PROSPECTUS
September 26, 1996
$165,000,000
[logo] IRON MOUNTAIN INCORPORATED
10-1/8% Senior Subordinated Notes due 2006
The 10-1/8% 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
outstanding bank debt and certain other indebtedness, to fund the purchase
price of the Pending Acquisition and for general corporate purposes.
Interest on the Notes is payable on April 1 and October 1, commencing
April 1, 1997. Except as described below, the Notes are not redeemable by the
Company prior to October 1, 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 109.125%, 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.
<TABLE>
<CAPTION>
Price to Discounts and Proceeds to the
the Public (1) Commissions (2) Company (1) (3)
- ---------- -------------- ---------------- ----------------
<S> <C> <C> <C>
Per Note 100% 3% 97%
Total $165,000,000 $4,950,000 $160,050,000
</TABLE>
(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
$800,000.
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 October 1, 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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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 29.6 million
Cartons* in 103 records centers in 33 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" and "--Liquidity and
Capital Resources."
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.
- -------------
* 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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<PAGE>
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
<PAGE>
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 18 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.
5
<PAGE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Securities Offered $165,000,000 principal amount of 10-1/8% Senior Subordinated Notes due 2006
(the "Notes").
Maturity Date October 1, 2006
Interest Payment Dates April 1 and October 1 of each year, commencing April 1, 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 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 October 1, 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 109.125%, 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."
6
<PAGE>
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 outstanding bank debt
and certain other indebtedness, to fund the purchase price of the Pending
Acquisition 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.
7
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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, that 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,
-------------------------------------------------------------
Historical Pro Forma
-------------------------------------------------
1991 1992 1993 1994 1995 1995 (1)
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues:
Storage ................................... $39,510 $44,077 $48,892 $54,098 $ 64,165 $ 86,469
Service and Storage Material Sales ........ 23,330 26,596 32,781 33,520 40,271 54,431
------- ------- ------- ------- -------- --------
Total Revenues .......................... 62,840 70,673 81,673 87,618 104,436 140,900
Operating Expenses:
Cost of Sales (Excluding Depreciation) .... 31,375 35,169 43,054 45,880 52,277 69,804
Selling, General and Administrative ...... 16,471 17,630 19,971 20,853 26,035 35,087
Depreciation and Amortization ............. 7,674 5,780 6,789 8,690 12,341 18,182
------- ------- ------- ------- -------- --------
Total Operating Expenses ................ 55,520 58,579 69,814 75,423 90,653 123,073
------- ------- ------- -------- -------- --------
Operating Income .......................... $ 7,320 $12,094 $11,859 $12,195 $ 13,783 $ 17,827
======= ======= ======= ======= ======== ========
Other Data:
EBITDA (2) ................................. $14,994 $17,874 $18,648 $20,885 $ 26,124 $ 36,009
EBITDA as a Percentage of Total Revenues ... 23.9% 25.3% 22.8% 23.8% 25.0% 25.6%
Capital Expenditures:
Growth (3) ............................... -- $11,226 $13,605 $15,829(4) $ 14,395 --
Maintenance ............................... -- 818 1,846 1,151 858 --
------- ------- ------- ------- --------
Total Capital Expenditures ................ $ 8,163 $12,044 $15,451 $16,980(4) $ 15,253 --
Approximate Cartons in Storage at End of
Period (in millions) (5) ................. 10.8 12.6 15.5 17.7 23.3 --
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
Historical Pro Forma
------------------
1995 1996 1996 (1)
---- ---- ---------
<S> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues:
Storage .................................. $30,748 $39,363 $46,224
Service and Storage Material Sales ....... 19,476 24,587 29,127
------- ------- -------
Total Revenues ......................... 50,224 63,950 75,351
Operating Expenses:
Cost of Sales (Excluding Depreciation) ... 25,112 32,383 37,572
Selling, General and Administrative ..... 12,697 16,067 19,339
Depreciation and Amortization ............ 5,428 7,530 9,099
------- ------- -------
Total Operating Expenses ............... 43,237 55,980 66,010
------- ------- -------
Operating Income ......................... $ 6,987 $ 7,970 $ 9,341
======= ======= =======
Other Data:
EBITDA (2) ................................ $12,415 $15,500 $18,440
EBITDA as a Percentage of Total Revenues .. 24.7% 24.2% 24.5%
Capital Expenditures:
Growth (3) .............................. $ 6,730 $10,702 --
Maintenance .............................. 592 460 --
------- -------
Total Capital Expenditures ............... $ 7,322 $11,162 --
Approximate Cartons in Storage at End of
Period (in millions) (5) ................ 20.3 26.4 29.6
</TABLE>
<TABLE>
<CAPTION>
Adjusted EBITDA and Credit Ratios: As of
June 30, 1996
-------------
<S> <C>
Adjusted EBITDA (6) .............................. $39,018
Cash Interest Expense (7) ........................ 18,206
Ratio of Adjusted EBITDA to Cash Interest
Expense ........................................ 2.1x
Ratio of Net Debt to Adjusted EBITDA (8) ......... 4.4x
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1996
--------------------------
Historical Pro Forma (9)
---------- -------------
Balance Sheet Data:
<S> <C> <C>
Cash and Cash Equivalents .... $ 2,232 $ 3,051
Total Assets ................. 212,630 269,974
Total Debt ................... 118,894 175,787
Stockholders' Equity ......... 54,729 52,501
</TABLE>
(Footnotes on the following page)
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- -------------
(Footnotes from the preceding page)
(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. As of June 30, 1996, the
amount of such loss would have been approximately $2.2 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.
(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 $172.7
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 "The
Transactions," "Use of Proceeds" and "Pro Forma Condensed Consolidated
Financial Information."
9
<PAGE>
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. Certain
statements contained under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," such as those regarding the goals,
beliefs or current expectations of the Company and its management with
respect to, among other things, revenue growth and future capital needs, and
other statements contained in this Prospectus regarding matters that are not
historical facts are forward-looking statements (as such term is defined in
the rules promulgated pursuant to the Securities Act of 1933, as amended).
Because such forward-looking statements include risks and uncertainties,
actual results may differ materially from those expressed in or implied by
such forward-looking statements. Factors that could cause actual results to
differ materially include, but are not limited to, those discussed herein
under "Risk Factors." The Company undertakes no obligation to release
publicly the result of any revisions to these forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
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, the Company would have
had $175.8 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. On a pro forma basis,
after giving effect to the Transactions, the Company would have had $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 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
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<PAGE>
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 will 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).
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 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 will 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
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<PAGE>
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.
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."
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 will
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 will 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 substantially all of the Company's operating revenues are
derived from operations of, the Company's subsidiaries. Therefore, the
Company's ability to pay interest and principal when due to Holders of 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 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 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 the 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
12
<PAGE>
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 19 companies (of which 18 have
been completed and one is pending) engaged in the records management and
related businesses for estimated cash purchase prices aggregating $103.2
million (not including contingent payments of up to $4.6 million based upon
the achievement of certain revenue targets from 1996 through 1998). 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 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 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 will 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
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<PAGE>
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, as of June 30, 1996, 24
of the Company's 89 records management facilities were 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
("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 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 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."
Recent Publicity. On September 3, 1996, The Boston Globe, a regional daily
newspaper, published a business news article regarding the Company. The
article contained numerous statements about the Company and quotations from
the Company's Chief Executive Officer. The article did not set forth material
information or cautionary statements relevant to an evaluation of the
statements and quotations regarding the Company in the article. Prospective
investors in the Notes should not rely on such article and should only rely
upon the information and cautionary statements contained in this Prospectus,
including "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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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 29.6 million Cartons in 103
records centers in 33 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)
repay certain indebtedness incurred by the Company in connection with a 1990
acquisition and represented by two junior subordinated notes (collectively,
the "FDS Notes"), one of which is held by Schooner; (iv) fund the purchase
price of the Pending Acquisition described below under "Recent and Pending
Acquisitions;" and (v) 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):
<TABLE>
<CAPTION>
<S> <C>
Sources of Funds:
New Credit Facility $ --
Senior Subordinated Notes due 2006 165.0
-------
Total Sources $165.0
=======
Uses of Funds:
Repay Credit Agreement (1) $ 92.9
Repay Chrysler Notes (1) 14.8
Repay FDS Notes (1) 0.4
Purchase Price of Pending Acquisition and
Acquisitions
Completed after June 30, 1996 (2) 47.5
Estimated Fees and Expenses (3) 8.6
General Corporate Purposes 0.8
-------
Total Uses $165.0
=======
</TABLE>
(Footnotes on the following page)
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- -------------
(Footnotes from the preceding page)
(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, the Chryster Notes and the FDS Notes
and the closing of the New Credit Facility.
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 September 3, 1996 on the
indebtedness outstanding under the Credit Agreement was 8.5%.
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.
Repayment of FDS Notes. In connection with a 1990 acquisition, the Company
issued to First Document Storage Corporation of America $450,000 in principal
amount of the FDS Notes, which mature in March 2000 and bear interest at the
rate of 8% per annum. In 1991, Schooner acquired $382,500 in principal amount
of the FDS Notes as an investment. The Company intends to use a portion of
the net proceeds from the Offering to repay the FDS Notes in their entirety.
Pending Acquisition. A portion of the net proceeds from the Offering will
be used to fund the Pending Acquisition described under "Recent and Pending
Acquisitions" below.
New Credit Facility. The Company intends to replace the Credit Agreement
with the New Credit Facility. The New Credit Facility will provide the
Company with revolving credit availability of up to $100 million for the
Pending Acquisition and possible future acquisitions, working capital and
other corporate purposes, and will terminate on September 25, 2001. As was
the case with the Credit Agreement, the Company's obligations under the New
Credit Facility will be guaranteed by substantially all of the Company's
subsidiaries; however, unlike the Credit Agreement, the New Credit Facility
will be secured only by the pledge of the stock of such subsidiaries. See
"Description of New Credit Facility" for a description of the anticipated
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.
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 19 records management businesses. Since
January 1, 1995, the Company has purchased for cash 15 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
$80.1 million (not including contingent payments of up to $0.6 million based
upon the achievement of certain revenue targets during 1996 and 1997), and
the purchase price of the Pending Acquisition is approximately $20.2 million
(not including contingent payments of up to $4.0 million based upon the
achievement of certain revenue targets during 1997 and 1998). The Completed
Acquisitions represent in the aggregate total annual revenues of
approximately $32.0 million, and the Pending Acquisition represents total
annual revenues of approximately $8.8 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. 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
International Record Storage and Retrieval Service, Inc. New Jersey September 1996
Security Archives Corporation California September 1996
Pending Acquisition Status
------
Mohawk Business Record Storage, Inc. Definitive
Minnesota 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
indebtedness under the Credit Agreement, the Chrysler Notes and the FDS
Notes; (ii) to fund a portion of the purchase price of the Pending
Acquisition; (iii) to pay certain fees and expenses related to the Offering;
and (iv) for general corporate purposes. See "The Transactions" and "Recent
and Pending Acquisitions." The net proceeds to the Company from the Offering
are estimated to be approximately $159.2 million, after deducting
underwriting discounts and commissions and estimated Offering expenses. Prior
to funding the Pending Acquisition or their application 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 $ 3,051
======== ========
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 -- 165,000
Chrysler Notes 14,807 --
FDS Notes and Other 476 26
-------- --------
Total Long-term Debt 118,894 175,787
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 $228,288
======== ========
</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 $ 3,302 $ 1,760(A) $ 30,927
Property, Plant and Equipment, net 103,004 6,940 4,324(A) 114,268
Goodwill, net 72,213 20 36,037(A) 108,270
Other Long-term Assets 11,548 480 4,481(A) 16,509
-------- ------- ------- --------
Total Assets $212,630 $10,742 $46,602 $269,974
======== ======= ======= ========
Liabilities and Stockholders' Equity
Current Liabilities $ 23,129 $ 7,337 $(8,182)(B) $ 22,284
Long-term Debt, net of current portion 115,700 388 59,505 (B) 175,593
Other Long-term Liabilities 6,769 1,281 (1,219)(B) 6,831
Deferred Rent 7,897 242 220 (B) 8,359
Deferred Income Taxes 4,406 -- -- 4,406
Stockholders' Equity 54,729 1,494 (3,722)(B) 52,501
-------- ------- ------- ---------
Total Liabilities and Stockholders' Equity $212,630 $10,742 $46,602 $269,974
======== ======= ======= =========
</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 $ 6,861 $ -- $46,224
Service and Storage Material Sales 24,587 4,540 -- 29,127
------- ------- ------- -------
Total Revenues 63,950 11,401 -- 75,351
Operating Expenses:
Cost of Sales (Excluding Depreciation) 32,383 5,518 (329)(D) 37,572
Selling, General and Administrative 16,067 4,454 (1,182)(E) 19,339
Depreciation and Amortization 7,530 750 819 (F) 9,099
------- ------- ------- -------
Total Operating Expenses 55,980 10,722 (692) 66,010
------- ------- ------- -------
Operating Income 7,970 679 692 9,341
Interest Expense 6,385 334 2,949 (G) 9,668
------- ------- ------- -------
Income (Loss) before Provision
(Benefit) for Income Taxes 1,585 345 (2,257) (327)
Provision (Benefit) for Income Taxes 888 (30) (692)(H) 166
------- ------- ------- -------
Net Income (Loss) 697 375 (1,565) (493)
Accretion of Redeemable Put Warrant 280 -- (280)(I) --
------- ------- ------- -------
Net Income (Loss) Applicable to Common
Stockholders $ 417 $ 375 $(1,285) $ (493)
======= ======= ======= ========
Net Income (Loss) per Common and Common
Equivalent Share $ 0.04 $ (0.05)
Weighted Average Common and Common
Equivalent Shares Outstanding 9,899 400(J) 10,299
Other Data:
EBITDA $15,500 $ 1,429 $ 1,511 $18,440
</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 $22,304 $ -- $ 86,469
Service and Storage Material Sales 40,271 14,897 (737)(C) 54,431
-------- ------- ------- --------
Total Revenues 104,436 37,201 (737) 140,900
Operating Expenses:
Cost of Sales (Excluding Depreciation) 52,277 18,581 (1,054)(D) 69,804
Selling, General and Administrative 26,035 11,604 (2,552)(E) 35,087
Depreciation and Amortization 12,341 2,962 2,879 (F) 18,182
-------- ----------- ------- --------
Total Operating Expenses 90,653 33,147 (727) 123,073
-------- ----------- ------- --------
Operating Income 13,783 4,054 (10) 17,827
Interest Expense 11,838 1,814 5,689 (G) 19,341
-------- ----------- ------- --------
Income (Loss) before Provision for
Income Taxes 1,945 2,240 (5,699) (1,514)
Provision for Income Taxes 1,697 102 (1,402)(H) 397
-------- ----------- ------- --------
Net Income (Loss) 248 2,138 (4,297) (1,911)
Accretion of Redeemable Put Warrant 2,107 -- (2,107)(I) --
-------- ----------- ------- --------
Net Income (Loss) Applicable to Common
Stockholders $ (1,859) $ 2,138 $(2,190) $ (1,911)
======== =========== ======= ========
Net (Loss) per Common and Common
Equivalent Share $ (0.24) $ (0.19)
Weighted Average Common and Common
Equivalent Shares Outstanding 7,784 2,350 (J) 10,134
Other Data:
EBITDA $ 26,124 $ 7,016 $ 2,869 $ 36,009
</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
Completed Pending
after Pending and
June 30, Acquisition Completed
1996 (Mohawk) Acquisitions
---------- --------- ------------
<S> <C> <C> <C>
Assets
Current Assets $1,814 $1,488 $ 3,302
Property, Plant and Equipment, net 3,135 3,805 6,940
Goodwill, net 20 -- 20
Other Long-term Assets 249 231 480
------ ------ -------
Total Assets $5,218 $5,524 $10,742
====== ====== =======
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities $3,367 $3,970 $ 7,337
Long-term Debt, net of current portion 388 -- 388
Other Long-term Liabilities 1,281 -- 1,281
Deferred Rent 242 -- 242
Stockholders' Equity (Deficit) (60) 1,554 1,494
------ ------ -------
Total Liabilities and Stockholders' Equity $5,218 $5,524 $10,742
====== ====== =======
</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
Pending and
Completed Acquisition Completed
Acquisitions (1) (Mohawk) Acquisitions
------------ ----------- ------------
<S> <C> <C> <C>
Revenues:
Storage $4,210 $2,651 $ 6,861
Service and Storage Material Sales 2,454 2,086 4,540
------ ------ -------
Total Revenues 6,664 4,737 11,401
Operating Expenses:
Cost of Sales (Excluding Depreciation) 3,161 2,357 5,518
Selling, General and Administrative 2,840 1,614 4,454
Depreciation and Amortization 391 359 750
------ ------ -------
Total Operating Expenses 6,392 4,330 10,722
------ ------ -------
Operating Income 272 407 679
Interest Expense 209 125 334
------ ------ -------
Income before (Benefit) for Income Taxes 63 282 345
(Benefit) for Income Taxes (30) -- (30)
------ ------ -------
Net Income $ 93 $ 282 $ 375
====== ====== =======
Other Data:
EBITDA $ 663 $ 766 $ 1,429
</TABLE>
- -------------
(1) Represents historical results of operations for each Completed
Acquisition consummated in 1996 for the period in 1996 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.
24
<PAGE>
SCHEDULE C
IRON MOUNTAIN INCORPORATED
SCHEDULE OF PENDING AND COMPLETED ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Completed Acquisitions (1)
--------------------------------------------------------
Pending
National Total Pending and
Business Data Nashville Completed Acquisition Completed
Archives Management Vault Other Acquisitions (Mohawk) Acquisitions
-------- ---------- --------- ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Storage $ 758 $2,912 $ 636 $13,293 $17,599 $4,705 $22,304
Service and Storage
Material Sales 471 2,308 739 7,284 10,802 4,095 14,897
------ ------ ------ ------- ------- ------ -------
Total Revenues 1,229 5,220 1,375 20,577 28,401 8,800 37,201
Operating Expenses:
Cost of Sales
(Excluding
Depreciation) 712 2,543 499 10,183 13,937 4,644 18,581
Selling, General and
Administrative 89 1,418 327 6,936 8,770 2,834 11,604
Depreciation and
Amortization 55 506 122 1,621 2,304 658 2,962
------ ------ ------ ------- ------- ------ -------
Total Operating
Expenses 856 4,467 948 18,740 25,011 8,136 33,147
------ ------ ------ ------- ------- ------ -------
Operating Income 373 753 427 1,837 3,390 664 4,054
Interest Expense 14 494 61 976 1,545 269 1,814
------ ------ ------ ------- ------- ------ -------
Income before
Provision for Income
Taxes 359 259 366 861 1,845 395 2,240
Provision for Income
Taxes -- 87 -- 15 102 -- 102
------ ------ ------ ------- ------- ------ -------
Net Income $ 359 $ 172 $ 366 $ 846 $ 1,743 $ 395 $ 2,138
====== ====== ====== ======= ======= ====== =======
Other Data:
EBITDA $ 428 $1,259 $ 549 $ 3,458 $ 5,694 $1,322 $ 7,016
</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 $15.7 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. In September 1996, the Company
acquired International Record Storage and Retrieval Service, Inc. and
Security Archives Corporation. 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 $46.4 million (not including contingent payments of up to $0.6
million based upon the achievement of certain revenue targets during 1996 and
1997).
During September 1996, the Company entered into a definitive agreement to
purchase Mohawk Business Record Storage, Inc. ("Mohawk") for $20.2 million
(not including contingent payments of up to $4.0 million based upon the
achievement of certain revenue targets during 1997 and 1998). The closing of
the Pending Acquisition is subject to various conditions, and no assurance
can be given that such acquisition will be completed. All of the Completed
Acquisitions have been, and the Pending Acquisition, if consummated, will be,
accounted for as purchases.
The accompanying unaudited pro forma condensed consolidated financial
statements reflect the following as though each 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. As of June 30, 1996, the amount of such loss would have been
approximately $2.2 million. While the extraordinary charge has been reflected
in the accompanying pro forma balance sheet, 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.
Balance Sheet
The aggregate consideration paid or to be paid for the Acquisitions is
approximately $100.3 million in cash (not including up to $4.6 million of
contingent payments based upon the achievement of certain revenue targets
from 1996 through 1998). 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
value of the net assets acquired. The allocations of the purchase price as
illustrated below may change upon final appraisal of the fair value of the
net assets acquired.
26
<PAGE>
<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 $ 9.2
Allocation of purchase price in excess of acquired assets:
Property, Plant and Equipment (Fair Value Adjustment) 4.8
Other Long-term Assets (Covenants not to Compete) 0.2
Current Liabilities (Relocation and Other Reserves) (2.3)
Deferred Rent (Unfavorable Lease Liability) (0.4)
Goodwill 36.0
----
Purchase Price of Acquisitions Pending as of June 30, 1996 47.5
------
Total Purchase Price of Acquisitions $100.3
======
</TABLE>
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. 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,
Plant Other
Current and Long-term
Assets Equipment Goodwill Assets
-------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Acquisition Entries:
Reverse assets of acquired companies not purchased $(0.6) $(0.2) $ -- $ (0.5)
Record estimated fair value of assets of acquired
companies -- 4.5 -- --
Record increase in intangible assets equal to the excess
of purchase price over fair value of net assets
acquired -- -- 36.0 0.2
----- ----- ------ ------
Total Acquisition Entries (0.6) 4.3 36.0 (0.3)
----- ----- ------ ------
Use of Proceeds Entries:
Record excess cash proceeds from the Offering 0.8 -- -- --
Record deferred financing fees associated with the Notes
and the New Credit Facility -- -- -- 6.8
Write-off of pre-existing deferred financing costs -- -- -- (2.0)
Tax benefit associated with extraordinary charge related
to early retirement of pre-existing debt 1.6 -- -- --
----- ----- ------ ------
Total Use of Proceeds Entries 2.4 -- -- 4.3
----- ----- ------ ------
Total Adjustments $ 1.8 $ 4.3 $ 36.0 $ 4.5
===== ===== ====== ======
</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 liabilities and equity not assumed in
connection with Acquisitions closing after
June 30, 1996 $(5.2) $ (0.4) $(1.2) $(0.2) $(1.5)
Record unfavorable lease obligation -- -- -- 0.4 --
Record additional debt to finance
Acquisitions closing after June 30, 1996 47.5
----- ------- ----- ----- -----
Total Acquisition Entries (5.2) 47.1 (1.2) 0.2 (1.5)
----- ------- ----- ----- -----
Use of Proceeds Entries:
Issuance of the Notes -- 165.0 -- -- --
Borrowings under New Credit Facility -- -- -- -- --
Prepayment of Credit Agreement, Chrysler
Notes and FDS Notes (3.0) (105.1) -- -- --
Use of proceeds to repay debt issued to
finance Acquisitions closing after June 30,
1996 -- (47.5) -- -- --
Extraordinary charge, net of tax benefit,
related to early retirement of pre-existing
debt -- -- -- -- (2.2)
----- ------- ----- ----- -----
Total Use of Proceeds Entries (3.0) 12.4 -- -- (2.2)
----- ------- ----- ----- -----
Total Adjustments $(8.2) $ 59.5 $(1.2) $ 0.2 $(3.7)
===== ======= ===== ===== =====
</TABLE>
Statements of Operations
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 as if the Transactions and the Initial Public
Offering had occurred on January 1, 1995 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 six months ended June 30, 1996 and for
the year ended December 31, 1995 have been made to reduce cost of sales by
$0.3 million and $1.1 million, respectively, to eliminate specific expenses
that would not have been incurred had the Acquisitions occurred at the
beginning of 1995. Such cost 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 six months ended June 30, 1996 and for
the year ended December 31, 1995 have been made to reduce selling, general
and administrative expenses by $1.2 million and $2.6 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
28
<PAGE>
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 value of the assets
acquired and goodwill. 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>
June 30, December 31,
1996 1995
------- ------------
(In millions)
<S> <C> <C>
Acquisition Entries:
Reverse interest expense on debt not assumed in connection with
Acquisitions $(0.3) $ (1.8)
Record interest expense due to assumption of unfavorable lease liabilities
in connection with the NBA and Mohawk acquisitions 0.1 0.1
Use of Proceeds Entries:
Reverse interest expense on pre-existing debt of the Company retired with
proceeds of the Offering (5.7) (10.5)
Record interest expense from issuance of the Notes at an interest rate of
10-1/8%, plus amortization of deferred financing costs 8.6 17.3
Record commitment fee of 3/8%, plus amortization of deferred financing fees
associated with the New Credit Facility 0.3 0.6
----- ------
Total Adjustments $ 3.0 $ 5.7
===== ======
</TABLE>
(H) A pro forma adjustment has been made to adjust the 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 $0.3 million and $2.1 million for the periods
ended June 30, 1996 and December 31, 1995, respectively, have been made to
eliminate the accretion of a redeemable put warrant.
(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 unaudited
condensed consolidated financial statements include all adjustments,
consisting of normal recurring accruals, that 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 for
Income Taxes (1,292) 3,682 3,656 3,241 1,945 1,051 1,585
Provision 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 1.1x 1.2x
</TABLE>
(Footnotes on the following page)
30
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------
As of
June 30,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- --------
<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 for the year ended December 31, 1995 and 0.9x for the six
months ended June 30, 1996. 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 $1,514 and $327 to cover its pro forma fixed charges of $26,100
and $13,241, respectively. The ratio of earnings to fixed charges was
0.9x 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 $11,689.
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 Iron Mountain's
Consolidated Financial Statements and the Notes thereto and the other
financial and operating information included elsewhere in this Prospectus.
This Prospectus contains, in addition to historical information,
forward-looking statements that include risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include those discussed below, as well as those discussed elsewhere in this
Prospectus. The Company undertakes no obligation to release publicly the
result of any revisions to these forward-looking statements that may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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
32
<PAGE>
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.
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), to repay
indebtedness used to fund acquisitions and for working capital.
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.
Forward-Looking Statements Regarding Revenues
One of the Company's goals is to achieve revenue growth of five to 10
percent per year from its existing business through the end of 1997. In
addition, over the same period, the Company's goal is to achieve revenue
growth of between 10 to 15 percent per year as a result of acquisitions.
There can be no assurance that the Company will be able to meet these goals.
See "Risk Factors."
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>
Six Months
Year Ended December 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 50.6
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 11.8
----- ----- ----- ----- -----
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 a 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 $321 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 3.3-to-1.
The Company currently intends to apply a portion of the net proceeds from
the Offering to the prepayment of the Credit Agreement, the Chrysler Notes
and the FDS Notes. The Company will record, in the quarter in which
38
<PAGE>
the Offering is consummated, an extraordinary loss on retirement of debt, net
of related tax benefit. Assuming the Transactions were to be consummated on
September 30, 1996, the amount of such loss would be approximately $2.0
million. Such loss will consist of the write-down of deferred financing
costs, original issue discount, prepayment penalty and loss on possible
termination of certain 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 19 records management businesses, 18 of which have
been completed and one of which is pending, for a total purchase price of
$103.2 million (not including contingent payments of up to $4.6 million based
upon the achievement of certain revenue targets during 1996 through 1998).
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 $28.3 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 $130
million and consists of the following facilities: (i) a $15 million revolving
working capital facility; (ii) a $10 million term loan; (iii) a $55 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 will 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 anticipated 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 $7.8
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 $28.3 million under the acquisition credit facility to finance
acquisitions, and amended the Credit Agreement to increase the acquisition
credit facility by $5.0 million. 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 $175.8 million in total indebtedness
and $100.0 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 also 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, certain of which may be terminated in connection with the repayment
of the Credit Agreement. See Note 3 of 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. Depending on
the pace of the Company's acquisitions, the Company may elect to seek
additional financing during the next two years. The Company anticipates that
any such financing will be debt financing, including the issuance of debt
securities. However, depending on market conditions and the preferences of
acquisition candidates, the Company would consider issuing equity securities.
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.
40
<PAGE>
Seasonality
Historically, the Company's business has not been subject to seasonality
in any material respect.
Inflation
Certain of the Company's expenses, such as wages and benefits, occupancy
costs and equipment repair and replacement, are subject to normal
inflationary pressures. Although the Company to date has been able to offset
inflationary cost increases through increased operating efficiencies, 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 29.6 million Cartons in 103
records centers in 33 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.
[triangle graphic showing ACTIVE = 20% and INACTIVE = 80%]
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
==== ==== ==== ====
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 Increase 23% 14% 32% 30%
</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.
44
<PAGE>
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.
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 19 companies, 18 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. The Company's corporate
development staff is engaged in an ongoing review of acquisition candidates.
As of the date hereof, the Company is in contact with approximately 40
companies, and expects that it will continue to meet several new candidates
each month, although the actual number may vary from month to month and there
can be no assurance that any such review will result in an acquisition.
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
45
<PAGE>
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 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
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<PAGE>
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 32% 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.
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
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<PAGE>
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.
(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.
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<PAGE>
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 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.
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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.
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 the following percentages: Entertainment - 2%; Retail -
4%; Manufacturing - 4%; Government - 6%; Professional Services - 7%; Health
Care - 10%; Other Financial Institutions - 10%; Insurance Companies - 5%;
Depository Institutions - 14%; Legal Services - 16%]
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
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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.
Properties
As of June 30, 1996, Iron Mountain conducted operations through 77 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.
<TABLE>
<CAPTION>
Records
Management
State Facilities
- ---------------- -------------
<S> <C>
Arizona 2
California 24
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 4
Pennsylvania 2
Rhode Island 1
Tennessee 1
Texas 8
Virginia 3
--
Total 89
==
</TABLE>
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 Relations 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 55 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 56 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 Narragansett Capital, Inc., a private investment firm.
He holds a Bachelor of Arts degree in history from Stanford University.
Vincent J. Ryan is a Director of Iron Mountain. Mr. Ryan is the founder of
Schooner and has served as Chairman and Chief Executive Officer of Schooner
since 1971. Prior to November 1995, Mr. Ryan served as Chairman of the 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 September 24, 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
Chief Executive Officer 1994 $255,400 $125,000 0 $1,623
David S. Wendell 1995 $136,627 $ 62,731 35,469 $1,573
President and Chief
Operating Officer 1994 $129,800 $ 50,000 0 $1,352
Eugene B. Doggett 1995 $192,274 $165,000 0 $1,790
Executive Vice President
and Chief Financial
Officer 1994 $187,500 $ 93,750 0 $1,623
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 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, $93,000 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 $382,500
under a junior subordinated note, which was incurred by Iron Mountain in 1990
in connection with an acquisition. Schooner subsequently acquired the note
from the holder as an investment. The Company intends to use a portion of the
net proceeds from the Offering to prepay such indebtedness in its entirety.
See "The Transactions--Repayment of FDS Notes."
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, $49,000 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.
58
<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
Assumed Annual Rates
Number of % of Total of
Securities Options 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 second mortgage on the home. As of September 3, 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 to be repaid with a portion of the net proceeds of the
Offering; 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 September 3, 1996.
<TABLE>
<CAPTION>
Amount of
Beneficial
Ownership (1)
-------------------
Percent
Name Shares Owned
- ---- ------ -------
<S> <C> <C>
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%
</TABLE>
- -------------
* Less than 1%
(1) Except as otherwise indicated, the persons named in the table above have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) Mr. Reese is a director and Chairman of the Board and Chief Executive
Officer of 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.
61
<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") among
the Company, the Subsidiary Guarantors (as defined below) and First Bank
National Association, 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 $165 million and will mature on
October 1, 2006. Interest on the Notes will accrue at the rate of 10-1/8% per
annum and will be payable semi-annually in arrears on April 1 and October 1,
commencing on April 1, 1997, to Holders of record on the immediately
preceding March 15 and September 15. 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 (each, a
"Subsidiary Guarantor"). 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 Subsidiary Guarantor, which
on a pro forma basis would have been $10.8 million at June 30, 1996 for all
Subsidiary Guarantors. Notwithstanding the subordination provisions contained
in the Indenture, the obligations of a Subsidiary Guarantor 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
Subsidiary Guarantor in a liquidation or dissolution of the Company or such
Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or any Subsidiary
Guarantor or its property, an assignment for the benefit of creditors or any
marshaling of the assets and liabilities of the Company or any Subsidiary
Guarantor, (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, whether or not allowed as a claim in
such proceeding) 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.
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Neither the Company nor any Subsidiary Guarantor 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
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 a 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 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)
not more than one Payment Blockage Notice may be commenced during any period
of 360 consecutive days and (B) any Non-Monetary Default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee (to the extent the holder of Designated Senior Debt, or such trustee
or agent, giving such Payment Blockage Notice had knowledge of the same)
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 90 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 October
1, 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 October 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
- ---- -----------
<S> <C>
2001 105.06%
2002 103.38%
2003 101.69%
2004 and thereafter 100.00%
</TABLE>
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
proceeds of one or more Qualified Equity Offerings at a redemption price
equal to 109.125% 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 will contain, and any future
credit agreements or other
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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 "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); (b) purchase, redeem or
otherwise acquire or retire for value
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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 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 $450,000 of junior subordinated notes issued by the
Company in connection with a 1990 acquisition, together with interest
thereon; and (H) additional payments to current or former employees or
directors 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.
If an Investment results 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
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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).
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
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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 reason of (1) Existing Indebtedness, (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 Capital 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 reasonably satisfactory to the Trustee; (c) immediately after such
transaction no Default or Event of Default exists; and (d) the Company or any
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, 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,
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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 entitled "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 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 in the event of the designation of such Restricted
Subsidiary as an Unrestricted 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."
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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 "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 "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.
Limitation on Sale and Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale and Leaseback Transaction unless (a) the consideration
received in such Sale and Leaseback Transaction is at least equal to the fair
market value of the property sold, as determined by a resolution of the Board
of Directors of the Company, and (b) the Company or such Restricted
Subsidiary could incur the Attributable Indebtedness in respect of such Sale
and Leaseback Transaction in compliance with the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock."
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 Subsidiary Guarantor 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 that are Significant Subsidiaries; and (h) except as permitted
by the Indenture or the Subsidiary Guarantees, 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 in writing 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 October 1, 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 October 1, 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 the intent of preferring the Holders of
Notes over the other creditors of the Company with the intent of defeating,
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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
Depositary has advised the Company that its current practice, upon receipt of
any payment in respect of securities
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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.
"Attributable Indebtedness" in respect of a Sale and Leaseback Transaction
means, as of the time of determination, the greater of (a) the fair market
value of the property subject to such arrangement (as determined by the Board
of Directors of the Company) and (b) the present value (discounted at the
rate of interest implicit in such transaction) of the total obligations of
the lessee for rental payments during the remaining terms of the lease
included in such Sale and Leaseback Transaction (including any period for
which such lease has been extended).
"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.
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"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, 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 The Chase Manhattan Bank, in its capacity as
administrative agent for the lenders party to the Credit Agreement, or any
successor or successors party thereto.
"Credit Agreement" means that certain Credit Agreement, dated as of
December 10, 1990, as amended and restated as of April 15, 1993, and as
further amended and restated as of January 31, 1995, among the Company, the
lenders party thereto and the Credit Agent, as the same may be refunded,
replaced or refinanced by the New Credit Facility, and in each case as
amended, restated, supplemented, modified, renewed, refunded, increased,
extended, 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 $10.0 million or less.
"Disqualified Stock" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, for cash or other property (other than Capital Stock that is not
Disqualified Stock) pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the Holder thereof, in whole or in part, in each
case on or prior to the stated maturity of the Notes.
"Dollars" and "$" 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.
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"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 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, 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
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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 from 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 from 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 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, whether or not allowed as a claim in any proceeding), 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, including without limitation the Guarantee of Indebtedness permitted
under the covenant entitled "Incurrence of Indebtedness and Issuance of
Preferred Stock;" (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
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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 outstanding amount not to exceed $10.0 million; and
(f) Investments by the Company or a Restricted Subsidiary (other than an
Excluded Restricted Subsidiary) in one or more Excluded Restricted
Subsidiaries, the aggregate outstanding 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;
(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
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(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.
"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
October 1, 2006; (c) to the extent such Refinancing Indebtedness refinances
Indebtedness that has a final maturity date occurring after October 1, 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.
83
<PAGE>
"Senior Bank Debt" means all Obligations outstanding under or in
connection with the Credit Agreement (including Guarantees of such
Obligations by Subsidiaries of the Company).
"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 (i) on a parity with or subordinated in right of payment to the Notes
or (ii) subordinated to Senior Debt on terms substantially similar to those
of 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, provided that such Indebtedness shall be deemed not to have been
incurred in violation of the Indenture for purposes of this clause (iv) if,
in the case of any obligations under the Credit Agreement, the holders of
such obligations or their agent or representative shall have received a
representation from the Company to the effect that the incurrence of such
Indebtedness does not violate the provisions of the Indenture.
"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.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors,
managers or trustees of any Person (irrespective of whether or not, at the
time, stock of any other class or classes has, or might have, voting power by
reason of the happening of any contingency).
"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
payment 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 the current draft credit
agreement 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.
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 will terminate on September 25, 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 will be guaranteed by substantially all of the Company's
subsidiaries; however, unlike the Credit Agreement, the New Credit Facility
will 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, issuances of indebtedness and asset dispositions.
84
<PAGE>
The New Credit Facility will 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 (x) the prime rate
of The Chase Manhattan Bank, (y) the secondary market rate for three-month
certificates of deposit (adjusted for statutory reserves and FDIC
assessments), plus 1%, or (z) 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 funded indebtedness (net of cash and cash equivalents on
hand) to EBITDA.
The New Credit Facility will 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 will 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 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. The Company will also 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 will 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; (viii) a change of control
of the Company; and (ix) the creation of certain environmental liabilities.
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 September 3, 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
85
<PAGE>
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.
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:
<TABLE>
<CAPTION>
Principal Amount
Underwriters of Notes
------------ --------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation $ 82,500,000
Bear, Stearns & Co. Inc. 41,250,000
Prudential Securities Incorporated 41,250,000
------------
$165,000,000
============
</TABLE>
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 0.4% of the principal amount of the
Notes. The Underwriters may allow, and such dealers may reallow, discounts
not in excess of 0.25% 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 SECURITIES
The validity of the securities 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.
86
<PAGE>
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.
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.
The financial statements of DKA Industries, 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 Security Archives Corporation, 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 Mohawk Business Record Storage, 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.
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
87
<PAGE>
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.
88
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
-------
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
International Record Storage and Retrieval Service, Inc. .............. F-72
DKA Industries, Inc. d/b/a Systems Record Storage ..................... F-80
Security Archives Corporation ......................................... F-88
Financial Statements of Pending Acquisition:
Mohawk Business Record Storage, Inc. .................................. F-96
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:
1996
--------
Fair Value of Assets Acquired in 1996 ............... $20,104
Liabilities Assumed ................................. (917)
--------
Cash Paid ........................................... $19,187
========
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.
1995 1996
------- ---------
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
======= =========
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:
1995 1996
------- --------
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
======= ========
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 four records management
businesses for $23,523 in transactions that were accounted for as purchases.
On August 29, 1996 the Company amended its Credit Agreement to increase its
Acquisition Credit Facility from $50,000 to $55,000.
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:
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
Property, plant and equipment consist of the following:
December 31,
------------------
1994 1995
------ --------
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
====== ========
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:
December 31,
----------------
1994 1995
----- -------
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
===== =======
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:
Maturity
Amount Date
------ --------
Term Loan A ............................ $10,000 2000
Term Loan B ............................ 50,000 2002
Working Capital Facility ............... 15,000 2000
Acquisition Credit Facility ............ 50,000 2002
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:
Year Amount
---- --------
1996 ....................................... $ 2,578
1997 ....................................... 3,386
1998 ....................................... 8,320
1999 ....................................... 8,366
2000 ....................................... 28,824
Thereafter ................................. 70,400
------
$121,874
======
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:
Carrying Fair
Amount Value
-------- ----------
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)
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:
1994 1995
----- --------
Fair value of assets acquired ..... $3,223 $41,286
Liabilities assumed ............... (377) (8,238)
--- ------
Cash paid ......................... $2,846 $33,048
=== ======
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.
1994 1995
------- -------
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)
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:
Number of Shares
-------------------------
Par Issued and
Equity Type Value Authorized Outstanding
- ----------------------------------- -------- --------- ------------
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
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:
Preferred Common
-------- ----------
Series A1 and Series A3 ........... 50,000 987,314
Series A2 ......................... 98,000 1,935,146
Series C .......................... 351,395 4,809,793
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:
Authorized
Class Shares
- ----- -----------
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
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:
Option Price
Options Per Share
------- ------------------
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
=====
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:
December 31,
--------------------
1994 1995
------- ---------
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)
===== =======
The Company and its subsidiaries file a consolidated Federal income tax
return. The provision for income taxes consists of the following components:
Years ended December 31,
------------------------
1993 1994 1995
----- ----- ------
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
=== === ====
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:
1993 1994 1995
----- ----- ------
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
=== === ====
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:
Year Operating
----------------------------------------------------- ----------
1996 ................................................ $ 18,278
1997 ................................................ 15,571
1998 ................................................ 13,585
1999 ................................................ 13,332
2000 ................................................ 13,537
Thereafter .......................................... 53,465
--------
Total minimum lease payments ........................ $127,768
========
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
December 31,
-----------------------
1993 1994
--------- ----------
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
======= ========
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
Year Ended December 31,
------------------------
1993 1994
--------- -----------
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
======= =========
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>
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
--------------------
Lender 12/31/93 12/31/94 Interest Rate Terms Maturity Date
---------------- --------- ------- ------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Stockholder .... $1,558,333 $ -0- Prime + 2% * October 1, 1996
Stockholder .... 355,000 355,000 -- Non-interest October 1, 1996
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 .... Automobiles/
$171,636 $100,582 6.42-12% $9,442 3/95-8/97 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:
1995 .............................. $ 63,092
1996 .............................. 33,596
1997 .............................. 3,894
------
$100,582
======
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 10 Yrs. 9
Limited Partnership (DRIP) .... 142,885 11/01/89 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:
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
==========
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)
Three
Year Ended Months Ended
June 30, September 30,
1995 1995
----------- -------------
(Unaudited)
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)
========= ===========
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:
Years
------
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
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:
Accumulated
Cost Amortization Net
--------- ----------- ---------
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
======= ========= =======
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:
Currently payable ................................... $ 457
Deferred ............................................ (4,595)
Utilization of operating loss carryforward .......... 59,727
------
Provision for income tax expense .................... $55,589
======
A reconciliation of income tax at the statutory rate to the Company's
effective rate is as follows:
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%
====
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:
Carryover Amount Expiration
--------------------------- --------- -----------
Net operating loss ........ $2,109,000 2004-2009
Contributions ............. 5,510 1996-1999
The deferred tax benefit consisted of the following at June 30, 1995:
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
=======
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
1995
------------
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
==========
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
those subject to prior liens and the outstanding
stock of the Company pari passu with other major
lender. Interest due monthly and principal
payments of approximately $60,000 due 9/30/95; 7.62%-
12/31/95 and 3/31/96. Remaining principal balance LIBOR+
due 6/30/96. 3.25% $5,124,242
2/01-3/01 Certain assets of DMS on purchase money
contracts, non-competes; due $16,667 monthly 10.00% 1,071,038
9/99 Real estate of DMS due $4,152 monthly 9.00% 384,892
9/94-4/96 Rolling stock and equipment, principal and
interest of approximately $9,000 due monthly Various 102,533
------------
$6,682,705
============
</TABLE>
Principal maturities of notes payable for the five years ending after
June 30, 1995 are:
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
==========
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:
Outdoor
West, The Eagle
Inc. Group
--------- ----------
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)
======= ========
Receivables from and payables to affiliates as of June 30, 1995 are:
Accounts receivable from:
Outdoor West, Inc. ......................... $316,551
=======
Notes payable to:
Outdoor West, Inc. of Georgia .............. $ 50,000
=======
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
June 30,
1995 Termination
Leased Property Balance Dates
--------------- ----------- ----------------
Equipment ......................... $182,457 10/05/96-12/19/99
=========
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:
Capital Less: Balance
Lease Imputed Sheet
Balance Interest Values
------- ------- --------
Current liabilities ........... $ 84,078 $15,836 $ 68,242
===== ===== ======
Long-term liabilities ......... $129,366 $15,150 $114,216
===== ===== ======
Gross Assets and Accumulated Depreciation
June 30, 1995
--------------
Equipment and automobiles ......... $313,667
Less accumulated depreciation ..... (68,721)
------------
$244,946
============
Minimum Future Lease Payments
Years Ended June 30
-------------------
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
======
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:
Years Ended June 30 Amount
------------------ ----------
1996 .............................................. $ 745,918
1997 .............................................. 528,299
1998 .............................................. 425,770
1999 .............................................. 428,208
2000 .............................................. 418,197
Subsequent to 2000 ................................ 3,373,556
--------
$5,919,948
========
Rental expense under all operating leases for the fiscal year ended
June 30, 1995:
Rental Expense ...................................... $491,139
======
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
December 31,
1995
------------
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
==========
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
Year Ended
December 31,
1995
----------------
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
==============
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
Year Ended
December 31,
1995
----------------
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
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) -- (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. and Data Archive Services of Miami, Inc.:
We have audited the accompanying combined balance sheet of Data Archive
Services, Inc. and Data Archive Services of Miami, Inc. (Florida
Corporations) 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 Data Archive Services of Miami, Inc. 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
ASSETS
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
=======
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
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
=========
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
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
=========
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. and Affiliate (the Companies) are
records management companies 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 the Companies 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:
Years
------
Leasehold Improvements 14-20
Shelving 8-33
Vaults and Security Systems 8-10
Office Furniture and Equipment 5-7
Vehicle 6
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 Companies define 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 $3,184 ............................................... 140,552(A)
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:
Number
of
Remaining Outstanding Cancellation
Year Payments Indebtedness Indebtedness
---------------- ------- ----------- -------------
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
F-55
<PAGE>
DATA ARCHIVE SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
NOTE 4--CONTINGENCIES AND COMMITMENTS
Obligations Under Operating Leases
The Companies presently lease all their facilities under various operating
leases. Several of these leases have renewal options of three (3) years and
have consumer price index escalation clauses. The Companies also lease
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:
Rent--Premises ...................................... $432,742
=======
Rent--Computer and Warehouse Equipment .............. $ 91,537
=======
Minimum future lease payments for the 12 months ended May 31, are as
follows:
Lease
Computer
and
Lease Warehouse
Year Premises Equipment
----------------------------------- --------- ----------
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
======= ========
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
The Companies maintain their 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 Companies implemented a profit sharing plan
described in Internal Revenue Code Section 401(k). All employees of the
Companies 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 Companies are required to make contributions to the plan, but the
amount of the contribution is determined by the Companies. During the year
ended May 31, 1996, the Companies 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
the Companies 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
of
Lease Months
Expense Remaining Total
May 31, on Lease
Lessor and Description 1996 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
Lower Matecumbe Facility ............... to
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:
Current Federal Credit .............................. $ 24,615
Current Federal Provision ........................... (18,532)
Current State Provision ............................. (4,893)
-------
Total Current Credit ............................. $ 1,190
=======
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 $75,000 associated with the loss
carryforwards is dependent upon the future earnings of this 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 Companies 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:
May 31, 1996
--------------------
Recorded Fair
Amount Value
------- ---------
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
NOTE 10--SIGNIFICANT COMPONENTS OF COMBINED FINANCIAL STATEMENTS
The significant components of the entities, before elimination, comprising
the combined financial statements are as follows:
Data
Archive Data Archive
Services, Services of
Inc. Miami, Inc.
----------- ------------
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
========= ==========
NOTE 11--SUBSEQUENT EVENTS
Effective August 1, 1996, all of the outstanding capital stock of the
Companies was sold to Iron Mountain Records Management, Inc. All debt of the
Companies 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
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
==========
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
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
========
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Series Series
Series A B 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>
F-61
<PAGE>
DATA STORAGE SYSTEMS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
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
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 Records
Management, Inc. 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:
Warehouse equipment ................................. $ 931,814
Office equipment .................................... 68,006
Improvements ........................................ 20,942
--------
$1,020,762
========
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 Records Management, 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
ASSETS
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
=========
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
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)
=========
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
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
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:
Building and improvements .................. 15-31 years
Furniture and fixtures ..................... 5 years
Equipment .................................. 5 years
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:
Year Amount
----------------------------------------------------- ----------
1996 $ 44,450
1997 38,660
1998 40,570
1999 42,610
2000 44,800
Thereafter 1,140,548
--------
$1,351,638
========
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:
Year Amount
---- ---------
1996 ................................................ $1,345,000
1997 ................................................ 1,183,000
---------
$2,528,000
=========
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>
Six Months Ended
June 30,
---------------------------
Year
Ended
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>
Six Months Ended
June 30,
----------------------
Year
Ended
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 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:
Office Equipment .................................... 5 years
Transportation equipment ............................ 5 to 10 years
Shelving and warehouse improvements ................. 10 to 15 years
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:
December
31, June 30,
1995 1996
---------- ----------
(Unaudited)
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
======== ========
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:
1996 ................................................ $13,474
1997 ................................................ 7,572
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:
Year
Ended Six Months Ended
December June 30,
31, ----------------------
1995 1995 1996
---------- -------- ----------
(Unaudited) (Unaudited)
State income taxes deferred ... $21,000 $13,000 $11,000
======== ====== ========
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:
Year
Ended Six Months Ended
December June 30,
31, ----------------------
1995 1995 1996
---------- -------- ----------
(Unaudited) (Unaudited)
Computed "expected" tax
provision .................. $20,000 $11,000 $ 9,000
Other ....................... 1,000 2,000 2,000
-------- ------ --------
$21,000 $13,000 $11,000
======== ====== ========
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:
Year Six
Ended Months
December Ended
31, June 30,
1995 1996
---------- ----------
(Unaudited)
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
======== ========
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:
Year ending
December 31,
1996 ................................................ $ 318,000
1997 ................................................ 318,000
1998 ................................................ 318,000
1999 ................................................ 318,000
2000 ................................................ 350,000
Thereafter .......................................... 700,000
--------
$2,322,000
========
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>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Iron Mountain Incorporated:
We have audited the accompanying balance sheet of DKA Industries, Inc. d/b/a
Systems Record Storage (a Florida corporation) as of December 31, 1995, and
the related statements of operations and accumulated 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 DKA Industries, Inc. d/b/a
Systems Record Storage 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
Orlando, Florida
August 30, 1996
F-80
<PAGE>
DKA INDUSTRIES, INC.
d/b/a SYSTEMS RECORD STORAGE
BALANCE SHEETS--DECEMBER 31, 1995, AND JUNE 30, 1996
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- ----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 24,665 $ 22,083
Accounts receivable 121,064 170,858
Inventories 3,049 5,286
Prepaid expenses and other 11,695 11,320
--------- ---------
Total current assets 160,473 209,547
Property and Equipment, net 150,729 141,362
Goodwill, net 20,625 20,312
--------- ---------
Total assets $ 331,827 $ 371,221
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current maturities of notes payable $ 89,013 $ 47,411
Note payable to related party 285,000 285,000
Accounts payable and accrued expenses 10,807 21,959
Deferred income 58,617 69,074
--------- ---------
Total current liabilities 443,437 423,444
Notes payable, less current maturities 218,781 215,310
Deferred income 63,401 55,167
Deferred rent 10,318 8,598
--------- ---------
Total liabilities 735,937 702,519
--------- ---------
Commitments and Contingencies
Stockholders' Deficit:
Common stock, $1 par value, 1,000 shares authorized, issued
and outstanding 1,000 1,000
Accumulated deficit (405,110) (332,298)
--------- ---------
Total stockholders' deficit (404,110) (331,298)
--------- ---------
Total liabilities and stockholders' deficit $ 331,827 $ 371,221
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE>
DKA INDUSTRIES, INC.
d/b/a SYSTEMS RECORD STORAGE
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995,
AND THE SIX-MONTH PERIOD ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Year Six Months
Ended Ended
December 31, June 30,
1995 1996
-------------- ----------
(Unaudited)
<S> <C> <C>
Revenues:
Storage $ 638,442 $ 358,150
Service and storage material sales 386,637 219,328
---------- ---------
Total revenues 1,025,079 577,478
---------- ---------
Operating Expenses:
Costs of sales (excluding depreciation and
amortization) 462,387 224,599
Selling, general and administrative 400,310 200,031
Depreciation and amortization 72,625 36,313
---------- ---------
Total operating expenses 935,322 460,943
---------- ---------
Operating Income 89,757 116,535
Interest Expense 56,387 30,023
---------- ---------
Net income 33,370 86,512
Accumulated Deficit, beginning of period (425,768) (405,110)
Distributions (12,712) (13,700)
---------- ---------
Accumulated Deficit, end of period $ (405,110) $(332,298)
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE>
DKA INDUSTRIES, INC.
d/b/a SYSTEMS RECORD STORAGE
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995,
AND THE SIX-MONTH PERIOD ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Year Six Months
Ended Ended
December 31, June 30,
1995 1996
-------------- ----------
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 33,370 $ 86,512
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization 72,625 36,313
Changes in assets and liabilities--
Accounts receivable 8,819 (49,794)
Inventories (1,430) (2,237)
Prepaid expenses and other -- 375
Accounts payable and accrued expenses (12,079) 11,152
Deferred income 128 2,223
Deferred rent (3,440) (1,720)
--------- ---------
Net cash provided by operating activities 97,993 82,824
--------- ---------
Cash Flows used in Investing Activities:
Acquisitions of property and equipment (75,528) (26,633)
--------- ---------
Cash Flow From Financing Activities:
Repayment on notes payable (253,660) (45,073)
Additional borrowing on notes payable 268,522 --
Distributions to shareholders (12,712) (13,700)
--------- ---------
Net cash provided by (used in) financing
activities 2,150 (58,773)
--------- ---------
Net increase (decrease) in cash 24,615 (2,582)
Cash, beginning of period 50 24,665
--------- ---------
Cash, end of period $ 24,665 $ 22,083
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 56,387 $ 30,023
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
DKA INDUSTRIES
d/b/a SYSTEMS RECORD STORAGE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. Nature of Business
DKA Industries, Inc. d/b/a Systems Record Storage (the Company) provides
record storage and management services in the Orlando, Florida, area.
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. Amounts related to future storage for customers where storage
fees are billed in advance are accounted for as deferred income and
recognized in the applicable period.
Inventories
Inventories are carried at the lower of cost or market using the first-in,
first-out basis, and are comprised primarily of cartons.
Goodwill
Goodwill is amortized over 40 years. For 1995, amortization was $625. As
of December 31, 1995, there was $4,375 of accumulated amortization.
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 taxes in the accompanying financial statements.
Property and Equipment
Equipment and improvements are stated at cost and depreciated or amortized
using accelerated methods with the following useful lives:
<TABLE>
<CAPTION>
Years
------
<S> <C>
Office and computer equipment 5-7
Transportation equipment 5
Warehouse equipment and
improvements 7-10
</TABLE>
Deferred Rent
The Company's lease for its building used in the storage of records has
uneven rental payments which requires the normalization of rental expense
over the life of the lease, resulting in deferred rent being reflected in the
accompanying balance sheet.
F-84
<PAGE>
DKA INDUSTRIES
d/b/a SYSTEMS RECORD STORAGE
NOTES TO FINANCIAL STATEMENTS -- (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 No.
107, "Disclosures about Fair Value of Financial Instruments," approximates
the carrying amounts presented in the balance sheet.
Unaudited Financial Statements
The unaudited financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. 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, 1996, are not necessarily indicative of the results expected for the
full year.
3. Significant Customer
One major customer accounted for approximately 38 percent of revenue
during 1995 and 27 percent of accounts receivable at December 31, 1995.
4. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
Office and computer equipment $ 68,250
Transportation equipment 60,976
Warehouse equipment and improvements 388,636
---------
517,862
Less -- Accumulated depreciation and
amortization (367,133)
---------
$ 150,729
=========
</TABLE>
5. Notes Payable
Notes payable consisted of the following at December 31, 1995:
<TABLE>
<CAPTION>
Amount
---------
<S> <C>
Line of credit agreement with maximum borrowing of $50,000, bearing interest at prime
plus 1% (9.5% at December 31, 1995), collateralized by accounts receivable,
inventory, equipment and improvements. The line of credit is payable upon demand
and expires September 23, 1996. As of December 31, 1995, the Company had $35,000
available on the line of credit. $15,000
F-85
<PAGE>
DKA INDUSTRIES
d/b/a SYSTEMS RECORD STORAGE
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Amount
Note payable, collateralized by accounts receivable, inventory, equipment and
improvements, due in monthly installments through November 29, 2000, of $3,357, plus
interest at prime plus 1% (9.5% at December 31, 1995). $ 201,387
Note payable, collateralized by the purchased assets of the Company, due in monthly
principal and interest payments of $2,500 through October 1998, interest at 11%. 71,686
Other notes payable, collateralized by certain transportation equipment of the
Company, principal due in monthly installments of $887 through August 1998,
interest at prime plus 1% (9.5% at December 31, 1995). 19,721
--------
307,794
Less -- Current maturities (89,013)
--------
$218,781
========
</TABLE>
Aggregate principal payment requirements in each of the years subsequent
to December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
- ------------- --------
<S> <C>
1996 $ 89,013
1997 71,751
1998 66,495
1999 40,284
2000 40,251
--------
$307,794
========
</TABLE>
All the notes payable were paid in full subsequent to December 31, 1995,
in connection with the acquisition described in Note 9.
6. Related Party Transactions
As of December 31, 1995, the Company had a $285,000 note payable to a
former owner of the Company. The note payable is due on demand. The interest
on the note payable is 10 percent and payable monthly. The note payable was
paid in full subsequent to December 31, 1995, in connection with the
acquisition described in Note 9.
7. Retirement Plans
The Company maintains a 401(k) plan for the benefit of its employees. All
employees who have completed 12 months of service, 1,000 hours and attained
the age of 21 are eligible to enroll in the plan. Employees may contribute up
to 15 percent of their pay. Employees are always 100 percent vested in their
contributions. The Company matches 25 percent of employee salary deferral
contribution, up to a maximum of 4 percent. Employees are 20 percent vested
in employer contributions after three years of service and become an
additional 20 percent vested for each subsequent year of service. The
employer matching contribution expense amounted to $1,941 for the year ended
December 31, 1995. Subsequent to December 31, 1995, the plan was terminated
(see Note 9).
F-86
<PAGE>
DKA INDUSTRIES
d/b/a SYSTEMS RECORD STORAGE
NOTES TO FINANCIAL STATEMENTS -- (Continued)
8. Lease Commitments
The Company occupies office and warehouse facilities and rents a vehicle
under operating leases that expire during December 1998, providing for
minimum annual rentals as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
- -------------
<S> <C>
1996 $238,438
1997 238,438
1998 237,940
--------
$714,816
========
</TABLE>
Rent expense for facilities charged to operations was $232,960 for the
year ended December 31, 1995.
9. Subsequent Event
Effective August 1, 1996, substantially all of the Company's assets and
certain liabilities were acquired by Iron Mountain Records Management, Inc.
Proceeds from the sale were used to repay all the outstanding notes payable,
and the remainder was distributed to the owners.
F-87
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Iron Mountain Incorporated:
We have audited the accompanying balance sheet of Security Archives
Corporation (a Minnesota corporation) as of December 31, 1995, and the
related statements of operations and accumulated 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 Security Archives
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.
Arthur Andersen LLP
Minneapolis, Minnesota
August 23, 1996
(except for Note 6, as
to which the date is
September 6, 1996)
F-88
<PAGE>
SECURITY ARCHIVES CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- ----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 32,819 $ 49,044
Accounts receivable, net of allowance for doubtful accounts
of $49,382 and $4,408 140,950 165,006
Inventories 9,905 23,229
Prepaid expenses 33,192 31,710
--------- -----------
Total current assets 216,866 268,989
--------- -----------
Property and Equipment 997,992 1,067,355
Less -- Accumulated depreciation (358,283) (418,255)
--------- -----------
Net property and equipment 639,709 649,100
--------- -----------
Other Assets: 37,818 27,410
--------- -----------
$ 894,393 $ 945,499
========= ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 10,992 $ 36,554
Current portion of long-term debt --
Capital leases and other debt 21,747 206,313
Related parties 59,437 611,600
Accrued expenses 44,875 31,499
--------- -----------
Total current liabilities 137,051 885,966
--------- -----------
Long-term Notes Payable 257,891 --
Long-term Notes Payable -- related parties 768,926 34,346
Commitments and Contingencies
Stockholder's Equity:
Capital stock 25,000 shares, $1 par 1,200 shares issued and
outstanding 1,200 1,200
Paid-in capital 646,229 646,229
Accumulated deficit (916,904) (622,242)
--------- -----------
Total stockholder's equity (deficit) (269,475) 25,187
--------- -----------
$ 894,393 $ 945,499
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE>
SECURITY ARCHIVES CORPORATION
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Year Ended Six Months Ended June
December 31, 30
-----------------------
1995 1995 1996
--------------- --------- ----------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Storage $ 917,637 $ 459,566 $ 497,501
Service and storage materials sales 500,989 222,107 489,278
----------- --------- ---------
Total revenues 1,418,626 681,673 986,779
----------- --------- ---------
Operating Expenses:
Cost of sales (excluding depreciation) 669,017 328,210 388,016
Selling, general and administrative 525,518 234,249 197,393
Depreciation and amortization 99,159 46,080 59,972
----------- --------- ---------
Total operating expenses 1,293,694 608,539 645,381
----------- --------- ---------
Income from operations 124,932 73,134 341,398
----------- --------- ---------
Interest expense 92,988 46,815 46,736
Net Income 31,944 26,319 294,662
Accumulated Deficit, beginning of
period (948,848) (948,848) (916,904)
----------- --------- ---------
Accumulated Deficit, end of period $ (916,904) $(922,529) $(622,242)
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE>
SECURITY ARCHIVES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30
----------------------
1995 1995 1996
--------------- -------- ----------
(Unaudited)
<S> <C> <C> <C>
Operating Activities:
Net income
$ 31,944 $ 26,319 $ 294,662
Adjustments to reconcile net income to net
cash provided by operating activities --
Depreciation and amortization 99,159 46,080 59,972
Changes in assets and liabilities:
Accounts receivable (2,424) (31,408) (24,056)
Inventories 1,538 (2,292) (13,324)
Prepaid expenses (4,962) (4,558) 1,482
Accounts payable and accrued expenses 1,565 6,884 12,186
Other 10,068 6,958 10,408
--------- -------- ---------
Net cash provided by operating activities 136,888 47,983 341,330
--------- -------- ---------
Investing Activities:
Purchase of property and equipment (193,797) (103,791) (69,363)
--------- -------- ---------
Financing Activities:
Proceeds from notes payable 227,000 112,284 49,983
Principal payments on notes payable (161,606) (56,122) (305,725)
--------- -------- ---------
Net cash provided by (used for) financing
activities 65,394 56,162 (255,742)
--------- -------- ---------
Net increase in Cash 8,485 354 16,225
Cash and cash equivalents, at beginning of
period 24,334 24,334 32,819
--------- -------- ---------
Cash and cash equivalents, at end of period $ 32,819 $ 24,688 $ 49,044
========= ========= =========
Supplemental Disclosure:
Interest paid $ 92,989 $ 46,815 $ 41,815
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-91
<PAGE>
SECURITY ARCHIVES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. Organization of Business and Significant Accounting Policies
Security Archives Corporation (the Company), a Minnesota corporation, is a
full service records management company providing storage and related
services for all media. The Company serves numerous legal, banking,
healthcare, accounting, insurance, entertainment and retail organizations in
the Los Angeles, California metropolitan area.
Inventories
Inventories are carried at the lower of cost (using the first-in,
first-out basis) or market and are comprised primarily of cartons.
Property and Equipment
Depreciation and amortization of property and equipment are recorded using
the straight-line and accelerated methods. Property and equipment consist of
the following:
<TABLE>
<CAPTION>
Useful December 31,
Lives 1995
------------------ ------------
<S> <C> <C>
Warehouse and disintegration equipment 9 years $645,326
Leasehold improvements 10 years 103,928
Transportation equipment 5 years 112,946
Office equipment 5 to 10 years 135,792
--------
$997,992
========
</TABLE>
Minor maintenance costs are expensed as incurred. Major improvements are
capitalized and depreciated as described above.
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 has two customers which accounted for 25% of
revenues for the year ended December 31, 1995.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Other Assets
Other assets consist of customer acquisition costs. Costs, net of revenues
received for the initial transfer of records, related to the acquisition of
accounts are capitalized and amortized for an appropriate period not
exceeding three 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.
Financial Instruments
Unless otherwise noted, financial instruments are stated at cost, which
approximates fair value.
F-92
<PAGE>
SECURITY ARCHIVES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
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. These estimates relate primarily to the realizability of
accounts receivable and the adequacy of certain accrued expenses. Actual
results could differ from those estimates.
Unaudited Financial Information
The financial information as of June 30, 1996 and for the six-month
periods ended June 30, 1996 and 1995 is unaudited and has been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, such information reflects all
normal recurring adjustments necessary for a fair presentation. Operating
results for the six months ended June 30, 1996 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1996.
Included in service and storage materials sales for the six months ended June
30, 1996 is $250,000 of fees paid to the Company for removal of cartons for a
large customer that transferred its business to Iron Mountain Incorporated.
2. Notes Payable
Notes payable consisted of the following:
<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
Long-term revolving note payable, providing for borrowings of up
to $600,000, interest payable monthly at 8.25%, principal due
May 31, 1997 $ 234,554
Obligations under capital leases, payable in various installments
through 1999, 8.75-9.25% imputed interest 45,084
Long-term revolving note payable, providing for borrowings of up
to $50,000, interest payable monthly at the prime rate plus 1%
(9.5% at December 31, 1995), principal due May 31, 1997 --
Unsecured notes payable to stockholder, principal due in various
installments through 2000, interest payable monthly at rates
varying from 9.75-10% 826,695
Other related party obligations 1,668
----------
Total notes payable 1,108,001
Less -- Current maturities (81,184)
----------
Notes payable, net of current maturities $1,026,817
==========
</TABLE>
F-93
<PAGE>
SECURITY ARCHIVES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1996 $ 81,184
1997 904,709
1998 76,989
1999 41,778
2000 3,341
$1,108,001
==========
</TABLE>
3. Operating Leases
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more consist
of the following at December 31, 1995:
<TABLE>
<CAPTION>
Minimum
Year Payment
-------- ----------
<S> <C>
1996 $ 367,452
1997 367,452
1998 367,452
1999 367,452
2000 367,452
Thereafter 926,022
Total $2,763,282
==========
</TABLE>
The Company's rent expense for operating leases was $380,832 for the year
ended December 31, 1995, and $204,210 for the six month period ended June 30,
1996.
4. 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 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Deferred income tax assets $ 312
Deferred income tax liabilities (42)
Valuation allowance (270)
-----
$ --
=====
</TABLE>
As of December 31, 1995, the Company has NOL carryforwards of $745,106
which expire in varying amounts through 2009. The primary deferred tax
liabilities consist of tax over book depreciation. The valuation allowance
relates to uncertainties surrounding the realization of the NOL
carryforwards.
F-94
<PAGE>
SECURITY ARCHIVES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
5. Related Party Transactions
The Company provides management services to affiliated entities in
exchange for a management fee. Management fee revenue was $92,040 for the
year ended December 31, 1995 and $28,020 for the six months ended June 30,
1996.
In addition, the Company has notes payable to a related party. Interest
expense on related party notes payable was $58,302 for the year ended
December 31, 1995 and $31,907 for the six months ended June 30, 1996.
6. Sale of Operating Assets
On September 6, 1996 the Company entered into an agreement to sell
substantially all of its operating assets to Iron Mountain Records
Management, Inc. All debt of the Company will be repaid from the proceeds of
the sale.
F-95
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Iron Mountain Incorporated:
We have audited the accompanying balance sheet of Mohawk Business Record
Storage, Inc. (a Minnesota corporation) as of December 31, 1995, and the
related statements of operations and retained earnings 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 Mohawk Business Record
Storage, 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
Minneapolis, Minnesota
September 6, 1996
F-96
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 223,478 $ 112,547
Accounts receivable (less allowance for doubtful accounts of
$5,000 and $9,000 in 1995 and 1996, respectively) 1,186,858 1,228,167
Notes receivable, stockholder 100,000 --
Inventories 31,548 49,009
Prepaid expenses and other 51,110 81,718
Current portion of note receivable, related company 15,996 15,996
----------- -----------
Total current assets 1,608,990 1,487,437
----------- -----------
Property and Equipment 9,049,148 9,160,561
Less -- Accumulated depreciation (5,013,510) (5,355,137)
----------- -----------
Net property and equipment 4,035,638 3,805,424
----------- -----------
Other Assets:
Other 15,000 15,000
Long-term note receivable, related company 222,004 216,004
----------- -----------
237,004 231,004
----------- -----------
$ 5,881,632 $ 5,523,865
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 47,887 $ 64,378
Notes payable--
Bank 1,625,000 1,000,000
Related parties 333,200 2,024,100
Accrued expenses 507,450 442,461
Deferred revenue 551,947 439,255
---------- -----------
Total current liabilities 3,065,484 3,970,194
---------- -----------
Long-term Notes Payable, stockholders 1,400,000 --
Commitments and Contingencies (Note 4) -- --
Stockholders' Equity:
Common stock, 25,000 shares, $1 par, 4,000 shares issued and
outstanding 4,000 4,000
Paid-in capital 46,000 46,000
Retained earnings 1,366,148 1,503,671
----------- ----------
Total stockholders' equity 1,416,148 1,553,671
----------- ----------
$ 5,881,632 $5,523,865
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year Ended
December 31, Six Months Ended June 30
1995 1995 1996
--------------- --------- -----------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Storage $4,705,253 $2,310,469 $ 2,651,026
Service and storage material sales 4,094,977 2,053,952 2,085,531
---------- ---------- -----------
Total revenues 8,800,230 4,364,421 4,736,557
---------- ---------- -----------
Operating Expenses:
Cost of sales (excluding
depreciation) 4,644,836 2,387,642 2,356,940
Selling, general and administrative 2,833,687 1,535,504 1,613,978
Depreciation and amortization 657,586 218,298 358,670
---------- ---------- -----------
Total operating expenses 8,136,109 4,141,444 4,329,588
---------- ---------- -----------
Operating Income 664,121 222,977 406,969
Interest Expense 297,868 141,785 134,918
Interest Income 28,382 16,448 9,968
---------- ---------- -----------
Net Income 394,635 97,640 282,019
Retained Earnings, beginning of
period 1,262,433 1,262,433 1,366,148
Dividend Distributions (290,920) -- (144,496)
---------- ---------- -----------
Retained Earnings, end of period $1,366,148 $1,360,073 $ 1,503,671
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31, Six Months Ended June 30
1995 1995 1996
--------------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Operating Activities:
Net income $ 394,635 $ 97,640 $ 282,019
Adjustments to reconcile net income to
net cash provided by operating
activities--
Depreciation and amortization 657,586 218,298 358,670
Gain (Loss) on sale of assets (6,662) 31,138 (11,955)
Changes in assets and liabilities:
Accounts receivable (38,848) 168,318 (41,309)
Inventories (2,299) (8,245) (17,461)
Prepaid expenses and other (29,817) (101,092) (30,608)
Deferred revenue 69,238 (115,562) (112,692)
Accounts payable and accrued expenses 233,202 97,613 (48,498)
----------- ---------- ---------
Net cash provided by operating activities 1,277,035 388,108 378,166
----------- ---------- ---------
Investing Activities:
Purchase of property and equipment (1,869,325) (1,251,924) (128,456)
Notes receivable 12,000 (52,500) 106,000
Proceeds from sale of assets 31,143 20,500 11,955
Other (15,000) (15,000) --
----------- ---------- ---------
Net cash used for investing activities (1,841,182) (1,298,924) (10,501)
----------- ---------- ---------
Financing Activities:
Proceeds from notes payable 1,659,482 1,292,745 343,880
Principal payments on notes payable (744,582) (204,100) (677,980)
Dividend distributions (290,920) -- (144,496)
----------- ---------- ---------
Net cash provided by (used for) financing
activities 623,980 1,088,645 (478,596)
----------- ---------- ---------
Net Increase (Decrease) in Cash 59,833 177,829 (110,931)
Cash and Cash Equivalents, beginning of
period 163,645 163,645 223,478
----------- ----------- ----------
Cash and Cash Equivalents, end of period $ 223,478 $ 341,474 $ 112,547
========== =========== ==========
Supplemental Disclosure:
Interest paid $ 301,018 $ 144,935 $ 134,918
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. Organization of Business and Significant Accounting Policies
Mohawk Business Record Storage, Inc. (the Company), a Minnesota
corporation, is a full-service records management company providing storage
and related services for all media. The Company serves numerous legal,
banking, healthcare, accounting, insurance, entertainment and retail
organizations in the Minneapolis and Saint Paul, Minnesota metropolitan
areas.
Property and Equipment
Depreciation and amortization of property and equipment are recorded using
the straight-line and accelerated methods. Property and equipment consist of
the following:
<TABLE>
<CAPTION>
December 31,
Useful Lives 1995
----------------- ------------
<S> <C> <C>
Warehouse and disintegration
equipment 7 to 10 years $ 5,585,597
Leasehold improvements 10 to 39 years 1,441,291
Transportation equipment 5 to 10 years 723,603
Office equipment 5 to 10 years 1,298,657
----------
$9,049,148
==========
</TABLE>
Minor maintenance costs are expensed as incurred. Major improvements to
the leased buildings are capitalized as leasehold improvements and
depreciated as described above.
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 revenue and
amortized over the applicable period. These amounts are included in deferred
revenue in the accompanying balance sheet. The Company has one customer which
accounted for 13% of revenues for the year ended December 31, 1995.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Inventories
Inventories are carried at the lower of cost (first-in, first-out basis)
or market and are comprised primarily of cartons.
Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
December 31,
1995
----------------
<S> <C>
Accrued incentive
compensation $ 307,621
Accrued profit sharing 160,000
Other 39,829
--------------
Accrued expenses $507,450
==============
</TABLE>
F-100
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Income Taxes
The Company has elected to be taxed as an S corporation under the
applicable Internal Revenue Code sections. The net income of the Company is
included in the individual income tax returns of the stockholders.
Accordingly, there is no provision for federal income taxes in the
accompanying financial statements.
Financial Instruments
Unless otherwise noted, financial instruments are stated at cost, which
approximates fair value.
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. These estimates relate primarily to the realizability of
accounts receivable and the adequacy of certain accrued expenses. Actual
results could differ from those estimates.
Concentrations of Credit Risk
Credit risk with respect to accounts receivable is generally spread across
a large number of customers with dispersion across different businesses. As
of December 31, 1995, one customer accounted for 17% of outstanding accounts
receivable.
Unaudited Financial Information
The financial information as of June 30, 1996 and for the six-month
periods ended June 30, 1995 and 1996 is unaudited and has been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, such information reflects all
normal recurring adjustments necessary for a fair presentation. Operating
results for the six months ended June 30, 1996 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1996.
2. Debt
Notes Payable
Notes payable consisted of the following:
<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
Unsecured notes payable to stockholders, principal due February 1997, interest payable
monthly at the prime rate (8.5% at December 31, 1995) $1,400,000
Unsecured notes payable to related parties, due on demand, interest payable monthly at
the prime rate (8.5% at December 31, 1995) 333,200
----------
Total notes payable 1,733,200
Less -- Current maturities (333,200)
----------
Notes payable, net of current maturities $1,400,000
==========
</TABLE>
F-101
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Line of Credit
The Company has a $2,000,000 revolving credit agreement with a bank which
is payable on demand. Borrowings bear interest at the prime rate and are
collateralized by property and equipment, certain intangible assets and the
personal guarantees of the Company's stockholders.
The line-of-credit agreement contains various covenants which require the
Company to maintain certain specified financial ratios. The Company was in
compliance with these covenants as of December 31, 1995.
Additional information relating to the line of credit is as follows:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Borrowings outstanding at year-end $1,625,000
Available borrowings at year-end 375,000
Average borrowings outstanding during the
year 1,436,000
Range of interest rates during the year 8.5%-9.0%
</TABLE>
3. Notes Receivable
Stockholder
The Company loaned $452,300 to one of its stockholders on May 12, 1992.
Interest is being paid monthly to the Company at the prime rate. Principal is
payable upon demand. The balance due to the Company under this agreement as
of December 31, 1995 was $100,000 and was repaid during the six-month period
ended June 30, 1996.
Related Company
The Company loaned $400,000 to a related partnership certain of whose
partners are also stockholders of the Company. The proceeds of this loan were
used to purchase a building that the Company is renting from this partnership
(see Note 4). Interest is payable monthly by the partnership at the prime
rate. Monthly principal payments are $1,333. Principal outstanding at
December 31, 1995 was $238,000.
4. Commitments and Contingencies
Operating Leases -- Related Parties
The Company has lease agreements for warehouse and office space with a
partnership whose partners are also stockholders of the Company. The leases
are operating leases with varying terms expiring between May 1998 and November
2009. The Company pays all maintenance, insurance and utilities. Rent expense
under these leases was $509,000 for 1995.
The Company has another lease agreement for additional warehouse space
with a partnership, certain of whose partners are also stockholders of the
Company. The lease is an operating lease with a term of 10 years through July
2000. The Company pays all taxes, maintenance, insurance and utilities. Rent
expense under this lease was $472,000 for 1995.
F-102
<PAGE>
MOHAWK BUSINESS RECORD STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Future minimum lease payments on these operating leases for each of the
next five years and thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 980,000
1997 980,000
1998 857,000
1999 769,000
2000 and thereafter 3,226,000
$6,812,000
==========
</TABLE>
Purchase Order Commitment
In June 1996, the Company committed to purchase approximately $450,000 in
additional warehouse storage racking.
5. Employee Benefits
Profit-Sharing Plan
The Company has a profit-sharing plan covering substantially all of its
full-time employees. Contributions are determined annually by the board of
directors. Benefits are provided upon retirement, disability or death on the
basis of funds added to the trust accounts and earnings during periods of
participation. The total contribution to this plan was $160,000 for the year
ended December 31, 1995.
Employee Benefit Plan
The Company has adopted a salary deduction benefit plan which provides
child care, medical and dental premiums, and other unreimbursed medical
expenses. All regular employees who complete more than 25 hours per week of
service are eligible to participate on a voluntary basis. The Company does
not match employee contributions.
Bonus Plans
The Company has agreed to pay bonuses to each of two of its stockholders
equal to 20% of the net profits of the Company, as defined. Two other
stockholders and a member of senior management each are entitled to receive
bonuses equal to 5% of the net profits of the Company. In addition, the vice
president of one of the Company's divisions receives a bonus equal to 10% of
that division's net profits, as defined. Bonus expense for the year ended
December 31, 1995 was $703,000.
6. Sale of Operating Assets
On September 6, 1996, the Company entered into an agreement to sell
substantially all of its operating assets to Iron Mountain Records
Management, Inc.
F-103
<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 Securities 86
Experts 86
Additional Information 87
Index to Financial Statements F-1
$165,000,000
[logo]
Iron Mountain
Incorporated
10-1/8% 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
September 26, 1996
