------------------------------
its Affiliates may make loans to, accept deposits from and generally engage in
any kind of business with either Pledgor as though the Collateral Agent were not
the Collateral Agent hereunder.
(h) Successor Collateral Agent. The Collateral Agent may resign as
--------------------------
Collateral Agent upon 10 days' notice to the Lenders. If the Collateral Agent
shall resign as Collateral Agent under this Agreement, then the Required Lenders
shall appoint from among the Lenders a successor Collateral Agent, which
successor agent shall succeed to the rights, powers and duties of such
Collateral Agent hereunder. Upon the Senior Payout Date, the Collateral Agent
shall automatically be deemed to have resigned as Collateral Agent under this
Agreement, and (if the Senior Subordinated Payout Date has not occurred) the
1996 Trustee shall appoint a successor collateral agent for the Subordinated
Secured Parties within 10 days after its receipt of notice from the Collateral
Agent of such resignation or, in the absence of such appointment, the 1996
Trustee shall automatically be appointed as successor collateral agent on the
tenth day after its receipt of such notice, which successor collateral agent
<PAGE>
23
(whether it shall be the 1996 Trustee or any other Person) shall succeed to the
rights, powers and duties of such Collateral Agent hereunder. After the Senior
Payout Date and upon the Senior Subordinated Payout Date, the 1996 Trustee, or
its designee, appointed in accordance with the preceding sentence, shall
automatically be deemed to have resigned as successor Collateral Agent under
this Agreement, and the 1997 Trustee shall appoint a successor collateral agent
for the Junior Subordinated Secured Parties within 10 days after its receipt of
notice from the Collateral Agent of such resignation or, in the absence of such
appointment, the 1997 Trustee, or its designee, shall automatically be appointed
as successor collateral agent on the tenth day after its receipt of such notice,
which successor collateral agent shall succeed to the rights, powers and duties
of such Collateral Agent hereunder. Effective upon any such appointment, the
term "Collateral Agent" shall mean such successor agent, and such former
Collateral Agent's rights, powers and duties as Collateral Agent shall be
terminated, without any other or further act or deed on the part of such former
Collateral Agent or any of the parties to this Agreement or any Secured Party.
After any retiring Collateral Agent's resignation as Collateral Agent, the
provisions of this Section 15 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Collateral Agent under this Agreement.
Anything in this Agreement to the contrary notwithstanding, in the event of an
automatic resignation of the Collateral Agent in the circumstances described in
the third or fourth sentence of this paragraph, such resignation shall become
effective upon the appointment of a successor collateral agent in accordance
with the provisions of such third or fourth sentence, as the case may be, and,
thereafter, the sole obligation of the Collateral Agent hereunder shall be to
make delivery of the certificates representing the Pledged Stock to such
successor collateral agent or, if the Collateral Agent shall not have received
from the 1996 Trustee a written notice of the appointment of a successor
collateral agent other than the 1996 Trustee, to the 1996 Trustee, or, if the
Collateral Agent shall not have received from the 1997 Trustee a written notice
of the appointment of a successor collateral agent other than the 1997 Trustee,
to the 1997 Trustee, as the case may be.
16. Collateral Agent's Appointment as Attorney-in-Fact. (a) Each Pledgor
--------------------------------------------------
hereby irrevocably constitutes and appoints the Collateral Agent and any officer
or agent of the Collateral Agent, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of such Pledgor and in the name of such Pledgor or in the
Collateral Agent's own name, from time to time in the Collateral Agent's
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, including, without limitation, any financing statements,
endorsements, assignments or other instruments of transfer.
(b) Each Pledgor hereby ratifies all that said attorneys shall lawfully do
or cause to be done pursuant to the power of attorney granted in Section 16(a).
All powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released.
<PAGE>
24
17. Duty of Collateral Agent. The Collateral Agent's sole duty with
------------------------
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9-207 of the Code or otherwise, shall be to
deal with it in the same manner as the Collateral Agent deals with similar
securities and property for its own account, except that the Collateral Agent
shall have no obligation to invest funds held in any Collateral Account and may
hold the same as demand deposits. Neither the Collateral Agent, any Lender, the
Trustees, any Holder nor any of their respective directors, officers, employees
or agents shall be liable for failure to demand, collect or realize upon any of
the Collateral or for any delay in doing so or shall be under any obligation to
sell or otherwise dispose of any Collateral upon the request of either Pledgor
or any other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof.
18. Execution of Financing Statements. Pursuant to Section 9-402 of the
---------------------------------
Code, each Pledgor authorizes the Collateral Agent to file financing statements
with respect to the Collateral without the signature of such Pledgor in such
form and in such filing offices as the Collateral Agent reasonably determines
appropriate to perfect the security interests of the Collateral Agent under this
Agreement. A carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement for filing in any jurisdiction.
19. Notices. All notices, requests and demands to or upon the Company,
-------
either Pledgee or either Pledgor to be effective shall be in writing (or by
telex, fax or similar electronic transfer confirmed in writing) and shall be
deemed to have been duly given or made (1) when delivered by hand or (2) if
given by mail, two days after being deposited in the mails by certified mail,
return receipt requested, or (3) if by telex, fax or similar electronic
transfer, when sent and receipt has been confirmed, addressed to such party at
its address or transmission number for notices provided under its signature
below. Any party hereto may change their addresses and transmission numbers for
notices by notice in the manner provided in this Section.
20. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
21. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of
-----------------------------------------------------
the terms or provisions of this Agreement may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by each Pledgor,
the Collateral Agent and, if the Senior Payout Date shall not have occurred, the
Administrative Agent or, if the Senior Payout Date shall have occurred but the
Senior Subordinated Payout Date shall not have occurred, the 1996 Trustee or, if
the Senior Payout Date and the Senior Subordinated Payout Date shall have
occurred, the 1997 Trustee, provided that any provision of this Agreement may be
--------
waived by the Collateral Agent and, if the Senior Payout Date shall not have
<PAGE>
25
occurred, the Administrative Agent or, if the Senior Payout Date shall have
occurred but the Senior Subordinated Payout Date shall not have occurred, the
1996 Trustee or, if the Senior Payout Date and the Senior Subordinated Payout
Date shall have occurred, the 1997 Trustee in a letter or agreement executed by
the Collateral Agent or by telex or facsimile transmission from the Collateral
Agent and, if the Senior Payout Date shall not have occurred, the Administrative
Agent or, if the Senior Payout Date shall have occurred but the Senior
Subordinated Payout Date shall not have occurred, the 1996 Trustee or, if the
Senior Payout Date and the Senior Subordinated Payout Date shall have occurred,
the 1997 Trustee and, provided, further, that no such waiver, amendment,
-------- -------
supplement or other modification which materially and adversely affects: (x) any
Senior Subordinated Secured Party shall be effective unless it shall have been
consented to by the 1996 Trustee or (y) any Junior Subordinated Secured Party
shall be effective unless it shall have been consented to by the 1997 Trustee.
(b) Neither the Collateral Agent nor any Secured Party shall by any act
(except by a written instrument pursuant to Section 21(a) hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Collateral Agent or any Secured
Party, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Collateral Agent or any
Secured Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Collateral Agent or such
Secured Party would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
22. Transfer of Pledged Stock to the Company. Notwithstanding anything in
----------------------------------------
this Agreement to the contrary, the Pledgor shall be entitled to transfer the
Pledged Stock to the Company, provided that such transfer shall be made
--------
expressly subject to the terms and conditions of this Agreement and that,
simultaneously with such transfer, the Company shall expressly assume, pursuant
to a written instrument in form and substance satisfactory to the Collateral
Agent, the obligations of the Pledgors hereunder and, pursuant to the terms of
such instrument, this Agreement shall be amended in a manner reasonably
acceptable to the Administrative Agent (if the Senior Payout Date shall not have
occurred), the 1996 Trustee (if the Senior Payout Date shall have occurred but
the Senior Subordinated Payout Date shall not have occurred) or the 1997 Trustee
(if the Senior Payout Date and the Senior Subordinated Payout Date shall have
occurred) to reflect such transfer, including the confirmation and reaffirmation
of the grant of first, second and third priority Liens to the Senior Secured
Parties, Senior Subordinated Secured Parties and Junior Subordinated Secured
Parties, respectively, with respect to the Pledged Stock.
<PAGE>
26
23. Section Headings. The section headings used in this Agreement are for
----------------
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
24. Trustees Not Responsible for Recitals, Etc. The recitals hereto shall
-------------------------------------------
not be taken as those of the Trustee or either of them, and neither of the
Trustees assumes any responsibility for their correctness. Neither of the
Trustees makes any representations as to the title of the Pledgors to the
Pledged Stock, or the title to, or validity or genuineness of, any Collateral at
any time pledged and deposited with the Collateral Agent hereunder, or as to the
validity or sufficiency of this Agreement.
25. Successors and Assigns. This Agreement shall be binding upon the
----------------------
successors and assigns of the Company and shall inure to the benefit of the
Collateral Agent and the Secured Parties and their successors and assigns.
26. Governing Law. This Agreement shall be governed by, and construed and
-------------
interpreted in accordance with, the law of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their respective officers, thereunto duly authorized as of the date
first above written.
PLC COMMAND I, L.P., as Pledgor
By PLC COMMAND I, INC., its general partner
By:
-------------------------------
Title:
Address for Notices:
PLC Command I, L.P.
631 Park Avenue
King of Prussia, PA 19406
Attention: General Partner
Fax: (610) 992-8394
PLC COMMAND II, L.P., as Pledgor
By PLC COMMAND II, INC., its general partner
By:
------------------------------
Title:
Address for Notices:
PLC Command II, L.P.
631 Park Avenue
King of Prussia, PA 19406
Attention: General Partner
Fax: (610) 992-8394
<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY,
as Collateral Agent and Administrative Agent
By:
------------------------------
Title:
Address for Notices:
Canadian Imperial Bank of Commerce,
New York Agency
425 Lexington Avenue
New York, NY 10017
Attention: Aimee Evans
Fax: (212) 856-3763
UNITED STATES TRUST COMPANY
OF NEW YORK, as 1996 Trustee
By:
------------------------------
Title:
Address for Notices:
United States Trust Company of
New York
114 West 47th Street
15th Floor
New York, NY 10036-1532
Attention: Cynthia Chaney
Fax: (212) 852-1625
<PAGE>
THE BANK OF NEW YORK,
as 1997 Trustee
By:
------------------------------
Title:
Address for Notices:
The Bank of New York
101 Barclay Street - 21W
New York, New York 10286
Attention: Corporate Trust Department
Fax: (212) 815-5915
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the Amended and
Restated Pledge and Intercreditor Agreement dated July __, 1997 (as amended,
supplemented or otherwise modified from time to time, the "Pledge Agreement"),
----------------
made by and among (a) PLC COMMAND I L.P., PLC COMMAND II L.P., (b) CANADIAN
IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY (together with its successors in such
capacity, the "Collateral Agent"), (c) CANADIAN IMPERIAL BANK OF COMMERCE, NEW
----------------
YORK AGENCY, as administrative agent (in such capacity, the "Administrative
--------------
Agent"), (d) UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking
- -----
corporation, as trustee (together with its successors in its capacity, the "1996
----
Trustee") and (e) THE BANK OF NEW YORK, a New York banking corporation, as
- -------
trustee (together with its successors in its capacity, the "1997 Trustee"). The
------------
undersigned agrees for the benefit of the Collateral Agent and the Secured
Parties (as defined in the Pledge Agreement) as follows:
1. The undersigned will be bound by the terms of the Pledge Agreement and
will comply with such terms insofar as such terms are applicable to the
undersigned.
2. The undersigned will notify the Collateral Agent promptly in writing of
the occurrence of any of the events described in Section 6(a) of the Pledge
Agreement.
3. The only evidence which will be required by the Company to prove the
Collateral Agent's right to a transfer of the Pledged Collateral will be the
certificates pertaining thereto and an instrument of transfer as contemplated in
Sections 14 and 15 of the Company's Memorandum of Association.
PIERCE LEAHY COMMAND COMPANY
By
--------------------------------------
Title
-----------------------------------
Address for Notices:
Pierce Leahy Command Company
631 Park Avenue
King of Prussia, PA 19406
Attention: President
Fax: (610) 992-8394
<PAGE>
SCHEDULE 1 TO AMENDED AND RESTATED
PLEDGE AND INTERCREDITOR AGREEMENT
----------------------------------
DESCRIPTION OF PLEDGED STOCK
<TABLE>
<CAPTION>
Stock
Certificate
Issuer Class of Stock No. No. of Shares
- ----------------- --------------- --------------- -------------
<S> <C> <C> <C>
Pierce Leahy Common Shares 3 105
Command Company
Pierce Leahy Common Shares 4 105
Command Company
Pierce Leahy Common Shares 5 395
Command Company
Pierce Leahy Common Shares 6 395
Command Company
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement.
Arthur Andersen LLP
Philadelphia, PA
June 27, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement No.
333-23121 of Pierce Leahy Corp. of our report dated August 14, 1995, on the
financial statements of Securities Archives, Inc. appearing in the Prospectus,
which is a part of this Registration Statement, and to the reference to us
under the heading "Experts" in such Prospectus.
Deloitte & Touche LLP
Dallas, Texas
June 27, 1997
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement No.
333-23121 of Pierce Leahy Corp. of our report dated November 22, 1996 (January
10, 1997 as to Note 11) on the consolidated financial statements of Records
Management Services, Inc. and subsidiaries appearing in the Prospectus, which
is a part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.
Deloitte & Touche LLP
Chicago, Illinois
June 27, 1997
