Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IRON MOUNTAIN INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 4226 04-3107342
(State of (Primary Standard Industrial (IRS Employer
incorporation) Classification Code Number) Identification No.)
745 ATLANTIC AVENUE, BOSTON, MA 02111
(617) 357-4455
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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C. RICHARD REESE
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
IRON MOUNTAIN INCORPORATED
745 Atlantic Avenue
Boston, MA 02111
(617) 357-4455
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
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Copies to:
WILLIAM J. CURRY ROBERT A. ZUCCARO
SULLIVAN & WORCESTER LLP JONES, DAY, REAVIS & POGUE
One Post Office Square 599 Lexington Avenue
Boston, MA 02109 New York, NY 10022
(617) 338-2800 (212) 326-3939
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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, 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. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount to Proposed Maximum Proposed Maximum
Securities be Offering Aggregate Aggregate Amount of
to be Registered Registered Price Per Security (1) Offering Price (1) Registration Fee
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<S> <C> <C> <C> <C>
% Senior Subordinated
Notes due 2006 $150,000,000 100% $150,000,000 $51,725
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Guarantees of the % Senior
Subordinated Notes due 2006 $150,000,000 (2) (2) (2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act of
1933.
(2) Pursuant to Rule 457(n), no separate registration fee is required as no
additional consideration is being paid for Guarantees.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
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.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1996
PROSPECTUS
, 1996
$150,000,000
[LOGO] IRON MOUNTAIN INCORPORATED
% Senior Subordinated Notes due 2006
The % Senior Subordinated Notes due 2006 (the "Notes") are being offered
(the "Offering") by Iron Mountain Incorporated (the "Company" or "Iron
Mountain"). The net proceeds of the Offering will be used to repay all
outstanding bank debt and certain other indebtedness and to fund the Pending
Acquisition. The balance of the net proceeds from the Offering will be used for
possible future acquisitions and for general corporate purposes.
Interest on the Notes is payable on and , commencing
, 1997. Except as described below, the Notes are not redeemable by
the Company prior to , 2001. Thereafter, the Notes are redeemable at the option
of the Company, in whole or in part, at any time and from time to time, at the
redemption prices set forth herein plus accrued and unpaid interest to, but
excluding, the date of redemption. In addition, during the first 36 months after
the date of issuance of the Notes, the Company, at its option, may redeem up to
35% of the initial principal amount of the Notes with the net proceeds of one or
more Qualified Equity Offerings at a redemption price equal to %, plus accrued
and unpaid interest to, but excluding, the date of redemption; provided that at
least 65% of the initial principal amount of the Notes remains outstanding after
each such redemption. Except as set forth herein, the Company is not required to
make sinking fund or redemption payments with respect to the Notes at any time
prior to maturity. Upon the occurrence of a Change of Control, each Holder of
Notes may require the Company to repurchase such Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest to, but excluding, the date of
repurchase.
The Notes will be general unsecured senior subordinated obligations of the
Company ranking junior to all existing and future Senior Debt of the Company.
The Notes will be fully and unconditionally guaranteed on an unsecured senior
subordinated and joint and several basis (the "Subsidiary Guarantees") by
substantially all of the Company's present and future Restricted Subsidiaries
(collectively, the "Guarantors"). The Subsidiary Guarantees will rank junior to
all existing and future Senior Debt of the Guarantors. As of June 30, 1996, on a
pro forma basis after giving effect to the Transactions, the aggregate
outstanding principal amount of Senior Debt of the Company and the Guarantors
would have been $10.8 million.
The Notes will not be listed on any securities exchange or included in the
National Association of Securities Dealers Automated Quotation System, and there
can be no assurance that there will be a secondary market therefor.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT
IN THE NOTES 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.
Price to Discounts and Proceeds to the
the Public (1) Commissions (2) Company (1) (3)
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Per Note % % %
Total $ $ $
(1)Plus accrued interest, if any, on the Notes from the date of issuance.
(2)The Company and the Guarantors have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See "Underwriting."
(3)Before deduction of expenses payable by the Company estimated to be
$ .
The Notes are offered by Donaldson, Lufkin & Jenrette Securities Corporation,
Bear, Stearns & Co. Inc. and Prudential Securities Incorporated (collectively,
the "Underwriters") subject to prior sale, when, as and if delivered to and
accepted by the Underwriters, and subject to certain prior conditions, including
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the Notes will be made in New York, New York through
the facilities of the Depository Trust Company on or about , 1996, against
payment therefor in immediately available funds.
Donaldson, Lufkin & Jenrette
Securities Corporation
Bear, Stearns & Co. Inc.
Prudential Securities Incorporated
<PAGE>
[Color Coded Map of Company Systems, Logos, Graphics, etc.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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Outside Front Cover -- Iron Mountain logo in upper left-hand corner
Inside Front Cover
1st picture -- Photograph of racking with stored cartons
2nd picture -- Photograph of bar-code scanner scanning bar-code label
on carton
3rd picture -- Photograph of delivery man at a client's office
4th picture -- Photograph of outside of an Iron Mountain storage facility
5th picture -- Photograph of Iron Mountain truck and delivery man in
downtown Boston
P. 2 Map of Continental U.S. showing markets served by Iron Mountain,
with list of markets
Inside Back Cover
1st picture -- Photograph of Vault door
2nd picture -- Photograph of outstide of an Iron Mountain storage facility
3rd picture -- Photograph of storage media (tapes, CDs, floppy disks, etc.)
4th picture -- Photograph of man reviewing report
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. References to "Iron Mountain" and the
"Company" include Iron Mountain Incorporated (including predecessor entities)
and its consolidated subsidiaries, unless the context otherwise requires.
The Company
Iron Mountain is the largest records management company in the United States,
as measured by revenues. The Company is a full-service provider of records
management and related services, enabling customers to outsource records
management functions. Pro forma for the Acquisitions (as defined herein), as of
June 30, 1996, the Company managed approximately 27.7 million Cartons* in 96
records centers in 32 markets nationwide. The Company has a diversified base of
over 19,000 customer accounts, which includes more than half of the Fortune 500
and numerous legal, banking, healthcare, accounting, insurance, entertainment
and government organizations. The Company provides storage and related services
for all major media, including paper (which is the dominant form of records
retention and which has accounted for approximately 85% of the Company's
revenues since 1992), computer disks and tapes, microfilm and microfiche, master
audio and video tapes, film and optical disks, X-rays and blueprints. The
Company's principal services include filing, retrieval and destruction of
records, courier pick-up and delivery, database management and customized
reporting. The Company also sells storage materials and provides consulting and
other records-related services.
The Company continues to capitalize on its leading position in the records
management industry and the industry trends of increased records retention,
outsourcing of records management and vendor consolidation. As a result, the
Company has achieved significant increases in revenues and EBITDA (as defined
herein). From 1991 to 1995, Iron Mountain's total revenues increased from $62.8
million to $104.4 million primarily from internal growth, representing a
compound annual growth rate ("CAGR") of 13.5%. During the same period, storage
revenues grew at a 12.9% CAGR while service and storage material sales revenues
grew at a 14.6% CAGR. From 1991 to 1995, the Company's EBITDA grew from $15.0
million to $26.1 million, representing a 14.9% CAGR. Revenues and EBITDA for the
six months ended June 30, 1996 increased 27.3% (10.2% from internal growth and
17.1% from acquisitions) and 24.8%, respectively, over the same period in 1995.
For a discussion of the significance of EBITDA and other measures of the
Company's performance determined in accordance with generally accepted
accounting principles ("GAAP") and the Company's sources and applications of
cash flow, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview."
Industry Overview
According to industry sources, organizations in the United States generate an
estimated four trillion documents each year, many of which must be retained and
remain available for reference for many years. These records may be generally
divided into two categories: active and inactive. Inactive records, which are
the principal focus of the records management industry, consist of records that
are not needed for immediate access but which must be retained for legal or
regulatory reasons or for occasional reference to support ongoing business
operations. Based on industry studies, the Company believes that inactive
records make up approximately 80% of all records. The Company believes that the
volume of inactive records is increasing for a number of reasons, including: (i)
the rapid growth of inexpensive document producing technologies such as
facsimile, desktop printing and computer networking; (ii) increased regulatory
requirements; (iii) concerns over possible future litigation and the resulting
increases in volume and holding periods of documentation; (iv) the high cost of
reviewing records and deciding whether to retain or destroy them; and (v) the
failure of many entities to adopt or follow policies on records destruction.
Despite the growth of new "paperless" technologies, such as the Internet and
e-mail, management believes that stored information remains predominantly
paper-based and that such technologies have promoted the creation of hard copies
of such electronic information.
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* The term "Carton" is defined as a measurement of volume equal to a single
standard storage carton, approximately 1.2 cubic feet. The number of Cartons
stored does not include storage volumes in the Company's Vital Records Services
and Data Protection Services, which are described under "Business."
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The Company believes that it benefits from several industry fundamentals,
including: (i) the historically non- cyclical nature of the records management
industry; (ii) the continued trend towards corporate outsourcing of records
management functions; (iii) the ability of larger records management companies
to achieve economies of scale with respect to labor, real estate costs and the
utilization of management information systems; and (iv) the ongoing
consolidation of the records management industry.
The Company believes that it is one of only four records management providers
with a national operating presence, the balance being regional or, in most
instances, single-city operators. According to the Association of Commercial
Records Centers (the "ACRC"), a trade group of approximately 500 members, as of
January 1994 (the latest date for which such information is available),
approximately 2,600 firms offered records storage and management services in the
United States. The Company believes that there is a trend toward consolidation
in the records management industry and that such trend will continue to
accelerate primarily because of: (i) the opportunities to achieve economies of
scale; (ii) the industry's capital requirements for growth; (iii) customer
demands for more sophisticated technology-based solutions; and (iv) the
preference of certain large, national customers to outsource a significant
portion of their records management functions to one vendor with a national
presence, such as Iron Mountain.
Financial Characteristics of Iron Mountain's Business
Iron Mountain's records management business has the following financial
characteristics:
(bullet)Recurring Revenues. Iron Mountain derives a majority of its revenues
from fixed periodic (usually monthly) fees charged to customers for
storage of records. Storage revenues have grown for 30 consecutive
quarters and have represented approximately 60% of the Company's
total revenues in each of the last five years. Once a customer places
a record in storage with the Company and until that record is
destroyed or permanently removed (for which the Company typically
receives a service fee), the Company receives recurring payments of
fixed periodic fees without incurring additional labor or marketing
expenses or significant capital costs. The stable and growing storage
base also provides the foundation for increases in revenues and
EBITDA from service activities and sales of storage materials.
(bullet)Historically Non-Cyclical Business. Iron Mountain has not experienced
a reduction of its business as a result of past general economic
downturns, although there can be no assurance that this would be the
case in the future. Management believes that the outsourcing of
records management may accelerate during economic downturns as
companies focus on reducing costs through outsourcing non-core
operating functions. In addition, management believes that companies
that have outsourced records management are less likely during
economic downturns to incur the move-out costs and other expenses
associated with switching vendors or moving records management
in-house.
(bullet)Inherent Growth from Existing Customers. The Company's customers have
on average generated additional Cartons at a faster rate than stored
Cartons have been destroyed or permanently removed. From 1992 to
1995, net Cartons from existing customers grew at an average annual
rate of 6.7%. The Company believes the consistent growth of its
storage revenues is the result of a number of additional factors,
including: (i) the trend toward increased records retention; (ii)
customer satisfaction with the Company's services; and (iii) the
costs and inconvenience of moving storage operations in-house or to
another provider of records management services.
(bullet)Diversified and Stable Customer Base. The Company has over 19,000
customer accounts in a variety of industries. The Company currently
provides services to more than half of the Fortune 500 and numerous
legal, banking, healthcare, accounting, insurance, entertainment and
government organizations. Only one of the Company's customers
accounted for more than 3% of revenues in 1993, 1994 or 1995. From
1992 to 1995, average annual permanent removals of Cartons
represented only approximately 4% of total Cartons stored.
(bullet)Capital Expenditures Related Primarily to Growth. The Company's
business requires limited annual maintenance capital expenditures.
Maintenance capital expenditures were $1.8 million, $1.2 million and
$0.9 million in 1993, 1994 and 1995, respectively. From 1992 to 1995,
over 90% of the Company's aggregate capital expenditures were
growth-related investments, primarily in racking systems, new
4
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buildings and leasehold improvements, equipment for new facilities,
management information systems and facilities restructuring. These
growth-related capital expenditures are primarily discretionary and
create additional capacity for increases in revenues and EBITDA.
Business Strategy
Iron Mountain's business strategy is to increase revenues and EBITDA while
maintaining a low-cost operating structure and providing premium service. The
Company intends to generate growth by increasing its storage and service
revenues from existing customers, adding new customers and making acquisitions.
The Company's strategy is based on the following elements:
(bullet)Provide Superior Customer Service. The Company believes it has a
reputation for providing reliable, quality service based on its more
than 45 years of operations, its commitment to providing premium
customer service and the continuity and depth of its management team.
The Company has successfully implemented a decentralized management
structure that enables the Company to respond quickly and flexibly to
local customer needs. Iron Mountain's proprietary Safekeeper(R)
system enables it to quickly provide customized records management
solutions to its customers, enhancing the quality of its services. In
addition, Iron Mountain's national operating presence allows it to
better service large organizations that require records management
functions at multiple, geographically diverse facilities.
(bullet)Capitalize on Operating Efficiencies. Iron Mountain pursues a
low-cost operating strategy based primarily on achieving economies of
scale in the areas of storage, labor and transportation, general and
administrative functions and management information systems. Because
occupancy costs are a major component of the Company's cost of sales,
its real estate management staff aggressively seeks to minimize per
Carton storage costs by designing racking systems and operating space
to maximize facility storage efficiency, negotiating favorable
facility leases, contracting for facilities to be built to its custom
specifications, and leasing larger facilities in order to reduce
operating costs per Carton. The Company seeks to increase labor
efficiency by offering incentive compensation to all full-time
employees based upon achieving specific operating targets. Certain
operating costs, such as the maintenance of local delivery fleets,
general and administrative costs and management information systems,
offer economies of scale, providing the Company with operating
leverage and the ability to increase its efficiency through further
growth.
(bullet)Pursue Acquisition Opportunities. The Company believes that it is
well positioned to participate in the further consolidation of the
records management industry. Iron Mountain's management team has
successfully completed 16 acquisitions since the Company embarked on
a proactive acquisition strategy in mid-1994, and one additional
acquisition is currently pending. The Company intends to continue to
make fold-in acquisitions to augment its operations in existing
markets and to make strategic acquisitions in new geographic markets,
with an emphasis on the 50 largest markets in the United States and
potentially in certain markets outside the United States. Following
an acquisition in a new market, the Company seeks to increase its
business with the acquired customer base and to supplement that
growth both with new customers and through appropriate fold-in
acquisitions. In addition, the Company has successfully reduced the
cost structure of its acquired operations by implementing its
efficient operating strategies and leveraging its centralized
administrative resources and management information systems.
(bullet)Leverage Proprietary Safekeeper System. The Company pioneered the
application of advanced information technology to the records
management industry. Iron Mountain's proprietary Safekeeper system
provides advanced inventory control and information access, enabling
the Company to provide faster, higher quality and more flexible
solutions to its customers and to lower the costs of its operations.
Safekeeper has been designed to easily and effectively integrate
newly acquired records management companies and offer improved levels
of customer service and records management capabilities to customers
acquired through acquisitions. Iron Mountain's Safekeeper system
exploits bar-code technology to provide a comprehensive, standardized
approach to tracking, accessing and retrieving records. Safekeeper
offers state-of-the-art records management capabilities and ease of
access to customers while featuring security functions to protect
customer information from unauthorized access. Since 1992, the
Company has invested $12.5 million to develop and refine its
management information systems, including Safekeeper.
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The Offering
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<S> <C>
Securities Offered $150,000,000 principal amount of % Senior Subordinated Notes due 2006
(the "Notes").
Maturity Date , 2006
Interest Payment Dates and of each year, commencing
, 1997.
Guarantees The Notes will be fully and unconditionally guaranteed on an unsecured senior
subordinated and joint and several basis (the "Subsidiary Guarantees") by
substantially all of the Company's present and future Restricted Subsidiaries
(collectively, the "Guarantors"). Each of the Guarantors has also guaranteed
unconditionally the indebtedness outstanding under the Company's existing
bank credit facility (the "Credit Agreement") and will be required to
guarantee unconditionally the indebtedness outstanding under the new bank
credit facility the Company intends to enter into with its lenders (the "New
Credit Facility"). See "Description of the Notes--Subsidiary Guarantees."
Subordination The Notes will be general unsecured senior subordinated obligations of the
Company ranking junior to all existing and future Senior Debt of the Company,
including any indebtedness that may be incurred under the Credit Agreement or
the New Credit Facility. The Subsidiary Guarantees will rank junior to all
existing and future Senior Debt of the Guarantors. As of June 30, 1996, on a
pro forma basis after giving effect to the Transactions, the aggregate
outstanding principal amount of Senior Debt of the Company and the Guarantors
would have been $10.8 million. See "Description of the Notes--Subordination."
Optional Redemption Except as described below, the Notes are not redeemable by the Company prior
to , 2001. Thereafter, the Notes are redeemable at the option of the
Company, in whole or in part, at any time and from time to time, at the
redemption prices set forth herein plus accrued and unpaid interest to, but
excluding, the date of redemption. In addition, during the first 36 months
after the date of issuance of the Notes, the Company, at its option, may
redeem up to 35% of the initial principal amount of the Notes with the net
proceeds of one or more Qualified Equity Offerings at a redemption price
equal to %, plus accrued and unpaid interest to, but excluding, the date
of redemption; provided that at least 65% of the initial principal amount of
the Notes remains outstanding after each such redemption. See "Description of
the Notes--Optional Redemption."
Mandatory Redemption Except with respect to required repurchases upon the occurrence of a Change
of Control or in the event of certain Asset Sales, the Company is not
required to make sinking fund or redemption payments with respect to the
Notes at any time prior to maturity. See "Description of the Notes--
Mandatory Redemption."
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Change of Control Upon the occurrence of a Change of Control, each Holder of Notes may require the
Company to repurchase such Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest to, but excluding, the date of repurchase. See
"Description of the Notes--Repurchase at the Option of Holders--Change of Control."
Certain Covenants The Indenture governing the Notes (the "Indenture") will contain covenants
restricting or limiting the ability of the Company and its Restricted
Subsidiaries to, among other things: (i) incur additional indebtedness,
including indebtedness ranking senior to the Notes and junior to any Senior
Debt; (ii) pay dividends or make other restricted payments; (iii) make asset
dispositions; (iv) permit liens; (v) enter into sale and leaseback
transactions; (vi) enter into certain mergers; (vii) make certain
investments; and (viii) enter into transactions with related persons. See
"Description of the Notes--Certain Covenants."
Use of Proceeds The net proceeds of the Offering will be used to repay all outstanding bank debt and
certain other indebtedness, to fund the Pending Acquisition and possible future
acquisitions and for general corporate purposes.
</TABLE>
Risk Factors
For a discussion of certain material factors that should be considered in
connection with an investment in the Notes offered hereby, see "Risk Factors" on
pages 10 to 14.
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Summary Historical and Pro Forma Information
(Dollars in thousands)
The following summary historical consolidated statements of operations and
balance sheet data of the Company as of and for each of the years ended December
31, 1991, 1992, 1993, 1994 and 1995 have been derived from the Company's audited
consolidated financial statements. The summary historical consolidated
statements of operations and balance sheet data of the Company for the six
months ended June 30, 1995 and 1996 have been derived from the Company's
unaudited condensed consolidated financial statements. The Company's unaudited
condensed consolidated financial statements include all adjustments, consisting
of normal recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for those
periods. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results for the entire year ending December 31,
1996. The summary historical and pro forma financial data set forth below should
be read in conjunction with "Pro Forma Condensed Consolidated Financial
Information" and the Notes thereto, with "Selected Financial and Operating
Information" and the Notes thereto, with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with Iron Mountain's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
------------------------------------------------------------ --------------------------
Historical Pro Forma Historical Pro Forma
---------------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995(1) 1995 1996 1996(1)
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues:
Storage $39,510 $ 44,077 $ 48,892 $54,098 $ 64,165 $ 80,868 $30,748 $ 39,363 $43,080
Service and Storage Material Sales 23,330 26,596 32,781 33,520 40,271 49,813 19,476 24,587 26,550
------- -------- -------- ------- -------- -------- ------- -------- -------
Total Revenues 62,840 70,673 81,673 87,618 104,436 130,681 50,224 63,950 69,630
Operating Expenses:
Cost of Sales (Excluding
Depreciation) 31,375 35,169 43,054 45,880 52,277 64,651 25,112 32,383 34,968
Selling, General and Administrative 16,471 17,630 19,971 20,853 26,035 32,538 12,697 16,067 17,944
Depreciation and Amortization 7,674 5,780 6,789 8,690 12,341 16,577 5,428 7,530 8,257
------- -------- -------- ------- -------- -------- ------- -------- -------
Total Operating Expenses 55,520 58,579 69,814 75,423 90,653 113,766 43,237 55,980 61,169
------- -------- -------- ------- -------- -------- ------- -------- -------
Operating Income $ 7,320 $ 12,094 $ 11,859 $12,195 $ 13,783 $ 16,915 $ 6,987 $ 7,970 $ 8,461
======= ======== ======== ======= ======== ======== ======= ======== =======
Other Data:
EBITDA (2) $14,994 $ 17,874 $ 18,648 $20,885 $ 26,124 $ 33,492 $12,415 $ 15,500 $16,718
EBITDA as a Percentage of Total
Revenues 23.9% 25.3% 22.8% 23.8% 25.0% 25.6% 24.7% 24.2% 24.0%
Capital Expenditures:
Growth (3) -- $11,226 $13,605 $15,829(4) $14,395 -- $6,730 $10,702 --
Maintenance -- 818 1,846 1,151 858 -- 592 460 --
------- -------- -------- ------- ------- ------ -------
Total Capital Expenditures $ 8,163 $ 12,044 $ 15,451 $16,980(4) $15,253 -- $ 7,322 $ 11,162 --
Approximate Cartons in Storage at End
of Period (in millions) (5) 10.8 12.6 15.5 17.7 23.3 -- 20.3 26.4 27.7
</TABLE>
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<CAPTION>
Adjusted EBITDA and Credit Ratios: As of
June 30, 1996
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<S> <C>
Adjusted EBITDA (6) $35,844
Cash Interest Expense (7) 16,909
Ratio of Adjusted EBITDA to Cash
Interest Expense 2.1x
Ratio of Net Debt to Adjusted EBITDA (8) 4.1x
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1996
Historical Pro Forma(9)
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<S> <C> <C>
Balance Sheet Data:
Cash and Cash Equivalents $ 2,232 $ 12,979
Total Assets 212,630 254,213
Total Debt 118,894 161,237
Stockholders' Equity 54,729 52,501
</TABLE>
(Footnotes on the following page)
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(Footnotes from the preceding page)
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(1) Gives effect to: (i) the Completed Acquisitions (as defined herein); (ii)
the Pending Acquisition (as defined herein); (iii) the consummation of the
Company's initial public offering of its Common Stock, par value $0.01 per
share (the "Common Stock"), which closed on February 6, 1996 (the "Initial
Public Offering") and the application of the net proceeds therefrom; (iv)
the closing under the New Credit Facility; and (v) the application of the
estimated net proceeds from the Offering, as if each had occurred as of
January 1, 1995. The Company will record, in the quarter in which the
Offering is consummated, an extraordinary loss on retirement of debt, net of
related tax benefit, of approximately $2 million. The pro forma statements
of operations data do not give effect to such loss. See "The Transactions,"
"Use of Proceeds" and "Pro Forma Condensed Consolidated Financial
Information."
(2) Earnings before interest, taxes, depreciation, amortization and
extraordinary charges ("EBITDA"). Based on its experience in the records
management industry, the Company believes that EBITDA is an important tool
for measuring the performance of records management companies (including
potential acquisition targets) in several areas, such as liquidity,
operating performance and leverage. In addition, lenders use EBITDA as a
criterion in evaluating records management companies, and substantially all
of the Company's financing agreements contain covenants in which EBITDA is
used as a measure of financial performance. However, EBITDA should not be
considered an alternative to operating or net income (as determined in
accordance with GAAP) as an indicator of the Company's performance or to
cash flow from operations (as determined in accordance with GAAP) as a
measure of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview" and "--Liquidity and Capital
Resources" for discussions of other measures of performance determined in
accordance with GAAP and the Company's sources and applications of cash
flow.
(3) Growth capital expenditures include investments in racking systems, new
buildings and leasehold improvements, equipment for new facilities,
management information systems and facilities restructuring. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Capital Investments."
(4) Includes $2,901 related to the cost of constructing a records management
facility which was sold in a sale and leaseback transaction in the fourth
quarter of 1994.
(5) The term "Carton" is defined as a measurement of the volume equal to a
single standard storage carton, approximately 1.2 cubic feet. The number of
Cartons stored does not include storage volumes in the Company's vital
records services and data protection services which are described under
"Business." Pro forma Carton information for 1995 is not available.
(6) Gives effect to (i) the Completed Acquisitions completed after June 30, 1996
and (ii) the Pending Acquisition. Adjusted EBITDA, as defined in the
Indenture, equals the sum of (i) EBITDA of the Company and the Restricted
Subsidiaries for the most recent fiscal quarter for which internal financial
statements are available, multiplied by four, plus (ii) Acquisition EBITDA
of each business that has been acquired by the Company since the beginning
of such quarter (including any such acquisition which is occurring on the
date of the calculation), multiplied by a fraction, (a) the numerator of
which is three minus the number of months (and/or any portion thereof) in
such quarter for which the financial results of such acquired business are
included in the EBITDA of the Company and its Restricted Subsidiaries under
clause (i) above, and (b) the denominator of which is three. In addition,
the effects of unusual or non-recurring items occurring in any relevant
period shall be excluded in the calculation of Adjusted EBITDA. With respect
to any such acquired business, Acquisition EBITDA equals the sum of (i)
EBITDA of such acquired business for its last fiscal quarter for which
financial statements are available, multiplied by four (or if such quarterly
statements are not available, EBITDA for the last fiscal year for which
financial statements are available), plus (ii) projected quantifiable
improvements in operating results (on an annualized basis) due to cost
reductions calculated in good faith by the Company or one of its Restricted
Subsidiaries, as certified by an Officers' Certificate filed with the
Trustee, without giving effect to any operating losses of the acquired
business. Such projected quantifiable savings may differ from the cost
savings used to calculate the Pro Forma Condensed Consolidated Statement of
Operations. Adjusted EBITDA is merely a calculation utilized for purposes of
debt incurrence under the Indenture and should not be viewed as indicative
of actual or future results.
(7) Cash interest expense represents total interest expense less amortization of
deferred financing costs and other non-cash interest charges for the twelve
months ended June 30, 1996 on a pro forma basis giving effect to the
Transactions (as defined herein) as if each had occurred on July 1, 1995.
The calculation of cash interest expense assumes an interest rate of 10-1/2%
on the Notes.
(8) Net debt represents total debt less cash and cash equivalents and was
calculated based on the pro forma net debt as of June 30, 1996 of $148.3
million.
(9) Gives effect to: (i) the Completed Acquisitions consummated after June
30, 1996; (ii) the Pending Acquisition; (iii) the closing under the New
Credit Facility; and (iv) the application of the net proceeds from the
Offering, as if each had occurred as of June 30, 1996. See "Use of
Proceeds" and "Pro Forma Condensed Consolidated Financial Information."
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RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information contained in this Prospectus, in connection
with an investment in the Notes offered hereby.
Financial Leverage; Debt Service Requirements. The Company is highly
leveraged due to the substantial indebtedness it has incurred primarily to
finance acquisitions and expand its operations. As of June 30, 1996, on a pro
forma basis, after giving effect to the Transactions and the application of the
estimated net proceeds from the Offering, the Company would have had $161.2
million in total indebtedness and $52.5 million in stockholders' equity. The
Company expects to continue to borrow under the New Credit Facility and possible
future credit arrangements in order to finance possible future acquisitions and
for general corporate purposes.
The ability of the Company to repay the Notes and its other indebtedness will
depend upon future operating performance, which is subject to the success of the
Company's business strategy, prevailing economic conditions, levels of interest
rates and financial, business and other factors, many of which are beyond the
Company's control. The debt service obligations of the Company could have
important consequences, including the following: (i) the ability of the Company
to obtain additional financing for future working capital needs or for possible
future acquisitions or other purposes may be limited; (ii) a substantial portion
of the Company's cash flow from operations will be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing funds available for
other purposes; (iii) the Company may be more vulnerable to adverse economic
conditions than some of its competitors and thus may be limited in its ability
to withstand competitive pressures; and (iv) the Company may be more highly
leveraged than certain of its competitors, which may place it at a competitive
disadvantage.
A substantial portion of the Company's cash flow from operations is required
for debt service. Management believes that cash flow from operations in
conjunction with borrowings from existing and possible future credit facilities
will be sufficient for the foreseeable future to meet debt service requirements
and to make possible future acquisitions and capital expenditures. However,
there can be no assurance in this regard, and the Company's leverage could make
it vulnerable to a downturn in the operating performance of its subsidiaries, a
downturn in economic conditions or, because borrowings under the New Credit
Facility will bear interest at rates which fluctuate, increases in interest
rates on borrowings under the New Credit Facility. If such cash flow were not
sufficient to meet such debt service requirements or payments of principal, the
Company could be required to sell additional equity securities, refinance its
obligations or dispose of assets in order to make such scheduled payments. There
can be no assurance that the Company would be able to effect any of such
transactions or do so on favorable terms.
Subordination; Guarantees. The Notes will be unsecured senior subordinated
obligations of the Company and will be subordinated in right of payment to the
prior payment in full of all existing and future Senior Debt of the Company. At
June 30, 1996, the Company had $103.6 million of indebtedness outstanding that
would have constituted Senior Debt. Upon the consummation of the Offering and
application of the estimated net proceeds therefrom, and giving effect to the
Transactions, the Company would have $10.8 million of Senior Debt outstanding.
The Company intends to actively pursue additional acquisitions which would
likely be financed through the incurrence of additional indebtedness. Such
additional indebtedness may constitute Senior Debt. The Indenture allows the
Company to incur Senior Debt from time to time under the New Credit Facility or
otherwise, subject to certain limitations. Upon any acceleration of the maturity
of the Notes or upon any payment or distribution of assets of the Company to
creditors upon any liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any bankruptcy,
insolvency or similar proceedings of the Company, the holders of all Senior Debt
will be first entitled to receive payment in full of all amounts due or to
become due thereon before the Holders of the Notes will be entitled to receive
any payment in respect of the principal of or premium, if any, or interest on
the Notes. In addition, upon the occurrence of a payment default or certain
other defaults in respect of outstanding Senior Debt, Holders of Notes may be
prevented from receiving payments with respect to the Notes for an extended
period. See "Description of the Notes--Subordination."
Iron Mountain's subsidiaries have guaranteed on a senior subordinated basis
its obligations under the Credit Agreement and are expected to guarantee its
obligations under the New Credit Facility. Iron Mountain's obligations under the
Credit Agreement are secured by a first priority security interest in
substantially all of its assets (including the stock of its subsidiaries). It is
expected that Iron Mountain's obligations under the New Credit Facility will be
secured by a pledge of the stock of its subsidiaries. If Iron Mountain becomes
insolvent or is liquidated or if the indebtedness under the Credit Agreement or
the New Credit Facility is accelerated, the lenders under the Credit
10
<PAGE>
Agreement or the New Credit Facility would be entitled to exercise the remedies
available to a secured lender. Accordingly, such lenders will have a prior claim
on such assets of Iron Mountain and its subsidiaries. In such event, it is
possible that there would be no assets remaining from which claims of the
holders of Notes could be satisfied or, if any assets remained, such assets
might be insufficient to fully satisfy such claims. The Company may incur
additional secured indebtedness in the future. See "Description of the
Notes--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock" and "--Liens."
Iron Mountain is a holding company, substantially all of the assets of which
are the stock of its subsidiaries. Substantially all of the operations of the
Company are currently conducted by Iron Mountain's direct and indirect wholly
owned subsidiaries, all of which will be Guarantors, subject to the terms of the
Indenture. Management of the Company believes that separate financial statements
of such subsidiaries are not meaningful or material to investors and therefore
such statements have not been included in this Prospectus. The Company does not
currently expect that it will be required to prepare separate financial
statements for any of its subsidiaries in the foreseeable future and does not
expect to do so.
Unenforceability and Release of Guarantees. Iron Mountain's obligations under
the Notes will be guaranteed, jointly and severally, on a senior subordinated
basis by the Guarantors. To the extent that a court were to find that: (i) a
Subsidiary Guarantee was incurred by a Guarantor with intent to hinder, delay or
defraud any present or future creditor or the Guarantor contemplated insolvency
with a design to prefer one or more creditors to the exclusion in whole or in
part of others or (ii) such Guarantor did not receive fair consideration or
reasonably equivalent value for issuing its Subsidiary Guarantee and such
Guarantor (a) was insolvent; (b) was rendered insolvent by reason of the
issuance of such Subsidiary Guarantee; (c) was engaged or about to engage in a
business or transaction for which the remaining assets of such Guarantor
constituted unreasonably small capital to carry on its business; (d) intended to
incur, or believed that it would incur, debts beyond its ability to pay such
debts as they mature; or (e) was a defendant in an action for money damages or
had a judgment for money damages docketed against it (if, in either case, after
final judgment, the judgment is unsatisfied), then in each such case, a court
could avoid or subordinate such Subsidiary Guarantee in favor of the Guarantor's
other creditors. The measure of insolvency for purposes of the foregoing will
vary depending upon the law of the jurisdiction which is being applied.
Generally, however, a company would be considered insolvent for purposes of the
foregoing if, at the time it incurs any given obligation, the sum of the
company's debts (including unliquidated or contingent debt) is greater than all
the company's property at a fair valuation, or if the present fair salable value
of the company's assets is less than the amount that will be required to pay its
probable liability on its existing debts (including unliquidated or contingent
debt) as they become absolute and matured.
To the extent any Subsidiary Guarantee were to be avoided as a fraudulent
conveyance or held unenforceable for any other reason, Holders of Notes would
cease to have any claim in respect of such Guarantor and would be creditors
solely of the Company and any Guarantor whose Subsidiary Guarantee was not
avoided or held unenforceable. In such event, the claims of the Holders of Notes
against the issuer of an invalid Subsidiary Guarantee would be subject to the
prior payment of all liabilities of such Guarantor, including without
limitation, to the extent valid and enforceable, such Guarantor's guarantee of
indebtedness of Iron Mountain under the Credit Agreement or the New Credit
Facility, as the case may be, and any other Senior Debt of Iron Mountain
guaranteed by such Guarantor. There can be no assurance that, after providing
for all prior claims, there would be sufficient assets to satisfy the claims of
the Holders of Notes relating to any voided Subsidiary Guarantee. See
"Description of the Notes--Subordination."
Based upon financial and other information currently available to it, the
Company believes that the Notes and the Subsidiary Guarantees are being incurred
for proper purposes and in good faith, and that the Company and each Guarantor
are solvent and will continue to be solvent after issuing the Notes or the
Subsidiary Guarantees, as the case may be, will have sufficient capital for
carrying on their businesses after such issuance and will be able to pay their
debts as they mature. There can be no assurance, however, that a court would
reach the same conclusion. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Any Guarantor may be released from its Subsidiary Guarantee at any time upon
any sale, exchange or transfer in compliance with the provisions of the
Indenture by the Company of the capital stock of such Guarantor or substantially
all of the assets of such Guarantor and, in certain other circumstances, a
Guarantor may be released from its Subsidiary Guarantee in connection with the
Company's designation of such Guarantor as an Unrestricted Subsidiary. See
"Description of the Notes--Certain Covenants--Additional Subsidiary Guarantees."
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<PAGE>
Restrictions Imposed by Terms of Indebtedness. The Indenture will contain
covenants restricting or limiting the ability of the Company and its Restricted
Subsidiaries to, among other things: (i) incur additional indebtedness,
including indebtedness ranking senior to the Notes and junior to any Senior
Debt; (ii) pay dividends or make other restricted payments; (iii) make asset
dispositions; (iv) permit liens; (v) enter into sale and leaseback transactions;
(vi) enter into certain mergers; (vii) make certain investments; and (viii)
enter into transactions with related persons. In addition, the Credit Agreement
contains, and the New Credit Facility is expected to contain, certain other and
more restrictive covenants than those contained in the Indenture. See
"Description of New Credit Facility." This may adversely affect the Company's
ability to pursue its acquisition strategy. The Credit Agreement also requires,
and the New Credit Facility is expected to require, the Company to maintain
specific financial ratios and to satisfy certain financial condition tests. The
Company's ability to meet those financial ratios and financial condition tests
can be affected by events beyond its control, and there can be no assurance that
the Company will meet those tests. The breach of any of those covenants could
result in a default under the New Credit Facility, the Indenture, or both. In
the event of a default under the New Credit Facility or the Indenture, the
lenders could seek to declare all amounts outstanding under the New Credit
Facility, together with accrued and unpaid interest, if any, to be immediately
due and payable. If the Company were unable to repay those amounts, the lenders
under the New Credit Facility could proceed against the collateral granted to
them to secure that indebtedness. If the indebtedness under the New Credit
Facility or the Notes were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay in full that indebtedness and
the other indebtedness of the Company. The Notes are subordinated to all
existing and future Senior Debt of the Company, including indebtedness under the
Credit Agreement or the New Credit Facility, as the case may be, and the
Guarantees are subordinated to all existing and future Senior Debt of the
Guarantors, including guarantees by the Guarantors of the indebtedness
outstanding under the Credit Agreement or the New Credit Facility, as the case
may be. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Holding Company Structure; Dependence Upon Operations of Subsidiaries.
Substantially all of the tangible assets of the Company are held by, and a
substantial portion of the Company's operating revenues are derived from
operations of, the Company's subsidiaries. Therefore, the Company's ability to
pay interest and principal when due to holders of the Notes will be dependent
upon the receipt of sufficient funds from such subsidiaries. However, the
Company's obligations under the Notes will be guaranteed, jointly and severally,
on a senior subordinated basis, by substantially all of the Company's present
and future Restricted Subsidiaries.
Risk of Inability to Finance Change of Control Offer. In the event of a
Change of Control, the Company will be required to make an offer to purchase all
Notes then outstanding at a purchase price, in cash, equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase. There can be no assurance that the Company would be able to obtain
such funds through a refinancing of the Notes to be purchased or otherwise, or
that the purchase would be permitted under the Credit Agreement, the New Credit
Facility or the terms of other financing instruments, as the case may be. Also,
the requirement that the Company make an offer to purchase all Notes then
outstanding in the event of a Change of Control may have the effect of deterring
a third party from effecting a transaction that would constitute a Change of
Control. See "Description of the Notes-- Repurchase at the Option of
Holders--Change of Control."
Absence of Public Market for the Notes. There is no public market for the
Notes. The Notes will not be listed on any securities exchange or included in
the National Association of Securities Dealers Automated Quotation System. The
Company has been advised by the Underwriters that, following the completion of
this Offering, the Underwriters presently intend to make a market in the Notes;
however, they are under no obligation to do so and may discontinue any
market-making activities at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Notes or that an active public
market will develop or, if developed, will continue. If an active public market
does not develop or is not maintained, the market price and liquidity of the
Notes may be adversely affected. See "Underwriting."
Risks Associated with Acquisition Strategy. The Company has pursued and
intends to continue to pursue acquisitions of records management businesses as a
key component of its growth strategy. Since mid-1994, the Company has acquired
or entered into agreements to acquire 17 companies (of which 16 have been
completed and one is pending) engaged in the records management and related
businesses for estimated cash purchase prices aggregating $78.4 million. See
"The Transactions" and "Recent and Pending Acquisitions." Possible future
acquisitions may be for purchase prices significantly larger than those paid for
acquisitions consummated since mid- 1994. Certain risks are inherent in an
acquisition strategy, such as increasing leverage and debt service requirements
12
<PAGE>
and combining disparate company cultures and facilities, which could adversely
affect the Company's operating results. The success of any completed acquisition
will depend in part on Iron Mountain's ability to integrate effectively the
acquired records management business into the Company. The process of
integrating such acquired businesses may involve unforeseen difficulties and may
require a disproportionate amount of management's attention and the Company's
financial and other resources. No assurance can be given that the Pending
Acquisition will be completed, that additional suitable acquisition candidates
will be identified, financed and purchased on acceptable terms, or that recent
acquisitions or other future acquisitions, if completed, will be successful. See
"Business--Growth Strategy--Growth through Acquisitions."
Acquisitions by the Company in excess of $25 million individually and $50
million in the aggregate per year will require the approval of the majority
lenders under the Credit Agreement, and the New Credit Facility may contain
similar or other restrictions on acquisitions. No assurance can be given that
the lenders will consent to any acquisitions that the Company proposes to make
in excess of such limits.
The size, timing and integration of possible future acquisitions may cause
substantial fluctuations in operating results from quarter to quarter. As a
result, operating results for any quarter may not be indicative of the results
that may be achieved for any subsequent fiscal quarter or for a full fiscal
year.
Competition; Alternative Technologies. The Company faces competition from one
or more competitors in all geographic areas where 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. As a result of
this competition, the records management industry has for the past several years
experienced downward pricing pressures. While Iron Mountain believes that this
pricing climate is stabilizing, there can be no assurance that prices will not
decline further, as competitors seek to gain or preserve market share. Should a
further downward trend in pricing occur or continue for an extended period of
time, it could have a material adverse effect on the Company's results of
operations. The Company also competes for acquisition candidates. Some of the
Company's competitors may possess greater financial and other resources than the
Company. If any such competitor were to devote additional resources to the
records management business and such acquisition candidates or to focus its
strategy on the Company's markets, the Company's results of operations could be
adversely affected. In addition, the Company 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."
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 include
computer media, microforms, audio/video tape, film, CD-ROM and optical disk.
None of these technologies has replaced paper as the principal means for storing
information. However, there can be no assurance that one or more non-paper-based
technologies (whether now existing or developed in the future) may not in the
future reduce or supplant the use of paper as a preferred medium, which could in
turn adversely affect the Company's business.
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, such as losses from earthquakes, or may be altogether
uninsurable, such as losses from riots. In addition, 23 of the Company's 87
records management facilities are located in California and the Company derived
approximately 30% of its revenues for the six months ended June 30, 1996 from
its operations in California. The Company has in the past suffered damages and
losses from an earthquake and a riot in California, which damages and losses
were substantially covered by insurance. In the future, should uninsured losses
or damages occur, the Company could lose both its investment in and anticipated
profits and cash flow from the affected property and may continue to be
obligated on any leasehold obligations, mortgage indebtedness or other
obligations related to such property. As a result, any such loss could
materially adversely affect the Company. See "Business--Insurance."
Environmental Matters. As of June 30, 1996, the Company owned or leased
approximately 6.3 million square feet of facilities. Under various federal,
state and local environmental laws, ordinances and regulations
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("environmental laws"), an owner of real estate or a lessee conducting
operations thereon may become liable for the costs of investigation, removal or
remediation of soil and groundwater contaminated by certain hazardous substances
or wastes or petroleum products. Certain such laws impose cleanup responsibility
and liability without regard to whether the owner or operator of the real estate
or operations thereon knew of or was responsible for the contamination, and
whether or not operations at the property have been discontinued or title to the
property has been transferred. In addition, the presence of such substances, or
the failure to properly remediate such property, may adversely affect the
current property owner's or operator's ability to sell or rent such property or
to borrow using such property as collateral. The owner or operator of
contaminated real estate also may be subject to common law claims by third
parties based on damages and costs resulting from off-site migration of the
contamination.
Certain environmental laws govern the removal, encapsulation or disturbance
of asbestos-containing materials ("ACMs"). Such laws may impose liability for
release of ACMs and may enable third parties to seek recovery from owners or
operators of real estate for personal injury associated with exposure to such
substances. Certain facilities operated by the Company contain or may contain
ACMs. In addition, certain of the properties formerly or currently owned or
operated by the Company were previously used for industrial or other purposes
that involved the use or storage of hazardous substances or petroleum products
or the generation and disposal of hazardous wastes, and in some instances,
included the operation of underground storage tanks ("USTs").
In connection with its former and current ownership or operation of certain
properties, the Company may be potentially liable for environmental costs such
as those discussed above and as more specifically described under
"Business--Environmental Matters." The Company has from time to time conducted
certain environmental investigations and remedial activities at certain of its
former and current facilities, but an in-depth environmental review of the
properties has not been conducted by or on behalf of the Company.
The Company believes it is in substantial compliance with all applicable
material environmental laws. The Company has not received any written notice
from any governmental authority or third party asserting, and is not otherwise
aware of, any material environmental non-compliance, liability or claim relating
to hazardous substances or wastes, petroleum products or material environmental
laws applicable to Company operations in connection with any of its present or
former properties other than as described under "Business--Environmental
Matters." However, no assurance can be given that there are, or as a result of
possible future acquisitions there will be, no environmental conditions for
which the Company might be liable in the future or that future regulatory
action, as well as compliance with future environmental laws, will not require
the Company to incur costs for or at its properties that could have a material
adverse effect on the Company's financial condition and results of operations.
Reliance on Executive Officers. The Company's success is partially
dependent upon the performance and continued availability of its current
executive officers. The Company does not have employment contracts with any
of its current executive officers. There can be no assurance that the Company
will be able to retain such officers, the loss of whom could have a material
adverse effect upon the Company. See "Management."
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THE COMPANY
Iron Mountain is the largest records management company in the United States,
as measured by revenues. The Company is a full-service provider of records
management and related services, enabling customers to outsource data and
records management functions. Pro forma for the Acquisitions, as of June 30,
1996, the Company managed approximately 27.7 million Cartons in 96 records
centers in 32 markets nationwide. The Company has a diversified base of over
19,000 customer accounts, which includes more than half of the Fortune 500 and
numerous legal, banking, healthcare, accounting, insurance, entertainment and
government organizations. The Company provides storage and related services for
all major media, including paper (which is the dominant form of records
retention and which has accounted for approximately 85% of the Company's
revenues since 1992), computer disks and tapes, microfilm and microfiche, master
audio and video tapes, film and optical disks, X-rays and blueprints. The
Company's principal services include filing, retrieval and destruction of
records, courier pick-up and delivery, database management and customized
reporting. The Company also sells storage materials and provides consulting and
other records-related services.
Iron Mountain's operations date to 1951, when a corporate predecessor
commenced storage operations in a network of underground vaults in a former iron
ore mine, focusing on the maximum-security storage of corporate vital records in
the Northeast. That company was acquired by Schooner Capital Corporation
("Schooner") in 1975, after which its focus shifted to more general records
management. In 1988, a corporate affiliate of Schooner acquired the Bell &
Howell Records Management Company and its subsidiaries ("BHRM") for
approximately $75 million. At that time, BHRM conducted storage operations in
various states, with significant operations in California. The current Iron
Mountain was incorporated in 1990 as part of a recapitalization that
consolidated the former BHRM operations with the predecessor's Northeast
operations.
The principal executive offices of the Company are located at 745 Atlantic
Avenue, Boston, Massachusetts 02111. Its telephone number is (617) 357-4455.
THE TRANSACTIONS
In connection with the Offering, the Company intends to: (i) repay all
indebtedness outstanding under the Credit Agreement; (ii) repay its 13.42%
Senior Subordinated Notes due December 14, 2000 (the "Chrysler Notes"); (iii)
fund the purchase price of the Pending Acquisition described below under "Recent
and Pending Acquisitions;" and (iv) enter into the New Credit Facility (the
foregoing, together with the Offering and the application of the net proceeds
therefrom and the Completed Acquisitions consummated after June 30, 1996, are
referred to collectively as the "Transactions").
Sources and Uses of Funds
The estimated sources and uses of funds in connection with the
Transactions are set forth below (in millions):
Sources of Funds:
New Credit Facility $ --
Senior Subordinated Notes due 2006 150.0
------
Total Sources $150.0
======
Uses of Funds:
Repay Credit Agreement (1) $ 92.9
Repay Chrysler Notes (1) 14.8
Purchase Price of Pending Acquisition and
Acquisitions Completed after June 30, 1996 (2) 23.5
Estimated Fees and Expenses (3) 8.1
General Corporate Purposes 10.7
------
Total Uses $150.0
======
- -------------
(1) Balances are as of June 30, 1996.
(2) Acquisitions completed after June 30, 1996 were initially financed by
borrowings under the Credit Agreement and a portion of the net proceeds of
the Offering will be used to repay such indebtedness.
(3) Consists of estimated fees and expenses related to the Offering, the
repayment of the Credit Agreement and the Chryster Notes and the closing of
the New Credit Facility.
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Repayment of Credit Agreement Indebtedness. The Company is party to the
Amended and Restated Credit Agreement dated as of January 31, 1995, as amended
(as so amended, the "Credit Agreement") among the Company, the lenders party
thereto and The Chase Manhattan Bank (National Association), as agent for such
lenders. Borrowings by the Company under the Credit Agreement during the most
recent twelve months were used to finance acquisitions and for working capital.
The Credit Agreement has a final maturity date of July 31, 2002. The weighted
average interest rate on August 12, 1996 on the indebtedness outstanding under
the Credit Agreement was 8.6%.
Repayment of Chrysler Notes. Pursuant to a Note Purchase Agreement dated as
of December 14, 1990, as amended, the Company issued the Chrysler Notes in an
aggregate principal amount of $15.0 million to Chrysler Capital Corporation. The
Company will repay the Chrysler Notes in full with a portion of the net proceeds
of the Offering; the amount shown under "Uses of Funds" above does not include
related fees and expenses.
Pending Acquisition. Approximately $ million of the net proceeds from the
Offering will be used to fund the Pending Acquisition described under "Recent
and Pending Acquisitions" below and for possible future acquisitions and for
general corporate purposes.
New Credit Facility. The Company intends to replace the Credit Agreement with
the New Credit Facility. The New Credit Facility is expected to provide the
Company with revolving credit availability of up to $100 million for possible
future acquisitions, working capital and other corporate purposes, and is
expected to terminate on September 30, 2001. As was the case with the Credit
Agreement, the Company's obligations under the New Credit Facility are expected
to be guaranteed by substantially all of the Company's subsidiaries; however,
unlike the Credit Agreement, the New Credit Facility is expected to be secured
only by the pledge of the stock of such subsidiaries. See "Description of New
Credit Facility" for a description of the currently expected terms of the New
Credit Facility. No assurance can be given that the Company will enter into the
New Credit Facility on those or any other terms. The Offering is not conditioned
on the closing of the New Credit Facility.
16
<PAGE>
RECENT AND PENDING ACQUISITIONS
As part of its growth strategy, since mid-1994 the Company has acquired or
entered into agreements to acquire 17 records management businesses. Since
January 1, 1995, the Company has purchased for cash 13 such businesses (the
"Completed Acquisitions") and has entered into a definitive agreement to acquire
one additional records management business (the "Pending Acquisition" and,
together with the Completed Acquisitions, the "Acquisitions").
The total purchase price of the Completed Acquisitions was approximately $
million. The Completed Acquisitions represent in the aggregate total annual
revenues of approximately $29.0 million, and the Pending Acquisition represents
total annual revenues of approximately $1.6 million (calculated in each case by
reference to the revenues of each such acquired business during the twelve
months ended December 31, 1995, which calculation includes an estimate of total
revenues for the portion of 1995, if any, during which any such acquired
business was included in the Company's results of operations). See "Pro Forma
Condensed Consolidated Financial Information."
The following table presents certain information for each acquisition
completed since 1994 and for the Pending Acquisition.
<TABLE>
<CAPTION>
Principal
State(s) of
Acquisition Operation Completion Date
- ----------- ------------- -----------------
<S> <C> <C>
1994 Acquisitions
Data protection service business of Media Management Group, Inc. Connecticut June 1994
Data protection service business of Digital Equipment Corporation Massachusetts July 1994
Storage and Retrieval Concepts, Inc Ohio October 1994
1995 Acquisitions
National Business Archives, Inc Maryland March 1995
DataFile Services, Inc. Texas October 1995
Brooks Records Center, Inc. Delaware December 1995
Data Management Business Records Storage, Inc. Georgia December 1995
1996 Acquisitions
Nashville Vault Company, Ltd. Tennessee January 1996
Florida Data Bank, Inc. Florida January 1996
DataVault Corporation Massachusetts February 1996
Data Storage Systems, Inc. California March 1996
Brambles CRC, Inc. Ohio and
Kentucky April 1996
Records management business of Output Technologies Central Region, Inc. Kansas and
Missouri May 1996
Records management business of The Fortress Corporation Massachusetts
and Florida July 1996
Data Archive Services, Inc. and Data Archive Services of Miami, Inc. Florida August 1996
DKA Industries, Inc. (d/b/a Systems Record Storage) Florida August 1996
Pending Acquisition Status
------
International Record Storage and Retrieval Service, Inc. Definitive
New Jersey Agreement
</TABLE>
The closing of the Pending Acquisition is subject to various conditions and
no assurance can be given that the Pending Acquisition will be completed. See
"Risk Factors--Risks Associated with Acquisition Strategy." The Offering is not
conditioned upon the completion of the Pending Acquisition, and the Pending
Acquisition is not conditioned upon completion of the Offering.
17
<PAGE>
USE OF PROCEEDS
The gross proceeds from the Offering will be used: (i) to repay all
indebtedness under the Credit Agreement and the Chrysler Notes; (ii) to fund the
purchase price of the Pending Acquisition and for possible future acquisitions;
(iii) for general corporate purposes; and (iv) to pay certain fees and expenses
related to the Offering. See "The Transactions" and "Recent and Pending
Acquisitions." The net proceeds to the Company from the Offering are estimated
to be approximately $144.7 million, after deducting underwriting discounts and
commissions and estimated Offering expenses. Prior to funding the Pending
Acquisition and being applied to fund possible future acquisitions or for
general corporate purposes, the net proceeds from the Offering will be invested
in short-term, dividend-paying or interest-bearing investment grade securities.
CAPITALIZATION
(Dollars in thousands, except per share data)
The following table sets forth the capitalization of the Company at June 30,
1996 and pro forma to give effect to the Transactions as if they had occurred on
June 30, 1996.
<TABLE>
<CAPTION>
As of June 30, 1996
---------------------
Actual Pro Forma
------- ---------
<S> <C> <C>
Cash and Cash Equivalents $ 2,232 $ 12,979
======== ========
Long-term Debt (Including Current Maturities):
Credit Agreement $ 92,850 $ --
New Credit Facility -- --
Real Estate Mortgages 10,761 10,761
Senior Subordinated Notes due 2006 -- 150,000
Chrysler Notes 14,807 --
Other 476 476
-------- --------
Total Long-term Debt 118,894 161,237
Stockholders' Equity:
Common Stock, $0.01 par value; 13,000,000 Shares
Authorized, 9,627,141 Issued and Outstanding 96 96
Non-voting Common Stock, $0.01 par value;
1,000,000 Shares Authorized, 500,000 Issued and
Outstanding 5 5
Additional Paid-in Capital 62,014 62,014
Accumulated Deficit (7,386) (9,614)
-------- --------
Total Stockholders' Equity 54,729 52,501
-------- --------
Total Capitalization $173,623 $213,738
======== ========
</TABLE>
18
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Consolidated Balance Sheet has
been prepared based upon the unaudited historical condensed consolidated balance
sheet of Iron Mountain as of June 30, 1996 and the balance sheets as of June 30,
1996 of the Completed Acquisitions consummated after June 30, 1996 and the
Pending Acquisition, and gives effect to: (i) such Completed Acquisitions and
the Pending Acquisition; (ii) the closing under the New Credit Facility; and
(iii) the application of the estimated net proceeds from the Offering (after
deducting underwriting discounts and commissions and estimated expenses of the
Offering), as if each had occurred as of June 30, 1996. The following unaudited
Pro Forma Condensed Consolidated Statements of Operations for the six months
ended June 30, 1996 and for the year ended December 31, 1995 give effect to each
of the above transactions and to: (i) the Completed Acquisitions which occurred
before June 30, 1996 and (ii) the Initial Public Offering and the application of
the net proceeds therefrom, as if each had occurred as of January 1, 1995. Pro
forma adjustments are described in the accompanying notes.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations are not necessarily indicative of the actual results of operations
that would have been reported if the events described above had occurred as of
January 1, 1995, nor do they purport to indicate the results of the Company's
future operations. Furthermore, the pro forma results do not give effect to all
cost savings or incremental costs that may occur as a result of the integration
and consolidation of the Acquisitions. In the opinion of management, all
adjustments necessary to present fairly such pro forma financial statements have
been made.
The pro forma condensed consolidated financial information should be read in
conjunction with "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the Financial Statements
and the Notes thereto included elsewhere in this Prospectus.
19
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Pending and Pro Forma
Iron Completed Iron
Mountain Acquisitions (1) Adjustments Mountain
--------- ---------------- ----------- --------
<S> <C> <C> <C> <C>
Assets
Current Assets $ 25,865 $1,562 $11,900 (A) $ 39,327
Property, Plant and Equipment, net 103,004 2,486 1,839 (A) 107,329
Goodwill, net 72,213 25 19,275 (A) 91,513
Other Long-term Assets 11,548 248 4,248 (A) 16,044
-------- ------ ------- --------
Total Assets $212,630 $4,321 $37,262 $254,213
======== ====== ======= ========
Liabilities and Stockholders' Equity
Current Liabilities $ 23,129 $2,179 $(3,718) (B) $ 21,590
Long-term Debt, net of current portion 115,700 663 44,680 (B) 161,043
Other Long-term Liabilities 6,769 1,226 (1,219) (B) 6,776
Deferred Rent 7,897 233 (233) (B) 7,897
Deferred Income Taxes 4,406 -- -- 4,406
Stockholders' Equity 54,729 20 (2,248) (B) 52,501
-------- ------ ------- --------
Total Liabilities and Stockholders'
Equity $212,630 $4,321 $37,262 $254,213
======== ====== ======= ========
</TABLE>
- -------------
(1) See Schedule A for detail of the Pending and Completed Acquisitions.
The accompanying Notes are an integral part of
these pro forma financial statements.
20
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pending and Pro Forma
Iron Completed Iron
Mountain Acquisitions (1) Adjustments Mountain
-------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Storage $39,363 $3,717 $ -- $ 43,080
Service and Storage Material Sales 24,587 1,963 -- 26,550
------- ------ ------ -------
Total Revenues 63,950 5,680 -- 69,630
Operating Expenses:
Cost of Sales (Excluding Depreciation) 32,383 2,844 (259) (D) 34,968
Selling, General and Administrative 16,067 2,564 (687) (E) 17,944
Depreciation and Amortization 7,530 331 396 (F) 8,257
------- ------ ------ --------
Total Operating Expenses 55,980 5,739 (550) 61,169
------- ------ ------ --------
Operating Income (Loss) 7,970 (59) 550 8,461
Interest Expense 6,385 162 2,374 (G) 8,921
------- ------ ------ --------
Income (Loss) before Provision
(Benefit) for Income Taxes 1,585 (221) (1,824) (460)
Provision (Benefit) for Income Taxes 888 (30) (744) (H) 114
------- ------ ------ --------
Net Income (Loss) 697 (191) (1,080) (574)
Accretion of Redeemable Put Warrant 280 -- (280) (I) --
------- ------ ------ --------
Net Income (Loss) Applicable to Common
Stockholders $ 417 $ (191) $ (800) $ (574)
======= ====== ======= ========
Net Income (Loss) per Common and Common
Equivalent Share $ 0.04 $ (0.06)
Weighted Average Common and Common
Equivalent Shares Outstanding 9,899 400 (J) 10,299
Other Data:
EBITDA $15,500 $ 272 $ 946 $16,718
</TABLE>
- -------------
(1) See Schedule B for detail of the Pending and Completed Acquisitions.
The accompanying Notes are an integral part of
these pro forma financial statements.
21
<PAGE>
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pending and Pro Forma
Iron Completed Iron
Mountain Acquisitions (1) Adjustments Mountain
-------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Storage $ 64,165 $ 16,703 $ -- $ 80,868
Service and Storage Material Sales 40,271 10,279 (737) (C) 49,813
-------- -------- ------- --------
Total Revenues 104,436 26,982 (737) 130,681
Operating Expenses:
Cost of Sales (Excluding Depreciation) 52,277 13,262 (888) (D) 64,651
Selling, General and Administrative 26,035 8,167 (1,664) (E) 32,538
Depreciation and Amortization 12,341 2,204 2,032 (F) 16,577
-------- -------- ------- -------
Total Operating Expenses 90,653 23,633 (520) 113,766
-------- -------- ------- -------
Operating Income 13,783 3,349 (217) 16,915
Interest Expense 11,838 1,452 4,556 (G) 17,846
-------- -------- ------- -------
Income (Loss) before Provision for
Income Taxes 1,945 1,897 (4,773) (931)
Provision for Income Taxes 1,697 102 (1,169) (H) 630
-------- -------- ------- -------
Net Income (Loss) 248 1,795 (3,604) (1,561)
Accretion of Redeemable Put Warrant 2,107 -- (2,107) (I) --
-------- -------- ------- -------
Net Income (Loss) Applicable to Common
Stockholders $ (1,859) $ 1,795 $(1,497) $ (1,561)
======== ======== ======= =======
Net Income (Loss) per Common and Common
Equivalent Share $ (0.24) $ (0.15)
Weighted Average Common and Common
Equivalent Shares Outstanding 7,784 2,350(J) 10,134
Other Data:
EBITDA $ 26,124 $ 5,553 $1,815 $33,492
</TABLE>
- -------------
(1) See Schedule C for detail of the Pending and Completed Acquisitions.
The accompanying Notes are an integral part of
these pro forma financial statements.
22
<PAGE>
SCHEDULE A
IRON MOUNTAIN INCORPORATED
SCHEDULE OF PENDING AND COMPLETED ACQUISITIONS
AS OF JUNE 30, 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Acquisitions Pending
Completed and
after Pending Completed
June 30, 1996 Acquisition Acquisitions
------------ ---------- -------------
<S> <C> <C> <C>
Assets
Current Assets $1,185 $ 377 $1,562
Property, Plant and Equipment, net 2,034 452 2,486
Goodwill, net 25 -- 25
Other Long-term Assets 66 182 248
------- ------ ------
Total Assets $3,310 $1,011 $4,321
======= ====== ======
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities $1,418 $ 761 $2,179
Long-term Debt, net of current portion 663 -- 663
Other Long-term Liabilities 475 751 1,226
Deferred Rent -- 233 233
Stockholders' Equity (Deficit) 754 (734) 20
------- ------ ------
Total Liabilities and Stockholders' Equity (Deficit) $3,310 $1,011 $4,321
======= ====== ======
</TABLE>
The accompanying Notes are an integral part of
these pro forma financial statements.
23
<PAGE>
SCHEDULE B
IRON MOUNTAIN INCORPORATED
SCHEDULE OF PENDING AND COMPLETED ACQUISITIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pending
and
Completed Pending Completed
Acquisitions Acquisition Acquisitions
----------- ---------- -------------
<S> <C> <C> <C>
Revenues:
Storage $3,188 $529 $3,717
Service and Storage Material Sales 1,650 313 1,963
------ ---- ------
Total Revenues 4,838 842 5,680
Operating Expenses:
Cost of Sales (Excluding Depreciation) 2,413 431 2,844
Selling, General and Administrative 2,317 247 2,564
Depreciation and Amortization 296 35 331
------ ---- ------
Total Operating Expenses 5,026 713 5,739
------ ---- ------
Operating Income (Loss) (188) 129 (59)
Interest Expense 129 33 162
------ ---- ------
Income (Loss) before Provision (Benefit) for
Income Taxes (317) 96 (221)
Provision (Benefit) for Income Taxes (41) 11 (30)
------ ---- ------
Net Income (Loss) $ (276) $ 85 $ (191)
====== ==== ======
Other Data:
EBITDA $ 108 $164 $ 272
</TABLE>
The accompanying Notes are an integral part of
these pro forma financial statements.
24
<PAGE>
SCHEDULE C
IRON MOUNTAIN INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Completed Acquisitions (1)
-------------------------------------------------------- Pending
National Total and
Business Data Nashville Completed Pending Completed
Archives Management Vault Other Acquisitions Acquisition Acquisitions
--------- ---------- --------- ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Storage $ 758 $ 2,912 $ 636 $11,434 $ 15,740 $ 963 $ 16,703
Service and Storage Material Sales 471 2,308 739 6,141 9,659 620 10,279
------ ------- ------ ------- -------- ------ --------
Total Revenues 1,229 5,220 1,375 17,575 25,399 1,583 26,982
Operating Expenses:
Cost of Sales (Excluding
Depreciation) 712 2,543 499 8,718 12,472 790 13,262
Selling, General and Administrative 89 1,418 327 5,905 7,739 428 8,167
Depreciation and Amortization 55 506 122 1,448 2,131 73 2,204
------ ------- ------ ------- -------- ------ --------
Total Operating Expenses 856 4,467 948 16,071 22,342 1,291 23,633
------ ------- ------ ------- -------- ------ --------
Operating Income 373 753 427 1,504 3,057 292 3,349
Interest Expense 14 494 61 817 1,386 66 1,452
------ ------- ------ ------- -------- ------ --------
Income before Provision (Benefit)
for Income Taxes 359 259 366 687 1,671 226 1,897
Provision (Benefit) for Income Taxes -- 87 -- (6) 81 21 102
------ ------- ------ ------- -------- ------ --------
Net Income $ 359 $ 172 $ 366 $ 693 $ 1,590 $ 205 $ 1,795
====== ======= ====== ======= ======== ====== ========
Other Data:
EBITDA $ 428 $ 1,259 $ 549 $ 2,952 $ 5,188 $ 365 $ 5,553
</TABLE>
- -------------
(1) Represents historical results of operations for each Completed Acquisition
for the period in 1995 prior to acquisition by the Company.
See "Overview" in the accompanying Notes.
The accompanying Notes are an integral part of
these pro forma financial statements.
25
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Overview
- --------
In March 1995, the Company acquired National Business Archives, Inc.
("NBA") for approximately $15.6 million. In October 1995, the Company
acquired DataFile Services, Inc. In December 1995, the Company acquired Data
Management Business Records Storage, Inc. ("Data Management") for $14.5
million. In December 1995, the Company also acquired Brooks Records Center,
Inc. In January 1996, the Company acquired Nashville Vault Company, Ltd.
("Nashville Vault") for $3.5 million. In January 1996, the Company also
acquired Florida Data Bank, Inc. ("FDB"). In February 1996 the Company
acquired DataVault Corporation. In March 1996, the Company acquired Data
Storage Systems, Inc. In April 1996, the Company acquired Brambles CRC, Inc.
("CRC"). In May 1996, the Company acquired the records management business of
Output Technologies Central Region, Inc. In July 1996, the Company acquired
the records management business of The Fortress Corporation. In August 1996,
the Company acquired Data Archive Services, Inc. and Data Archive Services of
Miami, Inc. (collectively, "DAS") and DKA Industries, Inc. The results of
operations of the Acquisitions which were consummated prior to June 30, 1996
are included in the results of operations of the Company from their
respective dates of acquisition. The historical balance sheet of the Company
at June 30, 1996 includes the acquisitions consummated prior to June 30,
1996. The aggregate purchase price of the foregoing acquisitions, excluding
NBA, Data Management and Nashville Vault, was $42.7 million.
During August 1996, the Company entered into a definitive agreement to
purchase International Record Storage and Retrieval Service, Inc. The closing of
this Pending Acquisition is subject to various conditions, and no assurance can
be given that such acquisition will be completed.
Balance Sheet
The aggregate consideration paid or to be paid for the Acquisitions is
approximately $76.3 million in cash. The excess of the purchase price over the
book value of the net assets acquired for each of the Acquisitions has been
allocated to tangible and intangible assets, based on the Company's estimate of
the fair market value of the net assets acquired. The allocations of the
purchase price as illustrated below may change upon final appraisal of the fair
market value of the net assets acquired.
<TABLE>
<CAPTION>
(In millions)
<S> <C> <C>
Acquisitions Completed Prior to June 30, 1996:
Book value of net assets acquired $11.6
Allocation of purchase price in excess of acquired assets:
Property, Plant and Equipment (Fair Value Adjustment) 5.4
Other Long-term Assets (Covenants not to Compete) 2.8
Current Liabilities (Relocation and Other Reserves) (1.8)
Deferred Rent (Unfavorable Lease Liability) (5.3)
Goodwill 40.1
--
Purchase Price of Acquisitions Completed Prior to June 30, 1996 $52.8
Acquisitions Completed after June 30, 1996 and the Pending
Acquisition:
Book value of net assets acquired $ 3.8
Allocation of purchase price in excess of acquired assets:
Property, Plant and Equipment (Fair Value Adjustment) 1.8
Other Long-term Assets (Covenants not to Compete) 0.1
Current Liabilities (Relocation and Other Reserves) (1.5)
Goodwill 19.3
--
Purchase Price of Acquisitions Pending as of June 30, 1996 23.5
----
Total Purchase Price of Acquisitions $76.3
====
</TABLE>
26
<PAGE>
The Acquisitions completed prior to June 30, 1996 were financed with
long-term debt and proceeds from the Initial Public Offering. The Acquisitions
completed after June 30, 1996 and the Pending Acquisition are assumed to be
financed with long-term debt.
All of the Completed Acquisitions have been, and the Pending Acquisition, if
consummated, will be accounted for as purchases. The Company will fund the
purchase price of the Pending Acquisition with a portion of the net proceeds
from the Offering. See "Recent and Pending Acquisitions," "The Transactions" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The accompanying pro forma condensed consolidated balance sheet as of June
30, 1996 has been prepared as if the Transactions had all been completed as of
June 30, 1996 and reflects the following adjustments:
(A) The pro forma adjustments to Assets consist of the following:
<TABLE>
<CAPTION>
Property, Other
Current Plant and Long-term
Assets Equipment Goodwill Assets
------- --------- -------- ---------
(In millions)
<S> <C> <C> <C> <C>
Acquisition Entries:
Reverse assets of acquired companies not purchased $ (0.3) $ -- $ -- $(0.2)
Record estimated fair market value of assets of acquired
companies -- 1.8 -- --
Record increase in intangible assets equal to the excess
of purchase price over fair market value of assets -- -- 19.3 0.1
------ ----- ------ -----
Total Acquisition Entries (0.3) 1.8 19.3 (0.1)
Use of Proceeds Entries:
Record net excess cash proceeds from the Offering 10.7 -- -- --
Record deferred financing fees associated with the Notes
and the New Credit Facility -- -- -- 6.3
Write-off of pre-existing deferred financing costs -- -- -- (2.0)
Tax benefit associated with write-off of deferred
financing fees, prepayment penalty and loss on
termination of interest rate protection agreements 1.5 -- -- --
------ ----- ------ -----
Total Use of Proceeds Entries 12.2 -- -- 4.3
------ ----- ------ -----
Total Adjustments $ 11.9 $ 1.8 $ 19.3 $ 4.2
====== ===== ====== =====
</TABLE>
27
<PAGE>
(B) The pro forma adjustments to Liabilities and Stockholders' Equity consist of
the following:
<TABLE>
<CAPTION>
Other
Current Long-term Long-term Deferred Stockholders'
Liabilities Debt Liabilities Rent Equity
----------- --------- ----------- -------- -------------
(In millions)
<S> <C> <C> <C> <C> <C>
Acquisition Entries:
Reverse current liabilities and debt not
assumed in connection with Acquisitions
closing after June 30, 1996 $(0.7) $ (0.7) $(1.2) $(0.2) $ --
Record additional debt to finance
Acquisitions closing after June 30, 1996 23.5
Total Acquisition Entries (0.7) 22.8 (1.2) (0.2) (0.0)
----- ------- ----- ----- -----
Use of Proceeds Entries:
Issuance of the Notes -- 150.0 -- -- --
Prepayment of Credit Agreement and Chrysler
Notes (3.0) (104.6) -- -- --
Use of proceeds to repay debt issued to
finance Acquisitions closing after June
30, 1996 -- (23.5) -- -- --
Extraordinary charge, net of tax benefit,
related to early retirement of
pre-existing debt -- -- -- -- (2.2)
----- ------- ----- ----- -----
Total Use of Proceeds Entries (3.0) 21.9 -- -- (2.2)
----- ------- ----- ----- -----
Total Adjustments $(3.7) $ 44.7 $(1.2) $(0.2) $(2.2)
===== ======= ===== ===== =====
</TABLE>
Statements of Operations
The accompanying unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1995 and for the six months ended
June 30, 1996 reflect the results as though each of the following had occurred
on January 1, 1995: (i) the Initial Public Offering and the application of the
net proceeds therefrom; (ii) the Offering and the application of the net
proceeds therefrom; (iii) the closing of the New Credit Facility; and (iv) the
Acquisitions. The Company will record, in the quarter in which the Offering is
consummated, an extraordinary loss on retirement of debt, net of related tax
benefit, of approximately $2 million. The pro forma statements of operations do
not give effect to such loss. Such loss consists of the write-off of deferred
financing costs, original issue discount, prepayment penalty and loss on
termination of interest rate protection agreements.
All of the Acquisitions, except Data Management, FDB, CRC and DAS, have a
December 31 fiscal year end. Data Management's and CRC's fiscal year end is June
30, DAS's fiscal year end is May 31 and FDB's fiscal year end is August 31.
Accordingly, Data Management's, CRC's, DAS's and FDB's results of operations
were calendarized to the twelve months ended December 31, 1995 and the six
months ended June 30, 1996.
The accompanying pro forma condensed consolidated statements of operations
for the year ended December 31, 1995 and for the six months ended June 30, 1996
have been prepared by combining the historical results of the Company and the
Pending Acquisition and, where applicable, the Completed Acquisitions for such
respective periods and reflect the following adjustments:
(C) A pro forma adjustment has been made to eliminate a $0.7 million
non-recurring gain on the sale of property and equipment by Data Management in
the year ended December 31, 1995.
(D) Pro forma adjustments for the year ended December 31, 1995 and for the
six months ended June 30, 1996 have been made to reduce cost of sales by $0.9
million and $0.3 million, respectively, to eliminate specific expenses that
would not have been incurred had the Acquisitions occurred at the beginning of
1995. Such cost
28
<PAGE>
savings relate to (i) the termination of certain employees due to the
integration and consolidation of certain Acquisitions and (ii) a reduction in
warehouse rent expense related to facilities the Company will vacate upon
completion of certain Acquisitions.
(E) Pro forma adjustments for the year ended December 31, 1995 and for the
six months ended June 30, 1996 have been made to reduce selling, general and
administrative expenses by $1.7 million and $0.7 million, respectively, to
eliminate specific expenses that would not have been incurred had the
Acquisitions occurred as of January 1, 1995. Such cost savings relate to (i) the
termination of certain employees due to the integration and consolidation of
certain Acquisitions and (ii) the elimination of related party expenses and
management fees in excess of amounts that would have been incurred by the
Company for the services rendered. Additional cost savings that the Company
expects to realize through integration of the Acquisitions into the Company's
operations have not been reflected herein.
(F) A pro forma adjustment has been made to reflect additional depreciation
and amortization expense on the fair market value of the assets acquired as if
the Acquisitions had occurred as of January 1, 1995. Property and equipment are
depreciated over three to 50 years, goodwill is amortized over 25 years, and
covenants not-to-compete are amortized over two to five years on a straight-line
basis. Such depreciation and amortization may change upon final appraisal of the
fair market value of the net assets acquired.
(G) The pro forma adjustments to interest expense consist of the
following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
---------- --------
(In millions)
<S> <C> <C>
Acquisition Entries:
Reverse interest expense on debt not assumed in connection
with Acquisitions $ (1.5) $(0.2)
Record interest expense due to assumption of unfavorable
lease liability in connection with the NBA acquisition 0.1 0.0
Use of Proceeds Entries:
Reverse interest expense on pre-existing debt of the Company
retired with proceeds of the Offering (10.3) (5.6)
Record interest expense from issuance of the Notes at an
assumed interest rate of 10-1/2%, plus amortization of
deferred financing costs 16.2 8.2
Record amortization of fees associated with the New Credit
Facility 0.6 0.3
Record interest income on remaining net proceeds of the
Offering pending application, at an assumed interest rate
of 5% (0.5) (0.3)
------ -----
Total Adjustments $ 4.6 $ 2.4
====== =====
</TABLE>
A 0.25% increase (or decrease) in the assumed 10-1/2% interest rate with
respect to the Notes would increase (or decrease) annual interest expense with
respect to the Notes by $375,000.
(H) A pro forma adjustment has been made to adjust the pro forma provision
for income taxes to a 40% rate on pro forma income before nondeductible goodwill
amortization and other nondeductible expenses.
(I) Pro forma adjustments of $2.1 million and $0.3 million for the periods
ended December 31, 1995 and June 30, 1996, respectively, have been made to
eliminate the accretion of a redeemable put warrant as if such warrant had been
redeemed as of January 1, 1995.
(J) A pro forma adjustment has been made to adjust the pro forma weighted
average common and common equivalent shares outstanding as if the Initial Public
Offering had occurred on January 1, 1995.
29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(In thousands, except per share amounts and Carton data)
The following selected consolidated statements of operations and balance
sheet data of the Company as of and for each of the years ended December 31,
1991, 1992, 1993, 1994 and 1995 have been derived from the Company's audited
consolidated financial statements. The selected consolidated statements of
operations and balance sheet data of the Company for the six months ended June
30, 1995 and 1996 have been derived from the Company's unaudited condensed
consolidated financial statements. The Company's condensed unaudited
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for those
periods. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results for the entire year ending December 31,
1996. The selected consolidated financial and operating information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with Iron Mountain's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
--------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------ ------ --------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues:
Storage $39,510 $ 44,077 $ 48,892 $54,098 $ 64,165 $30,748 $ 39,363
Service and Storage Material Sales 23,330 26,596 32,781 33,520 40,271 19,476 24,587
------ ----- ----- --------- ------ ----- -------
Total Revenues 62,840 70,673 81,673 87,618 104,436 50,224 63,950
Operating Expenses:
Cost of Sales (Excluding Depreciation) 31,375 35,169 43,054 45,880 52,277 25,112 32,383
Selling, General and Administrative 16,471 17,630 19,971 20,853 26,035 12,697 16,067
Depreciation and Amortization 7,674 5,780 6,789 8,690 12,341 5,428 7,530
------ ----- ----- --------- ------ ----- -------
Total Operating Expenses 55,520 58,579 69,814 75,423 90,653 43,237 55,980
------ ----- ----- --------- ------ ----- -------
Operating Income 7,320 12,094 11,859 12,195 13,783 6,987 7,970
Interest Expense 8,612 8,412 8,203 8,954 11,838 5,936 6,385
Income (Loss) before Provision (Benefit) for
Income Taxes (1,292) 3,682 3,656 3,241 1,945 1,051 1,585
Provision (Benefit) for Income Taxes 105 2,095 2,088 1,957 1,697 631 888
------ ----- ----- --------- ------ ----- -------
Net Income (Loss) (1,397) 1,587 1,568 1,284 248 420 697
Accretion of Redeemable Put Warrant 417 626 940 1,412 2,107 953 280
------ ----- ----- --------- ------ ----- -------
Net Income (Loss) Applicable to Common
Stockholders $(1,814) $ 961 $ 628 $ (128) $ (1,859) $ (533) $ 417
====== ===== ===== ========= ====== ===== =======
Net Income (Loss) per Common and Common
Equivalent Share $ (0.23) $ 0.12 $ 0.08 $ (0.02) $ (0.24) $ (0.07) $ 0.04
Weighted Average Common and Common Equivalent
Shares Outstanding 8,038 8,052 8,067 7,984 7,784 7,790 9,899
Other Data:
EBITDA (1) $14,994 $ 17,874 $ 18,648 $20,885 $ 26,124 $12,415 $ 15,500
EBITDA as a Percentage of Total Revenues 23.9% 25.3% 22.8% 23.8% 25.0% 24.7% 24.2%
Capital Expenditures:
Growth (2) -- $11,226 $13,605 $15,829(3) $14,395 $6,730 $10,702
Maintenance -- 818 1,846 1,151 858 592 460
------ ----- ----- --------- ------ ----- -------
Total Capital Expenditures $ 8,163 $ 12,044 $ 15,451 $16,980(3) $ 15,253 $ 7,322 $11,162
Additions to Customer Acquisition Costs $ -- $ 1,268 $ 922 $ 1,366 $ 1,379 $ 418 $ 717
Approximate Cartons in Storage at End of Period
(in millions) (4) 10.8 12.6 15.5 17.7 23.3 20.3 26.4
Ratio of Earnings to Fixed Charges (5) 0.9x 1.3x 1.3x 1.2x 1.1x 1.2x 1.2x
</TABLE>
(Footnotes on the following page)
30
<PAGE>
<TABLE>
<CAPTION>
As of June
As of December 31, 30, 1996
----------------------------------------------- -----------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and Cash Equivalents $ 407 $ 498 $ 591 $ 1,303 $ 1,585 $ 2,232
Total Assets 107,874 115,429 125,288 136,859 186,881 212,630
Total Debt 68,229 73,304 78,460 86,258 121,874 118,894
Stockholders' Equity 22,291 23,419 24,047 22,869 21,011 54,729
</TABLE>
- -------------
(Footnotes from the preceding page)
(1) Earnings before interest, taxes, depreciation, amortization and
extraordinary charges ("EBITDA"). Based on its experience in the records
management industry, the Company believes that EBITDA is an important tool
for measuring the performance of records management companies (including
potential acquisition targets) in several areas, such as liquidity,
operating performance and leverage. In addition, lenders use EBITDA as a
criterion in evaluating records management companies, and substantially all
of the Company's financing agreements contain covenants in which EBITDA is
used as a measure of financial performance. However, EBITDA should not be
considered an alternative to operating or net income (as determined in
accordance with GAAP) as an indicator of the Company's performance or to
cash flow from operations (as determined in accordance with GAAP) as a
measure of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview" and "--Liquidity and Capital
Resources" for discussions of other measures of performance determined in
accordance with GAAP and the Company's sources and applications of cash
flow.
(2) Growth capital expenditures include investment in racking systems, new
buildings and leasehold improvements, equipment for new facilities,
management information systems and facilities restructuring. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Capital Investments."
(3) Includes $2,901 related to the cost of constructing a records management
facility which was sold in a sale and leaseback transaction in the fourth
quarter of 1994.
(4) The term "Carton" is defined as a measurement of the volume equal to a
single standard storage carton, approximately 1.2 cubic feet. The number of
Cartons stored does not include storage volumes in the Company's vital
records services and data protection services which are described under
"Business."
(5) The pro forma ratio of earnings to fixed charges giving effect to the
Transactions as if each had occurred as of January 1, 1995, would have been
0.9x and 0.9x for the year ended December 31, 1995 and the six months ended
June 30, 1996, respectively. For the year ended December 31, 1995 and the
six months ended June 30, 1996, the Company would have needed to generate
additional income from continuing operations, before provision for income
taxes, of $931 and $460 to cover its fixed charges of $24,058 and $12,347,
respectively. The Company reported a pretax loss for the fiscal year ended
December 31, 1991. For such period the Company would have needed to generate
additional income from continuing operations, before provision for income
taxes, of $1,292 to cover its fixed charges of $11,626.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Consolidated Financial and Operating Information and the Consolidated Financial
Statements and the Notes thereto and the other financial and operating
information included elsewhere in this Prospectus.
Overview
The Company's primary financial objective is to increase its EBITDA, which is
a source of funds to service indebtedness and for investment in continued
internal growth and growth through acquisitions. The Company has benefited from
growth in EBITDA, which has increased from $17.9 million in 1992 to $26.1
million in 1995 (a CAGR of 13.5%), but other measures of the Company's financial
performance, such as net income and net income applicable to common
stockholders, have been negatively affected by this objective. In 1994 and 1995,
the Company experienced net losses applicable to common stockholders. Such net
losses are attributable in part to significant increases in non-cash charges
associated with the Company's pursuit of its growth strategy, namely, (i)
increases in depreciation and amortization expenses associated with expansion of
the Company's storage capacity and the acquisition of certain large volume
accounts and (ii) increases in goodwill amortization associated with
acquisitions accounted for under the purchase method. In addition, net income
available to common stockholders has been negatively affected by a non-cash
charge for accretion of a redeemable put warrant, which was redeemed upon
completion of the Company's Initial Public Offering. See Note 5 of Notes to the
Company's Audited Consolidated Financial Statements.
Iron Mountain's revenues consist of storage revenues and service and storage
material sales revenues. Storage revenues are derived from charges for storing
records (either on a per unit or a per cubic foot of records basis), and have
accounted for approximately 60% of total revenues in each of the last three
years and for the six months ended June 30, 1996. Service and storage material
sales revenues are derived primarily from the Company's courier operations
(consisting primarily of the pickup and delivery of records upon customer
request), additions of new Cartons, temporary removal of records from storage,
refiling of removed records, destructions of records, permanent withdrawals from
storage and sales of specially designed storage containers and related supplies.
Customers are generally billed on a monthly basis on contractually agreed-upon
terms.
While the Company's total revenues have increased from $70.7 million in 1992
to $104.4 million in 1995, average revenue on a per Carton basis has declined
over this period. The year-over-year declines in average revenue per Carton for
1993, 1994 and 1995 were approximately 8%, 7% and 2%, respectively. Such
declines were attributable to: (i) increases in sales to large volume accounts,
which typically generate lower revenue per Carton (in particular the Resolution
Trust Corporation (the "RTC") account, which incorporated substantial volume
discounts, although such discounts were offset by revenues from special service
projects during 1993 and 1994); (ii) a facilities management arrangement with a
large volume account under which, prior to July 1996, the Company managed the
customer's records management facility and, therefore, the charges to the
customer prior to July 1996 did not include a rent component; and (iii)
industry-wide pricing pressures. Despite this decline, the Company has been able
to maintain its EBITDA margins through increased overall operating efficiencies
and economies of scale as well as specific efficiencies realized in the
servicing of large volume accounts. For 1992, 1993, 1994, 1995 and the six
months ended June 30, 1996, EBITDA margins were 25.3%, 22.8%, 23.8%, 25.0% and
24.2%, respectively.
Pursuant to its 1992 contract with the RTC, the Company participated in the
consolidation and centralization of a large number of records on behalf of the
RTC. This activity, which entailed extensive services and the Company's start-up
of operations in two new markets, resulted in a significant increase in service
and storage material sales revenues in 1993. After the labor-intensive process
of assembling and inventorying the records was substantially completed in 1994,
the revenue from RTC service and storage material sales began to decrease, which
decrease was partially offset by increases in storage revenues due to an
increase in Cartons stored. The contract has been renewed effective July 27,
1996 for a one-year term by the Federal Deposit Insurance Corporation (the
"FDIC"), as successor in interest to the RTC, and may be renewed at the option
of the FDIC for three further terms of one year each. Although the substantial
costs of removing its records from the Company's facilities may act as a
disincentive to the FDIC to select another vendor, there can be no assurance
that this contract will be further renewed or that the terms of any such renewal
will be as favorable to Iron Mountain as the terms of the current contract.
32
<PAGE>
Cost of sales consists primarily of wages and benefits, facility occupancy
costs, vehicle and other equipment costs and supplies. Of these, the most
significant are wages and benefits and facility occupancy costs. Over the past
several years, Iron Mountain has been able to reduce per Carton storage costs
by: (i) designing racking systems and operating space to maximize facility
storage efficiency; (ii) negotiating favorable facility leases and having
facilities built to its custom specifications; and (iii) leasing larger
facilities, which, when filled, are less expensive per Carton to operate.
Selling, general and administrative expenses consist primarily of management,
administrative, sales and marketing wages and benefits, and also include travel,
communications, professional fees, bad debts, training, office equipment and
supplies expenses.
The Company's depreciation and amortization charges result primarily from the
capital-intensive nature of the records management industry and the acquisitions
the Company has completed. The principal components of depreciation relate to
racking systems and related equipment, new buildings and leasehold improvements,
equipment for new facilities and computer system software and hardware.
Amortization primarily relates to goodwill and noncompetition agreements arising
from acquisitions and customer acquisition costs. The Company has accounted for
all of its acquisitions under the purchase method. Since the purchase price for
records management companies is usually substantially in excess of the book
values 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. Accordingly, the faster
the Company expands by making such acquisitions, the more likely it will be to
incur amortization charges, reducing net income.
In February 1996, the Company received net proceeds of $33.3 million from its
Initial Public Offering. The Company used $6.6 million of such net proceeds to
repurchase a warrant to acquire 444,385 shares of Common Stock (the "Warrant").
For financial reporting purposes, the Company was required to record a non-cash
charge (based on the estimated redemption value calculated using the effective
interest rate method), resulting in substantial charges to net income applicable
to common stockholders over the period the Warrant was outstanding. See Note 5
of Notes to the Company's Audited Consolidated Financial Statements. The
remaining net proceeds were used by the Company to fund acquisitions (including
Completed Acquisitions consummated after the closing of the Initial Public
Offering) and to repay indebtedness used to fund acquisitions.
In December 1995, the Company decided to consolidate its corporate accounting
activities by transferring to Boston, Massachusetts those accounting activities
previously performed in Los Angeles, California. As a result of such transfer,
the Company recorded charges of $0.5 million and $0.3 million in the fourth
quarter of 1995 and the first six months of 1996, respectively.
33
<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>
Year Ended December Six Months
31, Ended June 30,
-------------------- --------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Revenues:
Storage 59.9% 61.7% 61.4% 61.2% 61.6%
Service and Storage Material Sales 40.1 38.3 38.6 38.8 38.4
----- ----- ----- ----- -----
Total Revenues 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Operating Expenses:
Cost of Sales (Excluding Depreciation) 52.7 52.4 50.1 50.0 50.7
Selling, General and Administrative 24.5 23.8 24.9 25.3 25.1
Depreciation and Amortization 8.3 9.9 11.8 10.8 11.7
----- ----- ----- ----- -----
Total Operating Expenses 85.5 86.1 86.8 86.1 87.5
----- ----- ----- ----- -----
Operating Income 14.5 13.9 13.2 13.9 12.5
Interest Expense 10.0 10.2 11.3 11.8 10.0
----- ----- ----- ----- -----
Income before Provision for Income Taxes 4.5 3.7 1.9 2.1 2.5
Provision for Income Taxes 2.6 2.2 1.7 1.3 1.4
----- ----- ----- ----- -----
Net Income 1.9% 1.5% 0.2% 0.8% 1.1%
===== ===== ===== ===== =====
EBITDA 22.8% 23.8% 25.0% 24.7% 24.2%
</TABLE>
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Storage revenues increased from $30.7 million for the first six months of
1995 to $39.4 million for the first six months of 1996, an increase of $8.7
million or 28.0%. Ten acquisitions completed by the Company in 1995 and the
first six months of 1996 accounted for $5.5 million or 63.7% of such increase.
The balance of the storage revenues growth resulted primarily from net increases
in Cartons stored by existing customers and from sales to new customers.
Service and storage material sales revenues increased from $19.5 million for
the first six months of 1995 to $24.6 million for the first six months of 1996,
an increase of $5.1 million or 26.2%. Acquisitions accounted for $3.4 million or
66.2% of such increase. The balance of such increase resulted from increases in
service and storage material sales to existing customers and the addition of new
customer accounts.
For the reasons discussed above, total revenues increased from $50.2 million
for the first six months of 1995 to $64.0 million for the first six months of
1996, an increase of $13.8 million or 27.3%. Of such increase, $8.9 million or
64.6% was attributable to acquisitions completed by the Company in 1995 and the
first six months of 1996.
Cost of sales (excluding depreciation) increased from $25.1 million for the
first six months of 1995 to $32.4 million for the first six months of 1996, an
increase of $7.3 million or 29.0%, and increased as a percentage of revenues
from 50.0% for the first six months of 1995 to 50.6% for the first six months of
1996. The increase was primarily attributable to the increase in Cartons stored,
increased expenses related to the severe winter weather on the Atlantic coast
during the first quarter of 1996 and expenses related to certain facility
relocations.
Selling, general and administrative expenses increased from $12.7 million for
the first six months of 1995 to $16.1 million for the first six months of 1996,
an increase of $3.4 million or 26.5%, and decreased as a percentage of revenues
from 25.3% for the first six months of 1995 to 25.1% for the first six months of
1996. The $3.4 million increase was primarily attributable to the costs
associated with becoming a public company, with accelerated acquisition
activity, including certain redundant transitional expenses as new acquisitions
were integrated into the Company, and the addition of personnel needed to
support the Company's growth. Additionally, the selling, general
34
<PAGE>
and administrative expenses of acquired companies tend to be higher than Iron
Mountain's, and cost reductions and other possible synergies are not realized
immediately.
Depreciation and amortization expense increased from $5.4 million for the
first six months of 1995 to $7.5 million for the first six months of 1996, an
increase of $2.1 million or 38.7%, and increased as a percentage of revenues
from 10.8% for the first six months of 1995 to 11.8% for the first six months of
1996. The increase was primarily attributable to the additional depreciation and
amortization expense related to the aforementioned acquisitions, capital
expenditures, including racking systems, information systems and improvements to
existing facilities, and additions to customer acquisition costs.
As a result of the foregoing factors, operating income increased from $7.0
million for the first six months of 1995 to $8.0 million for the first six
months of 1996, an increase of $1.0 million or 14.1%. As a percentage of
revenues, operating income decreased from 13.9% for the first six months of 1995
to 12.5% for the first six months of 1996.
Interest expense increased from $5.9 million for the first six months of 1995
to $6.4 million for the first six months of 1996, an increase of $0.5 million or
7.6%. The increase was primarily attributable to increased indebtedness to
finance acquisitions and capital expenditures. The decrease in interest expense
as a percentage of revenues was primarily attributable to a net decrease in
interest rates.
As a result of the foregoing factors, income before provision for income
taxes increased from $1.1 million (2.1% of revenues) for the first six months of
1995 to $1.6 million (2.5% of revenues) in the first six months of 1996, an
increase of $0.5 million or 50.8%. Provision for income taxes increased from
$0.6 million (1.3% of revenues) for the first six months of 1995 to $0.9 million
(1.4% of revenues) for the first six months of 1996. The Company's effective tax
rate is higher than statutory rates primarily due to the amortization of the
nondeductible portion of goodwill associated with acquisitions made prior to the
change in tax laws which now generally permit deduction of such expenses.
Net income increased from $0.4 million (0.8% of revenues) for the first six
months of 1995 to $0.7 million (1.1% of revenues) for the first six months of
1996, an increase of $0.3 million, or 66.0%. Net income (loss) applicable to
common stockholders was a $0.5 million net loss (1.1% of revenues), after
accretion of $0.9 million related to the Warrant, for the first six months of
1995 compared to net income of $0.4 million (0.7% of revenues), after accretion
of $0.3 million related to the Warrant, for the first six months of 1996. The
Warrant was redeemed in full in February 1996, with a portion of the proceeds
from the Initial Public Offering. As a result of such redemption, there will be
no future charges for such accretion.
As a result of the foregoing factors, EBITDA increased from $12.4 million for
the first six months of 1995 to $15.5 million for the first six months of 1996,
an increase of $3.1 million, or 24.8%. As a percentage of revenues, EBITDA
decreased from 24.7% for the first six months of 1995 to 24.2% for the first six
months of 1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Storage revenues increased from $54.1 million in 1994 to $64.2 million in
1995, an increase of $10.1 million or 18.6%. Seven acquisitions completed
between June 1994 and December, 1995 accounted for $5.7 million or 56.7% of such
increase. The balance of the storage revenues growth resulted primarily from net
increases in Cartons stored by existing customers and from sales to new
customers.
Service and storage material sales revenues increased from $33.5 million in
1994 to $40.3 million in 1995, an increase of $6.8 million or 20.1%. This
increase was accomplished despite a decrease of approximately $0.8 million in
such revenues received from the RTC, which decrease was primarily due to a
reduction in revenues from special service projects. Acquisitions accounted for
$4.3 million or approximately 63.5% of such increase. The balance of such
increase resulted from increases in service and storage material sales to
existing customers and the addition of new customer accounts.
For the reasons discussed above, total revenues increased from $87.6 million
in 1994 to $104.4 million in 1995, an increase of $16.8 million or 19.2%. Of
such increase, $10.0 million or 59.4% was attributable to acquisitions made by
the Company between June 1994, and December 1995. The monthly average Cartons
stored increased approximately 22% in 1995 as compared to 1994, from
approximately 16.7 million Cartons to approximately 20.4 million Cartons. The
percentage increase was greater than that of total revenues primarily for the
reason described in the third paragraph under "Overview" above.
35
<PAGE>
Cost of sales (excluding depreciation) increased from $45.9 million in 1994 to
$52.3 million in 1995, an increase of $6.4 million or 13.9%, and decreased as a
percentage of revenues from 52.4% in 1994 to 50.1% in 1995. The $6.4 million
increase resulted primarily from an increase in Cartons stored. The decrease as
a percentage of revenues was due primarily to increased storage efficiencies
resulting from relocations to, or additions of, newer, higher density facilities
as well as increased utilization of storage capacity.
Selling, general and administrative expenses increased from $20.9 million in
1994 to $26.0 million in 1995, an increase of $5.1 million or 24.9%, and
increased as a percentage of revenues from 23.8% in 1994 to 24.9% in 1995. The
$5.1 million increase was due primarily to increases in field management and
administrative staffing, including increases due to acquisitions. Of the 1.1%
increase as a percentage of revenues, $0.6 million (0.6% of revenues) resulted
from a provision for a judgment in a lawsuit relating to a 1992 incident and a
$0.5 million (0.5% of revenues) charge for the relocation of the corporate
accounting function from Los Angeles to Boston.
Depreciation and amortization expenses increased from $8.7 million in 1994 to
$12.3 million in 1995, an increase of $3.6 million or 42.0%, and increased as a
percentage of revenues from 9.9% in 1994 to 11.8% in 1995. Depreciation and
amortization expenses, both in absolute dollars and as a percentage of revenues,
continued to increase primarily as a result of the Company's acquisitions and
growth-related capital investments for racking systems, improvements to records
management facilities, information systems and customer acquisition costs.
Amortization during 1995 included a one-time charge of $0.9 million (0.9% of
revenues) in connection with the write-down of the goodwill of a subsidiary due
to the Company's decision to sell such subsidiary at an estimated price which is
$0.9 million less than such subsidiary's book value and related goodwill. The
Company subsequently decided not to sell such subsidiary.
As a result of the foregoing factors, operating income increased from $12.2
million in 1994 to $13.8 million in 1995, an increase of $1.6 million or 13.0%,
and decreased as a percentage of revenues from 13.9% to 13.2%.
Interest expense increased from $9.0 million in 1994 to $11.8 million in
1995. This increase was due primarily to increased levels of indebtedness
primarily to finance acquisitions as well as higher interest rates and higher
deferred financing charges.
As a result of the foregoing factors, income before provision for income
taxes decreased from $3.2 million (3.7% of revenues) in 1994 to $1.9 million
(1.9% of revenues) in 1995, a decrease of $1.3 million or 40.0%. Provision for
income taxes decreased from $2.0 million (2.2% of revenues) to $1.7 million
(1.7% of revenues). The Company's effective tax rates for 1994 and 1995 were
higher than statutory rates primarily due to $1.5 million and $2.5 million,
respectively, of amortization of nondeductible goodwill.
Net income decreased $1.1 million from $1.3 million (1.5% of revenues) in
1994 to $0.2 million (0.2% of revenues) in 1995 as a result of the factors
outlined above.
As a result of the foregoing factors, EBITDA increased from $20.9 million in
1994 to $26.1 million in 1995, an increase of $5.2 million or 25.1%, and
increased as a percentage of revenues from 23.8% to 25.0%. These increases
reflect continuing economies of scale and increased operating efficiencies,
which were partially offset by the $0.6 million (0.6% of revenues) reserve
relating to the judgment in the lawsuit referred to above and by the $0.5
million (0.5% of revenues) charge for the relocation of the corporate accounting
function from Los Angeles to Boston.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Storage revenues increased from $48.9 million in 1993 to $54.1 million in
1994, an increase of $5.2 million or 10.6%. The substantial majority of the
storage revenues growth resulted from sales to new customers and increases in
Cartons stored from existing customers. Three acquisitions completed between
June and October 1994 accounted for only $0.8 million of the increase.
Service and storage material sales revenues increased from $32.8 million in
1993 to $33.5 million in 1994, an increase of $0.7 million or 2.3%. This
increase was due primarily to an increase in services provided to existing and
new customers, which was partially offset by a $0.9 million decrease in such
revenues received from the RTC primarily due to a reduction in revenues from
special service projects.
For the reasons discussed above, total revenues increased from $81.7 million
in 1993 to $87.6 million in 1994, an increase of $5.9 million or 7.3%. The
monthly average Cartons stored increased from approximately 14.5 million
36
<PAGE>
in 1993 to approximately 16.7 million in 1994, an increase of approximately 15%.
The percentage increase in Cartons stored was greater than that of total
revenues for the reasons discussed in the third paragraph under "Overview"
above.
Cost of sales (excluding depreciation) increased from $43.1 million in 1993
to $45.9 million in 1994, an increase of $2.8 million or 6.6%, and decreased as
percentage of revenues from 52.7% in 1993 to 52.4% in 1994. The $2.8 million
increase was due primarily to increases in storage capacity. The decrease as a
percentage of revenues was due primarily to increased storage efficiencies.
Selling, general and administrative expenses increased from $20.0 million in
1993 to $20.9 million in 1994, an increase of $0.9 million or 4.4%, and
decreased as a percentage of revenues from 24.5% in 1993 to 23.8% in 1994. The
increase in such expenses was due primarily to inflationary increases in wages
and benefits, partially offset by a $0.2 million decrease in bad debt expense.
The decrease as a percentage of revenues was due to operating efficiencies and
the decrease of 0.3% in bad debt expense.
Depreciation and amortization expenses increased from $6.8 million in 1993 to
$8.7 million in 1994, an increase of $1.9 million or 28.0%, and increased as a
percentage of revenues from 8.3% in 1993 to 9.9% in 1994. This increase, both in
dollars and as a percentage of revenues, was due primarily to an increase in
depreciation charges resulting from capital expenditures for racking systems and
improvements to records management facilities and information systems.
As a result of the foregoing factors, operating income increased from $11.9
million in 1993 to $12.2 million in 1994, an increase of $0.3 million or 2.8%,
and decreased from 14.5% of revenues to 13.9% of revenues.
Interest expense increased from $8.2 million in 1993 to $9.0 million in 1994,
an increase of $0.8 million or 9.2%, due primarily to increased levels of
indebtedness.
As a result of the foregoing factors, income before provision for income
taxes decreased from $3.7 million in 1993 (4.5% of revenues) to $3.2 million in
1994 (3.7% of revenues), a decrease of $0.5 million or 11.4%. Provision for
income taxes decreased from $2.1 million in 1993 (2.6% of revenues) to $2.0
million in 1994 (2.2% of revenues). The Company's effective tax rates for
financial reporting purposes for 1994 and 1993 exceeded statutory tax rates
primarily because of $1.5 million of amortization of nondeductible goodwill in
each year.
Net income decreased from $1.6 million (1.9% of revenues) to $1.3 million
(1.5% of revenues) as a result of the factors outlined above.
As a result of the foregoing factors, EBITDA increased from $18.6 million in
1993 to $20.9 million in 1994, an increase of $2.3 million or 12.0%, and
increased as a percentage of revenues from 22.8% to 23.8%. The increase as a
percentage of revenues reflected economies of scale and increased operating
efficiencies.
37
<PAGE>
Recent Quarterly Financial Data
The following table sets forth certain consolidated statements of operations
data of the Company for the quarterly periods shown. The unaudited quarterly
information has been prepared on the same basis as the annual financial
information and, in management's opinion, includes all adjustments (consisting
of normal recurring accruals) necessary to present fairly the information for
the quarters presented. The operating results for any quarter are not
necessarily indicative of results for the year or for any future period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------------------------
1994 1995 1996
------------------------------------ ------------------------------------ -------------------
Mar.31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30
------ ------- -------- ------- ------- ------- -------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Storage $12,863 $13,220 $13,855 $14,160 $14,882 $15,866 $16,246 $17,171 $19,154 $ 20,209
Service and Storage
Material Sales 8,452 8,489 8,171 8,408 9,456 10,020 10,324 10,471 11,874 12,713
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total Revenues 21,315 21,709 22,026 22,568 24,338 25,886 26,570 27,642 31,028 32,922
Operating Expenses:
Cost of Sales (Excluding
Depreciation) 11,429 11,325 11,509 11,617 12,224 12,888 12,888 14,277 15,668 16,715
Selling, General and
Administrative 5,146 5,113 5,329 5,265 5,849 6,848(2) 6,358 6,980(4) 7,807 8,260(5)
Depreciation and
Amortization 1,845 1,936 2,526(1) 2,383 2,752 2,676 3,775(3) 3,138 3,608 3,922
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total Operating Expenses 18,420 18,374 19,364 19,265 20,825 22,412 23,021 24,395 27,083 28,897
------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Operating Income $ 2,895 $ 3,335 $ 2,662 $ 3,303 $ 3,513 $ 3,474 $ 3,549 $ 3,247 $ 3,945 $ 4,025
======= ======= ======= ======= ======= ======= ======= ======= ======= ========
EBITDA $ 4,740 $ 5,271 $ 5,188 $ 5,686 $ 6,265 $ 6,150(2)$ 7,324 $ 6,385(4) $ 7,553 $ 7,947(5)
</TABLE>
- -------------
(1) Includes a $277 write-down relating to the closing of two facilities.
(2) Includes a $600 reserve for litigation.
(3) Includes a $900 write-down of the goodwill of a subsidiary as described
in "Results of Operations."
(4) Includes a charge of $500 relating to the relocation of the Company's
corporate accounting function.
(5) Includes a charge of $300 relating to the relocation of the Company's
corporate accounting function.
Liquidity and Capital Resources
In February 1996, the Company raised $33.3 million, net of underwriters'
discounts and commissions and associated costs, in the Initial Public Offering.
The net proceeds from the Initial Public Offering were used to retire the
Warrant, to fund acquisitions, to repay debt that had been incurred to make
acquisitions and for working capital.
As the Company has sought to increase its EBITDA, it has made significant
capital investments, consisting primarily of acquisitions; growth-related
capital expenditures, including racking systems, information systems and
improvements to existing facilities; and customer acquisition costs. Cash paid
for these investments during the first six months of 1996 amounted to $19.2
million, $11.2 million and $0.7 million, respectively. These investments have
been primarily funded through a portion of the net proceeds of the Initial
Public Offering, cash flows from operations and borrowings under the Credit
Agreement.
Stockholders' equity has been negatively affected primarily by the accretion
of the Warrant, interest expense, depreciation and amortization expenses
associated with expansion of the Company's storage capacity and the acquisition
of certain large volume accounts, and amortization of goodwill. In part as a
result of the Initial Public Offering, the Company's ratio of total debt to
stockholders' equity decreased from 3.1-to-1 at December 31, 1992 to 2.2-to-1 at
June 30, 1996. On a pro forma basis (after giving effect to the Transactions),
the ratio of total debt to stockholders' equity at June 30, 1996 would have been
3.1-to-1.
38
<PAGE>
The Company currently intends to apply a portion of the net proceeds from the
Offering to the prepayment of the Credit Agreement and the Chrysler Notes. The
Company will record, in the quarter in which the Offering is consummated, an
extraordinary loss on retirement of debt, net of related tax benefit, of
approximately $2 million. Such loss will consist of the write-down of deferred
financing costs, original issue discount, prepayment penalty and loss on
termination of interest rate protection agreements.
Capital Investments
For 1994, 1995 and the six months ended June 30, 1996, the Company's
growth-related capital expenditures were $15.8 million, $14.4 million and $10.7
million, respectively. Included in capital expenditures for 1994 is $2.9 million
for the construction of a records management facility which was sold in a sale
and leaseback transaction. Growth-related capital expenditures consist primarily
of investment in racking systems, new building and leasehold improvements,
equipment for new facilities, management information systems and facilities
restructuring. For 1994, 1995 and the six months ended June 30, 1996, the
Company's maintenance capital expenditures were $1.2 million, $0.9 million and
$0.5 million, respectively.
In addition, the Company incurs costs (net of revenues received for the
initial transfer of records) related to the acquisition of large volume accounts
(typically over 10,000 Cartons). For 1994, 1995 and the six months ended June
30, 1996, the Company's additions to customer acquisition costs were $1.4
million, $1.4 million and $0.7 million, respectively.
The Company currently expects that its capital expenditures (other than
capital expenditures related to future acquisitions, which cannot be presently
estimated) for the second half of 1996 will be between $9 million and $10
million, and for 1997 will be between $18 million and $21 million. The Company
expects to fund these expenditures and costs from cash flows from operations and
by borrowings under the New Credit Facility.
Recent and Pending Acquisitions
The Company's liquidity and capital resources have been significantly
impacted by acquisitions and, given the Company's acquisition strategy, may be
significantly impacted for the foreseeable future. In order to capitalize on
industry consolidation, the Company in mid-1994 adopted a more active
acquisition strategy. Since mid-1994, the Company has acquired or entered into
agreements to acquire 17 records management businesses, 16 of which have been
completed and one of which is pending, for a total purchase price of $78.4
million. The Company has historically financed its acquisitions with borrowings
under the Credit Agreement in conjunction with cash flows provided by operations
and, more recently, from a portion of the proceeds of the Initial Public
Offering. Net borrowings for acquisitions during 1994, 1995 and the first six
months of 1996 totaled $2.1 million, $32.3 million and $19.0 million,
respectively. In addition, subsequent to June 30, 1996, the Company has incurred
an additional $ million under the Credit Agreement to fund the Completed
Acquisitions consummated after such date. The Company intends to use a portion
of the net proceeds from the Offering to fund the Pending Acquisition. The
Company's future interest expense may increase significantly as a result of the
additional indebtedness the Company may incur to finance possible future
acquisitions. To the extent that future acquisitions are financed by additional
borrowings under the New Credit Facility or other credit facilities, the
resulting increase in debt and interest expense could have a negative effect on
such measures of liquidity as debt to equity, EBITDA to debt and EBITDA to
interest expense.
Sources of Funds
During the six months ended June 30, 1996, the Company generated $8.1 million
in cash flows from operations as compared to $8.2 million for the same period of
the prior year. Such change in cash flows from operations resulted from a $3.1
million increase in EBITDA and an increase in accounts payable, which were
partially offset by an increase in accounts receivable and other changes in
working capital accounts. During the years ended December 31, 1994 and 1995, the
Company generated cash flows from operations of $11.6 million and $15.7 million,
respectively.
At December 31, 1995, the Company had estimated net operating loss
carryforwards of approximately $7.3 million for federal income tax purposes. As
a result of such loss carryforwards, cash paid for income taxes has historically
been substantially lower than the provision for income taxes.
39
<PAGE>
Net cash flows provided by financing activities were $6.7 million and $34.1
million in 1994 and 1995, respectively, substantially all of which was provided
under the Credit Agreement, and $23.7 million for the six months ended June 30,
1996, substantially all of which was provided by the net proceeds of the Initial
Public Offering and under the Credit Agreement.
Credit Arrangements of the Company
The Credit Agreement provides for total borrowings not to exceed $125 million
and consists of the following facilities: (i) a $15 million revolving working
capital facility; (ii) a $10 million term loan; (iii) a $50 million revolving
acquisition credit facility; and (iv) a $50 million term loan. At June 30, 1996,
all borrowings under the Credit Agreement bore interest at a weighted average
annual rate of 8.5%. The obligations under the Credit Agreement are secured by
substantially all of the Company's assets, including the stock of its operating
subsidiaries. The Company also has the Chrysler Notes outstanding. These
facilities require the Company to meet certain financial covenants and ratios.
See Note 3 of Notes to the Company's Audited Consolidated Financial Statements.
The Company intends to apply a portion of the net proceeds from the Offering
to prepay in its entirety all indebtedness outstanding under the Credit
Agreement and the Chrysler Notes. See "The Transactions" and "Use of Proceeds."
In addition, the Company intends to terminate the Credit Agreement and to enter
into the New Credit Facility as a replacement bank credit facility. The New
Credit Facility is expected to provide the Company with revolving credit
availability of $100 million for acquisitions, working capital and other
corporate purposes. See "Description of the New Credit Facility" for a more
detailed description of the currently expected terms of the New Credit Facility.
No assurance can be given that the Company will enter into the New Credit
Facility on these or any other terms. The Offering is not conditioned on the
closing of the New Credit Facility.
The annual maturities of Iron Mountain's indebtedness for the second half of
1996 and for 1997, 1998, 1999 and 2000 are $1.6 million, $3.4 million, $8.3
million, $8.4 million and $32.5 million, respectively. Giving pro forma effect
to the Transactions, the annual maturities of Iron Mountain's indebtedness for
the second half of 1996 and for 1997, 1998, 1999 and 2000 would be $0.1 million,
$0.4 million, $0.4 million, $0.4 million and $8.2 million, respectively.
As of June 30, 1996, the Company had available under the Credit Agreement
$6.2 million under the working capital facility and $24.7 million under the
acquisition credit facility. Subsequent to June 30, 1996, the Company borrowed $
million under the acquisition credit facility to finance acquisitions. As of
June 30, 1996, on a pro forma basis, after giving effect to the Transactions
(see "The Transactions" and "Use of Proceeds"), the Company would have had
$161.2 million in total indebtedness and an aggregate of approximately $100
million available under the New Credit Facility.
Under the Credit Agreement, Iron Mountain is required to use, and may in the
future use, interest rate protection products to reduce its exposure to
increases in interest rates. Under the New Credit Facility, Iron Mountain will
not be required to use such interest rate protection products. As of June 30,
1996, the Company had $118.9 million of total debt, of which $26.0 million had
fixed interest rates and $92.9 million had variable interest rates, $30.0
million of which was covered by interest rate protection products. See Note 3 to
Notes to the Company's Audited Consolidated Financial Statements.
Future Capital Needs
Iron Mountain's ability to generate cash adequate to fund its needs depends
generally on the results of its operations and the availability of financing.
Management believes that cash flow from operations in conjunction with
borrowings from existing and possible future credit facilities will be
sufficient for the foreseeable future to meet debt service requirements and to
make possible future acquisitions and capital expenditures. However, there can
be no assurance in this regard or that the terms available for any future
financing, if required, would be favorable to Iron Mountain.
Seasonality
Historically, the Company's business has not been subject to seasonality in
any material respect.
40
<PAGE>
Inflation
Certain of the Company's expenses, such as wages and benefits, occupancy
costs and equipment repair and replacement, are subject to normal inflationary
pressures. Although the Company to date has been able to offset inflationary
cost increases through increased operating efficiencies, there can be no
assurance that the Company will be able to offset any future inflationary cost
increases through similar efficiencies or increased storage or service charges.
41
<PAGE>
BUSINESS
Introduction
Iron Mountain is the largest records management company in the United States,
as measured by revenues. The Company is a full-service provider of records
management and related services, enabling customers to outsource data and
records management functions. Pro forma for the Transactions, as of June 30,
1996, the Company managed approximately 27.7 million Cartons in 96 records
centers in 32 markets nationwide. The Company has a diversified base of over
19,000 customer accounts, which includes more than half of the Fortune 500 and
numerous legal, banking, healthcare, accounting, insurance, entertainment and
government organizations. The Company provides storage and related services for
all major media, including paper (which is the dominant form of records
retention and which has accounted for approximately 85% of the Company's
revenues since 1992), computer disks and tapes, microfilm and microfiche, master
audio and video tapes, film and optical disks, X-rays and blueprints. The
Company's principal services include filing, retrieval and destruction of
records, courier pick-up and delivery, database management and customized
reporting. The Company also sells storage materials and provides consulting and
other records-related services.
The Records Management Industry
Overview
Based on publicly available information, organizations in the United States
generate an estimated four trillion documents each year. Many of these documents
must be retained and available for reference for many years. These records may
be generally divided into two categories: active and inactive. Active records
relate to ongoing and recently completed activities or contain information that
is frequently referenced. Active records are usually stored and managed on-site
by the organization which originated them to ensure ready availability.
Inactive records are the principal focus of the records management industry.
Inactive records consist of those records which are not needed for immediate
access but which must be retained for legal reasons or regulatory compliance or
for occasional reference in support of ongoing business operations. Based on
industry studies, the Company believes that inactive records make up
approximately 80% of all records.
[Pyramid chart showing relative size of estimated active
and inactive records market segments]
Growth of Market; Outsourcing
The Company believes that the volume of inactive records is increasing for a
number of reasons, including: (i) the rapid growth of inexpensive
document-producing technologies such as facsimile, desktop printing and computer
networking; (ii) increased regulatory requirements; (iii) concerns over possible
future litigation and the resulting increases in volume and holding periods of
documentation; (iv) the high cost of reviewing records and deciding whether to
retain or destroy them; and (v) the failure of many entities to adopt or follow
policies on records destruction. Despite the growth of new "paperless"
technologies, such as the Internet and e-mail, management believes that stored
information remains predominantly paper-based and that such technologies have
promoted the creation of hard copies of such electronic information.
The Company believes that the records management industry will gain a growing
share of this increased volume as more large organizations make the strategic
decision to outsource their records management as part of
42
<PAGE>
a growing trend to outsource a wide variety of functions that can be performed
more cost-effectively by third parties, though there can be no assurance in this
regard. Records management companies can offer occupancy and labor cost
reductions while at the same time providing greater levels of service than are
typically available in-house.
Highly Fragmented Industry
Most records management companies serve a single local market, and are often
either owner-operated or ancillary to another business, such as a moving
company. According to the ACRC, as of January 1994 (the latest date for which
such information is available), approximately 2,600 firms offered records
storage and management services in the United States. The Company believes that
there are only four national providers in the industry (including the Company)
and that the rest are regional or, in most instances, single-city operators.
Increasing Industry Consolidation
The Company believes that there is a trend towards consolidation in the
records management industry and that it will continue and accelerate because of
the industry's capital requirements for growth, customer demands for more
sophisticated technology solutions, a trend for certain large customers to
contract with one vendor in multiple cities and opportunities to achieve
economies of scale.
The records management business requires significant up-front capital
investment for real estate, racking systems and management information
technology. Economies of scale available in these areas can reward larger
initial capital investments by reducing per unit storage costs. However, such
economies of scale are only realized once a facility begins storage operations
and fills available capacity. Thus, larger companies with both access to capital
and the ability to quickly fill a new facility enjoy a competitive cost
advantage, thereby putting pressures on smaller competitors.
Financial Characteristics of Iron Mountain's Business
Iron Mountain's records management business has the following financial
characteristics:
(bullet)Recurring Revenues. Iron Mountain derives a majority of its revenues
from fixed periodic (usually monthly) fees charged to customers for
storage of records. Storage revenues have grown for 30 consecutive
quarters and have represented approximately 60% of the Company's
total revenues in each of the last five years. Once a customer places
a record in storage with the Company and until that record is
destroyed or permanently removed (for which the Company typically
receives a service fee), the Company receives recurring payments of
fixed periodic fees without incurring additional labor or marketing
expenses or significant capital costs. The stable and growing storage
base also provides the foundation for increases in revenues and
EBITDA from service activities and sales of storage materials.
(bullet)Historically Non-Cyclical Business. Iron Mountain has not experienced
a reduction of its business as a result of past general economic
downturns, although there can be no assurances that this would be the
case in the future. Management believes that the outsourcing of
records management may accelerate during economic downturns as
companies focus on reducing costs through outsourcing non-core
operating functions. In addition, management believes that companies
that have outsourced records management are less likely during
economic downturns to incur the move-out costs and other expenses
associated with switching vendors or moving records management
in-house.
(bullet)Inherent Growth from Existing Customers. The Company's customers have
on average generated additional Cartons at a faster rate than stored
Cartons have been destroyed or permanently removed. From 1992 to
1995, net Cartons from existing customers grew at an average annual
rate of 6.7%. The Company believes the consistent growth of its
storage revenues is the result of a number of additional factors,
including: (i) the trend toward increased records retention; (ii)
customer satisfaction with the Company's services; and (iii) the
costs and inconvenience of moving storage operations in-house or to
another provider of records management services.
(bullet)Diversified and Stable Customer Base. The Company has over 19,000
customer accounts in a variety of industries. The Company
currently provides services to more than half of the Fortune 500
and numerous legal, banking, healthcare, accounting, insurance,
entertainment and government organizations. Only one
43
<PAGE>
of the Company's customers accounted for more than 3% of revenues in
1993, 1994 or 1995. From 1992 to 1995, average annual permanent
removals of Cartons represented only approximately 4% of total
Cartons stored.
(bullet)Capital Expenditures Related Primarily to Growth. The Company's
business requires limited annual maintenance capital expenditures.
Maintenance capital expenditures were $1.8 million, $1.2 million and
$0.9 million in 1993, 1994 and 1995, respectively. From 1992 to 1995,
over 90% of the Company's aggregate capital expenditures were
growth-related investments, primarily in racking systems, new
buildings and leasehold improvements, equipment for new facilities,
management information systems and facilities restructuring. These
growth-related capital expenditures are primarily discretionary and
create additional capacity for increases in revenues and EBITDA.
Growth Strategy
Iron Mountain's growth strategy is to expand aggressively in existing and new
markets through increased business from existing customers, additions of new
customers and acquisitions. The Company's goal is to be one of the largest
records management companies in each of its markets. In addition, through its
growth strategy, the Company seeks to attain increasing economies of scale in
order to provide high-quality service at competitive prices.
The following table sets forth the Company's approximate growth in Cartons
stored by existing customers, new customers and as a result of acquisitions for
the three years ended December 31, 1993, 1994 and 1995 and the twelve months
ended June 30, 1996. The figures for the twelve months ended June 30, 1996 are
not necessarily indicative of the results that will be achieved for the twelve
months ended December 31, 1996.
Cartons Added to Storage(1)
(In millions)
<TABLE>
<CAPTION>
Year Ended December 31, Twelve Months
----------------------- Ended June 30,
1993 1994 1995 1996
----- ---- ---- --------------
<S> <C> <C> <C> <C>
Cartons at Beginning of Period 12.6 15.5 17.7 20.3
Additions from Existing Customers
Gross Cartons Added (2) 1.9 2.6 2.5 3.1
Cartons Deleted:
Destructions (0.6) (0.9) (1.0) (1.1)
Permanent Removals (0.6) (0.6) (0.6) (0.8)
---- ---- ---- ----
Net Carton Growth from Existing Customers 0.7 1.1 0.9 1.2
Additions from New Customers (2) 2.2 1.0 1.4 1.8
Additions from Acquisitions 0.0 0.1 3.3 3.1
---- ---- ---- ----
Total Carton Additions 2.9 2.2 5.6 6.1
==== ==== ==== ====
Percentage Change 23.0% 14.2% 31.6% 30.0%
</TABLE>
- -------------
(1) Excludes storage volumes attributable to the Company's vital records
services and data protection services.
(2) Gross Cartons added by the RTC or its successor the FDIC were
approximately 0.9 million, 0.3 million, 0.3 million and 0.3 million for
1993, 1994, 1995 and the twelve months ended June 30, 1996, respectively.
RTC additions in 1993 are included in Additions from New Customers because
the initial transfer of Cartons from the RTC commenced in the fourth quarter
of 1992 and continued into 1993. Additions in 1994, 1995 and the twelve
months ended June 30, 1996 are included in Additions from Existing
Customers.
Growth from Existing Customers
Existing Iron Mountain customers have contributed to storage and services
revenue growth because they have on average generated additional Cartons at a
faster rate than old Cartons are destroyed or permanently removed. In order to
maximize growth opportunities from existing customers, the Company seeks to
maintain high levels of customer retention by providing premium customer service
through its decentralized customer support staff.
The local customer support staff, working in conjunction with the corporate
staff, is also responsible for marketing additional services to existing
customers, including records tracking, indexing, customized reporting, vital
records management and records management consulting services.
44
<PAGE>
Additions of New Customers
The Company's direct sales force is dedicated solely to establishing new
account relationships and draws on the Company's national marketing organization
and senior management. New customer sales efforts have resulted in the addition
of more than 900 new customer accounts in each of the last three years.
Iron Mountain segments its market into large volume accounts (typically over
10,000 Cartons) and standard accounts. As of June 30, 1996, large volume
accounts represented more than half of the total Cartons stored. The two
segments differ in complexity of service and technology needs, purchasing
behavior and purchasing leverage. The Company employs different database
marketing techniques, program design features and pricing structures to meet the
needs of each segment. In recent years the Company's large volume account
segment has grown rapidly, driven by strategic outsourcing initiatives and the
Company's marketing efforts. In 1993, 1994, 1995 and the six months ended June
30, 1996, large volume accounts represented 88%, 70%, 76% and 63% respectively,
of the additions of Cartons from new customers.
Growth through Acquisitions
Iron Mountain has had a successful record of acquiring and integrating
smaller records management companies. From 1990 through 1994, Iron Mountain
completed five acquisitions. In order to capitalize on industry consolidation,
the Company in mid-1994 adopted a more active acquisition strategy and
implemented changes in its management, systems and financial infrastructure,
including the consummation of the Initial Public Offering, to execute such
strategy. Since June 1994, the Company has acquired or entered into agreements
to acquire 17 companies, 16 of which have been completed and one of which is
pending. The Company operates in 32 markets nationwide and intends to continue
to make fold-in acquisitions in existing markets and to make strategic
acquisitions in new geographic markets, with an emphasis on the 50 largest
markets in the United States. Management believes that Iron Mountain is well
positioned to participate in the further consolidation of the records management
industry. See "Risk Factors--Risks Associated with Acquisition Strategy" and
"Recent and Pending Acquisitions."
The Company seeks to expand its national presence, size and customer base
through new-market acquisitions. Management believes that the high start-up
costs of commencing operations make acquisitions an attractive means of entering
new markets. The Company seeks to acquire records management companies in
markets where management believes there is the potential for growth. Within such
markets, the Company uses a variety of criteria to evaluate acquisition
candidates, including the capacity and condition of existing storage facilities,
past and current operating performance and revenues and the experience and depth
of existing management. The Company is also considering investments in records
management businesses outside of the United States. See "Potential International
Investments."
The Company believes that it can use its expertise and central administrative
organization to leverage the acquisition candidate's local market presence,
promoting the development of underperforming facilities and enhancing the value
of the local assets. The Company believes that its new-market acquisition
strategy could have a number of benefits, including: (i) continued growth in
revenues and EBITDA and diversification across a greater number of markets; (ii)
introduction of the Company's efficient storage, labor, transportation and other
operating efficiencies into new markets; (iii) the increased utilization of
efficiencies available through the Company's central administrative and
management information functions; (iv) increased market awareness of Iron
Mountain's national scope and presence; and (v) increased overall scale, which
should broaden the range of and facilitate the Company's capital-raising
activities. See "Risk Factors--Risks Associated with Acquisition Strategy."
The Company also intends to continue to make fold-in acquisitions to augment
its operations in existing markets. The Company's goal in its existing markets
is to exploit economies of scale while maintaining high quality service.
Following a new-market acquisition, the Company seeks to increase its business
with the acquired customer base and to supplement that growth with new customers
and, potentially, with appropriate fold-in acquisitions so that the Company may
benefit from economies of scale.
Premium Service Strategy
Organizations selecting a provider of records management services consider
a number of factors in addition to price. Management believes that Iron
Mountain is a "premium" brand in the marketplace based upon its reputation
for reliability, customer-oriented organization, investment in technology and
national operating presence. The
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Company seeks to exploit its strengths in each of these areas to maintain
customer relationships and to attract new customers.
Reputation for Reliability. The Company believes it has a reputation for
reliability based on its more than 40 years of operations, the continuity and
depth of its management, its successful historical growth, the quality and
diversity of its customer base which includes more than half the Fortune 500,
its technological capabilities and its size and financial resources.
Customer-Oriented Organization and Locally Responsive Management. Iron
Mountain has developed a decentralized, local management structure that brings
significant management experience and stability to local markets and allows the
Company to respond directly, effectively and flexibly to customers. Broad
operating authority is delegated to regional Vice Presidents and to local
managers. In pursuing its acquisition strategy, Iron Mountain seeks to
capitalize upon the experience and strengths of existing management. In
addition, all full-time union and non-union employees participate in
incentive-based compensation programs that provide payments based on profits or
attainment of specified objectives for the unit in which they work. Iron
Mountain believes that the experience, stability and commitment of its regional
and local management is integral to its ability to provide superior customer
service and maximize growth potential.
Investment in Technology. The Company has invested $12.5 million in
technology since 1992 in order to provide faster and more flexible solutions for
its customers and to enhance the quality and lower the costs of its own
operations. The Company believes that its technological capabilities, especially
its Safekeeper system, are a significant tool in attracting new customers. The
Company plans to continue to invest in its proprietary technologies in the
future. See "Technology and Development; Management Information Systems."
National Operating Presence. The Company believes it is one of only four
records management companies with a national operating presence. Traditionally,
the purchase decision for large multi-site customers has been made at the local
level. Recently, however, the Company has found that certain large organizations
have sought to obtain operating and economic efficiencies by outsourcing a
significant portion of their records management functions with a single records
management company. The Company seeks to use its national operating presence to
compete for such large multi-site customer accounts.
Low-Cost Operating Strategy
Iron Mountain pursues a low-cost operating strategy based primarily on
achieving economies of scale in the areas of storage, labor and transportation,
general and administrative functions and management information systems. The
Company believes that it is one of the few records management companies with the
size and resources to realize significant economies of scale in these areas.
Storage Costs
Because occupancy costs are a major component of the Company's cost of sales,
reducing per Carton storage costs is a primary strategic goal of the Company and
its real estate management staff. The Company seeks to minimize per Carton
storage costs by: (i) designing racking systems and operating space to maximize
facility storage efficiency; (ii) negotiating favorable facility leases and
having facilities built to its custom specifications; and (iii) leasing larger
facilities, which, when filled, are less expensive per Carton to operate. Since
1991, the Company has acquired or leased 11 custom-designed records management
facilities. The average Carton density (the ratio of standard Carton storage
capacity to total square feet of floor space) of these facilities is
approximately twice that of the Company's overall average Carton density. As a
result of these practices and after giving effect to the consummation of the
Acquisitions, average Carton density in the Company's facilities increased 31%
from December 31, 1992 to June 30, 1996.
Labor and Transportation Efficiency
The Company has made significant investments in computer technologies for its
service operations, resulting in greater efficiencies. In addition, by
increasing its operations and customer base in a local market area, the Company
seeks to maximize its courier delivery fleet usage and to increase delivery and
routing efficiencies.
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The Company's incentive structure has also contributed to labor efficiency. Each
of the Company's full-time employees participates in incentive compensation
programs based upon achievement of specific operating targets designed to
integrate the objectives and performance of records management facility
employees and managers. For the six months ended June 30, 1996, the Company's
employees earned incentive compensation in an amount equal to approximately
10.8% of the base wages paid by the Company.
In part as a result of the foregoing factors, while the number of Cartons
stored at the Company's facilities between January 1, 1992 and June 30, 1996
increased by approximately 15.6 million (or approximately 144%), the Company's
staff increased during the same period by approximately 520 employees (or
approximately 65%).
G&A and MIS Efficiencies
The Company's corporate staff provides support to local management in the
areas of acquisitions, marketing, facility acquisition and leasing, racking
system purchasing, finance and accounting and human resource management. In
addition, the Company's corporate staff is responsible for the design and
support of all records management technology. The Company believes that central
support in these areas provides local managers with competitive advantages over
smaller, local competitors and results in significant economies of scale.
Technology and Development; Management Information Systems
The Company pioneered the application of advanced information technology to
the records management industry. Iron Mountain's proprietary Safekeeper system
provides advanced inventory control and information access, enabling the Company
to provide faster, higher quality and more flexible solutions to its customers
and to lower the costs of its operations. Iron Mountain's Safekeeper system
exploits bar-code technology to provide inventory integrity and a comprehensive,
standardized approach to tracking, accessing and retrieving records. Safekeeper
offers state-of-the-art records management capabilities and ease of access to
customers while featuring security functions to protect customer information
from unauthorized access. The system coordinates inventory control, order entry,
billing, material sales, service activity, accounts receivable and management
reporting, and features system-driven quality assurance and error-prevention.
Since 1992, the Company has invested $12.5 million to develop and refine its
management information systems, including Safekeeper.
Safekeeper is built on an open systems architecture which is fully portable
and can be implemented in small processing environments with several users and
in large processing environments with hundreds of users. This allows the Company
a substantial measure of flexibility and vendor independence, and reduces the
risk of technological obsolescence.
Safekeeper has improved the Company's customer support and operating
efficiency in the following ways:
(bullet)Acquisition System Integration. Safekeeper has been designed to
easily and effectively integrate newly acquired records management
companies and offer improved levels of customer service and records
management capabilities to customers acquired through acquisitions.
The critical components of integrating acquisition systems are the
abilities to match the acquired company's carton identifiers,
location identifiers, records descriptive data, and billing data.
Safekeeper is designed with flexible, comprehensive capabilities in
each of these areas. Consequently, an acquired company's inventory
can be converted to Safekeeper without having to relabel cartons or
reset and relabel inventory locations. The customers of the acquired
company retain their records data and receive similar billing rate
structures. In addition, acquisition customers experience minimal
disruption during integration and, after conversion, gain access to
advanced records management and information access capabilities.
Safekeeper utilizes a suite of conversion routines to automate the
conversion process and effectively translate customer and inventory
information.
(bullet)Storage Efficiency. Safekeeper enables the Company to maximize the
efficient use of storage space at its facilities. When cartons are
added or returned to storage, Safekeeper identifies available space
and the location of the customer's other records at the facility.
Because there is a continual flow of cartons into and out of the
Company's facilities, Safekeeper also permits facility operators to
utilize space that becomes available as soon as cartons are removed.
Safekeeper can pinpoint the location of any carton, enabling facility
operators to quickly determine the optimal location for new or
returning cartons.
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(bullet)Inventory Integrity. Bar-coding and scanning are used to track a
carton or a record throughout its life cycle at Iron Mountain.
Safekeeper identifies inventory discrepancies during the order
processing cycle and forces their resolution before they affect the
customer. This forced discrepancy resolution means that errors must
be resolved before an order can be closed; until the order is closed,
billing cannot be processed. Management believes that this
system-driven quality assurance is a significant advantage over the
"best efforts" approach used by most of its competitors.
(bullet)Customer Information Access. Customers can access their records
management data through a variety of formats, including direct access
via Safekeeper Online, access on their own PCs via Safekeeper
Desktop, integration of their internal system with Safekeeper via
automated file transfers and paper reports. Safekeeper Online enables
a customer to place orders directly via online access, resulting in
efficiencies for Iron Mountain order processing. It features robust
querying and searching tools to enable customers to identify records
with only partial information. Safekeeper Desktop is a PC
application, run from customers' desktop or network PCs; it provides
customers with an entire set of records management data along with
user-friendly tools for querying, reporting, and editing.
Safekeeper's suite of file transfers enable customers to
automatically transfer records data and service requests from their
internal system to Safekeeper. The paper reports include inventory
detail and summary, service activity analysis, quality assurance, and
management review.
(bullet)Records Management Flexibility. Safekeeper offers full life-cycle
records management, from file creation to destruction, enabling each
customer to establish schedules for records retention and destruction
as dictated by the customer's specific needs. Safekeeper can flexibly
accommodate large or small amounts of records management data in
accordance with customer requirements. A series of customer-specific
features and options allows Iron Mountain to tailor the records
management functionality and reporting to the customer's needs.
(bullet)Security. Safekeeper incorporates strict security protocols and
procedures for all customers to prevent unauthorized access to a
client's records information. Advanced security features that can
automatically restrict access by departmental identification and/or
type of service request are available to customers that are
internally set up to provide this information.
In addition to Safekeeper, the Company's data protection services facilities
utilize the Company's Media Link(tm) software, a state-of-the-art media
management system which provides integrated bar-code tracking and electronic
data interface between customer and Iron Mountain facilities, as well as audit
trail and remote inventory query functionality. The Company plans to continue to
invest in its proprietary technologies in the future in order to enhance its
customer service as well as to increase its own operating efficiency.
Description of Iron Mountain Records Management Services
Iron Mountain's records management services consist primarily of the storage
operations for the management of hard copy documents. These and related services
and products sold have, since 1992, accounted for approximately 85% of the
Company's revenues. The balance of the Company's revenues come from the storage
and service of vital records and data protection, consulting and other services.
Storage Operations
Storage revenues accounted for approximately 60% of revenues in each of the
Company's last five fiscal years. Storage charges are generally billed monthly
on a per storage unit basis (usually either per unit or per cubic foot of
records) and include the provision of space, racking, computerized inventory and
activity tracking, physical security, environmental and climate control and fire
protection.
The storage of a carton begins by issuing Safekeeper bar-coded labels to the
customer. The customer packs records in cartons and affixes the bar-coded label
to each carton. Customer personnel and the Iron Mountain driver conduct a
physical count of the cartons and the driver signs for the cartons, which are
then transported to the records management facility. Upon delivery to the
facility, the cartons are subjected to a second physical count. The cartons are
delivered to available space identified by Safekeeper and the bar-coded
information is scanned into the computer together with a bar-coded location
identifier. At the same time, a computer operator enters the customer's data
describing the stored material into the computer and the system confirms that
the cartons sent match the data entered
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in the computer. Under the Company's computer control system, the order can only
be closed out when all requisite steps and checks have been completed and counts
and locations have been reconciled.
Service and Courier Operations
Principal services include adding cartons to storage, temporary removal of
files or cartons from storage, refiling of removed records, permanent
withdrawals from storage and destruction of records. Service charges are
generally assessed for each procedure on a per unit basis. The Safekeeper system
controls the service processes from order entry through transportation and
invoicing.
Courier operations consist primarily of the pickup and delivery of records
upon customer request. Courier delivery schedules can be tailored to fit
customers' needs, but generally customer orders received by 4:00 p.m. on a
business day are delivered the following business day. The Company also provides
same-day and immediate delivery during business hours and emergency delivery at
night and on weekends and holidays. Charges for courier services are based on
urgency of delivery, volume and location and are billed monthly as incurred. The
Company currently utilizes a fleet of approximately 250 owned or leased delivery
vehicles.
Vital Records Services
Vital records contain critical or irreplaceable data such as master audio and
video recordings, film, software source code and other highly proprietary
information. Vital records may require special facilities or services, either
because of the data they contain or the media on which they are recorded. The
Company's charges for providing enhanced security and special climate-controlled
environments for vital records are higher than for typical storage functions.
The Company provides the same ancillary services for vital records as it
provides for its other storage operations.
Data Protection Services
Data protection services consist of the storage, backup and archiving of
computer media as part of corporate disaster and business recovery plans.
Computer tapes, cartridges and disk packs are transported off-site by the
Company's courier operations on a scheduled basis to secure, climate-controlled
facilities, where they are available to customers 24 hours a day, 365 days a
year, to facilitate data recovery in the event of a disaster. This process is
managed by Iron Mountain's Media Link software, a state-of-the-art media
management system which provides integrated bar-code tracking, electronic data
interface between customer and Iron Mountain's facilities as well as audit trail
and remote inventory query functionality. Iron Mountain also manages tape
library relocation and supports disaster recovery testing and execution.
Additional Services and Products
Iron Mountain offers a variety of additional services, which customers may
request or contract for on an individual basis. These services include
performing records inventories, packing records into cartons or other
containers, computerized indexing of files and individual documents, developing
schedules for the retention and destruction of records and records management
consulting services. The Company also sells a full line of specially designed
corrugated cardboard, metal and plastic storage containers.
The Company's subsidiary, Iron Mountain Information Partners, Inc., provides
professional consulting services to large customers, enabling them to develop
and implement comprehensive records management programs. The Company's
consulting business draws on the Company's 45 years of experience to analyze the
practices of such companies and assist them in creating more effective programs
of records management. The Company's consultants work with such customers to
develop policies for document review, analysis and evaluation and for scheduling
of document retention and destruction.
In addition to its historical focus on the management of inactive records,
the Company has recently begun to provide services for the management of active
records. The Company can provide these services, which generally include
document and file processing and storage, both off-site at its own facilities
and by supplying its own personnel to perform management functions on-site at
the customer's premises. The Company sees active records management as a
potential source of future revenue growth for the Company, although there can be
no assurance in this regard.
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Potential International Investments
Iron Mountain is considering capitalizing upon its expertise in the records
management industry by making investments in records management businesses
outside the United States. From time to time, the Company has had discussions
concerning such investments. Such investments, if consummated, would be subject
to risks and uncertainties relating to the indigenous political, social,
regulatory, tax and economic structures of countries in those areas, as well as
fluctuations in currency valuation, exchange controls, expropriation and
governmental policies limiting returns to foreign investors. At this time, there
can be no assurance as to whether any such investment will be made or, if made,
will be successful in achieving its objectives.
Customers
The Company's customer base is diversified in terms of revenue and industry
concentration. The Company has over 19,000 customer accounts. Iron Mountain
considers each invoice it delivers to its customers a separate customer account
and, accordingly, an organization which receives more than one invoice
represents multiple customer accounts. The chart below shows, as of June 1994,
the relative amounts of revenue attributable to certain business sectors.
[Pie chart showing relative amounts of
revenue attributable to certain business sectors]
[TABULAR REPRESENTATION OF PIE CHART]
Other Financial Institutions 10%
Health Care 10%
Professional Services 7%
Government 6%
Manufacturing 4%
Retail 4%
Entertainment 2%
Other 19%
Legal Services 16%
Depository Institutions 14%
Insurance Companies 5%
The Company services accounts of all sizes, from small businesses and
professional groups to over half of the Fortune 500. Other than the RTC or its
successor, the FDIC, which accounted for 7.4%, 6.3%, 4.8% and 3.6% of Iron
Mountain's revenues for the years ended December 31, 1993, 1994 and 1995 and the
six months ended June 30, 1996, respectively, no account or related set of
accounts generated more than 3% of Iron Mountain's revenues during any such
period.
The Company's contract with the FDIC, as successor under the contract to the
RTC, was renewed effective July 27, 1996 for a one-year term, with three further
annual renewal options at the election of the FDIC. Although the substantial
costs of removing its records from the Company's facilities may act as a
disincentive to the FDIC to select another vendor, there can be no assurance
that the contract will be further renewed or that the terms of such renewal will
be as favorable to Iron Mountain as the terms of the current contract. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
Marketing and Sales
The Company uses database marketing and a dedicated sales force to focus
exclusively on new business development. A corporate marketing organization
provides sales support, training, marketing communications and product
management as support functions. The program has successfully produced over 900
new customer accounts per year since 1991. The selling effort is bolstered by
regional and senior managers focused on key account selling.
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Properties
As of June 30, 1996, Iron Mountain conducted operations through 75 leased and
12 owned facilities containing a total of approximately 6.3 million square feet
of space. The leased facilities typically have initial lease terms of 10 years
with options to renew for an additional 10 years. The weighted average remaining
term of the leases on these facilities is approximately 7.0 years. In addition,
many of the leases contain either a purchase option or a right of first refusal
upon the sale of the property. The leases include one property leased from
affiliates of the Company. See "Management--Executive Compensation--Compensation
Committee Interlocks and Insider Participation" and Note 8 of Notes to the
Company's Audited Consolidated Financial Statements.
As of June 30, 1996, the Company owned or leased (directly or through its
subsidiaries) the following records management facilities in the geographic
locations indicated below.
Records
Management
State Facilities
- ---------------- -------------
Arizona 2
California 23
Colorado 3
Connecticut 2
Delaware 1
Florida 4
Georgia 8
Illinois 3
Kansas 1
Kentucky 1
Massachusetts 7
Maryland 3
Missouri 2
New Hampshire 1
New Jersey 4
New York 4
Ohio 3
Pennsylvania 2
Rhode Island 1
Tennessee 1
Texas 8
Virginia 3
-----------
Total 87
===========
The Company or its principal subsidiary is a guarantor of a substantial
portion of the leases to which other subsidiaries are party. Substantially all
of the property and assets currently owned and leased by the Company or its
subsidiaries are pledged as security for the lenders under the Credit Agreement.
It is expected that, in connection with the New Credit Facility, such liens
(other than the pledge of the stock of the Company's subsidiaries) will be
released. See Notes 3 and 7 of Notes to the Company's Audited Consolidated
Financial Statements for additional information regarding the Credit Agreement
and the minimum annual rental commitments of the Company, respectively.
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Employees
A key feature of Iron Mountain's operating strategy is its decentralized
management structure and reliance on local management operating in local
business environments. The Company's operations are divided into three areas
comprising seven local management regions to maximize marketing and operating
effectiveness and to minimize supervisory costs. The management regions, each of
which is managed by a Vice President, are further divided into a total of 27
districts, each managed by a General Manager. The management regions are
overseen by offices in Boston and Los Angeles, but regional Vice Presidents and
General Managers have broad operating authority. The Company's headquarters
staff performs a variety of central administrative and support functions in
order to maximize the time and resources that local personnel can devote to
customer service and client development.
Iron Mountain had approximately 1,200 full-time employees as of June 30,
1996, of whom approximately 89% are employed at the district level, 8% at the
corporate level and the balance at the area and regional levels.
Approximately 11% of the Company's employees are represented by various
Teamsters Union locals under five different agreements. Two of these agreements,
representing 42 employees, have expired and are currently under negotiation.
Based on its prior experience with the two union locals involved in these
negotiations, the Company expects that it will enter into new agreements on
satisfactory terms. The remaining three contracts expire in December 1996, March
1997 and March 1999. In addition, at two of Iron Mountain's facilities an
election, subject to National Labor Relation Board regulations, was held on
June 20, 1996. A majority of the approximately 40 employees voted for
representation by a Teamsters Union local. The election results have not been
certified as of the date hereof.
All non-union employees are eligible to participate in the Company's benefit
programs, which include medical, dental, life, short and long-term disability
and accidental death and dismemberment plans. Unionized employees receive these
types of benefits through their unions. In addition to base compensation and
other usual benefits, all full-time union and non-union employees participate in
some form of incentive-based compensation program that provides payments based
on profits, collections, or attainment of specified objectives for the unit in
which they work. Management believes that the Company has good relationships
with its employees and unions.
Competition
Iron Mountain competes with three other national companies as well as a large
number of local and regional concerns. The Company believes that competition for
customers is based on price, reputation for reliability, quality of service and
scope and scale of technology, and believes that it generally competes
effectively based on these factors. Management believes that, except for Pierce
Leahy Corp., all of these competitors have records management revenues
significantly lower than those of the Company. To accommodate growth, a records
management vendor must invest in incremental storage capacity, which requires
added warehouses, racking systems, and related equipment including computer
systems capable of tracking increasingly large inventories. The amount of such
investment is significant relative to the immediate return that can be realized,
and the faster a vendor grows, the more capital is required. As a result, the
industry trend toward consolidation will, in management's opinion, continue and
accelerate. In addition, the Company 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. The Company also faces competition for
acquisition candidates.
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 include
computer media, microforms, audio/video tape, film, CD-ROM and optical disk.
None of these technologies has replaced paper as the principal means for storing
information. However, there can be no assurance that one or more non-paper-based
technologies (whether now existing or developed in the future) may not in the
future significantly reduce or supplant the use of paper as a preferred medium,
which could in turn adversely affect the Company's business.
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Insurance
Iron Mountain carries a comprehensive property insurance policy with insurers
that it believes to be reputable and in amounts that it believes to be
appropriate, covering replacement cost of real and personal property, including
improvements. Subject to sub-limits, the policy also covers extraordinary
expenses associated with business interruption and damage or loss from flood or
earthquake, subject to certain deductibles. Separate policies for California
earthquake insurance carry other deductibles that may be significant. Iron
Mountain also maintains general liability and excess liability insurance
covering bodily injury, property damage and personal injury. See "Risk
Factors--Casualty."
The Company's standard form of contract sets forth an agreed maximum value
for each carton or other storage unit held by the Company as a limitation on
liability for loss or damage, as permitted under the Uniform Commercial Code. In
contracts containing such limits, such values are nominal, and the Company
believes that in typical circumstances its liability would be so limited in the
event of loss or damage relating to the value of information stored on media
held by the Company. However, certain of the Company's agreements with certain
large volume accounts contain no such limits or contain higher limits or
supplemental insurance arrangements.
Environmental Matters
Under various environmental laws, an owner of real estate or a lessee
conducting operations thereon may become liable for the costs of investigation,
removal or remediation of soil and groundwater contaminated by certain hazardous
substances or wastes or petroleum products. Certain such laws impose cleanup
responsibility and liability without regard to whether the owner or operator of
the real estate or operations thereon knew of or was responsible for the
contamination, and whether or not operations at the property have been
discontinued or title to the property has been transferred. In addition, the
presence of such substances, or the failure to properly remediate such property
may adversely affect the current property owner's or operator's ability to sell
or rent such property or to borrow using such property as collateral. The owner
or operator of contaminated real estate also may be subject to common law claims
by third parties based on damages and costs resulting from off-site migration of
the contamination.
Certain environmental laws govern the removal, encapsulation or disturbance
of ACMs. Such laws may impose liability for the release of ACMs and may enable
third parties to seek recovery from owners or operators of real estate for
personal injury associated with exposure to such substances. The Company is
aware of the presence of ACMs at some of the Company's facilities, but believes
that such materials are in acceptable condition at this time. The Company
believes that future costs related to any remediation of ACMs at these
facilities will not be material, either on an annual basis or in the aggregate,
although there can be no assurance with respect thereto.
In addition, certain of the properties formerly or currently owned or
operated by the Company were previously used for industrial or other purposes
that involved the use or storage of hazardous substances or petroleum products
or the generation and disposal of hazardous wastes and, in some instances,
included the operation of USTs. In connection with its former and current
ownership or operation of certain properties, the Company may be potentially
liable for environmental costs such as those discussed above, and as more
specifically described below.
At the Company's Hollywood, California facilities, certain USTs and
contaminated soils have been removed. Some additional contamination of soils and
groundwater remains and may be migrating. In 1990 and 1991, the Company filed
certain reports documenting its efforts and site conditions with the appropriate
environmental agencies pursuant to various environmental laws. Investigations
conducted on behalf of the Company in connection with its on-site remedial
activities disclosed that regional groundwater contamination, unrelated to the
Company's property, exists. At this time, the Company has not received any
notice from any regulatory agency or third party seeking further remediation of
soil or groundwater by the Company; however, there can be no assurance that such
further action will not be sought in the future. The Company has accrued
estimated costs of $0.8 million that it believes it may reasonably be expected
to incur in connection with this site if such additional remediation were to
become necessary; however, there can be no assurance as to the adequacy of such
accrual. The Company believes the ultimate outcome of the foregoing will not
have a material adverse effect on the Company's financial condition or results
of operations. See Note 7 of Notes to the Company's Audited Consolidated
Financial Statements.
The Company has also from time to time conducted certain environmental
investigations and remedial activities at certain of its other former and
current facilities, but an in-depth environmental review of the properties has
not been conducted by or on behalf of the Company. The Company believes that it
is in substantial compliance
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with all applicable material environmental laws. The Company has not received
any written notice from any governmental authority or third party asserting, and
is not otherwise aware of, any material noncompliance, liability or claim
relating to hazardous substances or wastes, petroleum products or material
environmental laws applicable to Company operations in connection with any of
its present or former properties other than as described above. However, no
assurance can be given that there are no environmental conditions for which the
Company might be liable in the future or that future regulatory action, as well
as compliance with future environmental laws, will not require the Company to
incur costs for or at its properties that could have a material adverse effect
on the Company's financial condition and results of operations.
Legal Proceedings
The Company is involved in litigation from time to time in the ordinary
course of business. In the opinion of management, no material legal proceedings
are pending to which the Company, or any of its properties, is subject.
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MANAGEMENT
Directors, Executive Officers and Certain Other Officers
The Directors, executive officers and certain other officers of the Company
are as follows:
<TABLE>
<CAPTION>
Names of Directors and Executive Officers Age Position
- ----------------------------------------- --- --------
<S> <C> <C>
C. Richard Reese (1) 50 Chairman of the Board of Directors and Chief
Executive Officer
David S. Wendell 42 President and Chief Operating Officer, Director
Eugene B. Doggett (1) 60 Executive Vice President and Chief Financial
Officer, Director
Robert P. Swift 54 Executive Vice President
Kenneth F. Radtke, Jr. 51 Executive Vice President
Constantin R. Boden (2) (3) 60 Director
Arthur D. Little (2) (3) 52 Director
Vincent J. Ryan (1) (3) 60 Director
Names of Certain Other Officers Age Position
- ------------------------------- --- --------
Jean A. Bua 38 Vice President and Corporate Controller
James R. Jandl 42 Vice President of Human Resources
John F. Kenny 39 Vice President of Corporate Development
Joseph J. Larizza 54 Vice President and Chief Information Officer
John P. Lawrence 45 Vice President and Treasurer
Kenneth A. Rubin 34 Vice President of Marketing
T. Anthony Ryan 55 Vice President of Real Estate
</TABLE>
- -------------
(1) Member of the Executive Committee; Mr. Ryan is the Chairman of the
Executive Committee.
(2) Member of the Audit Committee; Mr. Boden is the Chairman of the Audit
Committee.
(3) Member of the Compensation Committee; Mr. Little is the Chairman of the
Compensation Committee.
The Board of Directors currently consists of six directors. There are three
classes of directors who serve for three-year terms and are elected on a
staggered basis, one class of two directors standing for election each year. The
term of the Class B Directors, C. Richard Reese and Arthur D. Little, will
expire at the 1997 Annual Meeting of Stockholders, the term of the Class C
Directors, Eugene B. Doggett and Constantin R. Boden, will expire at the 1998
Annual Meeting of Stockholders and the term of the Class A Directors, David S.
Wendell and Vincent J. Ryan, will expire at the 1999 Annual Meeting. Directors
of each class will thereafter hold office until the third annual meeting of the
stockholders of the Company following their election or until their successors
are elected and qualified.
The executive officers and other officers were elected by the Board of
Directors on June 14, 1996. All executive officers and other officers hold
office at the discretion of the Board until the first meeting of the Iron
Mountain Board following the next annual meeting of stockholders and until their
successors are chosen and qualified.
Directors and Executive Officers
C. Richard Reese is the Chairman of the Board of Directors of Iron
Mountain, a position he has held since November 1995, and the Chief Executive
Officer, a position he has held since December 1981. Prior to November 1995,
Mr. Reese was the President of Iron Mountain, a position he had held since
1981. Mr. Reese is also a Director of Schooner. Prior to joining Iron
Mountain, he lectured at Harvard Business School in "Entrepreneurship" and
provided consulting services to small and medium-sized emerging enterprises.
Mr. Reese has also served as president and a Director of the ACRC. He holds a
Master of Business Administration degree from Harvard Business School.
David S. Wendell is the President and Chief Operating Officer of Iron
Mountain, a position he has held since November 1995. After practicing law with
Brown & Wood, Mr. Wendell joined Iron Mountain in 1984, where he has served in a
variety of positions. Prior to November 1995, he was Executive Vice President,
Atlantic Area and
55
<PAGE>
prior to 1991, he was Vice President, New England Region. He holds a Master
of Business Administration degree from Harvard Business School and a Juris
Doctor degree from the University of Virginia.
Eugene B. Doggett is the Executive Vice President and Chief Financial Officer
of Iron Mountain, a position he has held since 1987. Mr. Doggett is also a
Director of Schooner. Prior to joining the Company, he had extensive experience
in commercial and investment banking, as well as financial and general
management experience at senior levels. He holds a Master of Business
Administration degree from Harvard Business School.
Robert P. Swift is an Executive Vice President of Iron Mountain, a
position he has held since November 1995. Prior to November 1995, Mr. Swift
was the Executive Vice President, Western Area of Iron Mountain and prior to
1988, Mr. Swift was employed in various positions at Bell & Howell Records
Management Company.
Kenneth F. Radtke, Jr. is an Executive Vice President of Iron Mountain, a
position that he has held since June 1996. Prior to June 1996, Mr. Radtke was
Northeast Regional Vice President and prior to 1995 was Sales Manager, New
York Region. Mr. Radtke has worked in the records and information industry
since 1988 as President and Chief Executive Officer, Dataport Company, Inc.
and Senior Vice President, Arcus, Inc. He holds a graduate degree from the
University of Wisconsin, Graduate School of Banking.
Constantin R. Boden is a Director of Iron Mountain, a position he has held
since December 1990. Mr. Boden is on the advisory board of Boston Capital
Ventures, a risk capital concern. For 33 years, until January 1995, Mr. Boden
was employed by Bank of Boston, most recently as Executive Vice President,
International Banking. He holds a Master of Business Administration degree
from Harvard Business School.
Arthur D. Little is a Director of Iron Mountain, a position he has held
since November 1995. Mr. Little is a principal of The Little Investment
Company, which he founded in 1992. Prior to that, he was Managing Director of
and also a partner in Narraganset Capital, Inc., a private investment firm.
He holds a Bachelor of Arts degree in history from Stanford University.
Vincent J. Ryan is a Director of Iron Mountain. Mr. Ryan is the founder of
Schooner and has served as Chairman and Chief Executive Officer of Schooner
since 1971. Prior to November 1995, Mr. Ryan served as Chairman of the Board
of Directors of Iron Mountain. Mr. Ryan also serves as a Director and member
of the Executive Committee of Continental Cablevision, Inc. He holds a
Bachelors of Arts degree in English from Boston University.
Certain Other Officers
Jean A. Bua is Vice President and Corporate Controller. Ms. Bua joined
Iron Mountain in such capacity in March 1996. From 1993 to 1996, Ms. Bua was
the Corporate Controller for Duracraft Corp., a consumer products
manufacturer. Prior to that, Ms. Bua was the accounting manager for a
high-tech manufacturer and was a management consultant for Ernst & Young. She
holds a Master of Business Administration degree from the University of Rhode
Island. Ms. Bua is a certified public accountant.
James R. Jandl is Vice President of Human Resources. Mr. Jandl joined Iron
Mountain in 1989. For the preceding nine years he was involved in human
resources management in the hospitality industry with focus on operational
start-up and turn-around situations. He holds a masters degree in psychology
from West Georgia College.
John F. Kenny is Vice President of Corporate Development, with primary
responsibility for implementing the Company's acquisition strategy. Mr. Kenny
joined Iron Mountain in 1991. Prior to 1991, he was a Vice President of CS First
Boston Merchant Bank, New York, with responsibility for risk capital, portfolio
and transaction management. He holds a Master of Business Administration degree
from Harvard Business School.
Joseph J. Larizza is Vice President and Chief Information Officer, with
responsibility for management information systems, including oversight of the
development of Iron Mountain's Safekeeper system. Prior to joining Iron Mountain
in 1996, Mr. Larizza was the chief information officer at Service America, a
large food service corporation and, prior to that, chief information officer at
the Advertising Checking Bureau, with responsibility for information systems and
development of client-server products. He holds a Bachelors degree in management
from Post College.
John P. Lawrence is Vice President and Treasurer, with responsibility for
acquisition integration, internal audit, risk management and purchasing and
contracting. Mr. Lawrence has been associated with Iron Mountain since 1988.
56
<PAGE>
Prior to 1988, he worked for Hewlett Packard for nine years in various
management positions in finance, control, marketing and manufacturing. He holds
a Master of Business Administration degree from Harvard Business School.
Kenneth A. Rubin is Vice President of Marketing. Mr. Rubin joined Iron
Mountain in 1989. Prior to 1989, he was Director of both Sales and Marketing
for Leahy/Instar, a records management company. He was also a founding
director of Software Escrow Security. He holds a Bachelors degree in
political science from Drew University.
T. Anthony Ryan is Vice President of Real Estate. Mr. Ryan manages the real
estate department of Iron Mountain and is responsible for identifying and
evaluating new facility opportunities and negotiating long-term leases. He has
been involved in real estate development for 22 years. His work experience
includes positions as Director of Development for Gilbane Property, Vice
President of CRJ Investments and, more recently, Vice President and Partner at
the Linpro Company. He holds a Bachelors degree in history from The George
Washington University.
Biographical information of the Directors, executive officers and other
officers is as of August 14, 1996.
Executive Compensation
The following table provides certain information concerning compensation
earned by the Chief Executive Officer and each other executive officer serving
in such capacity at December 31, 1995 who received compensation in excess of
$100,000 (the "Named Executive Officers") for the years ended December 31, 1994
and December 31, 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation Long-Term Compensation
-------------------- ------------------------------------
Number of Shares
Underlying All Other
Name and Principal Position Year(1) Salary Bonus Options Compensation(2)
- --------------------------- ------- ------ ----- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
C. Richard Reese 1995 $261,765 $200,000 0 $1,790
Chairman of the Board and 1994 $255,400 $125,000 0 $1,623
Chief Executive Officer
David S. Wendell 1995 $136,627 $ 62,731 35,469 $1,573
President and Chief 1994 $129,800 $ 50,000 0 $1,352
Operating Officer
Eugene B. Doggett 1995 $192,274 $165,000 0 $1,790
Executive Vice President 1994 $187,500 $ 93,750 0 $1,623
and Chief Financial
Officer
Robert P. Swift 1995 $131,119 $ 24,397 8,096 $1,243
Executive Vice President 1994 $126,600 $ 16,740 0 $ 865
</TABLE>
- -------------
(1) In accordance with the requirements of Item 402(b) of Regulation S-K,
information is presented for the Company's two most recent years.
(2) Reflects the Company's matching contribution to the Iron Mountain Profit
Sharing Retirement Plan for each individual.
57
<PAGE>
Compensation Committee Interlocks and Insider Participation
Prior to November 1995, Iron Mountain's Compensation Committee of the
Board of Directors consisted of Constantin R. Boden and Vincent J. Ryan, who
was until November 17, 1995 the Chairman of the Board. The present
Compensation Committee consists of Mr. Little, who is the Chairman of the
Committee, and Messrs. Boden and Ryan.
Messrs. Reese and Doggett are executive officers of Iron Mountain and are
directors of Schooner. Prior to November 1995, they were also executive
officers of Schooner. Mr. Ryan is the Chairman of the Board and principal
stockholder of Schooner.
In 1993, the Company paid fees of $95,927 to Vincent J. Ryan for consulting
services. In each of 1994 and 1995, the Company paid fees of $111,048 to
Schooner for consulting services rendered by Mr. Ryan. These services and fees
terminated as of December 31, 1995.
Iron Mountain Records Management, Inc. ("IMRM"), a subsidiary of the Company,
is the tenant under a lease dated January 1, 1991 for a 31,500 square-foot
building in Houston, Texas. The owner of the building is IM Houston (CR) Limited
Partnership, a Texas limited partnership, of which Mountain Realty, Inc., a
Massachusetts corporation whose sole stockholder is Vincent J. Ryan, is the sole
general partner, and the limited partners of which are Vincent J. Ryan, C.
Richard Reese and Eugene B. Doggett. The term of the lease expires December 31,
2000, with two five-year extension options exercisable by IMRM. IMRM currently
pays annual rent in the amount of approximately $94,000, subject to adjustment
in 1997 and 1999 (and in the option periods if the term is extended) based upon
percentage changes in the consumer price index, with a floor of 3% and a ceiling
of 5%, compounded annually. As tenant, IMRM is responsible for taxes, insurance
and maintenance. The space is used by IMRM as a records management facility.
During 1993, 1994, 1995 and the six months ended June 30, 1996, IMRM paid rent
in the annual amount of $88,000, $88,000, $94,000 and $47,000, respectively,
under the lease. The lease is, in the opinion of management, on commercially
reasonable terms, no less favorable to IMRM than could have been obtained from
an unaffiliated party at the time of the transaction.
The Company paid compensation of $120,000, $144,000, $154,000 and $62,000
for 1993, 1994, 1995 and the six months ended June 30, 1996, respectively, to
Mr. T. Anthony Ryan. Mr. Ryan is Vice President, Real Estate, of the Company
and is the brother of Mr. Vincent J. Ryan, a Director and the former Chairman
of the Board of the Company. The Company believes that the terms of Mr.
Ryan's employment are no less favorable to it than would be negotiable with
an unrelated third party.
Iron Mountain is indebted to Schooner in the principal amount of
approximately $383,000 under a junior subordinated note which bears interest at
a rate of 8% per annum. This indebtedness, which matures in March, 2000, was
incurred by Iron Mountain in 1990 in connection with an acquisition. Schooner
subsequently acquired the note from the holder as an investment.
Schooner leases space from Iron Mountain at Iron Mountain's corporate
headquarters. Such lease is a tenancy- at-will and may be terminated by either
Iron Mountain or Schooner at any time. As consideration for such lease, Schooner
pays rent to Iron Mountain based on its pro rata share of all expenses related
to the use and occupancy of the premises. The rent paid by Schooner to Iron
Mountain under such lease was approximately $48,000, $58,000, $59,000 and
$33,000 in 1993, 1994, 1995 and the six months ended June 30, 1996,
respectively.
Employees of Schooner were eligible to participate in the Iron Mountain
Profit Sharing Retirement Plan, a Section 401(k) plan, as well as the Company's
group medical, dental, life, disability and accidental death and dismemberment
arrangements (the "Company Benefit Plans"). Schooner reimbursed the Company for
costs incurred as a result of the participation of Schooner employees in Company
Benefit Plans. Participation by Schooner employees in the Company Benefit Plans
terminated shortly after the consummation of the Initial Public Offering.
Director Compensation
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company (each an "Eligible Director") receives an annual retainer fee of
$10,000 as compensation for his or her services as a member of the Board of
Directors and is also paid $2,500 per quarter (to a maximum of $10,000 per year)
for attendance at meetings (the "Director's Compensation"). All directors of the
Company are reimbursed for out-of-pocket expenses incurred in attending meetings
of the Board of Directors or committees thereof, and for other expenses incurred
in their capacities as directors of the Company.
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<PAGE>
Pursuant to the Iron Mountain Incorporated 1995 Stock Plan for Non-Employee
Directors (the "Directors Plan"), Eligible Directors may elect to receive all or
a portion of their Director Compensation in the form of Common Stock. An
Eligible Director electing to receive Common Stock under the Directors Plan
will, as an incentive, receive in lieu of cash an amount of Common Stock
equivalent to 110% of the Director Compensation otherwise due to be paid in
cash. The Company has reserved 15,000 shares of Common Stock for issuance under
the Directors Plan.
Stock Option Information
Effective November 30, 1995, Iron Mountain instituted the Iron Mountain
Incorporated 1995 Stock Incentive Plan (the "Stock Option Plan"), which is
administered by the Compensation Committee, as a restatement of Iron Mountain's
then-existing stock option plan. The purpose of the Stock Option Plan is to
encourage key employees, directors, and consultants of the Company and its
subsidiaries who render services of special importance to, and who have
contributed or may be expected to contribute materially to the success of, the
Company or a subsidiary to continue their association with the Company and its
subsidiaries by providing favorable opportunities for them to participate in the
ownership of the Company and in its future growth through the granting of
restricted shares ("Restricted Stock"), options to acquire Common Stock
("Options"), stock appreciation rights ("SARs") and other rights to compensation
in amounts determined by the value of the Common Stock. Restricted Stock, SARs
and other rights are referred to collectively as "Other Rights."
The total number of shares of Common Stock that may be subject to Options and
Other Rights under the Stock Option Plan may not exceed 1,000,000. As of June
30, 1996, options for 757,827 shares of Common Stock were outstanding under the
Stock Option Plan and 213,258 shares of Common Stock were available for grants
of Options and/or Other Rights under the Stock Option Plan. The duration of the
Options granted under the Stock Option Plan may be specified pursuant to each
respective stock option agreement, but in no event can any Option intended to
qualify as an incentive stock option (an "ISO") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), be
exercisable after the expiration of 10 years after the date of grant. In the
case of any employee who owns (or is considered under Section 424(d) of the Code
as owning) stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any of its Subsidiaries, no ISO shall be
exercisable after the expiration of five years from its date of grant.
The following table sets forth certain information concerning the grant of
Options to Messrs. Wendell and Swift. Neither of the other Named Executive
Officers was granted Options in 1995.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value At
Number of % of Total Assumed Annual Rates of
Securities Option Stock Appreciation for
Underlying Granted to Exercise Option Terms (2
Options Employees in Price Per Expiration ---------------------------
Name Granted Fiscal Year Share Date 5%(%) 10%($)
- ----- ---------- ------------ --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
David S. Wendell 35,469 21.9% $16.125 (1) $359,688 $911,521
President and Chief Operating
Officer
Robert P. Swift 8,096 5.0% $16.125 2/5/2006 $ 82,101 $208,066
Executive Vice President
</TABLE>
- -------------
(1) Options granted to Mr. Wendell with respect to 29,410 shares of Common Stock
expire February 5, 2006, and options with respect to the remaining 6,059
shares expire 60 days after termination of Mr. Wendell's employment with the
Company.
(2) Potential Realizable Value is based on the assumed growth rates for an
assumed ten-year option term. 5% annual growth results in a Common Stock
price per share of $26.27, and 10% results in a Common Stock price per share
of $41.82, respectively, for such term. The actual value, if any, an
executive may realize will depend on the excess of the market price of the
Common Stock over the exercise price on the date the option is exercised, so
that there is no assurance the value realized by an executive will be at or
near the amounts reflected in this table.
59
<PAGE>
The following table sets forth certain information with respect to the
unexercised Options granted to Messrs. Wendell and Swift. Neither of such
individuals exercised any stock options during the year ended December 31, 1995.
Neither of the other Named Executive Officers has any unexercised Options.
Fiscal Year End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money-Options at
Options at December 31, 1995 December 31, 1995 (1)
---------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David S. Wendell 71,077 53,266 $676,653 $169,427
President and Chief Operating
Officer
Robert P. Swift 11,566 15,806 $110,108 $ 73,399
Executive Vice President
</TABLE>
- -------------
(1) Based on the initial public offering price of $16.00 per share, less the
exercise price.
CERTAIN TRANSACTIONS
In 1993, in connection with the employment of David S. Wendell, the Company
made demand loans to Mr. Wendell in an aggregate principal amount of $70,000 in
connection with Mr. Wendell's purchase of a home. The loans bear interest at a
rate equal to the Company's cost to borrow such funds and are secured by a
pledge of stock and a second mortgage on the home. As of August 14, 1996, the
principal balance of the loans was $25,000.
See "Management--Executive Compensation--Compensation Committee Interlocks
and Insider Participation" for a discussion of: (i) certain payments to Vincent
J. Ryan and Schooner for consulting services; (ii) a lease between a partnership
affiliated with Messrs. Doggett, Reese and Ryan and a subsidiary of the Company;
(iii) the familial relationship between Vincent J. Ryan, an Iron Mountain
Director, and T. Anthony Ryan, an Iron Mountain officer; (iv) a lease between
Schooner and the Company; (v) certain indebtedness of Iron Mountain to Schooner;
and (vi) Schooner's prior participation in Iron Mountain's 401(k) plan and
certain other employee benefit plans.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of Common Stock by: (i) each stockholder known
by the Company to be the beneficial owner of more than five percent of the
Common Stock; (ii) each director; (iii) each Named Executive Officer; and (iv)
all executive officers and directors of the Company as a group. Such information
is presented as of August 14, 1996.
Amount of Beneficial
Ownership (1)
-------------------
Percent
Name Shares Owned
- ---- ------ ------
Directors and Executive Officers:
C. Richard Reese (2) 1,127,503 11.7%
David S. Wendell (3) 83,815 *
Eugene B. Doggett (4) 219,745 2.3%
Robert P. Swift (5) 15,421 *
Constantin R. Boden (6) 19,746 *
Arthur D. Little (7) 98,730 1.0%
Vincent J. Ryan (8) 3,503,250 36.4%
All Directors and executive
officers as a group (8 persons)(9) 4,371,289 45.0%
Five Percent Stockholder:
Schooner Capital Corporation(10) 1,909,384 19.8%
- -------------
* Less than 1%
(1) Except as otherwise indicated, the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Mr. Reese is a director and Chairman of the Board and Chief Executive
Officer of the Company. Includes 12,160 shares of Common Stock held by
trusts for the benefit of Mr. Reese's children, as to which Mr. Reese
disclaims beneficial ownership. Also includes 668,166 shares of Common
Stock as to which Mr. Reese shares beneficial ownership with Schooner as a
result of a 1988 deferred compensation arrangement, as amended, between
Schooner and Mr. Reese relating to Mr. Reese's former services as President
of Schooner. Pursuant to such arrangement, upon the earlier to occur of (i)
Schooner's sale or exchange of substantially all of the shares of Common
Stock held by Schooner or (ii) the cessation of Mr. Reese's employment with
Iron Mountain, Schooner is required to transfer such shares of Common Stock
to Mr. Reese or remit to Mr. Reese cash in an amount equal to the then
current fair market value of such shares of Common Stock. Schooner has
agreed to vote the shares of Common Stock subject to such arrangement at
the direction of Mr. Reese. Mr. Reese's address is c/o Iron Mountain
Incorporated, 745 Atlantic Avenue, Boston, Massachusetts 02111.
(3) Mr. Wendell is a director and President and Chief Operating Officer of
the Company. Includes 79,960 shares that Mr. Wendell has the right to
acquire pursuant to currently exercisable options. See "Executive
Compensation." Mr. Wendell's address is c/o Iron Mountain Incorporated,
745 Atlantic Avenue, Boston, Massachusetts 02111.
(4) Mr. Doggett is a director and Executive Vice President and Chief Financial
Officer of the Company. Includes 29,550 shares of Common Stock as to which
Mr. Doggett shares beneficial ownership with Schooner as a result of a 1988
deferred compensation arrangement, as amended, between Schooner and Mr.
Doggett relating to Mr. Doggett's former services as Chief Financial
Officer of Schooner. Pursuant to such arrangement, upon the earlier to
occur of (i) Schooner's sale or exchange of substantially all of the shares
of Common Stock held by Schooner or (ii) the cessation of Mr. Doggett's
employment with Iron Mountain, Schooner is required to transfer such shares
of Common Stock to Mr. Doggett or remit to Mr. Doggett cash in an amount
equal to the then current fair market value of such shares of Common Stock.
Schooner has agreed to vote the shares of Common Stock subject to such
arrangement at the direction of Mr. Doggett. Mr. Doggett's address is c/o
Iron Mountain Incorporated, 745 Atlantic Avenue, Boston, Massachusetts
02111.
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<PAGE>
(5) Mr. Swift is a director and Executive Vice President of the Company.
Consists of shares that Mr. Swift has the right to acquire pursuant to
currently exercisable options. See "Executive Compensation." Mr. Swift's
address is c/o Iron Mountain Incorporated, 1340 East 6th Street, Los
Angeles, California 90021.
(6) Mr. Boden is a director of the Company. Mr. Boden's address is c/o
Boston Capital Ventures, 45 School Street, Boston, Massachusetts 02110.
(7) Mr. Little is a director of the Company. Consists of 49,365 shares held
by The Little Family Trust and 49,365 shares held by The Little Family
Foundation, as to which Mr. Little disclaims beneficial ownership. Mr.
Little's address is c/o The Little Investment Company, 33 Broad Street,
Boston, Massachusetts 02109.
(8) Mr. Ryan is a director of the Company. Mr. Ryan holds 1,593,866 shares
of Common Stock. The remaining shares of Common Stock listed as being
beneficially owned by Mr. Ryan are held by Schooner, as to which Mr.
Ryan has sole voting power and investment power as the Chairman of the
Board and principal stockholder of Schooner. Mr. Ryan's address is c/o
Schooner Capital Corporation, 745 Atlantic Avenue, Boston, Massachusetts
02111. See footnote (10) regarding shares held by Schooner.
(9) Includes 96,156 shares that directors and executive officers have the right
to acquire pursuant to currently exercisable options.
(10) Mr. Ryan is the Chairman of the Board and the principal stockholder of
Schooner and, accordingly has sole voting and investment power with respect
to the shares of Common Stock held by Schooner. Includes 668,166 shares of
Common Stock as to which Schooner shares beneficial ownership with Mr.
Reese as described in footnote (2). Also includes 29,550 shares of Common
Stock as to which Schooner shares beneficial ownership with Mr. Doggett as
described in footnote (4). Schooner has agreed to vote the shares of Common
Stock subject to such arrangements at the direction of Mr. Reese or Mr.
Doggett, as the case may be.
62
<PAGE>
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to an Indenture (the "Indenture") between
the Company and , as trustee (the "Trustee"). The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The
Notes are subject to all such terms, and Holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of certain provisions of the Indenture does not purport to be complete
and is qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. A copy of the proposed form of
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The definitions of certain terms used in the
following summary are set forth below under "Certain Definitions."
Principal, Maturity and Interest
The Notes will be general unsecured obligations of the Company, will be
limited in aggregate principal amount to $150 million and will mature on
, 2006. Interest on the Notes will accrue at the rate of % per annum and
will be payable semi-annually in arrears on and , commencing on ,
1997, to Holders of record on the immediately preceding and .
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 original
issuance. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. The Notes will be payable both as to principal and
interest at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company, payment
of interest may be made by check mailed to the Holders of Notes at their
addresses set forth in the register of Holders of Notes. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Notes will be issued
in registered form, without coupons, and in denominations of $1,000 and integral
multiples thereof.
Subsidiary Guarantees
The Company's payment obligations under the Notes will be jointly and
severally guaranteed (the "Subsidiary Guarantees") on an unsecured senior
subordinated basis by all of the Company's existing and future Restricted
Subsidiaries other than the Excluded Restricted Subsidiaries (see "Certain
Covenants--Additional Subsidiary Guarantees"). Each Subsidiary Guarantee will
be subordinated to the prior payment in full of all Senior Debt of each such
Restricted Subsidiary, which on a pro forma basis would have been $ million
at June 30, 1996 for all Restricted Subsidiaries. Notwithstanding the
subordination provisions contained in the Indenture, the obligations of a
Restricted Subsidiary under its Subsidiary Guarantee will be unconditional. See
"Risk Factors--Unenforceability and Release of Guarantees."
Subordination
The payment of principal of, premium, if any, and interest on the Notes will
be subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full in cash of all Obligations with respect to Senior Debt, whether
outstanding on the date of the Indenture or thereafter incurred.
Upon any payment or distribution to creditors of the Company or any
Restricted Subsidiary in a liquidation or dissolution of the Company or such
Restricted Subsidiary or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or any Restricted
Subsidiary or its property, an assignment for the benefit of creditors or any
marshaling of the assets and liabilities of the Company or any Restricted
Subsidiary, (a) the holders of Senior Debt will be entitled to receive payment
in full in cash of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt) before the Holders of Notes will be entitled to
receive any payment or distribution with respect to the Notes, and (b) until all
Obligations with respect to Senior Debt are paid in full in cash, any payment or
distribution to which the Holders of Notes would be entitled shall be made to
the holders of Senior Debt (except that Holders of Notes may receive securities
under a plan of reorganization that are
63
<PAGE>
subordinated at least to the same extent as the Notes are subordinated to Senior
Debt and any securities issued in exchange for Senior Debt).
Neither the Company nor any Restricted Subsidiary may make any payment or
distribution upon or in respect of the Notes, including, without limitation, by
way of set-off or otherwise, or redeem (or make a deposit in redemption of),
defease or acquire any of the Notes for cash, properties or securities (except
in subordinated securities in a plan of reorganization) if (a) a default in the
payment of any Obligation in respect of any Senior Debt occurs and is continuing
or (b) any other default (or any event that, after notice or passage of time
would become an event of default) (a "Non-Monetary Default") occurs and is
continuing with respect to Senior Debt and, in the case of clause (b), the
Trustee receives a notice of such default (a "Payment Blockage Notice") from the
Company or the holders (or the agent or representative of such holders) of any
Designated Senior Debt. Payments on the Notes may and shall be resumed (i) in
the case of a payment default, on the date on which such default is cured or
waived and (ii) in the case of a Non-Monetary Default, on the earlier of the
date on which such Non- Monetary Default is cured or waived or 179 days after
the date on which the applicable Payment Blockage Notice is received, unless the
maturity of any Senior Debt has been accelerated. Any number of Payment Blockage
Notices may be given, provided, however, that: (A) during any consecutive
360-day period, the aggregate number of days in which payments in respect of the
Notes may not be made shall not exceed 179 days; (B) there shall be a period of
at least 181 consecutive days in each 360-day period when such payments are not
prohibited pursuant to a Payment Blockage Notice; and (C) any Non-Monetary
Default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall not be the basis for a subsequent Payment
Blockage Notice, unless such default has been cured or waived for a period of
not less than 180 consecutive days.
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. On a pro forma basis,
after giving effect to the Transactions, the principal amount of Senior Debt of
the Company and the Restricted Subsidiaries outstanding at June 30, 1996 would
have been $10.8 million. The Indenture will not limit the amount of additional
Indebtedness, including Senior Debt, that the Company and its Subsidiaries can
incur if certain financial tests are met. See "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
Optional Redemption
The Notes will not be redeemable at the Company's option prior to
, 2001. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest thereon to but
excluding the applicable redemption date, if redeemed during the twelve-month
period beginning on of the years indicated below:
Year Percentage
- ----- ----------
2001 %
2002 %
2003 %
2004 and thereafter 100%
Notwithstanding the foregoing, at any time during the first 36 months after
the date of issuance of the Notes, the Company may redeem up to 35% of the
initial principal amount of the Notes originally issued with the net cash
proceeds of one or more Qualified Equity Offerings at a redemption price equal
to % of the principal amount of such Notes, plus accrued and unpaid interest, if
any, to but excluding the date of redemption; provided, that at least 65% of the
principal amount of Notes originally issued remains outstanding immediately
after the occurrence of any such redemption and that such redemption occurs
within 60 days following the closing of any such Qualified Equity Offering.
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Mandatory Redemption
Except with respect to required repurchases upon the occurrence of a Change
of Control or in the event of certain Asset Sales, each as described below under
"Repurchase at the Option of Holders," the Company is not required to make
sinking fund or redemption payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to but excluding the date of purchase (the "Change of Control
Payment"). Within 30 calendar days following any Change of Control, the Company
will mail a notice to each Holder stating: (a) that the Change of Control Offer
is being made pursuant to the covenant entitled "Change of Control" and that all
Notes tendered will be accepted for payment; (b) the purchase price and the
purchase date, which will be no earlier than 30 calendar days nor later than 60
calendar days from the date such notice is mailed (the "Change of Control
Payment Date"); (c) that any Note not tendered will continue to accrue interest;
(d) that, unless the Company defaults in the payment of the Change of Control
Payment, all Notes accepted for payment pursuant to the Change of Control Offer
will cease to accrue interest on and after the Change of Control Payment Date;
(e) that Holders electing to have any 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 Notes completed, to
the Paying Agent at the address specified in such notice prior to the close of
business on the fifth Business Day preceding the Change of Control Payment Date;
(f) that Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (g) 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, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof. The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable to the repurchase of the
Notes in connection with a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (a) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (b) deposit with the Paying Agent an amount equal
to the Change of Control Payment in respect of all Notes or portions thereof so
tendered and (c) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the Notes or portions
thereof tendered to the Company. The Paying Agent will promptly mail to each
Holder of Notes so accepted the Change of Control Payment for such Notes, and
the Trustee will promptly authenticate and mail to each Holder a new Note equal
in principal amount to any unpurchased portion of the Notes surrendered, if any;
provided that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring, nor does it contain any other "event
risk" protections for Holders of the Notes.
Although the Change of Control provision may not be waived by the Company,
and may be waived by the Trustee only in accordance with the provisions of the
Indenture, there can be no assurance that any particular transaction (including
a highly leveraged transaction) cannot be structured or effected in a manner not
constituting a Change of Control.
The Credit Agreement currently prohibits the Company from purchasing any
Notes prior to the expiration of the Credit Agreement and also provides that
certain change of control events with respect to the Company would constitute a
default thereunder. The New Credit Facility is expected to contain, and any
future credit agreements
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or other agreements relating to Senior Debt to which the Company becomes a party
may contain, similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing Notes,
the Company could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute a default under the Credit
Agreement and is expected to constitute an event of default under the New Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than the Principal Stockholders (or any of
them), is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of more than a
majority of the voting power of all classes of Voting Stock of the Company;
(b) the Company consolidates with, or merges with or into, another Person
or conveys, transfers, leases or otherwise disposes of all or substantially
all of its assets to any Person, or any Person consolidates with, or merges
with or into, the Company, in any such event pursuant to a transaction in
which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation) or is converted into or
exchanged for (A) Voting Stock (other than Disqualified Stock) of the
surviving or transferee Person or (B) cash, securities and other property
(other than Capital Stock described in the foregoing clause (A)) of the
surviving or transferee Person in an amount that could be paid as a
Restricted Payment as described under the "Limitation on Restricted Payments"
covenant and (ii) immediately after such transaction, no "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act),
other than the Principal Stockholders (or any of them), is the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly
or indirectly, of more than a majority of the total outstanding Voting Stock
of the surviving or transferee Person;
(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election to such Board of Directors, or whose
nomination for election by the stockholders of the Company, was approved by a
vote of 66-2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office; or
(d) the Company is liquidated or dissolved or adopts a plan of liquidation
or dissolution other than in a transaction which complies with the provisions
described under "Consolidation, Merger and Sale of Assets."
Asset Sales
The Indenture will provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, (a) sell, lease, convey or otherwise dispose
of any assets (including by way of a Sale and Leaseback Transaction, but
excluding a Qualifying Sale and Leaseback Transaction) other than sales of
inventory in the ordinary course of business (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company will be governed by the provisions of the Indenture described above
under the caption "Change of Control" and/or the provisions described below
under the caption "Merger, Consolidation or Sale of Assets" and not by the
provisions of this covenant), or (b) issue or sell Equity Interests of any of
its Restricted Subsidiaries, that, in the case of either clause (a) or (b)
above, whether in a single transaction or a series of related transactions, (i)
have a fair market value in excess of $1.0 million, or (ii) result in Net
Proceeds in excess of $1.0 million (each of the foregoing, an "Asset Sale"),
unless (x) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by an Officers' Certificate delivered to the Trustee,
and for Asset Sales having a fair market value or resulting in net proceeds in
excess of $5.0 million, evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate
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delivered to the Trustee) of the assets sold or otherwise disposed of and (y) at
least 75% of the consideration therefor received by the Company or such
Restricted Subsidiary is in the form of cash or like-kind assets (in each case
as determined in good faith by the Company, evidenced by a resolution of the
Board of Directors and certified by an Officers' Certificate filed with the
Trustee); provided, however, that the amount of (A) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet or in
the notes thereto) of the Company or such Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Notes or any Subsidiary
Guarantee) that are assumed by the transferee of any such assets and (B) any
notes or other obligations received by the Company or such Restricted Subsidiary
from such transferee that are immediately converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received) or Cash
Equivalents, shall be deemed to be cash for purposes of this provision; and
provided, further, that the 75% limitation referred to in the foregoing clause
(y) shall not apply to any Asset Sale in which the cash portion of the
consideration received therefrom is equal to or greater than what the after-tax
proceeds would have been had such Asset Sale complied with the aforementioned
75% limitation. A transfer of assets or issuance of Equity Interests by the
Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary will
not be deemed to be an Asset Sale.
Within 360 days of any Asset Sale, the Company may, at its option, apply an
amount equal to the Net Proceeds from such Asset Sale either (a) to permanently
reduce Senior Debt, or (b) to an investment in a Restricted Subsidiary or in
another business or capital expenditure or other long-term/tangible assets, in
each case, in the same line of business as the Company or any of its Restricted
Subsidiaries was engaged in on the date of the Indenture or in businesses
similar or reasonably related thereto. Pending the final application of any such
Net Proceeds, the Company may temporarily reduce Senior Bank Debt or otherwise
invest such Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from such Asset Sale that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company shall make an offer to all Holders of Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase, in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate amount of Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Notes surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess Proceeds
shall be reset at zero.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate, provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions of them called for redemption.
Certain Covenants
Restricted Payments
The Indenture will provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (a) declare or pay
any dividend or make any distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
such Restricted Subsidiary or dividends or distributions payable to the Company
or any Restricted Subsidiary of the Company); (b) purchase, redeem or otherwise
acquire
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or retire for value any Equity Interests of the Company or any Restricted
Subsidiary or other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary); (c) purchase,
redeem or otherwise acquire or retire prior to scheduled maturity for value any
Indebtedness that is subordinated in right of payment to or pari passu with the
Notes or (d) make any Investment other than a Permitted Investment (all such
payments and other actions set forth in clauses (a) through (d) above being
collectively referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(ii) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto, have been permitted to incur at least $1.00
of additional Indebtedness pursuant to the test set forth in the first
paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance
of Preferred Stock;" and
(iii) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the date of the Indenture is less than (x) the cumulative EBITDA of the
Company, minus 1.75 times the cumulative Consolidated Interest Expense of the
Company, in each case for the period (taken as one accounting period) from
June 30, 1996, to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time of such
Restricted Payment, plus (y) the aggregate net Equity Proceeds received by
the Company from the issuance or sale since the date of the Indenture of
Equity Interests of the Company or of debt securities of the Company that
have been converted into such Equity Interests (other than Equity Interests
or convertible debt securities sold to a Restricted Subsidiary of the Company
and other than Disqualified Stock or debt securities that have been converted
into Disqualified Stock), plus (z) $2.0 million.
The foregoing provisions will not prohibit (A) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (B) the redemption, repurchase, retirement or other acquisition or
retirement for value of any Equity Interests of the Company in exchange for, or
with the net cash proceeds of, the substantially concurrent sale (other than to
a Restricted Subsidiary of the Company) of other Equity Interests of the Company
(other than any Disqualified Stock); (C) the defeasance, redemption, repurchase,
retirement or other acquisition or retirement for value of Indebtedness that is
subordinated or pari passu in right of payment to the Notes in exchange for, or
with the net cash proceeds of, a substantially concurrent issuance and sale
(other than to a Restricted Subsidiary of the Company) of Equity Interests of
the Company (other than Disqualified Stock); (D) the defeasance, redemption,
repurchase, retirement or other acquisition or retirement for value of
Indebtedness that is subordinated or pari passu in right of payment to the Notes
in exchange for, or with the net cash proceeds of, a substantially concurrent
issue and sale (other than to the Company or any of its Restricted Subsidiaries)
of Refinancing Indebtedness; (E) the repurchase of any Indebtedness subordinated
or pari passu in right of payment to the Notes at a purchase price not greater
than 101% of the principal amount of such Indebtedness in the event of a Change
of Control in accordance with provisions similar to the "Change of Control"
covenant, provided that prior to or contemporaneously with such repurchase the
Company has made the Change of Control Offer as provided in such covenant with
respect to the Notes and has repurchased all Notes validly tendered for payment
in connection with such Change of Control Offer; (F) the prepayment of the
Chrysler Notes, together with premium and interest thereon; (G) the prepayment
of $382,500 of junior subordinated notes issued by the Company in connection
with a 1990 acquisition and currently held by Schooner Capital Corporation,
together with interest thereon; and (H) additional payments to current or former
employees of the Company for repurchases of stock, stock options or other equity
interests, provided that the aggregate amount of all such payments under this
clause (H) does not exceed $500,000 in any year and $2.0 million in the
aggregate.
The Restricted Payments described in clauses (B), (C), (E) and (H) of the
immediately preceding paragraph will be Restricted Payments that will be
permitted to be taken in accordance with such paragraph but will reduce the
amount that would otherwise be available for Restricted Payments under clause
(iii) of the first paragraph of this section, and the Restricted Payments
described in clauses (A), (D), (F) and (G) of the immediately preceding
paragraph will be Restricted Payments that will be permitted to be taken in
accordance with such paragraph and will not reduce the amount that would
otherwise be available for Restricted Payments under clause (iii) of the first
paragraph of this section.
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If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments deemed to have been made as
calculated under the foregoing provision will be reduced by the amount of any
net reduction in such Investment (resulting from the payment of interest or
dividends, loan repayment, transfer of assets or otherwise) to the extent such
net reduction is not included in the Company's EBITDA; provided, however, that
the total amount by which the aggregate amount of all Restricted Payments may be
reduced may not exceed the lesser of (a) the cash proceeds received by the
Company and its Restricted Subsidiaries in connection with such net reduction
and (b) the initial amount of such Investment.
If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes an Investment in an Unrestricted Subsidiary or
other Person that thereafter becomes a Restricted Subsidiary, such Investment
will no longer be counted as a Restricted Payment for purposes of calculating
the aggregate amount of Restricted Payments. For the purpose of making any
calculations under the Indenture, (a) an Investment will include the fair market
value of the net assets of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and will exclude
the fair market value of the net assets of any Unrestricted Subsidiary that is
designated as a Restricted Subsidiary, (b) any property transferred to or from
an Unrestricted Subsidiary will be valued at fair market value at the time of
such transfer, provided that, in each case, the fair market value of an asset or
property is as determined by the Board of Directors in good faith, and (c)
subject to the foregoing, the amount of any Restricted Payment, if other than
cash, will be determined by the Board of Directors, whose good faith
determination will be conclusive.
The Board of Directors may designate a Restricted Subsidiary to be an
Unrestricted Subsidiary in compliance with the covenant entitled "Unrestricted
Subsidiaries." Upon such designation, all outstanding Investments by the Company
and its Restricted Subsidiaries (except to the extent repaid in cash) in the
Subsidiary so designated will be deemed to be Restricted Payments made at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. Such designation will only
be permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture will provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guaranty or otherwise become directly or indirectly liable with respect
to (collectively, "incur") any Indebtedness (including Acquired Debt) and that
the Company will not permit any of its Restricted Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company may incur
Indebtedness and may permit a Restricted Subsidiary to incur Indebtedness if at
the time of such incurrence and after giving effect thereto the Leverage Ratio
would be less than 6.0 to 1.0.
The foregoing limitations will not apply to (a) the incurrence by the Company
or any Restricted Subsidiary of Senior Bank Debt in an aggregate amount not to
exceed $25.0 million at any one time outstanding, (b) the issuance by the
Restricted Subsidiaries of Subsidiary Guarantees, (c) the incurrence by the
Company and its Restricted Subsidiaries of the Existing Indebtedness, (d) the
issuance by the Company of the Notes, (e) the incurrence by the Company and its
Restricted Subsidiaries of Capital Lease Obligations and/or additional
Indebtedness constituting purchase money obligations up to an aggregate of $2.5
million at any one time outstanding, provided that the Liens securing such
Indebtedness constitute Permitted Liens, (f) the incurrence of Indebtedness
between (i) the Company and its Restricted Subsidiaries and (ii) the Restricted
Subsidiaries, (g) Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be outstanding,
(h) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness arising out of letters of credit, performance bonds, surety bonds
and bankers' acceptances incurred in the ordinary course of business up to an
aggregate of $2.0 million at any one time outstanding, (i) the incurrence by the
Company and its Restricted Subsidiaries of Indebtedness consisting of
guarantees, indemnities or obligations in respect of purchase price adjustments
in connection with the acquisition or disposition of assets, including, without
limitation, shares of Capital Stock, and (j) the incurrence by the Company and
its Restricted Subsidiaries of Refinancing Indebtedness issued in exchange for,
or the proceeds of which are used to repay, redeem, defease, extend, refinance,
renew, replace or refund, Indebtedness referred to in clauses (b) through (e)
above, and this clause (j).
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Liens
The Indenture will provide that neither the Company nor any of its Restricted
Subsidiaries may directly or indirectly create, incur, assume or suffer to exist
any Lien (other than a Permitted Lien) upon any property or assets now owned or
hereafter acquired, or any income, profits or proceeds therefrom, or assign or
otherwise convey any right to receive income therefrom, unless (a) in the case
of any Lien securing any Indebtedness that is subordinate to the Notes, the
Notes are secured by a Lien on such property, assets or proceeds that is senior
in priority to such Lien and (b) in the case of any other Lien, the Notes are
equally and ratably secured with the obligation or liability secured by such
Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture will provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (a) (i) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (A) on
its Capital Stock or (B) with respect to any other interest or participation in,
or measured by, its profits, or (ii) pay any Indebtedness owed to the Company or
any of its Restricted Subsidiaries, (b) make loans or advances to the Company or
any of its Restricted Subsidiaries or (c) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reasons of (1) Existing
Indebtedness as in effect on the date of the Indenture, (2) the Credit Agreement
as in effect as of the date of the Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancing thereof, provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings are
no more restrictive in the aggregate with respect to such dividend and other
payment restrictions than those contained in the Credit Agreement as in effect
on the date of the Indenture, (3) the Indenture and the Notes, (4) applicable
law, (5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that the EBITDA of such Person is not taken into
account in determining whether such acquisition was permitted by the terms of
the Indenture, (6) customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices, (7)
restrictions on the transfer of property subject to purchase money or
capitalized lease obligations otherwise permitted by clause (e) of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock," or (8)
permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Refinancing Indebtedness are no more restrictive
in the aggregate than those contained in the agreements governing the
Indebtedness being refinanced.
Merger, Consolidation, or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
Person unless (a) the Company is the surviving corporation or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (b) the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
of the Company under the Notes and the Indenture pursuant to a supplemental
indenture in a form and in substance reasonably satisfactory to the Trustee; (c)
immediately after such transaction no Default or Event of Default exists; and
(d) the Company or Person formed by or surviving any such consolidation or
merger, or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made,
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will, at the time of such transaction and after giving pro forma effect thereto,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
test set forth in the first paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with a non-Affiliated Person and (b) the Company delivers
to the Trustee (i) with respect to any Affiliate Transaction involving aggregate
payments in excess of $1.0 million, a resolution of the Board of Directors set
forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (a) above and such Affiliate Transaction is approved by a
majority of the disinterested members of the Board of Directors and (ii) with
respect to any Affiliate Transaction involving aggregate payments in excess of
$5.0 million, an opinion as to the fairness to the Company or such Restricted
Subsidiary from a financial point of view issued by an investment banking firm
of national standing; provided, however, that (A) any employment agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the Company
or such Restricted Subsidiary, (B) transactions between or among the Company
and/or its Restricted Subsidiaries, (C) transactions permitted by the provisions
of the Indenture described above under the covenant "Restricted Payments" and
(D) the grant of stock, stock options or other equity interests to employees and
directors of the Company in accordance with duly adopted Company stock grant,
stock option and similar plans, in each case, shall not be deemed Affiliate
Transactions; and further provided that (1) the provisions of clause (b) shall
not apply to sales of inventory by the Company or any Restricted Subsidiary to
any Affiliate in the ordinary course of business and (2) the provisions of
clause (b) (ii) shall not apply to loans or advances to the Company or any
Restricted Subsidiary from, or equity investments in the Company or any
Restricted Subsidiary by, any Affiliate to the extent permitted by the
provisions of the Indenture described above under the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock."
Certain Senior Subordinated Debt
The Indenture will provide that (a) the Company will not incur any
Indebtedness that is subordinated or junior in right of payment to any Senior
Debt of the Company and senior in any respect in right of payment to the
Notes, and (b) the Company will not permit any Restricted Subsidiary to incur
any Indebtedness that is subordinated or junior in right of payment to its
Senior Debt and senior in any respect in right of payment to its Subsidiary
Guarantee.
Additional Subsidiary Guarantees
The Indenture will provide that if any entity (other than an Excluded
Restricted Subsidiary) shall become a Restricted Subsidiary after the date of
the Indenture, then such Restricted Subsidiary shall execute a Subsidiary
Guarantee and deliver an opinion of counsel with respect thereto, in accordance
with the terms of the Indenture.
The Indenture will provide that no Restricted Subsidiary may consolidate with
or merge with or into (whether or not such Restricted Subsidiary is the
surviving Person), another Person (other than the Company) whether or not
affiliated with such Restricted Subsidiary unless (a) subject to the provisions
of the following paragraph, the Person formed by or surviving any such
consolidation or merger (if other than such Restricted Subsidiary) assumes all
the obligations of such Restricted Subsidiary under its Subsidiary Guaranty, if
any, pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee; (b) immediately after giving effect to such
transaction, no Default or Event of Default exists; and (c) such Restricted
Subsidiary, or any Person formed by or surviving any such consolidation or
merger, would be permitted to incur, immediately after giving effect to such
transaction, at least $1.00 of additional Indebtedness pursuant to the test set
forth in the first paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock."
The Indenture will provide that in the event of (a) a sale or other
disposition of all of the assets of any Restricted Subsidiary, by way of merger,
consolidation or otherwise, (b) a sale or other disposition of all of the
capital stock
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of any Restricted Subsidiary, or (c) the designation of a Restricted Subsidiary
as an Unrestricted Subsidiary in accordance with the terms of the covenant
entitled "Unrestricted Subsidiaries," then such Subsidiary (in the event of a
sale or other disposition, by way of such a merger, consolidation or otherwise,
of all of the capital stock of such Restricted Subsidiary) or the corporation
acquiring the property (in the event of a sale or other disposition of all of
the assets of such Restricted Subsidiary) will be released and relieved of any
obligations under its Subsidiary Guarantee; provided that the Net Proceeds of
such sale or other disposition are applied in accordance with the applicable
provisions of the Indenture. See "Redemption or Repurchase at Option of
Holders--Asset Sales."
Unrestricted Subsidiaries
The Board of Directors may designate any Subsidiary (including any Restricted
Subsidiary or any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary so long as: (i) neither the Company nor any Restricted
Subsidiary is directly or indirectly liable for any Indebtedness of such
Subsidiary; (ii) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; (iii) any Investment in such Subsidiary
deemed to be made as a result of designating such Subsidiary an Unrestricted
Subsidiary will not violate the provisions of the covenant entitled "Limitation
on Restricted Payments;" (iv) neither the Company nor any Restricted Subsidiary
has a contract, agreement, arrangement, understanding or obligation of any kind,
whether written or oral, with such Subsidiary other than (A) those that might be
obtained at the time from Persons who are not Affiliates of the Company or (B)
administrative, tax sharing and other ordinary course contracts, agreements,
arrangements and understandings or obligations entered into in the ordinary
course of business; and (v) neither the Company nor any Restricted Subsidiary
has any obligation to subscribe for additional shares of Capital Stock or other
Equity Interests in such Subsidiary, or to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve certain
levels of operating results other than as permitted under the covenant entitled
"Limitation on Restricted Payments." Notwithstanding the foregoing, the Company
may not designate as an Unrestricted Subsidiary any Subsidiary which, on the
date of the Indenture, is a Significant Subsidiary, and may not sell, transfer
or otherwise dispose of any properties or assets of any such Significant
Subsidiary to an Unrestricted Subsidiary, other than in the ordinary course of
business.
The Board of Directors may designate any Unrestricted Subsidiary as a
Restricted Subsidiary; provided that such designation will be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation will only be
permitted if (i) such Indebtedness is permitted under the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant and (ii) no Default or
Event of Default would occur as a result of such designation.
Reports
Whether or not required by the rules and regulations of the Securities and
Exchange Commission (the "Commission"), so long as any Notes are outstanding,
the Company will furnish to the Holders of Notes (a) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (b) all
financial information that would be required to be included in a Form 8-K filed
with the Commission if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to investors who
request it in writing.
Events of Default and Remedies
The Indenture will provide that each of the following constitutes an Event of
Default: (a) default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (b) default in payment when due of the principal of or premium, if
any, on the Notes (whether or not prohibited by the subordination provisions of
the Indenture); (c) failure by the Company to comply with the provisions
described under "Change of Control;" (d) failure by the Company or any
Restricted Subsidiary for 60
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days after written notice from the Trustee or Holders of not less than 25% of
the aggregate principal amount of the Notes outstanding to comply with any of
its other agreements in the Indenture, Notes or the Subsidiary Guarantees; (e)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee exists on the date of the Indenture or is
created thereafter, if (i) such default results in the acceleration of such
Indebtedness prior to its express maturity or shall constitute a default in the
payment of such Indebtedness at final maturity of such Indebtedness, and (ii)
the principal amount of any such Indebtedness that has been accelerated or not
paid at maturity, when added to the aggregate principal amount of all other such
Indebtedness that has been accelerated or not paid at maturity, exceeds $5.0
million; (f) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $5.0 million, which judgments remain
unpaid, undischarged or unstayed for a period of 60 days; (g) certain events of
bankruptcy or insolvency with respect to the Company or any of its Restricted
Subsidiaries; and (h) except as permitted by the Indenture, any Subsidiary
Guarantee issued by a Restricted Subsidiary shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
full force and effect, or any Restricted Subsidiary or any Person acting on
behalf of any Restricted Subsidiary shall deny or disaffirm its obligations
under its Subsidiary Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately; provided, however, that if any
Obligation with respect to Senior Bank Debt is outstanding pursuant to the
Credit Agreement upon a declaration of acceleration of the Notes, the principal,
premium, if any, and interest on the Notes will not be payable until the earlier
of (i) the day which is five business days after written notice of acceleration
is received by the Company and the Credit Agent, or (ii) the date of
acceleration of the Indebtedness under the Credit Agreement. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company or any Restricted
Subsidiary that is a Significant Subsidiary, the principal of, and premium, if
any, and any accrued and unpaid interest on all outstanding Notes will become
due and payable without further action or notice. Holders of the Notes may not
enforce the Indenture or the Notes except as provided in the Indenture. In the
event of a declaration of acceleration of the Notes because an Event of Default
has occurred and is continuing as a result of the acceleration of any
Indebtedness described in clause (e) of the preceding paragraph, the declaration
of acceleration of the Notes shall be automatically annulled if the holders of
any Indebtedness described in clause (e) have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of such
declaration and if (i) the annulment of the acceleration of the Notes would not
conflict with any judgment or decree of a competent jurisdiction, and (ii) all
existing Events of Default, except non- payment of principal or interest on the
Notes that became due solely because of the acceleration of the Notes, have been
cured or waived.
In the case of any Event of Default occurring by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Notes pursuant to the optional
redemption provisions of the Indenture, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the Notes. If an Event of Default occurs prior to , 2004 by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of the Company with the intention of avoiding the prohibition on redemption of
the Notes prior to , 2004, then the premium specified in the Indenture shall
also become immediately due and payable to the extent permitted by law upon the
acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
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The Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Company is required upon becoming aware
of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company or
any Restricted Subsidiary, as such, shall have any liability for any obligations
of the Company or any Restricted Subsidiary under the Notes, the Subsidiary
Guarantees or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note and the Subsidiary Guarantees waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes and
the Subsidiary Guarantees. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (a) the rights of Holders of outstanding Notes to
receive 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 the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (c) the
rights, powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (d) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance"), and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership and insolvency events) described under "Events of Default" will no
longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (a) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in Dollars, non-callable Government Securities,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be, of
such principal or installment of principal of, premium, if any, or interest on
the outstanding Notes; (b) in the case of Legal Defeasance, the Company shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (i) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (ii) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal 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 Legal Defeasance had not occurred; (c) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming 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; (d) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (e) such Legal
Defeasance or Covenant Defeasance shall not result in a breach or violation of,
or constitute a default under, any material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee
an opinion of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (g) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
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the intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (h) 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 the Legal Defeasance or
the Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company is not required to transfer or exchange any Note selected for
redemption. Also, the Company is not required to transfer or exchange any Note
for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
Book-Entry, Delivery and Form
The Notes will be represented by one or more fully registered global notes
(collectively, the "Global Note"). The Global Note will be deposited upon
issuance with, or on behalf of, The Depository Trust Company, as Depositary (the
"Depositary") and registered in the name of the Depositary or a nominee of the
Depositary (the "Global Note Registered Owner"). Except as set forth below, the
Global Note may be transferred, in whole and not in part, only to another
nominee of the Depositary or to a successor of the Depositary or its nominee.
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between the Participants
through electronic book-entry changes in accounts of its Participants. The
Participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations. Access to the Depositary's systems is also available to other
entities such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only through the Participants or the Indirect Participants. The
ownership interest and transfer of ownership interest of each actual purchaser
of each security held by or on behalf of the Depositary are recorded on the
records of the Participants and Indirect Participants.
The Depositary has also advised the Company that, pursuant to procedures
established by it (i) upon deposit of the Global Note, the Depositary will
credit the accounts of Participants designated by the Underwriters with portions
of the principal amount of the Global Note and (ii) ownership of such interests
in the Global Note will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by the Depositary (with respect to
the Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Note). The laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer the
Notes will be limited to that extent.
Except as provided below, owners of interests in the Global Note will not
have Notes registered in their names, will not receive physical delivery of the
Notes in definitive form and will not be considered the registered owners or
holders thereof under the Indenture for any purpose.
Payments in respect of the principal of and premium, if any, and interest on
any Notes registered in the name of the Global Note Registered Owner will be
payable by the Trustee to the Global Note Registered Owner in its capacity as
the registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee will treat the persons in whose names the Notes,
including the Global Note, are registered as the owners thereof for the purpose
of receiving such payments and for any and all other purposes whatsoever.
Consequently, neither the Company, the Trustee nor any agent of the Company or
the Trustee has or will have any responsibility or liability for (i) any aspect
of the Depositary's records or any Participant's records relating to or payments
made on account of beneficial ownership interests in the Global Note, or for
maintaining, supervising or reviewing any of the Depositary's records or any
Participant's records relating to the beneficial ownership interests in the
Global Note or (ii) any other matter relating to the actions and practices of
the Depositary or any of its Participants. The
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Depositary has advised the Company that its current practice, upon receipt of
any payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security as
shown on the records of the Depositary. Payments by the Participants and the
Indirect Participants to the beneficial owners of the Notes will be governed by
standing instructions and customary practices and will be the responsibility of
the Participants or the Indirect Participants and will not be the responsibility
of the Depositary, the Trustee or the Company. Neither the Company nor the
Trustee will be liable for any delay by the Depositary or any of its
Participants in identifying the beneficial owners of the Notes, and the Company
and Trustee may conclusively rely on and will be protected in relying on
instructions from the Global Note Registered Owner for all purposes.
The Global Note is exchangeable for definitive Notes: (i) if the Depositary
notifies the Company that it is unwilling or unable to continue as Depositary of
the Global Note and the Company thereupon fails to appoint a successor
Depositary; (ii) if the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of the Notes in definitive registered form;
or (iii) if there shall have occurred and be continuing an Event of Default or
any event which after notice or lapse of time or both would be an Event of
Default with respect to the Notes. Such definitive Notes shall be registered in
the names of the owners of the beneficial interests in the Global Note as
provided by the Participants. Upon issuance of the Notes in definitive form, the
Trustee is required to register the Notes in the name of, and cause the Notes to
be delivered to, the person or persons (or the nominee thereof) identified as
the beneficial owners as the Depositary shall direct.
Settlement for purchases of beneficial interests in the Global Note upon the
original issuance thereof will be required to be made by wire transfer in
immediately available funds. Payments in respect of the Notes represented by the
Global Note (including principal, premium, if any, and interest) will be made by
wire transfer in immediately available funds to the accounts specified by the
Global Note Registered Owner. With respect to the definitive Notes, the Company
will make all payments of principal, premium, if any, and interest by wire
transfer in immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to such Holder's
registered address. Secondary trading in long-term notes of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the
beneficial interests in the Global Note are expected to trade in the
Depositary's Same-Day Funds Settlement System, in which secondary market trading
activity in those beneficial interests would be required by the Depositary to
settle in immediately available funds. There is no assurance as to the effect,
if any, that settlement in immediately available funds would have on trading
activity in such beneficial interests.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder of Notes) (a) reduce
the principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (b) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
in a manner adverse to the Holders of the Notes, (c) reduce the rate of or
change the time for payment of interest on any Note, (d) waive a Default or
Event of Default in the payment of principal of or premium, if any, or interest
on the Notes (except a rescission of acceleration of the Notes by the Holders of
at least a majority in aggregate principal amount of the then outstanding Notes
and a waiver of the payment default that resulted from such acceleration), (e)
make any Note payable in money other than that stated in the Notes, (f) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of Notes to receive payments of principal of or
premium, if any, or interest on the Notes, (g) waive a redemption payment with
respect to any Note (other than a payment required by one of the covenants
described above under the caption "Repurchase at the Option of Holders"), (h)
except pursuant to the Indenture, release any Restricted Subsidiary from its
obligations under its Subsidiary Guarantee, or change any
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Subsidiary Guarantee in any manner that would materially adversely affect the
Holders, or (i) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of the Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Iron Mountain Incorporated, 745 Atlantic Avenue,
Boston, MA 02111, Attention: Executive Vice President/Chief Financial Officer.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (a) Indebtedness
of any other Person, existing at the time such other Person merged with or into
or became a Subsidiary of such specified Person, including Indebtedness incurred
in connection with, or in contemplation of, such other Person merging with or
into or becoming a Subsidiary of such specified Person and (b) Indebtedness
encumbering any asset acquired by such specified Person.
"Acquisition EBITDA" means, as of any date of determination, with respect to
an Acquisition EBITDA Entity, the sum of (a) EBITDA of such Acquisition EBITDA
Entity for its last fiscal quarter for which financial statements are available
at such date of determination, multiplied by four (or if such quarterly
statements are not available, EBITDA for the most recent fiscal year for which
financial statements are available), plus (b) projected quantifiable
improvements in operating results (on an annualized basis) due to cost
reductions calculated in good faith by the Company or one of its Restricted
Subsidiaries, as certified by an Officers' Certificate filed with the Trustee,
without giving effect to any operating losses of the acquired Person.
"Acquisition EBITDA Entity" means, as of any date of determination, a
business or Person (a) which has been acquired by the Company or one of its
Restricted Subsidiaries and with respect to which financial results on a
consolidated basis with the Company have not been made available for an entire
fiscal quarter or (b) which is to be acquired in whole or in part with
Indebtedness, the incurrence of which will require the calculation on such date
of the Acquisition EBITDA of such Acquisition EBITDA Entity for purposes of the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock."
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"Adjusted EBITDA" means, as of any date of determination and without
duplication, the sum of (a) EBITDA of the Company and its Restricted
Subsidiaries for the most recent fiscal quarter for which internal financial
statements are available at such date of determination, multiplied by four, and
(b) Acquisition EBITDA of each business or Person that is an Acquisition EBITDA
Entity as of such date of determination, multiplied by a fraction, the numerator
of which is three minus the number of months (and/or any portion thereof) in
such most recent fiscal quarter for which the financial results of such
Acquisition EBITDA Entity are included in the EBITDA of the Company and its
Restricted Subsidiaries under clause (a) above, and (ii) the denominator of
which is three. The effects of unusual or non-recurring items in respect of the
Company, a Restricted Subsidiary or an Acquisition EBITDA Entity occurring in
any period shall be excluded in the calculation of Adjusted EBITDA.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For 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, shall mean
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; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would at
such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock, including, without
limitation, with respect to partnerships, partnership interests (whether general
or limited) and any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, such partnership.
"Cash Equivalents" means (a) securities with maturities of one year or less
from the date of acquisition, issued, fully guaranteed or insured by the United
States Government or any agency thereof, (b) certificates of deposit, time
deposits, overnight bank deposits, bankers acceptances and repurchase agreements
issued by a Qualified Issuer having maturities of 270 days or less from the date
of acquisition, (c) commercial paper of an issuer rated at least A-2 by Standard
& Poor's Rating Group, a division of McGraw Hill, Inc., or P-2 by Moody's
Investors Service, or carrying an equivalent rating by a nationally recognized
rating agency if both of the two named rating agencies cease publishing ratings
of investments and having maturities of 270 days or less from the date of
acquisition, (d) money market accounts or funds with or issued by Qualified
Issuers and (e) Investments in money market funds substantially all of the
assets of which are comprised of securities and other obligations of the types
described in clauses (a) through (c) above.
"Consolidated Adjusted Net Income" means, for any period, the net income (or
net loss) of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to Asset Sales, (c) the portion of net income (or
loss) of any Person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any Restricted
Subsidiary has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any Restricted
Subsidiary in cash dividends or distributions by such Person during such period,
and (d) the net income (or loss) of any Person combined with the Company or any
Restricted Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (a) the amount which, in conformity with GAAP, would be set forth
opposite the caption "interest expense" (or any like caption) on a consolidated
statement of operations of the Company and its Restricted Subsidiaries for such
period, including, without limitation, (i) amortization of debt discount, (ii)
the net cost of interest rate contracts (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation, (iv) amortization
of debt issuance costs,
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and (v) the interest component of Capital Lease Obligations of the Company and
its Restricted Subsidiaries, plus (b) all interest on any Indebtedness of any
other Person guaranteed and paid by the Company or any of its Restricted
Subsidiaries; provided, however, that Consolidated Interest Expense will not
include any gain or loss from extinguishment of debt, including write-off of
debt issuance costs.
"Consolidated Non-Cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of the Company and its
Restricted Subsidiaries reducing Consolidated Adjusted Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge that requires an accrual of or reserve for cash
charges for any future period).
"Credit Agent" means , in its capacity as agent for the lenders party to the
Credit Agreement, or any successor or successors thereto.
"Credit Agreement" means that certain Credit Agreement, dated as of , 199 ,
among the Company, the lenders party thereto and the Credit
Agent, as amended, restated, supplemented, modified, renewed, refunded, replaced
or refinanced from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (a) Senior Bank Debt and (b) other Senior Debt
the principal amount of which is $50.0 million or more at the date of
designation by the Company in a written instrument delivered to the Trustee;
provided that Senior Debt designated as Designated Senior Debt pursuant to
clause (b) shall cease to be Designated Senior Debt at any time that the
aggregate principal amount thereof outstanding is $10.0 million or less.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the Holder thereof, in whole or in part, in each case on or
prior to the stated maturity of the Notes.
"Dollars" and "$" mean lawful money of the United States of America.
"EBITDA" means for any period Consolidated Adjusted Net Income for such
period increased by (a) Consolidated Interest Expense for such period, plus (b)
Consolidated Income Tax Expense for such period, plus (c) Consolidated Non-Cash
Charges for such period.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Proceeds" means (a) with respect to Equity Interests (or debt
securities converted into Equity Interests) issued or sold for cash Dollars, the
aggregate amount of such cash Dollars and (b) with respect to Equity Interests
(or debt securities converted into Equity Interests) issued or sold for any
consideration other than cash Dollars, the aggregate Market Price thereof
computed on the date of the issuance or sale thereof.
"Excluded Restricted Subsidiary" means any Wholly Owned Restricted Subsidiary
principally engaged in the records management business domiciled outside the
United States of America if the issuance of a Subsidiary Guarantee by such
Subsidiary would, as determined in a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee, create a tax
disadvantage that is material in relation to the aggregate amount of the
Company's and any Restricted Subsidiary's Investment or proposed Investment
therein.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than under the Credit Agreement) in existence on the date of
the Indenture, until such amounts are repaid.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America is
pledged.
"Guarantee" means, as applied to any obligation, (a) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (b) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which
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is to assure in any way the payment or performance (or payment of damages in the
event of non-performance) of all or any part of such obligation, including,
without limiting the foregoing, the obligation to reimburse amounts drawn down
under letters of credit securing such obligations.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (b) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person, and
whether or not contingent, (a) every obligation of such Person for money
borrowed, (b) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, (c) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (d) every obligation of such
Person issued or assumed as the deferred purchase price of property or services,
(e) every Capital Lease Obligation and every obligation of such Person in
respect of Sale and Leaseback Transactions that would be required to be
capitalized on the balance sheet in accordance with GAAP, (f) all Disqualified
Stock of such Person valued at the greater of its voluntary or involuntary
maximum fixed repurchase price, plus accrued and unpaid dividends (unless
included in such maximum repurchase price), (g) all obligations of such Person
under or with respect to Hedging Obligations which would be required to be
reflected on the balance sheet as a liability of such Person in accordance with
GAAP and (h) every obligation of the type referred to in clauses (a) through (g)
of another Person and dividends of another Person the payment of which, in
either case, such Person has guaranteed. For purposes of this definition, the
"maximum fixed repurchase price" of any Disqualified Stock that does not have a
fixed repurchase price will be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were repurchased on any date on
which Indebtedness is required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Stock, such fair market value will be determined in good faith by
the board of directors of the issuer of such Disqualified Stock. Notwithstanding
the foregoing, trade accounts payable and accrued liabilities arising in the
ordinary course of business and any liability for federal, state or local taxes
or other taxes owed by such Person shall not be considered Indebtedness for
purposes of this definition. The amount outstanding at any time of any
Indebtedness issued with original issue discount is the aggregate principal
amount at maturity of such Indebtedness, less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time, as determined
in accordance with GAAP.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Leverage Ratio" means, at any date, the ratio of (a) the aggregate principal
amount of Indebtedness of the Company and its Restricted Subsidiaries
outstanding as of the most recent available quarterly or annual balance sheet to
(b) Adjusted EBITDA, after giving pro forma effect, without duplication, to (i)
the incurrence, repayment or retirement of any Indebtedness by the Company or
its Restricted Subsidiaries since the last day of the most recent full fiscal
quarter of the Company, (ii) if the Leverage Ratio is being determined in
connection with the incurrence of Indebtedness by the Company or a Restricted
Subsidiary, such Indebtedness to be incurred, and (iii) the Indebtedness to be
incurred in connection with the acquisition of any Acquisition EBITDA Entity.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code, or equivalent statutes, of any jurisdiction).
"Market Price" means, (a) with respect to the calculation of Equity Proceeds
for the issuance or sale of debt securities which have been converted into
Equity Interests, the value received upon the original issuance or sale of such
converted debt securities, as determined reasonably and in good faith by the
Board of Directors, and (b) with respect to the calculation of Equity Proceeds
for the issuance or sale of Equity Interests, the average of the daily closing
prices for such Equity Interests for the 20 consecutive trading days preceding
the date of such
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computation. The closing price for each day shall be (a) if such Equity
Interests are then listed or admitted to trading on the New York Stock Exchange,
the closing price on the NYSE Consolidated Tape (or any successor consolidated
tape reporting transactions on the New York Stock Exchange) or, if such
composite tape shall not be in use or shall not report transactions in such
Equity Interests, or if such Equity Interests shall be listed on a stock
exchange other than the New York Stock Exchange (including for this purpose the
Nasdaq National Market), the last reported sale price regular way for such day,
or in case no such reported sale takes place on such day, the average of the
closing bid and asked prices regular way for such day, in each case on the
principal national securities exchange on which such Equity Interests are listed
or admitted to trading (which shall be the national securities exchange on which
the greatest number of such Equity Interests have been traded during such 20
consecutive trading days), or (b) if such Equity Interests are not listed or
admitted to trading on any such exchange, the average of the closing bid and
asked prices thereof in the over-the-counter market as reported by the National
Association of Securities Dealers Automated Quotation System or any successor
system, or if not included therein, the average of the closing bid and asked
prices thereof furnished by two members of the National Association of
Securities Dealers selected reasonably and in good faith by the Board of
Directors for that purpose. In the absence of one or more such quotations, the
Market Price for such Equity Interests shall be determined reasonably and in
good faith by the Board of Directors.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale, which amount is
equal to the excess, if any, of (a) the cash received by the Company or such
Restricted Subsidiary (including any cash payments received by way of deferred
payment pursuant to, or monetization of, a note or installment receivable or
otherwise, but only as and when received) in connection with such disposition
over (b) the sum of (i) the amount of any Indebtedness which is secured by such
asset and which is required to be repaid in connection with the disposition
thereof, plus (ii) the reasonable out- of-pocket expenses incurred by the
Company or such Restricted Subsidiary, as the case may be, in connection with
such disposition or in connection with the transfer of such amount from such
Restricted Subsidiary to the Company, plus (iii) provisions for taxes, including
income taxes, attributable to the disposition of such asset or attributable to
required prepayments or repayments of Indebtedness with the proceeds thereof,
plus (iv) if the Company does not first receive a transfer of such amount from
the relevant Restricted Subsidiary with respect to the disposition of an asset
by such Restricted Subsidiary and such Restricted Subsidiary intends to make
such transfer as soon as practicable, the out-of-pocket expenses and taxes that
the Company reasonably estimates will be incurred by the Company or such
Restricted Subsidiary in connection with such transfer at the time such transfer
is expected to be received by the Company (including, without limitation,
withholding taxes on the remittance of such amount).
"Obligations" means any principal, interest (including post-petition
interest), penalties, fees, costs, expenses, indemnifications, reimbursements
damages and other liabilities payable under or in connection with any
Indebtedness.
"Officers' Certificate" means a certificate signed, unless otherwise
specified, by any two of the Chairman of the Board, a Vice Chairman of the
Board, the President, the Chief Financial Officer, the Controller, or an
Executive Vice President of the Company, and delivered to the Trustee.
"Permitted Investments" means (a) any Investments in the Company or in a
Restricted Subsidiary (other than an Excluded Restricted Subsidiary) of the
Company; (b) any Investments in Cash Equivalents; (c) Investments by the Company
or any Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (i) such Person becomes a Restricted Subsidiary (other than an
Excluded Restricted Subsidiary) of the Company or (ii) 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 (other than an Excluded Restricted Subsidiary) of the Company; (d)
Investments in assets (including accounts and notes receivable) owned or used in
the ordinary course of business; (e) Investments for any purpose related to the
Company's records management business in an aggregate amount not to exceed $10.0
million; and (f) Investments by the Company or a Restricted Subsidiary in one or
more Excluded Restricted Subsidiaries, the aggregate amount of which does not
exceed 10% of the consolidated assets of the Company and its Restricted
Subsidiaries.
"Permitted Liens" means:
(a) Liens existing as of the date of issuance of the Notes;
(b) Liens on property or assets of the Company or any Restricted
Subsidiary securing Senior Debt;
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(c) Liens on any property or assets of a Restricted Subsidiary granted
in favor of the Company or any Wholly Owned Restricted Subsidiary;
(d) Liens securing the Notes or the Guarantees;
(e) any interest or title of a lessor under any Capital Lease Obligation or
Sale and Leaseback Transaction so long as the Indebtedness, if any, secured
by such Lien does not exceed the principal amount of Indebtedness permitted
under the covenant entitled "Incurrence of Indebtedness and Issuance of
Preferred Stock;"
(f) Liens securing Acquired Debt created prior to (and not in connection
with or in contemplation of) the incurrence of such Indebtedness by the
Company or any Restricted Subsidiary; provided that such Lien does not extend
to any property or assets of the Company or any Restricted Subsidiary other
than the assets acquired in connection with the incurrence of such Acquired
Debt;
(g) Liens securing Hedging Obligations permitted to be incurred pursuant to
clause (g) of the covenant entitled "Incurrence of Indebtedness and Issuance
of Preferred Stock;"
(h) Liens arising from purchase money mortgages and purchase money security
interests, or in respect of the construction of property or assets, incurred
in the ordinary course of the business of the Company or a Restricted
Subsidiary; provided that (i) the related Indebtedness is not secured by any
property or assets of the Company or any Restricted Subsidiary other than the
property and assets so acquired or constructed and (ii) the Lien securing
such Indebtedness is created within 60 days of such acquisition or
construction;
(i) statutory Liens or landlords' and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or 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,
if a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor;
(j) Liens for taxes, assessments, government charges or claims with respect
to amounts not yet delinquent or that are being contested in good faith by
appropriate proceedings diligently conducted, if a reserve or other
appropriate provision, if any, as is required in conformity with GAAP has
been made therefor;
(k) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, government
contracts, performance bonds and other obligations of a like nature incurred
in the ordinary course of business (other than contracts for the payment of
money);
(l) easements, rights-of-way, restrictions and other similar charges or
encumbrances not interfering in any material respect with the business of the
Company or any Restricted Subsidiary incurred in the ordinary course of
business;
(m) Liens arising by reason of any judgment, decree or order of any court
so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have expired;
(n) Liens arising under options or agreements to sell assets;
(o) other Liens securing obligations incurred in the ordinary course of
business, which obligations do not exceed $1.0 million in the aggregate at
any one time outstanding; and
(p) any extension, renewal or replacement, in whole or in part, of any Lien
described in the foregoing clauses (a) through (o); provided that any such
extension, renewal or replacement shall not extend to any additional property
or assets.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Principal Stockholders" means each of Vincent J. Ryan, Schooner Capital
Corporation, C. Richard Reese, Eugene B. Doggett, and their respective
Affiliates.
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"Qualified Equity Offering" means an offering of Capital Stock, other than
Disqualified Stock, of the Company for Dollars, whether registered or exempt
from registration under the Securities Act.
"Qualified Issuer" means (a) any lender party to the Credit Agreement or (b)
any commercial bank (i) which has capital and surplus in excess of $500,000,000
and (ii) the outstanding short- term debt securities of which are rated at least
A-2 by Standard & Poor's Rating Group, a division of McGraw-Hill, Inc. or at
least P-2 by Moody's Investors Service, or carry an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.
"Qualifying Sale and Leaseback Transaction" means any Sale and Leaseback
Transaction between the Company or any of its Restricted Subsidiaries and any
bank, insurance company or other lender or investor providing for the leasing to
the Company or such Restricted Subsidiary of any property (real or personal)
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such lender or investor or to any Person to whom funds have been
or are to be advanced by such lender or investor and where the property in
question has been constructed or acquired after the date of the Indenture.
"Refinancing Indebtedness" means new Indebtedness incurred or given in
exchange for, or the proceeds of which are used to repay, redeem, defease,
extend, refinance, renew, replace or refund, other Indebtedness; provided,
however, that (a) the principal amount of such new Indebtedness shall not exceed
the principal amount of Indebtedness so repaid, redeemed, defeased, extended,
refinanced, renewed, replaced or refunded (plus the amount of fees, premiums,
consent fees, prepayment penalties and expenses incurred in connection
therewith); (b) such Refinancing Indebtedness shall have a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity of
the Indebtedness so repaid, redeemed, defeased, extended, refinanced, renewed,
replaced or refunded or shall mature after , 2006; (c) to the extent such
Refinancing Indebtedness refinances Indebtedness that has a final maturity date
occurring after ______, 2006, such new Indebtedness shall have a final scheduled
maturity not earlier than the final scheduled maturity of the Indebtedness so
repaid, redeemed, defeased, extended, refinanced, renewed, replaced or refunded
and shall not permit redemption at the option of the holder earlier than the
earliest date of redemption at the option of the holder of the Indebtedness so
repaid, redeemed, defeased, extended, refinanced, renewed, replaced or refunded;
(d) to the extent such Refinancing Indebtedness refinances Indebtedness
subordinate to the Notes, such Refinancing Indebtedness shall be subordinated in
right of payment to the Notes and to the extent such Refinancing Indebtedness
refinances Notes or Indebtedness pari passu with the Notes, such Refinancing
Indebtedness shall be pari passu with or subordinated in right of payment to the
Notes, in each case on terms at least as favorable to the holders of Notes as
those contained in the documentation governing the Indebtedness so repaid,
redeemed, defeased, extended, refinanced, renewed, replaced or refunded; and (e)
with respect to Refinancing Indebtedness incurred by a Restricted Subsidiary,
such Refinancing Indebtedness shall rank no more senior, and shall be at least
as subordinated, in right of payment to the Subsidiary Guarantee of such
Restricted Subsidiary as the Indebtedness being extended, refinanced, renewed,
replaced or refunded.
"Restricted Subsidiary" means (a) each direct or indirect Subsidiary of the
Company existing on the date of the Indenture and (b) any other direct or
indirect Subsidiary of the Company formed, acquired or existing after the date
of the Indenture, in each case which is not designated by the Board of Directors
as a "Unrestricted Subsidiary."
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which a Person sells or transfers any property or asset
in connection with the leasing, or the resale against installment payments, of
such property or asset to the seller or transferor.
"Senior Bank Debt" means all Obligations outstanding under or in connection
with the Credit Agreement as such agreement may be restated, further amended,
supplemented or otherwise modified or replaced from time to time hereafter,
together with any refunding or replacement of such Indebtedness.
"Senior Debt" means (a) the Senior Bank Debt and (b) any other Indebtedness
permitted to be incurred by the Company or any Restricted Subsidiary, as the
case may be, under the terms of the Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes. Notwithstanding anything to the
contrary in the foregoing, Senior Debt shall not include (i) any liability for
federal, state, local or other taxes owed or owing by the Company, (ii) any
Indebtedness of the Company to any of its Subsidiaries or other Affiliates,
(iii) any trade payables or (iv) any Indebtedness that is incurred in violation
of the Indenture.
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"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of such Person or a combination thereof.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary in accordance with the
"Unrestricted Subsidiaries" covenant and (b) any Subsidiary of an Unrestricted
Subsidiary.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of the
Company all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
the Company or by one or more Wholly Owned Restricted Subsidiaries of the
Company.
DESCRIPTION OF NEW CREDIT FACILITY
The Company intends to replace the Credit Agreement with the New Credit
Facility. The following description is based upon a term sheet relating to the
New Credit Facility. No assurances can be given that the Company will enter into
the New Credit Facility on these or any other terms. The Offering is not
conditioned on the closing of the New Credit Facility.
It is anticipated that the New Credit Facility will be a $100 million
revolving credit facility with up to $2 million of availability for letters of
credit. The New Credit Facility is expected to terminate on September 30, 2001,
at which time all outstanding revolving credit loans and other amounts payable
thereunder will become due. Borrowings under the New Credit Facility may be used
to finance possible future acquisitions, as well as for working capital and
general corporate purposes. As with the Credit Agreement, the Company's
obligations under the New Credit Facility are expected to be guaranteed by
substantially all of the Company's subsidiaries; however, unlike the Credit
Agreement, the New Credit Facility is expected to be secured only by the pledge
of the stock of such subsidiaries. Prepayments of outstanding borrowings under
the New Credit Facility will be required in certain circumstances out of the
proceeds of certain insurance payments, condemnations, issuance of indebtedness,
and asset dispositions.
The New Credit Facility is expected to permit the Company to elect from time
to time, as to all or any portion of the borrowings thereunder, an interest rate
based upon (i) a fluctuating rate equal to the highest of the prime rate of The
Chase Manhattan Bank, as agent under the New Credit Facility, the secondary
market rate for three- month certificates of deposit (adjusted for statutory
reserve requirements), plus 1%, or the overnight federal funds rate plus 1/2 of
1% (the "Adjusted Base Rate") or (ii) the interest rates prevailing on the date
of determination in the London interbank market (the "Eurodollar Rate") for the
interest period selected by the Company, plus, in the case of either (i) or
(ii), a margin (the "Applicable Margin") over the Adjusted Base Rate or the
Eurodollar Rate. The Applicable Margins for loans bearing interest at a rate
based upon the Adjusted Base Rate or the Eurodollar Rate ("Eurodollar Loans"),
and commitment fees on the undrawn portion of the New Credit Facility, will vary
based on the Company's achieving and maintaining specified ratios of
indebtedness to EBITDA.
The New Credit Facility is expected to provide for payment by the Company in
respect of letters of credit of: (i) a per annum fee equal to the Applicable
Margin for Eurodollar Loans from time to time in effect; (ii) a fronting fee of
1/4 of 1%; plus (iii) customary issuing fees and expenses.
The New Credit Facility is expected to contain covenants restricting the
ability of the Company and its subsidiaries to, among other things: (i) declare
dividends or redeem or repurchase capital stock; (ii) make optional payments and
modifications of subordinated and other debt instruments; (iii) incur liens and
engage in sale and
84
<PAGE>
leaseback transactions; (iv) make loans and investments; (v) incur indebtedness
and contingent obligations; (vi) make capital expenditures; (vii) engage in
mergers, acquisitions and asset sales; (viii) enter into transactions with
affiliates; and (ix) make changes in their lines of business. It is also
expected that the Company will be required to comply with financial covenants
with respect to: (i) a maximum leverage ratio; (ii) a minimum interest coverage
ratio; and (iii) a minimum fixed charge coverage ratio. The Company will also be
required to make certain customary affirmative covenants.
Events of default under the New Credit Facility are expected to include: (i)
the Company's failure to pay principal or interest when due; (ii) the Company's
material breach of any covenant, representation or warranty contained in the
loan documents; (iii) customary cross-default provisions; (iv) events of
bankruptcy, insolvency or dissolution of the Company or its subsidiaries; (v)
the levy of certain judgments against the Company, its subsidiaries or their
assets; (vi) certain adverse events under ERISA plans of the Company or its
subsidiaries; (vii) the actual or asserted invalidity of security documents or
guarantees of the Company or its subsidiaries; and (viii) a change of control of
the Company.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 13,000,000 shares of
Common Stock, 1,000,000 shares of Nonvoting Common Stock, $.01 par value per
share (the "Nonvoting Common Stock"), and 2,000,000 shares of Preferred Stock,
$.01 par value per share. On August 14, 1996, 9,627,141 shares of Common Stock
were outstanding and 500,000 shares of Nonvoting Common Stock were outstanding.
Holders of shares of Common Stock are entitled to one vote per share for each
matter submitted to the stockholders of the Company without cumulative voting
rights in the election of Directors. Holders of Nonvoting Common Stock have no
right to vote on any matter voted on by the stockholders of the Company, except
as may otherwise be provided by law. In all other respects (other than as to
convertibility), the rights of holders of the Common Stock and the Nonvoting
Common Stock are identical. Shares of Nonvoting Common Stock are convertible, at
any time at the option of the holder, on a share-for-share basis into shares of
Common Stock without the payment of any additional consideration; provided that
the conversion of any shares of Nonvoting Common Stock by a "bank holding
company" under the Bank Holding Company Act of 1956, as amended, or an affiliate
thereof is prohibited if the conversion of the total number of shares of
Nonvoting Common Stock held by such holder would cause it to be in violation of
such Act.
The 2,000,000 authorized and unissued shares of Preferred Stock may be issued
with such designations, preferences, limitations and relative rights as the
Board of Directors may authorize including, but not limited to: (i) the
distinctive designation of each series and the number of shares that will
constitute such series; (ii) the voting rights, if any, of shares of such
series; (iii) the dividend rate on the shares of such series, any restriction,
limitation or condition upon the payment of such dividends, whether dividends
shall be cumulative, and the dates on which dividends are payable; (iv) the
prices at which, and the terms and conditions on which, the shares of such
series may be redeemed, if such shares are redeemable; (v) the purchase or
sinking fund provisions, if any, for the purchase or redemption of shares of
such series; (vi) any preferential amount payable upon shares of such series in
the event of the liquidation, dissolution or winding-up of the Company or the
distribution of its assets; and (vii) the price or rates of conversion at which,
and the terms and conditions on which the shares of such series may be converted
into other securities, if such shares are convertible. Although the Company has
no present intention to issue shares of Preferred Stock, the issuance of
Preferred Stock, or the issuance of rights to purchase such shares, could
discourage an unsolicited acquisition proposal and the rights of holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
holders of any Preferred Stock that may be issued in the future.
85
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Company and Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), Bear, Stearns & Co. Inc. ("Bear
Stearns") and Prudential Securities Incorporated (together with DLJ and Bear
Stearns, the "Underwriters"), each of the several Underwriters has severally
agreed to purchase from the Company, and the Company has agreed to sell to each
of the Underwriters, the respective principal amounts of Notes set forth
opposite its name below, at the public offering price set forth on the cover
page of this Prospectus, less the underwriting discount:
Principal Amount
Underwriters of Notes
------------ ----------------
Donaldson, Lufkin & Jenrette Securities Corporation $
Bear, Stearns & Co. Inc.
Prudential Securities Incorporated
------------
$150,000,000
============
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to certain conditions precedent, including the approval
of certain legal matters by counsel. The Company and the Guarantors have agreed
to indemnify the Underwriters against certain liabilities and expenses,
including liabilities under the Securities Act or to contribute to payments that
the Underwriters may be required to make in respect thereof. The nature of the
Underwriters' obligations is such that the Underwriters are committed to
purchase all of the Notes if any of the Notes are purchased.
The Underwriters have advised the Company that they propose to offer the
Notes directly to the public initially at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such offering price
less a concession not to exceed % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, discounts not in excess of
% of the principal amount of the Notes to certain other dealers. After the
initial public offering of the Notes, the offering price and other selling terms
may be changed by the Underwriters.
The Notes are a new issue of securities, have no established trading market,
will not be listed on any securities exchange or included in the National
Association of Securities Dealers Automated Quotation System and may not be
widely distributed. The Company has been advised by the Underwriters that,
following the completion of this Offering, the Underwriters presently intend to
make a market in the Notes as permitted by applicable laws and regulations. The
Underwriters, however, are under no obligation to do so and may discontinue any
market-making activities at any time at the sole discretion of the Underwriters.
No assurances can be given as to the liquidity of any trading market for the
Notes.
VALIDITY OF NOTES
The validity of the Notes offered hereby will be passed upon for the Company
by Sullivan & Worcester LLP, Boston, Massachusetts, and for the Underwriters by
Jones, Day, Reavis & Pogue, New York, New York. Jas. Murray Howe, Secretary of
the Company, is of counsel to Sullivan & Worcester LLP and beneficially owns
3,855 shares of Common Stock.
EXPERTS
The consolidated financial statements and schedule of Iron Mountain
Incorporated and its subsidiaries for each of the three years ended December 31,
1995 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 National Business Archives, Inc. for the two
years ended December 31, 1993 and 1994, included in this Prospectus and
elsewhere in the Registration Statement have been audited by Wolpoff & Company,
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
86
<PAGE>
The financial statements of Data Management Business Records Storage, Inc. for
the year ended June 30, 1995, included in this Prospectus and elsewhere in the
Registration Statement have been audited by Morrison and Smith, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
The financial statements of Nashville Vault Company, Ltd., for the year ended
December 31, 1995, included in this Prospectus and elsewhere in the Registration
Statement have been audited by Geo. S. Olive & Co. LLC, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The combined financial statements of Data Archive Services, Inc. and Data
Archive Services of Miami, Inc. for the year ended May 31, 1996, included in
this Prospectus and elsewhere in the Registration Statement have been audited
by Perless, Roth, Jonas & Hartney, CPAs, PA, independent public accountants,
as indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The financial statements of Data Storage Systems, Inc. for the year ended
December 31, 1995, included in this Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The financial statements of DataVault Corporation, for the year ended
December 31, 1995, included in this Prospectus and elsewhere in the Registration
Statement have been audited by Robert F. Gayton, CPA, independent public
accountant, as indicated in his report with respect thereto, and are included
herein in reliance upon the authority of said firm as an expert in giving said
report.
The financial statements of International Record Storage and Retrieval
Service, Inc. for the year ended December 31, 1995, included in this Prospectus
and elsewhere in the Registration Statement have been audited by Rothstein, Kass
& Company, P.C., independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form S-1 under the Securities Act with respect to the
Notes offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Notes offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or any other document to which reference is made 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 is qualified in all respects by such reference. A
copy of the Registration Statement may be inspected without charge at the
offices of the Commission in Washington D.C. 20549, and copies of all or any
part of the Registration Statement may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 upon
the payment of the fees prescribed by the Commission.
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
Regional Offices at Citicorp Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington,
D.C. 20549, at prescribed rates. In addition, the Common Stock is listed on the
Nasdaq National Market, and such reports, proxy statements and certain other
information can also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006. The Commission maintains a Web site that
contains reports, proxy statements and other information filed with the
Commission; the address of such site is http://www.sec.gov. Certain such
reports, proxy statements and other information filed with the Commission by the
Company on or after August 14, 1996 may be found at such Web site.
87
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements of Iron Mountain Incorporated:
Unaudited Condensed Consolidated Interim Financial Statements F-2
Audited Consolidated Financial Statements F-8
Financial Statements of Completed Acquisitions:
National Business Archives, Inc. F-24
Data Management Business Records Storage, Inc. F-33
Nashville Vault Company, Ltd. F-44
Data Archive Services, Inc. and Data Archive Services of Miami, Inc. F-50
Data Storage Systems, Inc. F-59
DataVault Corporation F-66
Financial Statements of Pending Acquisition:
International Record Storage and Retrieval Service, Inc. F-72
</TABLE>
F-1
<PAGE>
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
--------- ---------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 1,585 $ 2,232
Accounts Receivable (Less allowance for doubtful accounts of $651
and of $790, respectively) 16,936 19,756
Inventories 682 523
Deferred Income Taxes 1,943 2,036
Prepaid Expenses and Other 1,862 1,318
--------- ---------
Total Current Assets 23,008 25,865
Property, Plant and Equipment:
Property, Plant and Equipment 125,240 141,601
Less: Accumulated Depreciation (32,564) (38,597)
--------- ---------
Net Property, Plant and Equipment 92,676 103,004
Other Assets:
Goodwill 59,253 72,213
Customer Acquisition Costs 5,210 5,671
Deferred Financing Costs 2,638 2,268
Other 4,096 3,609
--------- ---------
Total Other Assets 71,197 83,761
--------- ---------
Total Assets $ 186,881 $ 212,630
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-term Debt $ 2,578 $ 3,194
Accounts Payable 4,797 6,342
Accrued Expenses 10,917 10,638
Deferred Income 3,108 2,454
Other Liabilities 469 501
--------- ---------
Total Current Liabilities 21,869 23,129
Long-term Debt, Net of Current Portion 119,296 115,700
Deferred Rent 7,983 7,897
Deferred Income Taxes 3,621 4,406
Other Long-term Liabilities 6,769 6,769
Commitments and Contingencies
Redeemable Put Warrant 6,332 --
Stockholders' Equity:
Preferred Stock 5 --
Common Stock--Voting 0 96
Common Stock--Non-voting -- 5
Additional Paid-In Capital 28,809 62,014
Accumulated Deficit (7,803) (7,386)
--------- ---------
Total Stockholders' Equity 21,011 54,729
--------- ---------
Total Liabilities and Stockholders' Equity $ 186,881 $ 212,630
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-2
<PAGE>
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Revenues:
Storage $ 15,866 $ 20,209
Service and Storage Material Sales 10,020 12,713
-------- --------
Total Revenues 25,886 32,922
Operating Expenses:
Cost of Sales (Excluding Depreciation) 12,888 16,715
Selling, General and Administrative 6,848 8,260
Depreciation and Amortization 2,676 3,922
-------- --------
Total Operating Expenses 22,412 28,897
-------- --------
Operating Income 3,474 4,025
Interest Expense 2,868 3,091
-------- --------
Income Before Provision for Income Taxes 606 934
Provision for Income Taxes 364 523
-------- --------
Net Income 242 411
Accretion of Redeemable Put Warrant 501 --
-------- --------
Net Income (Loss) Applicable to Common Stockholders $ (259) $ 411
======== ========
Net Income (Loss) Per Common and Common Equivalent Share $ (0.03) $ 0.04
======== ========
Weighted Average Common and Common Equivalent Shares
Outstanding 7,779 10,336
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-3
<PAGE>
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Revenues:
Storage $ 30,748 $ 39,363
Service and Storage Material Sales 19,476 24,587
-------- --------
Total Revenues 50,224 63,950
Operating Expenses:
Cost of Sales (Excluding Depreciation) 25,112 32,383
Selling, General and Administrative 12,697 16,067
Depreciation and Amortization 5,428 7,530
-------- --------
Total Operating Expenses 43,237 55,980
-------- --------
Operating Income 6,987 7,970
Interest Expense 5,936 6,385
-------- --------
Income Before Provision for Income Taxes 1,051 1,585
Provision for Income Taxes 631 888
-------- --------
Net Income 420 697
Accretion of Redeemable Put Warrant 953 280
-------- --------
Net Income (Loss) Applicable to Common Stockholders $ (533) $ 417
======== ========
Net Income (Loss) Per Common and Common Equivalent Share $ (0.07) $ 0.04
======== ========
Weighted Average Common and Common Equivalent Shares
Outstanding 7,790 9,899
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-4
<PAGE>
IRON MOUNTAIN INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 420 $ 697
Adjustments to Reconcile Net Income to Net Cash
Provided by Operations:
Depreciation and Amortization 5,428 7,530
Amortization of Financing Costs 756 429
Provision for Deferred Income Taxes 540 492
Changes in Assets and Liabilities (Exclusive of Acquisitions):
Accounts Receivable (910) (2,194)
Inventories (29) 174
Prepaid Expenses and Other Current Assets (195) 444
Other Assets 180 674
Accounts Payable 645 1,545
Accrued Expenses 1,324 (279)
Deferred Income 127 (865)
Other Current Liabilities (27) (474)
Deferred Rent (86) (86)
Other Long-term Liabilities 1 --
-------- --------
Cash Flows Provided by Operations 8,174 8,087
Cash Flows from Investing Activities:
Capital Expenditures (7,322) (11,162)
Additions to Customer Acquisition Costs (418) (717)
Cash Paid for Acquisitions (15,484) (19,187)
Other -- (25)
-------- --------
Cash Flows Used in Investing Activities (23,224) (31,091)
Cash Flows Provided by Financing Activities:
Repayment of Debt (8,369) (29,515)
Net Proceeds from Borrowings 25,186 26,500
Financing Costs (1,402) (24)
Proceeds from Exercise of Stock Options 200 --
Repurchase of Stock (199) --
Proceeds from Initial Public Offering, Net of Costs and
Expenses -- 33,302
Retirement of Put Warrant -- (6,612)
-------- --------
Cash Flows Provided by Financing Activities 15,416 23,651
-------- --------
Increase in Cash and Cash Equivalents 366 647
Cash and Cash Equivalents, Beginning of Period 1,303 1,585
-------- --------
Cash and Cash Equivalents, End of Period $ 1,669 $ 2,232
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-5
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share data)
(Unaudited)
1. General
The interim condensed consolidated financial statements presented herein
have been prepared by Iron Mountain Incorporated ("Iron Mountain" or the
"Company") without audit and, in the opinion of management, reflect all
adjustments of a normal recurring nature necessary for a fair presentation.
Interim results are not necessarily indicative of results for a full year.
The condensed consolidated balance sheet presented as of December 31,
1995, has been derived from the consolidated financial statements that have
been audited by the Company's independent public accountants. The unaudited
condensed consolidated financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the annual
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to those rules and
regulations, but the Company believes that the disclosures are adequate to
make the information presented not misleading. The condensed consolidated
financial statements and notes included herein should be read in conjunction
with the consolidated financial statements and notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
2. Initial Public Offering of Common Stock
On February 6, 1996, the Company completed the sale of 2,350 shares of its
common stock in an initial public offering at a price of $16.00 per share.
The proceeds from the public offering were $34,968 after underwriting
discounts and commissions, and $33,302 after other expenses of the offering
totaling $1,666. Such net proceeds were used to retire the redeemable put
warrant for $6,612, to fund acquisitions, to repay debt that had been
incurred to make acquisitions and for working capital.
3. Acquisitions and Dispositions
During 1995, the Company purchased four records management businesses.
During the six months ended June 30, 1996, the Company purchased six
additional records management businesses. Each of these acquisitions was
accounted for using the purchase method of accounting, and accordingly, the
results of operations for each acquisition have been included in the
consolidated results of the Company from the respective acquisition dates.
The purchase price for the 1996 acquisitions exceeded the underlying fair
value of the net assets acquired by $14,554, which has been assigned to
goodwill and is being amortized over the estimated benefit period of 25
years. Funds used to make the various acquisitions were provided through the
Company's acquisition credit facility and, indirectly, a portion of the net
proceeds of the Company's initial public offering. A summary of the cash
consideration and allocation of the purchase price as of the acquisition
dates are as follows:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Fair Value of Assets Acquired in 1996 $ 20,104
Liabilities Assumed (917)
--------
Cash Paid $ 19,187
========
</TABLE>
F-6
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(In thousands except per share data)
(Unaudited)
The following unaudited pro forma information shows the results of the
Company's operations for the year ended December 31, 1995 and the six months
ended June 30, 1996, as though each of the completed acquisitions had
occurred as of January 1, 1995.
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Revenues $ 123,438 $ 65,678
Net Income (Loss) (348) 728
Accretion of Redeemable Put Warrant 2,107 280
--------- ---------
Net Income (Loss) Applicable to
Stockholders $ (2,455) $ 448
========= =========
Net Income (Loss) Per Share $ (0.32) $ 0.05
========= =========
</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 companies.
4. Long-term Debt
Long-term debt as of December 31, 1995 and June 30, 1996, is as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Term Loans A and B $ 59,625 $ 58,750
$50,000 Acquisition Credit Facility 34,400 25,300
$15,000 Working Capital Facility 1,700 8,800
Chrysler Notes 14,772 14,807
Real Estate Mortgages 10,797 10,761
Other 580 476
--------- ---------
Total Long-term Debt 121,874 118,894
Less: Current Portion (2,578) (3,194)
--------- ---------
Long-term Debt, Net of Current
Portion $ 119,296 $ 115,700
========= =========
</TABLE>
5. Commitments and Contingencies
Litigation
During the second quarter of 1996, the Company paid $600 to cover the
uninsured portion of a judgment previously entered by the California Workers
Compensation Board against the Company relating to injuries sustained by a
driver employed by a courier company used at the time by the Company. This
amount had been fully reserved in the second quarter of 1995 and therefore
had no impact on the results of operations for the three and six month
periods ended June 30, 1996.
Iron Mountain is presently involved as a defendant in various litigation
which has occurred in the normal course of business. Management believes it
has meritorious defenses in all such actions, and in any event, the amount of
damages, if such matters were decided adversely, would not have a material
adverse effect on Iron Mountain's financial condition or results of
operations.
6. Subsequent Events
Subsequent to June 30, 1996, the Company acquired three records management
businesses for $20,887 in transactions that were accounted for as purchases.
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Iron Mountain Incorporated:
We have audited the accompanying consolidated balance sheets of Iron Mountain
Incorporated (a Delaware corporation) and its subsidiaries, as of December
31, 1994 and 1995 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Iron Mountain Incorporated
and its subsidiaries, as of December 31, 1994 and 1995 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Los Angeles, California
February 26, 1996
F-8
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1994 AND 1995
(In thousands)
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1995
--------- ---------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 1,303 $ 1,585
Accounts Receivable (Less allowance for doubtful accounts of $531
and $651 as of 1994 and 1995, respectively) 13,270 16,936
Inventories 503 682
Deferred Income Taxes 778 1,943
Prepaid Expenses and Other 1,223 1,862
--------- ---------
Total Current Assets 17,077 23,008
Property, Plant and Equipment:
Property, Plant and Equipment 99,753 125,240
Less--Accumulated Depreciation (24,735) (32,564)
--------- ---------
Net Property, Plant and Equipment 75,018 92,676
Other Assets:
Goodwill 36,720 59,253
Customer Acquisition Costs 4,273 5,210
Deferred Financing Costs 2,247 2,638
Other 1,524 4,096
--------- ---------
Total Other Assets 44,764 71,197
--------- ---------
Total Assets $ 136,859 $ 186,881
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-term Debt $ 628 $ 2,578
Accounts Payable 3,756 4,797
Accrued Expenses 4,710 10,917
Deferred Income 2,096 3,108
Other Liabilities 344 469
--------- ---------
Total Current Liabilities 11,534 21,869
Long-term Debt, Net of Current Portion 85,630 119,296
Other Long Term Liabilities 7,296 6,769
Deferred Rent 2,837 7,983
Deferred Income Taxes 2,468 3,621
Commitments and Contingencies
Redeemable Put Warrant 4,225 6,332
Stockholders' Equity:
Preferred Stock 5 5
Common Stock 0 0
Additional Paid-In Capital 28,808 28,809
Accumulated Deficit (5,944) (7,803)
--------- ---------
Total Stockholders' Equity 22,869 21,011
--------- ---------
Total Liabilities and Stockholders' Equity $ 136,859 $ 186,881
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(In thousands except per share data)
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Storage $ 48,892 $ 54,098 $ 64,165
Service and Storage Material Sales 32,781 33,520 40,271
--------- --------- ---------
Total Revenues 81,673 87,618 104,436
Operating Expenses:
Cost of Sales (Excluding Depreciation) 43,054 45,880 52,277
Selling, General and Administrative 19,971 20,853 26,035
Depreciation and Amortization 6,789 8,690 12,341
--------- --------- ---------
Total Operating Expenses 69,814 75,423 90,653
--------- --------- ---------
Operating Income 11,859 12,195 13,783
Interest Expense 8,203 8,954 11,838
--------- --------- ---------
Income Before Provision for Income Taxes 3,656 3,241 1,945
Provision for Income Taxes 2,088 1,957 1,697
--------- --------- ---------
Net Income 1,568 1,284 248
Accretion of Redeemable Put Warrant 940 1,412 2,107
--------- --------- ---------
Net Income (Loss) Applicable to Common Stockholders $ 628 $ (128) $ (1,859)
========= ========= =========
Net Income (Loss) Per Common and Common Equivalent
Share $ 0.08 $ (0.02) $ (0.24)
Weighted Average Common and Common Equivalent
Shares Outstanding 8,067 7,984 7,784
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-10
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AS OF DECEMBER 31, 1993, 1994 AND 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------------
1993 1994 1995
-------- -------- ----------
<S> <C> <C> <C>
Series A1 Preferred Stock:
Balance, Beginning of Period $ 2 $ 2 $1
Conversion of 100,000 Shares of Series A1 Preferred Stock to
Series A2 Preferred Stock -- (1) --
Conversion of 43,500 Shares of Series A1 Preferred Stock to
Series A3 Preferred Stock -- -- (1)
------ ------ --------
Balance, End of Period; (150,000, 50,000 and 6,500 Shares
Outstanding as of December 31, 1993, 1994 and 1995,
Respectively) 2 1 0
Series A2 Preferred Stock:
Balance, Beginning of Period -- -- 1
Conversion of 100,000 Shares of Series A1 Preferred Stock to
Series A2 Preferred Stock -- 1 --
Repurchase of 2,000 Shares of Series A2 Preferred Stock -- -- 0
------ ------ --------
Balance, End of Period; (None Outstanding as of December 31,
1993; 100,000 and 98,000 Shares Outstanding as of
December 31, 1994 and 1995, Respectively) -- 1 1
Series A3 Preferred Stock:
Balance, Beginning of Period -- -- --
Conversion of 43,500 Shares of Series A1 Preferred Stock to
Series A3 Preferred Stock -- -- 1
------ ------ --------
Balance, End of Period (None outstanding December 31, 1993 and
1994; 43,500 Shares Outstanding December 31, 1995) -- -- 1
Series C Preferred Stock:
Balance, End of Period; (351,395 Shares Outstanding as of
December 31, 1993, 1994 and 1995, Respectively) 3 3 3
------ ------ --------
Total Preferred Stock 5 5 5
------ ------ --------
Class A Common Stock:
Balance, Beginning of Period 0 0 0
Stock Options Exercised for 15,976 Shares of Class A
Common Stock in 1995 -- -- 0
------ ------ --------
Balance, End of Period; 28,912, 28,912 and 44,888 Shares
Outstanding as of December 31, 1993, 1994 and 1995,
Respectively) 0 0 0
Class C Common Stock:
Balance, Beginning of Period 0 0 --
Repurchase of 17,289 Shares of Class C Common Stock -- (0) --
------ ------ --------
Balance, End of Period; (17,289 Shares Outstanding as of
December 31, 1993; None Outstanding as of December 31, 1994
and 1995) 0 -- --
------ ------ --------
Total Common Stock 0 0 0
------ ------ --------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-11
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (Continued)
<TABLE>
<CAPTION>
December 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Additional Paid in Capital:
Balance, Beginning of Period $ 29,858 $ 29,858 $ 28,808
Class C Common Stock Repurchased, 17,289 Shares -- (1,050) --
Series A2 Preferred Stock Repurchased, 2,000 Shares -- -- (199)
Class A Common Stock, Options Exercised, 15,976 Shares -- -- 200
-------- -------- --------
Balance, End of Period 29,858 28,808 28,809
-------- -------- --------
Accumulated Deficit:
Balance, Beginning of Period (6,444) (5,816) (5,944)
Net Income 1,568 1,284 248
Accretion of Redeemable Put Warrant (940) (1,412) (2,107)
-------- -------- --------
Balance, End of Period (5,816) (5,944) (7,803)
-------- -------- --------
Total Stockholders' Equity $ 24,047 $ 22,869 $ 21,011
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-12
<PAGE>
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(In thousands)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,568 $ 1,284 $ 248
Adjustments to Reconcile Net Income to Cash
Flows Provided by Operations:
Depreciation and Amortization 6,789 8,690 12,341
Amortization of Financing Costs 954 1,046 1,135
Loss on Sale of Fixed Assets 145 278 400
Provision for Deferred Income Taxes 1,766 1,714 1,179
Changes in Deferred Rent 605 441 (110)
Changes in Other Long-term Liabilities 1,051 (394) (527)
Changes in Assets and Liabilities (Exclusive of
Acquisitions):
Accounts Receivable (1,005) (1,807) (2,541)
Inventory (33) (39) (100)
Prepaid Expenses (304) (517) (639)
Accounts Payable 304 83 265
Accrued Expenses (70) 1,191 4,252
Deferred Income 971 (26) (301)
Other Liabilities 80 (369) 125
-------- -------- --------
Cash Flows Provided by Operations 12,821 11,575 15,727
-------- -------- --------
Cash Flows from Investing Activities:
Capital Expenditures (15,451) (16,980) (15,253)
Additions to Customer Acquisition Costs (922) (1,366) (1,379)
Cash Paid for Acquisitions -- (2,846) (33,048)
Proceeds from Sale of Assets 14 2,973 73
Other, Net (209) 705 71
-------- -------- --------
Cash Flows Used in Investing Activities (16,568) (17,514) (49,536)
-------- -------- --------
Cash Flows Provided by Financing Activities:
Repayment of Debt (4,659) (13,642) (812)
Net Proceeds from Borrowings 9,100 21,350 36,350
Cash From Exercise of Stock Options -- -- 200
Repurchase of Stock -- (1,050) (199)
Financing Costs (601) (7) (1,448)
-------- -------- --------
Cash Flows Provided by Financing Activities 3,840 6,651 34,091
-------- -------- --------
Increase in Cash 93 712 282
Cash and Cash Equivalents, Beginning of Year 498 591 1,303
-------- -------- --------
Cash and Cash Equivalents, End of Year $ 591 $ 1,303 $ 1,585
======== ======== ========
Supplemental Information:
Cash Paid for Interest $ 7,239 $ 7,741 $ 9,111
======== ======== ========
Cash Paid for Income Taxes $ 859 $ 339 $ 1,177
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-13
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Amounts in thousands except share data)
1. Nature of Business
The accompanying financial statements represent the consolidated accounts
of Iron Mountain Incorporated (formerly Iron Mountain Information Services,
Inc.) and its subsidiaries (collectively Iron Mountain or the Company). Iron
Mountain is a full service records management company providing storage and
related services for all media in various locations throughout the United
States to Fortune 500 Companies and numerous legal, banking, health care,
accounting, insurance, entertainment, and government organizations.
2. Summary of Significant Accounting Policies
a. Principles of Consolidation
The financial statements reflect the financial position and results of
operations of Iron Mountain on a consolidated basis. All significant
intercompany account balances and transactions with affiliates have been
eliminated.
b. Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the
straight-line method with the following useful lives:
<TABLE>
<CAPTION>
<S> <C>
Buildings 40 to 50 years
Leasehold improvements 8 to 10 years or the
life of the lease,
whichever is shorter
Racking 10 to 20 years
Warehouse equipment/vehicles 5 to 10 years
Office equipment 3 to 5 years
Computer hardware and software 3 to 5 years
</TABLE>
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
Real property $ 33,118 $ 34,162
Leasehold improvements 8,958 11,206
Racking 35,977 53,348
Warehouse equipment/vehicles 5,238 5,810
Furniture and fixtures 2,411 2,754
Computer hardware and software 9,771 13,729
Construction in progress 4,280 4,231
-------- --------
$ 99,753 $125,240
======== ========
</TABLE>
Minor maintenance costs are expensed as incurred. Major improvements to
the leased buildings are capitalized as leasehold improvements and
depreciated as described above.
c. Revenue Recognition
Storage and service revenues are recognized in the month the respective
service is provided. Storage material sales are recognized when shipped to
the customer. Amounts related to future storage for customers where storage
fees are billed in advance are accounted for as deferred income and amortized
over the applicable period. These amounts are included in deferred income in
the accompanying financial statements.
F-14
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands except share data)
d. Goodwill
Goodwill reflects the cost in excess of fair value of the net assets of
companies acquired in purchase transactions. Goodwill is amortized using the
straight-line method from the date of acquisition over the expected period to
be benefited, currently estimated at 25 years. The Company assesses the
recoverability of goodwill, as well as other long lived assets based upon
expectations of future undiscounted cash flows in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long Lived Assets and for Long Lived Assets to be Disposed of." Accumulated
amortization of goodwill was $11,205 and $15,071 as of December 31, 1994 and
1995, respectively.
e. Deferred Financing Costs
Deferred financing costs are amortized over the life of the related debt
using the effective interest rate method. As of December 31, 1994 and 1995,
deferred financing costs were $6,271, and $4,688, respectively, and
accumulated amortization of those costs were $4,024, and $2,050,
respectively.
f. Customer Acquisition Costs
Costs, net of revenues received for the initial transfer of the records,
related to the acquisition of large volume accounts (accounts consisting of
10,000 or more cartons) are capitalized and amortized for an appropriate
period not exceeding 12 years, unless the customer terminates its
relationship with the Company, at which time the unamortized cost is charged
to expense. However, in the event of such termination, the Company collects
and records as income permanent removal fees that generally equal or exceed
the amount of unamortized customer acquisition costs. As of December 31, 1994
and 1995 those costs were $5,114 and $6,492, respectively, and accumulated
amortization of those costs were $841 and $1,282, respectively.
g. Deferred Rent
The Company has entered into various leases for buildings used in the
storage of records. Certain leases have fixed escalation clauses or other
features which require normalization of the rental expense over the life of
the lease resulting in deferred rent being reflected in the accompanying
balance sheets. In addition, the Company has assumed various unfavorable
leases in connection with certain of its acquisitions. The discounted present
value of these lease obligations in excess of market rate at the date of the
acquisition was recorded as a deferred rent liability and is being amortized
over the remaining lives of the respective leases.
h. Inventories
Inventories are carried at the lower of cost using the first-in, first-out
basis or market and are comprised primarily of cartons.
i. Accrued expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1994 1995
------- -------
<S> <C> <C>
Accrued incentive compensation $ 1,202 $ 1,701
Accrued vacation 809 1,014
Accrued interest 145 1,737
Accrued workers' compensation 499 2,415
Other 2,055 4,050
------- -------
Accrued expenses $ 4,710 $10,917
======= =======
</TABLE>
F-15
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands except share data)
j. Net Income (Loss) Per Common Share
Net income (loss) per common share is computed based on the weighted
average number of common and common stock equivalent shares outstanding
during each period. Common stock equivalents consist of preferred stock that
is convertible into common stock and employee options to purchase common
stock. Pursuant to certain SEC regulations, the calculation of weighted
average shares outstanding assumes the conversion of preferred stock for all
periods presented. The stock options have not been included in the
calculation of common stock equivalents because their dilutive effect was
immaterial.
k. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
l. Cash and Cash Equivalents
The Company defines cash and cash equivalents to include cash on hand and
cash invested in short-term securities which have original maturities of less
than 90 days.
3. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1994 1995
--------- ---------
<S> <C> <C>
Working Capital Line and $36,000 Term Loan Refinanced in 1995 $ 59,934 $ --
Term Loans A and B -- 59,625
$50,000 Acquisition Credit Facility -- 34,400
$15,000 Working Capital Facility -- 1,700
Chrysler Notes 14,693 14,772
Real Estate Mortgages 10,855 10,797
Other 776 580
--------- ---------
Long-term Debt 86,258 121,874
Less -- current portion (628) (2,578)
--------- ---------
Long-term Debt, Net of Current Portion $ 85,630 $ 119,296
========= =========
</TABLE>
During 1994, the Company had a revolving credit facility of $44,625. This
facility along with a $36,000 senior term loan was refinanced on January 31,
1995 under an amended and restated credit agreement (the Credit Agreement).
Interest on the $36,000 senior debt term loan and the $44,625 revolving
credit facility was based, at the Company's option, on a choice of base rates
plus a margin. The margin varied depending upon the base rate selected.
F-16
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands except share data)
The Credit Agreement is with a syndicate of lenders and provides for four
separate credit facilities representing an aggregate commitment of $125,000
as follows:
<TABLE>
<CAPTION>
Maturity
Amount Date
------- ------
<S> <C> <C>
Term Loan A $10,000 2000
Term Loan B 50,000 2002
Working Capital Facility 15,000 2000
Acquisition Credit Facility 50,000 2002
</TABLE>
Commencing in 1996, Term Loans A and B are payable in quarterly
installments of $625 and $125, respectively. Term Loan B has a balloon
payment due upon maturity of $46,375. The Working Capital Facility is due in
full upon maturity and the Acquisition Credit Facility is payable in eight
quarterly installments equal to one-eighth of the outstanding balance
commencing in 2000.
Interest rates on all four facilities under the Credit Agreement are
based, at the Company's option, on a choice of base rates plus a margin. The
margin varies for each facility depending upon the base rate selected. The
margins are subject to adjustment after January 1996 based on the Company's
ability to meet certain financial covenant targets. At December 31, 1995, the
effective interest rates for Term Loans A and B were 8.22% and 8.72%,
respectively, and for the Working Capital Facility and Acquisition Credit
Facility were 9.75% and 8.72%, respectively. There is a commitment fee of
1/2% per year on the unused portion of the Working Capital Facility and
Acquisition Credit Facility.
The $15,000 Chrysler Notes were issued in 1990 and mature in 2000. Annual
principal payments of $5,000 commence in 1998. A warrant was issued in
connection with the Chrysler Notes to which management assigned an initial
value of $750 for financial reporting purposes (see Note 5). The value of the
warrant is being accounted for as an original issue discount of the Chrysler
Notes and is being amortized as interest expense over the life of the loan
using the effective interest rate method. The note is junior only to the
Credit Agreement and has an effective interest rate of 13.7%.
The Credit Agreement and Chrysler Notes specify certain minimum or maximum
relationships between operating cash flows (earnings before interest, taxes,
depreciation and amortization) and interest, total debt and fixed charges.
There are restrictions on dividends, sales or pledging of assets, capital
expenditures and change in business and ownership; cash dividends are
effectively prohibited. The Company was in compliance with the applicable
provisions of these agreements at December 31, 1995. Loans under the Credit
Agreement are secured by substantially all of the stock and assets of the
Company's subsidiaries, with the exception of a secondary position on two
owned properties encumbered by first mortgages.
The real estate mortgages consist of an $8,037, 10 year, 11% mortgage
based on 30 year amortization with a balloon payment due October, 2000 and a
$3,000, 8% note that is payable in various installments commencing in 1996
and maturing in November, 2006.
The Company is required to maintain interest rate protection under the
Credit Agreement. In 1988, the Company entered into an interest rate swap
(which expired in October 1995) whereby the Company paid a fixed interest
rate of 9.28% and received a rate equal to the 3-month LIBOR rate. The
interest was based on the outstanding notional principal amount which was
$2,338 at December 31, 1994. The Company has also purchased two interest rate
caps under which it will receive payments in the event that the three month
LIBOR rate exceeds those specified in the caps. Each cap covers $10,000 of
notional principal amount. One had a rate cap of 6.5% and expired on August
11, 1995 and the other has a rate cap of 7.5% and expires August 12, 1997.
On March 24, 1995, the Company entered into two three-year interest rate
collar swap transactions. Under these agreements, interest costs for the debt
covered by the notional amount of these contracts will essentially float when
the three-month LIBOR is between 6% and 7.5% but the Company will receive a
payment from the bank in the event that the three month LIBOR interest rate
exceeds 7.5%, or make a payment to the bank if such rate
F-17
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands except share data)
is below 6%. Each transaction covers $10,000 of notional principal amount
which will result in a maximum interest cost (including margin and
transaction costs) of approximately 10.54% and 10.67%, respectively, for the
covered amounts. In the event of non-performance by the counterparty, the
Company would be exposed to additional interest rate risk if the variable
interest rate were to exceed the ceiling (7.5%) under the terms of the swap
agreement.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Amount
- ------------ --------
<S> <C>
1996 $ 2,578
1997 3,386
1998 8,320
1999 8,366
2000 28,824
Thereafter 70,400
--------
$121,874
========
</TABLE>
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the Company has estimated the
following fair values for its long-term debt and swap agreements as of
December 31, 1995 as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------- -----
<S> <C> <C>
Credit Agreement $(95,725) $(95,725)
Chrysler Notes (14,772) (15,737)
Real Estate Mortgages (10,797) (11,849)
Other (580) (580)
Swap Agreements 25 (638)
</TABLE>
The fair value of the various swap agreements is based on the estimated
amount a bank would charge to terminate the various swap agreements.
4. Acquisitions and Dispositions
During 1994, the Company purchased substantially all of the assets, and
assumed certain liabilities, of three separate records management businesses.
During 1995, the Company purchased substantially all of the assets, subject
to certain liabilities, of four records management businesses. Each of these
acquisitions was accounted for using the purchase method of accounting and
accordingly, the results of operations for each acquisition have been
included in the consolidated results of the Company from the respective
acquisition dates. The excess of the purchase price over the underlying fair
value of the assets and liabilities of each acquisition has been assigned to
goodwill ($2,484 and $26,054 in 1994 and 1995, respectively) and is being
amortized over the estimated benefit period of 25 years. Funds used to make
the various acquisitions were provided through the Company's acquisition
credit facilities. A summary of the cash consideration and allocation of the
purchase price as of the acquisition dates are as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Fair value of assets acquired $ 3,223 $ 41,286
Liabilities assumed (377) (8,238)
-------- --------
Cash paid $ 2,846 $ 33,048
======== ========
</TABLE>
F-18
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands except share data)
The following unaudited pro forma combined information shows the results
of the Company's operations for the years ended December 31, 1994 and 1995 as
though each of the completed acquisitions had occurred as of January 1, 1994.
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Revenues $ 103,644 $ 112,675
Net income (loss) 574 (577)
Accretion of redeemable Put Warrant 1,412 2,107
--------- ---------
Net loss applicable to Common
Stockholders $ (838) $ (2,684)
========= =========
Net loss per common share $ (0.10) $ (0.34)
</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, 1994 or the results that may occur
in the future. Furthermore, the pro forma results do not give effect to all
cost savings or incremental costs which may occur as a result of the
integration and consolidation of the companies.
In 1995, the Company made a decision to sell one of its subsidiaries and
has estimated that the purchase price will be $900 less than the book value
of the assets and related goodwill. Consequently, the Company has recorded an
impairment of the related goodwill in the accompanying statement of
operations for 1995.
5. Common and Preferred Stock and Redeemable Put Warrant
During 1995, the Company declared a 15.4215-for-1 stock split of the Class
A and Class B Common Stock in the form of a stock dividend payable on
November 29, 1995 to stockholders of record on November 28, 1995. All
weighted average common share and stock related data in the consolidated
financial statements have been retroactively restated to reflect the stock
split.
The Company has authorized the following eight classes of capital stock as
of December 31, 1995:
<TABLE>
<CAPTION>
Number of Shares
-------------------------
Par Issued and
Equity Type Value Authorized Outstanding
- -------------------------------- -------- --------- ------------
<S> <C> <C> <C>
Class A Common (voting) $0.01 13,000,000 44,888
Class B Common (non-voting) $0.01 10,300,000 --
Class C Common (non-voting) $0.01 1 --
Series A1 Preferred (non-voting) $0.01 6,500 6,500
Series A2 Preferred (non-voting) $0.01 98,000 98,000
Series A3 Preferred (voting) $0.01 43,500 43,500
Series B Preferred (voting) $0.01 148,000 --
Series C Preferred (voting) $0.01 351,395 351,395
</TABLE>
Upon consummation of the underwritten public offering of common stock (See
Note 10), all shares of preferred stock were automatically converted into
shares of common stock. The number of common shares received upon conversion
were as follows:
<TABLE>
<CAPTION>
Preferred Common
-------- ----------
<S> <C> <C>
Series A1 and Series A3 50,000 987,314
Series A2 98,000 1,935,146
Series C 351,395 4,809,793
</TABLE>
The preferred stock is entitled to weighted average anti-dilution
protection and receives dividends on a common stock equivalent basis.
F-19
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands except share data)
In anticipation of the public offering, the Board of Directors approved
and the shareholders ratified a recapitalization plan as follows:
The designation of three new classes of stock:
<TABLE>
<CAPTION>
Authorized
Class Shares
- -------------------------------------- -----------
<S> <C>
Preferred Stock, $0.01 par value 2,000,000
Common Stock, $0.01 par value 13,000,000
Nonvoting Common Stock, $0.01 par
value 1,000,000
</TABLE>
In connection with the issuance of the Chrysler Notes, the Company also
issued a warrant, dated December 14, 1990 (the Warrant), exercisable for
444,385 shares of common stock for nominal consideration upon the occurrence
of certain specified events, including the effectiveness of an underwritten
public offering of the Company's capital stock, and at any time after
December 14, 1995. Chrysler Capital had the right to put (the Put) all or any
part of the Warrant to the Company at any time after December 14, 1995, at
the higher of a formula price based on a specified multiple of the Company's
operating cash flow for the preceding 12 months, subject to certain
adjustments, or fair market value of the Company (the Put Price). The Put was
to terminate upon the consummation of an underwritten public offering which
yielded net proceeds of not less than $10 million to the Company. Chrysler
Capital and the Company reached an agreement pursuant to which Chrysler
Capital would not exercise the Warrant or the Put until April 30, 1996 and
the Company would redeem the Warrant upon completion of the closing of the
public offering (See Note 10). On February 7, 1996, the Warrant was redeemed
for $6,612. This Warrant has been accreted each year using the effective
interest rate method based on the Warrant's estimated redemption value at its
estimated redemption date of February 15, 1996 and is reflected as a
redeemable put warrant in the accompanying balance sheets.
In September, 1991 the Company created a non-qualified stock option plan
pursuant to which up to 444,385 shares of Class A common stock of the Company
can be issued at the discretion of the stock option committee to key
employees, consultants and directors.
The following is a summary of stock option transactions during the
applicable periods:
<TABLE>
<CAPTION>
Option Price
Options Per Share
-------- --------------
<S> <C> <C>
Options outstanding, December 31, 1992 302,040 $6.48 - $12.58
Expired (18,506) 6.48
--------
Options outstanding, December 31, 1993 283,534 6.48 - 12.58
Expired (23,903) 6.48
--------
Options outstanding, December 31, 1994 259,631 6.48 - 12.58
Granted 162,184 12.58 - 16.00
Exercised (15,976) 12.58
Expired (6,370) 12.58
-------- --------------
Options outstanding, December 31, 1995 399,469 $6.48 - $16.00
======== ==============
</TABLE>
The stock options were granted at an amount equal to or greater than the
fair market value at the date of grant as determined by the Board of
Directors. There are no shares available for grant under the 1991 plan as of
December 31, 1995. The majority of options become exercisable ratably over a
period of five years unless the holder terminates employment. As of December
31, 1995, 175,380 of the options outstanding were exercisable.
Effective November 30, 1995, the Board of Directors approved the adoption
of the 1995 Stock Incentive Plan (the Stock Option Plan), which replaced the
previous stock option plan. A total of 1,000,000 shares of Class A Common
Stock are available for grant as options and other rights under the Stock
Option Plan, including the options issued under the 1991 plan. The number of
options available for grant at December 31, 1995 was 555,615.
F-20
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands except share data)
6. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109
which requires the recognition of deferred tax assets and liabilities for the
expected tax consequences of temporary differences between the tax and
financial reporting bases of assets and liabilities.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
<TABLE>
<CAPTION>
December 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
Current deferred tax assets:
Accrued liabilities $ 527 $ 1,585
Other 251 358
-------- --------
Current deferred tax assets $ 778 $ 1,943
======== ========
Non-current deferred tax assets (liabilities):
Accrued liabilities $ 1,147 $ 3,462
Net operating loss carryforwards 3,280 2,522
AMT credit 206 628
Deferred income 791 360
Other 511 792
-------- --------
Non-current deferred tax assets 5,935 7,764
-------- --------
Other assets principally due to differences in
amortization (1,165) (2,051)
Plant and equipment, principally due to differences in
depreciation (5,383) (7,201)
Customer acquisition costs (1,335) (1,716)
Other (520) (417)
-------- --------
Non-current deferred tax liabilities (8,403) (11,385)
-------- --------
Net non-current deferred tax liability $ (2,468) $ (3,621)
======== ========
</TABLE>
The Company and its subsidiaries file a consolidated Federal income tax
return. The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Federal -- current $ 131 $ 68 $ 422
Federal -- deferred 1,645 1,416 837
State -- current 191 175 96
State -- deferred 121 298 342
------ ------ ------
$2,088 $1,957 $1,697
====== ====== ======
</TABLE>
A reconciliation of total income tax expense and the amount computed by
applying the U.S. Federal income tax rate of 34% to income before income
taxes is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- ------
<S> <C> <C> <C>
Computed "expected" tax provision $1,243 $1,102 $ 661
Increase in income taxes resulting
from:
State taxes 206 312 289
Non-deductible Goodwill amortization 521 521 843
Other 118 22 (96)
------ ------ ------
$2,088 $1,957 $1,697
====== ====== ======
</TABLE>
F-21
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands except share data)
The Company has estimated Federal net operating loss carryforwards of
$7,296 at December 31, 1995 to reduce future Federal income taxes, if any,
which begin to expire in 2005.
The Company has estimated state net operating loss carryforwards of
approximately $441 to reduce future state income taxes, if any.
The Company has alternative minimum tax credit carryforwards of $628 which
have no expiration date and are available to reduce future income taxes, if
any.
7. Commitments and Contingencies
a. Leases
Iron Mountain leases most of its facilities under various operating
leases. A majority of these leases have renewal options of five to ten years
and have either fixed escalation clauses or Consumer Price Index escalation.
The Company also leases equipment under operating and capital leases,
primarily computers which have an average lease life of three years. Trucks
and office equipment are also leased and have remaining lease lives ranging
from one to five years. Rent expense was $12,680, $13,555, and $15,661 for
the years ended December 31, 1993, 1994 and 1995, respectively.
Minimum future lease payments are as follows:
<TABLE>
<CAPTION>
Year Operating
- ------ ----------
<S> <C>
1996 $ 18,278
1997 15,571
1998 13,585
1999 13,332
2000 13,537
Thereafter 53,465
--------
Total minimum lease payments $127,768
========
</TABLE>
b. Litigation
In 1992, the Company was named co-defendant in a suit alleging personal
injuries sustained in an automobile collision with a driver employed by a
courier company used at the time by Iron Mountain. The courier company
subsequently filed for bankruptcy. In March, 1995, a judgment was entered
against the Company in the Superior Court of the State of California for
County of Los Angeles. The Company has accrued $600 in the accompanying
financial statements which approximates the uninsured portion of the
judgment.
Iron Mountain is presently involved as a defendant in various litigation
which has occurred in the normal course of business. Management believes it
has meritorious defenses in all such actions, and in any event, the amount of
damages, if such matters were decided adversely, would not have a material
adverse effect on Iron Mountain's financial condition or results of
operations.
c. Other
The Company may be responsible for environmental clean-up costs at certain
of its facilities. Estimated costs of $800 to perform the necessary
remediation work are included in other liabilities in the accompanying
balance sheets. In 1994, the Company incurred losses at one of its facilities
in California, resulting from the Northridge earthquake. The Company has
filed a claim for reimbursement with its insurance carrier and has received
partial reimbursement to date, with the balance of $1,400 expected to be
received upon the insurance company's completion of its review of the pending
claim. Management believes the ultimate outcome of the above issues will not
have a material adverse effect on Iron Mountain's financial condition or
results of operations.
F-22
<PAGE>
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Amounts in thousands except share data)
8. Related Party Transactions
a. Rental Arrangements
Iron Mountain leases space to an affiliated company, Schooner Capital
Corporation (Schooner) for its corporate headquarters located in Boston,
Massachusetts. Accordingly, for the years ended December 31, 1993, 1994 and
1995, Schooner paid Iron Mountain rent totaling $48, $58, and $49,
respectively. Iron Mountain leases one facility from a landlord which is a
related party. Total rental payments for the years ended December 31, 1993,
1994 and 1995 for this facility totaled $88, $88, and $93, respectively. In
the opinion of management, both of these leases were entered into at market
prices and terms.
b. Long Term Debt
Iron Mountain is obligated in the amount of $383 on a junior subordinated
note bearing interest at 8%, payable in March, 2000. This note, originally
issued in connection with an acquisition, was purchased by and is now held by
Schooner.
9. Profit Sharing Retirement Plan
The Company has a defined contribution plan which covers all non-union
employees meeting certain service requirements. Eligible employees may elect
to defer from 1 to 15% of compensation per pay period up to the amount
allowed by the Internal Revenue Code. The Company makes matching
contributions based on the amount of the employee contribution and years of
credited service, according to a schedule as described in the Plan documents.
The Company has expensed $131, $146, and $294, for the years ended December
31, 1993, 1994 and 1995, respectively.
10. Subsequent Events
In January and February 1996, the Company acquired three records services
businesses for $10,047 in transactions that will be accounted for as
purchases.
On February 6, 1996, the Company completed an initial public offering of
its stock. The net proceeds from the public offering of $34,968 were used to
repay $28,313 of indebtedness and interest under the acquisition credit
facility, to retire a warrant of $6,612, and for working capital.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
National Business Archives, Inc.:
Towson, Maryland.
We have audited the accompanying balance sheet of National Business Archives,
Inc. as of December 31, 1993 and 1994, and the related statements of income,
stockholder's equity (deficit) and 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 audits 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 National Business Archives,
Inc. as of December 31, 1993 and 1994, and the results of its operations and
its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
WOLPOFF & COMPANY, LLP
Baltimore, Maryland
November 3, 1995
F-24
<PAGE>
NATIONAL BUSINESS ARCHIVES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------
1993 1994
---------- ----------
<S> <C> <C> <C>
Current Assets:
Cash--Note 1 $ -- $ 1,000
Note Receivable, Related Party--Note 2 -- 1,416,148
Accounts Receivable--Note 1 714,974 687,645
Inventory--Note 1 75,620 69,149
Prepaid Expenses 149,724 44,362
---------- ----------
Total Current Assets 940,318 2,218,304
---------- ----------
Property, Plant and Equipment--Notes 1 and 4:
Shelving 2,702,645 3,153,726
Motor Vehicles 479,961 498,011
Computers and Software 195,033 212,830
Furniture, Fixtures and Equipment 148,638 195,544
Leasehold Improvements 76,820 318,258
---------- ----------
3,603,097 4,378,369
Less Accumulated Depreciation 1,083,347 1,255,781
---------- ----------
Property, net 2,519,750 3,122,588
---------- ----------
Other Assets 7,498 56,001
---------- ----------
Total Assets $3,467,566 $5,396,893
========== ==========
</TABLE>
The notes to financial statements are an integral part of this statement.
F-25
<PAGE>
NATIONAL BUSINESS ARCHIVES, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
December 31,
--------------------------
1993 1994
----------- -----------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 171,566 $ 302,222
Accrued Expenses 176,355 238,354
Deferred Revenue--Note 1 977,212 1,201,314
Long-term Liabilities, Current Portion--Notes 2 and 4 652,584 63,092
Note Payable, Related Party--Note 2 150,000 --
Dividends Payable--Note 3 11,064 --
----------- -----------
Total Current Liabilities 2,138,781 1,804,982
----------- -----------
Long-term Liabilities:
Note Payable, Bank--Note 3 -- 2,333,901
Notes Payable, Stockholder--Note 2 1,913,333 355,000
Motor Vehicle Loans Payable--Note 4 171,636 100,582
----------- -----------
2,084,969 2,789,483
Less Current Portion 652,584 63,092
----------- -----------
Total Long-term Liabilities 1,432,385 2,726,391
----------- -----------
Deferred Rent--Note 5 1,068,904 1,007,488
----------- -----------
Total Liabilities 4,640,070 5,538,861
----------- -----------
Commitments--Notes 2 and 5
Stockholder's Equity (Deficit):
Common Stock 100 100
Accumulated Deficit (1,172,604) (142,068)
----------- -----------
Total Stockholder's Equity (Deficit) (1,172,504) (141,968)
----------- -----------
Total Liabilities and Stockholder's Equity
(Deficit) $ 3,467,566 $ 5,396,893
=========== ===========
</TABLE>
The notes to financial statements are an integral part of this statement.
F-26
<PAGE>
NATIONAL BUSINESS ARCHIVES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------
1993 1994
---------- ----------
<S> <C> <C>
Revenue:
Storage $3,406,317 $3,872,529
Service and Storage Material Sales 2,586,223 2,825,546
---------- ----------
Total Revenue 5,992,540 6,698,075
---------- ----------
Operating Expenses:
Cost of Sales (Excluding Depreciation) 3,273,478 3,866,897
Selling, General and Administrative 1,040,057 1,093,935
Depreciation and Amortization 286,843 344,800
---------- ----------
Total Operating Expenses 4,600,378 5,305,632
---------- ----------
Operating Income 1,392,162 1,392,443
Interest Expense 187,115 101,490
---------- ----------
Net Income--Note 1 $1,205,047 $1,290,953
========== ==========
</TABLE>
The notes to financial statements are an integral part of this statement.
F-27
<PAGE>
NATIONAL BUSINESS ARCHIVES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1993 1994
----------- -----------
<S> <C> <C>
Common Stock:
5,000 Shares Authorized, 100 Shares Issued and
Outstanding,
No Par Value $ 100 $ 100
----------- -----------
Retained Earnings (Deficit):
Beginning Balance (2,283,254) (1,172,604)
Net Income 1,205,047 1,290,953
Dividends (94,397) (260,417)
----------- -----------
Ending Balance (1,172,604) (142,068)
----------- -----------
Total Stockholder's Equity (Deficit) $(1,172,504) $ (141,968)
=========== ===========
</TABLE>
The notes to financial statements are an integral part of this statement.
F-28
<PAGE>
NATIONAL BUSINESS ARCHIVES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1993 1994
---------- ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 1,205,047 $ 1,290,953
-------- ----------
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities
Depreciation and Amortization 286,843 344,800
(Gain) Loss on Disposal of Assets (1,115) 3,818
Increase in Accounts Payable 26,685 130,656
Increase in Accrued Expenses 145,939 61,991
Change in Accounts Receivable (121,414) 27,329
Change in Inventory (19,161) 6,471
Change in Prepaid Expenses (27,949) 105,362
Decrease in Deferred Rent Payable (62,830) (61,416)
Increase in Deferred Revenue 154,985 224,102
-------- ----------
Total Adjustments 381,983 843,113
-------- ----------
Net Cash Provided by Operating Activities 1,587,030 2,134,066
-------- ----------
Cash Flows From Investing Activities:
Property and Equipment Expenditures (534,070) (955,924)
Proceeds from Disposal of Assets 7,783 12,973
Other Assets -- (57,000)
Loan to Related Party -- (1,416,148)
-------- ----------
Net Cash Used by Investing Activities (526,287) (2,416,099)
-------- ----------
Cash Flows From Financing Activities:
Stockholder Loan Proceeds 672,222 --
Stockholder Note Principal Payments (580,558) (1,558,333)
Net Bank Loan Proceeds -- 2,333,901
Bank Loan Principal Payments (1,218,662) --
Motor Vehicle Loan Proceeds 106,226 21,419
Repayment of Motor Vehicle Loans (106,638) (92,473)
Net Proceeds to Related Party 150,000 (150,000)
Dividends Paid (83,333) (271,481)
-------- ----------
Net Cash Used by Financing Activities (1,060,743) 283,033
-------- ----------
Net Change in Cash -- 1,000
Cash at Beginning of Year -- --
-------- ----------
Cash at End of Year $ -- $ 1,000
======== ==========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for Interest $ 166,875 $ 106,965
======== ==========
</TABLE>
The notes to financial statements are an integral part of this statement.
F-29
<PAGE>
NATIONAL BUSINESS ARCHIVES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Activity
National Business Archives, Inc. was incorporated under the laws of
Maryland pursuant to Articles of Incorporation dated June 18, 1987. The
Company provides record storage and management services in the
Baltimore-Washington area.
Cash
Cash in excess of the minimum balance required is swept daily to and
offset against the revolving loan (see Note 3).
Allowance for Doubtful Accounts
The Company established an allowance for doubtful accounts of $120,000 in
the current year.
Inventory
Inventory is stated at the lower of cost or market and is comprised of
computer tape cases and records and storage boxes used in the business.
Property, Plant and Equipment
Property is recorded at cost. Depreciation is computed using either the
straight-line method or accelerated methods with useful lives ranging from 5
to 7 years for equipment, 20 years for shelving and 31.5 to 39 years for
leasehold improvements.
Revenue Recognition
Revenue is recognized when earned. Storage revenue is billed either
monthly, quarterly or annually, depending on the terms of the lease. The
estimated amount of storage revenue collected in advance as of December 31,
1993 and 1994, is shown as deferred revenue.
Income and Taxes
The shareholder has elected under Subchapter S of the Internal Revenue
Code to report the Company's income at the shareholder level. Accordingly, no
provision for income taxes is included herein.
NOTE 2--RELATED PARTY TRANSACTIONS
Note Receivable, Related Party
In December 1994, the Company advanced $1,416,148 to James F. Knott
Development Corp., an entity related to the shareholder. The unsecured loan
is due on demand and bears interest at 9.5%. The note was repaid in January
1995.
On May 19, 1994, the loan remaining from the sole shareholder was repaid
when the revolving loan was modified. The interest expense in 1993 and 1994
was $108,652 and $39,037.
F-30
<PAGE>
NATIONAL BUSINESS ARCHIVES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 2--RELATED PARTY TRANSACTIONS -- (Continued)
The sole shareholder loaned an additional $355,000 to the Company. This
unsecured loan is subordinated to the bank loans. The terms are as follows:
<TABLE>
<CAPTION>
Balance
--------------------
Interest
Lender 12/31/93 12/31/94 Rate Terms Maturity Date
- ------------- --------- --------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
Stockholder $1,558,333 $ -0- Prime + 2% * October 1, 1996
Non-interest October 1, 1996
Stockholder 355,000 355,000 -- bearing
---------- --------
$1,913,333 $355,000
========== ========
</TABLE>
- -------------
* Principal was payable in consecutive monthly installments of $45,833
commencing on November 1, 1993 (36 X $45,833 = $1,650,000).
The remaining stockholder note balance of $355,000 matures in 1996.
Note Payable, Related Party
James F. Knott Development Corp., an entity related to the shareholder,
advanced the Company various amounts in 1993 and 1994. The loans were due on
demand and bear interest at 6.5%. The balance at December 31, 1993 and 1994,
was $150,000 and $-0-, respectively. Interest on the unsecured loans for 1993
and 1994 was $7,228 and $23,807, respectively.
Office and Warehouse Leases
See Note 5.
NOTE 3--NOTE PAYABLE, BANK
On December 19, 1994, the revolving loan was modified for the second time
and the amount available was increased to $3,000,000. The balance at December
31, 1993 and 1994, was $-0- and $2,333,901, respectively. The terms of the
loan are interest only at prime + 1/2% (prime at December 31, 1994, was 8.5%)
until maturity on December 31, 1996. The loan is secured by all property and
assets of the Company. The maximum unpaid outstanding principal available
under the revolving loan is $2,500,000 and $1,500,000 as of December 31, 1995
and 1996, respectively. Interest on this loan was $51,408 and $25,049 in 1993
and 1994, respectively.
Under the loan agreement, the Company is permitted to pay dividends to its
sole shareholder in an aggregate amount equal to the amount of federal and
state income taxes due on the taxable income of the Company, as if such
taxable income was the sole taxable income of the shareholder.
NOTE 4--MOTOR VEHICLE LOANS PAYABLE
Pertinent information on the motor vehicle loans payable is as follows:
<TABLE>
<CAPTION>
Balance
------------------
Total
Interest Monthly
Lender 12/31/93 12/31/94 Rate Payments Maturity Collateral
- -------------------- --------- --------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ford Motor Credit $171,636 $100,582 6.42-12% $9,442 3/95-8/97 Automobiles/
Trucks
Less Current Portion 103,077 63,092
-------- --------
$ 68,559 $ 37,490
======== ========
</TABLE>
F-31
<PAGE>
NATIONAL BUSINESS ARCHIVES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 4--MOTOR VEHICLE LOANS PAYABLE -- (Continued)
Interest on these loans was $15,077 and $11,825 in 1993 and 1994,
respectively.
The remaining principal payments on these loans are as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 63,092
1996 33,596
1997 3,894
--------
$100,582
========
</TABLE>
NOTE 5--COMMITMENTS
Deferred Rent
Office and warehouse leases:
<TABLE>
<CAPTION>
Square Effective Lease Free Expiration
Lessor* Feet Date Term Rent Date
- --------------------------------- ------ ------- ---------------- ------- ----------
<S> <C> <C> <C> <C> <C>
B.W.I.P. Associates Limited 11 Yrs. 7.5
Partnership 68,200 12/01/87 Mths.** 8 Mths. 7/15/99
Dorsey Run Industrial Park
Limited Partnership (DRIP) 142,885 11/01/89 10 Yrs. 9 Mths. 14 Mths. 7/31/00
DRIP 42,413 9/01/94 5 Years -- 8/31/99
DRIP 97,587 3/01/95 4 Yrs. 6 Mths. -- 8/31/99
</TABLE>
- -------------
* Lessors are related to sole shareholder.
** Lease term was extended 1 year and 7.5 months in the current year.
Annual rental expense recognized on the straight-line basis on the above
leases for 1993 and 1994 was $1,092,132 and $1,146,564, respectively.
Future minimum annual rental payments are as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $1,764,714
1996 1,825,706
1997 1,834,600
1998 1,826,606
1999 1,427,525
2000 510,099
----------
Total minimum future rental payments $9,189,250
==========
</TABLE>
NOTE 6--SUBSEQUENT EVENT
On March 1, 1995, the Company sold all of its assets to Iron Mountain
Records Management, Inc. and all debt was repaid from the proceeds of the
sale. In addition, the Company's assets were released from security interests
held by the bank with the full payment of the note payable (see Note 3).
F-32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Data Management Business Records Storage, Inc.:
We have audited the accompanying balance sheet of Data Management Business
Records Storage, Inc. as of June 30, 1995 and the related statement of
operations and retained earnings (deficit), and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Data Management Business
Records Storage, Inc. as of June 30, 1995 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
MORRISON AND SMITH
Tuscaloosa, Alabama
September 18, 1995
(except for Note 14, as
to which the date is
December 1, 1995)
F-33
<PAGE>
DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1995 1995
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 125,982 $ 626,578
Accounts receivables, net 576,979 517,903
Materials inventory 7,909 7,909
Prepaid expenses 11,744 12,867
Other 115,154 374
----------- -----------
Total current assets 837,768 1,165,631
----------- -----------
Plant, property and equipment, net 3,334,017 2,435,362
----------- -----------
Intangible assets 572,558 533,228
Notes receivable, intercompany 316,551 373,082
Deferred income tax 810,431 554,752
Other 11,748 11,748
----------- -----------
1,711,288 1,472,810
----------- -----------
Total assets $ 5,883,073 $ 5,073,803
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable--trade $ 92,193 $ 61,592
Accrued expenses 136,505 137,043
Unearned income 309,735 309,735
Current portion--leases 68,242 63,240
Current portion--notes 5,353,941 4,428,159
----------- -----------
Total current liabilities 5,960,616 4,999,769
----------- -----------
Leases payable, long-term 114,216 96,885
Notes payable, long-term 1,328,764 1,292,495
Notes payable, intercompany 50,000 38,760
Deferred compensation payable 12,115 --
Earnest money deposit 154,988 --
----------- -----------
Total long-term liabilities 1,660,083 1,428,140
----------- -----------
Total liabilities 7,620,699 6,427,909
Stockholders' equity (deficit)
Common stock 500 500
Paid-in capital 1,321,809 1,321,809
Retained earnings (deficit) (3,059,935) (2,676,415)
----------- -----------
(1,737,626) (1,354,106)
=========== ===========
Total liabilities and stockholders' equity (deficit) $ 5,883,073 $ 5,073,803
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
Three
Year Ended Months Ended
June 30, September 30,
1995 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Revenues:
Storage $ 3,143,737 $ 797,715
Services and storage material sales 1,683,035 414,650
Net gain (loss) on sale of assets (4,045) 738,049
----------- -----------
Total Revenues 4,822,727 1,950,414
----------- -----------
Operating expenses:
Cost of sales (excluding depreciation) 891,293 310,610
Selling, administrative and general expenses 2,730,013 767,702
Depreciation and amortization 510,831 115,653
----------- -----------
Total operating expenses 4,132,137 1,193,965
----------- -----------
Operating income 690,590 756,449
Interest expense (551,569) (121,915
Other income (expense), net 611 4,664
----------- -----------
Income before provision for income taxes 139,632 639,198
Provision for income taxes 55,589 255,678
----------- -----------
Net income 84,043 383,520
Retained earnings (deficit)--beginning (3,143,978) (3,059,935
----------- -----------
Retained earnings (deficit)--ending $(3,059,935) $(2,676,415)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Year Ended Months Ended
June 30, September 30,
1995 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Cash Flow from Operating Activities:
Cash received from customers and affiliates $ 4,769,087 $ 1,271,441
Cash paid for cost of sales (873,587) (218,510)
Cash paid for operating expenses (2,693,965) (805,400)
Interest expense (550,807) (113,677)
Income taxes paid -- (457)
Interest and dividends received 1,082 3,691
Other income (expense) (471) 973
----------- -----------
Net Cash from Operating Activities 651,339 138,061
----------- -----------
Cash Flow from Investing Activities:
Proceeds from escrow money deposit 154,988 --
Proceeds from sale of assets and equipment 12,117 1,686,742
Payments for purchase of property and equipment (554,247) (280,623)
Payments (to) from employees for advances (9,635) 9,670
Payments (to) from affiliates for advances (151,360) (67,771)
Payments for investments and intangibles (3,494) (726)
Payments for deposits -- (374)
----------- -----------
Net Cash from Investing Activities (551,631) 1,346,918
----------- -----------
Cash Flows from Financing Activities:
Proceeds from borrowings 272,330 --
Repayment of debt (276,748) (984,383)
----------- -----------
Net Cash from Financing Activities (4,418) (984,383)
----------- -----------
Net change in cash and cash equivalents 95,290 500,596
Cash and cash equivalents at beginning of period 30,692 125,982
----------- -----------
Cash and cash equivalents at end of period $ 125,982 $ 626,578
=========== ===========
Reconciliation of net income to net cash provided by operating
activities:
Net income $ 84,043 $ 383,520
Depreciation and amortization 510,831 115,653
Deferred compensation 6,304 --
(Gain) loss on sale of assets 4,045 (738,049)
(Increase) decrease in accounts receivable (72,453) 59,076
(Increase) in inventory (1,581) --
(Increase) decrease in prepayments and escrow (49,272) 104,361
Increase (decrease) in accounts payable, accrued expenses and
unearned income 114,290 (42,178)
Decrease in deferred tax benefit 55,132 255,678
----------- -----------
Net cash provided by operating activities $ 651,339 $ 138,061
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1--ORGANIZATIONAL HISTORY OF THE COMPANY
Data Management Business Records Storage, Inc. ("the Company"), organized
in 1985, provides data management and storage ("DMS") services in the
Atlanta, Georgia market. The Company currently has 1,447,024 cubic feet of
warehouse capacity.
The Company is a wholly owned subsidiary of Outdoor West, Inc., a
management and holding company. Outdoor West, Inc. also owns two subsidiaries
which operate in the outdoor advertising business, Outdoor West, Inc. of
Georgia and Outdoor West, Inc. of Tennessee.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The Company's financial statements are presented on the accrual basis.
Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
money market accounts and highly liquid debt instruments purchased with a
maturity of three months or less.
The Company maintains cash balances at several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured balances held in accounts at the
Company's primary lender aggregate $25,982 at June 30, 1995.
Allowance for Doubtful Trade Receivables
Bad debts are accounted for on the reserve method. The allowance for
doubtful accounts at June 30, 1995 was $837.
Materials Inventory
Materials inventory is valued at cost using the first-in, first-out
method.
Property and Depreciation
Property and equipment are recorded at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of the respective
assets. Maintenance and repairs are charged to expense as incurred; major
renewals and betterments are capitalized. When items of property and
equipment are sold or retired, the related cost and accumulated depreciation
are removed from the accounts and any gain or loss is recognized.
Major classifications of property and equipment and their respective
depreciable lives are summarized below:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings 15-40
Leasehold improvements 5-40
Autos and trucks 3-6
Equipment, construction 5-12
Shelving 12
Computer equipment 5
Office furniture and fixtures 5-10
Leased assets 7-25
</TABLE>
F-37
<PAGE>
DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Intangible Assets
In acquisitions of record storage businesses, agreements not to compete
and goodwill were part of the purchase price. Non-compete agreements are
amortized over the lives of the agreements ranging from ten to twenty years;
goodwill is amortized over forty years. Loan costs are amortized over the
lives of the loans.
Income Taxes
The Company is included in a consolidated federal income tax return of an
affiliated group. Income tax expense in the Company's statement of operations
has been allocated based on the ratio that each member's separate taxable
income bears to the sum of the separate taxable incomes of all members having
taxable income for the year. Unused net operating losses and tax credits
available for carryforward to future years are detailed in Note 4.
NOTE 3--INTANGIBLE ASSETS
Intangible assets as of June 30, 1995 consist of:
<TABLE>
<CAPTION>
Accumulated
Cost Amortization Net
--------- ------------ --------
<S> <C> <C> <C>
Non-compete agreements $ 698,000 $418,282 $279,718
Loan costs 257,197 166,422 90,775
Goodwill 253,781 51,716 202,065
---------- -------- --------
Total $1,208,978 $636,420 $572,558
========== ========= ========
</TABLE>
NOTE 4--FEDERAL INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards Number 109, "Accounting for
Income Taxes". Under the provisions of Statement No. 109, a current tax
liability or asset is recognized for the estimated taxes currently payable or
refundable for the current year and a deferred tax liability or asset is
recognized for the estimated future tax effects attributable to temporary
differences and carryforwards. Temporary differences represent the difference
between the book and tax bases of assets or liabilities that will result in
taxable or deductible amounts in future years when the asset or liability is
recovered or settled.
Summary of the provision for income tax expense (benefit) for the year
ended June 30, 1995 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Currently payable $ 457
Deferred (4,595)
Utilization of operating loss carryforward 59,727
-------
Provision for income tax expense $55,589
=======
</TABLE>
A reconciliation of income tax at the statutory rate to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
<S> <C>
Computed at the expected statutory rate 38.0%
Officer's life insurance .9
Amortization of goodwill 1.7
Deferred compensation 1.7
Other differences (2.5)
----
Effective rate 39.8%
====
</TABLE>
F-38
<PAGE>
DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 4--FEDERAL INCOME TAXES -- (Continued)
For the year ended June 30, 1995, the Company was included in a
consolidated federal income tax return. The Company had carryovers as
follows:
<TABLE>
<CAPTION>
Carryover Amount Expiration
- ------------------ --------- -----------
<S> <C> <C>
Net operating loss $2,109,000 2004-2009
Contributions 5,510 1996-1999
</TABLE>
The deferred tax benefit consisted of the following at June 30, 1995:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax benefit:
Net operating loss carryforward $801,420
Other temporary differences 9,011
-------
810,431
Valuation allowance -0-
--------
Net deferred tax benefit $810,431
========
</TABLE>
Even though the Company has net operating loss carryforwards from fiscal
years ended June 30, 1985 through June 30, 1994, management believes that it
is more likely than not that it will generate taxable income sufficient to
realize the tax benefit associated with net operating loss and tax credit
carryforwards. This belief is based upon, among other factors, expectations
of continued growth in sales and changes in operations, as well as
consideration of available tax planning strategies. Specifically, the Company
has plans to consolidate operations in the DMS business by selling a
warehouse and moving files to an existing leased facility. The sale of the
warehouse facility is expected to result in a significant gain as the
facility's best use, due to its location and structure, is other than
warehouse space. Additionally, the Company has plans to sell the operating
assets of the DMS business at a significant gain. Management believes that no
valuation allowance is appropriate given the current estimates of future
taxable income. If the Company is unable to generate sufficient taxable
income in the future through operating results, or through the sales
discussed in Note 14, increases in the valuation allowance will be required
through a charge to income tax expense.
NOTE 5--CAPITAL STOCK
Common stock of the Company has a par value of $0.10 per share; 5,000
shares were authorized, issued and outstanding.
NOTE 6--PROPERTIES AND FACILITIES
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Land $ 364,657
Buildings 1,831,905
Leasehold improvements 126,501
Autos and trucks 355,032
Equipment 110,916
Shelving 2,586,900
Computer equipment 334,018
Office furniture and fixtures 128,503
Leased assets 313,667
-----------
6,152,099
Less accumulated depreciation (2,818,082)
-----------
$ 3,334,017
===========
</TABLE>
F-39
<PAGE>
DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 7--NOTES PAYABLE
<TABLE>
<CAPTION>
Interest Balance
Maturity Collateral and Repayment Terms Rate June 30, 1995
- ---------- --------------------------------------------------- ------------ --------------
<S> <C> <C> <C>
6/96 Substantially all of assets of the Company except 7.62%- $5,124,242
those subject to prior liens and the outstanding LIBOR+
stock of the Company pari passu with other major 3.25%
lender. Interest due monthly and principal
payments of approximately $60,000 due 9/30/95;
12/31/95 and 3/31/96. Remaining principal balance
due 6/30/96.
2/01-3/01 Certain assets of DMS on purchase money 10.00% 1,071,038
contracts, non-competes; due $16,667 monthly
9/99 Real estate of DMS due $4,152 monthly 9.00% 384,892
9/94-4/96 Rolling stock and equipment, principal and Various 102,533
interest of approximately $9,000 due monthly
$6,682,705
==========
</TABLE>
Principal maturities of notes payable for the five years ending after June
30, 1995 are:
<TABLE>
<CAPTION>
<S> <C>
6/30/96 $ 5,353,941
6/30/97 195,314
6/30/98 196,611
6/30/99 522,343
6/30/00 272,365
Maturities after 5 years 142,131
----------
Total maturities 6,682,705
Less current maturities (5,353,941)
----------
Long term maturities $ 1,328,764
==========
</TABLE>
At June 30, 1995, a substantial portion of the Company's notes payable
were due within one year. However, as discussed in Note 14, substantially all
of the operating assets of the Company were sold effective November 30, 1995.
The proceeds of this sale were sufficient to pay all of the Company's notes
payable.
Additional Restrictions Required by Long-Term Debt
The Company, its parent and affiliates entered into loan agreements with
Massachusetts Mutual Life Insurance Company and National Westminster Bank
USA. The affiliated group is required to comply with certain restrictive
covenants which require, among other things, limitations on capital
expenditures and corporate overhead and a deadline for providing audited
financial statements. While the affiliated group was in violation of these
agreements, the two lenders have issued waivers for the covenant violations
as of June 30, 1995.
NOTE 8--TRANSACTIONS WITH RELATED PARTIES
The Company has various lease and management agreements with affiliates.
The Company's parent, Outdoor West, Inc., charges the Company a management
fee which covers executive management supervision in addition to general
management services which include leasing, accounting, finance, personnel and
general supervision
F-40
<PAGE>
DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 8--TRANSACTIONS WITH RELATED PARTIES -- (Continued)
responsibilities. Amounts included in the statement of operations with
respect to transactions with affiliates for June 30, 1995 are:
<TABLE>
<CAPTION>
Outdoor
West, The Eagle
Inc. Group
--------- ----------
<S> <C> <C>
Income
Land Lease $ -- $ 4,900
Expenses
Management fees 398,000 --
Interest -- 13,932
Building rental -- 103,875
--------- ----------
Net transactions with related parties $(398,000) $(112,907)
========= ==========
</TABLE>
Receivables from and payables to affiliates as of June 30, 1995 are:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable from:
Outdoor West, Inc. $316,551
========
Notes payable to:
Outdoor West, Inc. of
Georgia $ 50,000
========
</TABLE>
Charles H. Renfroe is Chairman of the Board of Directors of the Company.
The Eagle Group is a sole proprietorship, owned by Mr. Renfroe, which
operates a mini-warehouse project and leases office and warehouse space to
Outdoor West, Inc. of Georgia and to the Company. In addition, the Eagle
Group owns 19 parcels of land leased to Outdoor West, Inc. of Georgia and
Tennessee.
In the opinion of management, all of the transactions with related parties
are at rates and terms equivalent to those that prevail in arm's-length
transactions.
NOTE 9--UNEARNED INCOME
Unearned income represents primarily income billed one month in advance
for record storage. Most of this was recognized as income in July, 1995.
NOTE 10--OBLIGATIONS UNDER CAPITAL LEASE
The Company is the lessee of property under capital leases with
expirations as disclosed in the following table. Assets and liabilities under
capital leases are recorded at the lower of the present value of the minimum
lease payments or the fair value of the asset. The assets are depreciated
over the lower of their related lease terms or their estimated productive
lives. Depreciation of assets under capital leases is included in
depreciation expense for 1995.
Interest rates on capitalized leases vary and are imputed based on the
lower of the Company's incremental borrowing rate at the inception of each
lease or the lessor's implicit rate of return.
General Description of Capital Leases
<TABLE>
<CAPTION>
June 30,
Leased 1995 Termination
Property Balance Dates
- -------------- ----------- ----------------
<S> <C> <C>
Equipment $182,457 10/05/96-12/19/99
========
</TABLE>
F-41
<PAGE>
DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 10--OBLIGATIONS UNDER CAPITAL LEASE -- (Continued)
Net Obligations Under Capital Leases at June 30, 1995:
<TABLE>
<CAPTION>
Capital Less: Balance
Lease Imputed Sheet
Balance Interest Values
------- -------- -------
<S> <C> <C> <C>
Current liabilities $ 84,078 $15,836 $ 68,242
======== ======= ========
Long-term liabilities $129,366 $15,150 $114,216
======== ======= ========
</TABLE>
Gross Assets and Accumulated Depreciation
<TABLE>
<CAPTION>
June 30, 1995
--------------
<S> <C>
Equipment and automobiles $313,667
Less accumulated depreciation (68,721)
--------
$244,946
========
</TABLE>
Minimum Future Lease Payments
<TABLE>
<CAPTION>
Years Ended June 30
- -------------------------------------------
<S> <C>
1996 $ 84,078
1997 73,109
1998 30,229
1999 17,352
2000 8,676
--------
Total minimum lease payments 213,444
Less imputed interest 30,986
--------
Present value of net minimum lease payments $182,458
========
</TABLE>
NOTE 11--OBLIGATIONS UNDER OPERATING LEASES
The Company leases real estate under operating leases expiring in various
years through January 31, 2008.
Minimum future rental payments under non-cancellable operating leases
having remaining terms in excess of one year as of June 30, 1995 for each of
the next five years in the aggregate are:
<TABLE>
<CAPTION>
Years Ended June 30 Amount
- -------------------- ----------
<S> <C>
1996 $ 745,918
1997 528,299
1998 425,770
1999 428,208
2000 418,197
Subsequent to 2000 3,373,556
----------
$5,919,948
==========
</TABLE>
Rental expense under all operating leases for the fiscal year ended June
30, 1995:
<TABLE>
<CAPTION>
<S> <C>
Rental Expense $491,139
========
</TABLE>
The Company leases real estate from affiliates. The leases are classified
as operating leases and provide for minimum annual rentals of $103,875 with
expirations ranging from February 28, 1996 to January 6, 2000. See Note 8.
F-42
<PAGE>
DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company began a self-insured program for its group health plan January
1, 1990. The Company is liable for claims up to $20,000 per employee annually
and aggregate claims up to $154,861 annually. Self-insurance costs are
accrued based upon the aggregate of the liability for reported claims and an
actuarially determined estimated liability for claims incurred but not
reported.
NOTE 13--PROFIT SHARING PLAN
Effective January 1, 1994, the Company implemented a profit sharing plan
described in Internal Revenue Code Section 401(k). All employees of the
Company are eligible to participate once they meet the eligibility and
participation requirements of the plan. Employees become eligible for
participation in the plan after attaining age 21 and completing 12 months of
service.
Under the terms of the plan, participants may contribute a portion of
their compensation to the plan on a tax deferred basis. Employee
contributions may not exceed the annual limitations established by the
Treasury. The Company matches 10% of the first 6% of compensation contributed
by each participant. During the year ended June 30, 1995 the cost of the plan
to the Company totaled $7,128.
NOTE 14--SUBSEQUENT EVENTS
On July 31, 1995 the Company sold a warehouse and distribution facility.
Proceeds from the sale were $1,850,000. The transaction resulted in a gain of
approximately $740,000 which will be included in net income from operations
for the fiscal year ending June 30, 1996.
On December 1, 1995, the Company sold, effective November 30, 1995,
substantially all of its operating assets.
F-43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners Nashville Vault Company, Ltd.:
We have audited the accompanying balance sheet of Nashville Vault Company,
Ltd. (a Tennessee limited partnership) as of December 31, 1995, and the
related statements of income, partners' capital and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nashville Vault Company,
Ltd. at December 31, 1995, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted
accounting principles.
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
January 16, 1996
F-44
<PAGE>
NASHVILLE VAULT COMPANY, LTD.
(A TENNESSEE LIMITED PARTNERSHIP)
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 275,806
Accounts receivable--trade 180,609
Prepaid expenses 60
----------
Total current assets 456,475
Property and equipment:
Building and improvements 1,148,652
Furniture and equipment 269,798
Vehicles 88,386
----------
1,506,836
Accumulated depreciation and amortization (833,520)
----------
$ 673,316
----------
$1,129,791
==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 104,662
Deferred revenue 43,253
Convertible notes payable 325,000
----------
Total current liabilities 472,915
PARTNERS' CAPITAL 656,876
----------
$1,129,791
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
NASHVILLE VAULT COMPANY, LTD.
(A TENNESSEE LIMITED PARTNERSHIP)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended
December 31,
1995
----------------
<S> <C>
Revenue:
Storage $ 636,302
Service and storage material sales 738,338
----------
Total revenue $1,374,640
Operating expenses:
Cost of sales (excluding depreciation) 499,389
Selling, general and administrative expenses 326,674
Depreciation and amortization 122,021
----------
Total operating expenses 948,084
----------
Operating income 426,556
Other income (expense):
Interest income 18,994
Interest expense (80,022)
----------
(61,028)
----------
Net income $ 365,528
==========
STATEMENT OF PARTNERS' CAPITAL
Balance, Beginning of Year $ 306,499
Net income 365,528
Cash distributions (15,151)
----------
Balance, End of Year $ 656,876
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
NASHVILLE VAULT COMPANY, LTD.
(A TENNESSEE LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
---------------------
<S> <C>
Operating Activities:
Net income $ 365,528
Items not affecting net cash provided by operating
activities:
Depreciation and amortization 122,021
Gain on disposal of property and equipment (141)
Changes in other items:
Accounts receivable--trade (333)
Prepaid expenses 16,761
Accounts payable and accrued expenses 41,230
Deferred revenue (2,012)
---------
Net cash provided by operating activities $ 543,054
Investing Activities:
Purchase of property and equipment (30,908)
Proceeds from sale of property and equipment 2,300
Proceeds from sale of investments 310,000
Purchase of investments (210,000)
---------
Net cash provided by investing activities 71,392
Financing Activities:
Payments on debt (489,969)
Cash distribution to partners (15,151)
---------
Net cash used by financing activities (505,120)
---------
Net increase in Cash and Cash Equivalents 109,326
Cash and Cash Equivalents, Beginning of Year 166,480
---------
Cash and Cash Equivalents, End of Year $ 275,806
=========
Supplemental Cash Flows Information:
Cash paid during the year for interest $ 80,022
Equipment acquired with installment note 48,854
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
NASHVILLE VAULT COMPANY, LTD.
(A TENNESSEE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations
Nashville Vault Company, Ltd. (the "Partnership") is a limited partnership
formed pursuant to the Uniform Limited Partnership Act of Tennessee on
February 21, 1985 to renovate, own and operate a maximum security facility
containing safe deposit boxes and secured storage vaults in Nashville.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Cash Equivalents
The Partnership considers all liquid investments with original maturities
of three months or less to be cash equivalents. At December 31, 1995, cash
equivalents consisted of savings accounts. From time to time during the year,
the Partnership's cash accounts exceeded federally insured limits.
Property and Equipment
Property and equipment are carried at cost, and such cost is being
recovered using straight-line and accelerated methods of depreciation, with
useful lives of 15 to 31.5 years for building and improvements, 5 to 7 years
for furniture and equipment, and 5 years for vehicles.
Revenue Recognition
Revenue is recognized when earned. Revenue billed in advance is shown as
deferred revenue.
Advertising Costs
The Partnership expenses advertising costs as incurred. Advertising costs
were $6,787 in 1995.
Income Tax Status
Since the entity is a partnership, it is not subject to federal and state
income taxes and, accordingly, no provision for federal and state taxes on
income is required. The partners include their allocable share of the net
income or loss in their respective income tax returns.
3. Convertible Notes Payable
The 12% convertible notes, payable to certain limited partners, are
convertible into limited partnership units at a conversion price of $12,500
for one limited partnership unit. On January 1, 1996, all convertible notes
were converted into 26 limited partnership units.
4. Employee Benefits
On January 1, 1994, the Partnership established a 401(k) defined
contribution plan for the benefit of substantially all of its employees,
which allows for both employee and Partnership contributions. The Partnership
contribution consists of a matching contribution of 25 percent of employee
contributions, up to 3.75 percent of eligible employee compensation. The
Partnership contribution to the plan was $3,924 for 1995. This plan was
terminated on December 31, 1995.
F-48
<PAGE>
NASHVILLE VAULT COMPANY, LTD.
(A TENNESSEE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
5. Partnership Agreement
The Agreement of Limited Partnership (as amended) specifies the allocation
of profits, losses, and distributions to be allocated 1% to the General
Partner and 99% to the Investor Limited Partners.
Under the agreement, the limited partners are not liable for any debts of
the Partnership nor are they required to make any additional capital
contributions.
6. Related Party Transactions
The Partnership leases the ground on which its building is located from
family members of stockholders of the General Partner and pays real estate
taxes and other related expenses under the lease which expires November 30,
2000. On January 1, 1996, the Partnership exercised an option to purchase the
land for $250,000. Rent expense in 1995 was $29,000.
The General Partner, USA Vault Corporation, is guaranteed a monthly
management fee for the operation of the Partnership. The fee begins at $1,000
per month increasing to $2,000 and $3,000 monthly when annual gross revenue
exceeds $200,000 and $300,000, respectively. The Partnership incurred
management fees to the General Partner of $32,000 in 1995.
The Partnership pays fees to a company owned by the president of USA Vault
Corporation for accounting and bookkeeping services. Fees paid totaled
$12,000 for 1995.
7. Major Customer
Sales from a major customer approximated 10% of sales and 19% of accounts
receivable at December 31, 1995.
8. Subsequent Event
On January 4, 1996, the Partnership sold, effective January 1, 1996,
substantially all of its operating assets for approximately $3,450,000 to
Iron Mountain Record Management, Inc.
F-49
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholders
Data Archive Services, Inc.:
We have audited the accompanying combined balance sheet of Data Archive
Services, Inc. (a Florida Corporation) and Affiliate as of May 31, 1996, and
the related combined statements of operations and retained earnings, and cash
flows for the year then ended. These combined financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on these combined 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 combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Data Archive
Services, Inc. and Affiliate as of May 31, 1996, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
The combined financial statements include the financial statements of Data
Archive Services, Inc., and Data Archive Services of Miami, Inc., which are
related through controlled ownership and management.
Perless, Roth, Jonas & Hartney, CPAs, PA
Miami, Florida
July 30, 1996
(except for Note 11,
for which the date
is August 9, 1996)
F-50
<PAGE>
DATA ARCHIVE SERVICES, INC.
COMBINED BALANCE SHEET
MAY 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash $ 155,435
Accounts Receivable 291,711
Due from Related Party 19,379
Inventories 4,061
Prepaid Expenses 45,673
Income Taxes Receivable 34,485
----------
Total Current Assets 550,774
Property, Plant and Equipment:
Shelving 565,513
Office Furniture and Equipment 217,686
Vaults 110,139
Leasehold Improvements 61,914
Vehicle 18,237
----------
973,489
Less: Accumulated Depreciation (490,025)
----------
Property, Plant and Equipment, Net 483,464
Other Assets 46,730
----------
Total Assets $1,080,938
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Liabilities $ 129,407
Accounts Payable 251,207
Accrued Expenses 126,909
Loan Payable to Stockholder 165,154
Deferred Revenue 170,140
Income Taxes Payable 8,365
----------
Total Current Liabilities 851,182
Long-Term Liabilities:
Lease Obligation Payable 7,117
Installment Obligations Payable 145,298
Line of Credit Payable to Bank 100,000
Less: Current Portion of Long-Term
Liabilities (129,407)
----------
Total Long-Term Liabilities 123,008
Stockholders' Equity:
Capital Stock 11,000
Additional Paid-in Capital 50,050
Retained Earnings 45,698
----------
Total Stockholders' Equity 106,748
----------
Total Liabilities and Stockholders' Equity $1,080,938
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
DATA ARCHIVE SERVICES, INC.
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED MAY 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Storage $ 1,106,051
Service and Storage Material Sales 609,955
-----------
Total Revenues 1,716,006
Operating Expenses:
Cost of Sales (Excluding
Depreciation) 962,801
Selling, General and Administrative 919,022
Depreciation and Amortization 38,285
-----------
Total Operating Expenses 1,920,108
-----------
Operating Loss (204,102)
Interest Expense, Net (3,177)
Loss Before Income Tax Benefit (207,279)
Income Tax Benefit 1,190
-----------
Net Loss (206,089)
Retained Earnings--Beginning of Year 251,787
-----------
Retained Earnings--End of Year $ 45,698
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
DATA ARCHIVE SERVICES, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MAY 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Cash Flows From Operating Activities:
Net Loss $(206,089)
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 38,285
Loss on Abandonment of Assets 26,725
Increase in Accounts Receivable (82,260)
Increase in Inventories (1,146)
Increase in Prepaid Expenses (6,538)
Increase in Income Taxes Receivable (34,485)
Decrease in Due from Related Party 49,793
Decrease in Other Assets 29,875
Increase in Accounts Payable 166,391
Increase in Accrued Expenses 72,577
Increase in Deferred Revenue 52,710
Increase in Income Taxes Payable 6,624
---------
Total Adjustments 318,551
---------
Net Cash Provided by Operating Activities 112,462
---------
Cash Flows From Investing Activities:
Property, Plant and Equipment Expenditures (369,522)
Cash Flows From Financing Activities:
Advances from Stockholder 288,050
Repayments to Stockholder (122,896)
Proceeds from Line of Credit 100,000
Proceeds from Lease and Installment Obligations 150,337
Repayments on Lease and Installment Obligations (48,190)
---------
Net Cash Provided by Financing Activities 367,301
---------
Net Increase in Cash 110,241
Cash at Beginning of Year 45,194
---------
Cash at End of Year $ 155,435
=========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Year for Interest $ 7,485
=========
Cash Paid During the Year for Income Taxes $ 13,443
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
DATA ARCHIVE SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
MAY 31, 1996
NOTE 1--NATURE OF BUSINESS
The accompanying financial statements represent the combined accounts of
Data Archive Services, Inc. and Data Archive Services of Miami, Inc.
(Affiliate). Data Archive Services, Inc. is a Records Management Company
providing storage and related services primarily in Dade, Broward and Palm
Beach Counties.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Combination
The financial statements reflect the financial position and results of
operations of Data Archive Services, Inc. and Affiliate on a combined basis.
All significant intercompany balances and transactions have been eliminated.
b. Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line and declining balance methods with the following useful lives:
<TABLE>
<CAPTION>
<S> <C>
Years
-----
Leasehold Improvements 14-20
Shelving 8-33
Vaults and Security Systems 8-10
Office Furniture and Equipment 5- 7
Vehicle 6
</TABLE>
Expenditures for repairs and maintenance are charged to expense as
incurred. Expenditures for major renewals and betterments, which
significantly extend the useful lives of existing property and equipment, are
capitalized and depreciated. Upon retirement or disposition of property and
equipment, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in income.
c. Allowance for Doubtful Trade Receivables
Bad debts are accounted for on the reserve method. As at May 31, 1996, no
reserve for doubtful accounts was required.
d. Revenue Recognition
Storage and service revenues are recognized in the month the respective
service is provided. Storage material sales are recognized when shipped to
the customer. Amounts related to future storage for customers when storage
fees are billed in advance are accounted for as deferred revenue and
amortized over the applicable period. These amounts are included in deferred
revenue in the accompanying financial statements.
e. Inventories
Inventories are carried at the lower of cost using the first-in, first-out
basis, or market and are comprised primarily of boxes.
f. Cash and Cash Equivalents
The Company defines cash and cash equivalents to include cash on hand and
cash invested in short-term securities which have original maturities of less
than 90 days.
F-54
<PAGE>
DATA ARCHIVE SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
g. Financial Statements Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reporting of assets and liabilities as of the
dates of the financial statements and revenues and expenses during the
reporting period. Actual results may differ from these estimates.
h. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting For Income
Taxes". Under SFAS No. 109, an asset and liability approach is required. Such
approach results in the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
book carrying amounts and the tax basis of assets and liabilities.
NOTE 3--LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
<S> <C>
Long-Term Liabilities consist of the following:
Line of Credit with Bank--$100,000
Line of Credit Secured by Substantially all of the Assets. Interest, Paid Monthly,
Calculated at 1% above Published Prime. Principal Balance is due and Payable
March 22, 1997 $100,000
Financing, Primarily for Shelving
Principal and Interest Calculated at 12.27%, Paid in Monthly Installments of 140,552 (A)
$3,184
Other Financing for Shelving, Equipment, and a Vehicle. Principal and Interest
Ranging from 9.82% to 13.19%, Paid in Monthly Installments of $734 11,863
--------
Long-Term Liabilities 252,415
Less: Current Portion 129,407
--------
Long-Term Liabilities, Net of Current Portion $123,008
========
</TABLE>
The scheduled repayment of long-term liabilities is as follows:
<TABLE>
<CAPTION>
Year Amount
- ----- ---------
<S> <C>
1997 $129,407
1998 27,891
1999 30,144
2000 32,000
2001 32,973
---------
$252,415
=========
</TABLE>
(A) This obligation is non-cancelable with no offset. Therefore the payoff
amount, if Data Archive Services, Inc. cancels this agreement, is
based upon the remaining payments. The cancellation amounts versus the
outstanding indebtedness for the 12 months ended May 31 are as
follows:
<TABLE>
<CAPTION>
Number of
Remaining Outstanding Cancellation
Year Payments Indebtedness Indebtedness
- ----- ------- ------------ ------------
<S> <C> <C> <C>
1996 59 $140,552 $187,856
1997 47 118,363 149,648
1998 35 93,294 111,440
1999 23 64,971 73,232
2000 11 32,971 35,024
</TABLE>
F-55
<PAGE>
DATA ARCHIVE SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
NOTE 4--CONTINGENCIES AND COMMITMENTS
Obligations Under Operating Leases
Data Achive Services, Inc. presently leases all its facilities under
various operating leases. Several of these leases have renewal options of
three (3) years and have consumer price index escalation clauses. The company
also leases computer equipment and warehouse equipment under operating leases
expiring at various dates within a two (2) year period. Rent expense for the
year ended May 31, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Rent--Premises $432,742
========
Rent--Computer and Warehouse
Equipment $ 91,537
========
</TABLE>
Minimum future lease payments for the 12 months ended May 31, are as
follows:
<TABLE>
<CAPTION>
Lease
Computer
and
Lease Warehouse
Year Premises Equipment
- ----------- --------- ----------
<S> <C> <C>
1997 $ 358,263 $ 79,658
1998 356,291 32,840
1999 356,291 --
2000 356,291 --
2001 356,291 --
Thereafter 3,767,123 --
---------- --------
$5,550,550 $112,498
========== ========
</TABLE>
Certain of the operating leases contracted for by the companies are
contracted with the controlling shareholder of the companies. This is
discussed more fully in Note 7 "Transactions With Related Parties".
Concentration of Credit Risk
Data Archive Services, Inc. maintains its bank accounts with FDIC
financial institutions. As at May 31, 1996, the cash balance in one (1) of
the accounts exceeded the insured limits by approximately $42,000.
NOTE 5--PROFIT SHARING PLAN
Effective January 1, 1995, the Company implemented a profit sharing plan
described in Internal Revenue Code Section 401(k). All employees of the
Company are eligible to participate once they meet the eligibility and
participation requirements of the plan. Employees become eligible for
participation in the plan after attaining age 21 and completing 12 months of
service.
Under the terms of the plan, participants may contribute a portion of
their compensation to the plan on a tax deferred basis. Employee
contributions may be made with a maximum deferral up to 15 percent of
compensation, not to exceed the annual limitations established by the
Treasury.
The Company is required to make contributions to the plan, but the amount
of the contribution is determined by the Company. During the year ended
May 31, 1996, the Company contributed $12,013 to the plan.
NOTE 6--CAPITAL STOCK
Common stock of Data Archive Services, Inc. has a par value of $1.00 per
share; 1,000 shares are authorized, issued and outstanding. Common stock of
Data Archive Services of Miami, Inc. (Affiliate) has a par value of $0.01 per
share; 1,000,000 shares are authorized, issued and outstanding. There have
been no changes in the capital stock of both companies during the fiscal year
ended May 31, 1996.
F-56
<PAGE>
DATA ARCHIVE SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
NOTE 7--TRANSACTIONS WITH RELATED PARTIES
P. Douglas McCraw, chief operating officer and controlling shareholder of
Data Archive Services, Inc. has entered into certain lease and loan
arrangements with the companies. The Companies have entered into various
lease and loan arrangements either through Mr. McCraw or other companies
controlled by Mr. McCraw.
These lease and loan arrangements are as follows:
<TABLE>
<CAPTION>
Number
Lease of Months Total
Expense Remaining Lease
Lessor and Description May 31, 1996 on Lease Obligation
- ----------------------------------------------- ------------ --------- ----------
<S> <C> <C> <C>
DAS Imaging Systems, Inc.
Computer Equipment $73,140 17 $ 103,615
P. Douglas McCraw
Ft. Lauderdale Storage Facility 22,366 238 4,478,446
Galt Ocean Mile Partnership
Ft. Lauderdale Storage Facility 27,943 87 120,147
P. Douglas McCraw Month to
Lower Matecumbe Facility 10,845 Month --
P. Douglas McCraw
Miami Storage Facility 84,241 84 628,766
P. Douglas McCraw
Miami Storage Facility 28,603 160 321,221
Receivables from and Payables to Related
Parties:
Loan Receivable from:
DAS Imaging Systems, Inc. $ 19,379
==========
Loan Payble to:
P. Douglas McCraw--Non-Interest
Bearing Loan $ 165,154
==========
Amounts Included in Accounts Payable:
P. Douglas McCraw--Lease--Miami
Storage Facilities $ 27,559
Galt Ocean Mile Partnership--Lease
Ft. Lauderdale Storage Facility 7,308
P. Douglas McCraw--Lease--Other
Facilities 4,518
----------
$ 39,385
==========
</TABLE>
NOTE 8--INCOME TAXES
The income tax benefit (provision) consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Current Federal Credit $ 24,615
Current Federal Provision (18,532)
Current State Provision (4,893)
--------
Total Current Credit $ 1,190
========
</TABLE>
At May 31, 1996, there are no temporary differences which would give rise
to deferred tax assets and liabilities except as follows. Data Archive
Services, Inc. has a federal operating loss carryforward of $167,621, and a
state
F-57
<PAGE>
DATA ARCHIVE SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
operating loss carryforward of $318,682, which will expire in 2011.
Realization of the deferred tax asset of $118,000 associated with the loss
carryforwards is dependent upon the future earnings of the Company. Because
of the uncertainty of realization of this asset, a valuation allowance has
been recognized for the entire deferred tax asset.
NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." These estimates have
been determined by the Company using available market information and
appropriate valuation techniques based on information as of May 31, 1996. As
considerable judgment is inherent in the development of these estimates, they
are not necessarily indicative of the amounts that the companies could
realize in the current market exchange.
The recorded amounts and fair values are as follows:
<TABLE>
<CAPTION>
May 31, 1996
--------------------
Recorded Fair
Amount Value
-------- ---------
<S> <C> <C>
Assets:
Cash $155,435 $155,435
Due from Related Party 19,379 19,379
Liabilities:
Current Portion of Long-Term
Liabilities 129,407 129,407
Long-Term Liabilities 123,008 123,008
</TABLE>
NOTE 10--SIGNIFICANT COMPONENTS OF COMBINED FINANCIAL STATEMENTS
The significant components of the entities, before elimination, comprising
the combined financial statements are as follows:
<TABLE>
<CAPTION>
Data
Archive Data Archive
Services, Services of
Inc. Miami, Inc.
----------- ------------
<S> <C> <C>
Total Assets $ 953,885 $255,729
========== ========
Total Liabilities $1,000,747 $102,119
========== ========
Total
Stockholders'
Equity
(Deficit) $ (46,862) $153,610
========== ========
Net Income (Loss) $ (276,619) $ 70,530
========== ========
</TABLE>
NOTE 11--SUBSEQUENT EVENTS
Effective August 1, 1996, the Stockholders sold all of the outstanding
capital stock of the Companies to Iron Mountain Records Management, Inc. All
debt of the Company will be repaid from the proceeds of the sale.
F-58
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Iron Mountain Incorporated:
We have audited the accompanying balance sheet of Data Storage Systems,
Inc. (a California corporation) as of December 31, 1995, and the related
statements of operations, shareholders' deficit and cash flows for the year
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Data Storage Systems,
Inc. as of December 31, 1995 and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
San Jose, California
May 17, 1996
F-59
<PAGE>
DATA STORAGE SYSTEMS, INC.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current Assets:
Cash $ 185,278
Accounts receivable 243,923
Prepaid expenses and other 23,624
-----------
Total current assets 452,825
Property and Equipment:
Equipment and improvements 1,020,762
Less- Accumulated depreciation 828,074
-----------
Net property and equipment 192,688
Other Assets 12,297
-----------
Total assets $ 657,810
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 27,822
Accrued liabilities 70,876
Deferred revenue 65,504
Notes payable 993,402
Accrued interest 313,875
-----------
Total current liabilities 1,471,479
-----------
Shareholders' Deficit:
Series A preferred stock, no par value-
Authorized--1,000,000 shares
Outstanding--1,000,000 shares 1,000,000
Series B preferred stock, no par value-
Authorized--500,000 shares
Outstanding--266,666 shares 365,333
Series C preferred stock, no par value-
Authorized--2,000,000 shares
Outstanding--1,083,334 shares 650,000
Common stock, no par value-
Authorized--137,000,000 shares
Outstanding--110,756,630 shares 1,178,967
Accumulated deficit (4,007,969)
-----------
Total shareholders' deficit (813,669)
-----------
Total liabilities and shareholders'
deficit $ 657,810
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
DATA STORAGE SYSTEMS, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Storage $ 739,177
Service and storage material sales 586,673
----------
1,325,850
----------
Operating Expenses:
Cost of sales (excluding
depreciation) 556,092
Selling, general, and administrative 316,905
Depreciation and amortization 131,314
----------
Total operating expenses 1,004,311
----------
Operating Income 321,539
Interest Expense 127,477
----------
Net income $ 194,062
==========
</TABLE>
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Series A Series B Series C Total
Preferred Preferred Preferred Common Accumulated Shareholders'
Stock Stock Stock Stock Deficit Deficit
--------- --------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $1,000,000 $365,333 $650,000 $ 79,333 $(4,202,031) $(2,107,365)
Issuance of common stock
on conversion of notes
payable -- -- -- 1,099,634 -- 1,099,634
Net income -- -- -- -- 194,062 194,062
---------- -------- -------- ---------- ----------- -----------
Balance at December 31, 1995 $1,000,000 $365,333 $650,000 $1,178,967 $(4,007,969) $ (813,669)
========== ======== ======== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
DATA STORAGE SYSTEMS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net income $ 194,062
Adjustments to reconcile net income to net cash
used in operating activities--
Depreciation and amortization 69,575
Net changes in assets and liabilities-
Accounts receivable 2,361
Inventory (3,300)
Prepaids and other 12,337
Accounts payable (142,056)
Accrued liabilities (179,529)
--------
Net cash used in operating activities (46,550)
--------
Cash Flows from Financing Activities:
Proceeds from notes payable 206,258
--------
Net Increase in Cash 159,708
Cash at Beginning of Period 25,570
--------
Cash at End of Period $ 185,278
=========
Supplemental Disclosure of Noncash Financing Activities:
The Company issued 109,963,296 shares of common stock on conversion of
notes payable amounting to $1,099,634
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
DATA STORAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION OF THE COMPANY:
Data Storage Systems, Inc. (a California corporation) operates a
records-storage warehouse in San Jose, California.
The Company entered into a merger agreement with Iron Mountain
Incorporated in November 1995. The merger was effective as of February 29,
1996. Iron Mountain is the surviving entity and the Company became a wholly
owned subsidiary of Iron Mountain.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with an original maturity of 90 days or less to be
cash equivalents.
Equipment and Improvements
Equipment and improvements are stated at cost and depreciated using the
straight-line method over the estimated useful lives (ranging from three to
seven years) or over the shorter of the estimated useful life of the asset or
its lease term for leasehold improvements. Equipment and improvements consist
of the following:
<TABLE>
<CAPTION>
<S> <C>
Warehouse
equipment $ 931,814
Office equipment 68,006
Improvements 20,942
----------
$1,020,762
==========
</TABLE>
Revenue Recognition
Revenue is recognized ratably over the time that the Customer's records
are in storage. Customers are billed one month in advance for storage and in
arrears for service. Advance billings for storage are recorded as deferred
revenue.
Income Taxes
The Company accounts for income taxes pursuant to the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS 109). SFAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined using the current
applicable enacted tax rate and provisions of the enacted tax law.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
3. NOTES PAYABLE AND RELATED PARTIES:
At December 31, 1995, the Company had several notes payable totaling
$993,402 to shareholders with varying interest rates ranging from 10.0% to
18.8%. These notes are payable upon demand. The fair value of the notes
F-63
<PAGE>
DATA STORAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
payable does not materially differ from the carrying value. On February 29,
1996, these notes and the related accrued interest were converted to shares
of common stock in connection with the acquisition of the Company by Iron
Mountain, Inc.
4. PREFERRED STOCK:
Series A, Series B, and Series C Convertible Preferred Stock
The Convertible Preferred Stock outstanding consists of 1,000,000,
266,666, and 1,083,334 shares of Series A Convertible Preferred Stock
("Series A"), Series B Convertible Preferred Stock ("Series B"), and Series C
Convertible Preferred Stock ("Series C"), respectively.
The rights and preferences of the Series A, Series B and Series C
Convertible Preferred Stock are as follows:
Dividends
The holders of the Series C shall be entitled when and if declared by the
Board of Directors, to dividends at a rate of $0.05 per share, per annum,
payable in preference and priority to payment of any dividend to the holders
of Series A, Series B or Common Stock. The holders of the Series A shall be
entitled when and if declared by the Board of Directors, to dividends at a
rate of $0.09 per share, per annum, payable in preference and priority to
payment of any dividend to the holders of Series B or Common Stock. The
holders of the Series B shall be entitled when and if declared by the Board
of Directors, to dividends at a rate of $0.12 per share, per annum, payable
in preference and priority to payment of any dividend to the holders of
Common Stock. After an equal amount per share has been paid on all Common and
Preferred Stock, the holders of Series B shall be entitled to dividends in an
amount per share equal to any further dividend on Common Stock. Dividends are
not cumulative.
Liquidation Preference
In the event of any liquidation, dissolution, or winding up of the
Company, either voluntary or involuntary, distributions to the shareholders
of the Company shall be made in the following manner:
The holders of the Series C shall be entitled to receive, prior and in
preference to any distribution of any assets or surplus funds of the Company
to the holders of the Series A, Series B or Common Stock, an amount equal to
$0.60 per share for each share of Series C held by them. If the assets and
funds are insufficient to permit the payment of the entire preferential
amount, then the entire assets and funds legally available for distribution
shall be distributed ratably among the holders of Series C.
The holders of the Series A shall be entitled to receive, prior and in
preference to any distribution of any assets or surplus funds of the Company
to the holders of the Series B or Common Stock, an amount equal to $1.00 per
share for each share of Series A held by them. If the remaining assets and
funds are insufficient to permit the payment of the entire preferential
amount, then the entire assets and funds legally available for distribution
shall be distributed ratably among the holders of Series A.
The holders of the Series B shall be entitled to receive, prior and in
preference to any distribution of any assets or surplus funds of the Company
to the holders of Common Stock, an amount equal to $1.37 per share for each
share of Series B held by them. If the remaining assets and funds are
insufficient to permit the payment of the entire preferential amount, then
the entire assets and funds legally available for distribution shall be
distributed ratably among the holders of Series B.
After the distribution of the preferential amounts to the preferred
shareholders, the holders of Common Stock shall be entitled to receive an
amount equal to $0.40 per share for each share of Common Stock held by them.
After the aforementioned distributions to the holders of Preferred and Common
Stock, all remaining assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of Common and
F-64
<PAGE>
DATA STORAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Preferred Stock based on the number of shares of Common, Series A, B and C
(on an as converted basis) then issued and outstanding.
Conversion
Each share of Series A, B and C shall be convertible into the number of
shares of Common Stock which results from dividing $1.00 in the case of
Series A and B, and $0.60 in the case of Series C by the conversion price per
share applicable to such series of Preferred Stock at the time of conversion.
The conversion rate is subject to adjustment for anti-dilution as defined in
the Certificate of Incorporation.
Each share of Series A, B and C shall automatically be converted into
shares of Common Stock immediately upon the closing of the issuance of shares
following the effectiveness of a registration statement under the Securities
Act of 1933 when the net proceeds equal or exceed $5,000,000 and the price
per share of Common Stock is not less than $4.00.
Additionally, Series B shall automatically be converted into shares of
Common Stock: (1) immediately upon the closing of any sale or sales of its
Preferred Stock when the aggregate gross proceeds equal or exceeds $1,000,000
and the price per share of Preferred Stock is not less than $1.00, (2) the
last day of any fiscal year in which the Company realizes gross revenues of
at least $1,000,000 and (3) the last day of any fiscal year in which the
Company realizes after-tax operating income of at least $200,000. Because of
the pending merger of the Company, no conversion of the Series B took place.
5. COMMITMENTS:
The Company leases its facility under an operating lease which expires in
December 1997. Future minimum rental payments as of December 31, 1995 under
this lease are $432,000, ($216,000 for 1996 and $216,000 for 1997). Facility
rent expense for the year ended December 31, 1995 was $218,420.
6. INCOME TAXES:
As of December 31, 1995, the Company had Federal net operating loss
("NOL") carryforwards for tax purposes of approximately $2,538,548 which
expire in fiscal years 2004 and 2008. The Company had a net deferred tax
asset at December 31, 1995 of approximately $1,057,000. Realization of the
deferred tax asset is dependent upon the Company achieving adequate levels of
taxable income. A valuation allowance has been recognized against the entire
net deferred tax asset because of uncertainty of realization of the asset.
The use of the NOL is limited to maximum amounts each year as a result of the
change in control to Iron Mountain.
F-65
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Iron Mountain Incorporated:
I have audited the accompanying balance sheet of DataVault Corporation as of
December 31, 1995 and the related statements of income and accumulated
deficit, and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DataVault Corporation as of
December 31, 1995 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
Robert F. Gayton, CPA
Natick, Massachusetts
August 7, 1996
F-66
<PAGE>
DATAVAULT CORPORATION
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash $ 115,492
Accounts receivable 315,555
Prepaid expenses and supplies 45,828
----------
Total current assets 476,875
Property, Plant and Equipment (Note 2):
Land 130,000
Building and improvements 1,224,857
Furniture and equipment 1,125,925
----------
2,480,782
Less--Accumulated depreciation 1,228,376
----------
Property, plant and equipment, net 1,252,406
Other Assets:
Customer acquisition costs 45,600
Deferred financing costs 49,014
----------
Total other assets 94,614
----------
Total Assets $1,823,895
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 44,450
Accounts payable 17,890
Deferred income 47,438
----------
Total current liabilities 109,778
Long-Term Debt (Note 2):
Mortgage note payable--bank 665,076
Mortgage note payable--bank 70,001
Mortgage note payable--SBA 609,003
Equipment notes payable 7,558
----------
1,351,638
Less--Current portion 44,450
----------
Total long-term debt, net of current
portion 1,307,188
Notes Payable to Stockholder (Note 3) 379,499
----------
Total Liabilities 1,796,465
----------
Commitments and Contingencies (Note 4)
Stockholders' Equity:
Common stock, no par value --
Authorized--30,000 shares
Issued and outstanding--15,000 shares 7,500
Additional paid-in capital 50,000
Accumulated deficit (30,070)
----------
Total Stockholders' Equity 27,430
Total Liabilities and Stockholders' Equity $1,823,895
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
DATAVAULT CORPORATION
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Revenue:
Storage $1,637,995
Service 519,479
----------
Total revenue 2,157,474
Operating Expenses:
Cost of sales (excluding depreciation) 410,860
Selling, general and administrative 1,333,609
Depreciation and amortization 198,901
----------
Total operating expenses 1,943,370
----------
Operating Income 214,104
Interest Expense 124,270
----------
Income before income tax 89,834
Provision for State Income Tax 456
----------
Net income 89,378
Cash distribution of Subchapter S
Earnings (24,309)
Accumulated Deficit--Beginning (95,139)
----------
Accumulated Deficit--Ending $ (30,070)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
DATAVAULT CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash Flows From Operating Activities:
Net income $ 89,378
Adjustments to reconcile net income to cash provided by operating
activities--
Depreciation and amortization 198,901
Changes in:
Accounts receivable 28,467
Prepaid expenses and supplies 27,626
Accounts payable (23,081)
Deferred income (1,356)
---------
Cash provided by operating activities 319,935
Cash Flows From Investing Activities:
Acquisition of fixed assets (43,970)
Cash Flows from Financing Activities:
Repayment of notes (184,915)
Repayment of shareholder loan (67,598)
Distribution of Subchapter S earnings (24,309)
---------
Cash used by financing activities (276,822)
Net decrease in cash (857)
Cash--beginning of year 116,349
---------
Cash--end of year $ 115,492
=========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 124,270
Cash paid for taxes 456
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
DATAVAULT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization--DataVault Corporation (the Company) is a Massachusetts
corporation. The Company provides record storage and management services in
the New England area.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition--Revenue is recognized when the services are provided.
Amounts related to future storage that have been billed in advance are
recorded as deferred revenue and recognized over the applicable period.
Plant and Equipment--Plant and equipment are recorded at cost. Maintenance
and repairs are charged to expense and major improvements are capitalized.
Depreciation is computed on the straight line and declining balance methods
over estimated useful lives as follows:
<TABLE>
<CAPTION>
<S> <C>
Building and improvements 15-31 years
Furniture and fixtures 5 years
Equipment 5 years
</TABLE>
Deferred Costs--Deferred financing costs are amortized over the life of
the related debt. Customer acquisition costs related to the initial transfer
of records are amortized over the term of the initial storage agreement.
Income Taxes--The Company has elected to be taxed as a Small Business
Corporation. Accordingly, net income and other items of Federal and state tax
significance are reported on the income tax returns of the individual
shareholders.
NOTE 2--LONG-TERM DEBT
During 1993, the Company constructed an addition to the records storage
facility. The Company refinanced the existing mortgage loan in conjunction
with supplemental financing for the addition. The refinanced mortgage will be
paid in monthly installments over a 20 year period. The interest rate will be
9% adjustable every three years with initial monthly payments of $6,361.
The additional bank mortgage note of $70,001 is due in monthly
installments of $640 over 20 years at an interest rate of 8.75%, adjustable
every three years.
Additional financing for the records storage facility has been obtained
from Bay Colony Development Corp., a Certified Development Company. This
financing has been funded by debentures issued by the development company and
guaranteed by the Small Business Administration. Monthly payments of $5,290
will be made over 20 years and include interest at 6.359% and a service fee.
The mortgage notes are secured by land, buildings and business assets of
the Corporation and the personal guaranty of the sole shareholder.
The equipment notes are payable in monthly installments of approximately
$2,100 over various periods up to five years at interest rates from 8% to
14%. The notes are secured by certain furniture and equipment.
F-70
<PAGE>
DATAVAULT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1995
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Amount
- ----------- ----------
<S> <C>
1996 $ 44,450
1997 38,660
1998 40,570
1999 42,610
2000 44,800
Thereafter 1,140,548
----------
$1,351,638
==========
</TABLE>
The fair value of the Company's assets and liabilities which qualify as
financial instruments under Statement of Financial Accounting Standards No.
107, "Disclosures about Fair Value of Financial Instruments", approximates
the carrying value of amounts presented in the balance sheet.
NOTE 3--NOTES PAYABLE TO STOCKHOLDER
Stockholder notes are due on demand, bear interest at rates varying from
7.5% to 12% and are subordinated to mortgage and term notes payable.
NOTE 4--COMMITMENTS AND CONTINGENCIES
In addition to the storage facility referred to in Note 2, the Company
operates an additional data storage facility and maintains its corporate
headquarters in premises leased through the year 2000 at an annual rental of
approximately $84,000.
NOTE 5--RENTALS UNDER STORAGE AGREEMENTS
The following is a schedule by years of approximate minimum future rentals
under non-cancellable storage agreements as of December 31, 1995:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1996 $ 1,345,000
1997 1,183,000
-----------
$ 2,528,000
===========
</TABLE>
NOTE 6--SUBSEQUENT EVENT
Effective February 1, 1996, the Company sold all of its assets to Iron
Mountain Records Management, Inc. All debt was repaid from the proceeds of
the sale.
F-71
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors
Iron Mountain Incorporated:
We have audited the accompanying balance sheet of International Record
Storage and Retrieval Service, Inc. as of December 31, 1995 and the related
statements of operations, stockholders' deficit, and cash flows for the year
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Record Storage
and Retrieval Service, Inc. as of December 31, 1995, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Rothstein, Kass & Company, P.C.
Roseland, New Jersey
July 19, 1996
F-72
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 134,340 $ 66,151
Accounts receivable, less allowance for doubtful
accounts of $16,000 in 1995 and 1996 255,276 264,020
Inventories 13,505 12,997
Prepaid expenses and other 24,690 33,576
----------- -----------
Total current assets 427,811 376,744
Equipment and improvements, less accumulated depreciation
of $244,831 in 1995 and $277,428 in 1996 437,522 452,340
Deferred income taxes 171,000 160,000
Other assets 21,667 21,667
----------- -----------
$ 1,058,000 $ 1,010,751
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 13,474 $ 14,459
Accounts payable 5,449 31,757
Accrued expenses 62,558 69,714
Due affiliates 617,173 513,261
Deferred income 86,096 89,529
Deferred compensation, current portion 40,401 41,940
----------- -----------
Total current liabilities 825,151 760,660
----------- -----------
Notes payable, net of current portion 7,572 --
Deferred compensation, net of current portion 772,518 751,156
Deferred rent 236,035 233,254
Commitments and contingency
Stockholders' deficiency:
Common stock, no par value, authorized, issued and
outstanding 100 shares 100 100
Additional paid-in capital 970,792 970,792
Accumulated deficit (1,754,168) (1,705,211)
----------- -----------
Total stockholders' deficiency (783,276) (734,319)
----------- -----------
$ 1,058,000 $ 1,010,751
=========== ===========
</TABLE>
See independent public accountants' report and notes to financial statements.
F-73
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Year Six Months Ended
Ended June 30,
December 31, --------------------------
1995 1995 1996
----------- ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues:
Storage $ 962,463 $ 462,275 $ 528,604
Service and storage material sales 620,428 322,215 312,739
----------- ----------- -----------
Total revenues 1,582,891 784,490 841,343
----------- ----------- -----------
Operating expenses:
Costs of sales (excluding depreciation) 790,127 380,347 430,969
Selling, general and administrative 427,748 212,704 247,085
Depreciation and amortization 72,723 36,065 34,741
----------- ----------- -----------
Total operating expenses 1,290,598 629,116 712,795
----------- ----------- -----------
Operating income 292,293 155,374 128,548
Interest expense 66,681 34,536 32,591
----------- ----------- -----------
Income before provision for income taxes 225,612 120,838 95,957
Provision for income taxes 21,000 13,000 11,000
----------- ----------- -----------
Net income 204,612 107,838 84,957
Accumulated deficit:
Beginning of period (1,908,780) (1,908,780) (1,754,168)
Dividends (50,000) -- (36,000)
----------- ----------- -----------
End of period $(1,754,168) $(1,800,942) $(1,705,211)
========== =========== ===========
</TABLE>
See independent public accountants' report and notes to financial statements.
F-74
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Six Months Ended
Ended June 30,
December 31, ----------------------
1995 1995 1996
--------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 204,612 $ 107,838 $ 84,957
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful accounts 8,000 8,000 --
Depreciation 72,723 36,065 34,741
Provision for deferred income taxes 21,000 13,000 11,000
Gain on disposal of property and equipment (7,468) (7,468) --
Increase (decrease) in cash attributable to changes
in assets and liabilities:
Accounts receivable (102,421) (82,045) (8,744)
Inventories 1,825 (4,824) 508
Prepaid expenses and other (22,921) (33,881) (8,886)
Accounts payable (8,110) 40,228 26,308
Accrued expenses 42,810 27,031 7,156
Deferred income 13,016 8,074 3,433
Deferred compensation and other liabilities (50,195) (31,099) (19,823)
Deferred rent 20,452 5,281 (2,781)
--------- --------- ---------
Net Cash Provided by Operating Activities 193,323 86,200 127,869
--------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from the sale of property and equipment 17,565 17,565 --
Acquisitions of property and equipment (67,810) (67,027) (49,559)
--------- --------- ---------
Net Cash used in Investing Activities (50,245) (49,462) (49,559)
--------- --------- ---------
Cash Flow from Financing Activities:
Repayment of notes payable (59,089) (42,814) (6,587)
Advances from (repayments to) affiliates 81,310 61,673 (103,912)
Dividends paid (50,000) -- (36,000)
--------- --------- ---------
Net Cash Provided by (used in) Financing Activities (27,779) 18,859 (146,499)
--------- --------- ---------
Increase (Decrease) in Cash 115,299 55,597 (68,189)
Cash, beginning of period 19,041 19,041 134,340
--------- --------- ---------
Cash, end of period $ 134,340 $ 74,638 $ 66,151
========= ========= =========
Supplemental Disclosure of Cash Flow Information, cash
paid during the period for interest $ 66,681 $ 34,536 $ 32,591
========= ========= =========
</TABLE>
See independent public accountants' report and notes to financial statements.
F-75
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--NATURE OF BUSINESS:
The Company is engaged principally in the storage of records for customers
in the New Jersey-New York area and providing ancillary services in
conjunction with such records.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Storage and service revenues are recognized in the month the respective
service is provided. Storage material sales are recognized when shipped to
the customer. The Company invoices storage charges to its customers in
advance and these advanced billings are recorded as accounts receivable and
the related revenues are included as deferred income in the accompanying
financial statements.
Inventories
Inventories are carried at the lower of cost or market using the first-in
first-out basis or market and are comprised primarily of cartons.
Income Taxes
The Company has elected to be treated as an "S" Corporation under the
applicable sections of the Internal Revenue Code. Under these sections,
corporate income or loss is allocated to the stockholders for inclusion in
their personal income tax returns. Accordingly, there is no provision for
federal income tax in the accompanying financial statements. State income
taxes are recorded in accordance with Statement of Financial Accounting
Standards No. 109.
Equipment and Improvements
Equipment and improvements are stated at cost and depreciated using the
straight-line method with the following useful lives:
<TABLE>
<CAPTION>
<S> <C>
Office Equipment 5 years
Transportation equipment 5 to 10 years
Shelving and warehouse improvements 10 to 15 years
</TABLE>
Impairment of Long-Lived Assets
The Company periodically assesses the recoverability of the carrying
amounts of long-lived assets, including intangible assets. A loss is
recognized when expected undiscounted future cash flows are less than the
carrying amount of the asset. The impairment loss is the difference by which
the carrying amount of the asset exceeds its fair value.
Deferred Rent
The Company's lease for its building used in the storage of records has
fixed escalation clauses which require the normalization of rental expense
over the life of the lease, resulting in deferred rent being reflected in the
accompanying balance sheets.
F-76
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities which qualify as
financial instruments under Statement of Financial Accounting Standards
(SFAS) No. 107, "Disclosures about Fair Value of Financial Instruments",
approximates the carrying amounts presented in the balance sheets.
Unaudited Financial Statements
The unaudited financial statements included herein have been prepared in
accordance with generally accepted accounting principles. In the opinion of
management, the unaudited financial statements include all adjustments of a
normal and recurring nature which are necessary for a fair presentation. The
results of operations for the six months ended June 30, 1995 and 1996 are not
necessarily indicative of the results expected for the full year.
NOTE 3--EQUIPMENT AND IMPROVEMENTS:
Equipment and improvements consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Office equipment $ 97,919 $ 106,427
Transportation equipment 108,217 108,217
Shelving and warehouse
improvements 476,217 515,124
--------- ---------
682,353 729,768
Less accumulated depreciation (244,831) (277,428)
--------- ---------
$ 437,522 $ 452,340
========= =========
</TABLE>
NOTE 4--NOTES PAYABLE:
Long-term debt consists of various loans payable in monthly installments
of approximately $1,200 including interest at rates ranging between 8.4% and
10.2% with the final payment June 1997. The loans are collateralized by
certain equipment.
Aggregate principal payment requirements in each of the years subsequent
to December 31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $13,474
1997 7,572
</TABLE>
NOTE 5--RELATED PARTY TRANSACTIONS:
The Company is affiliated, through common ownership, with a real estate
management company, International Management Services, Inc. (IMS). IMS
provides certain administrative services to the Company under agreements
designed to reimburse IMS for the approximate cost of providing such
services. Amounts due affiliates are non- interest bearing and have no
specific repayment terms.
The Company incurred charges for management fees to IMS of approximately
$90,000 for the year ended December 31, 1995 and $44,000 and $50,000 for the
six months ended June 30, 1995 (unaudited) and 1996 (unaudited),
respectively.
F-77
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 6--DEFERRED COMPENSATION:
The Company is obligated under an Income Continuation agreement dated
October 1, 1994 with a former employee providing for a payment of $100,000
annually for the life of the employee. In 1994, the Company recorded an
expense of $864,297 representing the present value of the benefits for the
employee's life expectancy discounted at the rate of 7.5% per annum. Payments
commenced in September 1994 and amounted to $100,000 for the year ended
December 31, 1995 and $50,000 for each of the six month periods ended June
30, 1995 (unaudited) and 1996 (unaudited).
NOTE 7--INCOME TAXES:
The provision for income taxes in the accompanying statements of
operations consists of the following:
<TABLE>
<CAPTION>
Year Six Months Ended
Ended June 30,
December 31, ----------------------
1995 1995 1996
------------ -------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
State income taxes
deferred $21,000 $13,000 $11,000
======= ======= ========
</TABLE>
A reconciliation of total income tax expense and the amount computed by
applying the state income tax rate of 9% to income before income taxes is as
follows:
<TABLE>
<CAPTION>
Year Six Months Ended
Ended June 30,
December 31, --------------------
1995 1995 1996
------------ -------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Computed "expected" tax provision $20,000 $11,000 $ 9,000
Other 1,000 2,000 2,000
------- ------- -------
$21,000 $13,000 $11,000
======= ======= =======
</TABLE>
The Company has approximately $1,000,000 of net operating loss
carryforwards for state income tax purposes at December 31, 1995. These
carryforwards, which management expects will be fully utilized, expire
through the year 2000.
The components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
Six
Year Months
Ended Ended
December 31, June 30,
1995 1996
------------ ----------
(Unaudited)
<S> <C> <C>
Deferred Tax Assets:
Tax benefit attributable to:
Net operating loss carryforwards $ 89,000 $ 80,000
Deferred rent 21,000 21,000
Deferred compensation 73,000 71,000
Other 2,000 2,000
Deferred tax liability, tax depreciation in excess of book
depreciation (14,000) (14,000)
-------- --------
Net Deferred Tax Asset $171,000 $160,000
======== ========
</TABLE>
F-78
<PAGE>
INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 8--RETIREMENT PLANS:
The Company maintains a 401(k) plan for the benefit of its employees. The
Company contributes to the plan annually, at their discretion, up to 4% of
each participant's compensation. The expense amounted to $4,311 for the year
ended December 31, 1995 and $1,960 and $1,839 for the six months ended June
30, 1995 (unaudited) and 1996 (unaudited), respectively.
NOTE 9--LEASE COMMITMENTS:
The Company occupies general office and warehouse facilities under an
operating lease expiring December 31, 2002, providing for minimum annual
rentals as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996 $ 318,000
1997 318,000
1998 318,000
1999 318,000
2000 350,000
Thereafter 700,000
----------
$2,322,000
==========
</TABLE>
Rent expense for facilities charged to operations was $273,791 for the
year ended December 31, 1995 and $113,556 and $158,506 for the six months
ended June 30, 1995 (unaudited) and 1996 (unaudited), respectively.
NOTE 10--CONTINGENCY
The Company is a defendant in a legal proceeding with the lessor of its
office and warehouse facilities relating to alleged damages suffered in
connection with the cancellation of a proposed sale of the property to a
third party. The claim does not specify an amount of damages and the Company
has responded to the complaint and made a counter claim. It is management's
opinion that the outcome of this litigation will not have a material effect
on the Company's financial position or results of operations.
F-79
<PAGE>
=========================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer made in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any of the Underwriters. This Prospectus does not constitute
an offer to sell or solicitation of an offer to buy any security other than the
Notes offered hereby, nor does it constitute an offer to sell, or a solicitation
of an offer to buy, to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
the information contained herein is correct as of any time subsequent to the
date hereof.
-------------
TABLE OF CONTENTS
Page
Prospectus Summary 3
Summary Historical and Pro Forma
Information 8
Risk Factors 10
The Company 15
The Transactions 15
Recent and Pending Acquisitions 17
Use of Proceeds 18
Capitalization 18
Pro Forma Condensed Consolidated
Financial Information 19
Selected Consolidated Financial and
Operating Information 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 32
Business 42
Management 55
Certain Transactions 60
Principal Stockholders 61
Description of the Notes 63
Description of New Credit Facility 84
Description of Capital Stock 85
Underwriting 86
Validity of the Notes 86
Experts 86
Additional Information 87
Index to Financial Statements F-1
=========================================================
$150,000,000
[TRIANGLE LOGO]
Iron Mountain
Incorporated
% Senior Subordinated Notes
due 2006
-------------
P R O S P E C T U S
-------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Bear, Stearns & Co. Inc.
Prudential Securities Incorporated
, 1996
=========================================================
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission fee $ 51,725
NASD filing fee 15,500
Blue Sky fees and expenses 15,000
Rating Agency fees and expenses *
Printing and engraving fees *
Accountants' fees and expenses *
Legal fees and expenses *
Trustee's fees and expenses *
Miscellaneous *
--------
Total $ *
========
- -------------
* To be completed by amendment.
The foregoing, except for the Securities and Exchange Commission fee
and the NASD filing fee, are estimated.
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL")
provides, in effect, that any person made a party to any action by reason of the
fact that he is or was a director, officer, employee or agent of the Company may
and, in certain cases, must be indemnified by the Company against, in the case
of a non-derivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorney's fees) incurred by him as a result of
such action, and in the case of a derivative action, against expenses (including
attorney's fees), if in either type of action he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company. This indemnification does not apply, in a derivative action, to
matters as to which it is adjudged that the director, officer, employee or agent
is liable to the Company, unless upon court order it is determined that, despite
such adjudication of liability, but in view of all the circumstances of the
case, he is fairly and reasonable entitled to indemnity for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Article Sixth of the Company's Amended and Restated Certificate of
Incorporation provides that the Company shall indemnify each person who is or
was an officer or director of the Company to the fullest extent permitted by
Section 145 of the DGCL.
Article Seventh of the Company's Amended and Restated Certificate of
Incorporation states that no director of the Company shall be liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except to the extent that exculpation from liability is not
permitted under the Delaware General Corporation Law as in effect when such
breach occurred.
Reference is made to Section 7 of the Underwriting Agreement filed as
Exhibit 1 hereto, pursuant to which the underwriters have agreed to indemnify
officers and directors of the Company against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
The Company's Amended and Restated Certificate of Incorporation
provides for 16,000,000 shares of authorized capital stock, each with par value
$.01 per share, as follows: 13,000,000 shares of authorized Common Stock,
1,000,000 shares of authorized Nonvoting Common Stock and 2,000,000 shares of
Preferred Stock. On February 6, 1996, simultaneously with the consummation of
the Company's Initial Public Offering and without any action on the part of the
holders thereof, all outstanding shares of the Company's Series A1 Convertible
Preferred Stock, par value $0.01 per share ("Series A1 Preferred Stock"), Series
A2 Convertible Preferred Stock, par value $0.01 per share, Series A3 Convertible
Preferred Stock, par value $0.01 per share, and Series C Convertible Preferred
Stock, par value $0.01 per share (the "Old Preferred Stock"), was automatically
converted into shares
II-1
<PAGE>
of Common Stock (or, in the case of one holder, shares of Common Stock and
500,000 shares of Nonvoting Common Stock). All of the shares of Common Stock and
Nonvoting Common Stock issued as a result of such conversion were issued by the
Company in reliance on the exemptions provided by Sections 3(a)(9) and 4(2) of
the Securities Act. No commission or other remuneration was paid or given by the
Company directly or indirectly for effecting the exchange.
In 1995, the Company (i) issued options to acquire an aggregate of 162,184
shares of its Class A Common Stock pursuant to its stock option plan to certain
of its officers and employees and (ii) issued to one employee an aggregate of
1,036 shares of Class A Common Stock pursuant to the exercise of stoock options
granted under the Company's stock option plan for an aggregate purchase price of
$200,984. In 1995, the Company also issued options to acquire an aggregate of
65,152 shares of its Common Stock pursuant to its stock option plan to certain
of its officers and employees (which grants were conditioned on the consummation
of the Initial Public Offering). In April 1996, the Company issued options to
acquire an additional 361,452 shares. All securities referred to in this
paragraph were issued by the Company in reliance on the exemption provided by
Section 4(2) of the Securities Act or Rule 701 promulgated thereunder.
On January 31, 1994, one shareholder of the Company exchanged 98,000 shares
of Series A1 Preferred Stock for an equal number of shares of Series A2
Preferred Stock. On November 28, 1995, another shareholder of the Company
exchanged 43,500 shares of Series A1 Preferred Stock for an equal number of
shares of Series A3 Preferred Stock. All such shares were issued by the Company
in reliance on the exemptions provided by Sections 3(a)(9) and 4(2) of the
Securities Act. No commission or other remuneration was paid or given by the
Company directly or indirectly for effecting the exchange.
Item 16. Exhibits and Financial Statement Schedules.
Each exhibit marked by an asterisk (*) is incorporated by reference to the
Company's Registration Statement No. 33-99950 filed with the Securities and
Exchange Commission on December 1, 1995. Each exhibit marked with a double
asterisk (**) is incorporated by reference to Amendment No. 2 to the Company's
Registration Statement filed with the Securities and Exchange Commission on
January 11, 1996. Exhibit 3.2 is incorporated by reference to the Company's
Quarterly Report on Form 10-Q (File No. 0-27584) filed with the Securities and
Exchange Commission on August 14, 1996. Exhibit numbers in parentheses refer to
the exhibit numbers in the applicable filing.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Item Exhibit
- ------- --------------------------------------------------------- -----------------
<S> <C> <C>
1 Form of Underwriting Agreement To be filed by
amendment
3.1 Amended and Restated Certificate of Incorporation of the *(3.1)
Registrant
3.2 By-Laws of the Registrant, as amended (3)
4.1 Registration Rights Agreement between the Registrant * (4.1)
and certain Stockholders, dated as of December 14, 1990
4.2 Form of Indenture for the Notes To be filed by
amendment
5 Opinion of Sullivan & Worcester LLP To be filed by
amendment
10.1 Credit Agreement between the Registrant and Chase * 10.1
Manhattan Bank (N.A.) as Agent, dated as of December
10, 1990, amended and restated as of April 15, 1993
and further amended and restated as of January 31,
1995
10.2 Consent and Amendment No. 1 to the Credit Agreement, * (10.2)
dated as of November 1, 1995 between the Registrant
and Chase Manhattan Bank (N.A.) as Agent
10.3 Consent and Amendment No. 2 to the Credit Agreement, * (10.3)
dated as of November 2, 1995 between the Registrant
and Chase Manhattan Bank (N.A.) as Agent
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Item Exhibit
- ------- ------------------------------------------------------- -----------------
<S> <C> <C>
10.4 Note Purchase Agreement between the Registrant and * (10.4)
Chrysler Capital Corporation, dated as of December 14,
1990, as amended.
10.4A Letter agreement, dated July 15, 1996, between the Filed herewith as
Registrant and Chrysler Capital Corporation Exhibit 10.4A
10.5 Subordinated Term Note between the Registrant and * (10.5)
Schooner Capital Corporation, dated February 11, 1991
10.6 Iron Mountain Incorporated 1995 Stock Incentive Plan * (10.6)
10.7 Form of Iron Mountain Incorporated 1995 Stock Option ** (10.7)
Plan for Non-Employee Directors
10.8 Asset Purchase and Sale Agreement, dated as of July 8, * (10.8)
1994, between Iron Mountain Data Protection Services,
Inc. and Digital Equipment Corporation
10.9 Asset Purchase and Sale Agreement, dated as of October * (10.9)
31, 1994, among Iron Mountain Records Management of
Ohio, Inc., Storage and Retrieval Concepts, Inc.,
Thomas Waldon and Dann Scheiferstein
10.10 Asset Purchase and Sale Agreement, dated as of February * (10.10)
28, 1995, among Iron Mountain Records Management
("IMRM"), National Business Archives, Inc., and James
F. Knott
10.11 Asset Purchase Agreement, dated July 19, 1995, among * (10.11)
IMRM, DataFile Services, Inc. and Cynthia and Lee
Macklin
10.12 Asset Purchase and Sale Agreement, dated as of October * (10.12)
5, 1995, among IMRM, Brooks Records Center, Inc. and
Forty Acres, Ltd.
10.13 Asset Purchase and Sale Agreement, dated as of November * (10.13)
1, 1995, among IMRM, Nashville Vault Company, Ltd. and
USA Vault Corporation
10.14 Asset Purchase and Sale Agreement, dated November 14, * (10.14)
1995, among IMRM, Data Vault Corporation and Ralph
Stoddard III
10.15 Merger Agreement, dated as of November 17, 1995, among * (10.15)
IMRM, Temp DSSI, Inc. and Data Storage Systems, Inc.
10.16 Asset Purchase and Sale Agreement, dated November 17, * (10.16)
1995, among IMRM, Florida Data Bank, Inc., Carl J.
Strang III, Carl J. Strang II and 6/10 Corporation
10.17 Asset Purchase and Sale Agreement, dated November 22, * (10.17)
1995 among IMRM, Data Management Business Records
Storage, Inc. and Outdoor West, Inc.
10.18 Record Center Storage Services Agreement between IMRM * (10.18)
and Resolution Trust Corporation, dated July 31, 1992
10.19 Lease between IMRM and IM Houston (CR) Limited * (10.19)
Partnership, dated January 1, 1991
10.20 Asset Purchase and Sale Agreement, dated July 11, 1996, Filed herewith as
among IMRM, The Fortress Corporation and certain Exhibit 10.20
subsidiaries
10.21 Stock Purchase and Sale Agreement, dated as of August 9 Filed herewith as
1996, among IMRM and the shareholders of Data Archive Exhibit 10.21
Services of Miami, Inc. and Data Archives Services, Inc.
10.22 Asset Purchase and Sale Agreement, dated August 13, Filed herewith as
1996, among IMRM, International Record Storage and Exhibit 10.22
Retrieval Service, Inc. and Laurance Winnerman,
Sanford Winnerman and Penny Novak
11 Statement re: computation of per share earnings Filed herewith as
Exhibit 11
12 Statement re: computation of ratio of earnings to fixed Filed herewith as
charges Exhibit 12
21 Subsidiaries of the Registrant Filed herewith as
Exhibit 21
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Item Exhibit
- ------- --------------------------------------------------- ------------------
<S> <C> <C>
23.1 Consent of Sullivan & Worcester LLP Contained in
Exhibit 5; to be
filed by
amendment
23.2 Consent of Arthur Andersen LLP Filed herewith as
Exhibit 23.2
23.3 Consent of Wolpoff & Company, LLP Filed herewith as
Exhibit 23.3
23.4 Consent of Morrison and Smith Filed herewith as
Exhibit 23.4
23.5 Consent of Geo. S. Olive & Co. LLC Filed herewith as
Exhibit 23.5
23.6 Consent of Robert F. Gayton, CPA Filed herewith as
Exhibit 23.6
23.7 Consent of Perless, Roth, Jonas & Hartney, CPAs, PA Filed herewith as
Exhibit 23.7
23.8 Consent of Rothstein, Kass & Company, P.C. Filed herewith as
Exhibit 23.8
24 Powers of Attorney Contained on
Pages II-6 and
II-7 of the
Registration
Statement
25 Statement re eligibility of trustee To be filed by
amendment
</TABLE>
(b) Financial Statement Schedules
The following Financial Statement Schedule is filed herewith:
Schedule II--Valuation and Qualifying Accounts
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company 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 Company 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 Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the 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 therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Iron Mountain Incorporated has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boston, Commonwealth of Massachusetts, on August 16, 1996.
IRON MOUNTAIN INCORPORATED
By: /s/ C. Richard Reese
-------------------------------------
Name: C. Richard Reese
Title: Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 relating to Iron Mountain Incorporated's
Senior Subordinated Notes and the guarantees thereof has been signed below by
the following persons in the capacities and on the dates indicated; and each of
the undersigned officers and directors of Iron Mountain Incorporated hereby
severally constitutes and appoints C. Richard Reese, David S. Wendell and Eugene
B. Doggett, and each of them, to sign for him or her, and in his or her name in
the capacity indicated below, such Registration Statement for the purpose of
registering such securities under the Securities Act of 1933, as amended, and
any and all amendments thereto, including without limitation any registration
statement or post-effective amendment thereof filed under and meeting the
requirements of Rule 462(b) under the Securities Act, hereby ratifying and
confirming our signatures as they may be signed by our attorneys to such
Registration Statement and any and all amendments thereto.
Signature Title Date
- ------------------------ --------------------------------- ----------------
/s/ C. Richard Reese Chairman of the Board of Directors August 16, 1996
- ------------------------ and Chief Executive Officer
C. Richard Reese
/s/ David S. Wendell President, Chief Operating Officer August 16, 1996
- ------------------------ and Director
David S. Wendell
/s/ Eugene B. Doggett Executive Vice President, Chief August 16, 1996
- ------------------------ Financial Officer and Director
Eugene B. Doggett
August , 1996
Director
- ------------------------
Constantin R. Boden
/s/ Arthur D. Little Director August 16, 1996
- ------------------------
Arthur D. Little
/s/ Vincent J. Ryan, Jr. Director August 16, 1996
- ------------------------
Vincent J. Ryan, Jr.
/s/ Jean A. Bua Vice President and Corporate August 16, 1996
- ------------------------ Controller
Jean A. Bua
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Iron Mountain Records Management, Inc. Metro Business Archives, Inc., Criterion
Atlantic Property, Inc., Criterion Property, Inc., Hollywood Property, Inc., IM
San Diego, Inc., Iron Mountain Information Partners, Inc., Iron Mountain Data
Protection Services, Inc., Iron Mountain Records Management of Maryland, Inc.,
Iron Mountain Records Management of Ohio, Inc., Iron Mountain Wilmington, Inc.,
Data Storage Systems, Inc., Iron Mountain Records Management of Missouri LLC,
Iron Mountain Records Management of Boston, Inc., Data Archive Services, Inc.,
and Data Archive Services of Miami, Inc., have each duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, Commonwealth of Massachusetts, on August
16, 1996.
IRON MOUNTAIN RECORDS MANAGEMENT, INC. IRON MOUNTAIN RECORDS MANAGEMENT OF
METRO BUSINESS ARCHIVES, INC. OHIO, INC.
CRITERION ATLANTIC PROPERTY, INC. IRON MOUNTAIN WILMINGTON, INC.
CRITERION PROPERTY, INC. DATA STORAGE SYSTEMS, INC.
HOLLYWOOD PROPERTY, INC. IRON MOUNTAIN RECORDS MANAGEMENT OF
IM SAN DIEGO, INC. MISSOURI LLC
IRON MOUNTAIN INFORMATION PARTNERS, INC. IRON MOUNTAIN RECORDS MANAGEMENT OF
IRON MOUNTAIN DATA PROTECTION BOSTON, INC.
SERVICES, INC. DATA ARCHIVE SERVICES, INC.
IRON MOUNTAIN RECORDS MANAGEMENT OF DATA ARCHIVE SERVICES OF MIAMI, INC.
MARYLAND, INC.
By: /s/ C. Richard Reese
----------------------------------------
Name: C. Richard Reese
Title: Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 relating to Iron Mountain Incorporated's
Senior Subordinated Notes and the guarantees thereof has been signed below by
the following persons in the capacities and on the dates indicated; and each of
the undersigned officers and directors or managers of Iron Mountain Records
Management, Inc., Metro Business Archives, Inc., Criterion Atlantic Property,
Inc., Criterion Property, Inc., Hollywood Property, Inc., IM San Diego, Inc.,
Iron Mountain Information Partners, Inc., Iron Mountain Data Protection
Services, Inc., Iron Mountain Records Management of Maryland, Inc., Iron
Mountain Records Management of Ohio, Inc., Iron Mountain Wilmington, Inc., Data
Storage Systems, Inc., Iron Mountain Records Management of Missouri LLC, Iron
Mountain Records Management of Boston, Inc., Data Archive Services, Inc., and
Data Archive Services of Miami, Inc., hereby severally constitutes and appoints
C. Richard Reese, David S. Wendell and Eugene B. Doggett, and each of them, to
sign for him or her, and in his or her name in the capacity indicated below,
such Registration Statement for the purpose of registering such securities under
the Securities Act of 1933, as amended, and any and all amendments thereto,
including without limitation any registration statement or post-effective
amendment thereof filed under and meeting the requirements of Rule 462(b) under
the Securities Act, hereby ratifying and confirming our signatures as they may
be signed by our attorneys to such Registration Statement and any and all
amendments thereto.
Signature Title Date
- --------------------- ----------------------------------- ---------------
/s/ C. Richard Reese Chairman of the Board and Director, August 16, 1996
- --------------------- and Chief Executive Officer
C. Richard Reese
/s/ Eugene B. Doggett Executive Vice President and Chief August 16, 1996
- --------------------- Financial Officer, and Manager of
Eugene B. Doggett Iron Mountain Records Management
of Missouri, LLC
/s/ Jean A. Bua Vice President and Corporate August 16, 1996
- --------------------- Controller
Jean A. Bua
II-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Iron Mountain Incorporated:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of Iron Mountain Incorporated
for each of the three years in the period ended December 31, 1995 and have
issued our report thereon dated February 26, 1996. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The
accompanying supplemental schedule is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and regulations under the Securities and Exchange
Act of 1934 and is not a required part of the basic financial statements. The
supplemental schedule has been subjected to the auditing procedures applied in
our audits of the basic financial statements and, in our opinion, is fairly
stated, in all material respects, in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Los Angeles, California
February 26, 1996
S-1
<PAGE>
SCHEDULE II
IRON MOUNTAIN INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1993, 1994 and 1995
(In thousands)
Balance
at Charged Balance
beginning to at end
of year expense Deductions of year
--------- -------- ---------- -------
Year ended December 31, 1993
Allowance for doubtful accounts $424 $581 $(503) $502
Year ended December 31, 1994
Allowance for doubtful accounts $502 $356 $(327) $531
Year ended December 31, 1995
Allowance for doubtful accounts $531 $630 $(510) $651
S-2
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Item Exhibit
- --------- ------------------------------------------------------------- ------------------------
<S> <C> <C>
1 Form of Underwriting Agreement To be filed by
amendment
3.1 Amended and Restated Certificate of Incorporation of the *(3.1)
Registrant
3.2 By-Laws of the Registrant, as amended (3)
4.1 Registration Rights Agreement between the Registrant *(4.1)
andcertain Stockholders, dated as of December 14, 1990
4.2 Form of Indenture for the Notes To be filed by
amendment
5 Opinion of Sullivan & Worcester LLP To be filed by
amendment
10.1 Credit Agreement between the Registrant and Chase Manhattan * 10.1
Bank (N.A.) as Agent, dated as of December 10, 1990,
amended and restated as of April 15, 1993 and further
amended and restated as of January 31, 1995
10.2 Consent and Amendment No. 1 to the Credit Agreement, dated as * (10.2)
Manhattan Bank (N.A.) as Agent
10.3 Consent and Amendment No. 2 to the Credit Agreement, dated as * (10.3)
of November 2, 1995 between the Registrant and Chase
Manhattan Bank (N.A.) as Agent
10.4 Note Purchase Agreement between the Registrant and Chrysler * (10.4)
Capital Corporation, dated as of December 14, 1990, as
amended.
10.4A Letter agreement, dated July 15, 1996, between the Registrant Filed herewith as
and Chrysler Capital Corporation Exhibit 10.4A
10.5 Subordinated Term Note between the Registrant and Schooner * (10.5)
Capital Corporation, dated February 11, 1991
10.6 Iron Mountain Incorporated 1995 Stock Incentive Plan * (10.6)
10.7 Form of Iron Mountain Incorporated 1995 Stock Option Plan for ** (10.7)
Non-Employee Directors
10.8 Asset Purchase and Sale Agreement, dated as of July 8, 1994, * (10.8)
between Iron Mountain Data Protection Services, Inc. and
Digital Equipment Corporation
10.9 Asset Purchase and Sale Agreement, dated as of October 31, * (10.9)
1994, among Iron Mountain Records Management of Ohio, Inc.,
Storage and Retrieval Concepts, Inc., Thomas Waldon and
Dann Scheiferstein
10.10 Asset Purchase and Sale Agreement, dated as of February 28, * (10.10)
1995, among Iron Mountain Records Management ("IMRM"),
National Business Archives, Inc., and James F. Knott
10.11 Asset Purchase Agreement, dated July 19, 1995, among IMRM, * (10.11)
DataFile Services, Inc. and Cynthia and Lee Macklin
10.12 Asset Purchase and Sale Agreement, dated as of October 5, * (10.12)
1995, among IMRM, Brooks Records Center, Inc. and Forty
Acres, Ltd.
10.13 Asset Purchase and Sale Agreement, dated as of November 1, * (10.13)
1995, among IMRM, Nashville Vault Company, Ltd. and USA
Vault Corporation
10.14 Asset Purchase and Sale Agreement, dated November 14, 1995, * (10.14)
among IMRM, Data Vault Corporation and Ralph Stoddard III
10.15 Merger Agreement, dated as of November 17, 1995, among IMRM, * (10.15)
Temp DSSI, Inc. and Data Storage Systems, Inc.
10.16 Asset Purchase and Sale Agreement, dated November 17, 1995, * (10.16)
among IMRM, Florida Data Bank, Inc., Carl J. Strang III,
Carl J. Strang II and 6/10 Corporation
10.17 Asset Purchase and Sale Agreement, dated November 22, 1995 * (10.17)
among IMRM, Data Management Business Records Storage, Inc.
and Outdoor West, Inc.
<PAGE>
Exhibit
Number Item Exhibit
- --------- ------------------------------------------------------------- ------------------------
10.18 Record Center Storage Services Agreement between IMRM and * (10.18)
Resolution Trust Corporation, dated July 31, 1992
10.19 Lease between IMRM and IM Houston (CR) Limited Partnership, * (10.19)
dated January 1, 1991
10.20 Asset Purchase and Sale Agreement, dated July 11, 1996, among Filed herewith as
IMRM, The Fortress Corporation and certain subsidiaries Exhibit 10.20
10.21 Stock Purchase and Sale Agreement, dated as of August 9, Filed herewith as
1996, among IMRM and the shareholders of Data Archive Exhibit 10.21
Services of Miami, Inc. and Data Archives Services, Inc.
10.22 Asset Purchase and Sale Agreement, dated August 13, 1996, Filed herewith as
among IMRM, International Record Storage and Retrieval Exhibit 10.22
Service, Inc. and Laurance Winnerman, Sanford Winnerman and
Penny Novak
11 Statement re: computation of per share earnings Filed herewith as
Exhibit 11
12 Statement re: computation of ratio of earnings to fixed Filed herewith as
charges Exhibit 12
21 Subsidiaries of the Registrant Filed herewith as
Exhibit 21
23.1 Consent of Sullivan & Worcester LLP Contained in Exhibit 5;
to be filed by
amendment
23.2 Consent of Arthur Andersen LLP Filed herewith as
Exhibit 23.2
23.3 Consent of Wolpoff & Company, LLP Filed herewith as
Exhibit 23.3
23.4 Consent of Morrison and Smith Filed herewith as
Exhibit 23.4
23.5 Consent of Geo. S. Olive & Co. LLC Filed herewith as
Exhibit 23.5
23.6 Consent of Robert F. Gayton, CPA Filed herewith as
Exhibit 23.6
23.7 Consent of Perless, Roth, Jonas & Hartney, CPAs, PA Filed herewith as
Exhibit 23.7
23.8 Consent of Rothstein, Kass & Company, P.C. Filed herewith as
Exhibit 23.8
24 Powers of Attorney Contained on Pages II-6
and II-7 of the
Registration Statement
25 Statement re eligibility of trustee To be filed by
amendment
</TABLE>
Each exhibit marked by an asterisk (*) is incorporated by reference to the
Company's Registration Statement No. 33-99950 filed with the Securities and
Exchange Commission on December 1, 1995. Each exhibit marked with a double
asterisk (**) is incorporated by reference to Amendment No. 2 to the Company's
Registration Statement filed with the Securities and Exchange Commission on
January 11, 1996. Exhibit 3.2 is incorporated by reference to the Company's
Quarterly Report on Form 10-Q (File No. 0-27584) filed with the Securities and
Exchange Commission on August 14, 1996. Exhibit numbers in parentheses refer to
the exhibit numbers in the applicable filing.
July 15, 1996
Mr. Tom Allen FAX # 203-975-3907
Sr. Account Executive
Chrysler Capital
225 High Ridge Road
Stamford, CT 06905-3032
Dear Mr. Allen:
This will confirm an agreement which I have developed with Frank Diceglie
relating to the possible pre-payment by Iron Mountain of its subordinated note
held by Chrysler Capital Corporation. We are considering such pre-payment in
connection with a public offering of senior subordinated notes planned to be
made later this summer. We offered Chrysler the opportunity to exchange its note
for notes to be registered in the offering, but Chrysler has declined this
opportunity. We understand that Chrysler would prefer either to hold the note it
presently has or accept a pre-payment thereof which would include a negotiated
pre-payment penalty.
Chrysler has proposed and Iron Mountain agrees that if Iron Mountain elects to
prepay, the pre-payment penalty will be $1,400,000 as of September 1, 1996. We
have also agreed that if the pre-payment occurs at a date before or after
September 1, the pre-payment will be adjusted respectively by an increase or
decrease in the amount of $1,216.67 per day.
If the foregoing correctly sets forth our understanding, please have this letter
countersigned by an authorized official of Chrysler Capital Corporation and
return it to me by mail or fax at 617-350-7881. To the extent that additional
documentation is required to implement the pre-payment, it will be prepared by
our counsel and forwarded for Chrysler's approval. In the meantime, this letter
is intended to express our agreement on the matter so that Iron Mountain may
plan appropriately.
If you have any questions, please call me at 617-357-6966 ext. 210.
Sincerely
/s/ Eugene B. Doggett
Eugene B. Doggett
Executive Vice President & CFO Accepted
Chrysler Capital Corporation
/s/ Linda A. Harvey
ASSET PURCHASE AND SALE AGREEMENT
between
IRON MOUNTAIN RECORDS MANAGEMENT, INC.
as Buyer
THE FORTRESS-BOSTON CORPORATION
and
THE FORTRESS-MIAMI CORPORATION
as Sellers
and
THE FORTRESS CORPORATION
as Stockholder
As of July 11, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I....................................................................1
DEFINITIONS.........................................................1
ARTICLE II...................................................................4
SALE AND PURCHASE OF SUBJECT ASSETS.................................4
ARTICLE III..................................................................7
REPRESENTATIONS AND WARRANTIES OF SELLERS AND STOCKHOLDER...........7
ARTICLE IV..................................................................13
REPRESENTATIONS AND WARRANTIES OF BUYER............................13
ARTICLE V...................................................................14
PRE-CLOSING AGREEMENTS.............................................14
ARTICLE VI..................................................................16
CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE...............16
ARTICLE VII.................................................................19
CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS AND STOCKHOLDER......19
ARTICLE VIII................................................................20
THE CLOSING........................................................20
ARTICLE IX..................................................................21
POST-CLOSING MATTERS...............................................21
ARTICLE X...................................................................24
TERMINATION........................................................24
ARTICLE XI..................................................................26
INDEMNIFICATION....................................................26
ARTICLE XII.................................................................30
MISCELLANEOUS PROVISIONS...........................................30
Schedule 1.12A Owned Tangible Assets
Schedule 3.4 Consents
Schedule 3.5 Encumbrances; Leases
Schedule 3.8 Litigation; Claims
Schedule 3.9 Permits, Licenses
Schedule 3.15 Customers Terminating/Seeking Bids
Schedule 3.17 Employee Information
Schedule 3.22 Transactions with Interested Persons
Exhibit 6.3 Noncompetition and Confidentiality Agreement
Exhibit 6.12 Opinion of Seller's Counsel
Exhibit 7.4 Opinion of Buyer's General Counsel
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 11th day of July, 1996
by and between Iron Mountain Records Management, Inc., a Delaware corporation
("Buyer"), The Fortress-Boston Corporation, a Delaware corporation
("Fortress-Boston"), The Fortress-Miami Corporation, a Florida corporation
("Fortress-Miami"; together with the Fortress-Boston, the "Sellers" and each a
"Seller"), and The Fortress Corporation, a Delaware corporation ("Stockholder").
RECITALS
A. Fortress-Boston is engaged in the business of providing records
management and storage services in the metropolitan area of Boston,
Massachusetts and Fortress-Miami is engaged in the business of providing records
management and storage services in the metropolitan areas of Dade and Broward
Counties, Florida, each under the trade name "Fortress".
B. Stockholder owns all the issued and outstanding capital stock of
Fortress-Boston and Fortress-Miami.
C. Buyer desires to purchase, and Sellers desire to sell, substantially
all the assets of the Business (as hereinafter defined) operated by each of them
on the terms and subject to the conditions contained in this Agreement, and
Stockholder, as ultimate recipient of all or a significant portion of the
consideration to be paid by Buyer, is willing to confirm the representations and
warranties and covenants of Sellers contained herein.
In consideration of the mutual covenants and agreements set forth
herein, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Sellers, Stockholder and Buyer,
intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, certain terms used in this Agreement and not
otherwise defined herein shall have the meanings designated below:
Section 1.1 Agreement means all or any part of this Agreement, including
schedules, exhibits, and appendices, as any of the foregoing may be amended,
modified or supplemented in writing from time to time.
Section 1.2 Business means the paper and magnetic media records management and
storage business conducted by Fortress-Boston in metropolitan Boston,
Massachusetts and the paper and magnetic media records management and storage
business conducted by Fortress-Miami in metropolitan Dade and Broward Counties,
Florida, each under the trade name "Fortress".
<PAGE>
Section 1.3 Closing means the occasion upon which the transactions contemplated
by this Agreement are carried out by the delivery of documents, payment of funds
and other actions contemplated herein, as described in Article VIII.
Section 1.4 Closing Date shall be July 17, 1996, or such other date as the
parties may agree, provided that Sellers may elect by written notice to Buyer
not later than the close of business on July 15, 1996 that they elect to
postpone the Closing for up to thirty (30) days in order to have additional time
to obtain consents of landlords to assignment of the Leases, as required by
Section 6.4; such notice shall indicate the date to which the Closing has been
postponed. In the event that Sellers select a closing date after August 1, 1996,
the Effective Time shall be 12:00 a.m. in Boston, Massachusetts on August 1,
1996 and all adjustments to the Purchase Price which are affected by the
Effective Time shall be made as of August 1, 1996 instead of July 1, 1996
(including, without limitation, the reference to amounts billable for the month
of June, 1996) in Section 2.2A, which shall become amounts billable for the
month of July, 1996
Section 1.5 Effective Time means 12:00 a.m. in Boston, Massachusetts on July 1,
1996, or August 1, 1996 in the event Sellers elect to postpone the Closing Date
to a date after August 1, 1996.
Section 1.6 Encumbrances means any and all encumbrances, mortgages, security
interests, liens, Taxes, claims, liabilities, options, commitments, charges,
restrictions or other obligations of whatsoever kind, quantity or nature,
whether accrued, absolute, contingent or otherwise, which affect title to the
Subject Assets.
Section 1.7 Excluded Assets means (i) Sellers' cash and cash equivalents and
sums in checking and depository accounts (including cash representing payments
for storage or services provided after the Effective Time), (ii) Sellers' museum
quality storage business and all assets related thereto, (iii) corporate records
not relating to the Business, (iv) refunds of taxes and insurance premiums, (v)
the names "Fortress" and "Museum Quality Storage", and variants thereof except
(with respect to "Fortress") to the extent provided in Section 9.2, (vi)
abatements, and (vii) Dimensional Parking Technology Corporation's containers
located in the parking lot of the Hialeah, Florida Leased Space and a jig
related to such containers located at the Bowen Building parking lot.
Section 1.8 Knowledge or the phrases "to the knowledge of" or "to the best of
Sellers' or Stockholder's knowledge", when used in reference to either Sellers
or Stockholder, means matters actually known by James N. Levis, Ladd M.
Levis-Thorne, William Snyder or Denis Holler, after reasonable inquiry of
subordinates who would reasonably be expected to know the information in
question.
Section 1.9 Information Materials means the written information annexed to this
Agreement as Schedule 3.27.
Section 1.10 Leases means: (i) the lease dated November 1, 1989, as amended
March 25, 1991 and August ___, 1994 between Property Asset Management, Inc., as
successor landlord, and Fortress-Miami as successor to Fortress-Fort Lauderdale,
Inc., as tenant, for approximately 21,276 square feet of space at Interstate
Commerce Center, N. W. 23rd Avenue, Ft. Lauderdale, Florida.
2
<PAGE>
(ii) the lease dated as of October 1, 1994 between Triple-A
Industries, as landlord, and Fortress-Miami as successor to The Fortress-Miami
Corporation, as tenant, for approximately 41,000 square feet of space at 445-455
West 26th Street, Hialeah, Florida;
(iii) the lease dated October 31, 1986, as amended by
instrument dated December 28, 1994, between E Street Associates, as landlord,
and Fortress-Boston as successor to The Fortress-Boston Corporation, as tenant,
for approximately 21,250 square feet of space at 415 E Street, Boston,
Massachusetts; and
(iv) the sublease dated February 1, 1994, as amended by
amendment dated July 1, 1994 to increase the space subject to the sublease,
between Greater Boston Rehabilitation Services, Inc., as sublessor, and
Stockholder, as sublessee, for approximately 39,000 square feet of space at 31
Monsignor O'Brien Highway, Cambridge, Massachusetts.
Section 1.11 Leased Space means the space occupied by Sellers pursuant to the
Leases.
Section 1.12 Subject Assets means all of Sellers' assets and properties of
whatever kind, character and description, and whether tangible, intangible,
real, personal or mixed, and wherever located, except for the Excluded Assets.
The Subject Assets include the following Tangible Assets and Interests:
A. Tangible Assets means all tangible property used in the Business,
such as inventory; computers, computer peripherals and maintenance manuals; word
processors; typewriters and other business equipment; vehicles; equipment;;
racking and shelving; furniture, furnishings, and office equipment; and
supplies. Principal items of Tangible Assets, including vehicles, are listed on
Schedule 1.12A. The Tangible Assets also includes the land and improvements
thereon located at 1630 Northeast First Avenue, Miami, Florida (the "Bowen
Property").
B. Interests means all intangible property used in the Business to the
extent assignable (Buyer acknowledges that certain of such items may not be
assignable by their terms or their terms may be silent as to assignability),
including rights, privileges, benefits and interests under all contracts,
agreements, consents, licenses and files and correspondence related thereto;
computer software used in the Business (including software licensed to Seller by
Infotrac); permits or certificates; agreements, leases and arrangements with
respect to intangible or tangible property or interests therein; Sellers' right
to occupy the Leased Space (pursuant to the Leases); confidentiality and
non-competition agreements with employees and other parties, whether oral or
written; consents; agreements with suppliers and customers; deposits held by
contract parties, including any lease deposits; accounts receivable; all
financial and operating records related to the Business; and any sales agent or
sales affiliate agreements used in connection with the Business.
Section 1.13 Taxes means any and all taxes, sums or amounts assessed or
assessable, levied and due by any federal, state or county or other local
governmental authority or agency, including without limitation, real and
personal property taxes, income taxes, whether measured by gross or net income
or profit, franchise, excise, sales and use taxes, employee withholding, social
security, unemployment taxes and any other taxes required to be paid by Sellers,
including interest and penalties in respect thereof whether disputed or not, and
whether accrued, contingent, due, absolute,
3
<PAGE>
deferred, unknown or other, together with any and all penalties, interests
and additions to all such taxes, sums or amounts.
(ARTICLE II COMMENCES ON THE NEXT PAGE)
4
<PAGE>
ARTICLE II
SALE AND PURCHASE OF SUBJECT ASSETS
Section 2.1 Sale and Transfer. Subject to the terms and conditions set forth in
this Agreement, each Seller shall sell, convey, transfer, assign and deliver to
Buyer, and Buyer shall purchase and receive from each Seller, at the Closing,
free and clear of all Encumbrances, all of the Subject Assets owned by such
Seller and the Interests.
Section 2.2 Purchase Price; Assumption of Certain Obligations.
A. Purchase Price. The Purchase Price to be paid by Buyer for all the
Subject Assets shall be (i) plus (ii) an amount equal to ninety percent
(90%) of the face amount of Sellers' net eligible accounts receivable as of the
Effective Time, plus amounts billable for services performed during the month of
June, 1996 which are billed to customers on or about July 8, 1996. For purposes
of this Agreement, "net eligible accounts receivable" shall mean gross accounts
receivable of either Seller which are owed by customers of the Business for work
performed by Sellers prior to the Effective Time minus Seller's reasonable bad
debt reserve in respect of such accounts receivable.
B. Payment of Purchase Price. The Purchase Price shall be payable to
Sellers or Sellers' lenders (allocated between the Sellers as the parties shall
agree) at the Closing by wire transfer or certified or bank check of immediately
available funds to such account as Stockholder shall designate in writing not
less than two business days prior to the Closing Date. Sellers may apply all or
a portion of the Purchase Price to retire indebtedness required to obtain
releases of any Encumbrances.
C. Limited Assumption of Contracts and Obligations. Buyer shall
assume no obligations or liabilities of Sellers other than the following.
Buyer shall assume and perform:
(i) all obligations of Sellers arising or accruing after the
Closing Date in respect of Sellers' contracts, agreements and arrangements with
their customers providing for storage of business records at customary rates;
(ii) Sellers' obligations under routine contracts for goods
and services (none of which are for capital expenditures) to be delivered or
performed after the Closing Date;
(iii) Sellers' obligations under vehicle and other equipment
leases listed on Schedule 3.5 which relate or are properly accruable to periods
after the Closing Date; and
(iv) Sellers' obligations under the Leases which relate or
are properly accruable to periods after the Closing Date (Buyer shall not assume
Fortress-Boston's obligation with respect to past-due rent in respect of the E
Street Leased Premises).
D. Sellers to Pay Pre-Closing Expenses. Sellers shall be responsible
for and pay when due all costs and expenses of operating the Business accrued or
accruable prior to the Effective Time.
5
<PAGE>
Section 2.3 Allocation. The Purchase Price shall be allocated among the Subject
Assets pursuant to a written agreement between the parties which shall be
negotiated and agreed upon prior to August 31, 1996 or if later, the date which
is forty-five days after the Closing Date; provided that the maximum amount
allocated to the Noncompetition and Confidentiality Agreements to be signed by
individuals as described in Section 6.3 shall not exceed $500,000 in the
aggregate; said $500,000 to be allocated among the individuals as directed by
Stockholder.
Section 2.4 Sellers' Employees. Buyer shall not be obligated to offer employment
to any employee of Sellers in connection with the acquisition of the Subject
Assets, and such acquisition shall not grant any employee of Sellers a right of
continued employment with Buyer. For a period of one year after the Closing
Date, Sellers and Stockholder shall not offer conflicting employment to any
person who accepts employment with Buyer. Notwithstanding the foregoing, Buyer
anticipates that it will offer employment to all of Sellers' employees employed
in the Business except Dennis Biddle (who will remain in the employ of Sellers),
subject to further review of Sellers' operations. Buyer shall notify Sellers on
or prior to the Closing Date as to any of Sellers' employees to whom Buyer does
not intend to offer employment.
Section 2.5 Operations between Effective Time and Closing Date. Notwithstanding
any other provision in this Agreement to the contrary, provided that the Closing
occurs, operation of the Business from the Effective Time to the Closing Date
will be at the risk and for the account of Buyer, except that: (i) Sellers shall
be solely responsible for any injury, death or damage caused by their employees
or agents during such period, and (ii) Sellers have made and shall make no
capital expenditures without the consent of Buyer during such period (which
shall not be unreasonably withheld). Sellers shall not be responsible for claims
or causes of action covered by Sellers' liability insurance, provided that Buyer
shall have been identified as an additional insured on Sellers' liability
policy; Sellers shall provide a certificate of insurance to such effect.
Approximately $30,000 of racking was previously ordered by Sellers; such racking
has been delivered, and will be paid for by Sellers. Provided that the Closing
occurs, Buyer shall be responsible for and pay when due all expenses of
operating the Business accrued or accruable between the Effective Time and the
Closing Date, and shall reimburse Sellers for any such costs and expenses paid
by Sellers, including sales, general and administrative expenses; and Buyer
shall be entitled to all revenue earned in such period. During the portion of
such period after the date hereof, in addition to Sellers' obligation to conduct
business in the ordinary course, Sellers shall not make any commitment for
capital expenditures, and Buyer's personnel shall have the right to observe the
conduct of the Business upon 24 hours' notice.
Section 2.6 Post-Closing Adjustment Date. Buyer and Sellers shall make all
proration adjustments and payments arising hereunder, to the extent known, on
the Closing Date. On September 17, 1996 (or if later, sixty days after the
Closing Date), Buyer and Sellers shall make any additional net adjustment by
payment of one to the other to effect a final adjustment in the Purchase Price.
If any adjustments are at that date not determined, Buyer and Sellers shall
agree in writing as to the date and method of settlement of such undetermined
amounts.
Section 2.7 Prepaid Storage. Sellers shall grant to Buyer a credit against the
Purchase Price equal to payments which Sellers have received prior to the
Closing Date in respect of storage and services (if any) to be provided after
the Effective Time.
6
<PAGE>
Section 2.8 Earnest Money Escrow Deposit. On or prior to the date of this
Agreement, Buyer, Sellers and Stockholder have executed an Earnest Money Escrow
Agreement (the "Escrow Agreement") with the law firm of Warner & Stackpole LLP,
as escrow agent (the "Escrow Agent"). On the date when Sellers and Stockholder
have executed and delivered a copy of this Agreement to Buyer, Buyer shall
deliver to the Escrow Agent an earnest money deposit in the amount of Five
Hundred Thousand Dollars ($500,000) to be held and disbursed as provided
therein.
Section 2.9 Certain Leased Racking. Stockholder has approximately 50,000 cubic
feet of leased racking in the Hialeah Building which is leased from Eaton
Financial pursuant to two leases (rack lease numbers 246828 and 268924), one of
which has approximately 13 months to expiration and the other of which has
approximately 15 months to expiration. In order to enable Stockholder to avoid a
significant prepayment penalty, Buyer will not require Stockholder to pay off
such leases and purchase the racking as of the Closing Date. Instead, Buyer will
have the use of the affected racking from and after the Closing Date.
Stockholder will continue making lease payments through the expiration of the
leases, will purchase the racking from the lessor upon expiration of the leases,
and will transfer, sell and assign the racking to Buyer promptly thereafter, for
no additional consideration.
(ARTICLE III COMMENCES ON THE NEXT PAGE)
7
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS AND STOCKHOLDERES
Sellers and Stockholder jointly and severally represent and warrant to Buyer as
follows as of the date hereof:
Section 3.1 Organization and Good Standing. Each of Fortress-Boston and
Stockholder is (or at the Closing Date will be) a corporation duly organized and
validly existing under the laws of the State of Delaware and Fortress-Miami is
(or at the Closing Date will be) a corporation duly organized and validly
existing under the laws of the State of Florida. Certain of Sellers and
Stockholder may not be in good standing on the date hereof or the Closing Date
because of failure to file certain annual reports, a list of which has been
supplied to Buyer. All such annual reports and other filings necessary to place
each entity in good standing will have been filed (together with payment of
required fees) with the appropriate governmental agencies on or prior to the
Closing Date. Sellers and Stockholder shall provide copies of good standing
certificates for Fortress-Boston and Stockholder from Delaware and
Massachusetts, and for Fortress-Miami from Florida, prior to August 31, 1996.
Each of Sellers and Stockholder has all requisite corporate power and authority
to own, operate, sell and lease its properties and to carry on its respective
business as presently conducted. Each of Sellers and Stockholder has all
requisite corporate power and authority to execute and deliver, and perform its
corporate obligations under, this Agreement.
Each of Fortress-Boston and Stockholder is (or at the Closing Date will be) duly
qualified to transact business and in good standing in the Commonwealth of
Massachusetts and in each other jurisdiction in which the nature of property
owned or leased by it or the conduct of its business requires it to be
qualified, and Fortress-Miami is (or at the Closing Date will be) duly qualified
to transact business and in good standing in each jurisdiction in which the
nature of property owned or leased by it or the conduct of its business requires
it to be qualified, except (as to each entity) where the failure to be duly
qualified to transact business or in good standing would not have a material
adverse effect on its business or assets.
Section 3.2 Authorization. The execution and delivery of this Agreement and
performance by Sellers and Stockholder of their respective obligations
hereunder, and all transactions contemplated hereby, have been duly and validly
authorized by all necessary corporate action. This Agreement has been, and the
other agreements and documents required to be delivered by Sellers and
Stockholder in accordance with the provisions hereof (the "Sellers' Documents")
will be, duly executed and delivered on behalf of Sellers and Stockholder, by
duly authorized officers of each; and this Agreement constitutes, and Sellers'
Documents when executed and delivered will constitute, the valid and binding
obligations of such of Sellers and Stockholder which sign such Sellers'
Documents, enforceable in accordance with their respective terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization
or similar laws from time to time in effect affecting creditors' rights
generally and by legal and equitable limitations on the availability of specific
remedies.
Section 3.3 Compliance With Other Instruments. Neither the execution and
delivery by Sellers and Stockholder of this Agreement and the Sellers'
Documents, nor the consummation by Sellers and Stockholder of the transactions
contemplated hereby and thereby, will, with or without the giving of notice or
passage of time, or both, be contrary to or violate, breach, or constitute a
default under, or permit the termination or acceleration of maturity of, or
result in the imposition of any
8
<PAGE>
lien, claim or encumbrance upon any property or asset of Sellers or
Stockholder pursuant to any provision of, any note, bond, indenture, mortgage,
deed of trust, evidence of indebtedness or lease agreement, other agreement or
instrument or any judgment, order, injunction or decree by which Sellers or
Stockholder are bound, to which any of them is a party, or to which the assets
of Sellers or Stockholder are subject; nor is the effectiveness or
enforceability of this Agreement or such other documents adversely affected by
any provision of the corporate charter or by-laws of Sellers or Stockholder.
Section 3.4 No Governmental or Other Authorization Required. To the best of
Sellers' knowledge, no authorization or approval of, or filing with, any
governmental agency, authority or other body or any other third persons will be
required in connection with Sellers' or Stockholder's execution and delivery of
this Agreement or the consummation by Sellers and Stockholder of the
transactions contemplated hereby and thereby other than (i) the consent of the
landlords pursuant to the Leases and (ii) as set forth in Schedule 3.4.
Section 3.5 Title to Subject Assets; Sufficiency. Sellers have good title to all
the Subject Assets; to the best of their knowledge, title to the Subject Assets
is free and clear of all Encumbrances except as set forth on Schedule 3.5, which
lists Encumbrances of which Sellers have knowledge and identifies leased
equipment and vehicles. Neither Seller is a party to, nor are the Subject Assets
subject to, any judgment, judicial order, writ, injunction or decree that
materially adversely affects the Subject Assets or the use thereof by Sellers.
The Subject Assets include all assets regularly used by Sellers in the operation
of the Business.
Section 3.6 Contracts and Other Interests. To the best of Sellers' knowledge,
all material contracts for goods and services (contracts requiring payment by
Sellers of more than $500 per month) and all customer contracts in respect of
Sellers' customers whose business averaged in excess of 2,000 cubic feet of
storage per month for the six months ended December 31, 1995 are in full force
and effect, valid and enforceable in accordance with their respective terms
against the other parties thereto. Sellers have received no notice of default of
either Seller under any such material contracts and customer contracts, nor, to
the best of Sellers' knowledge, are material amendments pending with respect to
any material contracts or customer contracts to which either Seller is a party.
To the best of Sellers' knowledge, Sellers have no oral agreements with
customers which require Sellers to provide storage or services at no charge or
at rates significantly below the average rates for such services set forth in
Sellers' written customer contracts, except for immaterial discounts and/or free
services provided as incentives to certain accounts, and except for
Fortress-Boston's contract with the Massachusetts Department of Employment and
Training.
Section 3.7 Taxes. Sellers have filed all federal, state and local income tax
returns, excise or franchise tax returns, real estate and personal property tax
returns, sales and use tax returns and other Tax returns (including returns in
respect of withholding and unemployment tax) required to be filed by either of
them and has paid all taxes owing by them, including any interest and penalties
thereon, except Taxes which have not yet accrued or otherwise become due for
which adequate provision has been made, and except that Sellers have filed for
an extension for filing of federal and state income tax returns for 1995.
Section 3.8 Litigation; Claims; Defaults. Except as set forth in Schedule 3.8,
Sellers have not been served with any currently effective summons or complaint
and there is no action or suit, equitable or legal, to which either Seller is a
party, nor any administrative, arbitration or other
9
<PAGE>
proceeding pending or, to Sellers' knowledge, threatened against Sellers in
respect of the Subject Assets or the Business. Except as set forth on Schedule
3.8, during the past six months Sellers have not received any material written
assertions from customers of the Business to the effect that the customer's
materials stored with Sellers have been lost, damaged or inappropriately
destroyed or that such customer is being billed inaccurately to a material
extent for storage of materials or records. Sellers are not in default with
respect to any currently effective judgment, order, writ, injunction, decree,
demand or assessment issued by any court or of any federal, state, municipal or
other governmental agency, board, commission, bureau, instrumentality or
department and applicable to either Seller. Sellers are not charged or, to the
best of Sellers' knowledge, threatened with or under investigation with respect
to, any violation of any provision of any federal, state, municipal or other law
or administrative rule or regulation with respect to the Subject Assets or the
Business.
Section 3.9 Compliance with Laws. To the best of Sellers' knowledge (i) Sellers
have complied, and through the Closing will continue to comply, in all material
respects with federal, state and local laws, rules and regulations applicable to
the Business and the Subject Assets; and (ii) Sellers possess such certificates,
authorities or permits issued by the appropriate local, state or federal
regulatory agencies or bodies as are necessary to conduct the Business in all
material respects. To the best of Sellers' knowledge, Schedule 3.9 lists all
certificates, authorities and permits issued by local, state or federal
regulatory agencies or bodies in connection with Sellers' operation of the
Business. Sellers have not received any written notice of proceedings relating
to the revocation or modification of any such certificate, authority or permit.
Section 3.10 Certain Environmental Matters. To the best of Sellers' knowledge,
Sellers are operating and have operated the Business from the Leased Premises in
material compliance with all applicable local, state and federal environmental
laws, regulations and ordinances, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
ss.ss.9601 et seq. ("CERCLA"), the Resource Conservation and Recovery Act, 42
U.S.C. ss.ss.6901 et seq., the Clean Water Act, 33 U.S.C. ss.ss.1251 et seq.,
and the environmental laws and regulations of the States of Massachusetts and
Florida as each such statute or regulation has been amended from time to time
("Environmental Laws and Regulations"). Sellers have not knowingly accepted for
storage, and to the best of their knowledge do not store, any nitrate film or
any hazardous substance or hazardous material at the Leased Premises except for
de minimis amounts used in the ordinary course of business. Sellers have never
knowingly caused the release from the Leased Premises of an amount of any
hazardous substance or hazardous material into the environment which release
would constitute a material violation of any Environmental Laws and Regulations.
For purposes of this paragraph, "hazardous substance", "release" and
"environment" shall have the same meanings as those terms are defined by Section
101 of CERCLA, 42 U.S.C. ss.9601, and "hazardous material" shall have the same
meaning as that term is defined by Environmental Laws and Regulations. Sellers
do not own, lease, rent or otherwise utilize any underground storage tanks in
connection with the Business, and, to the best of Sellers' knowledge (without
having conducted an investigation), there are no waste tanks, containers,
cylinders, drums or cans buried, stored or deposited in or at the Leased
Premises, and, the Leased Premises do not contain (i) any asbestos, (ii) any
polychlorinated biphenyl (PCB) substances or (iii) any waste petroleum products.
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Section 3.11 No Inconsistent Agreements. Sellers and Stockholder have not
entered into any letter of intent, preliminary agreement or other agreement,
written or oral, with any other party which would be inconsistent with the terms
of this Agreement.
Section 3.12 Financial Information. Sellers have delivered to Buyer (i) separate
statements of operating results of Fortress-Boston and Fortress-Miami in respect
of the Business for the years ended December 31, 1994 and 1995 showing revenues,
cost of sales and gross profits; (ii) consolidated statements of operating
results of Sellers for the years ended December 31, 1994 and 1995 showing the
same information as described in clause (i); and (iii) separate and consolidated
statements of operating results of Sellers in respect of the Business for the
five months ended May 31, 1996 (the "Financial Statements"). The Financial
Statements are true, correct and complete in all material respects for the
periods covered, prepared pursuant to generally accepted accounting principles
("GAAP") on a consistent basis, and fairly present the results of operation of
the Business for the periods covered.
Section 3.13 ERISA Plans. Sellers maintain a 401(k) profit sharing retirement
plan and an employee health benefit plan, neither of which shall be assumed by
Buyer. Sellers do not maintain any other Employee Pension Benefit Plan or
Employee Welfare Benefit Plan, as each term is defined in the Employee
Retirement Income Security Act of 1974.
Section 3.14 Condition of Subject Assets. To the best of Sellers' knowledge, all
the material tangible Subject Assets (i) are at present, and will be as of the
Closing Date, in good operating condition to perform tasks for which they are
regularly used, normal wear and tear excepted, and (ii) are, and will be on such
date, in compliance with the Occupational Safety and Health Act and rules and
regulations issued thereunder.
Section 3.15 Absence of Certain Changes. Except as disclosed on Schedule 3.15,
since January 1, 1996, none of Sellers' customers whose business averaged in
excess of 2,000 cubic feet of storage per month for the six months ended
December 31, 1995 has terminated or indicated in writing an intention to
terminate its business with, or reduce the volume of its business with, either
Seller. Except as otherwise stated in Schedule 3.15, to the best of Sellers'
knowledge Sellers have no customers whose storage business is or has within 90
days prior to the date of this Agreement been the subject of competitive bidding
procedures.
Section 3.16 No Material Undisclosed Liabilities. Except as described in this
Agreement or reflected in the Financial Statements, since December 31, 1995
Sellers have incurred no liability or obligation related to the operation of the
Business, other than liabilities and obligations that have been incurred in the
ordinary course of business consistent with past practice and are not material
in the aggregate to the Business.
Section 3.17 Personnel Information. Schedule 3.17 lists the names of all full-
and part-time employees of Sellers (or leased employees utilized by Sellers) who
perform services for the Business and sets forth a brief job description or
title and compensation for each such person. Schedule 3.17 also sets forth a
list of all written and oral employment and noncompetition agreements with
Sellers' employees employed in the Business.
Section 3.18 Patents, Trademarks, Etc. Except for the trade name "Fortress",
which is a federally registered trade name used by Sellers, to the best of
Sellers' knowledge, there are no
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trademarks, service marks, trade names, copyrights, patents, computer
programs or programs (except for the "Infotrack" program) rights, licenses or
other similar intangible property rights and interests which Sellers use in
connection with the Business other than computer programs and software generally
available from software retailers.
Section 3.19 Labor Relations. During the past three years there has not been,
and there is not now, any strike, labor dispute, slowdown, stoppage, or other
material interference with or impairment by labor of the Business pending or, to
the knowledge of Sellers, threatened or contemplated against or directly
affecting the Business. Sellers' employees are not represented by any labor or
trade union, nor, to the best of Sellers' knowledge, has there been any attempt
to organize Sellers' employees during the 180 day period prior to the date
hereof.
Section 3.20 Insurance. There is in force comprehensive general liability and
casualty insurance for the Subject Assets and the Business which, in the
reasonable opinion of Sellers, is appropriate and adequate coverage for such
assets and operations.
Section 3.21 Trade Secrets and Customer Lists. Sellers have received no written
claims challenging their right to use any trade secrets, customer lists,
intellectual property and operating methods required for or incident to the
operation of the Business. To the best of their knowledge, Sellers are not using
or in any way making use of any confidential information or trade secrets of any
third party, including without limitation, a former employer of any present or
past employee or Sellers.
Section 3.22 Transactions with Interested Persons. Except as set forth on
Schedule 3.22, none of Sellers' customers whose business averaged in excess of
2,000 cubic feet of storage per month for the six months ended December 31,
1995, and no supplier of the Business, or any other organization which has a
material contract or arrangement (requiring payment of more than $500 per month)
with the Business, is an entity (i) the majority of the capital stock of which
is owned by James Levis, Ladd Levis-Thorne or William Snyder, or any owner of 5%
or more of the capital stock of Stockholder, or (ii) of which any of such
persons is a manager or director.
Section 3.23 Records Services and Storage Arrangements. Substantially all items
received and stored by Sellers on behalf of customers are held in storage by
Sellers except for items withdrawn or destroyed at the respective customer's
request. The stored items for which customers are billed exist and, in all
material respects, can be accounted for. Sellers average not more than one
extended search (i.e., a search requiring more than one hour to locate the
requested carton) per week in each of the Boston market and the South Florida
market. Sellers have provided to Buyer for review all of Sellers' customer
contracts.
Section 3.24 Business in Ordinary Course. From December 31, 1995 until the date
hereof, the Business has been conducted in the ordinary course in accordance
with past practice. Sellers have used their best efforts to maintain and service
the Business, and to keep available the services of present employees and agents
and maintain existing business relationships. Without limiting the generality of
the foregoing, Sellers have not, since December 31, 1995
(i) sold, assigned, transferred or waived rights
with respect to any material part of the Subject Assets (except in the
ordinary course of business);
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(ii) entered into or adopted any employee benefit plan or any
employment or severance agreement, or increased in any manner the compensation
or fringe benefits of their officers or employees employed in the Business
(except in the ordinary course of business and consistent with past practice or
pursuant to pre-existing agreements or as required by law);
(iii) changed their billing, accounts payable, collections
or other cash management practices in respect of the Business; or
(iv) agreed to take any of the foregoing actions.
Section 3.25 Filing. Sellers have filed or refiled substantially all customers'
storage materials delivered to their facilities more than five business days
prior to the date hereof.
Section 3.26 No Material Adverse Change. There has been no material adverse
change in the Subject Assets (including, without limitation, loss of or damage
to a material amount or part of the Subject Assets) since December 31, 1995 or
in the Business, or the prospects of the Business, between December 31, 1995 and
the date hereof.
Section 3.27 No Misrepresentation or Omission. No representation or warranty by
Sellers or Stockholder in this Agreement, or in any certificate or other
document furnished or to be furnished by Sellers or Stockholder pursuant hereto,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained
herein or therein not misleading to a person experienced in the business of
records management. The foregoing representation as to absence of omitted
material facts is made only in respect of information known to the best of
Sellers' knowledge.
(ARTICLE IV COMMENCES ON THE NEXT PAGE)
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers and Stockholder as follows:
Section 4.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer possesses all requisite corporate power and authority to own,
operate and lease its properties and carry on its business, and to execute and
deliver, and perform its obligations under, this Agreement. Buyer is duly
qualified to transact business and in good standing in the State of Florida.
Section 4.2 Authorization. The execution and delivery of this Agreement and
performance by Buyer of its obligations hereunder, and all transactions
contemplated hereby, have been duly and validly authorized by all necessary
corporate action. This Agreement has been, and the other agreements and
documents required to be delivered by Buyer in accordance with the provisions
hereof (the "Buyer's Documents") will be, duly executed and delivered on behalf
of Buyer by duly authorized officers of Buyer; and this Agreement constitutes,
and Buyer's Documents when executed and delivered will constitute, the valid and
binding obligations of Buyer, enforceable in accordance with their respective
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws from time to time in effect affecting
creditor's rights generally and by legal and equitable limitations on the
availability of specific remedies.
Section 4.3 Compliance with Other Instruments. Neither the execution and
delivery by Buyer of this Agreement and the Buyer's Documents, nor the
consummation by Buyer of the transactions contemplated hereby and thereby, will,
with or without the giving of notice or passage of time, or both, be contrary to
or violate, breach, or constitute a default under, or permit the termination or
acceleration of maturity of, or result in the imposition of any lien, claim or
encumbrance on any property or asset of Buyer pursuant to any provision of, any
note, bond, indenture, mortgage, deed of trust, evidence of indebtedness or
lease agreement, other agreement or instrument or any judgment, order,
injunction or decree by which Buyer is bound, to which Buyer is a party, or to
which the assets of Buyer are subject; nor is the effectiveness or
enforceability of this Agreement or such other documents adversely affected by
any provision of the certificate of incorporation or by-laws of Buyer.
Section 4.4 Litigation. There is no action, suit or proceeding pending or, to
the knowledge of Buyer, threatened against Buyer which might interfere with its
ability to consummate the transactions contemplated hereunder.
Section 4.5 No Governmental or Other Authorization Required. No authorization or
approval of, or filing with, any governmental agency, authority or other body or
any other third persons will be required in connection with Buyer's execution
and delivery of this Agreement and Buyer's Documents or its consummation of the
transactions contemplated hereby and thereby.
(ARTICLE V COMMENCES ON THE NEXT PAGE)
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ARTICLE V
PRE-CLOSING AGREEMENTS
Section 5.1 Access to Information and Facilities. (a) Sellers shall afford Buyer
and its representatives full access during normal business hours to all
facilities, properties, books, accounts, records, contracts and documents of or
relating to the Business in Sellers' or Stockholder's possession or control,
subject to reasonable requirements that Buyer not interfere with the operations
and activity of the Business.
(b) Buyer may retain consultants (including, without
limitation, experts in assessment of environmental risk and experts in
assessment of fire/safety hazards and compliance with fire and safety codes) to
inspect and report on the Leased Premises, the cost of which shall be borne
equally by Buyer and Sellers; provided that the aggregate cost thereof to
Sellers shall not exceed $12,500. Such persons shall be given prompt access to
the Leased Space and the Bowen Building.
Section 5.2 Confidentiality. Sellers, Stockholder and Buyer shall not use or
disclose to others, or permit the use or disclosure of, any non-public
information furnished by each to the other in the course of negotiations
relating to this Agreement and the business and financial reviews and
investigations referred to in this Agreement, except to their respective
officers, directors, employees and representatives who need to know such
information in connection with this Agreement or except to the extent that any
such information may become generally available to the public other than through
the actions of the parties or any other person under a duty of confidentiality.
Notwithstanding the foregoing, disclosure of such information may be made to the
extent required by applicable law or regulation, judicial or regulatory process,
and reviews by financial institutions which are lenders or financial advisers to
either party; and such information may be used to the extent necessary as
evidence in or in connection with any pending or threatened litigation relating
to this Agreement or any transaction contemplated hereby.
In the event that the sale contemplated by this Agreement is not consummated for
any reason, each party agrees to return to the other party all materials
containing nonpublic information provided by the other immediately on request.
The confidentiality obligation set forth in this Section 5.2 shall survive
termination of this Agreement.
Each party agrees that the confidential information of the other party is unique
and that its release or misuse may not be compensable in monetary damages and
that the non-breaching party shall be entitled to seek appropriate injunctive
relief therefor. In connection with any such breach, the parties waive the claim
or defense that an adequate remedy exists at law or that a bond is necessary.
Section 5.3 Public Announcement. No party shall issue any press release or make
any public announcement relating to the subject matter of this Agreement without
the prior written approval of the other party; provided, however, that Buyer
and/or Sellers may (a) make appropriate announcements to customers of the
Business and to the trade, and (b) make a public announcement after the Closing
Date to the effect that the transaction has occurred (without any information as
to price or terms). Buyer and Sellers shall give each other an opportunity to
review and comment upon such proposed announcements, and the parties shall agree
on the content thereof prior to release. In addition, either party may make any
public disclosure it believes in good faith is
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required by applicable law or any listing or trading agreement concerning
its publicly-traded securities. Stockholder shall have the right to provide
information concerning the transaction to its stockholders and lenders as part
of normal and customary reports prepared for such persons; such disclosure may
include financial information to the extent necessary for appropriate
disclosure. Stockholder will consult with Buyer prior to such disclosure, and
the parties shall agree on the content.
Section 5.4 Communications to Sellers' Employees. Buyer and Sellers shall
mutually agree on the timing and content of a program of communications to
employees of the Business in respect of the transactions contemplated hereby.
Section 5.5 Continued Efforts. Sellers shall use commercially reasonable efforts
to (a) cause to be fulfilled and satisfied all of the conditions to the Closing
which are the responsibility of Sellers; (b) cause to be performed all of the
matters required upon the Closing which are the responsibility of Sellers; and
(c) take such steps and do such acts as may be necessary to make all of their
warranties and representations true and correct as of the Closing Date with the
same effect as if the same had been made, and this Agreement had been dated, as
of the Closing Date.
Buyer shall use commercially reasonable efforts to (a) cause to be fulfilled and
satisfied all of the conditions to the Closing which are the responsibility of
Buyer; (b) cause to be performed all of the matters required upon the Closing
which are the responsibility of Buyer; and (c) take such steps and do such acts
as may be necessary to make all of their warranties and representations true and
correct as of the Closing with the same effect as if the same had been made, and
this Agreement had been dated, as of the Closing Date.
Neither party shall be required by this section to make a payment (other than
payments otherwise required under the terms of existing agreements) to obtain
the consent of any third party required to carry out the transactions
contemplated by this Agreement.
Section 5.6 Operation of Business Prior to Closing. From the date hereof until
the Closing Date, Sellers shall conduct the Business in the ordinary course
consistent with past practice, and shall use their commercially reasonable
efforts to maintain and service the Business, to keep available the services of
present employees and agents and to maintain existing business relationships.
Without limiting the generality of the foregoing, Sellers shall not take any of
the actions described in clauses (i) through (v) of Section 3.24.
(ARTICLE VI COMMENCES ON THE NEXT PAGE)
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ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE
The obligation of Buyer to purchase the Subject Assets and carry out the other
transactions contemplated hereby are, unless waived in writing by Buyer, subject
to the satisfaction, on the Closing Date, of the following conditions:
Section 6.1 Accuracy of Representations and Performance of Seller. The
representations and warranties of Sellers and Stockholder contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date with the same force and effect as though made on and as of such
date, except to the extent that such representations and warranties are updated
pursuant to updated Schedules provided by Sellers or shall be incorrect as of
the Closing Date because of events or changes occurring in the ordinary course
of the Business or as otherwise permitted by this Agreement, none of which,
singly or in the aggregate, constitutes a material adverse change; each and all
of the conditions and covenants to be performed or satisfied by Sellers and/or
Stockholder hereunder at or prior to the Closing Date shall have been duly
performed or satisfied in all material respects; and Sellers and Stockholder
shall have furnished Buyer with a certificate to that effect.
Section 6.2 Absence of Certain Litigation. On the Closing Date, no suit, action
or other proceeding, or injunction or final judgment relating thereto, shall be
threatened in writing or pending before any court or governmental or regulatory
official or agency in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the consummation of
the transactions contemplated hereby (provided that any such suit, action or
other proceeding which would not have a material effect on the transactions
contemplated hereby shall not constitute a failure to satisfy this condition),
and no investigation that might result in any such suit, action or proceeding
shall be pending.
Section 6.3 Noncompetition and Nondisclosure Agreement. Sellers,
Stockholder, Ladd Levis-Thorne, James Levis and William Snyder shall each have
executed and delivered a Noncompetition and Confidentiality Agreement in the
form of Exhibit 6.3.
Section 6.4 Leases. The Leases shall have been assigned to Buyer with the
consent of the landlords.
Section 6.5 Bowen Building. Fortress-Miami shall have delivered to Buyer a deed
for the Bowen Building and the parcel of land on which it is situated, conveying
good and clear record and marketable title by the customary form of deed used in
commercial real property transaction in Florida, and Buyer shall have received
confirmation from a title insurance company that such title insurance company is
prepared, upon recording of the deed and any discharges deliverable at Closing
to provide title insurance equivalent to that held by Fortress-Miami, but
discharging all Encumbrances created or suffered to exist by such owner. Buyer
will accept the property as-is, where-is.
Section 6.6 Evidence of Corporate Approval (Sellers). Sellers shall have
delivered certified copies of resolutions of their Board of Directors and
Stockholder, as sole stockholder of each, pertaining to the authorization of
this Agreement and the consummation of the transactions contemplated hereby, and
a certificate executed by the secretary or assistant secretary of each as to
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the due election, qualification and incumbency and genuine signature of the
person or persons authorized to sign this Agreement or any document, instrument
or certificate to be delivered hereunder.
Section 6.7 Evidence of Corporate Approval (Stockholder). Stockholder shall have
delivered certified copies of resolutions of its Board of Directors pertaining
to the authorization of this Agreement and the consummation of the transactions
contemplated hereby, and a certificate executed by its secretary or assistant
secretary as to the due election, qualification and incumbency and genuine
signature of the person or persons authorized to sign this Agreement or any
document, instrument or certificate to be delivered hereunder.
Section 6.8 Corporate Existence and Good Standing. Sellers and Stockholder shall
have delivered copies of their certificates of incorporation certified by the
Delaware Secretary of State as of a recent date and certificates of legal
existence and corporate good standing as foreign corporations from the Secretary
of State and Department of Revenue, as appropriate, of the Commonwealth of
Massachusetts in respect of Fortress-Boston and Stockholder and from the
Secretary of State of Florida in respect of Fortress-Miami.
Section 6.9 Tax Lien Waiver. Fortress-Boston shall have applied for a tax lien
waiver from the Massachusetts Department of Revenue, and the Department of
Revenue shall not have indicated that any tax returns or tax payments must be
filed or made prior to issuance thereof.
Section 6.10 Encumbrances. Sellers shall deliver evidence reasonably
satisfactory to Buyer of the satisfaction and release of any Encumbrances
affecting the Subject Assets.
Section 6.11 No Material Adverse Change. There shall have been no material
adverse change in the Subject Assets (including, without limitation, loss of or
damage to a material amount or part of the Subject Assets) between December 31,
1995 and the Closing Date, and no material adverse change in the Business or the
prospects of the Business, between December 31, 1995 and the Closing Date (and
if the Closing Date is extended by Sellers pursuant to Section 1.4, there shall
have been no material adverse change in the Business, or the prospects of the
Business, between May 31, 1996 and the Closing Date).
Section 6.12 Opinion of Seller's Counsel. Seller shall have delivered the
opinion of Seller's counsel, Warner & Stackpole LLP, substantially in the form
of Exhibit 6.12 hereto.
Section 6.13 Further Documents. Sellers shall have executed and delivered to
Buyer such bills of sale, assignments and other documents, instruments,
agreements, and certificates as may reasonably be needed to carry out the
transactions contemplated by this Agreement, including such documents,
instruments and agreements as Buyer's general counsel may reasonably request and
prepare in connection therewith.
Notwithstanding any provision herein to the contrary, Buyer shall, if requested
by Seller, waive the requirement of landlord consent in respect of any or all of
the Leases, as provided in Section 6.4, provided that:
(i) If the landlord of the Leased Space at (a) Interstate Commerce
Center, Ft. Lauderdale, (b) West 26th Street, Hialeah, or (c) 31 Monsignor
O'Brien Highway, Cambridge
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asserts that a lease is in default because of the assignment to Buyer
without the consent of such landlord, Sellers and Stockholder shall take all
reasonable steps to defend Buyer's right to continue to occupy the Leased Space
in accordance with the terms of each Lease, and shall be responsible for the
cost of any judgment in favor of, or settlement with, such landlord. Buyer will
pay rent for any premises in accordance with the rent specified in any Lease
subject to such assertion as long as it continues to occupy the space. If Buyer
is required to vacate any of such premises because the assignment of the Lease
to Buyer constituted a default thereunder, Buyer shall bear equally with Sellers
and Stockholder the cost of relocation of storage cartons and racking systems to
new space.
(ii) If the landlord of the Leased Space at 415 E Street, Boston
asserts that the lease is in default because of the assignment to Buyer without
the consent of the landlord, Sellers and Stockholder shall take all reasonable
steps to defend Buyer's right to continue to occupy the Leased Space and shall
be responsible for the cost of any judgment in favor of, or settlement with,
such landlord, provided that Sellers and Stockholder shall not be required to
expend more than $25,000 in legal fees in such defense. Buyer will pay the rent
as specified in the Lease as long as it continues to occupy the Leased Space. If
Buyer is forced to vacate the space, Sellers and Stockholder will reimburse
Buyer for the first $25,000 of relocation costs.
Buyer shall have the right to participate in any defense of its right to occupy
the Leased Space, at its cost and expense.
(ARTICLE VII COMMENCES ON THE NEXT PAGE)
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ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS AND STOCKHOLDER
The obligation of Sellers and Stockholder to sell, assign, transfer and deliver
the Subject Assets to Buyer hereunder and to carry out the other transactions
contemplated hereby are, unless waived in writing by Sellers and Stockholder,
subject to the satisfaction at or prior to the Closing Date of the following
conditions:
Section 7.1 Accuracy of Representations and Performance of Conditions. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects at and as of the Closing Date with the
same force and effect as though made on and as of such Date; each and all of the
conditions and covenants to be performed or satisfied by Buyer hereunder at or
prior to the Closing Date shall have been duly performed or satisfied in all
material respects; and Buyer shall have furnished Sellers and Stockholder with
Buyer's certificate to that effect.
Section 7.2 Approval. Buyer shall deliver certified copies of resolutions
adopted by Buyer's Board of Directors pertaining to the authorization of this
Agreement and the consummation of the transactions contemplated herein, and a
certificate executed by the secretary or assistant secretary of Buyer as to the
due election, qualification and incumbency and genuine signatures of its
officers authorized to sign this Agreement or any document or certificates to be
delivered under it.
Section 7.3 Absence of Certain Litigation. On the Closing Date, no suit, action
or other proceeding, or injunction or final judgment relating thereto, shall be
threatened or pending before any court or governmental or regulatory official or
agency, in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby, and no investigation that might result in any
such suit, action or proceeding shall be pending.
Section 7.4 Opinion of Buyer's General Counsel. Buyer's General Counsel
shall have delivered his opinion substantially in the form of Exhibit 7.4
hereto.
Section 7.5 Payment of Purchase Price. Buyer shall have paid the Purchase
Price as specified in Section 2.2.
Section 7.6 Further Documents. Buyer shall have executed and delivered to
Sellers such documents, instruments, agreements, and certificates as may
reasonably be needed to carry out the transactions contemplated by this
Agreement, including such documents, instruments, agreements as Sellers' counsel
may reasonably request in connection therewith.
(ARTICLE VIII COMMENCES ON THE NEXT PAGE)
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ARTICLE VIII
THE CLOSING
Section 8.1 Closing and Closing Provisions. The Closing Date shall be July 17,
1996, or such other date as is provided herein, or such other date as the
parties may agree. The Closing shall be effected by delivery of documents at the
office of Warner & Stackpole, 75 State Street, Boston, Massachusetts 02109, and
payment of the Purchase Price as provided herein or in such other manner and at
such place as the parties may agree.
Section 8.2 Deliveries by Sellers and Stockholder. At or prior to the Closing,
Sellers and Stockholder shall execute and deliver to Buyer all of the
agreements, instruments, certificates and other documents designated as
conditions precedent and deliveries precedent to Buyer's obligation to close
under this Agreement or to carry out the transactions contemplated hereby.
Section 8.3 Deliveries by Buyer. At the Closing Buyer shall deliver to Sellers
and Stockholder the Purchase Price, subject to adjustments as permitted by this
Agreement, in the manner and form provided for in this Agreement, and all the
certificates and other documents designated as conditions precedent and
deliveries precedent to Sellers' obligation to close under this Agreement.
(ARTICLE IX COMMENCES ON NEXT PAGE)
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ARTICLE IX
POST-CLOSING MATTERS
Section 9.1 Records of the Business. For a period of four years following the
Closing Date or for such longer period as the statute of limitations applicable
to claims for taxes relating to the Business for any period through the Closing
Date shall be extended (through voluntary extension or otherwise), Buyer shall
grant to Sellers and their representatives, at Sellers' request, access to and
the right to make copies of those records and documents which report the conduct
of the Business or the results thereof as may be necessary in connection with
Sellers' affairs or the Business. Sellers shall reimburse Buyer for its
reasonable copying costs. If Sellers notify Buyer that Sellers require retention
of such records beyond four years, Sellers shall have the right to take such
records or pay Buyer's customary storage charges for such post-four-year period.
Sellers shall, for at least two years after the Closing Date, retain copies of
all records of the Business retained by Sellers, and shall grant access thereto
to Buyer upon reasonable request.
Section 9.2 Incidental Use of "Fortress" Name. Buyer shall have the right to use
the "Fortress" name and variants thereof, and any Seller logo imprinted on
consumable items of the Subject Assets, such as stationery, invoices, manifests
and the like so long as supplies last or such items are useful. Buyer shall not
be required to discontinue the use of any cartons currently stored in the
facilities or included in the Subject Assets which have the "Fortress" name or
logo printed thereon. Buyer shall remove signs containing the "Fortress" name
from the Leased Buildings and remove or paint over the "Fortress" name and logo
on vehicles within sixty days after the Closing Date. Until such vehicle
repainting, Sellers and Stockholder shall be identified as additional insureds
on Buyer's auto liability insurance policy, and Buyer shall deliver to
Stockholder a certificate to such effect.
Section 9.3 Removal from Certain Locations. Fortress-Boston utilizes space at
its facility 99 Boston Street, Boston, Massachusetts for storage of hard copy
records and tapes in connection with the Business, as well as for the operation
of other businesses not included in the Subject Assets. Buyer shall remove all
hard copy records (approximately 8300 cartons) from the 99 Boston Street
facility within 30 days after the Closing Date, and shall remove all tape
records (approximately 18,000 tapes) from such facility within 90 days after the
Closing Date. In addition, Fortress-Miami utilizes space in its building at 1629
Northeast First Avenue, Miami, Florida for storage of hard copy materials and
tapes in connection with the Business as well as operation of other businesses
not included in the Subject Assets. Buyer shall have the right to keep the hard
copy records presently on floors 4 and 8 of the Miami building and in Building A
(approximately 32,000 cubic feet), and the tapes currently stored in the
second-floor vault, in such locations until December 31, 1997 without payment of
rent or other charges. Buyer shall remove all hard copy records currently on the
sixth floor of the Miami building either (i) to locations on floors 4 and 8 of
the Miami building (to the extent there are currently existing vacant racked
spaces) or (ii) to locations outside the Miami building. Such sixth floor
removal (approximately 10,000 cubic feet) shall be completed within 90 days
after Closing.
Sellers shall reimburse Buyer at the rate of $2.00 per carton for the aggregate
number of cartons of hard copy materials which Buyer must relocate from the
Sellers' facilities in excess of 19,000 cartons.
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Fortress-Boston stores museum-quality storage items in approximately 5,000
square feet of the Leased Premises at 31 Monsignor O'Brien Highway, Cambridge,
Massachusetts. Sellers shall remove all such materials from the Leased Premises
within 120 days after the Closing Date, and shall use their best efforts to
remove the most valuable of such items as quickly as practicable. In addition,
Sellers shall remove the Dimensional Parking Technology Corporation containers
from the Hialeah property parking lot and the related jig from the Bowen
Building parking lot, within 120 days after the Closing Date.
As to all relocation activities described in the preceding paragraphs, the
removing party shall have access to the other party's facilities during regular
business hours, and shall observe other party's reasonable work rules and
security procedures. Buyer shall remove related racking and shelving from the
facilities as well as the stored materials. During the relocation period, the
removing party shall also have access to the materials for purposes of customer
retrievals, refiles and performance of similar customer-requested services. The
removing party shall not be required to pay any fees or rent for use of the
space occupied by the relocation materials. The removing party shall indemnify
the other party for any injury to persons or damage to property caused by the
removing party's employees or agents during the course of relocation activity.
Each party shall have the right to have its personnel monitor the removing
party's activities when accessing or removing material in order to avoid damage
or loss to its customers' stored material.
During the period when Buyer's customers' records are in Sellers' premises as
permitted hereunder, Buyer shall have twenty-four hour access (including
weekends and holidays) to Sellers' facilities to retrieve such records as may be
requested by Buyer's customers for immediate delivery. Sellers may at their
election arrange for Sellers' personnel to escort Buyer's personnel in Sellers'
premises. Buyer shall observe all reasonable security and operating rules
adopted by Sellers with respect to operations in Sellers' premises. In the event
Buyer requires after-hours (including weekend and holidays) access more than 12
times in any twelve-month period, Buyer shall pay Fortress-Miami for each
succeeding after-hours access a fee equal to Fortress-Miami's customary
emergency vault access charge.
Section 9.4 Additional Financial Statements. In the event that Buyer is required
by any law (including securities laws), statute, regulation or securities
listing agreement to file or disclose financial information related to the
Business (including audited financial information) which is in addition to
information prepared by Sellers and previously delivered to Buyer, Sellers shall
make available to Buyer any relevant information related to the Business or the
Subject Assets not previously delivered to Buyer and otherwise cooperate with
Buyer, at Buyer's expense, in preparing such information. Buyer shall provide
not less than thirty days' notice to Sellers and Stockholder of its anticipated
need for commencement of preparation of such information. Sellers and
Stockholder shall use their reasonable efforts to cause their accounting staff
and independent public accountants to assist Buyer in preparing required audits,
provided that Sellers' and Stockholder's accounting staff shall not be required
to devote such time thereto that their ability to provide regular financial
services is materially affected. If requested by Buyer, Sellers shall use
commercially reasonable efforts to obtain Sellers' auditors' consent to Buyer's
use of financial statements which they have audited, or shall consent to
Sellers' auditors' preparing required audits for Buyer; and Buyer shall have the
right to file and disclose such information as required by any such law,
statute, regulation or securities listing agreement.
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Section 9.5 Tax Lien Waiver. Fortress-Boston and Stockholder shall obtain the
tax lien waiver referred to in Section 6.9 prior to August 31, 1996 and shall
deliver the original thereof to Buyer promptly upon obtaining it.
Section 9.6 Services of William Snyder. After the Closing Sellers shall make
available to Buyer the services of William Snyder for purposes of customer
communications, employee communications and consulting with respect to
administration of the Business for ninety days after the Closing Date. Such
services shall be without charge and shall not exceed 120 hours during the 90
day period. Seller shall not be required to make William Snyder available for
more than 40 hours in each 30-day period after the Closing. Sellers and
Stockholder shall not be liable or responsible for any action or decision made
by William Snyder in the performance of such services unless it is undertaken in
bad faith at the direction of Sellers.
Section 9.7 Services of Dennis Biddle. Sellers shall make Dennis Biddle
available for up to 90 days, without charge, to Buyer as needed to complete the
conversion of Fortress-Miami's operation to Infotrac. Sellers and Stockholder
shall not be liable or responsible for any action taken by Dennis Biddle or for
the results of his work unless it is undertaken in bad faith at the direction of
Sellers.
Section 9.8 Post-Closing Storage of Sellers' Records. Buyer will store Sellers'
and Stockholder's records for sixty days after the Closing Date at no charge.
Thereafter, any of Sellers' or Stockholder's records stored or serviced by Buyer
will be charged standard storage and service charges except as the parties may
otherwise agree. All storage and service will be pursuant to the terms and
conditions of Buyer's printed contract, including limitation of liability.
Sellers and Stockholders may terminate storage at any time on thirty days'
notice.
Section 9.9 Voice Mail System. Fortress-Miami uses a Telerad voice mail system;
some elements of the system are shared by the Business and Fortress-Miami's
museum quality storage business. The voice mail system is included in the
Subject Assets, but Fortress-Miami shall have the right to continue to use the
shared elements of the systems until September 17, 1996, by which date
Fortress-Miami will have acquired separate items of equipment to substitute for
the shared elements, so that both Buyer and Fortress-Miami will have stand-alone
systems.
(ARTICLE X COMMENCES ON THE NEXT PAGE)
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ARTICLE X
TERMINATION
Section 10.1 Termination of Agreement. The parties may terminate this
Agreement as provided below:
(i) Buyer, Sellers and Stockholder may terminate
this Agreement by mutual written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving
written notice to Sellers and Stockholder on or before 1:00 p.m. on July
15, 1996 if Buyer's consultants report that remedial action is required to bring
the Leased Space or the racking therein into compliance with Environmental Laws
and Regulations or laws or ordinances concerning construction, fire prevention,
occupancy or safety.
(iii) Buyer may terminate this Agreement by giving
written notice to Sellers and Stockholder at any time prior to the Closing
(A) in the event Sellers and/or Stockholder has breached any material
representation, warranty, or covenant contained in this Agreement in any
material respect, Buyer has notified Sellers and Stockholder of the breach, and
the breach has continued without cure for a period of 10 days after the notice
of breach, or (B) if the Closing shall not have occurred on or before July 31,
1996 (or August 19, 1996 if Sellers have elected to extend the Closing Date as
provided in Section 1.4), by reason of the failure of any condition precedent
under Article VI hereof (unless the failure results primarily from Buyer itself
breaching any representation, warranty, or covenant contained in this
Agreement); and
(iv) Sellers and Stockholder may terminate this
Agreement by giving written notice to Buyer at any time prior to the
Closing (A) in the event Buyer has breached any material representation,
warranty, or covenant contained in this Agreement in any material respect,
Sellers and Stockholder have notified Buyer of the breach, and the breach has
continued without cure for a period of 10 days after the notice of breach or (B)
if the Closing shall not have occurred on or before July 31, 1996 (or August 19,
1996 if Sellers have elected to extend the Closing Date as provided in Section
1.4), by reason of the failure of any condition precedent under Article VII
hereof (unless the failure results primarily from Sellers or Stockholder
themselves breaching any representation, warranty, or covenant contained in this
Agreement).
Section 10.2 Effect of Termination. (a) If this Agreement is terminated pursuant
to Section 10.1(i), (ii) or (iii), the escrow fund held by the Escrow Agent
shall be disbursed to Buyer; except that if Buyer terminates this Agreement
pursuant solely to Section 10.1(ii)(B), Sellers shall be entitled to $100,000 of
the escrow fund).
(b) If Buyer rightfully terminates this Agreement pursuant to
Section 10.1(iii), in addition to release of the funds held by the Escrow Agent,
Sellers and Stockholder shall be jointly and severally liable to Buyer for
liquidated damages suffered by Buyer due to Sellers' or Stockholder's breach in
the amount of $500,000; provided that Sellers and Stockholder shall not be
liable for liquidated damages, or other damages, if the reason for termination
is (i) Sellers' inability to obtain the consent of any landlord as required by
Section 6.4, (ii) Sellers' inability to provide good title to the Bowen Property
as required by Section 6.5, (iii) Sellers' inability to provide good
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standing certificates as provided in Section 6.8 (provided that Sellers
shall provide such certificates as promptly as practicable after closing, as
provided in Section 3.1), (iv) Sellers' inability to release Encumbrances in
respect of the Bowen Property as provided in Section 6.10 (provided that Buyer
does not hereby waive any of such conditions to closing) or (v) Buyer's
determination that any representation or warranty was materially incorrect or
omitted to state information material to the Business.
(c) If Sellers or Stockholder rightfully terminate this
Agreement pursuant to Section 10.1(iv), then Seller shall be entitled to receive
the funds held by the Escrow Agent under the Earnest Money Escrow Agreement as
liquidated damages.
(d) Neither party shall be liable to the other hereunder for
damages of any kind or character for breach leading to termination of this
Agreement other than the liquidated damages provided in clauses (b) and (c)
above.
Section 10.3 Risk of Loss. Prior to Closing the risk of loss, damage or
destruction with respect to the Subject Assets shall be borne solely by Seller.
If at the Closing Date the Subject Assets shall have suffered loss, damage or
destruction to an extent which materially affects the value thereof, Buyer shall
have the right at its election to terminate this Agreement (in which case the
funds held by the Escrow Agent shall be returned to Buyer and the parties shall
have no further liability to each other), or complete the transactions with such
adjustment of the Purchase Price as may be agreed in good faith between Buyer
and Seller in advance.
(ARTICLE XI COMMENCES ON THE NEXT PAGE)
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ARTICLE XI
INDEMNIFICATION
Section 11.1 General Indemnification Obligation of Sellers and Stockholder. From
and after the Closing, Sellers and Stockholder jointly and severally shall
reimburse, indemnify and hold harmless Buyer and its successors and assigns
(each an "Indemnified Buyer Party") against and in respect of:
(a) any and all damages, losses, deficiencies, liabilities,
costs and expenses incurred or suffered by any Indemnified Buyer Party that
result from, relate to or arise out of:
(i) any and all liabilities and obligations of Sellers
of any nature whatsoever (including liabilities for Taxes) relating to the
operation of the Business prior to the Effective Time, except for those
liabilities and obligations of Sellers which Buyer specifically assumes pursuant
to this Agreement;
(ii) any and all actions, suits, claims, or legal,
administrative, arbitration, governmental or other proceedings or
investigations against any Indemnified Buyer Party to the extent relating to
Sellers or Stockholder or the Business in which the principal event giving rise
thereto occurred prior to the Closing Date or which result from or arise out of
any action or inaction prior to the Closing Date of Sellers or Stockholder or
any director, officer, employee, agent, representative or subcontractor of
Sellers or Stockholder, except for those which Buyer specifically assumes
pursuant to this Agreement; or
(iii) any misrepresentation, breach of warranty or
nonfulfillment of any agreement or covenant on the part of Sellers or
Stockholder under this Agreement, or from any misrepresentation in or omission
from any certificate, schedule, statement, document or instrument furnished to
Buyer at the Closing pursuant hereto; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses (including, without limitation, reasonable legal fees and expenses)
incident to any of the foregoing or to the enforcement of this Section 11.1.
Notwithstanding anything herein contained to the contrary,
Sellers and Stockholder shall have no obligations to Buyer under Section
11.1(a)(iii) with respect to any claim of which Buyer gives notice to Sellers or
Stockholder later than the last day of the twelfth month after the Closing Date.
Notwithstanding any other provision herein contained, Sellers
and Stockholder shall not have any indemnification obligation with respect to
the first $120,000 of total claims incurred under Section 11.1 unless total
aggregate claims exceed such amount, in which case the indemnification
obligations of Seller shall include all liabilities incurred, without regard to
the $120,000 threshold. In no event shall Seller's indemnification obligation
exceed $6,000,000.
In case any event shall occur which would otherwise entitle
either party to assert a claim for indemnification hereunder, no loss shall be
deemed to have been sustained by such party to the extent of (i) any tax savings
realized by such party with respect thereto, or (ii) any after-tax
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proceeds received by such party from any third party, including but not
limited to any insurance carrier.
Section 11.2 General Indemnification Obligation of Buyer. From and after the
Closing, Buyer will reimburse, indemnify and hold harmless Sellers and
Stockholder and their successors or assigns (an "Indemnified Seller Party")
against and in respect of:
(a) any and all damages, losses, deficiencies, liabilities,
costs and expenses incurred or suffered by any Indemnified Seller Party that
result from, relate to or arise out of:
(i) any and all liabilities and obligations of Sellers
which have been specifically assumed by Buyer pursuant to this Agreement;
(ii) any and all liabilities and obligations arising
from the operation of the Business after the Closing Date; or
(iii) any misrepresentation, breach of warranty or
non-fulfillment of any agreement or covenant on the part of Buyer under
this Agreement, or from any misrepresentation in or omission from any
certificate, schedule, statement, document or instrument furnished to Sellers or
Stockholder pursuant hereto or in connection with the negotiation, execution or
performance of this Agreement; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses (including, without limitation, reasonable legal fees and expenses)
incident to any of the foregoing or to the enforcement of this Section 11.2.
Notwithstanding anything herein contained to the contrary,
Buyer shall have no obligations to Sellers or Stockholder under Section
11.2(a)(iii) with respect to any claim of which Sellers or Stockholder gives
notice to Buyer later than the last day of the twelfth month after the Closing
Date.
In case any event shall occur which would otherwise entitle
either party to assert a claim for indemnification hereunder, no loss shall be
deemed to have been sustained by such party to the extent of (i) any tax savings
realized by such party with respect thereto, or (ii) any after-tax proceeds
received by such party from any third party, including but not limited to any
insurance carrier.
Section 11.3 Method of Asserting Claims, Etc. In the event that any claim or
demand for which Sellers or Stockholder (the "Indemnifying Party") would be
liable to an Indemnified Buyer Party hereunder is asserted against or sought to
be collected from an Indemnified Buyer Party by a third party, the Indemnified
Buyer Party shall promptly notify Stockholder of such claim or demand,
specifying the nature of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible, which estimate shall not be
conclusive of the final amount of such claim and demand (the "Claim Notice").
Indemnifying Party shall have thirty days from the personal delivery or mailing
of the Claim Notice (the "Notice Period") to notify the Indemnified Buyer Party
(A) whether or not it disputes its liability to the Indemnified Buyer Party
hereunder with respect to
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such claim or demand and (B) notwithstanding any such dispute, whether or
not it desires, at its sole cost and expense, to defend the Indemnified Buyer
Party against any such claim or demand.
(a) If Indemnifying Party disputes its obligation to
indemnify Buyer with respect to such claim or demand or the amount thereof
(whether or not Indemnifying Party desires to defend the Indemnified Buyer Party
against such claim or demand as provided in paragraphs (b) and (c) below), such
dispute shall be resolved in accordance with Section 11.5 hereof. Pending the
resolution of any dispute by Indemnifying Party of its liability with respect to
any claim or demand, such claim or demand shall not be settled without the prior
written consent of both Buyer and Stockholder, which consent shall not be
unreasonably withheld or delayed.
(b) In the event that Indemnifying Party notifies the
Indemnified Buyer Party within the Notice Period that it desires to defend the
Indemnified Buyer Party against such claim or demand then, except as hereinafter
provided, Indemnifying Party shall have the right to defend the Indemnified
Buyer Party, at the Indemnifying Party's sole cost and expense, by appropriate
proceedings, which proceedings shall be promptly settled or prosecuted by it to
a final conclusion in such a manner as to avoid any risk of Indemnified Buyer
Party becoming subject to further liability in respect of such matter; provided,
however, Indemnifying Party shall not, without the prior written consent of the
Indemnified Buyer Party (which consent shall not be unreasonably withheld or
delayed), consent to the entry of any judgment against the Indemnified Buyer
Party or enter into any settlement or compromise which does not include, as an
unconditional term thereof, the giving by the claimant or plaintiff to the
Indemnified Buyer Party of a release, in form and substance satisfactory to the
Indemnified Buyer Party, as the case may be, from all liability in respect of
such claim or litigation. If any Indemnified Buyer Party desires to participate
in, but not control, any such defense or settlement, it may do so at its sole
cost and expense.
(c) (i) If Indemnifying Party elects not to defend the
Indemnified Buyer Party against such claim or demand, whether by not giving the
Indemnified Buyer Party timely notice as provided above or otherwise, then the
amount of any such claim or demand as reduced to judgment or settlement, or if
the same be defended by Indemnifying Party or by the Indemnified Buyer Party
(but none of the Indemnified Buyer Party shall have any obligation to defend any
such claim or demand), then that portion thereof as to which such defense is
unsuccessful, in each case, shall be conclusively deemed to be a liability of
Indemnifying Party hereunder, unless Indemnifying Party shall have disputed its
liability to the Indemnified Buyer Party hereunder, as provided in (a) above, in
which event such dispute shall be resolved as provided in Section 11.5 hereof.
(ii) In the event an Indemnified Buyer Party should have
a claim against Indemnifying Party hereunder that does not involve a claim
or demand being asserted against or sought to be collected from it by a third
party, the Indemnified Buyer Party shall promptly send a Claim Notice with
respect to such claim to Indemnifying Party. If Indemnifying Party disputes its
liability with respect to such claim or demand, such dispute shall be resolved
in accordance with Section 11.5 hereof.
(d) All claims for indemnification by an Indemnified Seller
Party under this Agreement shall be asserted and resolved under the procedures
set forth above substituting in the appropriate place "Indemnified Seller Party"
for "Indemnified Buyer Party", "Buyer" for "Indemnifying Party" and variations
thereof.
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Section 11.4 Payment. Upon the determination of liability under Section 11.3 or
11.5 hereof, the appropriate party shall pay to the other, as the case may be,
within ten days after such determination, the amount of any claim for
indemnification made hereunder. In the event that the indemnified party is not
paid in full for any such claim pursuant to the foregoing provisions promptly
after the other party's obligation to indemnify has been determined in
accordance herewith, it shall have the right, notwithstanding any other rights
that it may have against any other person, firm or corporation, to set off the
unpaid amount of any such claim against any amounts owed by it under any
agreements entered into pursuant to this Agreement. Upon the payment in full of
any claim, either by setoff or otherwise, the entity making payment shall be
subrogated to the rights of the indemnified party against any person, firm or
corporation with respect to the subject matter of such claim.
Section 11.5 Compliance with Bulk Sales Law. Buyer, Sellers and Stockholder
hereby waive compliance by Sellers with the bulk sales law and any other similar
laws in any applicable jurisdiction in respect of the transactions contemplated
by this Agreement. Sellers shall indemnify Buyer from, and hold it harmless
against, any liabilities, damages, costs and expenses resulting from or arising
out of (i) the parties' failure to comply with any of such laws in respect of
the transactions contemplated by this Agreement, or (ii) any action brought or
levy made as a result thereof, other than those liabilities which have been
expressly assumed, on such terms as expressly assumed, by Buyer pursuant to this
Agreement.
Section 11.6 Other Rights and Remedies Not Affected. The indemnification rights
of the parties under this Article XI are the sole and exclusive rights and
remedies available to the parties at law or in equity or otherwise for any
misrepresentation, breach of warranty or failure to fulfill any agreement or
covenant hereunder on the part of any party hereto.
(ARTICLE XII COMMENCES ON THE NEXT PAGE)
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ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1 Commissions. Each party represents and warrants that, except as
stated in the following sentence, it has dealt with no broker or finder in
connection with this Agreement and, insofar as it knows, no broker or other
person is entitled to any commission or finder's fee in connection with the
consummation of the transactions contemplated by this Agreement. Sellers and
Stockholder have retained the services of The Bigelow Company, Incorporated in
connection with the transactions contemplated hereby, pursuant to a separate
agreement. Sellers and Stockholder shall be solely responsible for fees and
commissions payable to such entity.
Section 12.2 Expenses. Except as otherwise provided herein, each of the parties
shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in closing and carrying out
the transactions contemplated by this Agreement.
Section 12.3 Headings; Schedules. The subject headings of the sections and
subsections of this Agreement are included only for purposes of convenience, and
shall not affect the construction or interpretation of any of its provisions.
Any disclosure made by Sellers or Stockholder in a Schedule hereto shall be
deemed a disclosure on all Schedules hereto.
Section 12.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Signatures on this
Agreement delivered by fax or telecopier shall be considered original signatures
for purposes of effectiveness of this Agreement.
Section 12.5 Rights of Parties. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action against any party to this Agreement.
Section 12.6 Assignment. Except as provided in the next following paragraph, the
rights and obligations of the parties to this Agreement or any interest in this
Agreement shall not be assigned, transferred, hypothecated, pledged or otherwise
disposed of without the prior written consent of the nonassigning party which
consent may be withheld in such party's sole discretion.
This Agreement and all rights and obligations of Buyer hereunder may be assigned
or transferred by Buyer to any 100%-owned affiliate of Buyer, in which event all
instruments, documents and agreements required to be delivered to Buyer
hereunder shall be delivered to and run for the benefit of such entity, and such
entity (rather than Buyer) shall execute and delivery any instruments, documents
or arguments required to be executed and delivered by Buyer hereunder. In the
alternative, Buyer may elect to assign its rights and obligations with respect
to a portion of the Business (such as the Subject Assets of Fortress-Miami) to
an affiliate.
Section 12.7 Survival of Representations and Warranties. All representations,
warranties, covenants and agreements shall survive the Closing until the end of
the twelfth month after the Closing Date, except for ongoing agreements to
indemnify the other party for post-Closing actions.
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Section 12.8 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if delivered by telecopier (with notice of
receipt), or if served personally on the party to whom notice is to be given; or
if delivered by overnight private carrier, on the date of delivery; or on the
third day after mailing if mailed to the party to whom notice is to be given by
first class mail, certified, postage prepaid, and properly addressed as
following:
To Seller:
The Fortress Corporation
One Design Center Place
Suite 715
Boston, Massachusetts 02210-2313
Attn: James Levis
Telecopier: (617) 790-3077
With a copy (which shall not constitute notice but which is nonetheless required
for notice) to:
Robert W. Holmes, Jr., Esq.
Warner & Stackpole LLP
75 State Street
Boston, Massachusetts 02109
Telecopier: (617) 951-9151
To Buyer:
Iron Mountain Records Management, Inc.
745 Atlantic Avenue
10th Floor
Boston, Massachusetts 02111-2735
Attention: David S. Wendell
Telecopier: (617) 350-7881
With a copy (which shall not constitute notice but which is nonetheless required
for notice) to:
Garry B. Watzke, Esq.
745 Atlantic Avenue
10th Floor
Boston, Massachusetts 02111-2735
Telecopier: (617) 350-7881
Any party may change its address for purposes of this paragraph by giving the
other parties written notice of the new address in the manner set for above.
Section 12.9 Applicable Law and Remedies. The terms, conditions and other
provisions of this Agreement and any documents or instruments delivered in
connection with it shall be governed and construed according to the internal
laws of the Commonwealth of Massachusetts (other than the choice of law rules
thereof) except as to matters of law concerning the internal corporate affairs
of any corporate entity which is a party to or the subject of this Agreement,
and as to those matters, the
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jurisdiction under which such entity derives its powers shall govern. All
remedies at law, in equity, by statute or otherwise shall be cumulative and may
be enforced concurrently or from time to time and, subject to the express terms
of this Agreement, the election of any remedy or remedies shall not constitute a
waiver of the right to pursue any other available remedies. The parties agree
that all disputes arising under this Agreement shall be settled through
arbitration procedures as described in Section 11.5.
Section 12.10 Expenses of Enforcement. If either party initiates an action to
enforce a provision of this Agreement or any agreement, instrument or document
made or delivered at Closing in connection herewith, or for damages by reason of
an alleged breach of any provision, the prevailing party shall be entitled to
receive from the other party all costs and expenses, including, without
limitation, reasonable attorneys' fees and costs, incurred in connection with
such action.
Section 12.11 Additional Instruments and Assistance. Each party hereto shall
from time to time execute and deliver such further instruments, provide
additional information and render such further assistance as the other party or
its counsel may reasonably request in order to complete and perfect the
transactions contemplated herein.
Section 12.12 Severability. If any provision of this Agreement is held or deemed
to be invalid or unenforceable to any extent when applied to any person or
circumstance, such invalidity or unenforceability shall not affect the remaining
provisions of this Agreement; the remaining provisions hereof and the
enforcement of such provision with respect to other persons or circumstances, or
to another extent, shall not be affected thereby and each provision hereof shall
be enforced to the fullest extent allowed by law. Moreover, the invalid or
inoperative provision shall be reformed and construed so that it shall be valid
and enforceable to the maximum extent permitted.
Section 12.13 Pronouns and Terms. In this Agreement, the singular shall include
the plural, the plural the singular, and the use of any gender shall include all
genders.
Section 12.14 Taxes. The party upon whom state law imposes the economic burden
thereof shall pay any Massachusetts or Florida sales taxes imposed on the
transaction. Buyer and Seller shall each pay its portion prorated as of the
Effective Time of state and local ad valorem taxes on the Business.
Section 12.15 Disclosure. No representation or warranty made by either party in
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statement of facts contained within
it not misleading.
Section 12.16 Entire Agreement, Amendments and Waivers. This Agreement, together
with all Exhibits and Schedules hereto, constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, of the parties (including the letter of intent dated
July 3, 1996), and there are no representations, warranties or other agreements
among the parties in connection with the subject matter hereof except as set
forth specifically herein or contemplated hereby. No supplement, modification or
wavier of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether
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or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
on the date first above written.
The Fortress Corporation Iron Mountain Records Management, Inc.
By /s/ By /s/
----------------------------------- -----------------------------------
James N. Levis C. Richard Reese
Chief Executive Officer Chairman
The Fortress-Boston Corporation
By /s/
-----------------------------------
James N. Levis
Chief Executive Officer
The Fortress-Miami Corporation
By /s/
-----------------------------------
James N. Levis
Chief Executive Officer
The Fortress Corporation-Fort Lauderdale, Inc. hereby joins this Agreement
for purposes of confirming its agreement to assign and transfer to Buyer its
interest as tenant in the building at Interstate Commerce Center, Ft.
Lauderdale, Florida, which is its only assets.
The Fortress Corporation-Fort Lauderdale, Inc.
By /s/
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34
STOCK PURCHASE AND SALE AGREEMENT
among
Iron Mountain Records Management, Inc.
(Purchaser)
and
the Shareholders of
Data Archive Services of Miami, Inc.
(DAS-Miami)
and
Data Archive Services, Inc.
(DAS-Ft. Lauderdale)
As of August 9, 1996
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TABLE OF CONTENTS
1. DEFINITIONS..............................................................1
2. PURCHASE AND SALE OF THE COMPANIES SHARES................................2
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES..................4
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION...............16
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.............................17
6. OTHER COVENANTS AND AGREEMENTS..........................................18
7. CONDITIONS TO CLOSING...................................................26
8. TERMINATION AND ABANDONMENT.............................................29
9. INDEMNIFICATION.........................................................29
10. MISCELLANEOUS..........................................................36
11. PRINCIPAL SHAREHOLDER..................................................40
Disclosure Schedule
Exhibit 6.3 Auditing Agreements
Exhibit 7.1(f) Seller's Opinion - Hodges & Carry
Exhibit 7.1(j) Noncompetition and Confidentiality Agreement
Exhibit 7.2(f) Purchaser's Opinion - Garry B. Watzke, Esq.
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STOCK PURCHASE AND SALE AGREEMENT
---------------------------------
This Agreement entered into as of August ____, 1996 by and among Iron
Mountain Records Management, Inc., a Delaware corporation ("Purchaser"), and the
individuals whose signatures appear on the signature page hereof (the
"Shareholders") as stockholders of Data Archive Services of Miami, Inc., a
Florida corporation ("DAS-Miami"), and Data Archive Services, Inc., a Florida
corporation ("DAS-Ft. Lauderdale" and together with DAS-Miami, the "Companies").
R E C I T A L S
The Shareholders in the aggregate constitute the owners of all the
issued and outstanding capital stock of DAS-Miami and DAS-Ft. Lauderdale. Each
Shareholder owns that number of shares of the capital stock of the Companies as
set forth in Section 1 of the Disclosure Schedule (as hereinafter defined).
This Agreement contemplates a transaction in which Purchaser will
purchase from the Shareholders, and the Shareholders will sell to Purchaser, all
of the issued and outstanding capital stock of DAS-Miami and DAS-Ft. Lauderdale
for a price, a portion of which is contingent upon certain matters, as herein
set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
provisions herein made, the parties agree as follows:
1. DEFINITIONS.
1.1 "Closing" shall mean the closing of the transactions
contemplated by this Agreement.
1.2 "Closing Date" shall mean August 9, 1996 or such other date as
the parties may agree.
1.3 "Companies Shares" shall mean the capital stock of DAS-Miami
and DAS-Ft. Lauderdale issued and outstanding on the Closing Date.
1.4 "Disclosure Schedule" shall mean the Disclosure Schedule
annexed hereto and made a part hereof.
1.5 "Eligible Revenues" shall mean all revenues recognized by the
Companies in accordance with generally accepted accounting principles, including
revenues from storage, service and sale of cartons and other materials, but
excluding
(a) permanent removal revenue related to termination of a
customer's relationship with the Companies;
(b) special projects revenue which exceeds the average
percentage of special projects revenue recognized by the Companies on a combined
basis in the months of January through July, 1996; and
(c) product sales revenue which exceeds the average percentage
of product sales revenue recognized by the Companies on a combined basis in the
months of January through July, 1996; and
(d) Storage and service revenues in the month of July in respect
of a terminating customer.
In addition, there shall be excluded from Eligible Revenues amounts
recognized for provision of storage boxes and indexing services related to the
FDMS account unless the pricing for such indexing services is increased to at
least $0.10 per batch (as compared to present pricing of $0.50 per box).
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1.6 "The Companies' or Shareholders' Knowledge" or "to the
knowledge of the Companies' or Shareholders'" or phrases of similar import means
information of which either the Principal Shareholder or Christopher Howard is
aware or should be aware after reasonable inquiry of the key personnel who
regularly perform services for the Companies whose responsibilities would make
the information in question within their purview.
1.7 "Principal Shareholder" shall mean P. Douglas McCraw.
1.8 "Purchase Price" shall mean the total sum to be paid for all
the Companies Shares, as described in Section 2.2.
2. PURCHASE AND SALE OF THE COMPANIES SHARES.
2.1 Basic Transaction. On and subject to the terms and conditions
of this Agreement, Purchaser agrees to purchase from each of the Shareholders,
and each of the Shareholders agrees to sell to Purchaser, all of his or her
shares of DAS-Miami and DAS-Ft. Lauderdale for the consideration specified in
Section 2.2.
2.2 Purchase Price. The Purchase Price for all of the issued and
outstanding shares of capital stock of DAS-Miami and DAS-Ft. Lauderdale shall
consist of an initial payment (the "Initial Payment") and, if earned, one or two
contingent payments (each a "Contingent Payment"), as follows:
(a) Initial Payment. Subject to adjustments to the Purchase
Price as provided herein, the Initial Payment shall be equal to (i)
(b) Purchase Price Adjustments. Notwithstanding any provision
herein to the contrary, the Purchase Price shall be subject to adjustment for
the matters described in Sections 2.2(e), 6.3(f) and 6.3(g).
(c) Contingent Payments.
(i) The maximum aggregate amount of the Contingent Payments
(the "Maximum Contingent Payment") shall be .
(ii) A Contingent Payment shall be payable, if at all, only
if aggregate Eligible Revenues received from the existing customer and
prospective customers of the Companies referenced in Section 2.2 of the
Disclosure Schedule (the "Listed Customers") with respect to the months of
October, 1996 and/or January, 1997 exceed the aggregate of Eligible Revenues
received from Listed Customers for the month of July, 1996, and the amount of
each Contingent Payment shall be determined as follows.
(iii) If such aggregate Eligible Revenues in respect of the
Listed Customers in the month of October, 1996 exceed the aggregate Eligible
Revenues from the Listed Customers for July, 1996 as set forth in Section 2.2 of
the Disclosure Schedule, a first Contingent Payment shall be paid not later than
November 29, 1996 equal to (a) the excess of such aggregate Eligible Revenues
from Listed Customers for October, 1996 over the aggregate Eligible Revenues
from Listed Customers for July, 1996 (b) adjusted either to (y), if it is
determined that Eligible Revenues from all customers for July, 1996 (the "July
Eligible Revenues") were more than $148,550, add to Eligible Revenues from the
Listed Customers such excess of July Eligible Revenues over $148,550, or (z), if
it is determined that July Eligible Revenues were less than $148,550, subtract
from Eligible Revenues from the Listed Customers the difference between $148,550
and the July Eligible Revenues, which result shall be multiplied by 34.50. If
aggregate Eligible Revenues from Listed Customers in the month of January, 1997
exceed the aggregate Eligible Revenues from Listed Customers for the month of
October, 1996, a second Contingent Payment shall be paid not later than February
28, 1997 equal to such excess of such aggregate Eligible Revenues for January,
1997 over such aggregate Eligible Revenues for the month of October, 1996
multiplied by 34.50. In no event, however, shall the sum of the first and second
Contingent Payments exceed the Maximum Contingent Payment.
(iv) With each Contingent Payment Purchaser shall deliver to
Principal Shareholder a statement showing the Eligible Revenues received from
the Listed Customers, or from all the customers, as applicable in respect of
July Eligible Revenues, for the relevant month and other details showing how the
amount of the Contingent Payment was calculated. Principal Shareholder shall
have the right during business hours and upon reasonable notice to review and
audit Purchaser's books and records to verify that the calculation of the
Contingent Payment was performed properly; provided that Principal Shareholder
shall have no right of audit if the Maximum Contingent Payment shall have been
paid, and Principal Shareholder's right of audit shall terminate on March 31,
1997
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unless the audit was commenced prior to March 31, 1997 and in good faith
extends beyond such date, but not beyond April 30, 1997. Fees and expenses of
the audit shall be borne by the party whose position is not upheld in the audit.
(d) Miami/Ft. Lauderdale. The Purchase Price shall be allocated
between the Shareholders of DAS-Miami and DAS-Ft. Lauderdale as follows. The sum
of $ shall be allocated to each of DAS-Miami and DAS-Ft. Lauderdale.
There shall be subtracted from the amount so allocated to each Company an amount
equal to the reduction in Purchase Price, if any, to be made in respect of each
Company because of balance sheet adjustments to be made pursuant to Section 2.2
(e). The result of such calculation in respect of DAS-Miami shall be the
"DAS-Miami Purchase Price", and the result of such calculation in respect of
DAS-Ft. Lauderdale shall be the "DAS-Ft. Lauderdale Purchase Price". The
Shareholders of each Company shall share in the Purchase Price of each Company
pro rata in accordance with the number of shares of such Company held of record
on the Closing Date by such Shareholders as set forth in the Disclosure
Schedule. The Initial Payment and each Contingent Payment shall be allocated pro
rata between the Shareholders of DAS-Miami and DAS-Ft. Lauderdale in the same
ratio that the DAS-Miami Purchase Price bears to the DAS-Ft. Lauderdale Purchase
Price.
(e) The Companies' Closing Balance Sheet. As of July 31, 1996,
each of the Companies shall have (i) at least $1.00 of cash and (ii) current
assets (net of doubtful accounts receivable) equal to or greater than total
liabilities of such Company. If total liabilities of either Company exceed its
current assets, the Purchase Price with respect to such Company shall be reduced
dollar-for-dollar by such excess of total liabilities over current assets; and
if current assets of either Company exceed its total liabilities, the Purchase
Price with respect to such Company will be increased dollar-for-dollar. Any such
adjustment is hereinafter referred to as an "Adjustment".
(f) Escrow. An amount equal to the Maximum Contingent Payment
(the "Contingent Payment Escrow") shall be paid on the Closing Date to the law
firm of Alston & Bird (the "Escrow Agent") as escrow agent under an escrow
agreement among Purchaser, Principal Shareholder and Escrow Agent (the "Escrow
Agreement"). The first and second installments of the Contingent Payment shall
be disbursed to the Shareholders in accordance with the terms hereof, or
disbursed to Purchaser on March 31, 1997 (or later in the event of an audit
which extends beyond March 31, 1997 as provided in Section 2.2(c)(iv)) if and to
the extent that the amount of Contingent Payments earned is less than the
Maximum Contingent Payment, all as more fully described in the Escrow Agreement.
Interest accrued on the funds in escrow shall accrue and be paid pro rata to the
parties to whom funds are disbursed as if such funds were the property of the
payees from the date of deposit.
2.3 Procedure for Payment. The Initial Payment shall be paid by wire
transfer of immediately available funds to such account as each Shareholder may
designate in writing not less than two business days prior to the Closing Date;
or, if no such designation is made, by check to such Shareholder at his or her
address as set forth in Section 1 of the Disclosure Schedule. Payment of the
installments of the Contingent Payment, if any, shall be made by regular check
mailed by the Escrow Agent to each Shareholder at such Shareholder's address as
set forth in Section 1 of the Disclosure Schedule.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES. The
Shareholders represent and warrant to Purchaser that the statements
contained in this Section 3 are correct and complete in all material respects as
of the date of this Agreement and will be correct and complete in all material
respects as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 3),
except as set forth in the Disclosure Schedule. The Disclosure Schedule, where
relevant, is arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 3. Disclosure of a matter in any section or
paragraph of the Disclosure Schedule shall constitute disclosure of such matter
in each other paragraph or section of the Disclosure Schedule.
3.1 Existence; Good Standing; Corporate Authority. Each of the
Companies is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Florida. Neither of the Companies is
required to be licensed or qualified to do business as a foreign corporation in
any jurisdiction. Each of the Companies has all requisite corporate power and
authority to own its properties and carry on its business as now conducted.
Neither of the Companies is in default under or in violation of any provision of
its Articles of Incorporation or Bylaws.
3.2 Governmental Consents. Other than as set forth in the Disclosure
Schedule, neither of the Companies needs to give any notice to, make any filing
with or obtain any authorization, consent or approval of any government or
governmental agency in order for the parties to consummate the transactions
contemplated by this Agreement.
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3.3 Noncontravention. Except as set forth in the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) require the
consent of any party to any material contract (which term when used in this
Agreement shall mean any contract or agreement described in Section 3.15) with
the Companies, or (ii) result in the breach of any term or provision of, or
constitute a default under, or result in the acceleration of or entitle any
party to accelerate (whether after the giving of notice or the lapse of time or
both) any obligation under, or result in the creation or imposition of any lien,
charge, pledge, security interest or other encumbrance upon any part of the
property of either of the Companies pursuant to any provision of, any order,
judgment, arbitration award, injunction, decree, indenture, mortgage, lease,
license, lien, or other agreement or instrument to which either Company is a
party or by which it is bound and which would have a material adverse effect on
the Companies taken as a whole, or violate or conflict with any provision of any
statute, law, regulation, rule or injunction to which either Company is subject
and which (as to any such violation of or conflict with any statute, law,
registration, rule or injunction) would have a material adverse effect on the
Companies taken as a whole, or the Bylaws or Articles of Incorporation of either
Company as amended to the date of this Agreement.
3.4 Affiliated Entities. Neither Company owns any equity
securities, or rights to acquire the equity securities, of any corporation,
business trust, joint stock company, partnership or other business organization
or association; and neither Company controls, through voting stock, board of
director seats or any other means, any other corporation, partnership or other
entity.
3.5 Capitalization. The capitalization of each of the Companies
is as set forth in the Disclosure Schedule. No shares of capital stock are held
in treasury by either Company. Except as set forth in the Disclosure Schedule,
there are no outstanding or authorized rights, warrants, options, subscriptions,
agreements or binding commitments giving anyone any right to require the
Companies to sell or issue, or any person the right to buy or acquire, from the
Companies any capital stock of either Company. To the extent any such rights are
outstanding they will be terminated prior to the Closing. All of the issued and
outstanding Companies Shares of each Company are duly authorized, validly
issued, fully paid, nonassessable, and are held of record by the respective
Shareholders as set forth in Section 1 of the Disclosure Schedule. The shares of
capital stock of DAS-Ft. Lauderdale are free of all pre-emptive rights, and the
pre-emptive rights accorded to the shares of capital stock of DAS-Miami have
been fully satisfied and complied with in every respect or waived in writing,
and no person has any claim under such pre-emptive rights. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to either Company. There are no voting trusts, proxies or other
agreements or understandings with respect to the voting of any Companies Shares.
All of the issued and outstanding Companies Shares were issued in compliance
with applicable federal and state securities laws.
3.6 Records. The corporate minute books of each of the Companies
to be delivered to Purchaser at the Closing shall contain true and complete
copies of the Articles of Incorporation, as amended to the Closing Date, Bylaws,
as amended to the Closing Date, and, to the extent records exist, the minutes of
all meetings of directors and shareholders and instruments reflecting all
actions taken by the directors or shareholders without a meeting, from the date
of incorporation of each Company to the Closing Date.
3.7 Officers and Directors; Bank Accounts; Powers of Attorney.
The officers and directors of each Company are as set forth in the Disclosure
Schedule. The Disclosure Schedule also sets forth (i) the name of each bank,
savings institution or other person with which each Company has an account or
safe deposit box and the names and identification of all persons authorized to
draw thereon or to have access thereto and (ii) the names of all persons, if
any, holding powers of attorney from either Company.
3.8 Financial Statements. Each Company has furnished to Purchaser
unaudited financial statements of each Company, including balance sheets and
statements of operations, changes in shareholders' deficit and cash flow as of
and for the years ended May 31, 1996 and 1995 and unaudited financial statements
of each Company as of and for the one-month period ended June 30, 1996,
including a balance sheet and statement of operations as of and for the period
then ended.
The financial statements described in the preceding paragraph of
this Section 3.8 are hereinafter referred to as the "Pre-Signing Financial
Statements". The Pre-Signing Financial Statements fairly set forth in all
material respects the financial condition of the Companies as of the dates
indicated, and the results of their operations for the periods indicated on a
tax basis, consistently applied. The Pre-Signing Financial Statements are
included in the Disclosure Schedule.
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3.9 Undisclosed Liabilities. To the best of the Shareholders'
knowledge, neither of the Companies has any material liabilities or material
obligations whatsoever, either accrued, absolute, contingent or otherwise, which
are not reflected or provided for in the Pre-Signing Financial Statements as of
June 30, 1996 except (i) those arising after June 30, 1996 which were incurred
in the ordinary course of business and none of which, individually or in the
aggregate, is materially adverse, and (ii) as and to the extent specifically
described in the Disclosure Schedule.
3.10 Absence of Certain Changes or Events. To the best of the
Shareholders' knowledge, since June 30, 1996, except as set forth in the
Disclosure Schedule, neither of the Companies has:
(a) incurred any material obligation or liability (fixed or
contingent), except normal trade or business obligations incurred in the
ordinary course of business, none of which is materially adverse, and except in
connection with this Agreement and the transactions contemplated hereby;
(b) discharged or satisfied any material lien, security
interest or encumbrance or paid any material obligation or liability (fixed
or contingent), other than in the ordinary course of business, except for
possible accelerated payments of debt;
(c) mortgaged, pledged or subjected to any lien, security
interest or other encumbrance any of its material assets or properties
(other than purchase money security interests arising as a matter of law between
the date of delivery and payment);
(d) transferred, leased or otherwise disposed of any material
part of its assets or properties except for fair consideration in the
ordinary course of business or, except in the ordinary course of business,
acquired any material assets or properties;
(e) cancelled or compromised any material debt or claim owed
to it, except in the ordinary course of business;
(f) waived or released any rights of material value;
(g) transferred or granted any rights under any material
leases, licenses, agreements, patents, inventions, trademarks, trade names,
service marks or copyrights or with respect to any know-how;
(h) made or granted any wage or salary increase applicable to
any group or classification of employees generally or to any officer of either
Company, entered into any employment contract with, or made any material loan
to, or entered into any material transaction of any other nature with, any
officer or employee of either Company;
(i) entered into any material transaction, contract or
commitment, except (i) transactions in the ordinary course of business and
(ii) this Agreement and the transactions contemplated hereby;
(j) suffered any casualty, loss or damage (whether or not
such loss or damage shall have been covered by insurance) which affects in
any material respect such Company's ability to conduct business; or
(k) declared any dividends or bonuses, or authorized or
effected any amendment or restatement of the articles of incorporation or
by-laws of such Company or taken any steps looking toward the dissolution or
liquidation of such Company other than as permitted or contemplated by this
Agreement.
3.11 Taxes. With respect to Taxes (as defined below), except as
set forth in the Disclosure Schedule:
(a) each of the Companies has filed, within the time and in
the manner prescribed by law, all returns, declarations, reports, estimates,
information returns and statements ("Returns") required to be filed under
federal, state or local Tax laws by such Companies, and all such Returns are
true, correct and complete in all material respects;
(b) each of the Companies has within the time and in the
manner prescribed by law, paid (and until the Effective Time will, within
the time and in the manner prescribed by law, pay) all Taxes that are due
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and payable, except to the extent that the failure to so pay would not have
a material adverse effect on the Companies, taken as a whole;
(c) each of the Companies has established (and until the
Effective Time will maintain) on its books and records reserves that are
adequate for the payment of all Taxes not yet due and payable;
(d) there are no liens for Taxes upon the assets of either
of the Companies except liens for Taxes not yet due;
(e) neither of the Companies has filed (and neither of the
Companies will file prior to the Effective Time) any consent agreement under
Section 341(f) of the Internal Revenue Code of 1986, amended (the "Code") and
none of the assets of either of the Companies are subject to an election under
Section 341(f) of the Code, nor has either of the Companies been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code;
(f) neither of the Companies has consented to any staying or
tolling of the statute of limitations for the assessment of federal income taxes
or the statute of limitations for the assessment of state and local income
taxes, and no deficiency for any Taxes has been proposed, asserted or assessed
against either of the Companies which has not been resolved and paid in full. No
examination or audit of any Returns of either of the Companies by any
governmental entity is currently in progress or, to the knowledge of the
Companies or Shareholders, threatened or contemplated.
(g) there are no outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Returns that have been given by either of the Companies;
(h) no federal, state or local audits or other administrative
proceedings or court proceedings are presently pending with regard to any
Taxes or Returns;
(i) neither of the Companies is a party to any tax-sharing
or allocation agreement, nor do the Companies owe any amount under any
tax-sharing or allocation agreement;
(j) neither of the Companies has any actual or potential
liability for any tax obligation of any taxpayer (including without
limitation any affiliated group of corporations or other entities that included
the Companies during a prior period) other than the Companies;
(k) no amounts payable under any employee benefit plans will
fail to be deductible for federal income tax purposes by virtue of Section
280G of the Code; and
(l) each of the Companies has complied (and until the
Effective Time will comply) in all material respects with all applicable
laws, rules and regulations relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Sections 1441
or 1442 of the Code) and has, within the time and in the manner prescribed by
law, withheld from employees' wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over under all
applicable laws except to the extent that the failure to so comply or pay over
would not have a material adverse effect on the Companies, taken as a whole and
would not subject the Companies to a fine or penalty in excess of $5,000 in the
aggregate.
For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies or other assessments of whatever kind or nature,
including, without limitation, all net income, gross income, gross receipts,
sales, use, ad valorem, value-added, transfer, franchise, profits, license,
withholding, payroll, employment, excise, stamp, occupancy or property taxes,
customs duties, fees, assessments or charges of any kind whatsoever (together
with any interest and any penalties, additions to tax or additional amounts)
imposed by any taxing authority (domestic or foreign) upon or payable by the
Companies.
Copies of all federal, state and local tax returns,
examinations, reports and statements of deficiencies assessed against or agreed
to by either or both of the Companies for any and all taxable periods with
respect to which the statute of limitations for the collection of any Tax has
not expired have been made available for inspection by Purchaser.
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3.12 Title to Property and Assets. Each of the Companies has good
and marketable title to all of the properties and assets purported to be owned
by it and used by it in the conduct of its business (including, without
limitation, the properties and assets reflected in the June 30, 1996 balance
sheet included in the Pre-Signing Financial Statements) except any thereof since
disposed of in the ordinary course of business and none of such properties or
assets is, except as disclosed in the Pre-Signing Financial Statements or the
Disclosure Schedule, subject to security interests, mortgages, encumbrances,
liens or charges of any kind or character except for purchase money security
interests which arise by law between the date of delivery of goods and the date
of payment, liens for taxes not yet due and payable and inchoate mechanic's
material man's and landlord liens.. The Disclosure Schedule identifies all
leases under which the Companies lease equipment or vehicles used in their
businesses.
3.13 Condition of Personal Property. Except as set forth in the
Disclosure Schedule, tangible personal property, equipment, fixtures and
inventories included within the assets of the Companies or required to be used
in the ordinary course of business, taken as a whole, are in good or reasonably
repairable condition for their age, reasonable wear and tear excepted, and are
suitable for the purposes for which they are currently used except for
miscellaneous items not material to the operation of the Company's business.
3.14 Real Estate.
(a) Neither Company owns any real property. The Disclosure
Schedule contains a list of all real property in which either Company has a
leasehold or other interest and of any material lien, charge or encumbrance on
such Company's interest therein except for purchase money security interests
which arise by law between the date of delivery of goods and the date of
payment, liens for taxes not yet due and payable and inchoate mechanic's,
material man's and landlord liens. The Shareholders have provided Purchaser with
true and correct copies of all such leases or other instruments listed on the
Disclosure Schedule. Neither of the Companies has received written notice to the
effect that the improvements on such properties do not, and to the best of the
Shareholders' knowledge such improvements and use thereof by the Companies do,
conform to all applicable lease restrictions and zoning and other local
ordinances, except where failure to conform to such restrictions and ordinances
does not have a material adverse effect on the Companies taken as a whole.
(b) Subject to the receipt of any consents required thereunder
as disclosed in the Disclosure Schedule, each such lease or sublease will
continue to be legal, valid, binding and enforceable against the Companies
following the Closing in accordance with the terms thereof as in effect prior to
the Closing, subject to the effect of applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance and similar laws of general application
relating to the enforcement of creditors' rights generally and to the discretion
of a court in granting equitable relief (the "Enforceability Exceptions").
Neither of the Companies nor, to the Shareholders' knowledge, any other party to
any such lease or sublease is in breach or default, and no event has occurred
which, with notice or lapse of time, would constitute a breach or default by the
Companies or, to the Shareholders' knowledge, by the other parties thereto, or
permit termination, modification, or acceleration thereunder by the other party
or, to the Shareholders' knowledge, by the Company, other than possible defaults
arising from prohibitions on the transfer of the Companies' capital stock
contained in the provisions of leases. There are no disputes, written agreements
or forbearance programs in effect as to any such lease or sublease. Except as
disclosed in the Disclosure Schedule, no consent is required by the terms of any
such lease or, to the Shareholders' knowledge, by any holder of a mortgage or
deed of trust affecting the leased real property in connection with the
transactions contemplated by this Agreement.
3.15 List of Contracts and Other Data. The Disclosure Schedule
sets forth the following:
(a) all material computer software (except software readily
available from retail vendors), material patents and registrations for material
trademarks, trade names, service marks and copyrights which are used in
connection with the operation of the Companies' business, as well as all
applications pending for material patents or for material trademark, trade name,
service mark or copyright registrations, and all similar intellectual property
rights, owned or held by either Company and which are reasonably necessary to,
or used in connection with, the business of the Companies, and (ii) all material
licenses granted by or to the Companies and all other material agreements to
which either of the Companies is a party and which relate, in whole or in part,
to any items of the categories mentioned in (i) above or to other material
intellectual property rights of either Company which are reasonably necessary
to, or used in connection with, the business of such Company;
(b) all written sales agent agreements and other marketing
agreements to which either Company is a party;
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(c) all written employment and consulting agreements, executive
compensation plans, bonus plans, profit-sharing plans, deferred compensation
agreements, employee pension or retirement plans, employee stock purchase and
stock option plans, group life insurance, hospitalization insurance or other
plans or arrangements providing for benefits to employees of either Company;
(d) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third parties
providing for lease payments by either Company in excess of $5,000 per annum;
(e) any written arrangement (or group of related written
arrangements) for the purchase by either Company of materials, supplies,
products or other personal property or for the receipt of services, excluding
utility services, which involves more than $5,000, is not terminable on less
than 90 days notice by the Companies or was not entered into in the ordinary
course of business;
(f) any written arrangement establishing a partnership or joint
venture to which either Company is a party;
(g) any written arrangement (or group of related written
arrangements) under which either Company has created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness for
borrowed money in excess of $10,000 or leased property in excess of $10,000
(including capitalized lease obligations) or under which it has granted (or may
grant) a security interest on any of its material assets, tangible or
intangible;
(h) any written arrangement concerning confidentiality or
noncompetition which restricts or protects either Company;
(i) any written arrangement involving Principal Shareholder or
any affiliates of Principal Shareholder to which either Company is a party
and any material written arrangements involving any other Shareholder to which
either Company is a party;
(j) any written arrangement under which the consequences of a
default or termination could reasonably be expected to have a material
adverse effect on the assets, business, financial condition, results of
operations or future prospects of the Companies, taken as a whole;
(k) any other written arrangement (or group of related written
arrangements) to which either Company is a party either involving more than
$10,000 or not entered into in the ordinary course of business; and
(l) the names and current annual compensation rates of all
employees of both Companies.
True and complete copies of all documents and written
descriptions of all understandings, if any, referred to in the Disclosure
Schedule have been provided, or will be provided, to Purchaser upon request.
With respect to each written arrangement so listed, except as
otherwise described in this Agreement or the Disclosure Schedule,: (i) the
written arrangement is legal, valid, binding and enforceable (subject to the
Enforceability Exceptions) and in full force and effect with respect to the
Company, and to the best of Shareholders' knowledge, with respect to the other
party thereto; and (ii) the written arrangement will continue to be legal,
valid, binding and enforceable (subject to the Enforceability Exceptions) and in
full force and effect with respect to the Company, and to the best of
Shareholders' knowledge, with respect to the other party thereto following the
Closing in accordance with the terms thereof as in effect prior to the Closing.
3.16 Business Property Rights. The property referred to in
Section 3.15(a), together with (i) all designs, methods, inventions and know-how
related thereto and (ii) all trademarks, trade names, service marks, and
copyrights claimed or used by either Company which have not been registered
(collectively "Business Property Rights"), constitute all such intellectual
property rights owned or held by such Company and which are reasonably necessary
to, or used in, the conduct of the business of such Company, including all
computer programs necessary to perform the billing, work-order and inventory
operations of such Company.
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Each item of Business Property Rights owned by or used in the
operation of the business of each Company during the six months ended June 30,
1996 will be owned or available for use by the Companies on identical terms and
conditions immediately following the Closing. Computer software developed by
either Company and all related designs, methods, inventions and know-how are
regarded by such Company as trade secrets of the Company within the meaning of
all applicable laws, and such Company has taken reasonable steps to protect
these trade secrets as such. To the best of Shareholders' knowledge, such
Company owns or has valid rights to use all such Business Property Rights
without conflict with the rights of others. Neither Company has received written
notice from any third party that its Business Property Rights conflict with the
rights of others. To the best of Shareholders' knowledge, no person or
corporation has made or, threatened to make any claims that the operation of the
business of either Company is in violation of or infringes any Business Property
Rights of any third party.
3.17 Governmental Authorizations. Each of the Companies has
obtained all licenses, permits and other authorizations and has taken all
actions required by applicable laws or governmental regulations in connection
with its business as now conducted except for such licenses, permits or
authorizations, and such actions, the absence of which would not have a material
adverse effect on the Companies, taken as a whole. The Disclosure Schedule sets
forth a true and complete list of all material governmental licenses, permits
and authorizations held by the Companies. The Companies are in full compliance
with all such licenses, permits and authorizations, except for such
noncompliance which would not have a material adverse effect on the Companies
taken as a whole.
3.18 No Breach or Default. Neither of the Companies is in default
under any material contract (as defined in Section 3.3) to which it is a party
or by which it is bound, nor to the best of Shareholders' knowledge, has any
event occurred which, after the giving of notice or the passage of time or both,
would constitute a default under any such contract, except for such defaults or
events which, in the aggregate, would not have a material adverse effect on the
business, prospects, financial condition properties, or cash flow of the
Companies taken as a whole.
3.19 Labor Controversies; Employee Benefit Plan Matters. Neither
of the Companies is a party to any collective bargaining agreement. To the best
of Shareholders' knowledge, there are no controversies between either of the
Companies and any of its employees which might reasonably be expected to affect
materially and adversely the conduct of their business taken as a whole, or any
unfair labor practice proceedings pending or, threatened relating to their
business, and, to the best of Shareholders' knowledge, there are no union
organization efforts presently being made or threatened involving any of either
Company's employees. Neither of the Companies has received written notice of any
claim that such Company has not complied with any laws relating to the
employment of labor, including any provisions thereof relating to wages, hours,
collective bargaining, the payment of social security and similar taxes, equal
employment opportunity, employment discrimination and employment safety, or that
such Company is liable for any arrears of wages or any taxes or penalties for
failure to comply with any of the foregoing.
Neither of the Companies maintains or contributes to, and neither
Company is required by agreement to maintain or contribute to, and has no
liability with respect to, any (i) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, as
defined in the Employee Retirement Income Security Act of 1974 ("ERISA")
ss.3(3), (ii) qualified deferred contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (iii) qualified deferred benefit
retirement plan or arrangement which is an Employee Benefit Plan (including any
Multiemployer Plan as defined in ERISA ss.3(37)), or (iv) Employee Welfare
Benefit Plan, as defined in ERISA ss.3(1) (collectively "Employee Benefit
Plans")
3.20 Litigation. Except as set forth in the Disclosure Schedule,
and except for the disputes described in Section 2.4 of this Agreement, there
are no actions, suits or proceedings with respect to either Company involving
claims by or against Principal Shareholder or either Company which are pending
or, to the Shareholders' knowledge, threatened against Principal Shareholder or
either Company, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality. To the Shareholders' knowledge, except as set forth in the
Disclosure Schedule, no valid basis for any action, suit or proceeding exists,
and there are no writs, judgments, injunctions or decrees of any court or
governmental agency with respect to which Principal Shareholder or either
Company is a party, which apply, in whole or in part, to the business of either
Company or to any of the assets or properties of either Company or any of the
Companies Shares or which would result in any material adverse change in the
business, financial condition or prospects of the Companies taken as a whole.
3.21 Environmental Matters. To the best of Shareholders'
knowledge, except as to matters which would not have a material adverse
effect on the Companies taken as a whole:
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(a) each of the Companies and their respective predecessors and
affiliates has complied with all Environmental Laws (as hereinafter defined),
and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against any of them
alleging any failure so to comply except for minor failures to so comply which
would not have a material adverse effect on the Companies taken as a whole.
Without limiting the generality of the preceding sentence, each of the Companies
and their respective predecessors and affiliates has obtained and been in
compliance with all of the terms and conditions of all permits, licenses, and
other authorizations which are required under, and has complied with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all Environmental
Laws;
(b) neither of the Companies has any liability (and neither of
the Companies and their respective predecessors and affiliates has handled or
disposed of any substance, arranged for the disposal of any substance, exposed
any employee or other individual to any substance or condition, or owned or
operated any property or facility in any manner that could form the basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against either of the Companies giving rise to any
liability) for damage to any site, location, or body of water (surface or
subsurface), for any illness of or personal injury to any employee or other
individual, or for any other reason under any Environmental Law; and
(c) all properties and equipment used in the business of the
Companies and their respective predecessors and affiliates are free of asbestos,
PCB's, methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene,
dioxins, dibenzofurans, and Extremely Hazardous Substances (as hereinafter
defined).
For purposes of this Section, "Environmental Laws" means the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 and
the Resource Conservation and Recovery Act of 1976, each as amended, together
with all other laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof) concerning pollution
or protection of the environment, including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes into ambient air,
surface water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes; and "Extremely Hazardous Substance" has the meaning
set forth in ss.302 of the Emergency Planning and Community Right-to-Know Act of
1986, as amended.
Each of the Companies uses minor amounts of cleaning fluids and
agents, toner and similar chemical substances commonly used in office and
warehouse environments, but only in amounts customary for the records storage
and management businesses operated by the Companies. The Companies have never
operated or participated in any business other than the records storage and
management business. To the best of the Shareholders' knowledge, no facility
owned or operated by either Company (other than the facilities identified as
presently leased facilities in the Disclosure Schedule) have located in, on or
under them any material which is considered a "hazardous substance" or
"hazardous material", as those terms are defined in the Environmental Laws for
which either of the Companies may be responsible for removal or remediation.
Neither of the Companies has accepted for storage any nitrate film.
3.22 No Brokers. Except as set forth in this section and in the
Disclosure Schedule, neither of the Companies has entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Purchaser or either Company to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby, and neither Principal Shareholder nor the Companies have knowledge of
any claim or basis for any claim for payment of any finder's fees, brokers or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby. Christopher Howard is a financial adviser to the Companies to whom the
Companies have a contractual obligation to pay a fee at Closing, which fee will
either be included as a liability of the Companies on the Interim Closing
Balance Sheet (as hereinafter defined) or satisfied by the Shareholders. In no
event shall Purchaser bear the economic burden of such fee, nor shall any fee or
commission be owed to Mr. Howard by the Companies after the Closing Date.
3.23 Insurance. The assets, properties and operations of both
Companies are insured under various policies of general liability and other
forms of insurance, all of which are listed in the Disclosure Schedule. The
Companies have provided to Purchaser an insurance claims analysis for the period
from January, 1992 through the present. To the best of Shareholder's knowledge,
all policies listed in the Disclosure Schedule as current policies are in full
force and effect in accordance with their terms, no notice of cancellation has
been received, and there is, to the best
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of Shareholders' knowledge, no existing default or event which, with the
giving of notice or lapse of time or both, would constitute a default
thereunder. Neither Company has been refused any insurance by any insurance
carrier to which it has applied for insurance or with which it has carried
insurance since January 1, 1992. The Disclosure Schedule also contains a true
and complete list of all outstanding bonds and other surety arrangements issued
or entered into in connection with the business, assets and liabilities of
either Company.
3.24 Records Storage Matters.
(a) All items received and stored by each of the Companies on
behalf of customers are held in storage by such Company (except for items
withdrawn or destroyed at the customer's request). Each of the Companies
averages not more than two extended searches (i.e., a search requiring more than
two hours to locate the requested carton) per week. The Companies' invoices to
customers do not charge customers for storage of nonexistent cartons or services
not performed in any material respect.
(b) The Disclosure Schedule lists which of the Companies' fifty
largest customers have executed a contract with such Company, which limits such
Company's liability in the event of loss, damage or destruction of the
customer's records to an amount not greater than the cost of replacing the lost
medium (and not reproduction or restoration of content).
(c) Except as set forth on the Disclosure Schedule, neither of
the Companies has received written notice from any customer to which storage
charges billed in the twelve months ended June 30, 1996 exceed $5,000 that such
customer intends to terminate its business relationship with such Company or
that it intends to reduce materially the volume of records stored with such
Company.
(d) Except as set forth in the Disclosure Schedule,
substantially all items in storage have been bar-coded and logged into the
Companies' computer system.
3.25 Couriers. To the best of Shareholders' knowledge, after
reasonable inquiry, the Companies' contract couriers have not been involved in
any automobile accidents in the three year period prior to the date hereof.
3.26 No Misrepresentation or Omission. To the best of the
Shareholders' knowledge, no representation or warranty by the Shareholders in
this Section 3, the Disclosure Schedule, any other Section of this Agreement, or
in any certificate or other document furnished or to be furnished by the
Companies or Shareholders pursuant hereto, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein, in the light in
which they were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION. Each of the
Shareholders represents and warrants to Purchaser that the statements contained
in this Section 4 are correct and complete in all material respects as of the
date of this Agreement and will be correct and complete in all material respects
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4) with
respect to himself or herself.
4.1 Authorization of Transaction. Such Shareholder has full power
and authority to execute and deliver this Agreement and to perform his or her
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of such Shareholder, enforceable in accordance with its terms and
conditions (subject to the Enforceability Exceptions). Such Shareholder need not
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
4.2 Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statue, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which such Shareholder is subject or (B)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which such Shareholder is a party or by
which he or she is bound or to which any of his or her assets is subject.
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4.3 Brokers' Fees. Such Shareholder has no liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which Purchaser
could become liable or obligated.
4.4 Companies Shares. Such Shareholder holds of record and owns
beneficially the number of Companies Shares set forth next to his or her name in
Section 1 of the Disclosure Schedule, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act of 1933, as
amended, and state securities laws), Taxes, security interests, options,
warrants, purchase rights, contracts, commitments, equities, claims, and
demands. Such Shareholder is not a party to any option, warrant, purchase right,
or other contract or commitment that could require the Shareholder to sell,
transfer, or otherwise dispose of any capital stock of the Companies (other than
this Agreement). Such Shareholder is not a party to any voting trust, proxy, or
other agreement or understanding with respect to the voting of any capital stock
of the Companies.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to Shareholders that the statements in this Section 5 are true,
correct and complete in all material respects as of the date of this Agreement
and will be correct and complete as of the Closing Date in all material respects
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Section 5).
5.1 Existence; Good Standing; Corporate Authority; Compliance
with Law. Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Purchaser is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of all other jurisdictions in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a material adverse effect
on Purchaser and its subsidiaries, taken as a whole. Purchaser has all requisite
corporate or other power and authority to own its properties and carry on its
business as now conducted.
Purchaser is not in default with respect to any order of any
court, governmental authority or arbitration board or tribunal to which it is a
party or is subject, and is not in violation of any laws, ordinances,
governmental rules or regulations to which it is subject, except where such
default or violation would not have a material adverse effect on Purchaser and
its subsidiaries, taken as a whole. Purchaser is not in default under or in
violation of any provision of its Certificate of Incorporation or Bylaws.
Purchaser has obtained all licenses, permits or other authorizations and has
taken all actions required by applicable laws or governmental regulations in
connection with its business as now conducted, except where the failure to
obtain such license, permit or other authorization, or to take action, would not
have a material adverse effect on Purchaser and its subsidiaries, taken as a
whole.
5.2 Authorization; Validity and Effect. Purchaser has all
requisite corporate power and authority to own its properties and assets, to
carry on the business in which it is now engaged, and to execute and deliver
this Agreement and all other agreements and documents contemplated hereby and to
perform its respective obligations hereunder and thereunder. The execution and
delivery of this Agreement and all agreements and documents contemplated hereby
by Purchaser, and the consummation by it of the transactions contemplated hereby
and thereby, have been duly authorized by all requisite corporate action. This
Agreement constitutes, and all agreements and documents contemplated hereby when
executed and delivered pursuant hereto for value received will constitute, the
valid and legally binding obligations of Purchaser, enforceable in accordance
with their terms, subject to the Enforceability Exceptions.
5.3 Absence of Conflict. Neither the execution and delivery by
Purchaser of this Agreement and the other documents executed or required to be
executed by each hereunder, nor the consummation by Purchaser of the
transactions contemplated hereby and thereby, will, with or without the giving
of notice or passage of time, or both, (a) be contrary to any provision of the
Certificate of Incorporation or Bylaws of Purchaser, (b) require on the part of
Purchaser any filing with, or permit, authorization or consent or approval of,
any governmental authority, or (c) violate, breach, or constitute a default
under, or permit the termination or acceleration of maturity of, or result in
the imposition of any lien, claim or encumbrance upon any property or asset of
either pursuant to any provision of, any agreement, instrument, judgment, order,
injunction or decree by which Purchaser is bound, to which it is a party, or to
which its assets are subject.
5.4 No Brokers. Purchaser has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Shareholders to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby,
and (except for the arrangement under which the Companies may be required
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to pay a fee or commission to Christopher Howard) Purchaser is not aware of
any or basis for any claim for payment of any finder's fees, brokers or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
6. OTHER COVENANTS AND AGREEMENTS.
6.1 Additional Financial Statements.
(a) Purchaser has requested that the Companies commence
preparation of audited financial statements for certain periods, and if such
audited financial statements have not been completed by the Closing Date, after
the Closing Principal Shareholder shall provide any assistance reasonably
requested by Purchaser therefor. The auditing fees and expenses of the
independent public accountants who audit such statements (which may be the
Companies' current accountants or such other auditors as Purchaser may
designate) shall be paid by Purchaser.
(b) The financial statements delivered pursuant to this Section
6.1 are hereinafter referred to as the "Post-Signing Financial Statements".
The Pre-Signing Financial Statements and the Post-Signing
Financial Statements are herein referred to as the "Financial Statements".
6.2 Certain Transactions; Interim Closing Balance Sheets.
(a) From July 1, 1996 to the Closing Date (i) neither of the
Companies has made or shall make cash payments or other distributions to
shareholders or payments to other persons other than trade creditors of the
Companies and persons holding financial obligations of the Companies if and to
the extent payments to such holders of financial obligations were included as
liabilities on the Interim Closing Balance Sheets. and (ii) neither of the
Companies has incurred liabilities other than trade payables in the ordinary
course of business.
(b) The Companies have prepared interim combined and combining
balance sheets stating the current assets and total liabilities of the Companies
as of June 30, 1996 Such balance sheets are annexed to Exibit 6.2. For purposes
of estimating the current assets and total liabilities of each of the Companies
as of July 31, 1996, Purchaser and Shareholders have agreed upon certain
adjustments to the June 30, 1996 balance sheets to reflect certain changes in
the Companies' balance sheets which have occurred prior to July 31, 1996, which
adjustments are described in Schedule 6.2. The June 30, 1996 balance sheets, as
so adjusted, are herein referred to as the "Interim Closing Balance Sheets".
6.3 Audited Closing Balance Sheet and Adjustments.
(a) As promptly as practicable after the Closing Date Purchaser
and the Companies shall prepare combining and combined statements of current
assets and total liabilities of the Companies as of the close of business on
July 31, 1996 (the "Closing Balance Sheets"). The Closing Balance Sheets shall
be prepared in accordance with GAAP except for departures from GAAP agreed upon
by Purchaser and Principal Shareholder as provided in this section 6 and
Schedule 6.3. The closing balance sheets shall not be in accordance with GAAP in
that the auditors will present only the balance sheets of the Companies and not
income and expense statements, statements of cash flow and other presentations
required for statements in accordance with GAAP; in addition, the audited
Closing Balance Sheets shall omit footnotes which would be required in order to
be in accordance with GAAP.The Closing Balance Sheets shall include as
liabilities, without limitation, (x) all unpaid fees and charges payable by the
Companies to any broker or financial adviser in connection with the transactions
contemplated by this Agreement (if either of the Companies is liable therefor)
and to the Companies' attorneys and auditors (excluding work performed by the
auditors upon Purchaser's request) in connection with the transactions
contemplated by this Agreement (whether or not billed to the Companies as of the
Closing Date) (y) the Companies' obligations as of the close of business on July
31, 1996 in respect of services to be performed for customers after July 31,
1996 which were billed to customers prior to July 31, 1996, and (z) the amount
of any prepayment premium or penalty and accrued interest in respect of
indebtedness of the Companies as of July 31, 1996. The Companies shall confirm
that no cash payments or distributions were made to the Shareholders or others
(other than trade creditors and others as permitted by Section 6.2(a)) during
the period from July 1, 1996 to the Closing Date (the "Cash Distribution
Statement").
(b) The Closing Balance Sheets shall be audited and the Cash
Distribution Statement shall be reviewed by an independent accounting firm
selected by Purchaser at Purchaser's expense. The auditors' review
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of the Cash Distribution Statement shall consist of preparing a list of all
payments made by the Companies from July, 1996 through the Closing Date,
comparing payments with the check register and testing and verifying the
payments made. Except as Purchaser and Principal Shareholder otherwise agree in
Schedule 6.3, the audit shall be carried out in accordance with generally
accepted auditing standards.
(c) The parties shall cooperate in the preparation of the
Closing Balance Sheets and the Cash Distribution Statement and the audit
thereof, and shall use their respective commercially reasonable best efforts to
cause their respective accountants to make available to each other their
respective work papers with respect to the Closing Balance Sheets. The audited
Closing Balance Sheets shall contain the draft opinion of the preparing
accountants, addressed to Purchaser and Principal Shareholder, which shall be
unqualified except that appropriate qualifications can be stated to reflect
agreed-upon instructions of the parties which vary from GAAP as set forth in
Schedule 6.3.
(d) Purchaser shall use its best efforts to cause the Closing
Balance Sheets and the Cash Distribution Statement to be delivered to
Principal Shareholder no later than 75 days after the Closing Date.
(e) Principal Shareholder shall have forty-five (45) days after
receipt of the Closing Balance Sheets and the Cash Distribution Statement (the
"Dispute Period") to dispute any of the elements of the Closing Balance Sheets
or the Cash Distribution Statement (a "Dispute"). If Principal Shareholder does
not give written notice of a Dispute (a "Dispute Notice") to Purchaser within
the Dispute Period, such Closing Balance Sheets and the Cash Distribution
Statement shall be deemed to have been accepted by Principal Shareholder in the
form in which they were delivered by Purchaser and shall be final and binding
upon the parties in the absence of fraud or manifest error. In the event
Principal Shareholder does not agree with any amount or element reflected on the
Closing Balance Sheets or the Cash Distribution Statement, he may give Purchaser
a Dispute Notice within the Dispute Period, setting forth in reasonable detail
the elements and amounts with which he disagrees, and Purchaser shall, within
thirty (30) days after receipt by Purchaser of such Dispute Notice, attempt to
resolve such Dispute and agree in writing upon the final content of such Closing
Balance Sheets or the Cash Distribution Statement. In the event that Principal
Shareholder and Purchaser are unable to resolve any such Dispute within such
thirty (30) day period, then an independent public accounting firm acceptable to
both parties (the "Arbitrating Accountant") shall be employed as arbitrator
hereunder to settle such Dispute as soon as practicable. In connection with the
resolution of any Dispute, the Arbitrating Accountant shall have access to all
documents and facilities necessary to perform its functions as arbitrator. The
Arbitrating Accountant's function shall be to conform the Closing Balance Sheets
and the Cash Distribution Statement to the standards required by the terms and
provisions of this Section 6.3. The Arbitrating Accountant's determination with
respect to any Dispute shall be final and binding upon the parties hereto.
Principal Shareholder and Purchaser shall each pay one-half of the fees and
expenses of the Arbitrating Accountant; provided that if the Arbitrating
Accountant determines all issues raised in favor of one party or the other, the
party whose positions were not upheld shall pay all of such fees and expenses.
Following the resolution of any Disputes, the Closing Balance Sheets and the
Cash Distribution Statement shall be revised to reflect such resolution.
Following such resolution, or, if there are no Disputes, following the
expiration of the Dispute Period, Purchaser shall cause the Closing Balance
Sheets and the Cash Distribution Statement, containing the signed unqualified
opinion of the preparing accountants, to be issued and delivered to Principal
Shareholder.
(f) In the event that the audited Closing Balance Sheets state
that cash is less than $1.00, Purchaser shall make a written demand on
Shareholders for the amount by which $1.00 exceeds the cash of the Companies at
July 31, 1996, and such amount shall be paid by Principal Shareholder to
Purchaser; and in the event that the Cash Distribution Statement reports that
cash was paid during the period from July 1, 1996 to the Closing Date to the
Shareholders or others in contravention of Section 6.2(a), such amount shall be
paid by Principal Shareholder to Purchaser, in each case within three business
days after the end of the Dispute Period, or if there is a Dispute, within three
business days after the resolution thereof.
(g) In the event that the Closing Balance Sheet for either
Company indicates that the difference between current assets and total
liabilities varies from that reported on the Interim Closing Balance Sheet for
such Company by an amount not previously accounted for as an adjustment in the
Purchase Price, then either (i) the Purchase Price shall be decreased if the
excess of current assets over total liabilities is less than indicated on the
Interim Closing Balance Sheet, or (ii) the Purchase Price shall be increased if
the excess of current assets over total liabilities is greater than indicated on
the Interim Closing Balance Sheet. Either Purchaser or Principal Shareholder
shall make an appropriate adjusting payment within three business days after the
end of the Dispute Period, or if there is a Dispute, after resolution thereof.
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(h) Principal Shareholder's obligation to make payments
pursuant to this Section 6.3 is independent of, and in addition to, the
indemnity obligations set forth in Section 9 of this Agreement.
(i) The Shareholders shall be severally liable to Principal
Shareholder to pay to Principal Shareholder that part of any distribution
received by each Shareholder which is in excess of the distribution such
Shareholder should have received as determined by the audited Closing Balance
Sheet and audited Cash Distribution Statement.
(j) Notwithstanding any other provision contained herein to the
contrary, in the event Principal Shareholder would be required to make any
payment pursuant to Section 6.3 (g), and there are funds held by the Escrow
Agent in respect of the Contingent Payments, Purchaser shall obtain payment of
the amount due to purchaser from the Contingent Payment Escrow instead of
Principal Shareholder unless Purchaser reasonably believes that the portion of
the Contingent Payment Escrow which will be due and payable as a Contingent
Payment is less than the amount due to Purchaser, in which event Principal
Shareholder shall pay the required amount to Purchaser and shall be entitled to
pro rata reimbursement from the Shareholders.
6.4 Taxes and Expenses.
(a) Shareholders hereby covenant and agree to pay all stamp and
transfer taxes on the transactions contemplated hereby. Except to the extent
such costs and liabilities are included in total liabilities of the Companies
for purposes of the Closing Balance Sheets, Shareholders shall be responsible
for and shall pay all costs, liabilities and other obligations incurred by the
Companies in connection with the performance of and compliance with all
transactions, agreements and conditions contained in this Agreement to be
performed or complied with by each of them, including legal and accounting fees
(except those incurred at Purchaser's request).
(b) Except as otherwise specifically provided for in this
Agreement, Purchaser will assume and pay all costs, liabilities and other
obligations incurred by Purchaser in connection with the performance of and
compliance with all transactions, agreements and conditions contained in this
Agreement to be performed or complied with by Purchaser.
6.5 Proprietary Information.
(a) Shareholders covenant and represent that (except as
shareholders of the Companies) none of them has any interest in, or claim to,
any of the procedures, written technical data, customer lists, computer software
and related documentation, patents, copyrights, formulas, methods, practices,
statistics, trade secrets, trademarks, service marks or trade names relating to
any processes or procedures used by the Companies, or related to their business
or operations or in the current possession of the Companies; and all knowledge
or information of a confidential nature acquired at or before the Closing Date
with respect to the business and operations of the Companies, including customer
lists, customer names and pricing information, will be held in confidence by
Shareholders and will not be disclosed or made public or, except for the benefit
of Purchaser or the Companies, made use of, by or through Shareholders, directly
or indirectly, for a period of five years after the Closing Date.
Notwithstanding the foregoing, Principal Shareholder shall have the
non-exclusive right to use software programs known as "Easy Box" and "Easy File"
(i) in business applications other than management and storage of hard copy and
magnetic media records and (ii) in records management and storage businesses
which serve customers outside Dade, Broward and Palm Beach Counties, Florida.
(b) Each Shareholder acknowledges that a breach of Section
6.5(a) would cause irreparable damage to Purchaser and/or the Companies, and in
the event of any Shareholder's actual or threatened breach of the provisions of
Section 6.5(a), Purchaser shall be entitled to a temporary restraining order and
an injunction restraining such Shareholder from breaching such covenants without
the necessity of posting bond or proving irreparable harm, such being
conclusively admitted by such Shareholder. Nothing shall be construed as
prohibiting Purchaser from pursuing any other available remedies for such breach
or threatened breach, including the recovery of damages from such Shareholder.
6.6 Agreements of Shareholders Pending Closing. The Companies
shall agree that, pending the Closing, and except as agreed by Purchaser:
(a) Business in Ordinary Cases. The business of such Company
shall be conducted solely in the ordinary course in accordance with past
practice except as otherwise contemplated herein. The Companies
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shall use their commercially reasonable best efforts to maintain and
preserve their business, and to keep available the services of present employees
and agents and maintain existing business relationships, insurance and licenses.
Without limiting the generality of the foregoing, prior to the Closing Date,
neither of the Companies shall, without the written consent of Purchaser, except
as permitted herein:
(i) issue, sell, deliver or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) or authorize the
issuance, sale or delivery of any stock of any class or any other securities or
any rights, warrants or options to acquire any such stock or other securities;
(ii) split, combine or reclassify any shares of its capital
stock; or, except as permitted by this Agreement, declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem, purchase or
otherwise acquire any securities of either of the Companies.
(iii) create, incur or assume any debt for borrowed money or any
obligations in respect of capital leases not currently outstanding other than
minor items not exceeding $2,500 in the aggregate, assume, guarantee, endorse
(other than checks in the ordinary course of business) or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
material obligations of any other person, or make any material loans, advances
(other than to employees for travel expenses incurred in the ordinary course of
business) or capital contributions to, or investments in, any other person or
entity;
(iv) enter into, adopt or amend any employee benefit plan or any
employment or severance agreement or arrangement or increase in any manner the
compensation or fringe benefits of its directors, officers or employees,
generally or individually, other than ordinary increases in accordance with past
practice in compensation or benefits to non-officer employees, or pay any
benefit not required by the terms in effect on the date hereof of any existing
employee benefit plan;
(v) acquire, sell, lease, encumber or dispose of any shares or
other equity interests in or securities of any corporation, partnership,
association or other business organization or division thereof or any material
assets, other than purchases and sales of assets in the ordinary course of
business (and in no event shall any leases of equipment be capital leases);
(vi) amend its charter or By-laws;
(vii) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(viii) mortgage or pledge any of its property or assets or
subject any such assets to any security interest;
(ix) sell, assign, transfer or license any Business Property
Rights, other than in the ordinary course of business;
(x) enter into, amend, take or omit to take any action that
would constitute a violation of or default under, or waive any rights under, any
material contract or agreement any of which would have a material adverse effect
on the Companies, taken as a whole;
(xi) make or commit to make any capital expenditure in excess
of $5,000 per item or $15,000 in the aggregate;
(xii) disclose any material confidential information of the
Companies to any third party not subject to a confidentiality agreement
with the Companies (and then only to the extent that such third party has a need
to know the disclosed information);
(xiii) hire any new employee whose annual compensation is
expected to exceed $30,000 without the consent of Purchaser;
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(xiv) make any changes in its cash management practices or
accelerate its collection of accounts payable; or
(xv) agree in writing or otherwise to take any of the
foregoing actions.
(b) Update Schedules. The Companies shall promptly disclose to
Purchaser any information contained in its representations and warranties or the
Disclosure Schedule which, because of an event occurring after the date hereof,
becomes incomplete or is no longer correct as of all times after the date hereof
until the Closing Date. Purchaser's sole remedy in respect of updated disclosure
items which Purchaser finds unacceptable shall be to elect not to close the
transactions contemplated hereby, unless the information in such schedules which
is unacceptable to Purchaser has resulted from the Company's breach of any other
agreement or covenant on the part of the Companies hereunder.
(c) Notice of Breaches. The Shareholders shall promptly deliver
to Purchaser written notice of any event or development subsequent to the date
of this Agreement known to Shareholders that would (i) render any statement,
representation or warranty made by the Companies in this Agreement (including
the Disclosure Schedule) inaccurate or incomplete in any material respect, or
(ii) constitute or result in a breach by Shareholders of, or a failure by the
Shareholders to comply with, any agreement or covenant in this Agreement
applicable to such party.
(d) Best Efforts. The Companies and Shareholders shall
cooperate with Purchaser and use their commercially reasonable best efforts
to cause all of the conditions to the obligations of the parties under this
Agreement to be satisfied on or prior to the Closing Date.
(e) Inconsistent Negotiations. Until the closing of the
transactions contemplated hereby or the earlier termination of this Agreement
pursuant to Article 8, the Companies and Shareholders shall not, directly or
indirectly, initiate, solicit or encourage the submission of a proposal from, or
negotiate with, any person related to the sale of any of the Companies Shares or
substantially all the assets of the Companies other than pursuant to this
Agreement, or initiate or participate in any discussions or negotiations or
enter into any agreement to do any of the foregoing. Except as set forth in this
Agreement, Shareholders shall not provide any confidential information
concerning the Companies or their properties or assets to any third party.
(f) Access. The Companies shall give to Purchaser's officers,
employees, counsel, accountants and other representatives free and full access
to, and the right to inspect, during normal business hours, all of the premises,
properties, assets, records, contracts and other documents relating to the
Companies and shall permit them to consult with the officers, employees,
accountants, counsel and agents of the Companies for the purpose of making such
investigation of the Companies as Purchaser shall desire to make, provided that
such investigation shall not unreasonably interfere with the Company's business
operations and shall be coordinated with Christopher Howard. The Companies and
Shareholders shall furnish to Purchaser all such documents and copies of
documents and records and information with respect to the affairs of the
Companies and copies of any working papers relating thereto as Purchaser shall
from time to time reasonably request.
(g) Disclosure. Except as required by applicable law, the
Companies and Shareholders shall not disclose to third parties (other than to
advisers, the Companies' lenders, management personnel and others who have a
need to know of the pending transaction for purposes of the Closing, who shall
be informed that the information is strictly confidential) any information
about, or issue any public statement or press release concerning, this Agreement
or the transactions contemplated hereby except for such written information as
shall have been approved in writing as to form and content by Purchaser.
Purchaser acknowledges that a competitor of the Companies has learned that
Purchaser is negotiating to acquire the Companies, and Purchaser agrees that
such disclosure (not done with the knowledge of the Companies or Principal
Shareholder) does not constitute a breach of the Companies' and Shareholders'
obligations hereunder.
The Companies and Purchaser shall coordinate disclosure of the
transactions contemplated by this Agreement to employees of the Companies.
(h) Additional Financial Statements. In the event Purchaser or
its parent is required either before or after the Closing Date by any law
(including securities laws), regulation or securities listing agreement to file
or disclose financial information related to the Companies (including audited
financial information) which is in addition to information prepared by the
Companies or Shareholder and previously delivered to Purchaser, the Companies
and Shareholders shall make available to Purchaser any relevant information
related to the Companies not
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previously delivered to Purchaser and otherwise cooperate with Purchaser,
at Purchaser's expense, in preparing such information. The Companies and
Shareholders shall not object to the Companies' accountants consenting to
Purchaser's use of financial statements which they have prepared, and/or
agreeing to assist Purchaser in preparing required financial statements and/or
audits; and Purchaser shall have the right to file and disclose such information
as required by any such law, statute or regulation.
Prior to the Closing, Purchaser shall not file any information
related to the Companies with the SEC or any other government agency without the
prior written consent of Principal Shareholder unless (i) such information
related to the Companies is incorporated into other information so that a third
party reading the filed information could not recognize that information
concerning the Companies is included in such filing, or (ii) such filing is made
on a confidential basis and will not be available to persons other than SEC
personnel for the purposes of examining Purchaser's filing.
6.7 Agreements of Purchaser Pending the Closing. Purchaser
covenants and agrees that, pending the Closing and except as otherwise
agreed to in writing by Principal Shareholder:
(a) Best Efforts. Purchaser shall cooperate with the Companies
and use its commercially reasonable best efforts to cause all of the
conditions to the obligations of the parties under this Agreement to be
satisfied on or prior to the Closing Date.
(b) Confidentiality. Unless and until the Closing has been
consummated, Purchaser shall hold, and shall cause its counsel, accountants,
appraisers and agents to hold, in confidence any confidential data or
information made available to Purchaser in connection with this Agreement with
respect to the Companies. Purchaser shall use the same standard of care to
protect such confidential data or information as is used to protect Purchaser's
confidential information. If the transactions contemplated by this Agreement are
not consummated, Purchaser shall not disclose or use and, upon request, shall
return or cause to be returned to the Companies all written materials and other
tangible media and all copies thereof that were supplied to Purchaser by the
Companies and that contain any such confidential data or information and all
written materials and other tangible media that contain summaries of or notes of
the Company's confidential data or information. Purchaser may, however, keep one
copy thereof for its legal files, subject to the foregoing confidentiality
requirements (and excluding any information which identifies customers). In the
event the transactions contemplated hereby do not close, Purchaser shall not
solicit the Companies' existing customers for a period of eighteen months after
the termination of this Agreement.
(c) Disclosure. Purchaser shall not disclose to third parties
any information about, or issue any public statement or press release
concerning, this Agreement or the transactions contemplated hereby except that:
(i) Purchaser may disclose to its lenders and others who
have a need to know of the pending transaction for purposes of Purchaser's
conduct of its business and the Closing, all of which persons shall be
bound by this provision;
(ii) After the Closing, Purchaser may disclose information
as required by law (including the Securities Act of 1933 or the Securities
Exchange Act of 1934) or any listing or trading agreements related to
Purchaser's parent's publicly traded securities, provided that the price paid by
the Purchaser for the Companies shall not be specifically disclosed unless
required by law or any such agreement; and
(iii) After the Closing Purchaser may make customary trade
announcements.
(iv) Except as required by law, Purchaser shall not
disclose the price or other terms of this transaction.
(d) Purchaser has no knowledge that any representation or
warranty made by the Companies or the Shareholders herein is incorrect or
incomplete in any respect, or that the Companies or Shareholders are in material
breach of any covenant or agreement made by the Companies or Shareholders in
this Agreement; and Purchaser shall promptly notify Principal Shareholder in the
event that prior to Closing Purchaser becomes aware of information to the effect
that any representation or warranty made by the Companies or Shareholders herein
is incorrect or incomplete in any respect or that the Companies or Shareholders
are in breach of any covenant or agreement made by the Companies or Shareholders
herein.
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6.8 Forecasts, Projections. The parties acknowledge that any
forecasts, projections, or other information delivered by one party to another
but not contained in this Agreement shall not be considered a representation or
warranty, or guaranty of future performance, and no claim shall be made based
upon such forecast, statement or other information.
6.9 Principal Shareholder Agreements. Principal Shareholder's
execution hereof constitutes the termination, effective as of the Closing,
of any written or oral agreement between the Companies and Principal
Shareholder.
7. CONDITIONS TO CLOSING.
7.1 Purchaser's Conditions to Closing. The obligation of
Purchaser to consummate the transactions to be performed by it in connection
with the Closing shall be subject to and conditioned upon the satisfaction at
the Closing of each of the following conditions:
(a) All representations and warranties of Shareholders contained
in this Agreement, including the Disclosure Schedule, shall be true and correct
at and as of the Closing Date in all material respects, as if restated on the
Closing Date, the Companies and Shareholders shall have performed in all
material respects all agreements and covenants and satisfied in all material
respects all conditions on their part to be performed or satisfied by the
Closing Date pursuant to the terms of this Agreement, and Purchaser shall have
received a certificate of the Principal Shareholder dated the Closing Date to
such effect.
(b) There shall have been no material adverse change since June
30, 1996 in the business, prospects, properties, financial condition (including
operating cash flow), or affairs of the Companies taken as a whole, and the
Companies shall not have suffered any material loss (whether or not insured) by
reason of physical damage caused by fire, earthquake, accident or other calamity
which substantially affects the value of its assets, properties or business, and
Purchaser shall have received a certificate of Principal Shareholder dated the
Closing Date to such effect.
(c) Each of the Companies shall have delivered to Purchaser
certificates of the Secretary of State (or other authorized officer) of the
State of Florida certifying as of a date reasonably close to the Closing Date
that each of the Companies is, as of such date, in good standing and authorized
to transact business as a domestic corporation.
(d) Each of the Companies shall have delivered to Purchaser a
copy of such Company's Articles of Incorporation, certified by the
Secretary of State (or other authorized officer) of the State of Florida.
(e) Each of the Companies shall have delivered the written
resignations, effective on the Closing Date, of all members of the Board of
Directors and all officers of such Company.
(f) Purchaser shall have received from Hodges & Carry, P.A. an
opinion, dated the Closing Date, in the form attached hereto as Exhibit 7.1(f).
(g) Each person who holds indebtedness of the Companies shall
have confirmed to Purchaser the amount of such indebtedness (including accrued
interest and any prepayment premium as of a date not more than ten (10) days
prior to the Closing Date) as of the Closing Date, and that such Company is not
in default under such indebtedness.
(h) All approvals and consents from third parties and
governmental agencies (other than approvals or consents the absence of which
would not have a material adverse effect on the ability of the Companies, taken
as a whole, to operate their business after the Closing) required to consummate
the transactions contemplated hereby shall have been obtained, and any such
governmental approvals or consents shall have become final and not subject to
appeal.
(i) No suit, action, investigation, inquiry or other proceeding
by any governmental body or other third person or legal or administrative
proceeding shall have been instituted or threatened which questions the validity
or legality of the transactions contemplated hereby, and there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction directing that the
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transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the transactions
contemplated hereby which is unduly burdensome on Purchaser.
(j) Principal Shareholder shall have executed a Noncompetition
and Confidentiality Agreement in the form of Exhibit 7.1(j)
(k) No information shall have come to the attention of Purchaser
which reasonably causes Purchaser to believe that the information received by
Purchaser from the Companies or Shareholders prior to the date of this Agreement
or information developed or discussed by Purchaser in the course of its due
diligence investigation was materially incorrect with respect to the Companies,
taken as a whole.
(l) The Companies and Shareholders shall have executed and
delivered to Purchaser stock powers, stock certificates representing the Shares,
and such additional documents, certificates and agreements as may be reasonably
needed, in the opinion of Purchaser's counsel, to carry out the transactions
contemplated hereby.
(m) Purchaser (or an affiliate) shall simultaneously purchase
the real property located at 20 and 30 NE 11th Street, Miami, Florida from P.
Douglas McCraw pursuant to a Purchase Agreement and Escrow Instructions for such
transactions dated the date hereof;
(n) The present lease for the property at 3821 SW 47th Avenue,
Ft. Lauderdale shall have been terminated and a new lease shall have been
executed between P. Douglas McCraw and Purchaser; and
(o) DAS-Ft. Lauderdale shall have completed relocation of all
records from the "Moy" building to 3821 SW 47th Avenue.
7.2 The Shareholders' Conditions to Closing. The obligation of
Shareholders to consummate the transactions to be performed by them in
connection with the Closing shall be subject to and conditioned upon the
satisfaction at the Closing of each of the following conditions:
(a) All representations and warranties of Purchaser contained in
this Agreement shall be true and correct in all material respects at and as of
the Closing Date and Purchaser shall have performed in all material respects all
agreements and covenants and satisfied in all material respects all conditions
on its part to be performed or satisfied by the Closing Date pursuant to the
terms of this Agreement, and Shareholders shall have received a certificate of
Purchaser dated the Closing Date to such effect.
(b) No suit, action, investigation, inquiry or other proceeding
by any governmental body or other third person or legal or administrative
proceeding shall have been instituted or threatened which questions the validity
or legality of the transactions contemplated hereby, and there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction directing that the
transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the transactions
contemplated hereby which is unduly burdensome on the shareholders of the
Companies.
(c) Purchaser shall have delivered to Principal Shareholder a
certificate of the Secretary of State of the State of Delaware, as of a date
reasonably close to the Closing Date, that as of such date Purchaser is in good
standing as a domestic corporation.
(d) Purchaser shall have delivered to Shareholders a certificate
of its corporate Secretary certifying:
(i) Resolutions adopted by its Board of Directors
authorizing execution of this Agreement and the execution, performance and
delivery of all agreements, documents and transactions contemplated hereby; and
(ii) The incumbency of its officers executing this Agreement
and all agreements and documents contemplated hereby.
(e) Purchaser shall have delivered to Shareholders the
additional certificates and documents required of it hereby, which shall be
satisfactory in form and substance to Shareholders' counsel.
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(f) Shareholders shall have received from Garry B. Watzke,
counsel to Purchaser, an opinion in the form attached hereto as Exhibit 7.2(f).
(g) Purchaser (or an affiliate) shall simultaneously purchase
the real property located at 20 and 30 NE 11th Street, Miami, Florida as
described in Section 7.1(m).
(h) P. Douglas McCraw and Purchaser shall be parties to a new
lease for 3821 S.W. 47th Avenue, Ft. Lauderdale, and the existing lease
shall have been terminated.
7.3 Post-Closing Payments. Immediately after the Closing Date,
Purchaser shall discharge, or cause the Companies to discharge and pay in full,
the liabilities of the Companies, including interest accrued thereon and
prepayment penalties related thereto reflected on the Interim Closing Balance
Sheets, other than accounts payable, accrued expenses, sales taxes, bonuses
payable to employees and other current liabilities (which Purchaser shall cause
the Companies to pay in the ordinary course).
8. TERMINATION AND ABANDONMENT.
8.1 Termination of Agreement. The parties may terminate
this Agreement as provided below:
(a) Purchaser and Shareholders may terminate this Agreement
by mutual written consent at any time prior to the Closing;
(b) Purchaser may terminate this Agreement by giving written
notice to Principal Shareholder at any time prior to the Closing (i) in the
event the Companies or Shareholders have breached any material representation,
warranty or covenant contained in this Agreement in any material respect,
Purchaser has notified Principal Shareholder of the breach, and the breach has
continued without cure for a period of 20 days after the notice of breach or
(ii) if the Closing shall not have occurred on or before September 1, 1996; and
(c) Shareholders may terminate this Agreement by Principal
Shareholder; giving written notice to Purchaser at any time prior to the Closing
(i) in the event Purchaser has breached any material representation, warranty,
or covenant contained in this Agreement in any material respect, Principal
Shareholder has notified Purchaser of the breach, and the breach has continued
without cure for a period of 20 days after the notice of breach or (ii) if the
Closing shall not have occurred on or before September 1, 1996.
8.2 Effect of Termination. If any party terminates this Agreement
pursuant to Section 8.1 above, all rights and obligations of the parties
hereunder shall terminate, and no party shall have any liability for damages to
any other party.
9. INDEMNIFICATION.
9.1 General Indemnification Covenants.
(a) Subject to the provisions of Sections 9.3, 9.4 and 9.1(d),
Principal Shareholder shall indemnify, save and keep Purchaser, and its
affiliates, successors and permitted assigns, including the Companies (the
"Purchaser Indemnitees"), harmless against and from all direct liability,
demands, claims, actions or causes of action, assessments, losses, fines,
penalties, costs, damages and expenses, including reasonable attorneys' fees,
disbursements and expenses (collectively, "Damages"), sustained or incurred by
any of the Purchaser Indemnitees as a result of, arising out of or by virtue of
any misrepresentation, breach of any warranty or representation, or
non-fulfillment of any agreement or covenant on the part of Shareholders,
whether contained in this Agreement or the Disclosure Schedule or any written
statement or certificate furnished or to be furnished to Purchaser pursuant
hereto or in any closing document delivered by the Companies or Shareholders to
Purchaser in connection herewith.
(b) Subject to the provisions of Sections 9.3 and 9.4, Principal
Shareholder shall indemnify, save and keep Purchaser Indemnitees harmless
against and from any direct cost, claim, expense or liability (including legal
fees and costs of litigation) which Purchaser Indemnitees may incur by a
customer in excess of $1.00 per carton, linear foot of open-shelf files, disk
pack or other storage unit in connection with lost, damaged or destroyed records
of any customer with which such Company did not, as of the Closing Date, have a
contract which limited Company's liability in the event of loss, damage or
destruction to such amount; provided that Principal Shareholder shall
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not be required to indemnify Purchaser Indemnitees in respect of any loss,
damage or destruction which (i) relates to new cartons moved into the Companies'
premises after the Closing Date, or (ii) Purchaser is unable to demonstrate
occurred before the Closing Date. Notwithstanding the foregoing, with respect to
loss, damage or destruction the date of which cannot be determined, Principal
Shareholder's indemnification obligation shall be equal to 50% of Purchaser
Indemnitees' direct costs, expenses and liability (including legal fees and
costs of litigation) provided that (i) Purchaser shall use its commercially
reasonable best efforts to determine when the loss, destruction or damage
ocurred, (ii) if Purchaser shall be unable to make such determination, Purchaser
shall afford Principal Shareholder access to relevent books and records of the
Companies so that Principal Shareholder can attempt to determine when the loss,
damage or destruction occurred, and (iii) if neither Purchaser nor Principal
Shareholder is able to determine the date of such loss, destruction or damage
(or if Purchaser and Principal Shareholder disagree as to whether such date can
be, or has been, determined), the parties shall submit such dispute to
arbitration as provided in Section 10.15 hereof. The sole decision in such
arbitration shall be the date of loss, destruction or damage. If such date is
not determinable, Principal Shareholder's indemnification obligation shall be as
set forth above.
(c) Principal Shareholder shall indemnify the Purchaser
Indemnitees from and against any cost, expense, liability or obligation
related to those certain disputes between DAS-Ft. Lauderdale and Bekins Moving &
Storage, Bentson Electric and DAS-Ft. Lauderdale's former landlord under the
lease for 5300 Powerline Rd., Ft. Lauderdale described in the Disclosure
Statement.
(d) Each Shareholder, including Principal Shareholder, shall
severally, and not jointly indemnify, save, keep and hold Purchaser Indemnitees
harmless against and from any direct cost, claim, expense or liability
(including legal fees and costs of litigation) which Purchaser Indemnitees may
incur as a result of, arising out of or by virtue of any misrepresentation,
breach of any warranty or representation, or non-fulfillment of any agreement or
covenant on the part of such Shareholder (i) contained in Section 4 of this
Agreement and (ii) with respect to any breach of such Shareholder's obligations
in respect of Sections 6.5, 6.6(c), 6.6(d), 6.6(e) and 6.6(g) of this Agreement.
(e) Shareholders other than Principal Shareholder shall have no
liability to Purchaser Indemnitees under Sections 9.1(a), 9.1(b) and 9.1(c).
9.2 Tax Indemnity.
(a) Principal Shareholder hereby agrees to pay, indemnify,
defend and hold Purchaser and the Companies harmless from and against any and
all Taxes of the Companies with respect to any period (or any portion thereof)
up to and including the July 31, 1996, except for Taxes of the Companies which
are reflected as liabilities for Taxes that exist as of July 31, 1996 ("Tax
Liabilities") on the Closing Balance Sheets, together with all reasonable legal
fees, disbursements and expenses incurred by Purchaser in connection therewith.
(b) Principal Shareholder shall provide any assistance which is
within his powers reasonably to provide (subject to commercial reasonableness)
to assist the Companies in preparing and filing any Return of the Companies
which is required to be filed after the Closing Date. The cost of preparing such
Return which is due after the Closing Date notwithstanding the fact that all or
a portion of the period covered thereby includes periods prior to July 31, 1996
(but not of any tax proceeding related thereto) shall be borne by the Purchaser
as a post-Closing expense. Purchaser shall within forty-five (45) days prior to
the due date of any such Return (or any interim filing and payment in the event
filing of a return is postponed as permitted by law), deliver a draft copy to
Principal Shareholder. Within thirty (30) days of the receipt of any such
Return, Principal Shareholder may reasonably request changes, in which event
Purchaser and Principal Shareholder shall attempt to agree on a mutually
acceptable resolution of the issues in dispute. If a resolution is reached, such
Return shall be filed in accordance therewith. If resolution is not reached,
then at the expense of Purchaser and Principal Shareholder (such expense to be
shared equally unless all issues are decided in favor of one party, in which
event the other party shall bear all such expense), such Return shall be
submitted to a firm of independent certified public accountants selected by
Principal Shareholder and reasonably acceptable to Purchaser, which shall be
directed to resolve the issues in dispute and prepare the Return for filing. As
soon as is practicable after notice from Purchaser to Principal Shareholder at
any time prior to the date any payment for Taxes attributable to any such Return
is due (but in any event not less than thirty days after such notice), provided
such Return is prepared for filing in accordance with the foregoing, an amount
equal to the excess, if any, of (i) the net amount of Taxes that are due from
the Companies with respect to any taxable period ending on or before July 31,
1996, or Taxes that would have been due with respect to a taxable period
beginning before and ending after July 31, 1996 if such period had ended on such
date over (ii) the amount of such Taxes of the Companies with respect to such
taxable period which are reflected as Tax Liabilities on the Closing Balance
Sheets shall be paid by Principal Shareholder to Purchaser; provided that
Principal Shareholder shall not be required to make such payment if the excess
is less than $10,000. The
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<PAGE>
foregoing threshold shall not be applied to any adjustment which the
auditors of the Closing Balance Sheet determine are appropriate in respect of
liabilities of the Companies as of July 31, 1996 in accordance with Section 6.3.
(c) The indemnity provided for in this Section 9.2 shall be
independent of any other indemnity provision hereof and anything in this
Agreement to the contrary notwithstanding, shall survive until the expiration of
the applicable statute of limitation for the Taxes referred to herein, and any
Taxes subject to the indemnification for Taxes set forth in this Section 9.2
shall not be subject to the provisions of Sections 9.3 and 9.4 hereof.
(d) Purchaser shall provide any assistance to Principal
Shareholder which is within its power (subject to commercial reasonableness) to
assist Principal Shareholder in respect of any Return of the Companies filed
prior to the Closing Date , including giving reasonable access to Principal
Shareholder of any books and records related thereto.
9.3 Limitations on Indemnification. The obligations of Principal
Shareholder pursuant to Section 9.1 are subject to the following limitations:
(a) Notwithstanding any other provision contained in this
Agreement, Principal Shareholder shall not have any indemnification obligation
with respect to the first $35,000of total claims incurred under Section 9.1(a);
if total claims exceed such amount, the indemnification obligations of Principal
Shareholder shall include all liabilities incurred, without regard to such
threshold. Principal Shareholder's indemnification obligation in respect of
Section 9.1(a) shall not exceed one-half of the Purchase Price, minus any
payments made under Section 9.1(b) in the aggregate; provided that there shall
be no limit on the Principal Shareholder's liability hereunder for matters which
constitute fraud by the Principal Shareholder.
(b) Notwithstanding any other provision contained in this
Agreement, Shareholders shall not have any indemnification obligation with
respect to the first $35,000 of total claims under Section 9.1(b); if total
claims exceed such amount, the indemnification obligations of Shareholders shall
include all liabilities incurred, without regard to such threshold. In no event
shall Shareholders' indemnification obligation in respect of Section 9.1(b)
exceed one-half of the Purchase Price, minus any payments made under Section
9.1(a) in the aggregate.
(c) There shall be no threshold in respect of the Shareholders'
indemnification provisions under Section 9.1(c), and the maximum aggregate
liability of each Shareholder thereunder shall be equal to the portion of the
Purchase Price allocable to such Shareholder in accordance with his or her
shares of the Companies.
(d) Any claims made under e Section 9.1, shall be made within
six months after the Closing Date in respect of matters arising under Section
9.1(a) and (c), and twelve months after the Closing Date in respect of matters
arising under Section 9.1(b). The applicable statute of limitations shall be the
claim period under Section 9.1(d)
9.4 Conditions of Indemnification Pursuant to Section 9.1.
(a) Promptly following the receipt by a Purchaser Indemnitee of
notice of a demand, claim, action, assessment or proceeding made or brought by a
third party, including a governmental agency (a "Third Party Claim"), the
Purchaser Indemnitee receiving the notice of the Third Party Claim (i) shall
notify Principal Shareholder (or, if the indemnification obligation arises under
Section 9.1(c), the relevant Shareholder) of its existence in writing, setting
forth the facts and circumstances of which such Purchaser Indemnitee has
received notice, and (ii) if the Purchaser Indemnitee giving such notice is a
person entitled to indemnification under this Section 9 (an "Indemnified
Party"), specifying the basis hereunder upon which the Indemnified Party's claim
for indemnification is asserted. The Principal Shareholder or other Shareholder
who is obligated to indemnify the Purchaser Indemnities under the particular
circumstances is herein referred to as the "Indemnifying Shareholder").
(b) The Indemnified Party shall, upon reasonable notice by
Indemnifying Shareholder, tender by written instrument the defense of a Third
Party Claim to Indemnifying Shareholder. If Indemnifying Shareholder accepts
responsibility for the defense of a Third Party Claim, then Indemnifying
Shareholder shall have the exclusive right to contest, defend and litigate the
Third Party Claim and shall have the exclusive right, in his discretion
exercised in good faith and upon the advice of counsel, to settle any such
matter, either before or after the initiation of litigation, at such time and
upon such terms as he deems fair and reasonable, provided that at least ten (10)
days prior to any such settlement, Indemnifying Shareholder shall give written
notice of his or her intention to settle to the
23
<PAGE>
Indemnified Party. The Indemnified Party shall have the right to be
represented by counsel at its own expense in any defense conducted by
Indemnifying Shareholder.
(c) Notwithstanding the foregoing, in connection with any
settlement negotiated by Indemnifying Shareholder, no Indemnified Party shall be
required to (x) enter into any settlement (i) that does not include the delivery
by the claimant or plaintiff to the Indemnified Party of a release from all
liability in respect of such claim or litigation, (ii) if the Indemnified Party
shall, in writing to Indemnifying Shareholder within the ten (10) day period
prior to such proposed settlement, disapprove of such settlement proposal and
desire to have Indemnifying Shareholder tender the defense of such matter back
to the Indemnified Party, or (iii) that requires an Indemnified Party to take
any unreasonable affirmative actions as a condition of such settlement, or (y)
consent to the entry of any judgment that does not include a full dismissal of
the litigation or proceeding against the Indemnified Party with prejudice;
provided, however, that should the Indemnified Party disapprove of a settlement
proposal pursuant to clause (ii) above, the Indemnified Party shall thereafter
have all of the responsibility for defending, contesting and settling such Third
Party Claim but shall not be entitled to indemnification by Shareholder to the
extent that, upon final resolution of such Third Party Claim, Shareholder's
liability to the Indemnified Party but for this proviso exceeds what
Shareholder's liability to the Indemnified Party would have been if Indemnifying
Shareholder were permitted to settle such Third Party Claim in the absence of
the Indemnified Party exercising its right under clause (ii) above.
(d) If, in accordance with the foregoing provisions of this
Section 9.4, an Indemnified Party shall be entitled to indemnification against a
Third Party Claim, and if Indemnifying Shareholder shall fail to accept the
defense of a Third Party Claim which has been tendered in accordance with this
Section 9.4, the Indemnified Party shall have the right, without prejudice to
its right of indemnification hereunder, in its discretion exercised in good
faith and upon the advice of counsel, to contest, defend and litigate such Third
Party Claim, and may settle such Third Party Claim, either before or after the
initiation of litigation, at such time and upon such terms as the Indemnified
Party deems fair and reasonable, provided at least ten (10) days prior to any
such settlement, written notice of its intention to settle is given to
Indemnifying Shareholder. Indemnifying Shareholder shall not be required by such
proposed settlement to consent to the entering of any judgment that does not
include a full dismissal of the litigation or proceeding against Indemnifying
Shareholder with prejudice or a full release of Indemnifying Shareholder. If,
pursuant to this Section 9.4, the Indemnified Party so defends or settles a
Third Party Claim for which it is entitled to indemnification hereunder, as
hereinabove provided, the Indemnified Party shall be reimbursed by the
Indemnifying Shareholder for the reasonable attorneys' fees and other expenses
of defending the Third Party Claim which are incurred from time to time,
forthwith following the presentation to Indemnifying Shareholder of itemized
bills for said attorneys' fees and other expenses. No failure by Indemnifying
Shareholder to acknowledge in writing the Indemnifying Shareholder's
indemnification obligations under this Section 9 shall relieve the Indemnifying
Shareholder of such obligations to the extent they exist.
(e) If an Indemnified Party shall have a claim for damages which
does not involve a Third Party Claim, the Indemnified Party shall deliver a
Claim Notice with respect thereto to Indemnifying Shareholder or, if the
indemnification obligation arises under Section 9.1(c), the relevant Shareholder
(the "Indemnifying Shareholder"). If Indemnifying Shareholder disputes his or
her liability with respect to such claim or demand within twenty days after
receipt of such Claim Notice, such dispute shall be settled by arbitration. If
Indemnifying Shareholder does not dispute such liability within twenty days
after receipt of the Claim Notice, the amount of such claim shall be
conclusively deemed a liability of Indemnifying Shareholder.
9.5 Certain Tax and Other Matters.
(a) If, in connection with the audit of any Return, a proposed
adjustment is asserted in writing with respect to any Taxes of the Companies for
which Principal Shareholder is required to indemnify Purchaser pursuant to
Section 9.2(a) hereof, Purchaser shall notify Principal Shareholder of such
proposed adjustment within twenty (20) days after the receipt thereof. Upon
notice to Purchaser within twenty (20) days after receipt of the notice of such
proposed adjustment from Purchaser, Principal Shareholder may assume (at
Principal Shareholder's own cost and expense) complete control of and contest
such proposed adjustment and may agree to settle such contest in its sole
discretion, provided that such settlement does not materially and adversely
affect Taxes of the Companies in subsequent periods.
(b) Alternatively, if Principal Shareholder requests within
twenty (20) days after receipt of notice of such proposed adjustment from
Purchaser, Purchaser shall contest such proposed adjustment. Principal
Shareholder shall be obligated to pay all reasonable out-of-pocket costs and
expenses (including legal fees and expenses) which Purchaser may incur in so
contesting such proposed adjustment as such costs and expenses are
24
<PAGE>
incurred, and Purchaser shall have the full right to contest such proposed
adjustment and shall be entitled to settle or agree to pay in full such proposed
adjustment (in its sole discretion) and thereafter pursue its rights under this
Agreement. Principal Shareholder shall pay to Purchaser all indemnity amounts in
respect of any such proposed adjustment within thirty (30) days after written
demand to Principal Shareholder therefor. If (i) Principal Shareholder has not
assumed control of the proposed adjustment, and has not requested Purchaser to
contest the proposed adjustment, or (ii) Principal Shareholder has assumed
control of the contest of such proposed adjustment as provided above (or has
requested Purchaser to contest such proposed adjustment within the time provided
above), Principal Shareholder shall pay to Purchaser all indemnity amounts
within thirty (30) days after such proposed adjustment is settled or a Final
Determination has been made with respect to such proposed adjustment.
(c) For purposes of this Section 9.5, a "Final Determination"
shall mean (i) the entry of a decision of a court of competent jurisdiction at
such time as an appeal may no longer be taken from such decision or (ii) the
execution of a closing agreement or its equivalent between the particular
taxpayer and the Internal Revenue Service, as provided in Section 7121 and
Section 7122, respectively, of the Code, or a corresponding agreement between
the particular taxpayer and the particular state or local taxing authority. The
obligation of Principal Shareholder to make any indemnity payment pursuant to
Section 9.2 shall be premised on the receipt by Principal Shareholder from
Purchaser of a written notice setting forth the relevant portion of any Final
Determination, and in cases where the amount of the indemnity payment exceeds
$25,000, a certified statement by a nationally recognized accounting firm
setting forth the amount of the indemnity payment (and in all other cases, a
similar statement certified by the chief financial officer of Purchaser) and
describing in reasonable detail the calculation thereof.
9.6 Certain Information. Purchaser, Principal Shareholder and the
Companies shall furnish or cause to be furnished to each other (at reasonable
times and at no charge) upon request as promptly as practicable such information
(including access to books and records) pertinent to the Companies and
assistance relating to the Companies as is reasonably necessary for the
preparation, review and audit of financial statements, the preparation, review,
audit and filing of any Return, the preparation for any audit or the prosecution
or defense of any claim, suit or proceeding relating to any proposed adjustment
or which may result in Principal Shareholder's being liable under the
indemnification provisions of this Section 9, provided that access shall be
limited to items pertaining solely to the Companies. Principal Shareholder shall
grant to Purchaser access to all Returns filed by him with respect to the
Companies and in his custody if the Companies do not have custody thereof.
9.7 Release by Shareholders. Shareholders, as of the Closing
Date, hereby release and discharge the Companies and each of their officers and
directors from, and agree and covenant that in no event will Shareholders
commence any litigation or other legal or administrative proceeding against, the
Companies, or any of their officers or directors, whether in law or equity,
relating to any and all claims and demands, known and unknown, suspected and
unsuspected, disclosed and undisclosed, for damages, actual or consequential,
past, present and future, arising out of or in any way connected with his or her
ownership of the Companies Shares prior to the Closing Date, other than claims
or demands arising out of the transactions contemplated by this Agreement.
9.8 Indemnification by Purchaser. Upon the terms and subject to
the conditions set forth in Section 9.4 hereof in respect of notice, opportunity
to defend, right to be represented, right to disapprove settlement and similar
matters and this Section 9.8, Purchaser agrees to indemnify and hold
Shareholders harmless against, and will reimburse Shareholders on demand by
Principal Shareholder for, any Damages (as defined in Section 9.1) sustained or
incurred by any such person as a result of, arising out of or by virtue of any
misrepresentation, breach of any warranty or representation, or non-fulfillment
of any agreement or covenant on the part of Purchaser, whether contained in this
Agreement or any written statement or certificate furnished or to be furnished
by Purchaser to Shareholders pursuant hereto or in any closing document
delivered by the Purchaser to Shareholders in connection herewith.
Purchaser shall further indemnify and hold Shareholders harmless
against claims, costs or expenses arising from operation of the Companies in
respect of periods after the Closing Date.
9.9 Exclusive Remedy. The remedies provided in this Section 9
are, to the extent permitted by law, the sole and exclusive remedies, exclusive
of any other remedies that might otherwise be available to any of the parties,
for any claim by one party against any other party under this Agreement or with
respect to the transactions contemplated by it. No party shall make any claim
under any theory, in tort, contract, under statute or otherwise.
9.10 Tax Effect. In case any event shall occur which would
otherwise entitle either party to assert a claim for indemnification hereunder,
no loss shall be deemed to have been sustained by such party to the extent of
any tax savings realized by such party with respect thereto.
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<PAGE>
9.11 Right of Set-Off. Purchaser shall have the right to set off
any amounts owing to Shareholders in respect of the Contingent Payments against
any claim for indemnification against the Shareholders hereunder. Disbursement
of amounts held in the Contingent Payment Escrow may be suspended in respect of
indemnification claims until settled or resolved, as provided in the Escrow
Agreement.
10. MISCELLANEOUS.
10.1 Notice. Any notice required or permitted hereunder shall be
in writing and shall be sufficiently given if personally delivered or mailed by
certified or registered mail, return receipt requested, addressed as follows:
If to Purchaser or (after the Closing Date) the Companies:
Iron Mountain Records Management, Inc.
745 Atlantic Avenue
Boston, Massachusetts 02111
Attn: Eugene B. Doggett
Telecopy: (617) 350-7881
Copy to:
Garry B. Watzke, Esq.
745 Atlantic Avenue, 10th Floor
Boston, Massachusetts 02111
Telecopy: (617) 350-7881
If to Shareholders or the Companies (prior to the Closing Date) :
Douglas McCraw
Data Archive Services, Inc.
3821 SW 47th Avenue
Ft. Lauderdale, Florida 33314
Telecopy: (954) 584-0098
If to Shareholders after the Closing Date:
Douglas McCraw
4800 Bayview Drive
Ft. Lauderdale, Florida 33308
Telecopy: (954) 491-3888
Copy to:
Stephen Opler, Esq.
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Telecopy: (404) 881-7777
and to
John W. Carry, Esq.
Hodges & Carry, P. A.
644 S. E. 4th Avenue
Fort Lauderdale, Florida 33301
Telecopy: (954) 764-6789
(or to such other address as any party shall specify by written notice so
given), and shall be deemed to have been delivered as of the date so personally
delivered or mailed.
10.2 Execution of Additional Documents. The parties hereto will
at any time, and from time to time after the Closing Date, upon reasonable
request of the other party, execute, acknowledge and deliver all such
26
<PAGE>
further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be required to carry out the intent of this
Agreement.
10.3 Binding Effect; Benefits. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, successors, executors, administrators and assigns. Notwithstanding
anything contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
10.4 Entire Agreement. This Agreement, together with the
Exhibits, the Disclosure Schedule and other documents contemplated hereby,
constitute the final written expression of all of the agreements between the
parties, and is a complete and exclusive statement of those terms. It supersedes
all understandings and negotiations concerning the matters specified herein. Any
representations, promises, warranties or statements made by either party that
differ in any way from the terms of this written Agreement and the Exhibits, the
Disclosure Schedule and other documents contemplated hereby, shall be given no
force or effect. The parties specifically represent, each to the other, that
there are no additional or supplemental agreements between them related in any
way to the matters herein contained unless specifically included or referred to
herein. No addition to or modification of any provision of this Agreement shall
be binding upon any party unless made in writing and signed by all parties.
10.5 Governing Law; Consent to Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State
of Florida exclusive of the conflict of law provisions thereof.
The Companies and Shareholders, to the extent they may lawfully
do so, hereby consent to the jurisdiction of the courts of the State of Florida
and the United States District Court for the South District of Florida, as well
as to the jurisdiction of all courts from which an appeal may be taken from such
courts, for the purpose of any suit, action or other proceeding arising out of
any of their obligations arising hereunder or with respect to the transactions
contemplated hereby and expressly waive any and all objections they may have as
to venue in any of such courts.
10.6 Survival. All of the terms, conditions, warranties and
representations contained in this Agreement shall survive, in accordance with
their terms, delivery by Purchaser of the consideration to be given by him
hereunder and delivery by Shareholders of the consideration to be given by them
hereunder, and shall survive the execution hereof and the Closing hereunder.
10.7 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
10.8 Headings. Headings of the Sections of this Agreement are for
the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
10.9 Waivers. Either Purchaser or Principal Shareholder may, by
written notice to the other, (i) extend the time for the performance of any of
the obligations or other actions of the other under this Agreement; (ii) waive
any inaccuracies in the representations or warranties of the other contained in
this Agreement or in any document delivered pursuant to this Agreement; (iii)
waive compliance with any of the conditions or covenants of the other contained
in this Agreement; or (iv) waive performance of any of the obligations of the
other under this Agreement. Except as provided in the preceding sentence, no
action taken pursuant to this Agreement, including without limitation any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
10.10 Merger of Documents. This Agreement and all agreements and
documents contemplated hereby constitute one agreement and are interdependent
upon each other in all respects.
10.11 Incorporation of Exhibits and Schedules. All Exhibits and
the Disclosure Schedule are by this reference incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
10.12 Severability. If for any reason whatsoever, any one or more
of the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to any particular case or in all
27
<PAGE>
cases, such circumstances shall not have the effect of rendering such
provision invalid in any other case or of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid.
10.13 Assignability. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by any party hereto without the
prior written consent of the other parties hereto.
10.14 Records of the Companies. For a period of three years
following the Closing Date or for such longer period as the statute of
limitations applicable to claims for Taxes relating to the Companies for any
period through the Closing Date shall be extended (through voluntary extension
or otherwise), Purchaser shall grant to Shareholders and their representatives,
at Shareholders' reasonable request, access to and the right to make copies of
records and documents of the Companies related to the period prior to the
Closing Date as may be necessary in connection with Shareholder's affairs. If
Principal Shareholder notifies Purchaser that Shareholders require retention of
such records beyond three years, Shareholders shall pay Purchaser's storage
charges for such post-three-year period.
10.15 Arbitration.
(a) All disputes arising under this Agreement shall be settled
by arbitration in Miami, Florida, before a single arbitrator pursuant to
the rules of the American Arbitration Association. Arbitration may be commenced
at any time by any party hereto giving written notice to each other party to a
dispute that such dispute has been referred to arbitration under this Section
10.15.
(i) Within 10 business days after receipt of such notice,
Principal Shareholder and Purchaser shall designate in writing one
arbitrator to resolve the dispute; provided, that if the parties cannot agree on
an arbitrator within such 10-day period, the arbitrator shall be selected by the
American Arbitration Association. The arbitrator so designated shall not be an
employee, consultant, officer, director, stockholder or an affiliate of any
party hereto.
(ii) Within 15 business days after the designation of the
arbitrator, the arbitrator, Principal Shareholder and Purchaser shall meet,
at which time Principal Shareholder and Purchaser shall submit in writing all
disputed issues and a proposed ruling on each such issue.
(iii) The arbitrator shall set a date for a hearing, which
shall be no later than 20 business days after the submission of written
proposals pursuant to clause (ii), to discuss each of the issues identified by
Shareholder and Purchaser. Each such party shall have the right to be
represented by counsel. The arbitration shall be governed by the rules of the
American Arbitration Association; provided, that the arbitrator shall have sole
discretion with regard to the admissibility of evidence.
(iv) The arbitrator shall use his or her best efforts to
rule on each disputed issue within 20 business days after the completion of
the hearings described in clause (iii). The arbitrator shall rule in favor of
the position of one party or the other in the matter, and shall not "split" or
compromise the position of the parties. The determination of the arbitrator to
the resolution of any dispute shall be binding and conclusive upon all parties
hereto. All rulings of the arbitrator shall be in writing and shall be delivered
to the parties hereto.
(v) The prevailing party in any arbitration shall be
entitled to an award of reasonable attorneys' fees incurred in connection
with the arbitration. The non-prevailing party shall pay such fees, together
with the fees of the arbitrator and the costs and expenses of the arbitration.
(vi) Any arbitration award may be entered in and enforced
by any court having jurisdiction thereover and shall be final and binding
upon the parties.
(b) To the extent that arbitration is not legally permitted,
any party may commence a civil action in a court of appropriate
jurisdiction to solve disputes hereunder. Nothing contained in this Section
10.15 shall prevent the parties from settling any dispute by mutual agreement at
any time.
11. PRINCIPAL SHAREHOLDER.
11.1 Shareholders other than Principal Shareholder hereby appoint
Principal Shareholder as their representative for purposes of this Agreement and
as their attorney-in-fact and agent for and on behalf of each such Shareholder,
and authorize Principal Shareholder to take any and all actions and make any
decisions required or
28
<PAGE>
permitted to be taken or made by Principal Shareholder under this
Agreement, including receipt and giving of notices. Principal Shareholder shall
have full power and authority to represent Shareholders, and their successors,
with respect to all matters arising under this Agreement and all action taken by
Principal Shareholder hereunder shall be binding upon Shareholders, and their
successors, as if expressly confirmed and ratified in writing by each of them.
Without limiting the generality of the foregoing, Principal Shareholder shall
have full power and authority to interpret all of the terms and provisions of
this Agreement, and to authorize payments to be made with respect thereto, on
behalf of Shareholders and their successors.
11.2 Principal Shareholder shall incur no liability with respect
to any action taken or suffered by him in reliance upon any notice, direction,
instruction, consent, statement or other documents believed by him to be
genuinely and duly authorized, nor for other action or inaction except his own
willful misconduct or gross negligence. Principal Shareholder shall be
indemnified and held harmless by Shareholders other than Principal Shareholder
from all losses, costs and expenses which he may incur as a result of
involvement in any legal proceedings arising from the performance of his duties
hereunder.
11.3 In the event of the death or permanent disability of
Principal Shareholder, or his resignation hereunder, a successor shall be
appointed by the remaining Shareholders. Each successor shall have the power,
authority, rights and privileges conferred by this Agreement upon Principal
Shareholder, and the term "Principal Shareholder" as used herein shall be deemed
to include such successor.
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year
hereinabove first set forth.
PURCHASER: STOCKHOLDERS OF
Iron Mountain Records Management, Inc. DAS-FT. LAUDERDALE
By /s/ By /s/
------------------------------- -------------------------------
Name __________________________ P. Douglas McCraw
Title ___________________________
STOCKHOLDERS OF DAS-MIAMI
-------------------------------
Alisa Jo Heyman Zecker
/s/ /s/
- ---------------------------------- -------------------------------
P. Douglas McCraw Sylvia Heyman
/s/ /s/
- ---------------------------------- -------------------------------
Fonda B. Furnish Lucretia Saraceno
/s/ /s/
- ---------------------------------- -------------------------------
Anthony S. Cushenberry Lorraine Saraceno
/s/
- ---------------------------------- -------------------------------
Lawrence T. Einbinder Fred Saraceno
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<PAGE>
/s/ /s/
- ---------------------------------- -------------------------------
Roslyn D. Smith Burt and Mitzi Jones
/s/ /s/
- ---------------------------------- -------------------------------
David H. Mundy Fonda B. Furnish
/s/
-------------------------------
Anthony S. Cushenberry
/s/
-------------------------------
Lawrence T. Einbinder
/s/
-------------------------------
Roslyn D. Smith
/s/
-------------------------------
David H. Mundy
30
ASSET PURCHASE AND SALE AGREEMENT
among
IRON MOUNTAIN RECORDS MANAGEMENT, INC.,
as Buyer
INTERNATIONAL RECORDS STORAGE AND RETRIEVAL SERVICES, INC.
as Seller
and
Lawrence Winnerman and Sanford Winnerman
as stockholders of Seller
August 13, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I....................................................................1
DEFINITIONS............................................................1
ARTICLE II...................................................................4
SALE AND PURCHASE OF SUBJECT ASSETS....................................4
ARTICLE III..................................................................7
REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDERS..............7
ARTICLE IV..................................................................12
REPRESENTATIONS AND WARRANTIES OF BUYER...............................12
ARTICLE V...................................................................13
PRE-CLOSING AGREEMENTS................................................13
ARTICLE VI..................................................................15
CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE..................15
ARTICLE VII.................................................................17
CONDITIONS PRECEDENT TO OBLIGATION OF SELLER..........................17
ARTICLE VIII................................................................18
THE CLOSING...........................................................18
ARTICLE IX..................................................................19
POST-CLOSING MATTERS..................................................19
ARTICLE X...................................................................21
TERMINATION...........................................................21
ARTICLE XI..................................................................22
INDEMNIFICATION.......................................................22
ARTICLE XII.................................................................26
MISCELLANEOUS PROVISIONS..............................................26
<PAGE>
TABLE OF CONTENTS
(cont'd)
Schedule 1.11 Owned Tangible Assets
Schedule 2.3 Allocation
Schedule 3.5 Encumbrances
Schedule 3.8 Litigation
Schedule 3.9 Permits, Licenses
Schedule 3.15 Certain Changes; Competitive Bids
Schedule 3.17 Employee Information
Schedule 12.1 Brokers
Exhibit 2.5 Escrow Agreement
Exhibit 6.3 Noncompetition and Confidentiality Agreement
Exhibit 6.8 Seller's Counsel's Opinion
Exhibit 6.9 Software Support Agreement
Exhibit 7.4 Buyer's Counsel's Opinion
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 13th day of August, 1996,
by and among International Records Storage and Retrieval Services, Inc., a New
Jersey corporation ("Seller"), Lawrence Winnerman and Sanford Winnerman,
stockholders of Seller (each a "Stockholder"), and Iron Mountain Records
Management, Inc., a Delaware corporation ("Buyer").
RECITALS
A. Seller is engaged in the business of providing records management and
storage services to customers located in the New York metropolitan area
under the trade name "International Records Storage".
B. Buyer desires to purchase, and Seller desires to sell, substantially all
the assets of the Business (as hereinafter defined) on the terms and
subject to the conditions contained in this Agreement.
C. Stockholders, as the majority stockholders of Seller, join in this
Agreement for purposes of confirming the representations and warranties of
Seller and providing indemnification against breach of warranties.
In consideration of the mutual covenants and agreements set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Seller, Stockholders and Buyer, intending to be legally
bound, agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, certain terms used in this Agreement and not
otherwise defined herein shall have the meanings designated below:
Section 1.1 Agreement means all or any part of this Agreement, including
schedules, exhibits, and appendices, as any of the foregoing may be amended,
modified or supplemented in writing from time to time.
Section 1.2 Business means the records management and storage business conducted
by Seller in metropolitan New York area (with customers in New York and New
Jersey) under the trade name "International Records Storage".
Section 1.3 Closing means the occasion upon which the transactions contemplated
by this Agreement are carried out by the delivery of documents, payment of funds
and other actions contemplated herein, as described in Article VIII.
Section 1.4 Closing Date shall be September 4, 1996, or such other date as the
parties may agree.
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Section 1.5 Effective Time means 12:01 a.m. in Boston, Massachusetts on
September 1, 1996.
Section 1.6 Encumbrances means any and all encumbrances, security interests,
liens, Taxes, claims, liabilities, options, commitments, charges, restrictions
or other obligations of whatsoever kind, quantity or nature, whether accrued,
absolute, contingent or otherwise, which affect title to the Subject Assets.
Section 1.7 Excluded Assets means (i) Seller's cash, cash equivalents and sums
in checking and other depository accounts at the Effective Time and (ii)
Seller's minute books, stock records, stock ledger and similar corporate
records, (iii) Seller's interest in a note receivable from Penny Novak, Seller's
right to receive a partial premium refund on insurance carried by the Business,
(v) leased postage meter and two leased copiers (one of which Buyer will lease
from Seller for the rent paid by Seller to its lessor for the remainder of the
lease term), and (vi) a portion of earned accounts receivable, as described in
Section 2.2D(iii).
Section 1.8 Lease means the lease dated October 7, 1993 between Berkowitz
Company, L. P., successor to Central Paper Distribution Services, Inc., as
landlord, and Seller, as tenant, pursuant to which Seller occupies approximately
141,516 square feet of space in the Leased Building.
Section 1.9 Leased Building means the building located at 110 Edison Place,
Newark, New Jersey at which Seller conducts the Business.
Section 1.10 Major Customer means any of Seller's customers which stored in
excess of 5,000 cubic feet of material at any time during the three months ended
March 31, 1996.
Section 1.11 Subject Assets means all of Seller's assets and properties related
to the Business of whatever kind, character and description, and whether
tangible, intangible, real, personal or mixed, and wherever located, except for
the Excluded Assets. The Subject Assets include the following Tangible Assets
and Interests:
A. Tangible Assets means all tangible personal property used in the
Business, such as inventory; computers, computer peripherals and maintenance
manuals; word processors; typewriters and other business machines; automobiles,
trucks and other vehicles; equipment; tools and machines; racking and shelving
currently used in the Business or in the Leased Building; furniture,
furnishings, and office equipment; and supplies. Principal items of Tangible
Assets are listed on Schedule 1.11.
B. Interests means all intangible property used in the Business, including
rights, privileges, benefits and interests under all contracts, agreements,
consents, licenses and files and correspondence related thereto; computer
software used in the Business; permits or certificates; agreements, leases and
other arrangements with respect to intangible or tangible property or interests
therein, including the Lease; confidentiality and non-competition agreements
with present and former employees, whether oral or written; consents; agreements
with suppliers and customers; financial and operating records of the Business;
deposits held by contract parties (including the security deposit held by the
landlord under the Lease); accounts receivable issued in respect of storage to
be provided after the Closing Date and a portion of earned accounts receivable
as described in Section 2.2D(iii); prepaid expenses; the unregistered trade name
"International
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Records Storage"; and any sales agent or sales affiliate agreements used in
connection with the Business.
Section 1.12 Taxes means any and all taxes, sums or amounts assessed or
assessable, levied and due by any federal, state or county or other local
governmental authority or agency, including without limitation, real and
personal property taxes, income taxes, whether measured by gross or net income
or profit, franchise, excise, sales and use taxes, employee withholding, social
security, unemployment taxes and any other taxes required to be paid by Seller,
including interest and penalties in respect thereof whether disputed or not, and
whether accrued, contingent, due, absolute, deferred, unknown or other, together
with any and all penalties, interests and additions to all such taxes, sums or
amounts.
(ARTICLE II COMMENCES ON THE NEXT PAGE)
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ARTICLE II
SALE AND PURCHASE OF SUBJECT ASSETS
Section 2.1 Sale and Transfer.
A. The Sale. Subject to the terms and conditions set forth in
this Agreement, Seller shall sell, convey, transfer, assign and deliver to
Buyer, and Buyer shall purchase and receive from Seller, at the Closing, free
and clear of all Encumbrances, all of the Subject Assets.
Section 2.2 Purchase Price; Assumption of Certain Obligations.
A. Purchase Price. The Purchase Price to be paid by Buyer for all
the Subject Assets shall be . The Purchase Price shall be paid in
United States Dollars.
B. Payment of Purchase Price. The Purchase Price shall be payable to
Seller at the Closing by wire transfer of immediately available funds in the
amount of $ to the Escrow Agent under the Escrow Agreement described in
Section 2.5 hereof, and the remainder to such account as Seller shall designate
in writing not less than two business days prior to the Closing Date.
C. Limited Assumption of Contracts and Obligations. Buyer shall
assume no obligations or liabilities of Seller other than the following:
Buyer shall assume and perform:
(i) all obligations of Seller arising or accruing after the
Effective Time in respect of Seller's contracts, agreements and arrangements
with its customers providing for storage of business records; and
(ii) Seller's obligations arising or accruing after the Effective
Time under the Lease.
The obligations described in clauses(i) and (ii) are hereinafter referred
to as the Assumed Liabilities.
D. Adjustments.
(i) All expenses (including salaries, wages, commissions,
vacation and other benefit liabilities and so-called compensatory time)
attributable to the operation of the Business during the period on or prior to
the Effective Time are for the account of, and shall be paid by, Seller. All
expenses attributable to the operation of the Business during the period after
the Effective Time are for the account of, and shall be paid by, Buyer.
(ii) Buyer shall receive a credit against the purchase price
for prepaid services to be performed after the Effective Time for which Seller
has received payment prior to the Closing Date.
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(iii) Buyer and Seller have agreed to split as hereinafter
provided Earned Accounts Receivable, which are accounts receivable arising from
invoices issued prior to the Effective Time for storage or service provided or
performed prior to the Effective Time. Buyer and Seller shall identify and agree
on the Earned Accounts Receivable at the closing and the aggregate amount
thereof. As payments are received by Buyer from account debtors a portion of
whose accounts are Earned Accounts Receivable ("EAR account debtors"), Buyer
shall record such payments against Earned Accounts Receivable derived from such
EAR account debtor. Buyer will not allocate payments from any EAR account debtor
to "unearned" accounts receivable owed by such account debtor until all of such
EAR account debtor's Earned Accounts Receivable have been paid unless such EAR
account debtor specifically directs that a payment be so applied. If an EAR
account debtor makes such specific request (with an indication that such EAR
account debtor intends not to pay all or part of its Earned Accounts
Receivable), or if an EAR account debtor contests the appropriateness of any
invoice included in the Earned Accounts Receivable, Buyer shall promptly notify
Seller, and Seller shall have a right to participate with Buyer in attempting to
resolve the applicable EAR account debtor's objection.
Buyer shall retain for its own account collections from Earned Accounts
Receivable until the aggregate so collected equals one-half of the total Earned
Accounts Receivable. Thereafter, all remaining Earned Accounts Receivable
collected shall be paid over to Seller. Buyer shall provide a monthly accounting
to Seller of collections from EAR account debtors, identifying the invoices
against which collections are credited, and providing such other information as
Seller may reasonably request. Seller shall have the right during normal
business hours to audit and review Buyer's books and records in respect of
collection of Earned Accounts Receivable.
Buyer's obligation to remit portions of the Earned Accounts Receivable to
Seller shall terminate with respect to amounts received after the sixth month
after the Closing Date.
(iv) All such adjustments shall be calculated as of the
Effective Time and shall be paid or credited, as the case may be, on the Closing
Date, to the extent known, or on the date which is forty-five days after the
Closing Date to the extent they are not determinable on the Closing Date.
If Buyer agrees to pay any Seller obligations (other than the
Assumed Liabilities) in exchange for a credit against the Purchase Price, Buyer
shall not be deemed to have assumed any Seller obligations with respect thereto
other than payment of such assumed amount. Seller shall pay all pre-Closing
accruals and expenses other than the Assumed Liabilities at the scheduled time
of payment except to the extent (other than with respect to Assumed Liabilities)
Buyer has agreed to make such payment in exchange for a credit against the
Purchase Price. Buyer will promptly forward to Seller for payment any invoices
which Buyer receives related to obligations of Seller which were not assumed by
Buyer.
Section 2.3 Allocation. The Purchase Price shall be allocated among the Subject
Assets as described in Schedule 2.3; or, if Schedule 2.3 has not been completed
on the date hereof, on or prior to the Closing Date. The parties shall for tax
purposes report the transactions contemplated by this Agreement in accordance
with such allocation.
Section 2.4 Seller's Employees. Buyer shall not be obligated to offer employment
to any employee of Seller in connection with its acquisition of the Subject
Assets, and such acquisition
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shall not grant any employee of Seller a right of continued employment with
Buyer. Buyer shall have the right to offer employment to such of Seller's
employees as it chooses, and Seller shall not offer conflicting employment to
any person to whom Buyer offers employment for a period of two years after the
Closing Date.
Section 2.5 Escrow Agreement. The performance by Seller and Stockholders of
their covenants, indemnities and obligations under this Agreement shall be
secured by $250,000 (together with interest thereon, the "Escrow Fund") to be
held and disbursed by Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer &
Gladstone (the "Escrow Agent") pursuant to an Escrow Agreement in the form set
forth as Exhibit 2.5 hereto, which shall be executed and delivered by Seller,
Stockholders, Buyer and the Escrow Agent at the Closing.
(ARTICLE III COMMENCES ON THE NEXT PAGE)
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDERS
Seller and Stockholders hereby jointly and severally represent and warrant to
Buyer as follows, except as otherwise stated in Schedules hereto, as of the date
hereof:
Section 3.1 Organization and Good Standing. Seller is a corporation duly
organized, under the laws of the State of New Jersey, and has all requisite
power and authority to own and operate the Subject Assets, to carry on the
Business as presently conducted and to execute and deliver, and perform its
obligations under, this Agreement.
Section 3.2 Authorization. The execution and delivery of this Agreement and
performance by Seller of its obligations hereunder has been, and all the other
agreements and documents required to be delivered by Seller in accordance with
the provisions hereof (the Seller's Documents) have been duly and validly
authorized by all necessary corporate actions on the part of Seller. This
Agreement has been, and the Seller's Documents upon execution will be, duly
executed and delivered on behalf of Seller, by duly authorized officers of
Seller; and this Agreement constitutes, and Seller's Documents when executed and
delivered will constitute, the valid and binding obligations of Seller,
enforceable in accordance with their respective terms.
Section 3.3 Compliance With Other Instruments. Neither the execution and
delivery by Seller of this Agreement and the Seller's Documents, nor the
consummation by Seller of the transactions contemplated hereby and thereby,
will, with or without the giving of notice or passage of time, or both, be
contrary to or violate, breach, or constitute a default under, or permit the
termination or acceleration of maturity of, or result in the imposition of any
lien, claim or encumbrance on any property or asset of Seller pursuant to any
provision of, any note, bond, indenture, mortgage, deed of trust, evidence of
indebtedness or lease agreement, other agreement or instrument (or, to Seller's
knowledge, any judgment, order, injunction or decree) by which Seller is bound,
to which Seller is a party, or to which the assets of Seller are subject; nor is
the effectiveness or enforceability of this Agreement or such other documents
adversely affected by any provision of the Articles of Organization or Bylaw of
Seller.
Section 3.4 No Governmental or Other Authorization Required. No authorization or
approval of, or filing with, any governmental agency, authority or other body or
any other third persons will be required in connection with Seller's execution
and delivery of this Agreement or its consummation of the transactions
contemplated hereby.
Section 3.5 Title to Subject Assets. Except as set forth in Schedule 3.5, Seller
has good title to all the Subject Assets, free and clear of all Encumbrances.
Seller is not a party to, nor are the Subject Assets subject to, any judgment,
judicial order, writ, injunction or decree of which Seller has knowledge that
materially adversely affects the Subject Assets or the use thereof by Seller.
Section 3.6 Contracts and Other Interests. All material contracts (including all
Major Customer contracts) and all other material Interests are in full force and
effect, valid and enforceable in accordance with their respective terms, and
there are no existing defaults of Seller or events of default that, with the
giving of notice or lapse of time, or both, would constitute defaults of Seller
under any material contracts or other Interests, nor are material amendments
pending with respect to
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any material contracts or other Interests. Seller has no oral agreements with
customers which require Seller to provide storage or services at no charge or at
rates significantly below the average rates for such services set forth in
Seller's written customer contracts, except for immaterial discounts and/or free
services provided as incentives to certain accounts.
Section 3.7 Taxes. Seller has filed all federal, state and local income, excise
or franchise tax returns, real estate and personal property tax returns, sales
and use tax returns and other tax returns (including returns in respect of
withholding and unemployment tax) required to be filed by it or has timely filed
extensions related thereto and has paid all taxes owing by it, including any
interest and penalties thereon, except taxes which have not yet accrued or
otherwise become due for which adequate provision has been made, or which Seller
is contesting in good faith. Neither the Internal Revenue Service nor any other
taxing authority is now asserting or, to the knowledge of Seller, threatening to
assert against Seller any deficiency or claim for additional taxes or interest
thereon or penalties.
Section 3.8 Litigation; Claims; Defaults. Except as set forth in Schedule 3.8,
Seller has not been served with any currently effective summons or complaint and
there is no action or suit, equitable or legal, to which Seller is a party, nor
any administrative, arbitration or other proceeding pending or threatened
against Seller in respect of the Subject Assets or the Business. Seller has not
received any written or oral assertions from customers of the Business to the
effect that their materials stored with Seller have been lost, damaged or
inappropriately destroyed or that such customers are being billed inaccurately
for storage of materials or records. Seller is not in default with respect to
any currently effective judgment, order, writ, injunction, decree of which
Seller has knowledge, demand or assessment issued by any court or of any
federal, state, municipal or other governmental agency, board, commission,
bureau, instrumentality or department and applicable to Seller. Seller is not
charged or threatened with or under investigation with respect to, any violation
of any provision of any federal, state, municipal or other law or administrative
rule or regulation.
Section 3.9 Compliance with Laws; Permits, Etc. Seller has complied in all
material respects with applicable federal, state and local laws, rules and
regulations. Seller possesses such certificates, authorities or permits issued
by the appropriate local, state or federal regulatory agencies or bodies as are
necessary to conduct the Business, all of which are listed on Schedule 3.9; and
Seller has not received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit.
Section 3.10 Certain Environmental Matters. Except as set forth in Schedule
3.10, Seller is operating and has operated the Business in compliance with all
applicable local, state and federal environmental laws, regulations and
ordinances, including, but not limited to, the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. ss.ss.9601 et seq.
(CERCLA), the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss.6901 et
seq., the Clean Water Act, 33 U.S.C. ss.ss.1251 et seq., and the environmental
laws and regulations of the State of New Jersey as each such statute or
regulation has been amended from time to time (Environmental Laws and
Regulations). Seller has not accepted for storage, and to the best of its
knowledge does not store, any nitrate film or any Hazardous Material. Seller has
never knowingly caused the release of an amount of any Hazardous Material to the
environment which release would constitute a violation of any Environmental Laws
and Regulations. For purposes of this Agreement Hazardous Material shall have
the same meaning as that term is defined by Environmental Laws and Regulations,
and shall in any event include (i) any asbestos, (ii) polychlorinated biphenyl
substances and
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(iii) petroleum waste products. Seller does not own, lease, rent or otherwise
utilize any underground storage tanks.
Section 3.11 No Inconsistent Agreements. Seller has not entered into any letter
of intent, preliminary agreement or other agreement, written or oral, with any
other party which would be inconsistent with the terms of this Agreement.
Section 3.12 Financial Statements. Seller has previously delivered to Buyer
Seller's balance sheets and income and expense statements as of and for the
years ended December 31, 1994 and December 31, 1995, reviewed by Rothstein, Kass
& Company, P. C., independent public accountant (the Financial Statements) and
the three-month period ended March 31, 1996. The Financial Statements are true,
correct and complete for the periods covered in all material respects, have been
prepared in accordance with generally accepted accounting principles on an
income tax reporting basis, applied on a consistent basis, and fairly present
the results of the operation of the Business for the periods then ended. Seller
shall deliver to Buyer, as they become available, unaudited monthly income and
expense statements until the Closing, which statements will be true, correct and
complete for such periods and prepared on a consistent basis with the Financial
Statements.
Section 3.13 No ERISA Plans. Seller has not established and does not maintain
any employee pension benefit plans which are subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended, other than a 401(k)
profit sharing plan which will be terminated by Seller at or prior to the
Closing Date. Assets in such plan will be distributed to the beneficiaries.
Section 3.14 Condition of Subject Assets; Sufficiency. All the material tangible
Subject Assets are in good operating condition, ordinary wear and tear excepted,
and are in compliance with all applicable statutes, ordinances, rules and
regulations. The tangible Subject Assets constitute all of the tangible assets
required to operate the Business in the manner operated by Seller during the six
months prior to the date hereof.
Section 3.15 Absence of Certain Changes. Except as set forth in Schedule 3.15,
since January 1, 1996, none of Seller's Major Customers has terminated or
indicated in writing an intention to terminate its business with, or reduce the
volume of its business with, Seller. Seller has no Major Customers whose storage
business is or has within 90 days prior to the date hereof, been the subject of
competitive bidding procedures.
Section 3.16 No Material Undisclosed Liabilities. Except as described in this
Agreement or reflected in the Financial Statements, to Seller's knowledge, there
is no liability or obligation of Seller related to the operation of the
Business, whether accrued, absolute or contingent, other than liabilities and
obligations that have been incurred in the ordinary course of business since
December 31, 1995 and are not material in the aggregate to the Subject Assets,
the Business or the, operations or financial condition of Seller.
Section 3.17 Personnel Information. Schedule 3.17 lists the names of all full-
and part-time employees of Seller (or leased employees utilized by Seller) and
sets forth a job description or title and compensation for each such person.
Schedule 3.17 also sets forth a list of all written and oral employment and
noncompetition agreements with Seller's employees.
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Section 3.18 Patents, Trademarks, Etc. Except for the trade name "International
Records Storage", which is an unregistered trade name used by Seller, and
proprietary software programs identified in Section 3.18, Seller has no patents,
trademarks, service marks, other trade names, copyrights, computer programs or
programs rights, licenses or other similar intangible property rights and
interest which it uses in connection with the Business.
Section 3.19 Labor Relations. During the past three years there has not been,
and there is not now, any strike, labor dispute, slow down, stoppage, or other
material interference with or impairment by labor of the business of Seller
pending or threatened or contemplated against or directly affecting the
Business. Seller's employees are not represented by any labor or trade union,
nor to Seller's knowledge has there been any attempt to organize Seller's
employees during the 90 day period prior to the date hereof.
Section 3.20 Insurance. There is in force comprehensive general liability and
casualty insurance for the Subject Assets and the Business which, in the
reasonable opinion of Seller, is appropriate and adequate coverage for such
assets and operations.
Section 3.21 Trade Secrets and Customer Lists. Seller has the right to use, free
and clear of any claims or rights of others, all trade secrets, customer lists,
computer software, intellectual property and operating methods required for or
incident to the operation of the Business. Seller is not using or in any way
making use of any confidential information or trade secrets of any third party,
including without limitation any confidential information claimed to be the
property of a former employer of any present or past employee of Seller.
Section 3.22 Transactions with Interested Persons. Seller does not own directly
or indirectly, on an individual or joint basis, any material interest in any
customer, competitor or supplier of the Business, or any organization which has
a material contract or arrangement with the Business.
Section 3.23 Records Services and Storage Arrangements. Substantially all items
received and stored by Seller on behalf of customers (singly or in the
aggregate) are held in storage by Seller and are locatable and accessible
without extraordinary effort except for items withdrawn or destroyed at the
respective customer's request. The stored items for which customers are billed
exist and can be accounted for.
Section 3.24 Business in Ordinary Course. From December 31, 1995 until the date
hereof, the Business has been conducted in the ordinary course in accordance
with past practice. Seller has used its best efforts to maintain and service the
Business, and to keep available the services of present employees and agents and
maintain existing business relationships. Without limiting the generality of the
foregoing, Seller has not:
(i) mortgaged or pledged any of its property or assets;
(ii) sold, assigned, transferred or waived rights with respect
to any of the Subject Assets (except for items of personal property sold because
they had reached the end of their useful life and replaced with similar personal
property);
(iii) entered into or adopted any employee benefit plan or any
employment or severance agreement, or increased in any manner the compensation
or fringe
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benefits of its officers or employees (except in the ordinary course of business
and consistent with past practice);
(iv) changed its billing, accounts payable, accounts
receivable collection, accounts receivable write-off or other cash management
practices; or
(v) agreed to take any of the foregoing actions.
Section 3.25 Shelving of Cartons; Filing. Seller has completed the shelving and
filing of substantially all cartons and files received from its customers
(including refiles) and all internal move cartons on or prior to the date which
is two days prior to the date hereof, including permanent filing of all files
deposited temporarily in shelving row end bins. Cartons which are received from
new customers will be filed to the extent that shelving is available.
Section 3.26 No Material Adverse Change. There has been no material adverse
change in the Subject Assets (including, without limitation, loss of or damage
to a material amount or part of the Subject Assets) or the Business between
December 31, 1995 and the date hereof.
Section 3.27 Software. The computers included in the Subject Assets contain all
programs, software and information required by Buyer to operate the Business,
including customer, billing and inventory information, in the manner that Seller
has operated the Business prior to the Closing Date, and adequate support
therefor is available so that Buyer may operate the Business in the normal
course without use of software or computer programs provided by or licensed from
any person other than persons with whom there are written agreements.
(ARTICLE IV COMMENCES ON THE NEXT PAGE)
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
Section 4.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer possesses all requisite corporate power and authority to own,
operate and lease its properties and carry on its business, and to enter into
this Agreement and complete the transactions contemplated by it.
Section 4.2 Authorization. Buyer has all requisite power and authority to
execute and deliver, and perform its obligations under, this Agreement. The
execution and delivery of this Agreement and performance by Buyer of its
obligations hereunder, and all transactions contemplated hereby, have been duly
and validly authorized by all necessary corporate action. This Agreement has
been, and the other agreements and documents required to be delivered by Buyer
in accordance with the provisions hereof (the Buyer's Documents) will be, duly
executed and delivered on behalf of Buyer by duly authorized officers of Buyer;
and this Agreement constitutes, and Buyer's Documents when executed and
delivered will constitute, the valid and binding obligations of Buyer,
enforceable in accordance with their respective terms.
Section 4.3 Compliance with Other Instruments. Neither the execution and
delivery by Buyer of this Agreement and the Buyer's Documents, nor the
consummation by Buyer of the transactions contemplated hereby and thereby, will,
with or without the giving of notice or passage of time, or both, be contrary to
or violate, breach, or constitute a default under, or permit the termination or
acceleration of maturity of, or result in the imposition of any lien, claim or
encumbrance upon any property or asset of Buyer pursuant to any provision of,
any note, bond, indenture, mortgage, deed of trust, evidence of indebtedness or
lease agreement, other agreement or instrument or any judgment, order,
injunction or decree by which Buyer is bound, to which Buyer is a party, or to
which the assets of Buyer are subject; nor is the effectiveness or
enforceability of this Agreement or such other documents adversely affected by
any provision of the certificate of incorporation or by-laws of Buyer.
Section 4.4 Litigation. There is no action, suit or proceeding pending or, to
the knowledge of Buyer, threatened against Buyer which might interfere with its
ability to consummate the transactions contemplated hereunder.
Section 4.5 No Governmental Authorization Required. No authorization or approval
of, or filing with, any governmental agency, authority or other body or any
other third persons will be required in connection with Buyer's execution and
delivery of this Agreement or its consummation of the transactions contemplated
hereby and thereby.
(ARTICLE V COMMENCES ON THE NEXT PAGE)
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ARTICLE V
PRE-CLOSING AGREEMENTS
Section 5.1 Access to Information and Facilities. Seller shall afford Buyer and
its representatives full access during normal business hours to all facilities,
properties, books, accounts, records, contracts and documents of or relating to
the Business in Seller's or Stockholders' possession or control, subject to
reasonable requirements that Buyer not interfere with the operations and
activity of the Business. Such access shall include access to confirm the truth
and correctness of representations and warranties as of the date hereof and as
of the Closing Date. In addition, Buyer's representative shall have an
opportunity to meet with Seller's office manager, operations manager and
sales/customer service manager, to ensure a smooth transition. Seller has
furnished or caused to be furnished to Buyer and its representatives all data
and information concerning the Business reasonably requested by Buyer. Without
limiting the generality of its obligations hereunder, Buyer agrees that
information obtained solely through such sources is subject to the
confidentiality provisions of Section 5.2.
Section 5.2 Confidentiality. Seller and Buyer shall keep confidential any and
all information furnished by each to the other (including confidential
information transmitted by each to their representatives, accountants, counsel,
advisors or bankers) in the course of negotiations relating to this Agreement
and the business and financial reviews and investigations referred to in this
Agreement, except to the extent that any such information is or was generally
available to the public through no action on the part of the recipient or was
known to the recipient prior to receipt. Buyer shall use such confidential
information only for purposes of evaluating the transaction contemplated by this
Agreement, and not for any other purposes.
Notwithstanding the foregoing, disclosure of such information may be made to the
extent required by applicable law or regulation, judicial or regulatory process,
and reviews by financial institutions which are lenders to either party; and
such information may be used as evidence in or in connection with any pending or
threatened litigation between the parties relating to this Agreement or any
transaction contemplated hereby.
In the event that the sale contemplated by this Agreement is not consummated for
any reason, each party agrees to return to the other party all materials
containing such information immediately on request, except that each party may
keep one set of such information for its legal file, where it will remain
subject to the confidentiality provisions of this Agreement.
Section 5.3 Public Announcement. No party shall issue any press release or make
any public announcement relating to the subject matter of this Agreement without
the prior written approval of the other party; provided, however, that either
party may disclose the transfer of the Business to its customers in the ordinary
course of business, or make any public disclosure it believes is necessary as a
part of its quarterly press release procedure or in good faith is required by
applicable law or any listing or trading agreement concerning the
publicly-traded securities of the party or its affiliates.
Section 5.4 Communications to Seller's Employees. Buyer and Seller shall
mutually agree on the timing and content of a program of communications to
employees of the Business (other than the three persons mentioned in Section
5.1) in respect of the transactions contemplated hereby.
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Section 5.5 Continued Efforts. Seller shall use its reasonable best efforts to
(a) cause to be fulfilled and satisfied all of the conditions to the Closing
which are the responsibility of Seller; (b) cause to be performed all of the
matters required upon the Closing which are the responsibility of Seller; and
(c) take such steps and do such acts as may be necessary to make all of its
warranties and representations materially true and correct as of the Closing
Date with the same effect as if the same had been made, and this Agreement had
been dated, as of the Closing Date.
Buyer shall use its reasonable best efforts to (a) cause to be fulfilled all of
the conditions to the Closing to be satisfied by it; (b) cause to be performed
all of the matters required of it upon the Closing; and (c) take such steps and
do such acts as may be necessary to make all of its warranties and
representations materially true and correct as of the Closing with the same
effect as if the same had been made, and this Agreement had been dated, as of
the Closing Date.
Section 5.6 Operation of Business Prior to Closing. From the date hereof until
the Closing Date, Seller shall conduct the Business in the ordinary course
consistent with past practice, and shall use its reasonable best efforts to
maintain, preserve and develop the Business, to keep available the services of
present employees and agents and to maintain existing business relationships.
Without limiting the generality of the foregoing, Seller shall not take any of
the actions described in clauses (i) through (v) of Section 3.24.
Section 5.7 Fire Inspection. Seller has advised Buyer that the Newark Fire
Department inspected the Leased Building in June, 1995. Seller has provided
Buyer with a copy of the Fire Department's report in respect of that portion of
the Leased Building occupied by Seller, and Seller has notified Buyer of actions
Seller has taken (and actions Seller does not intend to take) in respect of such
report, a copy of which is annexed hereto as Schedule 3.10.
(ARTICLE VI COMMENCES ON THE NEXT PAGE)
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ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE
The obligation of Buyer to purchase the Subject Assets and carry out the other
transactions contemplated hereby are, unless waived in writing by Buyer, subject
to the satisfaction, on the Closing Date, of the following conditions:
Section 6.1 Accuracy of Representations and Performance of Seller and
Stockholders. The representations and warranties of Seller and Stockholders
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing Date with the same force and effect as though made on
and as of such date, except to the extent that such representations and
warranties shall be incorrect as of the Closing Date because of events or
changes occurring in the ordinary course of business of Seller or as otherwise
permitted by this Agreement, none of which, singly or in the aggregate,
constitutes a material adverse change; each and all of the conditions and
covenants to be performed or satisfied by Seller and/or Stockholders hereunder
at or prior to the Closing Date shall have been duly performed or satisfied in
all material respects; and Seller and Stockholders shall have furnished Buyer
with a certificate to that effect.
Section 6.2 Absence of Certain Litigation. On the Closing Date, no suit, action
or other proceeding, or injunction or final judgment relating thereto, shall be
threatened or pending before any court or governmental or regulatory official or
agency, in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby, and no investigation that might result in any
such suit, action or proceeding shall be pending.
Section 6.3 Noncompetition and Nondisclosure Agreement. Seller and each of the
Stockholders shall have executed and delivered a Noncompetition and
Confidentiality Agreement in the form of Exhibit 6.3.
Section 6.4 Leased Building. Buyer and Berkowitz Company shall be parties to a
legal, valid and binding lease pursuant to which Buyer (or an affiliate) shall
have leased the entire Leased Building (subject to existing leases), , and
Berkowitz Company shall not have taken any actions or made any statements that
it intends not to carry out the transactions contemplated by such lease.
Section 6.5 Documents of Transfer. Seller shall be prepared to deliver to Buyer
all deeds, bills of sale, assignments and other instruments of transfer and
assignment necessary or appropriate to transfer to Buyer good and marketable
title in and to the Subject Assets, free of any and all Encumbrances, all of
which shall be in form and substance satisfactory to Buyer's counsel.
Section 6.6 Evidence of Board and Stockholders Action. Seller shall have
delivered certified copies of resolutions of the actions taken by Board of
Directors and the stockholders of Seller pertaining to the authorization of this
Agreement and the consummation of the transactions contemplated hereby, and a
certificate executed by the secretary of Seller as to the due election,
qualification and incumbency and valid signature of the person or persons
authorized to sign this Agreement and the Seller's Documents.
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Section 6.7 Secured Indebtedness. Seller shall have delivered evidence
reasonably satisfactory to Buyer of the satisfaction and release of any
Encumbrances affecting, or security interests or liens encumbering, the Subject
Assets.
Section 6.8 Seller's Counsel's Opinion. Buyer shall have received the opinion of
Seller's counsel, Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer &
Gladstone, in the form of Exhibit 6.8.
Section 6.9 Software Support Agreement. Buyer shall have entered a software
support agreement with Integra Services, current supporter of Seller's inventory
software system in the form of Exhibit 6.9, or shall otherwise be satisfied that
adequate support for such system, and any other software used by Seller (other
than off-the-shelf commercially available software) is available to Buyer.
Section 6.10 Meetings with Certain Customers. Buyer's representative shall have
met with at least five of Seller's ten largest customers (together with Seller)
to discuss the proposed transaction, and Buyer shall be satisfied that none of
such customers is likely to discontinue its relationship with the Business after
the Closing Date.
Section 6.10 No Material Adverse Change. There shall have been no material
adverse change in the Subject Assets (including, without limitation, loss of or
damage to a material amount or part of the Subject Assets) or the Business
between December 31, 1995 and the Closing Date.
Section 6.11 Further Documents. Seller shall have executed and delivered to
Buyer such documents, instruments, agreements, and certificates as may
reasonably be needed to carry out the transactions contemplated by this
Agreement, and shall have provided to Buyer's General Counsel such documents
related to authorization by, and consent of Stockholders as such General Counsel
may reasonably require.
Section 6.12 Escrow Agreement. The Escrow Agreement shall have been executed
by the parties thereto.
Section 6.13 Release of Encumbrances on Leased Building. Seller shall have
released any lis pendensor similar lien or encumbrances on the Leased Building
filed by Seller or Stockholders or any affiliate thereof.
(ARTICLE VII COMMENCES ON THE NEXT PAGE)
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ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATION OF SELLER
The obligation of Seller to sell, assign, transfer and deliver the Subject
Assets to Buyer hereunder and to carry out the other transactions contemplated
hereby are, unless waived in writing by Seller, subject to the satisfaction at
or prior to the Closing Date of the following conditions:
Section 7.1 Accuracy of Representations and Performance of Conditions. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects at and as of the Closing Date with the
same force and effect as though made on and as of such Date; each and all of the
conditions and covenants to be performed or satisfied by Buyer hereunder at or
prior to the Closing Date shall have been duly performed or satisfied in all
material respects; and Buyer shall have furnished Seller with Buyer's
certificate to that effect.
Section 7.2 Approval. Buyer shall deliver certified copies of resolutions
adopted by Buyer's Board of Directors pertaining to the authorization of this
Agreement and the consummation of the transactions contemplated herein, and a
certificate executed by the secretary or assistant secretary of Buyer as to the
due election, qualification and incumbency and valid signatures of its officers
authorized to sign this Agreement or any document or certificates to be
delivered under it.
Section 7.3 Absence of Certain Litigation. On the Closing Date, no suit, action
or other proceeding, or injunction or final judgment relating thereto, shall be
threatened or pending before any court or governmental or regulatory official or
agency, in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby, and no investigation that might result in any
such suit, action or proceeding shall be pending.
Section 7.4 Opinion of Buyer's Counsel. Seller shall have received the opinion
of Buyer's General Counsel in the form of Exhibit 7.4.
Section 7.5 Escrow Agreement. The Escrow Agreement shall have been executed
by the parties thereto.
(ARTICLE VIII COMMENCES ON THE NEXT PAGE)
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ARTICLE VIII
THE CLOSING
Section 8.1 Closing and Closing Provisions. The Closing Date shall be August 4,
1996, or such other date as the parties may agree. The Closing shall be effected
by delivery of documents at the office of Brach, Eichler, Rosenberg, Silver,
Bernstein, Hammer & Gladstone, 101 Eisenhower Parkway, Roseland, New Jersey
07068-1067, and payment of the Purchase Price as provided herein or in such
other manner and at such other place as the parties may agree.
Section 8.2 Deliveries by Seller. At or prior to the Closing, Seller shall
execute and deliver to Buyer all of the matters, certificates and other
documents designated as conditions precedent and deliveries precedent to Buyer's
obligation to close under this Agreement.
Section 8.3 Deliveries by Buyer. At the Closing Buyer shall deliver to Seller
the Purchase Price, subject to adjustments as permitted by this Agreement, in
the manner and form provided for in this Agreement, and all the certificates and
other documents designated as conditions precedent and deliveries precedent to
Seller's obligation to close under this Agreement.
(ARTICLE IX COMMENCES ON NEXT PAGE)
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ARTICLE IX
POST-CLOSING MATTERS
Section 9.1 Records of the Business. For a period of four years following the
Closing Date or for such longer period as the statute of limitations applicable
to claims for taxes relating to the Business for any period through the Closing
Date shall be extended (through voluntary extension or otherwise), Buyer shall
grant to Seller and its representatives, at Seller's request, access to and the
right to make copies of those records and documents which report the conduct of
the Business or the results thereof as may be necessary in connection with
Seller's affairs or the Business, at Buyer's customary fees therefor. If Seller
notifies Buyer that Seller requires retention of such records beyond four years,
Seller shall pay Buyer's customary storage charges for such post-four-year
period.
Seller shall, for at least two years after the Closing Date, retain copies of
all records of the Business retained by Seller, and shall grant access thereto
to Buyer upon reasonable request for proper purposes.
Section 9.2 Use of "International Records Storage" Name. Buyer shall have the
right to use the name International Records Storage in connection with the
Business. Seller shall change its name to a name which is not similar to
"International Records Storage" or any diminutive or abbreviation thereof within
three business days after the Closing.
Section 9.3 Audited Financial Statements. In the event that Buyer requires
audited financial statements for the Business in connection with reporting
requirements under federal or state securities laws, Seller shall make available
any relevant information not included in the Subject Assets and otherwise
cooperate with Buyer in preparing such information, at Buyer's expense. Seller
shall use its reasonable best efforts, if requested by Buyer, to have seller's
auditors prepare such audits, at Buyer's expense. Seller hereby consents to its
auditors' performing any such work for Buyer. Buyer shall have the right to file
with the Securities and Exchange Commission any financial statements related to
the Business (audited or otherwise) required to be filed by Buyer pursuant to
federal securities laws.
Section 9.4 Storage of Seller's Records. After the Closing, Buyer will store
Seller's records in the Leased Building pursuant to a standard Buyer printed
contract. Storage rates will be $0.30 per month per standard carton, and
services will be charged at Buyer's customary rates. Prices will be fixed for
two years after the Closing Date. Seller may terminate the records storage
arrangement at any time on thirty days' notice.
Section 9.5 Office Space/Personnel Services. Seller may continue to occupy the
office area in the Leased Building presently occupied by personnel of Seller's
affiliate, International Management Services, until December 31, 1996; provided
that Seller may by written notice elect to extend such occupancy period to March
31, 1997 for purposes of administration and accounting services for
International Management Services' business and completing the sale thereof.
Seller shall not be required to pay any rent or other charges for the use of
such space. Seller shall have the status of a sublessee of such space from
Buyer; and Seller shall be responsible for the obligations of the tenant under
the Lease with respect to matters such as conduct, indemnification, landlord's
being absolved
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from liability for loss of or damage to tenant's property, as such apply to the
space occupied by Seller.
Seller shall make its personnel, including Penny Novak, Sanford Winnerman,
Jeff Schwartz and Matt Ashbrook, available to consult with Buyer and assist
Buyer's personnel in learning the operation of the Business during the period
from the Closing Date until December 31, 1996; provided that Seller's obligation
to make Penny Novak available shall terminate at such earlier time as she moves
from New Jersey. In addition, Seller will be responsible for preparing invoices
for customers for the month immediately prior to the Closing Date, which
invoices will be scheduled to be sent out one or two days after the Closing
Date.
Section 9.6 Sublease of Copier. After the Closing, Buyer shall sublease from
Seller the copier which Seller used primarily in connection with the Business
prior to the Closing Date. Rent under such sublease shall be equal to rent paid
by Seller to the lessor of the copier for its use under the terms of its lease.
The sublease shall continue for the remaining term of Seller's equipment lease
with the lessor. If the lease provides that Seller may purchase the copier upon
expiration of the lease, Seller shall offer Buyer the right to purchase the
copier at such price; and if Buyer declines, Seller may purchase the copier or
return it to the equipment lessor.
(ARTICLE X COMMENCES ON THE NEXT PAGE)
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ARTICLE X
TERMINATION
Section 10.1 Non Performance. Seller or Buyer each shall have the right to
terminate this Agreement on or prior to Closing in the event that
(i) the Closing shall not have occurred prior to September 20 ,
1996;
(ii) the other party is in default in the performance of any of
its material obligations to be performed hereunder; or
(iii)should any covenant, warranty or representation made by the
other party in this Agreement prove to be materially incorrect;
provided, however, that the party against whom such termination is to be
exercised shall have the right, for a period of ten (10) days following receipt
of written notice from the other specifying the alleged default and the basis
therefor, to correct or satisfy any such condition or covenant necessary to the
consummation of this Agreement.
Section 10.2 Termination Due to Default. (a) If Seller rightfully terminates
this Agreement pursuant to Section 10.1(ii) or (iii) when (i) Seller is not in
default of any of its material covenants, (ii) no material representation and
warranty of Seller has been determined to be materially incorrect, and (iii) all
conditions to Buyer's obligation to close the transaction contemplated have been
satisfied, then Buyer shall be liable to Seller for such damages as may be
provable, including out-of-pocket expenses incurred in connection with this
transaction.
(b) If Buyer rightfully terminates this Agreement pursuant to Section
10.1(ii) or (iii) when (i) Buyer is not in default of any of its material
covenants, (ii) no material representation or warranty of Buyer has been
determined to be materially incorrect, and (iii) all conditions to Seller's
obligation to close the transactions contemplated by this Agreement have been
satisfied, then Seller shall be liable to Buyer for such damages as may be
provable, including out-of-pocket expenses incurred in connection with this
transaction.
Section 10.3 Risk of Loss. Prior to Closing the risk of loss, damage or
destruction with respect to the Subject Assets shall be borne solely by Seller.
If at the Closing Date the Subject Assets shall have suffered loss, damage or
destruction to an extent which materially affects the value thereof, Buyer shall
have the right at its election to terminate this Agreement, or complete the
transactions with such adjustment of the Purchase Price as may be agreed in good
faith between Buyer and Seller in advance.
(ARTICLE XI COMMENCES ON THE NEXT PAGE)
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ARTICLE XI
INDEMNIFICATION
Section 11.1 General Indemnification Obligation of Seller and Stockholders. From
and after the Closing, Seller and Stockholders shall jointly and severally
reimburse, indemnify and hold harmless Buyer and its successors and assigns
(each an Indemnified Buyer Party) against and in respect of:
(a) any and all damages, losses, deficiencies, liabilities, costs
and expenses incurred or suffered by any Indemnified Buyer Party that result
from, relate to or arise out of:
(i) any and all liabilities and obligations of Seller to third
parties of any nature whatsoever (including liabilities for Taxes), except for
those liabilities and obligations of Seller which Buyer specifically assumes
pursuant to this Agreement;
(ii) any and all actions, suits, claims, or legal,
administrative, arbitration, governmental or other proceedings or investigations
against any Indemnified Buyer Party that relate to Seller or the Business in
which the principal event giving rise thereto occurred prior to the Closing Date
or which result from or arise out of any action or inaction prior to the Closing
Date of Seller or any partner, employee, agent, representative or subcontractor
of Seller, except for those which Buyer specifically assumes pursuant to this
Agreement;
(iii) any cost, claim, expense or liability (including legal
fees and costs of litigation) which Buyer may incur or with which Buyer may be
threatened in excess of an amount equal to the monthly storage charge per
container (or such higher amounts as may be specified in a contract as a limit
of Seller's liability) in connection with any claim by a business or entity
which was a customer of the Business prior to the Closing Date for monetary
damages arising from lost, damaged or destroyed records of such customers if
Seller did not, as of the Closing Date, have a contract with such customer which
limited Seller's liability in the event of loss, damage or destruction to such
amount; provided, that Seller shall not be required to indemnify Buyer in
respect of any loss, damage or destruction which (i) relates to new cartons
moved into the Leased Premises after the Closing Date, (ii) Seller is able to
demonstrate occurred after the Closing Date or (iii) relates to a record which
any Indemnified Buyer Party has picked up, retrieved, moved or otherwise
physically dealt with; or
(iv) any misrepresentation, breach of warranty or
nonfulfillment of any agreement or covenant on the part of Seller or
Stockholders under this Agreement, or from any misrepresentation in or omission
from any certificate, schedule, statement, document or instrument furnished by
Seller or Stockholders to Buyer pursuant hereto or in connection with the
negotiation, execution or performance of this Agreement, all of which
statements, documents and instruments (other than Schedules annexed hereto) are
listed or identified on Schedule 11.1; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses (including, without limitation, reasonable legal fees and expenses)
incident to any of the foregoing or to the enforcement of this Section 11.1.
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Notwithstanding anything herein contained to the contrary, Seller
shall have no obligations to Buyer under Section 11.1(a)(iii) or (iv) with
respect to any claim of which Buyer gives notice to Seller later than the first
anniversary of the Closing Date.
Notwithstanding any other provision herein contained, Seller and
Stockholders shall not have any indemnification obligation with respect to the
first $25,000 of total claims incurred under Section 11.1 unless total aggregate
claims exceed such amount, in which case the indemnification obligations of
Seller and Stockholders shall include all liabilities incurred, without regard
to the $25,000 threshold. The maximum aggregate liability of Seller and
Stockholders hereunder shall be $2,450,000.
Section 11.2 General Indemnification Obligation of Buyer. From and after the
Closing, Buyer will reimburse, indemnify and hold harmless Seller and the
Stockholders and its successors or assigns (an Indemnified Seller Party) against
and in respect of:
(a) any and all damages, losses, deficiencies, liabilities, costs
and expenses incurred or suffered by any Indemnified Seller Party that result
from, relate to or arise out of:
(i) any and all liabilities and obligations of Seller
which have been specifically assumed by Buyer pursuant to this Agreement;
(ii) any and all actions, suits, claims, or legal,
administrative, arbitration, governmental or other proceedings or investigations
against any Indemnified Seller Party that relate to the Business or the Subject
Assets in which the principal event giving rise thereto occurred after the
Effective Time or which result from or arise out of any action or inaction after
the Effective Time on the part of Buyer or any partner, employee, agent,
representative or subcontractor of Buyer;
(iii) any misrepresentation, breach of warranty or
non-fulfillment of any agreement or covenant on the part of Buyer under this
Agreement, or from any misrepresentation in or omission from any certificate,
schedule, statement, document or instrument furnished to Seller pursuant hereto
or in connection with the negotiation, execution or performance of this
Agreement; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses (including, without limitation, reasonable legal fees and expenses)
incident to any of the foregoing or to the enforcement of this Section 11.2.
Notwithstanding anything herein contained to the contrary, Buyer
shall have no obligations to Seller under Section 11.2(a)(iii) with respect to
any claim of which Seller gives notice to Buyer later than the first anniversary
of the Closing Date.
Section 11.3 Method of Asserting Claims, Etc. In the event that any claim or
demand for which Seller or Stockholders (collectively, the Indemnifying Party)
would be liable to an Indemnified Buyer Party hereunder is asserted against or
sought to be collected from an Indemnified Buyer Party by a third party, the
Indemnified Buyer Party shall promptly notify Stockholders, as representative of
the Indemnifying Party, of such claim or demand, specifying the nature of such
claim or demand
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and the amount or the estimated amount thereof to the extent then feasible,
which estimate shall not be conclusive of the final amount of such claim and
demand (the Claim Notice). Indemnifying Party shall have ten business days from
the personal delivery or mailing of the Claim Notice (the Notice Period) to
notify the Indemnified Buyer Party (A) whether or not it disputes its liability
to the Indemnified Buyer Party hereunder with respect to such claim or demand
and (B) notwithstanding any such dispute, whether or not it desires, at its sole
cost and expense, to defend the Indemnified Buyer Party against any such claim
or demand.
(a) If Indemnifying Party disputes its obligation to indemnify
Buyer with respect to such claim or demand or the amount thereof (whether or not
Indemnifying Party desires to defend the Indemnified Buyer Party against such
claim or demand as provided in paragraphs (b) and (c) below), such dispute shall
be resolved in accordance with Section 11.5 hereof.
(b) In the event that Indemnifying Party notifies the Indemnified
Buyer Party within the Notice Period that it desires to defend the Indemnified
Buyer Party against such claim or demand then, except as hereinafter provided,
Indemnifying Party shall have the right to defend the Indemnified Buyer Party,
at the Indemnifying Party's sole cost and expense, by appropriate proceedings,
which proceedings shall be promptly settled or prosecuted by it to a final
conclusion in such a manner as to avoid any risk of Indemnified Buyer Party
becoming subject to further liability in respect of such matter; provided,
however, Indemnifying Party shall not, without the prior written consent of the
Indemnified Buyer Party, consent to the entry of any judgment against the
Indemnified Buyer Party or enter into any settlement or compromise which does
not include, as an unconditional term thereof, the giving by the claimant or
plaintiff to the Indemnified Buyer Party of a release, in form and substance
reasonably satisfactory to the Indemnified Buyer Party, as the case may be, from
all liability in respect of such claim or litigation. If any Indemnified Buyer
Party desires to participate in, but not control, any such defense or
settlement, it may do so at its sole cost and expense.
(c) (i) If Indemnifying Party elects not to defend the Indemnified
Buyer Party against such claim or demand, whether by not giving the Indemnified
Buyer Party timely notice as provided above or otherwise, then the amount of any
such claim or demand as reduced to judgment or settlement, or if the same be
defended by Indemnifying Party or by the Indemnified Buyer Party (but none of
the Indemnified Buyer Party shall have any obligation to defend any such claim
or demand), then that portion thereof as to which such defense is unsuccessful,
in each case, shall be conclusively deemed to be a liability of Indemnifying
Party hereunder, unless Indemnifying Party shall have disputed its liability to
the Indemnified Buyer Party hereunder, as provided in Section 11.5(a) hereof.
(ii) In the event an Indemnified Buyer Party should have a
claim against Indemnifying Party hereunder that does not involve a claim or
demand being asserted against or sought to be collected from it by a third
party, the Indemnified Buyer Party shall promptly send a Claim Notice with
respect to such claim to Indemnifying Party. If Indemnifying Party disputes its
liability with respect to such claim or demand, such dispute shall be resolved
in accordance with Section 11.5 hereof; if Indemnifying Party does not notify
the Indemnified Buyer Party within the Notice Period that it disputes such
claim, the amount of such claim shall be conclusively deemed a liability of
Indemnifying Party hereunder.
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(d) All claims for indemnification by an Indemnified Seller Party
under this Agreement shall be asserted and resolved under the procedures set
forth above substituting in the appropriate place Indemnified Seller Party for
Indemnified Buyer Party and variations thereof.
Section 11.4 Payment. Upon the determination of liability under Section 11.3 or
11.5 hereof, the appropriate party shall pay to the other, as the case may be,
within ten days after such determination, the amount of any claim for
indemnification made hereunder; provided that an Indemnified Purchaser Party may
make initial demand to, and receive payment from, the Escrow Agent in accordance
with the terms of the Escrow Agreement. In the event that the indemnified party
is not paid in full for any such claim pursuant to the foregoing provisions
promptly after the other party's obligation to indemnify has been determined in
accordance herewith, it shall have the right, notwithstanding any other rights
that it may have against any other person, firm or corporation, to set off the
unpaid amount of any such claim against any amounts owed by it under any
agreements entered into pursuant to this Agreement or the Seller's Documents.
Upon the payment in full of any claim, either by setoff or otherwise, the entity
making payment shall be subrogated to the rights of the indemnified party
against any person, firm or corporation with respect to the subject matter of
such claim.
Section 11.5 Arbitration. (a) All disputes under this Article XI shall be
settled by arbitration in Newark, New Jersey, before a single arbitrator
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association pursuant to the procedures described in the Escrow Agreement.
(b) To the extent that arbitration may not be legally permitted
hereunder and the parties to any dispute hereunder may not at the time of such
dispute mutually agree to submit such dispute to arbitration any party may
commence a civil action in a court of appropriate jurisdiction to solve disputes
hereunder. Nothing contained in this Section 11.5 shall prevent the parties from
settling any dispute by mutual agreement at any time.
Section 11.6 Compliance with Bulk Sales Laws. Buyer and Seller hereby waive
compliance by Seller with the bulk sales law and any other similar laws in any
applicable jurisdiction in respect of the transactions contemplated by this
Agreement. Seller shall indemnify Buyer from, and hold it harmless against, any
liabilities, damages, costs and expenses resulting from or arising out of (i)
the parties' failure to comply with any of such laws in respect of the
transactions contemplated by this Agreement, or (ii) any action brought or levy
made as a result thereof, other than those related to liabilities which have
been expressly assumed, by Buyer pursuant to this Agreement.
Section 11.7 Other Rights and Remedies Not Affected. The indemnification rights
of the parties under this Article XI are independent of and in addition to such
rights and remedies as the parties may have at law or in equity or otherwise for
any misrepresentation, breach of warranty or failure to fulfill any agreement or
covenant hereunder on the part of any party hereto, including without limitation
the right to seek specific performance, rescission or restitution, none of which
rights or remedies shall be affected or diminished hereby.
(ARTICLE XII COMMENCES ON THE NEXT PAGE)
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ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1 Commissions. Except as set forth in Schedule 12.1, each party
represents and warrants that it has dealt with no broker or finder in connection
with this Agreement and, insofar as it knows, no broker or other person is
entitled to any commission or finder's fee in connection with the consummation
of the transactions contemplated by this Agreement.
Section 12.2 Expenses. Except as otherwise provided herein, each of the parties
shall pay all costs and expenses incurred or to be incurred by it in the
negotiation and preparation of this Agreement and in closing and carrying out
the transactions contemplated by this Agreement.
Section 12.3 Headings. The subject headings of the sections and subsections of
this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
Section 12.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Signatures on this
Agreement delivered by fax or telecopier shall be considered original signatures
for purposes of effectiveness of this Agreement.
Section 12.5 Rights of Parties. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action against any party to this Agreement.
Section 12.6 Assignment. Except as provided in the following paragraph, the
rights and obligations of the parties to this Agreement or any interest in this
Agreement shall not be assigned, transferred, hypothecated, pledged or otherwise
disposed of without the prior written consent of the nonassigning party which
consent may be withheld in such party's sole discretion.
This Agreement and all rights and obligations of Buyer hereunder may be assigned
or transferred by Buyer to any affiliate of Buyer, in which event all
instruments, documents and agreements required to be delivered to Buyer
hereunder shall be delivered to and run for the benefit of such entity, and such
entity (rather than Buyer) shall execute and deliver any instruments, documents
or arguments required to be executed and delivered by Buyer hereunder. Buyer
shall be not relieved of any of its obligations hereunder by reason of such
assignment.
Section 12.7 Binding Agreement. This Agreement constitutes, and all other
documents to be executed by each party shall, when executed and delivered,
constitute, the legal, valid and binding obligation of each party enforceable in
accordance with their respective terms and shall be binding upon and inure to
the benefit of its respective successors and assigns.
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<PAGE>
Section 12.8 Survival of Representations and Warranties. All representations,
warranties, covenants and agreements shall survive the Closing the first
anniversary of the Closing Date, except for ongoing agreements to indemnify the
other party for post-Closing actions.
Section 12.9 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if delivered by telecopier (with notice of
receipt), or if served personally on the party to whom notice is to be given; or
if delivered by overnightcarrier, on the date of delivery; or on the third day
after mailing if mailed to the party to whom notice is to be given by first
class mail, certified, postage prepaid, and properly addressed as following:
To Seller:
International Records Storage and Retrieval Services, Inc.
110 Edison Place
Newark, New Jersey 07102
Attn: Sanford Winnerman
Telecopier: (201) 623-9145
With a copy (which shall not be required for effective notice) to:
Paul Rosenberg, Esq.
Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer & Gladstone
101 Eisenhower Parkway
Roseland, New Jersey 07068-1067
Telecopier: (201) 228-7852
To Buyer:
Iron Mountain Records Management, Inc.
745 Atlantic Avenue, 10th Floor
Boston, Massachusetts 02111-2735
Attention: John F. Kenny, Jr.
Telecopier: (617) 350-7881
With a copy (which shall not be required for notice) to:
Garry B. Watzke, Esq.
745 Atlantic Avenue, 10th Floor
Boston, Massachusetts 02111-2735
Telecopier: (617) 350-7881
Any party may change its address for purposes of this paragraph by giving the
other parties written notice of the new address in the manner set for above.
Section 12.10 Applicable Law and Remedies. The terms, conditions and other
provisions of this Agreement and any documents or instruments delivered in
connection with it shall be governed and construed according to the internal
laws of the Commonwealth of Massachusetts (other than the choice of law rules
thereof) except as to matters of law concerning the internal corporate affairs
of any corporate or partnership entity which is a party to or the subject of
this Agreement, and as to those matters, the jurisdiction under which such
entity derives its powers shall govern. All remedies at law, in equity, by
statute or otherwise shall be cumulative and may be enforced
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concurrently or from time to time and, subject to the express terms of this
Agreement, the election of any remedy or remedies shall not constitute a waiver
of the right to pursue any other available remedies.
Section 12.11 Expenses of Enforcement. If either party initiates an action to
enforce a provision of this Agreement or any agreement, instrument or document
made or delivered in connection herewith, or for damages by reason of an alleged
breach of any provision, except as otherwise provided in Section 11.5, the
prevailing party shall be entitled to receive from the other party all costs and
expenses, including, without limitation, reasonable attorneys' fees and costs,
incurred in connection with such action.
Section 12.12 Additional Instruments and Assistance. Each party hereto shall
from time to time execute and deliver such further instruments, provide
additional information and render such further assistance as the other party or
its counsel may reasonably request in order to complete and perfect the
transactions contemplated herein.
Section 12.13 Severability. If any provision of this Agreement is held or deemed
to be invalid or unenforceable to any extent when applied to any person or
circumstance, such invalidity or unenforceability shall not affect the remaining
provisions of this Agreement; the remaining provisions hereof and the
enforcement of such provision with respect to other persons or circumstances, or
to another extent, shall not be affected thereby and each provision hereof shall
be enforced to the fullest extent allowed by law. Moreover, the invalid or
inoperative provision shall be reformed and construed so that it shall be valid
and enforceable to the maximum extent permitted.
Section 12.14 Pronouns and Terms. In this Agreement, the singular shall include
the plural, the plural the singular, and the use of any gender shall include all
genders.
Section 12.15 Taxes. The party upon whom state law imposes the economic burden
shall pay any New Jersey sales taxes imposed on the sale of personal property in
the transaction. Seller shall pay all transfer and conveyance taxes and
recording, transfer and similar fees payable or assessable in connection with
the sale and transfer contemplated by this Agreement. Buyer shall pay the
premium for the Owner's Title Policies. Buyer and Seller shall each pay its
portion prorated as of the Closing Date of state and local personal property
taxes on the Business.
Section 12.16 Disclosure. No representation or warranty made by either party in
this Agreement contains any untrue statement of a material fact or to the
knowledge of Seller and Stockholders omits to state a material fact necessary to
make the statement of facts contained within it not misleading.
Section 12.17 Entire Agreement, Amendments and Waivers. This Agreement, together
with all Exhibits and Schedules hereto, constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and there are no representations,
warranties or other agreements among the parties in connection with the subject
matter hereof except as set forth specifically herein or contemplated hereby. No
supplement, modification or wavier of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall
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constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
(ARTICLE XIII COMMENCES ON THE NEXT PAGE)
29
<PAGE>
ARTICLE XIII
BUYER'S ELECTION TO CLOSE
Notwithstanding any other provision in this Agreement to the contrary, Buyer
shall not be required to carry out the transactions contemplated by this
Agreement unless and until Buyer delivers to Seller a written "Notice of
Election to Close". Such Notice of Election to Close may be delivered by the
method of delivery of notice set forth in Section 12.9, and shall be delivered
to the office of Paul Rosenberg, Esq., Brach, Eichler, Rosenberg, Silver, Hammer
& Gladstone on or before 5:00 p.m. on Monday, August 26, 1996.
In the event Buyer elects not to, or fails to deliver, the Notice of Election to
Close, this Agreement shall be null and void and the parties shall have no
further obligations to each other except with respect to confidentiality as
provided in Section 5.2.
Prior to the date Buyer delivers the Notice of Election to Close, Buyer shall
not make any filing with the Securities and Exchange Commission in which Seller
is identified as an acquisition candidate or potential acquisition candidate of
Buyer.
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<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on
the date first above written.
International Records Storage Iron Mountain Records Management, Inc.
and Retrieval Services, Inc.
By: By:
------------------------------ -----------------------------------
--------------------------- John F. Kenny, Jr.
President Vice President
Stockholders:
- -------------------------------
Lawrence Winnerman
- -------------------------------
Sanford Winnerman
Exhibit 11
IRON MOUNTAIN INCORPORATED
Computation of Earnings per Common Share
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
-------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ---- ---- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Shares
Outstanding:
Common Stock -- -- -- -- -- -- 7,987
Non-Voting Common Stock -- -- -- -- -- -- 415
Class A Common Stock -- 14 29 29 38 31 8
Class C Common Stock 266 266 266 185 -- -- --
Series A1 Preferred Stock 2,962 2,962 2,962 1,152 556 988 22
Series A2 Preferred Stock -- -- -- 1,808 1,948 1,961 330
Series A3 Preferred Stock -- -- -- -- 432 -- 146
Series C Preferred Stock 4,810 4,810 4,810 4,810 4,810 4,810 819
----- ----- ----- ----- ----- ----- ----
Weighted Average Common Shares
Outstanding 8,038 8,052 8,067 7,984 7,784 7,790 9,727
Dilutive Effect of Stock
Options Considered Common
Stock Equivalents Computed
under the Treasury Stock
Method Using the Average
Price -- -- -- -- -- -- 172
----- ----- ----- ----- ----- ----- ----
Weight Average Common and
Common Equivalent Shares
Outstanding 8,038 8,052 8,067 7,984 7,784 7,790 9,899
===== ===== ===== ===== ===== ===== =====
Net Income (Loss) Applicable
to Common Stockholders ($1,814) $ 961 $ 628 ($ 128) ($1,859) ($ 533) $ 417
====== ====== ====== ====== ====== ====== ======
Net Income (Loss) per Common
and Common Equivalent Share ($ 0.23) $ 0.12 $ 0.08 ($ 0.02) ($ 0.24) ($ 0.07) $ 0.04
====== ====== ====== ====== ====== ====== ======
</TABLE>
Exhibit 12
IRON MOUNTAIN INCORPORATED
STATEMENT OF THE CALCULATION OF RATIO OF EARNINGS OF FIXED CHARGES
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
------------------------
For the
Six Months Year For the
Ended Ended Six Months
Year Ended December 31, June 30, December Ended
----------------------------------------------- --------------- 31, June 30,
1991 1992 1993 1994 1995 1995 1996 1995 1996
------- ------ ------ ------ ------ ----- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (Loss)
from Operations
before Provision
for Income Taxes $(1,292) $ 3,682 $ 3,656 $ 3,241 $ 1,945 $ 1,304 $ 1,585 $ (931) $ (460)
Add: Fixed
Charges 11,626 11,745 12,125 13,428 16,795 8,339 9,520 24,058 12,347
------- ------- ------- ------- ------- ------- ------- ------- --------
$10,334 $15,427 $15,781 $16,669 $18,740 $ 9,643 $11,105 $23,127 $11,887
======= ======= ======= ======= ======== ======= ======= ======= ========
Fixed
Charges:
Interest Expense $8,612 $ 8,412 $ 8,203 $ 8,954 $ 11,838 $ 5,937 $ 6,385 $17,846 $ 8,921
Interest Portion
of Rent Expense 3,014 3,333 3,922 4,474 4,957 2,402 3,135 6,212 3,426
------- ------- ------- ------- ------- ------- ------- ------- --------
$11,626 $11,745 $12,125 $13,428 $ 16,795 $8,339 $ 9,520 $24,058 $ 12,347
======= ======= ======= ======= ======== ======= ======= ======= ========
Ratio of
Earnings
to Fixed
Charges 0.9x(1) 1.3x 1.3x 1.2x 1.1x 1.2x 1.2x 0.9x(2) 0.9x(3)
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
(1) The Company reported a pretax loss for the fiscal year ended December 31,
1991. For such period the Company would have needed to generate
additional income from continuing operations, before provision for income
taxes, of $1,292 to cover its fixed charges of $11,626.
(2) On a pro forma basis, the Company would have needed to generate
additional income from continuing operations, before provision for income
taxes, of $931 to cover its fixed charges of $24,058.
(3) On a pro forma basis, the Company would have needed to generate
additional income from continuing operations, before provision for income
taxes, of $460 to cover its fixed charges of $12,347.
EXHIBIT 21
LIST OF SUBSIDIARIES OF REGISTRANT
Subsidiary of Registrant
1. Iron Mountain Records Management, Inc.
State of incorporation -- Delaware
In California, also does business as Metro Records Management
Subsidiaries of Iron Mountain Records Management, Inc.
1. Metro Business Archives, Inc.
State of incorporation -- New York
Doing business as Metro Business Archives
2. Criterion Atlantic Property, Inc.
State of incorporation -- Delaware
3. Criterion Property, Inc.
State of incorporation -- Delaware
4. Hollywood Property, Inc.
State of incorportion -- California
5. IM San Diego, Inc.
State of incorporation -- Delaware
6. Iron Mountain Information Partners, Inc.
State of incorporation -- Delaware
7. Iron Mountain Data Protection Services, Inc.
State of incorporation -- Massachusetts
8. Iron Mountain Records Management of Maryland, Inc.
State of incorporation -- Maryland
9. Iron Mountain Records Management of Ohio, Inc.
State of incorporation -- Ohio
10. Iron Mountain Wilmington, Inc.
State of incorporation -- Delaware
11. Data Storage Systems, Inc.
State of incorporation -- California
12. Iron Mountain Records Management of Missouri LLC
State of organization -- Delaware
13. Iron Mountain Records Management of Boston, Inc.
State of incorporation -- Massachusetts
14. Data Archive Services, Inc.
State of incorporation -- Florida
15. Data Archive Services of Miami, Inc.
State of incorporation -- Florida
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.
/s/ Arthur Andersen LLP
Boston, Massachusetts
August 16, 1996
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Wolpoff & Company, LLP
Baltimore, Maryland
August 16, 1996
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Morrison and Smith
Tuscaloosa, Alabama
August 16, 1996
Exhibit 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Geo. S. Olive & Co. LLC
Indianapolis, Indiana
August 16, 1996
Exhibit 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Robert F. Gayton, CPA
Natick, Massachusetts
August 16, 1996
Exhibit 23.7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Perless, Roth, Jonas & Hartney, CPAs, PA
Miami, Florida
August 16, 1996
Exhibit 23.8
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
August 16, 1996
