-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TsvlKRMwxsjTwD7AJdiswc4+k1yBoe4ygD97B58Ul6Hj8RoXgNo5JnIwH6rfhs0M 7XXoq3yGGs/o/D9uscokUA== 0000950146-96-001449.txt : 19960819 0000950146-96-001449.hdr.sgml : 19960819 ACCESSION NUMBER: 0000950146-96-001449 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19960816 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRON MOUNTAIN INC /DE CENTRAL INDEX KEY: 0001004317 STANDARD INDUSTRIAL CLASSIFICATION: PUBLIC WAREHOUSING & STORAGE [4220] IRS NUMBER: 043107342 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359 FILM NUMBER: 96617158 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6173576966 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVENUE STREET 2: 7TH FLOOR CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA STORAGE SYSTEMS INC CENTRAL INDEX KEY: 0000855197 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770154612 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-01 FILM NUMBER: 96617159 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-4455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRON MOUNTAIN RECORDS MANAGEMENT INC CENTRAL INDEX KEY: 0001020882 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043038590 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-02 FILM NUMBER: 96617160 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-4455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METRO BUSINESS ARCHIVES INC CENTRAL INDEX KEY: 0001020883 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 132687436 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-03 FILM NUMBER: 96617161 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-4455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRITERION ATLANTIC PROPERTY INC CENTRAL INDEX KEY: 0001020884 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043102768 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-04 FILM NUMBER: 96617162 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-4455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRITERION PROPERTY INC CENTRAL INDEX KEY: 0001020885 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 061270033 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-05 FILM NUMBER: 96617163 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-4455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLLYWOOD PROPERTY INC CENTRAL INDEX KEY: 0001020886 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954284487 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-06 FILM NUMBER: 96617164 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-4455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IM SAN DIEGO INC CENTRAL INDEX KEY: 0001020887 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954453815 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-07 FILM NUMBER: 96617165 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-44 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRON MOUNTAIN INFORMATION PARTNERS INC CENTRAL INDEX KEY: 0001020888 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043241466 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-08 FILM NUMBER: 96617166 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-44 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRON MOUNTAIN RECORDS MANAGEMENT OF MARYLAND INC CENTRAL INDEX KEY: 0001020889 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521911465 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-09 FILM NUMBER: 96617167 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-4455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRON MOUNTAIN RECORDS MANAGEMENT OF OHIO INC CENTRAL INDEX KEY: 0001020890 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 311419399 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-10 FILM NUMBER: 96617168 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-4455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRON MOUNTAIN WILMINGTON INC CENTRAL INDEX KEY: 0001020891 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 510370149 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-11 FILM NUMBER: 96617169 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-44 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRON MOUNTAIN RECORDS MANAGEMENT OF BOSTON INC CENTRAL INDEX KEY: 0001020892 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043321756 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-12 FILM NUMBER: 96617170 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-4455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRON MOUNTAIN DATA PROTECTION SERVICES INC CENTRAL INDEX KEY: 0001020893 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 061402551 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-13 FILM NUMBER: 96617171 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-4455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRON MOUNTAIN RECORDS MANAGEMENT OF MISSOURI LLC CENTRAL INDEX KEY: 0001020894 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 431743847 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-14 FILM NUMBER: 96617172 BUSINESS ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 617-357-4455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA ARCHIVES SERVICES INC CENTRAL INDEX KEY: 0001021093 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 592320120 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-15 FILM NUMBER: 96617173 BUSINESS ADDRESS: STREET 1: 745 ATLANTA AVENUE CITY: BOSTON STATE: MA ZIP: 02111-2735 BUSINESS PHONE: 6173574455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVENUE CITY: BOSTON STATE: MA ZIP: 02111-2735 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA ARCHIVES SERVICES OF MIAMI INC CENTRAL INDEX KEY: 0001021094 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 650209438 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10359-16 FILM NUMBER: 96617174 BUSINESS ADDRESS: STREET 1: 745 ATLANTA AVENUE CITY: BOSTON STATE: MA ZIP: 02111-2735 BUSINESS PHONE: 6173574455 MAIL ADDRESS: STREET 1: 745 ATLANTIC AVENUE CITY: BOSTON STATE: MA ZIP: 02111-2735 S-1 1 IRON MOUNTAIN FORM S-1 Registration No. 333- =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------- IRON MOUNTAIN INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 4226 04-3107342 (State of (Primary Standard Industrial (IRS Employer incorporation) Classification Code Number) Identification No.) 745 ATLANTIC AVENUE, BOSTON, MA 02111 (617) 357-4455 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------- C. RICHARD REESE CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER IRON MOUNTAIN INCORPORATED 745 Atlantic Avenue Boston, MA 02111 (617) 357-4455 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------- Copies to: WILLIAM J. CURRY ROBERT A. ZUCCARO SULLIVAN & WORCESTER LLP JONES, DAY, REAVIS & POGUE One Post Office Square 599 Lexington Avenue Boston, MA 02109 New York, NY 10022 (617) 338-2800 (212) 326-3939 ------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] -------------
CALCULATION OF REGISTRATION FEE ============================================================================================================================== Title of Each Class of Amount to Proposed Maximum Proposed Maximum Securities be Offering Aggregate Aggregate Amount of to be Registered Registered Price Per Security (1) Offering Price (1) Registration Fee - ------------------------------------------------------------------------------------------------------------------------------ % Senior Subordinated Notes due 2006 $150,000,000 100% $150,000,000 $51,725 ----------------------------------------------------------------------------------------------------------------------------- Guarantees of the % Senior Subordinated Notes due 2006 $150,000,000 (2) (2) (2) ==============================================================================================================================
(1) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(a) under the Securities Act of 1933. (2) Pursuant to Rule 457(n), no separate registration fee is required as no additional consideration is being paid for Guarantees. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. =============================================================================== INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED , 1996 PROSPECTUS , 1996 $150,000,000 [LOGO] IRON MOUNTAIN INCORPORATED % Senior Subordinated Notes due 2006 The % Senior Subordinated Notes due 2006 (the "Notes") are being offered (the "Offering") by Iron Mountain Incorporated (the "Company" or "Iron Mountain"). The net proceeds of the Offering will be used to repay all outstanding bank debt and certain other indebtedness and to fund the Pending Acquisition. The balance of the net proceeds from the Offering will be used for possible future acquisitions and for general corporate purposes. Interest on the Notes is payable on and , commencing , 1997. Except as described below, the Notes are not redeemable by the Company prior to , 2001. Thereafter, the Notes are redeemable at the option of the Company, in whole or in part, at any time and from time to time, at the redemption prices set forth herein plus accrued and unpaid interest to, but excluding, the date of redemption. In addition, during the first 36 months after the date of issuance of the Notes, the Company, at its option, may redeem up to 35% of the initial principal amount of the Notes with the net proceeds of one or more Qualified Equity Offerings at a redemption price equal to %, plus accrued and unpaid interest to, but excluding, the date of redemption; provided that at least 65% of the initial principal amount of the Notes remains outstanding after each such redemption. Except as set forth herein, the Company is not required to make sinking fund or redemption payments with respect to the Notes at any time prior to maturity. Upon the occurrence of a Change of Control, each Holder of Notes may require the Company to repurchase such Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. The Notes will be general unsecured senior subordinated obligations of the Company ranking junior to all existing and future Senior Debt of the Company. The Notes will be fully and unconditionally guaranteed on an unsecured senior subordinated and joint and several basis (the "Subsidiary Guarantees") by substantially all of the Company's present and future Restricted Subsidiaries (collectively, the "Guarantors"). The Subsidiary Guarantees will rank junior to all existing and future Senior Debt of the Guarantors. As of June 30, 1996, on a pro forma basis after giving effect to the Transactions, the aggregate outstanding principal amount of Senior Debt of the Company and the Guarantors would have been $10.8 million. The Notes will not be listed on any securities exchange or included in the National Association of Securities Dealers Automated Quotation System, and there can be no assurance that there will be a secondary market therefor. SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Price to Discounts and Proceeds to the the Public (1) Commissions (2) Company (1) (3) ------------- --------------- ---------------- Per Note % % % Total $ $ $ (1)Plus accrued interest, if any, on the Notes from the date of issuance. (2)The Company and the Guarantors have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3)Before deduction of expenses payable by the Company estimated to be $ . The Notes are offered by Donaldson, Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc. and Prudential Securities Incorporated (collectively, the "Underwriters") subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to certain prior conditions, including the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the Notes will be made in New York, New York through the facilities of the Depository Trust Company on or about , 1996, against payment therefor in immediately available funds. Donaldson, Lufkin & Jenrette Securities Corporation Bear, Stearns & Co. Inc. Prudential Securities Incorporated [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. 2 Outside Front Cover -- Iron Mountain logo in upper left-hand corner Inside Front Cover 1st picture -- Photograph of racking with stored cartons 2nd picture -- Photograph of bar-code scanner scanning bar-code label on carton 3rd picture -- Photograph of delivery man at a client's office 4th picture -- Photograph of outside of an Iron Mountain storage facility 5th picture -- Photograph of Iron Mountain truck and delivery man in downtown Boston P. 2 Map of Continental U.S. showing markets served by Iron Mountain, with list of markets Inside Back Cover 1st picture -- Photograph of Vault door 2nd picture -- Photograph of outstide of an Iron Mountain storage facility 3rd picture -- Photograph of storage media (tapes, CDs, floppy disks, etc.) 4th picture -- Photograph of man reviewing report PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this Prospectus. References to "Iron Mountain" and the "Company" include Iron Mountain Incorporated (including predecessor entities) and its consolidated subsidiaries, unless the context otherwise requires. The Company Iron Mountain is the largest records management company in the United States, as measured by revenues. The Company is a full-service provider of records management and related services, enabling customers to outsource records management functions. Pro forma for the Acquisitions (as defined herein), as of June 30, 1996, the Company managed approximately 27.7 million Cartons* in 96 records centers in 32 markets nationwide. The Company has a diversified base of over 19,000 customer accounts, which includes more than half of the Fortune 500 and numerous legal, banking, healthcare, accounting, insurance, entertainment and government organizations. The Company provides storage and related services for all major media, including paper (which is the dominant form of records retention and which has accounted for approximately 85% of the Company's revenues since 1992), computer disks and tapes, microfilm and microfiche, master audio and video tapes, film and optical disks, X-rays and blueprints. The Company's principal services include filing, retrieval and destruction of records, courier pick-up and delivery, database management and customized reporting. The Company also sells storage materials and provides consulting and other records-related services. The Company continues to capitalize on its leading position in the records management industry and the industry trends of increased records retention, outsourcing of records management and vendor consolidation. As a result, the Company has achieved significant increases in revenues and EBITDA (as defined herein). From 1991 to 1995, Iron Mountain's total revenues increased from $62.8 million to $104.4 million primarily from internal growth, representing a compound annual growth rate ("CAGR") of 13.5%. During the same period, storage revenues grew at a 12.9% CAGR while service and storage material sales revenues grew at a 14.6% CAGR. From 1991 to 1995, the Company's EBITDA grew from $15.0 million to $26.1 million, representing a 14.9% CAGR. Revenues and EBITDA for the six months ended June 30, 1996 increased 27.3% (10.2% from internal growth and 17.1% from acquisitions) and 24.8%, respectively, over the same period in 1995. For a discussion of the significance of EBITDA and other measures of the Company's performance determined in accordance with generally accepted accounting principles ("GAAP") and the Company's sources and applications of cash flow, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." Industry Overview According to industry sources, organizations in the United States generate an estimated four trillion documents each year, many of which must be retained and remain available for reference for many years. These records may be generally divided into two categories: active and inactive. Inactive records, which are the principal focus of the records management industry, consist of records that are not needed for immediate access but which must be retained for legal or regulatory reasons or for occasional reference to support ongoing business operations. Based on industry studies, the Company believes that inactive records make up approximately 80% of all records. The Company believes that the volume of inactive records is increasing for a number of reasons, including: (i) the rapid growth of inexpensive document producing technologies such as facsimile, desktop printing and computer networking; (ii) increased regulatory requirements; (iii) concerns over possible future litigation and the resulting increases in volume and holding periods of documentation; (iv) the high cost of reviewing records and deciding whether to retain or destroy them; and (v) the failure of many entities to adopt or follow policies on records destruction. Despite the growth of new "paperless" technologies, such as the Internet and e-mail, management believes that stored information remains predominantly paper-based and that such technologies have promoted the creation of hard copies of such electronic information. - ------------- * 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." 3 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 buildings and leasehold improvements, equipment for new facilities, management information systems and facilities restructuring. These growth-related capital expenditures are primarily discretionary and create additional capacity for increases in revenues and EBITDA. Business Strategy Iron Mountain's business strategy is to increase revenues and EBITDA while maintaining a low-cost operating structure and providing premium service. The Company intends to generate growth by increasing its storage and service revenues from existing customers, adding new customers and making acquisitions. The Company's strategy is based on the following elements: (bullet)Provide Superior Customer Service. The Company believes it has a reputation for providing reliable, quality service based on its more than 45 years of operations, its commitment to providing premium customer service and the continuity and depth of its management team. The Company has successfully implemented a decentralized management structure that enables the Company to respond quickly and flexibly to local customer needs. Iron Mountain's proprietary Safekeeper(R) system enables it to quickly provide customized records management solutions to its customers, enhancing the quality of its services. In addition, Iron Mountain's national operating presence allows it to better service large organizations that require records management functions at multiple, geographically diverse facilities. (bullet)Capitalize on Operating Efficiencies. Iron Mountain pursues a low-cost operating strategy based primarily on achieving economies of scale in the areas of storage, labor and transportation, general and administrative functions and management information systems. Because occupancy costs are a major component of the Company's cost of sales, its real estate management staff aggressively seeks to minimize per Carton storage costs by designing racking systems and operating space to maximize facility storage efficiency, negotiating favorable facility leases, contracting for facilities to be built to its custom specifications, and leasing larger facilities in order to reduce operating costs per Carton. The Company seeks to increase labor efficiency by offering incentive compensation to all full-time employees based upon achieving specific operating targets. Certain operating costs, such as the maintenance of local delivery fleets, general and administrative costs and management information systems, offer economies of scale, providing the Company with operating leverage and the ability to increase its efficiency through further growth. (bullet)Pursue Acquisition Opportunities. The Company believes that it is well positioned to participate in the further consolidation of the records management industry. Iron Mountain's management team has successfully completed 16 acquisitions since the Company embarked on a proactive acquisition strategy in mid-1994, and one additional acquisition is currently pending. The Company intends to continue to make fold-in acquisitions to augment its operations in existing markets and to make strategic acquisitions in new geographic markets, with an emphasis on the 50 largest markets in the United States and potentially in certain markets outside the United States. Following an acquisition in a new market, the Company seeks to increase its business with the acquired customer base and to supplement that growth both with new customers and through appropriate fold-in acquisitions. In addition, the Company has successfully reduced the cost structure of its acquired operations by implementing its efficient operating strategies and leveraging its centralized administrative resources and management information systems. (bullet)Leverage Proprietary Safekeeper System. The Company pioneered the application of advanced information technology to the records management industry. Iron Mountain's proprietary Safekeeper system provides advanced inventory control and information access, enabling the Company to provide faster, higher quality and more flexible solutions to its customers and to lower the costs of its operations. Safekeeper has been designed to easily and effectively integrate newly acquired records management companies and offer improved levels of customer service and records management capabilities to customers acquired through acquisitions. Iron Mountain's Safekeeper system exploits bar-code technology to provide a comprehensive, standardized approach to tracking, accessing and retrieving records. Safekeeper offers state-of-the-art records management capabilities and ease of access to customers while featuring security functions to protect customer information from unauthorized access. Since 1992, the Company has invested $12.5 million to develop and refine its management information systems, including Safekeeper. 5 The Offering
Securities Offered $150,000,000 principal amount of % Senior Subordinated Notes due 2006 (the "Notes"). Maturity Date , 2006 Interest Payment Dates and of each year, commencing , 1997. Guarantees The Notes will be fully and unconditionally guaranteed on an unsecured senior subordinated and joint and several basis (the "Subsidiary Guarantees") by substantially all of the Company's present and future Restricted Subsidiaries (collectively, the "Guarantors"). Each of the Guarantors has also guaranteed unconditionally the indebtedness outstanding under the Company's existing bank credit facility (the "Credit Agreement") and will be required to guarantee unconditionally the indebtedness outstanding under the new bank credit facility the Company intends to enter into with its lenders (the "New Credit Facility"). See "Description of the Notes--Subsidiary Guarantees." Subordination The Notes will be general unsecured senior subordinated obligations of the Company ranking junior to all existing and future Senior Debt of the Company, including any indebtedness that may be incurred under the Credit Agreement or the New Credit Facility. The Subsidiary Guarantees will rank junior to all existing and future Senior Debt of the Guarantors. As of June 30, 1996, on a pro forma basis after giving effect to the Transactions, the aggregate outstanding principal amount of Senior Debt of the Company and the Guarantors would have been $10.8 million. See "Description of the Notes--Subordination." Optional Redemption Except as described below, the Notes are not redeemable by the Company prior to , 2001. Thereafter, the Notes are redeemable at the option of the Company, in whole or in part, at any time and from time to time, at the redemption prices set forth herein plus accrued and unpaid interest to, but excluding, the date of redemption. In addition, during the first 36 months after the date of issuance of the Notes, the Company, at its option, may redeem up to 35% of the initial principal amount of the Notes with the net proceeds of one or more Qualified Equity Offerings at a redemption price equal to %, plus accrued and unpaid interest to, but excluding, the date of redemption; provided that at least 65% of the initial principal amount of the Notes remains outstanding after each such redemption. See "Description of the Notes--Optional Redemption." Mandatory Redemption Except with respect to required repurchases upon the occurrence of a Change of Control or in the event of certain Asset Sales, the Company is not required to make sinking fund or redemption payments with respect to the Notes at any time prior to maturity. See "Description of the Notes-- Mandatory Redemption." 6 Change of Control Upon the occurrence of a Change of Control, each Holder of Notes may require the Company to repurchase such Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. See "Description of the Notes--Repurchase at the Option of Holders--Change of Control." Certain Covenants The Indenture governing the Notes (the "Indenture") will contain covenants restricting or limiting the ability of the Company and its Restricted Subsidiaries to, among other things: (i) incur additional indebtedness, including indebtedness ranking senior to the Notes and junior to any Senior Debt; (ii) pay dividends or make other restricted payments; (iii) make asset dispositions; (iv) permit liens; (v) enter into sale and leaseback transactions; (vi) enter into certain mergers; (vii) make certain investments; and (viii) enter into transactions with related persons. See "Description of the Notes--Certain Covenants." Use of Proceeds The net proceeds of the Offering will be used to repay all outstanding bank debt and certain other indebtedness, to fund the Pending Acquisition and possible future acquisitions and for general corporate purposes.
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 Summary Historical and Pro Forma Information (Dollars in thousands) The following summary historical consolidated statements of operations and balance sheet data of the Company as of and for each of the years ended December 31, 1991, 1992, 1993, 1994 and 1995 have been derived from the Company's audited consolidated financial statements. The summary historical consolidated statements of operations and balance sheet data of the Company for the six months ended June 30, 1995 and 1996 have been derived from the Company's unaudited condensed consolidated financial statements. The Company's unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, which the Company considers necessary for a fair presentation of the financial position and the results of operations for those periods. Operating results for the six months ended June 30, 1996 are not necessarily indicative of the results for the entire year ending December 31, 1996. The summary historical and pro forma financial data set forth below should be read in conjunction with "Pro Forma Condensed Consolidated Financial Information" and the Notes thereto, with "Selected Financial and Operating Information" and the Notes thereto, with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with Iron Mountain's Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus.
Year Ended December 31, Six Months Ended June 30, ------------------------------------------------------------ -------------------------- Historical Pro Forma Historical Pro Forma ---------------------------------------------------- ---------------- 1991 1992 1993 1994 1995 1995(1) 1995 1996 1996(1) ------ ------ ------ ------- ------ ------- ------ ------ ------- Consolidated Statements of Operations Data: Revenues: Storage $39,510 $ 44,077 $ 48,892 $54,098 $ 64,165 $ 80,868 $30,748 $ 39,363 $43,080 Service and Storage Material Sales 23,330 26,596 32,781 33,520 40,271 49,813 19,476 24,587 26,550 ------- -------- -------- ------- -------- -------- ------- -------- ------- Total Revenues 62,840 70,673 81,673 87,618 104,436 130,681 50,224 63,950 69,630 Operating Expenses: Cost of Sales (Excluding Depreciation) 31,375 35,169 43,054 45,880 52,277 64,651 25,112 32,383 34,968 Selling, General and Administrative 16,471 17,630 19,971 20,853 26,035 32,538 12,697 16,067 17,944 Depreciation and Amortization 7,674 5,780 6,789 8,690 12,341 16,577 5,428 7,530 8,257 ------- -------- -------- ------- -------- -------- ------- -------- ------- Total Operating Expenses 55,520 58,579 69,814 75,423 90,653 113,766 43,237 55,980 61,169 ------- -------- -------- ------- -------- -------- ------- -------- ------- Operating Income $ 7,320 $ 12,094 $ 11,859 $12,195 $ 13,783 $ 16,915 $ 6,987 $ 7,970 $ 8,461 ======= ======== ======== ======= ======== ======== ======= ======== ======= Other Data: EBITDA (2) $14,994 $ 17,874 $ 18,648 $20,885 $ 26,124 $ 33,492 $12,415 $ 15,500 $16,718 EBITDA as a Percentage of Total Revenues 23.9% 25.3% 22.8% 23.8% 25.0% 25.6% 24.7% 24.2% 24.0% Capital Expenditures: Growth (3) -- $11,226 $13,605 $15,829(4) $14,395 -- $6,730 $10,702 -- Maintenance -- 818 1,846 1,151 858 -- 592 460 -- ------- -------- -------- ------- ------- ------ ------- Total Capital Expenditures $ 8,163 $ 12,044 $ 15,451 $16,980(4) $15,253 -- $ 7,322 $ 11,162 -- Approximate Cartons in Storage at End of Period (in millions) (5) 10.8 12.6 15.5 17.7 23.3 -- 20.3 26.4 27.7
Adjusted EBITDA and Credit Ratios: As of June 30, 1996 -------------- Adjusted EBITDA (6) $35,844 Cash Interest Expense (7) 16,909 Ratio of Adjusted EBITDA to Cash Interest Expense 2.1x Ratio of Net Debt to Adjusted EBITDA (8) 4.1x
As of June 30, 1996 Historical Pro Forma(9) ---------- ----------- Balance Sheet Data: Cash and Cash Equivalents $ 2,232 $ 12,979 Total Assets 212,630 254,213 Total Debt 118,894 161,237 Stockholders' Equity 54,729 52,501
(Footnotes on the following page) 8 (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, of approximately $2 million. The pro forma statements of operations data do not give effect to such loss. See "The Transactions," "Use of Proceeds" and "Pro Forma Condensed Consolidated Financial Information." (2) Earnings before interest, taxes, depreciation, amortization and extraordinary charges ("EBITDA"). Based on its experience in the records management industry, the Company believes that EBITDA is an important tool for measuring the performance of records management companies (including potential acquisition targets) in several areas, such as liquidity, operating performance and leverage. In addition, lenders use EBITDA as a criterion in evaluating records management companies, and substantially all of the Company's financing agreements contain covenants in which EBITDA is used as a measure of financial performance. However, EBITDA should not be considered an alternative to operating or net income (as determined in accordance with GAAP) as an indicator of the Company's performance or to cash flow from operations (as determined in accordance with GAAP) as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" and "--Liquidity and Capital Resources" for discussions of other measures of performance determined in accordance with GAAP and the Company's sources and applications of cash flow. (3) Growth capital expenditures include investments in racking systems, new buildings and leasehold improvements, equipment for new facilities, management information systems and facilities restructuring. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Capital Investments." (4) Includes $2,901 related to the cost of constructing a records management facility which was sold in a sale and leaseback transaction in the fourth quarter of 1994. (5) The term "Carton" is defined as a measurement of the volume equal to a single standard storage carton, approximately 1.2 cubic feet. The number of Cartons stored does not include storage volumes in the Company's vital records services and data protection services which are described under "Business." Pro forma Carton information for 1995 is not available. (6) Gives effect to (i) the Completed Acquisitions completed after June 30, 1996 and (ii) the Pending Acquisition. Adjusted EBITDA, as defined in the Indenture, equals the sum of (i) EBITDA of the Company and the Restricted Subsidiaries for the most recent fiscal quarter for which internal financial statements are available, multiplied by four, plus (ii) Acquisition EBITDA of each business that has been acquired by the Company since the beginning of such quarter (including any such acquisition which is occurring on the date of the calculation), multiplied by a fraction, (a) the numerator of which is three minus the number of months (and/or any portion thereof) in such quarter for which the financial results of such acquired business are included in the EBITDA of the Company and its Restricted Subsidiaries under clause (i) above, and (b) the denominator of which is three. In addition, the effects of unusual or non-recurring items occurring in any relevant period shall be excluded in the calculation of Adjusted EBITDA. With respect to any such acquired business, Acquisition EBITDA equals the sum of (i) EBITDA of such acquired business for its last fiscal quarter for which financial statements are available, multiplied by four (or if such quarterly statements are not available, EBITDA for the last fiscal year for which financial statements are available), plus (ii) projected quantifiable improvements in operating results (on an annualized basis) due to cost reductions calculated in good faith by the Company or one of its Restricted Subsidiaries, as certified by an Officers' Certificate filed with the Trustee, without giving effect to any operating losses of the acquired business. Such projected quantifiable savings may differ from the cost savings used to calculate the Pro Forma Condensed Consolidated Statement of Operations. Adjusted EBITDA is merely a calculation utilized for purposes of debt incurrence under the Indenture and should not be viewed as indicative of actual or future results. (7) Cash interest expense represents total interest expense less amortization of deferred financing costs and other non-cash interest charges for the twelve months ended June 30, 1996 on a pro forma basis giving effect to the Transactions (as defined herein) as if each had occurred on July 1, 1995. The calculation of cash interest expense assumes an interest rate of 10-1/2% on the Notes. (8) Net debt represents total debt less cash and cash equivalents and was calculated based on the pro forma net debt as of June 30, 1996 of $148.3 million. (9) Gives effect to: (i) the Completed Acquisitions consummated after June 30, 1996; (ii) the Pending Acquisition; (iii) the closing under the New Credit Facility; and (iv) the application of the net proceeds from the Offering, as if each had occurred as of June 30, 1996. See "Use of Proceeds" and "Pro Forma Condensed Consolidated Financial Information." 9 RISK FACTORS Prospective investors should carefully consider the following risk factors, in addition to the other information contained in this Prospectus, in connection with an investment in the Notes offered hereby. Financial Leverage; Debt Service Requirements. The Company is highly leveraged due to the substantial indebtedness it has incurred primarily to finance acquisitions and expand its operations. As of June 30, 1996, on a pro forma basis, after giving effect to the Transactions and the application of the estimated net proceeds from the Offering, the Company would have had $161.2 million in total indebtedness and $52.5 million in stockholders' equity. The Company expects to continue to borrow under the New Credit Facility and possible future credit arrangements in order to finance possible future acquisitions and for general corporate purposes. The ability of the Company to repay the Notes and its other indebtedness will depend upon future operating performance, which is subject to the success of the Company's business strategy, prevailing economic conditions, levels of interest rates and financial, business and other factors, many of which are beyond the Company's control. The debt service obligations of the Company could have important consequences, including the following: (i) the ability of the Company to obtain additional financing for future working capital needs or for possible future acquisitions or other purposes may be limited; (ii) a substantial portion of the Company's cash flow from operations will be dedicated to the payment of principal and interest on its indebtedness, thereby reducing funds available for other purposes; (iii) the Company may be more vulnerable to adverse economic conditions than some of its competitors and thus may be limited in its ability to withstand competitive pressures; and (iv) the Company may be more highly leveraged than certain of its competitors, which may place it at a competitive disadvantage. A substantial portion of the Company's cash flow from operations is required for debt service. Management believes that cash flow from operations in conjunction with borrowings from existing and possible future credit facilities will be sufficient for the foreseeable future to meet debt service requirements and to make possible future acquisitions and capital expenditures. However, there can be no assurance in this regard, and the Company's leverage could make it vulnerable to a downturn in the operating performance of its subsidiaries, a downturn in economic conditions or, because borrowings under the New Credit Facility will bear interest at rates which fluctuate, increases in interest rates on borrowings under the New Credit Facility. If such cash flow were not sufficient to meet such debt service requirements or payments of principal, the Company could be required to sell additional equity securities, refinance its obligations or dispose of assets in order to make such scheduled payments. There can be no assurance that the Company would be able to effect any of such transactions or do so on favorable terms. Subordination; Guarantees. The Notes will be unsecured senior subordinated obligations of the Company and will be subordinated in right of payment to the prior payment in full of all existing and future Senior Debt of the Company. At June 30, 1996, the Company had $103.6 million of indebtedness outstanding that would have constituted Senior Debt. Upon the consummation of the Offering and application of the estimated net proceeds therefrom, and giving effect to the Transactions, the Company would have $10.8 million of Senior Debt outstanding. The Company intends to actively pursue additional acquisitions which would likely be financed through the incurrence of additional indebtedness. Such additional indebtedness may constitute Senior Debt. The Indenture allows the Company to incur Senior Debt from time to time under the New Credit Facility or otherwise, subject to certain limitations. Upon any acceleration of the maturity of the Notes or upon any payment or distribution of assets of the Company to creditors upon any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy, insolvency or similar proceedings of the Company, the holders of all Senior Debt will be first entitled to receive payment in full of all amounts due or to become due thereon before the Holders of the Notes will be entitled to receive any payment in respect of the principal of or premium, if any, or interest on the Notes. In addition, upon the occurrence of a payment default or certain other defaults in respect of outstanding Senior Debt, Holders of Notes may be prevented from receiving payments with respect to the Notes for an extended period. See "Description of the Notes--Subordination." Iron Mountain's subsidiaries have guaranteed on a senior subordinated basis its obligations under the Credit Agreement and are expected to guarantee its obligations under the New Credit Facility. Iron Mountain's obligations under the Credit Agreement are secured by a first priority security interest in substantially all of its assets (including the stock of its subsidiaries). It is expected that Iron Mountain's obligations under the New Credit Facility will be secured by a pledge of the stock of its subsidiaries. If Iron Mountain becomes insolvent or is liquidated or if the indebtedness under the Credit Agreement or the New Credit Facility is accelerated, the lenders under the Credit 10 Agreement or the New Credit Facility would be entitled to exercise the remedies available to a secured lender. Accordingly, such lenders will have a prior claim on such assets of Iron Mountain and its subsidiaries. In such event, it is possible that there would be no assets remaining from which claims of the holders of Notes could be satisfied or, if any assets remained, such assets might be insufficient to fully satisfy such claims. The Company may incur additional secured indebtedness in the future. See "Description of the Notes--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" and "--Liens." Iron Mountain is a holding company, substantially all of the assets of which are the stock of its subsidiaries. Substantially all of the operations of the Company are currently conducted by Iron Mountain's direct and indirect wholly owned subsidiaries, all of which will be Guarantors, subject to the terms of the Indenture. Management of the Company believes that separate financial statements of such subsidiaries are not meaningful or material to investors and therefore such statements have not been included in this Prospectus. The Company does not currently expect that it will be required to prepare separate financial statements for any of its subsidiaries in the foreseeable future and does not expect to do so. Unenforceability and Release of Guarantees. Iron Mountain's obligations under the Notes will be guaranteed, jointly and severally, on a senior subordinated basis by the Guarantors. To the extent that a court were to find that: (i) a Subsidiary Guarantee was incurred by a Guarantor with intent to hinder, delay or defraud any present or future creditor or the Guarantor contemplated insolvency with a design to prefer one or more creditors to the exclusion in whole or in part of others or (ii) such Guarantor did not receive fair consideration or reasonably equivalent value for issuing its Subsidiary Guarantee and such Guarantor (a) was insolvent; (b) was rendered insolvent by reason of the issuance of such Subsidiary Guarantee; (c) was engaged or about to engage in a business or transaction for which the remaining assets of such Guarantor constituted unreasonably small capital to carry on its business; (d) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature; or (e) was a defendant in an action for money damages or had a judgment for money damages docketed against it (if, in either case, after final judgment, the judgment is unsatisfied), then in each such case, a court could avoid or subordinate such Subsidiary Guarantee in favor of the Guarantor's other creditors. The measure of insolvency for purposes of the foregoing will vary depending upon the law of the jurisdiction which is being applied. Generally, however, a company would be considered insolvent for purposes of the foregoing if, at the time it incurs any given obligation, the sum of the company's debts (including unliquidated or contingent debt) is greater than all the company's property at a fair valuation, or if the present fair salable value of the company's assets is less than the amount that will be required to pay its probable liability on its existing debts (including unliquidated or contingent debt) as they become absolute and matured. To the extent any Subsidiary Guarantee were to be avoided as a fraudulent conveyance or held unenforceable for any other reason, Holders of Notes would cease to have any claim in respect of such Guarantor and would be creditors solely of the Company and any Guarantor whose Subsidiary Guarantee was not avoided or held unenforceable. In such event, the claims of the Holders of Notes against the issuer of an invalid Subsidiary Guarantee would be subject to the prior payment of all liabilities of such Guarantor, including without limitation, to the extent valid and enforceable, such Guarantor's guarantee of indebtedness of Iron Mountain under the Credit Agreement or the New Credit Facility, as the case may be, and any other Senior Debt of Iron Mountain guaranteed by such Guarantor. There can be no assurance that, after providing for all prior claims, there would be sufficient assets to satisfy the claims of the Holders of Notes relating to any voided Subsidiary Guarantee. See "Description of the Notes--Subordination." Based upon financial and other information currently available to it, the Company believes that the Notes and the Subsidiary Guarantees are being incurred for proper purposes and in good faith, and that the Company and each Guarantor are solvent and will continue to be solvent after issuing the Notes or the Subsidiary Guarantees, as the case may be, will have sufficient capital for carrying on their businesses after such issuance and will be able to pay their debts as they mature. There can be no assurance, however, that a court would reach the same conclusion. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Any Guarantor may be released from its Subsidiary Guarantee at any time upon any sale, exchange or transfer in compliance with the provisions of the Indenture by the Company of the capital stock of such Guarantor or substantially all of the assets of such Guarantor and, in certain other circumstances, a Guarantor may be released from its Subsidiary Guarantee in connection with the Company's designation of such Guarantor as an Unrestricted Subsidiary. See "Description of the Notes--Certain Covenants--Additional Subsidiary Guarantees." 11 Restrictions Imposed by Terms of Indebtedness. The Indenture will contain covenants restricting or limiting the ability of the Company and its Restricted Subsidiaries to, among other things: (i) incur additional indebtedness, including indebtedness ranking senior to the Notes and junior to any Senior Debt; (ii) pay dividends or make other restricted payments; (iii) make asset dispositions; (iv) permit liens; (v) enter into sale and leaseback transactions; (vi) enter into certain mergers; (vii) make certain investments; and (viii) enter into transactions with related persons. In addition, the Credit Agreement contains, and the New Credit Facility is expected to contain, certain other and more restrictive covenants than those contained in the Indenture. See "Description of New Credit Facility." This may adversely affect the Company's ability to pursue its acquisition strategy. The Credit Agreement also requires, and the New Credit Facility is expected to require, the Company to maintain specific financial ratios and to satisfy certain financial condition tests. The Company's ability to meet those financial ratios and financial condition tests can be affected by events beyond its control, and there can be no assurance that the Company will meet those tests. The breach of any of those covenants could result in a default under the New Credit Facility, the Indenture, or both. In the event of a default under the New Credit Facility or the Indenture, the lenders could seek to declare all amounts outstanding under the New Credit Facility, together with accrued and unpaid interest, if any, to be immediately due and payable. If the Company were unable to repay those amounts, the lenders under the New Credit Facility could proceed against the collateral granted to them to secure that indebtedness. If the indebtedness under the New Credit Facility or the Notes were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay in full that indebtedness and the other indebtedness of the Company. The Notes are subordinated to all existing and future Senior Debt of the Company, including indebtedness under the Credit Agreement or the New Credit Facility, as the case may be, and the Guarantees are subordinated to all existing and future Senior Debt of the Guarantors, including guarantees by the Guarantors of the indebtedness outstanding under the Credit Agreement or the New Credit Facility, as the case may be. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Holding Company Structure; Dependence Upon Operations of Subsidiaries. Substantially all of the tangible assets of the Company are held by, and a substantial portion of the Company's operating revenues are derived from operations of, the Company's subsidiaries. Therefore, the Company's ability to pay interest and principal when due to holders of the Notes will be dependent upon the receipt of sufficient funds from such subsidiaries. However, the Company's obligations under the Notes will be guaranteed, jointly and severally, on a senior subordinated basis, by substantially all of the Company's present and future Restricted Subsidiaries. Risk of Inability to Finance Change of Control Offer. In the event of a Change of Control, the Company will be required to make an offer to purchase all Notes then outstanding at a purchase price, in cash, equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. There can be no assurance that the Company would be able to obtain such funds through a refinancing of the Notes to be purchased or otherwise, or that the purchase would be permitted under the Credit Agreement, the New Credit Facility or the terms of other financing instruments, as the case may be. Also, the requirement that the Company make an offer to purchase all Notes then outstanding in the event of a Change of Control may have the effect of deterring a third party from effecting a transaction that would constitute a Change of Control. See "Description of the Notes-- Repurchase at the Option of Holders--Change of Control." Absence of Public Market for the Notes. There is no public market for the Notes. The Notes will not be listed on any securities exchange or included in the National Association of Securities Dealers Automated Quotation System. The Company has been advised by the Underwriters that, following the completion of this Offering, the Underwriters presently intend to make a market in the Notes; however, they are under no obligation to do so and may discontinue any market-making activities at any time without notice. No assurance can be given as to the liquidity of the trading market for the Notes or that an active public market will develop or, if developed, will continue. If an active public market does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected. See "Underwriting." Risks Associated with Acquisition Strategy. The Company has pursued and intends to continue to pursue acquisitions of records management businesses as a key component of its growth strategy. Since mid-1994, the Company has acquired or entered into agreements to acquire 17 companies (of which 16 have been completed and one is pending) engaged in the records management and related businesses for estimated cash purchase prices aggregating $78.4 million. See "The Transactions" and "Recent and Pending Acquisitions." Possible future acquisitions may be for purchase prices significantly larger than those paid for acquisitions consummated since mid- 1994. Certain risks are inherent in an acquisition strategy, such as increasing leverage and debt service requirements 12 and combining disparate company cultures and facilities, which could adversely affect the Company's operating results. The success of any completed acquisition will depend in part on Iron Mountain's ability to integrate effectively the acquired records management business into the Company. The process of integrating such acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of management's attention and the Company's financial and other resources. No assurance can be given that the Pending Acquisition will be completed, that additional suitable acquisition candidates will be identified, financed and purchased on acceptable terms, or that recent acquisitions or other future acquisitions, if completed, will be successful. See "Business--Growth Strategy--Growth through Acquisitions." Acquisitions by the Company in excess of $25 million individually and $50 million in the aggregate per year will require the approval of the majority lenders under the Credit Agreement, and the New Credit Facility may contain similar or other restrictions on acquisitions. No assurance can be given that the lenders will consent to any acquisitions that the Company proposes to make in excess of such limits. The size, timing and integration of possible future acquisitions may cause substantial fluctuations in operating results from quarter to quarter. As a result, operating results for any quarter may not be indicative of the results that may be achieved for any subsequent fiscal quarter or for a full fiscal year. Competition; Alternative Technologies. The Company faces competition from one or more competitors in all geographic areas where it operates. The Company believes that competition for customers is based on price, reputation for reliability, quality of service and scope and scale of technology, and believes that it generally competes effectively based on these factors. As a result of this competition, the records management industry has for the past several years experienced downward pricing pressures. While Iron Mountain believes that this pricing climate is stabilizing, there can be no assurance that prices will not decline further, as competitors seek to gain or preserve market share. Should a further downward trend in pricing occur or continue for an extended period of time, it could have a material adverse effect on the Company's results of operations. The Company also competes for acquisition candidates. Some of the Company's competitors may possess greater financial and other resources than the Company. If any such competitor were to devote additional resources to the records management business and such acquisition candidates or to focus its strategy on the Company's markets, the Company's results of operations could be adversely affected. In addition, the Company faces competition from the internal document handling capability of its current and potential customers. There can be no assurance that these organizations will outsource more of their document management needs or that they will not bring in-house some or all of the functions they currently outsource. See "Business--The Records Management Industry" and "Business--Competition." The substantial majority of the Company's revenues have been derived from the storage of paper documents and from related services. Such storage requires significant physical space. Alternative technologies for generating, capturing, managing, transmitting and storing information have been developed, many of which require significantly less space than paper. Such technologies include computer media, microforms, audio/video tape, film, CD-ROM and optical disk. None of these technologies has replaced paper as the principal means for storing information. However, there can be no assurance that one or more non-paper-based technologies (whether now existing or developed in the future) may not in the future reduce or supplant the use of paper as a preferred medium, which could in turn adversely affect the Company's business. Casualty. The Company currently maintains and intends to continue to maintain, to the extent such insurance is available on commercially reasonable terms, comprehensive liability, fire, flood and earthquake (where appropriate) and extended coverage insurance with respect to the properties that it now owns or leases or that it may in the future own or lease, with customary limits and deductibles. Certain types of loss, however, may not be fully insurable on a cost-effective basis, such as losses from earthquakes, or may be altogether uninsurable, such as losses from riots. In addition, 23 of the Company's 87 records management facilities are located in California and the Company derived approximately 30% of its revenues for the six months ended June 30, 1996 from its operations in California. The Company has in the past suffered damages and losses from an earthquake and a riot in California, which damages and losses were substantially covered by insurance. In the future, should uninsured losses or damages occur, the Company could lose both its investment in and anticipated profits and cash flow from the affected property and may continue to be obligated on any leasehold obligations, mortgage indebtedness or other obligations related to such property. As a result, any such loss could materially adversely affect the Company. See "Business--Insurance." Environmental Matters. As of June 30, 1996, the Company owned or leased approximately 6.3 million square feet of facilities. Under various federal, state and local environmental laws, ordinances and regulations 13 ("environmental laws"), an owner of real estate or a lessee conducting operations thereon may become liable for the costs of investigation, removal or remediation of soil and groundwater contaminated by certain hazardous substances or wastes or petroleum products. Certain such laws impose cleanup responsibility and liability without regard to whether the owner or operator of the real estate or operations thereon knew of or was responsible for the contamination, and whether or not operations at the property have been discontinued or title to the property has been transferred. In addition, the presence of such substances, or the failure to properly remediate such property, may adversely affect the current property owner's or operator's ability to sell or rent such property or to borrow using such property as collateral. The owner or operator of contaminated real estate also may be subject to common law claims by third parties based on damages and costs resulting from off-site migration of the contamination. Certain environmental laws govern the removal, encapsulation or disturbance of asbestos-containing materials ("ACMs"). Such laws may impose liability for release of ACMs and may enable third parties to seek recovery from owners or operators of real estate for personal injury associated with exposure to such substances. Certain facilities operated by the Company contain or may contain ACMs. In addition, certain of the properties formerly or currently owned or operated by the Company were previously used for industrial or other purposes that involved the use or storage of hazardous substances or petroleum products or the generation and disposal of hazardous wastes, and in some instances, included the operation of underground storage tanks ("USTs"). In connection with its former and current ownership or operation of certain properties, the Company may be potentially liable for environmental costs such as those discussed above and as more specifically described under "Business--Environmental Matters." The Company has from time to time conducted certain environmental investigations and remedial activities at certain of its former and current facilities, but an in-depth environmental review of the properties has not been conducted by or on behalf of the Company. The Company believes it is in substantial compliance with all applicable material environmental laws. The Company has not received any written notice from any governmental authority or third party asserting, and is not otherwise aware of, any material environmental non-compliance, liability or claim relating to hazardous substances or wastes, petroleum products or material environmental laws applicable to Company operations in connection with any of its present or former properties other than as described under "Business--Environmental Matters." However, no assurance can be given that there are, or as a result of possible future acquisitions there will be, no environmental conditions for which the Company might be liable in the future or that future regulatory action, as well as compliance with future environmental laws, will not require the Company to incur costs for or at its properties that could have a material adverse effect on the Company's financial condition and results of operations. Reliance on Executive Officers. The Company's success is partially dependent upon the performance and continued availability of its current executive officers. The Company does not have employment contracts with any of its current executive officers. There can be no assurance that the Company will be able to retain such officers, the loss of whom could have a material adverse effect upon the Company. See "Management." 14 THE COMPANY Iron Mountain is the largest records management company in the United States, as measured by revenues. The Company is a full-service provider of records management and related services, enabling customers to outsource data and records management functions. Pro forma for the Acquisitions, as of June 30, 1996, the Company managed approximately 27.7 million Cartons in 96 records centers in 32 markets nationwide. The Company has a diversified base of over 19,000 customer accounts, which includes more than half of the Fortune 500 and numerous legal, banking, healthcare, accounting, insurance, entertainment and government organizations. The Company provides storage and related services for all major media, including paper (which is the dominant form of records retention and which has accounted for approximately 85% of the Company's revenues since 1992), computer disks and tapes, microfilm and microfiche, master audio and video tapes, film and optical disks, X-rays and blueprints. The Company's principal services include filing, retrieval and destruction of records, courier pick-up and delivery, database management and customized reporting. The Company also sells storage materials and provides consulting and other records-related services. Iron Mountain's operations date to 1951, when a corporate predecessor commenced storage operations in a network of underground vaults in a former iron ore mine, focusing on the maximum-security storage of corporate vital records in the Northeast. That company was acquired by Schooner Capital Corporation ("Schooner") in 1975, after which its focus shifted to more general records management. In 1988, a corporate affiliate of Schooner acquired the Bell & Howell Records Management Company and its subsidiaries ("BHRM") for approximately $75 million. At that time, BHRM conducted storage operations in various states, with significant operations in California. The current Iron Mountain was incorporated in 1990 as part of a recapitalization that consolidated the former BHRM operations with the predecessor's Northeast operations. The principal executive offices of the Company are located at 745 Atlantic Avenue, Boston, Massachusetts 02111. Its telephone number is (617) 357-4455. THE TRANSACTIONS In connection with the Offering, the Company intends to: (i) repay all indebtedness outstanding under the Credit Agreement; (ii) repay its 13.42% Senior Subordinated Notes due December 14, 2000 (the "Chrysler Notes"); (iii) fund the purchase price of the Pending Acquisition described below under "Recent and Pending Acquisitions;" and (iv) enter into the New Credit Facility (the foregoing, together with the Offering and the application of the net proceeds therefrom and the Completed Acquisitions consummated after June 30, 1996, are referred to collectively as the "Transactions"). Sources and Uses of Funds The estimated sources and uses of funds in connection with the Transactions are set forth below (in millions): Sources of Funds: New Credit Facility $ -- Senior Subordinated Notes due 2006 150.0 ------ Total Sources $150.0 ====== Uses of Funds: Repay Credit Agreement (1) $ 92.9 Repay Chrysler Notes (1) 14.8 Purchase Price of Pending Acquisition and Acquisitions Completed after June 30, 1996 (2) 23.5 Estimated Fees and Expenses (3) 8.1 General Corporate Purposes 10.7 ------ Total Uses $150.0 ====== - ------------- (1) Balances are as of June 30, 1996. (2) Acquisitions completed after June 30, 1996 were initially financed by borrowings under the Credit Agreement and a portion of the net proceeds of the Offering will be used to repay such indebtedness. (3) Consists of estimated fees and expenses related to the Offering, the repayment of the Credit Agreement and the Chryster Notes and the closing of the New Credit Facility. 15 Repayment of Credit Agreement Indebtedness. The Company is party to the Amended and Restated Credit Agreement dated as of January 31, 1995, as amended (as so amended, the "Credit Agreement") among the Company, the lenders party thereto and The Chase Manhattan Bank (National Association), as agent for such lenders. Borrowings by the Company under the Credit Agreement during the most recent twelve months were used to finance acquisitions and for working capital. The Credit Agreement has a final maturity date of July 31, 2002. The weighted average interest rate on August 12, 1996 on the indebtedness outstanding under the Credit Agreement was 8.6%. Repayment of Chrysler Notes. Pursuant to a Note Purchase Agreement dated as of December 14, 1990, as amended, the Company issued the Chrysler Notes in an aggregate principal amount of $15.0 million to Chrysler Capital Corporation. The Company will repay the Chrysler Notes in full with a portion of the net proceeds of the Offering; the amount shown under "Uses of Funds" above does not include related fees and expenses. Pending Acquisition. Approximately $ million of the net proceeds from the Offering will be used to fund the Pending Acquisition described under "Recent and Pending Acquisitions" below and for possible future acquisitions and for general corporate purposes. New Credit Facility. The Company intends to replace the Credit Agreement with the New Credit Facility. The New Credit Facility is expected to provide the Company with revolving credit availability of up to $100 million for possible future acquisitions, working capital and other corporate purposes, and is expected to terminate on September 30, 2001. As was the case with the Credit Agreement, the Company's obligations under the New Credit Facility are expected to be guaranteed by substantially all of the Company's subsidiaries; however, unlike the Credit Agreement, the New Credit Facility is expected to be secured only by the pledge of the stock of such subsidiaries. See "Description of New Credit Facility" for a description of the currently expected terms of the New Credit Facility. No assurance can be given that the Company will enter into the New Credit Facility on those or any other terms. The Offering is not conditioned on the closing of the New Credit Facility. 16 RECENT AND PENDING ACQUISITIONS As part of its growth strategy, since mid-1994 the Company has acquired or entered into agreements to acquire 17 records management businesses. Since January 1, 1995, the Company has purchased for cash 13 such businesses (the "Completed Acquisitions") and has entered into a definitive agreement to acquire one additional records management business (the "Pending Acquisition" and, together with the Completed Acquisitions, the "Acquisitions"). The total purchase price of the Completed Acquisitions was approximately $ million. The Completed Acquisitions represent in the aggregate total annual revenues of approximately $29.0 million, and the Pending Acquisition represents total annual revenues of approximately $1.6 million (calculated in each case by reference to the revenues of each such acquired business during the twelve months ended December 31, 1995, which calculation includes an estimate of total revenues for the portion of 1995, if any, during which any such acquired business was included in the Company's results of operations). See "Pro Forma Condensed Consolidated Financial Information." The following table presents certain information for each acquisition completed since 1994 and for the Pending Acquisition.
Principal State(s) of Acquisition Operation Completion Date - ----------- ------------- ----------------- 1994 Acquisitions Data protection service business of Media Management Group, Inc. Connecticut June 1994 Data protection service business of Digital Equipment Corporation Massachusetts July 1994 Storage and Retrieval Concepts, Inc Ohio October 1994 1995 Acquisitions National Business Archives, Inc Maryland March 1995 DataFile Services, Inc. Texas October 1995 Brooks Records Center, Inc. Delaware December 1995 Data Management Business Records Storage, Inc. Georgia December 1995 1996 Acquisitions Nashville Vault Company, Ltd. Tennessee January 1996 Florida Data Bank, Inc. Florida January 1996 DataVault Corporation Massachusetts February 1996 Data Storage Systems, Inc. California March 1996 Brambles CRC, Inc. Ohio and Kentucky April 1996 Records management business of Output Technologies Central Region, Inc. Kansas and Missouri May 1996 Records management business of The Fortress Corporation Massachusetts and Florida July 1996 Data Archive Services, Inc. and Data Archive Services of Miami, Inc. Florida August 1996 DKA Industries, Inc. (d/b/a Systems Record Storage) Florida August 1996 Pending Acquisition Status ------ International Record Storage and Retrieval Service, Inc. Definitive New Jersey Agreement
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 USE OF PROCEEDS The gross proceeds from the Offering will be used: (i) to repay all indebtedness under the Credit Agreement and the Chrysler Notes; (ii) to fund the purchase price of the Pending Acquisition and for possible future acquisitions; (iii) for general corporate purposes; and (iv) to pay certain fees and expenses related to the Offering. See "The Transactions" and "Recent and Pending Acquisitions." The net proceeds to the Company from the Offering are estimated to be approximately $144.7 million, after deducting underwriting discounts and commissions and estimated Offering expenses. Prior to funding the Pending Acquisition and being applied to fund possible future acquisitions or for general corporate purposes, the net proceeds from the Offering will be invested in short-term, dividend-paying or interest-bearing investment grade securities. CAPITALIZATION (Dollars in thousands, except per share data) The following table sets forth the capitalization of the Company at June 30, 1996 and pro forma to give effect to the Transactions as if they had occurred on June 30, 1996.
As of June 30, 1996 --------------------- Actual Pro Forma ------- --------- Cash and Cash Equivalents $ 2,232 $ 12,979 ======== ======== Long-term Debt (Including Current Maturities): Credit Agreement $ 92,850 $ -- New Credit Facility -- -- Real Estate Mortgages 10,761 10,761 Senior Subordinated Notes due 2006 -- 150,000 Chrysler Notes 14,807 -- Other 476 476 -------- -------- Total Long-term Debt 118,894 161,237 Stockholders' Equity: Common Stock, $0.01 par value; 13,000,000 Shares Authorized, 9,627,141 Issued and Outstanding 96 96 Non-voting Common Stock, $0.01 par value; 1,000,000 Shares Authorized, 500,000 Issued and Outstanding 5 5 Additional Paid-in Capital 62,014 62,014 Accumulated Deficit (7,386) (9,614) -------- -------- Total Stockholders' Equity 54,729 52,501 -------- -------- Total Capitalization $173,623 $213,738 ======== ========
18 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 IRON MOUNTAIN INCORPORATED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 (In thousands)
Pending and Pro Forma Iron Completed Iron Mountain Acquisitions (1) Adjustments Mountain --------- ---------------- ----------- -------- Assets Current Assets $ 25,865 $1,562 $11,900 (A) $ 39,327 Property, Plant and Equipment, net 103,004 2,486 1,839 (A) 107,329 Goodwill, net 72,213 25 19,275 (A) 91,513 Other Long-term Assets 11,548 248 4,248 (A) 16,044 -------- ------ ------- -------- Total Assets $212,630 $4,321 $37,262 $254,213 ======== ====== ======= ======== Liabilities and Stockholders' Equity Current Liabilities $ 23,129 $2,179 $(3,718) (B) $ 21,590 Long-term Debt, net of current portion 115,700 663 44,680 (B) 161,043 Other Long-term Liabilities 6,769 1,226 (1,219) (B) 6,776 Deferred Rent 7,897 233 (233) (B) 7,897 Deferred Income Taxes 4,406 -- -- 4,406 Stockholders' Equity 54,729 20 (2,248) (B) 52,501 -------- ------ ------- -------- Total Liabilities and Stockholders' Equity $212,630 $4,321 $37,262 $254,213 ======== ====== ======= ========
- ------------- (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 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)
Pending and Pro Forma Iron Completed Iron Mountain Acquisitions (1) Adjustments Mountain -------- ---------------- ----------- --------- Revenues: Storage $39,363 $3,717 $ -- $ 43,080 Service and Storage Material Sales 24,587 1,963 -- 26,550 ------- ------ ------ ------- Total Revenues 63,950 5,680 -- 69,630 Operating Expenses: Cost of Sales (Excluding Depreciation) 32,383 2,844 (259) (D) 34,968 Selling, General and Administrative 16,067 2,564 (687) (E) 17,944 Depreciation and Amortization 7,530 331 396 (F) 8,257 ------- ------ ------ -------- Total Operating Expenses 55,980 5,739 (550) 61,169 ------- ------ ------ -------- Operating Income (Loss) 7,970 (59) 550 8,461 Interest Expense 6,385 162 2,374 (G) 8,921 ------- ------ ------ -------- Income (Loss) before Provision (Benefit) for Income Taxes 1,585 (221) (1,824) (460) Provision (Benefit) for Income Taxes 888 (30) (744) (H) 114 ------- ------ ------ -------- Net Income (Loss) 697 (191) (1,080) (574) Accretion of Redeemable Put Warrant 280 -- (280) (I) -- ------- ------ ------ -------- Net Income (Loss) Applicable to Common Stockholders $ 417 $ (191) $ (800) $ (574) ======= ====== ======= ======== Net Income (Loss) per Common and Common Equivalent Share $ 0.04 $ (0.06) Weighted Average Common and Common Equivalent Shares Outstanding 9,899 400 (J) 10,299 Other Data: EBITDA $15,500 $ 272 $ 946 $16,718
- ------------- (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 IRON MOUNTAIN INCORPORATED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (In thousands, except per share data)
Pending and Pro Forma Iron Completed Iron Mountain Acquisitions (1) Adjustments Mountain -------- ---------------- ----------- --------- Revenues: Storage $ 64,165 $ 16,703 $ -- $ 80,868 Service and Storage Material Sales 40,271 10,279 (737) (C) 49,813 -------- -------- ------- -------- Total Revenues 104,436 26,982 (737) 130,681 Operating Expenses: Cost of Sales (Excluding Depreciation) 52,277 13,262 (888) (D) 64,651 Selling, General and Administrative 26,035 8,167 (1,664) (E) 32,538 Depreciation and Amortization 12,341 2,204 2,032 (F) 16,577 -------- -------- ------- ------- Total Operating Expenses 90,653 23,633 (520) 113,766 -------- -------- ------- ------- Operating Income 13,783 3,349 (217) 16,915 Interest Expense 11,838 1,452 4,556 (G) 17,846 -------- -------- ------- ------- Income (Loss) before Provision for Income Taxes 1,945 1,897 (4,773) (931) Provision for Income Taxes 1,697 102 (1,169) (H) 630 -------- -------- ------- ------- Net Income (Loss) 248 1,795 (3,604) (1,561) Accretion of Redeemable Put Warrant 2,107 -- (2,107) (I) -- -------- -------- ------- ------- Net Income (Loss) Applicable to Common Stockholders $ (1,859) $ 1,795 $(1,497) $ (1,561) ======== ======== ======= ======= Net Income (Loss) per Common and Common Equivalent Share $ (0.24) $ (0.15) Weighted Average Common and Common Equivalent Shares Outstanding 7,784 2,350(J) 10,134 Other Data: EBITDA $ 26,124 $ 5,553 $1,815 $33,492
- ------------- (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 SCHEDULE A IRON MOUNTAIN INCORPORATED SCHEDULE OF PENDING AND COMPLETED ACQUISITIONS AS OF JUNE 30, 1996 (In thousands) (Unaudited)
Acquisitions Pending Completed and after Pending Completed June 30, 1996 Acquisition Acquisitions ------------ ---------- ------------- Assets Current Assets $1,185 $ 377 $1,562 Property, Plant and Equipment, net 2,034 452 2,486 Goodwill, net 25 -- 25 Other Long-term Assets 66 182 248 ------- ------ ------ Total Assets $3,310 $1,011 $4,321 ======= ====== ====== Liabilities and Stockholders' Equity (Deficit) Current Liabilities $1,418 $ 761 $2,179 Long-term Debt, net of current portion 663 -- 663 Other Long-term Liabilities 475 751 1,226 Deferred Rent -- 233 233 Stockholders' Equity (Deficit) 754 (734) 20 ------- ------ ------ Total Liabilities and Stockholders' Equity (Deficit) $3,310 $1,011 $4,321 ======= ====== ======
The accompanying Notes are an integral part of these pro forma financial statements. 23 SCHEDULE B IRON MOUNTAIN INCORPORATED SCHEDULE OF PENDING AND COMPLETED ACQUISITIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (In thousands) (Unaudited)
Pending and Completed Pending Completed Acquisitions Acquisition Acquisitions ----------- ---------- ------------- Revenues: Storage $3,188 $529 $3,717 Service and Storage Material Sales 1,650 313 1,963 ------ ---- ------ Total Revenues 4,838 842 5,680 Operating Expenses: Cost of Sales (Excluding Depreciation) 2,413 431 2,844 Selling, General and Administrative 2,317 247 2,564 Depreciation and Amortization 296 35 331 ------ ---- ------ Total Operating Expenses 5,026 713 5,739 ------ ---- ------ Operating Income (Loss) (188) 129 (59) Interest Expense 129 33 162 ------ ---- ------ Income (Loss) before Provision (Benefit) for Income Taxes (317) 96 (221) Provision (Benefit) for Income Taxes (41) 11 (30) ------ ---- ------ Net Income (Loss) $ (276) $ 85 $ (191) ====== ==== ====== Other Data: EBITDA $ 108 $164 $ 272
The accompanying Notes are an integral part of these pro forma financial statements. 24 SCHEDULE C IRON MOUNTAIN INCORPORATED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (In thousands) (Unaudited)
Completed Acquisitions (1) -------------------------------------------------------- Pending National Total and Business Data Nashville Completed Pending Completed Archives Management Vault Other Acquisitions Acquisition Acquisitions --------- ---------- --------- ----- ------------ ----------- ------------ Revenues: Storage $ 758 $ 2,912 $ 636 $11,434 $ 15,740 $ 963 $ 16,703 Service and Storage Material Sales 471 2,308 739 6,141 9,659 620 10,279 ------ ------- ------ ------- -------- ------ -------- Total Revenues 1,229 5,220 1,375 17,575 25,399 1,583 26,982 Operating Expenses: Cost of Sales (Excluding Depreciation) 712 2,543 499 8,718 12,472 790 13,262 Selling, General and Administrative 89 1,418 327 5,905 7,739 428 8,167 Depreciation and Amortization 55 506 122 1,448 2,131 73 2,204 ------ ------- ------ ------- -------- ------ -------- Total Operating Expenses 856 4,467 948 16,071 22,342 1,291 23,633 ------ ------- ------ ------- -------- ------ -------- Operating Income 373 753 427 1,504 3,057 292 3,349 Interest Expense 14 494 61 817 1,386 66 1,452 ------ ------- ------ ------- -------- ------ -------- Income before Provision (Benefit) for Income Taxes 359 259 366 687 1,671 226 1,897 Provision (Benefit) for Income Taxes -- 87 -- (6) 81 21 102 ------ ------- ------ ------- -------- ------ -------- Net Income $ 359 $ 172 $ 366 $ 693 $ 1,590 $ 205 $ 1,795 ====== ======= ====== ======= ======== ====== ======== Other Data: EBITDA $ 428 $ 1,259 $ 549 $ 2,952 $ 5,188 $ 365 $ 5,553
- ------------- (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 IRON MOUNTAIN INCORPORATED NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Overview - -------- In March 1995, the Company acquired National Business Archives, Inc. ("NBA") for approximately $15.6 million. In October 1995, the Company acquired DataFile Services, Inc. In December 1995, the Company acquired Data Management Business Records Storage, Inc. ("Data Management") for $14.5 million. In December 1995, the Company also acquired Brooks Records Center, Inc. In January 1996, the Company acquired Nashville Vault Company, Ltd. ("Nashville Vault") for $3.5 million. In January 1996, the Company also acquired Florida Data Bank, Inc. ("FDB"). In February 1996 the Company acquired DataVault Corporation. In March 1996, the Company acquired Data Storage Systems, Inc. In April 1996, the Company acquired Brambles CRC, Inc. ("CRC"). In May 1996, the Company acquired the records management business of Output Technologies Central Region, Inc. In July 1996, the Company acquired the records management business of The Fortress Corporation. In August 1996, the Company acquired Data Archive Services, Inc. and Data Archive Services of Miami, Inc. (collectively, "DAS") and DKA Industries, Inc. The results of operations of the Acquisitions which were consummated prior to June 30, 1996 are included in the results of operations of the Company from their respective dates of acquisition. The historical balance sheet of the Company at June 30, 1996 includes the acquisitions consummated prior to June 30, 1996. The aggregate purchase price of the foregoing acquisitions, excluding NBA, Data Management and Nashville Vault, was $42.7 million. During August 1996, the Company entered into a definitive agreement to purchase International Record Storage and Retrieval Service, Inc. The closing of this Pending Acquisition is subject to various conditions, and no assurance can be given that such acquisition will be completed. Balance Sheet The aggregate consideration paid or to be paid for the Acquisitions is approximately $76.3 million in cash. The excess of the purchase price over the book value of the net assets acquired for each of the Acquisitions has been allocated to tangible and intangible assets, based on the Company's estimate of the fair market value of the net assets acquired. The allocations of the purchase price as illustrated below may change upon final appraisal of the fair market value of the net assets acquired.
(In millions) Acquisitions Completed Prior to June 30, 1996: Book value of net assets acquired $11.6 Allocation of purchase price in excess of acquired assets: Property, Plant and Equipment (Fair Value Adjustment) 5.4 Other Long-term Assets (Covenants not to Compete) 2.8 Current Liabilities (Relocation and Other Reserves) (1.8) Deferred Rent (Unfavorable Lease Liability) (5.3) Goodwill 40.1 -- Purchase Price of Acquisitions Completed Prior to June 30, 1996 $52.8 Acquisitions Completed after June 30, 1996 and the Pending Acquisition: Book value of net assets acquired $ 3.8 Allocation of purchase price in excess of acquired assets: Property, Plant and Equipment (Fair Value Adjustment) 1.8 Other Long-term Assets (Covenants not to Compete) 0.1 Current Liabilities (Relocation and Other Reserves) (1.5) Goodwill 19.3 -- Purchase Price of Acquisitions Pending as of June 30, 1996 23.5 ---- Total Purchase Price of Acquisitions $76.3 ====
26 The Acquisitions completed prior to June 30, 1996 were financed with long-term debt and proceeds from the Initial Public Offering. The Acquisitions completed after June 30, 1996 and the Pending Acquisition are assumed to be financed with long-term debt. All of the Completed Acquisitions have been, and the Pending Acquisition, if consummated, will be accounted for as purchases. The Company will fund the purchase price of the Pending Acquisition with a portion of the net proceeds from the Offering. See "Recent and Pending Acquisitions," "The Transactions" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The accompanying pro forma condensed consolidated balance sheet as of June 30, 1996 has been prepared as if the Transactions had all been completed as of June 30, 1996 and reflects the following adjustments: (A) The pro forma adjustments to Assets consist of the following:
Property, Other Current Plant and Long-term Assets Equipment Goodwill Assets ------- --------- -------- --------- (In millions) Acquisition Entries: Reverse assets of acquired companies not purchased $ (0.3) $ -- $ -- $(0.2) Record estimated fair market value of assets of acquired companies -- 1.8 -- -- Record increase in intangible assets equal to the excess of purchase price over fair market value of assets -- -- 19.3 0.1 ------ ----- ------ ----- Total Acquisition Entries (0.3) 1.8 19.3 (0.1) Use of Proceeds Entries: Record net excess cash proceeds from the Offering 10.7 -- -- -- Record deferred financing fees associated with the Notes and the New Credit Facility -- -- -- 6.3 Write-off of pre-existing deferred financing costs -- -- -- (2.0) Tax benefit associated with write-off of deferred financing fees, prepayment penalty and loss on termination of interest rate protection agreements 1.5 -- -- -- ------ ----- ------ ----- Total Use of Proceeds Entries 12.2 -- -- 4.3 ------ ----- ------ ----- Total Adjustments $ 11.9 $ 1.8 $ 19.3 $ 4.2 ====== ===== ====== =====
27 (B) The pro forma adjustments to Liabilities and Stockholders' Equity consist of the following:
Other Current Long-term Long-term Deferred Stockholders' Liabilities Debt Liabilities Rent Equity ----------- --------- ----------- -------- ------------- (In millions) Acquisition Entries: Reverse current liabilities and debt not assumed in connection with Acquisitions closing after June 30, 1996 $(0.7) $ (0.7) $(1.2) $(0.2) $ -- Record additional debt to finance Acquisitions closing after June 30, 1996 23.5 Total Acquisition Entries (0.7) 22.8 (1.2) (0.2) (0.0) ----- ------- ----- ----- ----- Use of Proceeds Entries: Issuance of the Notes -- 150.0 -- -- -- Prepayment of Credit Agreement and Chrysler Notes (3.0) (104.6) -- -- -- Use of proceeds to repay debt issued to finance Acquisitions closing after June 30, 1996 -- (23.5) -- -- -- Extraordinary charge, net of tax benefit, related to early retirement of pre-existing debt -- -- -- -- (2.2) ----- ------- ----- ----- ----- Total Use of Proceeds Entries (3.0) 21.9 -- -- (2.2) ----- ------- ----- ----- ----- Total Adjustments $(3.7) $ 44.7 $(1.2) $(0.2) $(2.2) ===== ======= ===== ===== =====
Statements of Operations The accompanying unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 1995 and for the six months ended June 30, 1996 reflect the results as though each of the following had occurred on January 1, 1995: (i) the Initial Public Offering and the application of the net proceeds therefrom; (ii) the Offering and the application of the net proceeds therefrom; (iii) the closing of the New Credit Facility; and (iv) the Acquisitions. The Company will record, in the quarter in which the Offering is consummated, an extraordinary loss on retirement of debt, net of related tax benefit, of approximately $2 million. The pro forma statements of operations do not give effect to such loss. Such loss consists of the write-off of deferred financing costs, original issue discount, prepayment penalty and loss on termination of interest rate protection agreements. All of the Acquisitions, except Data Management, FDB, CRC and DAS, have a December 31 fiscal year end. Data Management's and CRC's fiscal year end is June 30, DAS's fiscal year end is May 31 and FDB's fiscal year end is August 31. Accordingly, Data Management's, CRC's, DAS's and FDB's results of operations were calendarized to the twelve months ended December 31, 1995 and the six months ended June 30, 1996. The accompanying pro forma condensed consolidated statements of operations for the year ended December 31, 1995 and for the six months ended June 30, 1996 have been prepared by combining the historical results of the Company and the Pending Acquisition and, where applicable, the Completed Acquisitions for such respective periods and reflect the following adjustments: (C) A pro forma adjustment has been made to eliminate a $0.7 million non-recurring gain on the sale of property and equipment by Data Management in the year ended December 31, 1995. (D) Pro forma adjustments for the year ended December 31, 1995 and for the six months ended June 30, 1996 have been made to reduce cost of sales by $0.9 million and $0.3 million, respectively, to eliminate specific expenses that would not have been incurred had the Acquisitions occurred at the beginning of 1995. Such cost 28 savings relate to (i) the termination of certain employees due to the integration and consolidation of certain Acquisitions and (ii) a reduction in warehouse rent expense related to facilities the Company will vacate upon completion of certain Acquisitions. (E) Pro forma adjustments for the year ended December 31, 1995 and for the six months ended June 30, 1996 have been made to reduce selling, general and administrative expenses by $1.7 million and $0.7 million, respectively, to eliminate specific expenses that would not have been incurred had the Acquisitions occurred as of January 1, 1995. Such cost savings relate to (i) the termination of certain employees due to the integration and consolidation of certain Acquisitions and (ii) the elimination of related party expenses and management fees in excess of amounts that would have been incurred by the Company for the services rendered. Additional cost savings that the Company expects to realize through integration of the Acquisitions into the Company's operations have not been reflected herein. (F) A pro forma adjustment has been made to reflect additional depreciation and amortization expense on the fair market value of the assets acquired as if the Acquisitions had occurred as of January 1, 1995. Property and equipment are depreciated over three to 50 years, goodwill is amortized over 25 years, and covenants not-to-compete are amortized over two to five years on a straight-line basis. Such depreciation and amortization may change upon final appraisal of the fair market value of the net assets acquired. (G) The pro forma adjustments to interest expense consist of the following:
December 31, June 30, 1995 1996 ---------- -------- (In millions) Acquisition Entries: Reverse interest expense on debt not assumed in connection with Acquisitions $ (1.5) $(0.2) Record interest expense due to assumption of unfavorable lease liability in connection with the NBA acquisition 0.1 0.0 Use of Proceeds Entries: Reverse interest expense on pre-existing debt of the Company retired with proceeds of the Offering (10.3) (5.6) Record interest expense from issuance of the Notes at an assumed interest rate of 10-1/2%, plus amortization of deferred financing costs 16.2 8.2 Record amortization of fees associated with the New Credit Facility 0.6 0.3 Record interest income on remaining net proceeds of the Offering pending application, at an assumed interest rate of 5% (0.5) (0.3) ------ ----- Total Adjustments $ 4.6 $ 2.4 ====== =====
A 0.25% increase (or decrease) in the assumed 10-1/2% interest rate with respect to the Notes would increase (or decrease) annual interest expense with respect to the Notes by $375,000. (H) A pro forma adjustment has been made to adjust the pro forma provision for income taxes to a 40% rate on pro forma income before nondeductible goodwill amortization and other nondeductible expenses. (I) Pro forma adjustments of $2.1 million and $0.3 million for the periods ended December 31, 1995 and June 30, 1996, respectively, have been made to eliminate the accretion of a redeemable put warrant as if such warrant had been redeemed as of January 1, 1995. (J) A pro forma adjustment has been made to adjust the pro forma weighted average common and common equivalent shares outstanding as if the Initial Public Offering had occurred on January 1, 1995. 29 SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION (In thousands, except per share amounts and Carton data) The following selected consolidated statements of operations and balance sheet data of the Company as of and for each of the years ended December 31, 1991, 1992, 1993, 1994 and 1995 have been derived from the Company's audited consolidated financial statements. The selected consolidated statements of operations and balance sheet data of the Company for the six months ended June 30, 1995 and 1996 have been derived from the Company's unaudited condensed consolidated financial statements. The Company's condensed unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, which the Company considers necessary for a fair presentation of the financial position and the results of operations for those periods. Operating results for the six months ended June 30, 1996 are not necessarily indicative of the results for the entire year ending December 31, 1996. The selected consolidated financial and operating information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with Iron Mountain's Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus.
Six Months Ended Year Ended December 31, June 30, --------------------------------------------------- ------------------ 1991 1992 1993 1994 1995 1995 1996 ------- ------ ------ --------- ------- ------ -------- Consolidated Statements of Operations Data: Revenues: Storage $39,510 $ 44,077 $ 48,892 $54,098 $ 64,165 $30,748 $ 39,363 Service and Storage Material Sales 23,330 26,596 32,781 33,520 40,271 19,476 24,587 ------ ----- ----- --------- ------ ----- ------- Total Revenues 62,840 70,673 81,673 87,618 104,436 50,224 63,950 Operating Expenses: Cost of Sales (Excluding Depreciation) 31,375 35,169 43,054 45,880 52,277 25,112 32,383 Selling, General and Administrative 16,471 17,630 19,971 20,853 26,035 12,697 16,067 Depreciation and Amortization 7,674 5,780 6,789 8,690 12,341 5,428 7,530 ------ ----- ----- --------- ------ ----- ------- Total Operating Expenses 55,520 58,579 69,814 75,423 90,653 43,237 55,980 ------ ----- ----- --------- ------ ----- ------- Operating Income 7,320 12,094 11,859 12,195 13,783 6,987 7,970 Interest Expense 8,612 8,412 8,203 8,954 11,838 5,936 6,385 Income (Loss) before Provision (Benefit) for Income Taxes (1,292) 3,682 3,656 3,241 1,945 1,051 1,585 Provision (Benefit) for Income Taxes 105 2,095 2,088 1,957 1,697 631 888 ------ ----- ----- --------- ------ ----- ------- Net Income (Loss) (1,397) 1,587 1,568 1,284 248 420 697 Accretion of Redeemable Put Warrant 417 626 940 1,412 2,107 953 280 ------ ----- ----- --------- ------ ----- ------- Net Income (Loss) Applicable to Common Stockholders $(1,814) $ 961 $ 628 $ (128) $ (1,859) $ (533) $ 417 ====== ===== ===== ========= ====== ===== ======= Net Income (Loss) per Common and Common Equivalent Share $ (0.23) $ 0.12 $ 0.08 $ (0.02) $ (0.24) $ (0.07) $ 0.04 Weighted Average Common and Common Equivalent Shares Outstanding 8,038 8,052 8,067 7,984 7,784 7,790 9,899 Other Data: EBITDA (1) $14,994 $ 17,874 $ 18,648 $20,885 $ 26,124 $12,415 $ 15,500 EBITDA as a Percentage of Total Revenues 23.9% 25.3% 22.8% 23.8% 25.0% 24.7% 24.2% Capital Expenditures: Growth (2) -- $11,226 $13,605 $15,829(3) $14,395 $6,730 $10,702 Maintenance -- 818 1,846 1,151 858 592 460 ------ ----- ----- --------- ------ ----- ------- Total Capital Expenditures $ 8,163 $ 12,044 $ 15,451 $16,980(3) $ 15,253 $ 7,322 $11,162 Additions to Customer Acquisition Costs $ -- $ 1,268 $ 922 $ 1,366 $ 1,379 $ 418 $ 717 Approximate Cartons in Storage at End of Period (in millions) (4) 10.8 12.6 15.5 17.7 23.3 20.3 26.4 Ratio of Earnings to Fixed Charges (5) 0.9x 1.3x 1.3x 1.2x 1.1x 1.2x 1.2x
(Footnotes on the following page) 30
As of June As of December 31, 30, 1996 ----------------------------------------------- ----------- 1991 1992 1993 1994 1995 -------- -------- -------- -------- -------- 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
- ------------- (Footnotes from the preceding page) (1) Earnings before interest, taxes, depreciation, amortization and extraordinary charges ("EBITDA"). Based on its experience in the records management industry, the Company believes that EBITDA is an important tool for measuring the performance of records management companies (including potential acquisition targets) in several areas, such as liquidity, operating performance and leverage. In addition, lenders use EBITDA as a criterion in evaluating records management companies, and substantially all of the Company's financing agreements contain covenants in which EBITDA is used as a measure of financial performance. However, EBITDA should not be considered an alternative to operating or net income (as determined in accordance with GAAP) as an indicator of the Company's performance or to cash flow from operations (as determined in accordance with GAAP) as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" and "--Liquidity and Capital Resources" for discussions of other measures of performance determined in accordance with GAAP and the Company's sources and applications of cash flow. (2) Growth capital expenditures include investment in racking systems, new buildings and leasehold improvements, equipment for new facilities, management information systems and facilities restructuring. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Capital Investments." (3) Includes $2,901 related to the cost of constructing a records management facility which was sold in a sale and leaseback transaction in the fourth quarter of 1994. (4) The term "Carton" is defined as a measurement of the volume equal to a single standard storage carton, approximately 1.2 cubic feet. The number of Cartons stored does not include storage volumes in the Company's vital records services and data protection services which are described under "Business." (5) The pro forma ratio of earnings to fixed charges giving effect to the Transactions as if each had occurred as of January 1, 1995, would have been 0.9x and 0.9x for the year ended December 31, 1995 and the six months ended June 30, 1996, respectively. For the year ended December 31, 1995 and the six months ended June 30, 1996, the Company would have needed to generate additional income from continuing operations, before provision for income taxes, of $931 and $460 to cover its fixed charges of $24,058 and $12,347, respectively. The Company reported a pretax loss for the fiscal year ended December 31, 1991. For such period the Company would have needed to generate additional income from continuing operations, before provision for income taxes, of $1,292 to cover its fixed charges of $11,626. 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Selected Consolidated Financial and Operating Information and the Consolidated Financial Statements and the Notes thereto and the other financial and operating information included elsewhere in this Prospectus. Overview The Company's primary financial objective is to increase its EBITDA, which is a source of funds to service indebtedness and for investment in continued internal growth and growth through acquisitions. The Company has benefited from growth in EBITDA, which has increased from $17.9 million in 1992 to $26.1 million in 1995 (a CAGR of 13.5%), but other measures of the Company's financial performance, such as net income and net income applicable to common stockholders, have been negatively affected by this objective. In 1994 and 1995, the Company experienced net losses applicable to common stockholders. Such net losses are attributable in part to significant increases in non-cash charges associated with the Company's pursuit of its growth strategy, namely, (i) increases in depreciation and amortization expenses associated with expansion of the Company's storage capacity and the acquisition of certain large volume accounts and (ii) increases in goodwill amortization associated with acquisitions accounted for under the purchase method. In addition, net income available to common stockholders has been negatively affected by a non-cash charge for accretion of a redeemable put warrant, which was redeemed upon completion of the Company's Initial Public Offering. See Note 5 of Notes to the Company's Audited Consolidated Financial Statements. Iron Mountain's revenues consist of storage revenues and service and storage material sales revenues. Storage revenues are derived from charges for storing records (either on a per unit or a per cubic foot of records basis), and have accounted for approximately 60% of total revenues in each of the last three years and for the six months ended June 30, 1996. Service and storage material sales revenues are derived primarily from the Company's courier operations (consisting primarily of the pickup and delivery of records upon customer request), additions of new Cartons, temporary removal of records from storage, refiling of removed records, destructions of records, permanent withdrawals from storage and sales of specially designed storage containers and related supplies. Customers are generally billed on a monthly basis on contractually agreed-upon terms. While the Company's total revenues have increased from $70.7 million in 1992 to $104.4 million in 1995, average revenue on a per Carton basis has declined over this period. The year-over-year declines in average revenue per Carton for 1993, 1994 and 1995 were approximately 8%, 7% and 2%, respectively. Such declines were attributable to: (i) increases in sales to large volume accounts, which typically generate lower revenue per Carton (in particular the Resolution Trust Corporation (the "RTC") account, which incorporated substantial volume discounts, although such discounts were offset by revenues from special service projects during 1993 and 1994); (ii) a facilities management arrangement with a large volume account under which, prior to July 1996, the Company managed the customer's records management facility and, therefore, the charges to the customer prior to July 1996 did not include a rent component; and (iii) industry-wide pricing pressures. Despite this decline, the Company has been able to maintain its EBITDA margins through increased overall operating efficiencies and economies of scale as well as specific efficiencies realized in the servicing of large volume accounts. For 1992, 1993, 1994, 1995 and the six months ended June 30, 1996, EBITDA margins were 25.3%, 22.8%, 23.8%, 25.0% and 24.2%, respectively. Pursuant to its 1992 contract with the RTC, the Company participated in the consolidation and centralization of a large number of records on behalf of the RTC. This activity, which entailed extensive services and the Company's start-up of operations in two new markets, resulted in a significant increase in service and storage material sales revenues in 1993. After the labor-intensive process of assembling and inventorying the records was substantially completed in 1994, the revenue from RTC service and storage material sales began to decrease, which decrease was partially offset by increases in storage revenues due to an increase in Cartons stored. The contract has been renewed effective July 27, 1996 for a one-year term by the Federal Deposit Insurance Corporation (the "FDIC"), as successor in interest to the RTC, and may be renewed at the option of the FDIC for three further terms of one year each. Although the substantial costs of removing its records from the Company's facilities may act as a disincentive to the FDIC to select another vendor, there can be no assurance that this contract will be further renewed or that the terms of any such renewal will be as favorable to Iron Mountain as the terms of the current contract. 32 Cost of sales consists primarily of wages and benefits, facility occupancy costs, vehicle and other equipment costs and supplies. Of these, the most significant are wages and benefits and facility occupancy costs. Over the past several years, Iron Mountain has been able to reduce per Carton storage costs by: (i) designing racking systems and operating space to maximize facility storage efficiency; (ii) negotiating favorable facility leases and having facilities built to its custom specifications; and (iii) leasing larger facilities, which, when filled, are less expensive per Carton to operate. Selling, general and administrative expenses consist primarily of management, administrative, sales and marketing wages and benefits, and also include travel, communications, professional fees, bad debts, training, office equipment and supplies expenses. The Company's depreciation and amortization charges result primarily from the capital-intensive nature of the records management industry and the acquisitions the Company has completed. The principal components of depreciation relate to racking systems and related equipment, new buildings and leasehold improvements, equipment for new facilities and computer system software and hardware. Amortization primarily relates to goodwill and noncompetition agreements arising from acquisitions and customer acquisition costs. The Company has accounted for all of its acquisitions under the purchase method. Since the purchase price for records management companies is usually substantially in excess of the book values of their assets, these purchases have given rise to significant goodwill and, accordingly, significant levels of amortization. Although amortization is a non-cash charge, it does decrease reported net income. Accordingly, the faster the Company expands by making such acquisitions, the more likely it will be to incur amortization charges, reducing net income. In February 1996, the Company received net proceeds of $33.3 million from its Initial Public Offering. The Company used $6.6 million of such net proceeds to repurchase a warrant to acquire 444,385 shares of Common Stock (the "Warrant"). For financial reporting purposes, the Company was required to record a non-cash charge (based on the estimated redemption value calculated using the effective interest rate method), resulting in substantial charges to net income applicable to common stockholders over the period the Warrant was outstanding. See Note 5 of Notes to the Company's Audited Consolidated Financial Statements. The remaining net proceeds were used by the Company to fund acquisitions (including Completed Acquisitions consummated after the closing of the Initial Public Offering) and to repay indebtedness used to fund acquisitions. In December 1995, the Company decided to consolidate its corporate accounting activities by transferring to Boston, Massachusetts those accounting activities previously performed in Los Angeles, California. As a result of such transfer, the Company recorded charges of $0.5 million and $0.3 million in the fourth quarter of 1995 and the first six months of 1996, respectively. 33 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.
Year Ended December Six Months 31, Ended June 30, -------------------- -------------- 1993 1994 1995 1995 1996 ---- ---- ---- ---- ------ Revenues: Storage 59.9% 61.7% 61.4% 61.2% 61.6% Service and Storage Material Sales 40.1 38.3 38.6 38.8 38.4 ----- ----- ----- ----- ----- Total Revenues 100.0 100.0 100.0 100.0 100.0 ----- ----- ----- ----- ----- Operating Expenses: Cost of Sales (Excluding Depreciation) 52.7 52.4 50.1 50.0 50.7 Selling, General and Administrative 24.5 23.8 24.9 25.3 25.1 Depreciation and Amortization 8.3 9.9 11.8 10.8 11.7 ----- ----- ----- ----- ----- Total Operating Expenses 85.5 86.1 86.8 86.1 87.5 ----- ----- ----- ----- ----- Operating Income 14.5 13.9 13.2 13.9 12.5 Interest Expense 10.0 10.2 11.3 11.8 10.0 ----- ----- ----- ----- ----- Income before Provision for Income Taxes 4.5 3.7 1.9 2.1 2.5 Provision for Income Taxes 2.6 2.2 1.7 1.3 1.4 ----- ----- ----- ----- ----- Net Income 1.9% 1.5% 0.2% 0.8% 1.1% ===== ===== ===== ===== ===== EBITDA 22.8% 23.8% 25.0% 24.7% 24.2%
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 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 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 in 1993 to approximately 16.7 million in 1994, an increase of approximately 15%. The percentage increase in Cartons stored was greater than that of total revenues for the reasons discussed in the third paragraph under "Overview" above. Cost of sales (excluding depreciation) increased from $43.1 million in 1993 to $45.9 million in 1994, an increase of $2.8 million or 6.6%, and decreased as percentage of revenues from 52.7% in 1993 to 52.4% in 1994. The $2.8 million increase was due primarily to increases in storage capacity. The decrease as a percentage of revenues was due primarily to increased storage efficiencies. Selling, general and administrative expenses increased from $20.0 million in 1993 to $20.9 million in 1994, an increase of $0.9 million or 4.4%, and decreased as a percentage of revenues from 24.5% in 1993 to 23.8% in 1994. The increase in such expenses was due primarily to inflationary increases in wages and benefits, partially offset by a $0.2 million decrease in bad debt expense. The decrease as a percentage of revenues was due to operating efficiencies and the decrease of 0.3% in bad debt expense. Depreciation and amortization expenses increased from $6.8 million in 1993 to $8.7 million in 1994, an increase of $1.9 million or 28.0%, and increased as a percentage of revenues from 8.3% in 1993 to 9.9% in 1994. This increase, both in dollars and as a percentage of revenues, was due primarily to an increase in depreciation charges resulting from capital expenditures for racking systems and improvements to records management facilities and information systems. As a result of the foregoing factors, operating income increased from $11.9 million in 1993 to $12.2 million in 1994, an increase of $0.3 million or 2.8%, and decreased from 14.5% of revenues to 13.9% of revenues. Interest expense increased from $8.2 million in 1993 to $9.0 million in 1994, an increase of $0.8 million or 9.2%, due primarily to increased levels of indebtedness. As a result of the foregoing factors, income before provision for income taxes decreased from $3.7 million in 1993 (4.5% of revenues) to $3.2 million in 1994 (3.7% of revenues), a decrease of $0.5 million or 11.4%. Provision for income taxes decreased from $2.1 million in 1993 (2.6% of revenues) to $2.0 million in 1994 (2.2% of revenues). The Company's effective tax rates for financial reporting purposes for 1994 and 1993 exceeded statutory tax rates primarily because of $1.5 million of amortization of nondeductible goodwill in each year. Net income decreased from $1.6 million (1.9% of revenues) to $1.3 million (1.5% of revenues) as a result of the factors outlined above. As a result of the foregoing factors, EBITDA increased from $18.6 million in 1993 to $20.9 million in 1994, an increase of $2.3 million or 12.0%, and increased as a percentage of revenues from 22.8% to 23.8%. The increase as a percentage of revenues reflected economies of scale and increased operating efficiencies. 37 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.
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) 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)
- ------------- (1) Includes a $277 write-down relating to the closing of two facilities. (2) Includes a $600 reserve for litigation. (3) Includes a $900 write-down of the goodwill of a subsidiary as described in "Results of Operations." (4) Includes a charge of $500 relating to the relocation of the Company's corporate accounting function. (5) Includes a charge of $300 relating to the relocation of the Company's corporate accounting function. Liquidity and Capital Resources In February 1996, the Company raised $33.3 million, net of underwriters' discounts and commissions and associated costs, in the Initial Public Offering. The net proceeds from the Initial Public Offering were used to retire the Warrant, to fund acquisitions, to repay debt that had been incurred to make acquisitions and for working capital. As the Company has sought to increase its EBITDA, it has made significant capital investments, consisting primarily of acquisitions; growth-related capital expenditures, including racking systems, information systems and improvements to existing facilities; and customer acquisition costs. Cash paid for these investments during the first six months of 1996 amounted to $19.2 million, $11.2 million and $0.7 million, respectively. These investments have been primarily funded through a portion of the net proceeds of the Initial Public Offering, cash flows from operations and borrowings under the Credit Agreement. Stockholders' equity has been negatively affected primarily by the accretion of the Warrant, interest expense, depreciation and amortization expenses associated with expansion of the Company's storage capacity and the acquisition of certain large volume accounts, and amortization of goodwill. In part as a result of the Initial Public Offering, the Company's ratio of total debt to stockholders' equity decreased from 3.1-to-1 at December 31, 1992 to 2.2-to-1 at June 30, 1996. On a pro forma basis (after giving effect to the Transactions), the ratio of total debt to stockholders' equity at June 30, 1996 would have been 3.1-to-1. 38 The Company currently intends to apply a portion of the net proceeds from the Offering to the prepayment of the Credit Agreement and the Chrysler Notes. The Company will record, in the quarter in which the Offering is consummated, an extraordinary loss on retirement of debt, net of related tax benefit, of approximately $2 million. Such loss will consist of the write-down of deferred financing costs, original issue discount, prepayment penalty and loss on termination of interest rate protection agreements. Capital Investments For 1994, 1995 and the six months ended June 30, 1996, the Company's growth-related capital expenditures were $15.8 million, $14.4 million and $10.7 million, respectively. Included in capital expenditures for 1994 is $2.9 million for the construction of a records management facility which was sold in a sale and leaseback transaction. Growth-related capital expenditures consist primarily of investment in racking systems, new building and leasehold improvements, equipment for new facilities, management information systems and facilities restructuring. For 1994, 1995 and the six months ended June 30, 1996, the Company's maintenance capital expenditures were $1.2 million, $0.9 million and $0.5 million, respectively. In addition, the Company incurs costs (net of revenues received for the initial transfer of records) related to the acquisition of large volume accounts (typically over 10,000 Cartons). For 1994, 1995 and the six months ended June 30, 1996, the Company's additions to customer acquisition costs were $1.4 million, $1.4 million and $0.7 million, respectively. The Company currently expects that its capital expenditures (other than capital expenditures related to future acquisitions, which cannot be presently estimated) for the second half of 1996 will be between $9 million and $10 million, and for 1997 will be between $18 million and $21 million. The Company expects to fund these expenditures and costs from cash flows from operations and by borrowings under the New Credit Facility. Recent and Pending Acquisitions The Company's liquidity and capital resources have been significantly impacted by acquisitions and, given the Company's acquisition strategy, may be significantly impacted for the foreseeable future. In order to capitalize on industry consolidation, the Company in mid-1994 adopted a more active acquisition strategy. Since mid-1994, the Company has acquired or entered into agreements to acquire 17 records management businesses, 16 of which have been completed and one of which is pending, for a total purchase price of $78.4 million. The Company has historically financed its acquisitions with borrowings under the Credit Agreement in conjunction with cash flows provided by operations and, more recently, from a portion of the proceeds of the Initial Public Offering. Net borrowings for acquisitions during 1994, 1995 and the first six months of 1996 totaled $2.1 million, $32.3 million and $19.0 million, respectively. In addition, subsequent to June 30, 1996, the Company has incurred an additional $ million under the Credit Agreement to fund the Completed Acquisitions consummated after such date. The Company intends to use a portion of the net proceeds from the Offering to fund the Pending Acquisition. The Company's future interest expense may increase significantly as a result of the additional indebtedness the Company may incur to finance possible future acquisitions. To the extent that future acquisitions are financed by additional borrowings under the New Credit Facility or other credit facilities, the resulting increase in debt and interest expense could have a negative effect on such measures of liquidity as debt to equity, EBITDA to debt and EBITDA to interest expense. Sources of Funds During the six months ended June 30, 1996, the Company generated $8.1 million in cash flows from operations as compared to $8.2 million for the same period of the prior year. Such change in cash flows from operations resulted from a $3.1 million increase in EBITDA and an increase in accounts payable, which were partially offset by an increase in accounts receivable and other changes in working capital accounts. During the years ended December 31, 1994 and 1995, the Company generated cash flows from operations of $11.6 million and $15.7 million, respectively. At December 31, 1995, the Company had estimated net operating loss carryforwards of approximately $7.3 million for federal income tax purposes. As a result of such loss carryforwards, cash paid for income taxes has historically been substantially lower than the provision for income taxes. 39 Net cash flows provided by financing activities were $6.7 million and $34.1 million in 1994 and 1995, respectively, substantially all of which was provided under the Credit Agreement, and $23.7 million for the six months ended June 30, 1996, substantially all of which was provided by the net proceeds of the Initial Public Offering and under the Credit Agreement. Credit Arrangements of the Company The Credit Agreement provides for total borrowings not to exceed $125 million and consists of the following facilities: (i) a $15 million revolving working capital facility; (ii) a $10 million term loan; (iii) a $50 million revolving acquisition credit facility; and (iv) a $50 million term loan. At June 30, 1996, all borrowings under the Credit Agreement bore interest at a weighted average annual rate of 8.5%. The obligations under the Credit Agreement are secured by substantially all of the Company's assets, including the stock of its operating subsidiaries. The Company also has the Chrysler Notes outstanding. These facilities require the Company to meet certain financial covenants and ratios. See Note 3 of Notes to the Company's Audited Consolidated Financial Statements. The Company intends to apply a portion of the net proceeds from the Offering to prepay in its entirety all indebtedness outstanding under the Credit Agreement and the Chrysler Notes. See "The Transactions" and "Use of Proceeds." In addition, the Company intends to terminate the Credit Agreement and to enter into the New Credit Facility as a replacement bank credit facility. The New Credit Facility is expected to provide the Company with revolving credit availability of $100 million for acquisitions, working capital and other corporate purposes. See "Description of the New Credit Facility" for a more detailed description of the currently expected terms of the New Credit Facility. No assurance can be given that the Company will enter into the New Credit Facility on these or any other terms. The Offering is not conditioned on the closing of the New Credit Facility. The annual maturities of Iron Mountain's indebtedness for the second half of 1996 and for 1997, 1998, 1999 and 2000 are $1.6 million, $3.4 million, $8.3 million, $8.4 million and $32.5 million, respectively. Giving pro forma effect to the Transactions, the annual maturities of Iron Mountain's indebtedness for the second half of 1996 and for 1997, 1998, 1999 and 2000 would be $0.1 million, $0.4 million, $0.4 million, $0.4 million and $8.2 million, respectively. As of June 30, 1996, the Company had available under the Credit Agreement $6.2 million under the working capital facility and $24.7 million under the acquisition credit facility. Subsequent to June 30, 1996, the Company borrowed $ million under the acquisition credit facility to finance acquisitions. As of June 30, 1996, on a pro forma basis, after giving effect to the Transactions (see "The Transactions" and "Use of Proceeds"), the Company would have had $161.2 million in total indebtedness and an aggregate of approximately $100 million available under the New Credit Facility. Under the Credit Agreement, Iron Mountain is required to use, and may in the future use, interest rate protection products to reduce its exposure to increases in interest rates. Under the New Credit Facility, Iron Mountain will not be required to use such interest rate protection products. As of June 30, 1996, the Company had $118.9 million of total debt, of which $26.0 million had fixed interest rates and $92.9 million had variable interest rates, $30.0 million of which was covered by interest rate protection products. See Note 3 to Notes to the Company's Audited Consolidated Financial Statements. Future Capital Needs Iron Mountain's ability to generate cash adequate to fund its needs depends generally on the results of its operations and the availability of financing. Management believes that cash flow from operations in conjunction with borrowings from existing and possible future credit facilities will be sufficient for the foreseeable future to meet debt service requirements and to make possible future acquisitions and capital expenditures. However, there can be no assurance in this regard or that the terms available for any future financing, if required, would be favorable to Iron Mountain. Seasonality Historically, the Company's business has not been subject to seasonality in any material respect. 40 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 BUSINESS Introduction Iron Mountain is the largest records management company in the United States, as measured by revenues. The Company is a full-service provider of records management and related services, enabling customers to outsource data and records management functions. Pro forma for the Transactions, as of June 30, 1996, the Company managed approximately 27.7 million Cartons in 96 records centers in 32 markets nationwide. The Company has a diversified base of over 19,000 customer accounts, which includes more than half of the Fortune 500 and numerous legal, banking, healthcare, accounting, insurance, entertainment and government organizations. The Company provides storage and related services for all major media, including paper (which is the dominant form of records retention and which has accounted for approximately 85% of the Company's revenues since 1992), computer disks and tapes, microfilm and microfiche, master audio and video tapes, film and optical disks, X-rays and blueprints. The Company's principal services include filing, retrieval and destruction of records, courier pick-up and delivery, database management and customized reporting. The Company also sells storage materials and provides consulting and other records-related services. The Records Management Industry Overview Based on publicly available information, organizations in the United States generate an estimated four trillion documents each year. Many of these documents must be retained and available for reference for many years. These records may be generally divided into two categories: active and inactive. Active records relate to ongoing and recently completed activities or contain information that is frequently referenced. Active records are usually stored and managed on-site by the organization which originated them to ensure ready availability. Inactive records are the principal focus of the records management industry. Inactive records consist of those records which are not needed for immediate access but which must be retained for legal reasons or regulatory compliance or for occasional reference in support of ongoing business operations. Based on industry studies, the Company believes that inactive records make up approximately 80% of all records. [Pyramid chart showing relative size of estimated active and inactive records market segments] Growth of Market; Outsourcing The Company believes that the volume of inactive records is increasing for a number of reasons, including: (i) the rapid growth of inexpensive document-producing technologies such as facsimile, desktop printing and computer networking; (ii) increased regulatory requirements; (iii) concerns over possible future litigation and the resulting increases in volume and holding periods of documentation; (iv) the high cost of reviewing records and deciding whether to retain or destroy them; and (v) the failure of many entities to adopt or follow policies on records destruction. Despite the growth of new "paperless" technologies, such as the Internet and e-mail, management believes that stored information remains predominantly paper-based and that such technologies have promoted the creation of hard copies of such electronic information. The Company believes that the records management industry will gain a growing share of this increased volume as more large organizations make the strategic decision to outsource their records management as part of 42 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 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)
Year Ended December 31, Twelve Months ----------------------- Ended June 30, 1993 1994 1995 1996 ----- ---- ---- -------------- Cartons at Beginning of Period 12.6 15.5 17.7 20.3 Additions from Existing Customers Gross Cartons Added (2) 1.9 2.6 2.5 3.1 Cartons Deleted: Destructions (0.6) (0.9) (1.0) (1.1) Permanent Removals (0.6) (0.6) (0.6) (0.8) ---- ---- ---- ---- Net Carton Growth from Existing Customers 0.7 1.1 0.9 1.2 Additions from New Customers (2) 2.2 1.0 1.4 1.8 Additions from Acquisitions 0.0 0.1 3.3 3.1 ---- ---- ---- ---- Total Carton Additions 2.9 2.2 5.6 6.1 ==== ==== ==== ==== Percentage Change 23.0% 14.2% 31.6% 30.0%
- ------------- (1) Excludes storage volumes attributable to the Company's vital records services and data protection services. (2) Gross Cartons added by the RTC or its successor the FDIC were approximately 0.9 million, 0.3 million, 0.3 million and 0.3 million for 1993, 1994, 1995 and the twelve months ended June 30, 1996, respectively. RTC additions in 1993 are included in Additions from New Customers because the initial transfer of Cartons from the RTC commenced in the fourth quarter of 1992 and continued into 1993. Additions in 1994, 1995 and the twelve months ended June 30, 1996 are included in Additions from Existing Customers. Growth from Existing Customers Existing Iron Mountain customers have contributed to storage and services revenue growth because they have on average generated additional Cartons at a faster rate than old Cartons are destroyed or permanently removed. In order to maximize growth opportunities from existing customers, the Company seeks to maintain high levels of customer retention by providing premium customer service through its decentralized customer support staff. The local customer support staff, working in conjunction with the corporate staff, is also responsible for marketing additional services to existing customers, including records tracking, indexing, customized reporting, vital records management and records management consulting services. 44 Additions of New Customers The Company's direct sales force is dedicated solely to establishing new account relationships and draws on the Company's national marketing organization and senior management. New customer sales efforts have resulted in the addition of more than 900 new customer accounts in each of the last three years. Iron Mountain segments its market into large volume accounts (typically over 10,000 Cartons) and standard accounts. As of June 30, 1996, large volume accounts represented more than half of the total Cartons stored. The two segments differ in complexity of service and technology needs, purchasing behavior and purchasing leverage. The Company employs different database marketing techniques, program design features and pricing structures to meet the needs of each segment. In recent years the Company's large volume account segment has grown rapidly, driven by strategic outsourcing initiatives and the Company's marketing efforts. In 1993, 1994, 1995 and the six months ended June 30, 1996, large volume accounts represented 88%, 70%, 76% and 63% respectively, of the additions of Cartons from new customers. Growth through Acquisitions Iron Mountain has had a successful record of acquiring and integrating smaller records management companies. From 1990 through 1994, Iron Mountain completed five acquisitions. In order to capitalize on industry consolidation, the Company in mid-1994 adopted a more active acquisition strategy and implemented changes in its management, systems and financial infrastructure, including the consummation of the Initial Public Offering, to execute such strategy. Since June 1994, the Company has acquired or entered into agreements to acquire 17 companies, 16 of which have been completed and one of which is pending. The Company operates in 32 markets nationwide and intends to continue to make fold-in acquisitions in existing markets and to make strategic acquisitions in new geographic markets, with an emphasis on the 50 largest markets in the United States. Management believes that Iron Mountain is well positioned to participate in the further consolidation of the records management industry. See "Risk Factors--Risks Associated with Acquisition Strategy" and "Recent and Pending Acquisitions." The Company seeks to expand its national presence, size and customer base through new-market acquisitions. Management believes that the high start-up costs of commencing operations make acquisitions an attractive means of entering new markets. The Company seeks to acquire records management companies in markets where management believes there is the potential for growth. Within such markets, the Company uses a variety of criteria to evaluate acquisition candidates, including the capacity and condition of existing storage facilities, past and current operating performance and revenues and the experience and depth of existing management. The Company is also considering investments in records management businesses outside of the United States. See "Potential International Investments." The Company believes that it can use its expertise and central administrative organization to leverage the acquisition candidate's local market presence, promoting the development of underperforming facilities and enhancing the value of the local assets. The Company believes that its new-market acquisition strategy could have a number of benefits, including: (i) continued growth in revenues and EBITDA and diversification across a greater number of markets; (ii) introduction of the Company's efficient storage, labor, transportation and other operating efficiencies into new markets; (iii) the increased utilization of efficiencies available through the Company's central administrative and management information functions; (iv) increased market awareness of Iron Mountain's national scope and presence; and (v) increased overall scale, which should broaden the range of and facilitate the Company's capital-raising activities. See "Risk Factors--Risks Associated with Acquisition Strategy." The Company also intends to continue to make fold-in acquisitions to augment its operations in existing markets. The Company's goal in its existing markets is to exploit economies of scale while maintaining high quality service. Following a new-market acquisition, the Company seeks to increase its business with the acquired customer base and to supplement that growth with new customers and, potentially, with appropriate fold-in acquisitions so that the Company may benefit from economies of scale. Premium Service Strategy Organizations selecting a provider of records management services consider a number of factors in addition to price. Management believes that Iron Mountain is a "premium" brand in the marketplace based upon its reputation for reliability, customer-oriented organization, investment in technology and national operating presence. The 45 Company seeks to exploit its strengths in each of these areas to maintain customer relationships and to attract new customers. Reputation for Reliability. The Company believes it has a reputation for reliability based on its more than 40 years of operations, the continuity and depth of its management, its successful historical growth, the quality and diversity of its customer base which includes more than half the Fortune 500, its technological capabilities and its size and financial resources. Customer-Oriented Organization and Locally Responsive Management. Iron Mountain has developed a decentralized, local management structure that brings significant management experience and stability to local markets and allows the Company to respond directly, effectively and flexibly to customers. Broad operating authority is delegated to regional Vice Presidents and to local managers. In pursuing its acquisition strategy, Iron Mountain seeks to capitalize upon the experience and strengths of existing management. In addition, all full-time union and non-union employees participate in incentive-based compensation programs that provide payments based on profits or attainment of specified objectives for the unit in which they work. Iron Mountain believes that the experience, stability and commitment of its regional and local management is integral to its ability to provide superior customer service and maximize growth potential. Investment in Technology. The Company has invested $12.5 million in technology since 1992 in order to provide faster and more flexible solutions for its customers and to enhance the quality and lower the costs of its own operations. The Company believes that its technological capabilities, especially its Safekeeper system, are a significant tool in attracting new customers. The Company plans to continue to invest in its proprietary technologies in the future. See "Technology and Development; Management Information Systems." National Operating Presence. The Company believes it is one of only four records management companies with a national operating presence. Traditionally, the purchase decision for large multi-site customers has been made at the local level. Recently, however, the Company has found that certain large organizations have sought to obtain operating and economic efficiencies by outsourcing a significant portion of their records management functions with a single records management company. The Company seeks to use its national operating presence to compete for such large multi-site customer accounts. Low-Cost Operating Strategy Iron Mountain pursues a low-cost operating strategy based primarily on achieving economies of scale in the areas of storage, labor and transportation, general and administrative functions and management information systems. The Company believes that it is one of the few records management companies with the size and resources to realize significant economies of scale in these areas. Storage Costs Because occupancy costs are a major component of the Company's cost of sales, reducing per Carton storage costs is a primary strategic goal of the Company and its real estate management staff. The Company seeks to minimize per Carton storage costs by: (i) designing racking systems and operating space to maximize facility storage efficiency; (ii) negotiating favorable facility leases and having facilities built to its custom specifications; and (iii) leasing larger facilities, which, when filled, are less expensive per Carton to operate. Since 1991, the Company has acquired or leased 11 custom-designed records management facilities. The average Carton density (the ratio of standard Carton storage capacity to total square feet of floor space) of these facilities is approximately twice that of the Company's overall average Carton density. As a result of these practices and after giving effect to the consummation of the Acquisitions, average Carton density in the Company's facilities increased 31% from December 31, 1992 to June 30, 1996. Labor and Transportation Efficiency The Company has made significant investments in computer technologies for its service operations, resulting in greater efficiencies. In addition, by increasing its operations and customer base in a local market area, the Company seeks to maximize its courier delivery fleet usage and to increase delivery and routing efficiencies. 46 The Company's incentive structure has also contributed to labor efficiency. Each of the Company's full-time employees participates in incentive compensation programs based upon achievement of specific operating targets designed to integrate the objectives and performance of records management facility employees and managers. For the six months ended June 30, 1996, the Company's employees earned incentive compensation in an amount equal to approximately 10.8% of the base wages paid by the Company. In part as a result of the foregoing factors, while the number of Cartons stored at the Company's facilities between January 1, 1992 and June 30, 1996 increased by approximately 15.6 million (or approximately 144%), the Company's staff increased during the same period by approximately 520 employees (or approximately 65%). G&A and MIS Efficiencies The Company's corporate staff provides support to local management in the areas of acquisitions, marketing, facility acquisition and leasing, racking system purchasing, finance and accounting and human resource management. In addition, the Company's corporate staff is responsible for the design and support of all records management technology. The Company believes that central support in these areas provides local managers with competitive advantages over smaller, local competitors and results in significant economies of scale. Technology and Development; Management Information Systems The Company pioneered the application of advanced information technology to the records management industry. Iron Mountain's proprietary Safekeeper system provides advanced inventory control and information access, enabling the Company to provide faster, higher quality and more flexible solutions to its customers and to lower the costs of its operations. Iron Mountain's Safekeeper system exploits bar-code technology to provide inventory integrity and a comprehensive, standardized approach to tracking, accessing and retrieving records. Safekeeper offers state-of-the-art records management capabilities and ease of access to customers while featuring security functions to protect customer information from unauthorized access. The system coordinates inventory control, order entry, billing, material sales, service activity, accounts receivable and management reporting, and features system-driven quality assurance and error-prevention. Since 1992, the Company has invested $12.5 million to develop and refine its management information systems, including Safekeeper. Safekeeper is built on an open systems architecture which is fully portable and can be implemented in small processing environments with several users and in large processing environments with hundreds of users. This allows the Company a substantial measure of flexibility and vendor independence, and reduces the risk of technological obsolescence. Safekeeper has improved the Company's customer support and operating efficiency in the following ways: (bullet)Acquisition System Integration. Safekeeper has been designed to easily and effectively integrate newly acquired records management companies and offer improved levels of customer service and records management capabilities to customers acquired through acquisitions. The critical components of integrating acquisition systems are the abilities to match the acquired company's carton identifiers, location identifiers, records descriptive data, and billing data. Safekeeper is designed with flexible, comprehensive capabilities in each of these areas. Consequently, an acquired company's inventory can be converted to Safekeeper without having to relabel cartons or reset and relabel inventory locations. The customers of the acquired company retain their records data and receive similar billing rate structures. In addition, acquisition customers experience minimal disruption during integration and, after conversion, gain access to advanced records management and information access capabilities. Safekeeper utilizes a suite of conversion routines to automate the conversion process and effectively translate customer and inventory information. (bullet)Storage Efficiency. Safekeeper enables the Company to maximize the efficient use of storage space at its facilities. When cartons are added or returned to storage, Safekeeper identifies available space and the location of the customer's other records at the facility. Because there is a continual flow of cartons into and out of the Company's facilities, Safekeeper also permits facility operators to utilize space that becomes available as soon as cartons are removed. Safekeeper can pinpoint the location of any carton, enabling facility operators to quickly determine the optimal location for new or returning cartons. 47 (bullet)Inventory Integrity. Bar-coding and scanning are used to track a carton or a record throughout its life cycle at Iron Mountain. Safekeeper identifies inventory discrepancies during the order processing cycle and forces their resolution before they affect the customer. This forced discrepancy resolution means that errors must be resolved before an order can be closed; until the order is closed, billing cannot be processed. Management believes that this system-driven quality assurance is a significant advantage over the "best efforts" approach used by most of its competitors. (bullet)Customer Information Access. Customers can access their records management data through a variety of formats, including direct access via Safekeeper Online, access on their own PCs via Safekeeper Desktop, integration of their internal system with Safekeeper via automated file transfers and paper reports. Safekeeper Online enables a customer to place orders directly via online access, resulting in efficiencies for Iron Mountain order processing. It features robust querying and searching tools to enable customers to identify records with only partial information. Safekeeper Desktop is a PC application, run from customers' desktop or network PCs; it provides customers with an entire set of records management data along with user-friendly tools for querying, reporting, and editing. Safekeeper's suite of file transfers enable customers to automatically transfer records data and service requests from their internal system to Safekeeper. The paper reports include inventory detail and summary, service activity analysis, quality assurance, and management review. (bullet)Records Management Flexibility. Safekeeper offers full life-cycle records management, from file creation to destruction, enabling each customer to establish schedules for records retention and destruction as dictated by the customer's specific needs. Safekeeper can flexibly accommodate large or small amounts of records management data in accordance with customer requirements. A series of customer-specific features and options allows Iron Mountain to tailor the records management functionality and reporting to the customer's needs. (bullet)Security. Safekeeper incorporates strict security protocols and procedures for all customers to prevent unauthorized access to a client's records information. Advanced security features that can automatically restrict access by departmental identification and/or type of service request are available to customers that are internally set up to provide this information. In addition to Safekeeper, the Company's data protection services facilities utilize the Company's Media Link(tm) software, a state-of-the-art media management system which provides integrated bar-code tracking and electronic data interface between customer and Iron Mountain facilities, as well as audit trail and remote inventory query functionality. The Company plans to continue to invest in its proprietary technologies in the future in order to enhance its customer service as well as to increase its own operating efficiency. Description of Iron Mountain Records Management Services Iron Mountain's records management services consist primarily of the storage operations for the management of hard copy documents. These and related services and products sold have, since 1992, accounted for approximately 85% of the Company's revenues. The balance of the Company's revenues come from the storage and service of vital records and data protection, consulting and other services. Storage Operations Storage revenues accounted for approximately 60% of revenues in each of the Company's last five fiscal years. Storage charges are generally billed monthly on a per storage unit basis (usually either per unit or per cubic foot of records) and include the provision of space, racking, computerized inventory and activity tracking, physical security, environmental and climate control and fire protection. The storage of a carton begins by issuing Safekeeper bar-coded labels to the customer. The customer packs records in cartons and affixes the bar-coded label to each carton. Customer personnel and the Iron Mountain driver conduct a physical count of the cartons and the driver signs for the cartons, which are then transported to the records management facility. Upon delivery to the facility, the cartons are subjected to a second physical count. The cartons are delivered to available space identified by Safekeeper and the bar-coded information is scanned into the computer together with a bar-coded location identifier. At the same time, a computer operator enters the customer's data describing the stored material into the computer and the system confirms that the cartons sent match the data entered 48 in the computer. Under the Company's computer control system, the order can only be closed out when all requisite steps and checks have been completed and counts and locations have been reconciled. Service and Courier Operations Principal services include adding cartons to storage, temporary removal of files or cartons from storage, refiling of removed records, permanent withdrawals from storage and destruction of records. Service charges are generally assessed for each procedure on a per unit basis. The Safekeeper system controls the service processes from order entry through transportation and invoicing. Courier operations consist primarily of the pickup and delivery of records upon customer request. Courier delivery schedules can be tailored to fit customers' needs, but generally customer orders received by 4:00 p.m. on a business day are delivered the following business day. The Company also provides same-day and immediate delivery during business hours and emergency delivery at night and on weekends and holidays. Charges for courier services are based on urgency of delivery, volume and location and are billed monthly as incurred. The Company currently utilizes a fleet of approximately 250 owned or leased delivery vehicles. Vital Records Services Vital records contain critical or irreplaceable data such as master audio and video recordings, film, software source code and other highly proprietary information. Vital records may require special facilities or services, either because of the data they contain or the media on which they are recorded. The Company's charges for providing enhanced security and special climate-controlled environments for vital records are higher than for typical storage functions. The Company provides the same ancillary services for vital records as it provides for its other storage operations. Data Protection Services Data protection services consist of the storage, backup and archiving of computer media as part of corporate disaster and business recovery plans. Computer tapes, cartridges and disk packs are transported off-site by the Company's courier operations on a scheduled basis to secure, climate-controlled facilities, where they are available to customers 24 hours a day, 365 days a year, to facilitate data recovery in the event of a disaster. This process is managed by Iron Mountain's Media Link software, a state-of-the-art media management system which provides integrated bar-code tracking, electronic data interface between customer and Iron Mountain's facilities as well as audit trail and remote inventory query functionality. Iron Mountain also manages tape library relocation and supports disaster recovery testing and execution. Additional Services and Products Iron Mountain offers a variety of additional services, which customers may request or contract for on an individual basis. These services include performing records inventories, packing records into cartons or other containers, computerized indexing of files and individual documents, developing schedules for the retention and destruction of records and records management consulting services. The Company also sells a full line of specially designed corrugated cardboard, metal and plastic storage containers. The Company's subsidiary, Iron Mountain Information Partners, Inc., provides professional consulting services to large customers, enabling them to develop and implement comprehensive records management programs. The Company's consulting business draws on the Company's 45 years of experience to analyze the practices of such companies and assist them in creating more effective programs of records management. The Company's consultants work with such customers to develop policies for document review, analysis and evaluation and for scheduling of document retention and destruction. In addition to its historical focus on the management of inactive records, the Company has recently begun to provide services for the management of active records. The Company can provide these services, which generally include document and file processing and storage, both off-site at its own facilities and by supplying its own personnel to perform management functions on-site at the customer's premises. The Company sees active records management as a potential source of future revenue growth for the Company, although there can be no assurance in this regard. 49 Potential International Investments Iron Mountain is considering capitalizing upon its expertise in the records management industry by making investments in records management businesses outside the United States. From time to time, the Company has had discussions concerning such investments. Such investments, if consummated, would be subject to risks and uncertainties relating to the indigenous political, social, regulatory, tax and economic structures of countries in those areas, as well as fluctuations in currency valuation, exchange controls, expropriation and governmental policies limiting returns to foreign investors. At this time, there can be no assurance as to whether any such investment will be made or, if made, will be successful in achieving its objectives. Customers The Company's customer base is diversified in terms of revenue and industry concentration. The Company has over 19,000 customer accounts. Iron Mountain considers each invoice it delivers to its customers a separate customer account and, accordingly, an organization which receives more than one invoice represents multiple customer accounts. The chart below shows, as of June 1994, the relative amounts of revenue attributable to certain business sectors. [Pie chart showing relative amounts of revenue attributable to certain business sectors] [TABULAR REPRESENTATION OF PIE CHART] Other Financial Institutions 10% Health Care 10% Professional Services 7% Government 6% Manufacturing 4% Retail 4% Entertainment 2% Other 19% Legal Services 16% Depository Institutions 14% Insurance Companies 5% The Company services accounts of all sizes, from small businesses and professional groups to over half of the Fortune 500. Other than the RTC or its successor, the FDIC, which accounted for 7.4%, 6.3%, 4.8% and 3.6% of Iron Mountain's revenues for the years ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996, respectively, no account or related set of accounts generated more than 3% of Iron Mountain's revenues during any such period. The Company's contract with the FDIC, as successor under the contract to the RTC, was renewed effective July 27, 1996 for a one-year term, with three further annual renewal options at the election of the FDIC. Although the substantial costs of removing its records from the Company's facilities may act as a disincentive to the FDIC to select another vendor, there can be no assurance that the contract will be further renewed or that the terms of such renewal will be as favorable to Iron Mountain as the terms of the current contract. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." Marketing and Sales The Company uses database marketing and a dedicated sales force to focus exclusively on new business development. A corporate marketing organization provides sales support, training, marketing communications and product management as support functions. The program has successfully produced over 900 new customer accounts per year since 1991. The selling effort is bolstered by regional and senior managers focused on key account selling. 50 Properties As of June 30, 1996, Iron Mountain conducted operations through 75 leased and 12 owned facilities containing a total of approximately 6.3 million square feet of space. The leased facilities typically have initial lease terms of 10 years with options to renew for an additional 10 years. The weighted average remaining term of the leases on these facilities is approximately 7.0 years. In addition, many of the leases contain either a purchase option or a right of first refusal upon the sale of the property. The leases include one property leased from affiliates of the Company. See "Management--Executive Compensation--Compensation Committee Interlocks and Insider Participation" and Note 8 of Notes to the Company's Audited Consolidated Financial Statements. As of June 30, 1996, the Company owned or leased (directly or through its subsidiaries) the following records management facilities in the geographic locations indicated below. Records Management State Facilities - ---------------- ------------- Arizona 2 California 23 Colorado 3 Connecticut 2 Delaware 1 Florida 4 Georgia 8 Illinois 3 Kansas 1 Kentucky 1 Massachusetts 7 Maryland 3 Missouri 2 New Hampshire 1 New Jersey 4 New York 4 Ohio 3 Pennsylvania 2 Rhode Island 1 Tennessee 1 Texas 8 Virginia 3 ----------- Total 87 =========== The Company or its principal subsidiary is a guarantor of a substantial portion of the leases to which other subsidiaries are party. Substantially all of the property and assets currently owned and leased by the Company or its subsidiaries are pledged as security for the lenders under the Credit Agreement. It is expected that, in connection with the New Credit Facility, such liens (other than the pledge of the stock of the Company's subsidiaries) will be released. See Notes 3 and 7 of Notes to the Company's Audited Consolidated Financial Statements for additional information regarding the Credit Agreement and the minimum annual rental commitments of the Company, respectively. 51 Employees A key feature of Iron Mountain's operating strategy is its decentralized management structure and reliance on local management operating in local business environments. The Company's operations are divided into three areas comprising seven local management regions to maximize marketing and operating effectiveness and to minimize supervisory costs. The management regions, each of which is managed by a Vice President, are further divided into a total of 27 districts, each managed by a General Manager. The management regions are overseen by offices in Boston and Los Angeles, but regional Vice Presidents and General Managers have broad operating authority. The Company's headquarters staff performs a variety of central administrative and support functions in order to maximize the time and resources that local personnel can devote to customer service and client development. Iron Mountain had approximately 1,200 full-time employees as of June 30, 1996, of whom approximately 89% are employed at the district level, 8% at the corporate level and the balance at the area and regional levels. Approximately 11% of the Company's employees are represented by various Teamsters Union locals under five different agreements. Two of these agreements, representing 42 employees, have expired and are currently under negotiation. Based on its prior experience with the two union locals involved in these negotiations, the Company expects that it will enter into new agreements on satisfactory terms. The remaining three contracts expire in December 1996, March 1997 and March 1999. In addition, at two of Iron Mountain's facilities an election, subject to National Labor Relation Board regulations, was held on June 20, 1996. A majority of the approximately 40 employees voted for representation by a Teamsters Union local. The election results have not been certified as of the date hereof. All non-union employees are eligible to participate in the Company's benefit programs, which include medical, dental, life, short and long-term disability and accidental death and dismemberment plans. Unionized employees receive these types of benefits through their unions. In addition to base compensation and other usual benefits, all full-time union and non-union employees participate in some form of incentive-based compensation program that provides payments based on profits, collections, or attainment of specified objectives for the unit in which they work. Management believes that the Company has good relationships with its employees and unions. Competition Iron Mountain competes with three other national companies as well as a large number of local and regional concerns. The Company believes that competition for customers is based on price, reputation for reliability, quality of service and scope and scale of technology, and believes that it generally competes effectively based on these factors. Management believes that, except for Pierce Leahy Corp., all of these competitors have records management revenues significantly lower than those of the Company. To accommodate growth, a records management vendor must invest in incremental storage capacity, which requires added warehouses, racking systems, and related equipment including computer systems capable of tracking increasingly large inventories. The amount of such investment is significant relative to the immediate return that can be realized, and the faster a vendor grows, the more capital is required. As a result, the industry trend toward consolidation will, in management's opinion, continue and accelerate. In addition, the Company faces competition from the internal document handling capability of its current and potential customers. There can be no assurance that these organizations will outsource more of their document management needs or that they will not bring in-house some or all of the functions they currently outsource. The Company also faces competition for acquisition candidates. The substantial majority of the Company's revenues have been derived from the storage of paper documents and from related services. Such storage requires significant physical space. Alternative technologies for generating, capturing, managing, transmitting and storing information have been developed, many of which require significantly less space than paper. Such technologies include computer media, microforms, audio/video tape, film, CD-ROM and optical disk. None of these technologies has replaced paper as the principal means for storing information. However, there can be no assurance that one or more non-paper-based technologies (whether now existing or developed in the future) may not in the future significantly reduce or supplant the use of paper as a preferred medium, which could in turn adversely affect the Company's business. 52 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 53 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. 54 MANAGEMENT Directors, Executive Officers and Certain Other Officers The Directors, executive officers and certain other officers of the Company are as follows:
Names of Directors and Executive Officers Age Position - ----------------------------------------- --- -------- C. Richard Reese (1) 50 Chairman of the Board of Directors and Chief Executive Officer David S. Wendell 42 President and Chief Operating Officer, Director Eugene B. Doggett (1) 60 Executive Vice President and Chief Financial Officer, Director Robert P. Swift 54 Executive Vice President Kenneth F. Radtke, Jr. 51 Executive Vice President Constantin R. Boden (2) (3) 60 Director Arthur D. Little (2) (3) 52 Director Vincent J. Ryan (1) (3) 60 Director Names of Certain Other Officers Age Position - ------------------------------- --- -------- Jean A. Bua 38 Vice President and Corporate Controller James R. Jandl 42 Vice President of Human Resources John F. Kenny 39 Vice President of Corporate Development Joseph J. Larizza 54 Vice President and Chief Information Officer John P. Lawrence 45 Vice President and Treasurer Kenneth A. Rubin 34 Vice President of Marketing T. Anthony Ryan 55 Vice President of Real Estate
- ------------- (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 prior to 1991, he was Vice President, New England Region. He holds a Master of Business Administration degree from Harvard Business School and a Juris Doctor degree from the University of Virginia. Eugene B. Doggett is the Executive Vice President and Chief Financial Officer of Iron Mountain, a position he has held since 1987. Mr. Doggett is also a Director of Schooner. Prior to joining the Company, he had extensive experience in commercial and investment banking, as well as financial and general management experience at senior levels. He holds a Master of Business Administration degree from Harvard Business School. Robert P. Swift is an Executive Vice President of Iron Mountain, a position he has held since November 1995. Prior to November 1995, Mr. Swift was the Executive Vice President, Western Area of Iron Mountain and prior to 1988, Mr. Swift was employed in various positions at Bell & Howell Records Management Company. Kenneth F. Radtke, Jr. is an Executive Vice President of Iron Mountain, a position that he has held since June 1996. Prior to June 1996, Mr. Radtke was Northeast Regional Vice President and prior to 1995 was Sales Manager, New York Region. Mr. Radtke has worked in the records and information industry since 1988 as President and Chief Executive Officer, Dataport Company, Inc. and Senior Vice President, Arcus, Inc. He holds a graduate degree from the University of Wisconsin, Graduate School of Banking. Constantin R. Boden is a Director of Iron Mountain, a position he has held since December 1990. Mr. Boden is on the advisory board of Boston Capital Ventures, a risk capital concern. For 33 years, until January 1995, Mr. Boden was employed by Bank of Boston, most recently as Executive Vice President, International Banking. He holds a Master of Business Administration degree from Harvard Business School. Arthur D. Little is a Director of Iron Mountain, a position he has held since November 1995. Mr. Little is a principal of The Little Investment Company, which he founded in 1992. Prior to that, he was Managing Director of and also a partner in Narraganset Capital, Inc., a private investment firm. He holds a Bachelor of Arts degree in history from Stanford University. Vincent J. Ryan is a Director of Iron Mountain. Mr. Ryan is the founder of Schooner and has served as Chairman and Chief Executive Officer of Schooner since 1971. Prior to November 1995, Mr. Ryan served as Chairman of the Board of Directors of Iron Mountain. Mr. Ryan also serves as a Director and member of the Executive Committee of Continental Cablevision, Inc. He holds a Bachelors of Arts degree in English from Boston University. Certain Other Officers Jean A. Bua is Vice President and Corporate Controller. Ms. Bua joined Iron Mountain in such capacity in March 1996. From 1993 to 1996, Ms. Bua was the Corporate Controller for Duracraft Corp., a consumer products manufacturer. Prior to that, Ms. Bua was the accounting manager for a high-tech manufacturer and was a management consultant for Ernst & Young. She holds a Master of Business Administration degree from the University of Rhode Island. Ms. Bua is a certified public accountant. James R. Jandl is Vice President of Human Resources. Mr. Jandl joined Iron Mountain in 1989. For the preceding nine years he was involved in human resources management in the hospitality industry with focus on operational start-up and turn-around situations. He holds a masters degree in psychology from West Georgia College. John F. Kenny is Vice President of Corporate Development, with primary responsibility for implementing the Company's acquisition strategy. Mr. Kenny joined Iron Mountain in 1991. Prior to 1991, he was a Vice President of CS First Boston Merchant Bank, New York, with responsibility for risk capital, portfolio and transaction management. He holds a Master of Business Administration degree from Harvard Business School. Joseph J. Larizza is Vice President and Chief Information Officer, with responsibility for management information systems, including oversight of the development of Iron Mountain's Safekeeper system. Prior to joining Iron Mountain in 1996, Mr. Larizza was the chief information officer at Service America, a large food service corporation and, prior to that, chief information officer at the Advertising Checking Bureau, with responsibility for information systems and development of client-server products. He holds a Bachelors degree in management from Post College. John P. Lawrence is Vice President and Treasurer, with responsibility for acquisition integration, internal audit, risk management and purchasing and contracting. Mr. Lawrence has been associated with Iron Mountain since 1988. 56 Prior to 1988, he worked for Hewlett Packard for nine years in various management positions in finance, control, marketing and manufacturing. He holds a Master of Business Administration degree from Harvard Business School. Kenneth A. Rubin is Vice President of Marketing. Mr. Rubin joined Iron Mountain in 1989. Prior to 1989, he was Director of both Sales and Marketing for Leahy/Instar, a records management company. He was also a founding director of Software Escrow Security. He holds a Bachelors degree in political science from Drew University. T. Anthony Ryan is Vice President of Real Estate. Mr. Ryan manages the real estate department of Iron Mountain and is responsible for identifying and evaluating new facility opportunities and negotiating long-term leases. He has been involved in real estate development for 22 years. His work experience includes positions as Director of Development for Gilbane Property, Vice President of CRJ Investments and, more recently, Vice President and Partner at the Linpro Company. He holds a Bachelors degree in history from The George Washington University. Biographical information of the Directors, executive officers and other officers is as of August 14, 1996. Executive Compensation The following table provides certain information concerning compensation earned by the Chief Executive Officer and each other executive officer serving in such capacity at December 31, 1995 who received compensation in excess of $100,000 (the "Named Executive Officers") for the years ended December 31, 1994 and December 31, 1995. Summary Compensation Table
Annual Compensation Long-Term Compensation -------------------- ------------------------------------ Number of Shares Underlying All Other Name and Principal Position Year(1) Salary Bonus Options Compensation(2) - --------------------------- ------- ------ ----- ---------------- --------------- C. Richard Reese 1995 $261,765 $200,000 0 $1,790 Chairman of the Board and 1994 $255,400 $125,000 0 $1,623 Chief Executive Officer David S. Wendell 1995 $136,627 $ 62,731 35,469 $1,573 President and Chief 1994 $129,800 $ 50,000 0 $1,352 Operating Officer Eugene B. Doggett 1995 $192,274 $165,000 0 $1,790 Executive Vice President 1994 $187,500 $ 93,750 0 $1,623 and Chief Financial Officer Robert P. Swift 1995 $131,119 $ 24,397 8,096 $1,243 Executive Vice President 1994 $126,600 $ 16,740 0 $ 865
- ------------- (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 Compensation Committee Interlocks and Insider Participation Prior to November 1995, Iron Mountain's Compensation Committee of the Board of Directors consisted of Constantin R. Boden and Vincent J. Ryan, who was until November 17, 1995 the Chairman of the Board. The present Compensation Committee consists of Mr. Little, who is the Chairman of the Committee, and Messrs. Boden and Ryan. Messrs. Reese and Doggett are executive officers of Iron Mountain and are directors of Schooner. Prior to November 1995, they were also executive officers of Schooner. Mr. Ryan is the Chairman of the Board and principal stockholder of Schooner. In 1993, the Company paid fees of $95,927 to Vincent J. Ryan for consulting services. In each of 1994 and 1995, the Company paid fees of $111,048 to Schooner for consulting services rendered by Mr. Ryan. These services and fees terminated as of December 31, 1995. Iron Mountain Records Management, Inc. ("IMRM"), a subsidiary of the Company, is the tenant under a lease dated January 1, 1991 for a 31,500 square-foot building in Houston, Texas. The owner of the building is IM Houston (CR) Limited Partnership, a Texas limited partnership, of which Mountain Realty, Inc., a Massachusetts corporation whose sole stockholder is Vincent J. Ryan, is the sole general partner, and the limited partners of which are Vincent J. Ryan, C. Richard Reese and Eugene B. Doggett. The term of the lease expires December 31, 2000, with two five-year extension options exercisable by IMRM. IMRM currently pays annual rent in the amount of approximately $94,000, subject to adjustment in 1997 and 1999 (and in the option periods if the term is extended) based upon percentage changes in the consumer price index, with a floor of 3% and a ceiling of 5%, compounded annually. As tenant, IMRM is responsible for taxes, insurance and maintenance. The space is used by IMRM as a records management facility. During 1993, 1994, 1995 and the six months ended June 30, 1996, IMRM paid rent in the annual amount of $88,000, $88,000, $94,000 and $47,000, respectively, under the lease. The lease is, in the opinion of management, on commercially reasonable terms, no less favorable to IMRM than could have been obtained from an unaffiliated party at the time of the transaction. The Company paid compensation of $120,000, $144,000, $154,000 and $62,000 for 1993, 1994, 1995 and the six months ended June 30, 1996, respectively, to Mr. T. Anthony Ryan. Mr. Ryan is Vice President, Real Estate, of the Company and is the brother of Mr. Vincent J. Ryan, a Director and the former Chairman of the Board of the Company. The Company believes that the terms of Mr. Ryan's employment are no less favorable to it than would be negotiable with an unrelated third party. Iron Mountain is indebted to Schooner in the principal amount of approximately $383,000 under a junior subordinated note which bears interest at a rate of 8% per annum. This indebtedness, which matures in March, 2000, was incurred by Iron Mountain in 1990 in connection with an acquisition. Schooner subsequently acquired the note from the holder as an investment. Schooner leases space from Iron Mountain at Iron Mountain's corporate headquarters. Such lease is a tenancy- at-will and may be terminated by either Iron Mountain or Schooner at any time. As consideration for such lease, Schooner pays rent to Iron Mountain based on its pro rata share of all expenses related to the use and occupancy of the premises. The rent paid by Schooner to Iron Mountain under such lease was approximately $48,000, $58,000, $59,000 and $33,000 in 1993, 1994, 1995 and the six months ended June 30, 1996, respectively. Employees of Schooner were eligible to participate in the Iron Mountain Profit Sharing Retirement Plan, a Section 401(k) plan, as well as the Company's group medical, dental, life, disability and accidental death and dismemberment arrangements (the "Company Benefit Plans"). Schooner reimbursed the Company for costs incurred as a result of the participation of Schooner employees in Company Benefit Plans. Participation by Schooner employees in the Company Benefit Plans terminated shortly after the consummation of the Initial Public Offering. Director Compensation Directors who are employees of the Company do not receive additional compensation for serving as directors. Each director who is not an employee of the Company (each an "Eligible Director") receives an annual retainer fee of $10,000 as compensation for his or her services as a member of the Board of Directors and is also paid $2,500 per quarter (to a maximum of $10,000 per year) for attendance at meetings (the "Director's Compensation"). All directors of the Company are reimbursed for out-of-pocket expenses incurred in attending meetings of the Board of Directors or committees thereof, and for other expenses incurred in their capacities as directors of the Company. 58 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
Potential Realizable Value At Number of % of Total Assumed Annual Rates of Securities Option Stock Appreciation for Underlying Granted to Exercise Option Terms (2 Options Employees in Price Per Expiration --------------------------- Name Granted Fiscal Year Share Date 5%(%) 10%($) - ----- ---------- ------------ --------- ---------- ------ ------ 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
- ------------- (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 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
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 - ---- ----------- ------------- ----------- ------------- 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
- ------------- (1) Based on the initial public offering price of $16.00 per share, less the exercise price. CERTAIN TRANSACTIONS In 1993, in connection with the employment of David S. Wendell, the Company made demand loans to Mr. Wendell in an aggregate principal amount of $70,000 in connection with Mr. Wendell's purchase of a home. The loans bear interest at a rate equal to the Company's cost to borrow such funds and are secured by a pledge of stock and a second mortgage on the home. As of August 14, 1996, the principal balance of the loans was $25,000. See "Management--Executive Compensation--Compensation Committee Interlocks and Insider Participation" for a discussion of: (i) certain payments to Vincent J. Ryan and Schooner for consulting services; (ii) a lease between a partnership affiliated with Messrs. Doggett, Reese and Ryan and a subsidiary of the Company; (iii) the familial relationship between Vincent J. Ryan, an Iron Mountain Director, and T. Anthony Ryan, an Iron Mountain officer; (iv) a lease between Schooner and the Company; (v) certain indebtedness of Iron Mountain to Schooner; and (vi) Schooner's prior participation in Iron Mountain's 401(k) plan and certain other employee benefit plans. 60 PRINCIPAL STOCKHOLDERS The following table sets forth certain information known to the Company with respect to beneficial ownership of Common Stock by: (i) each stockholder known by the Company to be the beneficial owner of more than five percent of the Common Stock; (ii) each director; (iii) each Named Executive Officer; and (iv) all executive officers and directors of the Company as a group. Such information is presented as of August 14, 1996. Amount of Beneficial Ownership (1) ------------------- Percent Name Shares Owned - ---- ------ ------ Directors and Executive Officers: C. Richard Reese (2) 1,127,503 11.7% David S. Wendell (3) 83,815 * Eugene B. Doggett (4) 219,745 2.3% Robert P. Swift (5) 15,421 * Constantin R. Boden (6) 19,746 * Arthur D. Little (7) 98,730 1.0% Vincent J. Ryan (8) 3,503,250 36.4% All Directors and executive officers as a group (8 persons)(9) 4,371,289 45.0% Five Percent Stockholder: Schooner Capital Corporation(10) 1,909,384 19.8% - ------------- * Less than 1% (1) Except as otherwise indicated, the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. (2) Mr. Reese is a director and Chairman of the Board and Chief Executive Officer of the Company. Includes 12,160 shares of Common Stock held by trusts for the benefit of Mr. Reese's children, as to which Mr. Reese disclaims beneficial ownership. Also includes 668,166 shares of Common Stock as to which Mr. Reese shares beneficial ownership with Schooner as a result of a 1988 deferred compensation arrangement, as amended, between Schooner and Mr. Reese relating to Mr. Reese's former services as President of Schooner. Pursuant to such arrangement, upon the earlier to occur of (i) Schooner's sale or exchange of substantially all of the shares of Common Stock held by Schooner or (ii) the cessation of Mr. Reese's employment with Iron Mountain, Schooner is required to transfer such shares of Common Stock to Mr. Reese or remit to Mr. Reese cash in an amount equal to the then current fair market value of such shares of Common Stock. Schooner has agreed to vote the shares of Common Stock subject to such arrangement at the direction of Mr. Reese. Mr. Reese's address is c/o Iron Mountain Incorporated, 745 Atlantic Avenue, Boston, Massachusetts 02111. (3) Mr. Wendell is a director and President and Chief Operating Officer of the Company. Includes 79,960 shares that Mr. Wendell has the right to acquire pursuant to currently exercisable options. See "Executive Compensation." Mr. Wendell's address is c/o Iron Mountain Incorporated, 745 Atlantic Avenue, Boston, Massachusetts 02111. (4) Mr. Doggett is a director and Executive Vice President and Chief Financial Officer of the Company. Includes 29,550 shares of Common Stock as to which Mr. Doggett shares beneficial ownership with Schooner as a result of a 1988 deferred compensation arrangement, as amended, between Schooner and Mr. Doggett relating to Mr. Doggett's former services as Chief Financial Officer of Schooner. Pursuant to such arrangement, upon the earlier to occur of (i) Schooner's sale or exchange of substantially all of the shares of Common Stock held by Schooner or (ii) the cessation of Mr. Doggett's employment with Iron Mountain, Schooner is required to transfer such shares of Common Stock to Mr. Doggett or remit to Mr. Doggett cash in an amount equal to the then current fair market value of such shares of Common Stock. Schooner has agreed to vote the shares of Common Stock subject to such arrangement at the direction of Mr. Doggett. Mr. Doggett's address is c/o Iron Mountain Incorporated, 745 Atlantic Avenue, Boston, Massachusetts 02111. 61 (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 DESCRIPTION OF THE NOTES General The Notes will be issued pursuant to an Indenture (the "Indenture") between the Company and , as trustee (the "Trustee"). The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. A copy of the proposed form of Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The definitions of certain terms used in the following summary are set forth below under "Certain Definitions." Principal, Maturity and Interest The Notes will be general unsecured obligations of the Company, will be limited in aggregate principal amount to $150 million and will mature on , 2006. Interest on the Notes will accrue at the rate of % per annum and will be payable semi-annually in arrears on and , commencing on , 1997, to Holders of record on the immediately preceding and . Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Notes will be payable both as to principal and interest at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holders of Notes at their addresses set forth in the register of Holders of Notes. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be issued in registered form, without coupons, and in denominations of $1,000 and integral multiples thereof. Subsidiary Guarantees The Company's payment obligations under the Notes will be jointly and severally guaranteed (the "Subsidiary Guarantees") on an unsecured senior subordinated basis by all of the Company's existing and future Restricted Subsidiaries other than the Excluded Restricted Subsidiaries (see "Certain Covenants--Additional Subsidiary Guarantees"). Each Subsidiary Guarantee will be subordinated to the prior payment in full of all Senior Debt of each such Restricted Subsidiary, which on a pro forma basis would have been $ million at June 30, 1996 for all Restricted Subsidiaries. Notwithstanding the subordination provisions contained in the Indenture, the obligations of a Restricted Subsidiary under its Subsidiary Guarantee will be unconditional. See "Risk Factors--Unenforceability and Release of Guarantees." Subordination The payment of principal of, premium, if any, and interest on the Notes will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full in cash of all Obligations with respect to Senior Debt, whether outstanding on the date of the Indenture or thereafter incurred. Upon any payment or distribution to creditors of the Company or any Restricted Subsidiary in a liquidation or dissolution of the Company or such Restricted Subsidiary or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or any Restricted Subsidiary or its property, an assignment for the benefit of creditors or any marshaling of the assets and liabilities of the Company or any Restricted Subsidiary, (a) the holders of Senior Debt will be entitled to receive payment in full in cash of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before the Holders of Notes will be entitled to receive any payment or distribution with respect to the Notes, and (b) until all Obligations with respect to Senior Debt are paid in full in cash, any payment or distribution to which the Holders of Notes would be entitled shall be made to the holders of Senior Debt (except that Holders of Notes may receive securities under a plan of reorganization that are 63 subordinated at least to the same extent as the Notes are subordinated to Senior Debt and any securities issued in exchange for Senior Debt). Neither the Company nor any Restricted Subsidiary may make any payment or distribution upon or in respect of the Notes, including, without limitation, by way of set-off or otherwise, or redeem (or make a deposit in redemption of), defease or acquire any of the Notes for cash, properties or securities (except in subordinated securities in a plan of reorganization) if (a) a default in the payment of any Obligation in respect of any Senior Debt occurs and is continuing or (b) any other default (or any event that, after notice or passage of time would become an event of default) (a "Non-Monetary Default") occurs and is continuing with respect to Senior Debt and, in the case of clause (b), the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the holders (or the agent or representative of such holders) of any Designated Senior Debt. Payments on the Notes may and shall be resumed (i) in the case of a payment default, on the date on which such default is cured or waived and (ii) in the case of a Non-Monetary Default, on the earlier of the date on which such Non- Monetary Default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Senior Debt has been accelerated. Any number of Payment Blockage Notices may be given, provided, however, that: (A) during any consecutive 360-day period, the aggregate number of days in which payments in respect of the Notes may not be made shall not exceed 179 days; (B) there shall be a period of at least 181 consecutive days in each 360-day period when such payments are not prohibited pursuant to a Payment Blockage Notice; and (C) any Non-Monetary Default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall not be the basis for a subsequent Payment Blockage Notice, unless such default has been cured or waived for a period of not less than 180 consecutive days. The Indenture will further require that the Company promptly notify holders of Senior Debt if payment of the Notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a liquidation or insolvency, Holders of Notes may recover less ratably than creditors of the Company who are holders of Senior Debt. On a pro forma basis, after giving effect to the Transactions, the principal amount of Senior Debt of the Company and the Restricted Subsidiaries outstanding at June 30, 1996 would have been $10.8 million. The Indenture will not limit the amount of additional Indebtedness, including Senior Debt, that the Company and its Subsidiaries can incur if certain financial tests are met. See "Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." Optional Redemption The Notes will not be redeemable at the Company's option prior to , 2001. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to but excluding the applicable redemption date, if redeemed during the twelve-month period beginning on of the years indicated below: Year Percentage - ----- ---------- 2001 % 2002 % 2003 % 2004 and thereafter 100% Notwithstanding the foregoing, at any time during the first 36 months after the date of issuance of the Notes, the Company may redeem up to 35% of the initial principal amount of the Notes originally issued with the net cash proceeds of one or more Qualified Equity Offerings at a redemption price equal to % of the principal amount of such Notes, plus accrued and unpaid interest, if any, to but excluding the date of redemption; provided, that at least 65% of the principal amount of Notes originally issued remains outstanding immediately after the occurrence of any such redemption and that such redemption occurs within 60 days following the closing of any such Qualified Equity Offering. 64 Mandatory Redemption Except with respect to required repurchases upon the occurrence of a Change of Control or in the event of certain Asset Sales, each as described below under "Repurchase at the Option of Holders," the Company is not required to make sinking fund or redemption payments with respect to the Notes. Repurchase at the Option of Holders Change of Control Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to but excluding the date of purchase (the "Change of Control Payment"). Within 30 calendar days following any Change of Control, the Company will mail a notice to each Holder stating: (a) that the Change of Control Offer is being made pursuant to the covenant entitled "Change of Control" and that all Notes tendered will be accepted for payment; (b) the purchase price and the purchase date, which will be no earlier than 30 calendar days nor later than 60 calendar days from the date such notice is mailed (the "Change of Control Payment Date"); (c) that any Note not tendered will continue to accrue interest; (d) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest on and after the Change of Control Payment Date; (e) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in such notice prior to the close of business on the fifth Business Day preceding the Change of Control Payment Date; (f) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have such Notes purchased; and (g) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable to the repurchase of the Notes in connection with a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (a) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer, (b) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (c) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof tendered to the Company. The Paying Agent will promptly mail to each Holder of Notes so accepted the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar restructuring, nor does it contain any other "event risk" protections for Holders of the Notes. Although the Change of Control provision may not be waived by the Company, and may be waived by the Trustee only in accordance with the provisions of the Indenture, there can be no assurance that any particular transaction (including a highly leveraged transaction) cannot be structured or effected in a manner not constituting a Change of Control. The Credit Agreement currently prohibits the Company from purchasing any Notes prior to the expiration of the Credit Agreement and also provides that certain change of control events with respect to the Company would constitute a default thereunder. The New Credit Facility is expected to contain, and any future credit agreements 65 or other agreements relating to Senior Debt to which the Company becomes a party may contain, similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Credit Agreement and is expected to constitute an event of default under the New Credit Facility. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes. "Change of Control" means the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than the Principal Stockholders (or any of them), is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than a majority of the voting power of all classes of Voting Stock of the Company; (b) the Company consolidates with, or merges with or into, another Person or conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding Voting Stock of the Company is not converted or exchanged at all (except to the extent necessary to reflect a change in the jurisdiction of incorporation) or is converted into or exchanged for (A) Voting Stock (other than Disqualified Stock) of the surviving or transferee Person or (B) cash, securities and other property (other than Capital Stock described in the foregoing clause (A)) of the surviving or transferee Person in an amount that could be paid as a Restricted Payment as described under the "Limitation on Restricted Payments" covenant and (ii) immediately after such transaction, no "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than the Principal Stockholders (or any of them), is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than a majority of the total outstanding Voting Stock of the surviving or transferee Person; (c) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election to such Board of Directors, or whose nomination for election by the stockholders of the Company, was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (d) the Company is liquidated or dissolved or adopts a plan of liquidation or dissolution other than in a transaction which complies with the provisions described under "Consolidation, Merger and Sale of Assets." Asset Sales The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, (a) sell, lease, convey or otherwise dispose of any assets (including by way of a Sale and Leaseback Transaction, but excluding a Qualifying Sale and Leaseback Transaction) other than sales of inventory in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company will be governed by the provisions of the Indenture described above under the caption "Change of Control" and/or the provisions described below under the caption "Merger, Consolidation or Sale of Assets" and not by the provisions of this covenant), or (b) issue or sell Equity Interests of any of its Restricted Subsidiaries, that, in the case of either clause (a) or (b) above, whether in a single transaction or a series of related transactions, (i) have a fair market value in excess of $1.0 million, or (ii) result in Net Proceeds in excess of $1.0 million (each of the foregoing, an "Asset Sale"), unless (x) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by an Officers' Certificate delivered to the Trustee, and for Asset Sales having a fair market value or resulting in net proceeds in excess of $5.0 million, evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate 66 delivered to the Trustee) of the assets sold or otherwise disposed of and (y) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or like-kind assets (in each case as determined in good faith by the Company, evidenced by a resolution of the Board of Directors and certified by an Officers' Certificate filed with the Trustee); provided, however, that the amount of (A) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or in the notes thereto) of the Company or such Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets and (B) any notes or other obligations received by the Company or such Restricted Subsidiary from such transferee that are immediately converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received) or Cash Equivalents, shall be deemed to be cash for purposes of this provision; and provided, further, that the 75% limitation referred to in the foregoing clause (y) shall not apply to any Asset Sale in which the cash portion of the consideration received therefrom is equal to or greater than what the after-tax proceeds would have been had such Asset Sale complied with the aforementioned 75% limitation. A transfer of assets or issuance of Equity Interests by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary will not be deemed to be an Asset Sale. Within 360 days of any Asset Sale, the Company may, at its option, apply an amount equal to the Net Proceeds from such Asset Sale either (a) to permanently reduce Senior Debt, or (b) to an investment in a Restricted Subsidiary or in another business or capital expenditure or other long-term/tangible assets, in each case, in the same line of business as the Company or any of its Restricted Subsidiaries was engaged in on the date of the Indenture or in businesses similar or reasonably related thereto. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Bank Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from such Asset Sale that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Selection and Notice If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate, provided that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions of them called for redemption. Certain Covenants Restricted Payments The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (a) declare or pay any dividend or make any distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or such Restricted Subsidiary or dividends or distributions payable to the Company or any Restricted Subsidiary of the Company); (b) purchase, redeem or otherwise acquire 67 or retire for value any Equity Interests of the Company or any Restricted Subsidiary or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Restricted Subsidiary); (c) purchase, redeem or otherwise acquire or retire prior to scheduled maturity for value any Indebtedness that is subordinated in right of payment to or pari passu with the Notes or (d) make any Investment other than a Permitted Investment (all such payments and other actions set forth in clauses (a) through (d) above being collectively referred to as "Restricted Payments"), unless, at the time of such Restricted Payment: (i) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (ii) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock;" and (iii) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture is less than (x) the cumulative EBITDA of the Company, minus 1.75 times the cumulative Consolidated Interest Expense of the Company, in each case for the period (taken as one accounting period) from June 30, 1996, to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment, plus (y) the aggregate net Equity Proceeds received by the Company from the issuance or sale since the date of the Indenture of Equity Interests of the Company or of debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests or convertible debt securities sold to a Restricted Subsidiary of the Company and other than Disqualified Stock or debt securities that have been converted into Disqualified Stock), plus (z) $2.0 million. The foregoing provisions will not prohibit (A) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (B) the redemption, repurchase, retirement or other acquisition or retirement for value of any Equity Interests of the Company in exchange for, or with the net cash proceeds of, the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); (C) the defeasance, redemption, repurchase, retirement or other acquisition or retirement for value of Indebtedness that is subordinated or pari passu in right of payment to the Notes in exchange for, or with the net cash proceeds of, a substantially concurrent issuance and sale (other than to a Restricted Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); (D) the defeasance, redemption, repurchase, retirement or other acquisition or retirement for value of Indebtedness that is subordinated or pari passu in right of payment to the Notes in exchange for, or with the net cash proceeds of, a substantially concurrent issue and sale (other than to the Company or any of its Restricted Subsidiaries) of Refinancing Indebtedness; (E) the repurchase of any Indebtedness subordinated or pari passu in right of payment to the Notes at a purchase price not greater than 101% of the principal amount of such Indebtedness in the event of a Change of Control in accordance with provisions similar to the "Change of Control" covenant, provided that prior to or contemporaneously with such repurchase the Company has made the Change of Control Offer as provided in such covenant with respect to the Notes and has repurchased all Notes validly tendered for payment in connection with such Change of Control Offer; (F) the prepayment of the Chrysler Notes, together with premium and interest thereon; (G) the prepayment of $382,500 of junior subordinated notes issued by the Company in connection with a 1990 acquisition and currently held by Schooner Capital Corporation, together with interest thereon; and (H) additional payments to current or former employees of the Company for repurchases of stock, stock options or other equity interests, provided that the aggregate amount of all such payments under this clause (H) does not exceed $500,000 in any year and $2.0 million in the aggregate. The Restricted Payments described in clauses (B), (C), (E) and (H) of the immediately preceding paragraph will be Restricted Payments that will be permitted to be taken in accordance with such paragraph but will reduce the amount that would otherwise be available for Restricted Payments under clause (iii) of the first paragraph of this section, and the Restricted Payments described in clauses (A), (D), (F) and (G) of the immediately preceding paragraph will be Restricted Payments that will be permitted to be taken in accordance with such paragraph and will not reduce the amount that would otherwise be available for Restricted Payments under clause (iii) of the first paragraph of this section. 68 If an Investment resulted in the making of a Restricted Payment, the aggregate amount of all Restricted Payments deemed to have been made as calculated under the foregoing provision will be reduced by the amount of any net reduction in such Investment (resulting from the payment of interest or dividends, loan repayment, transfer of assets or otherwise) to the extent such net reduction is not included in the Company's EBITDA; provided, however, that the total amount by which the aggregate amount of all Restricted Payments may be reduced may not exceed the lesser of (a) the cash proceeds received by the Company and its Restricted Subsidiaries in connection with such net reduction and (b) the initial amount of such Investment. If the aggregate amount of all Restricted Payments calculated under the foregoing provision includes an Investment in an Unrestricted Subsidiary or other Person that thereafter becomes a Restricted Subsidiary, such Investment will no longer be counted as a Restricted Payment for purposes of calculating the aggregate amount of Restricted Payments. For the purpose of making any calculations under the Indenture, (a) an Investment will include the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and will exclude the fair market value of the net assets of any Unrestricted Subsidiary that is designated as a Restricted Subsidiary, (b) any property transferred to or from an Unrestricted Subsidiary will be valued at fair market value at the time of such transfer, provided that, in each case, the fair market value of an asset or property is as determined by the Board of Directors in good faith, and (c) subject to the foregoing, the amount of any Restricted Payment, if other than cash, will be determined by the Board of Directors, whose good faith determination will be conclusive. The Board of Directors may designate a Restricted Subsidiary to be an Unrestricted Subsidiary in compliance with the covenant entitled "Unrestricted Subsidiaries." Upon such designation, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments made at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Incurrence of Indebtedness and Issuance of Preferred Stock The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness and may permit a Restricted Subsidiary to incur Indebtedness if at the time of such incurrence and after giving effect thereto the Leverage Ratio would be less than 6.0 to 1.0. The foregoing limitations will not apply to (a) the incurrence by the Company or any Restricted Subsidiary of Senior Bank Debt in an aggregate amount not to exceed $25.0 million at any one time outstanding, (b) the issuance by the Restricted Subsidiaries of Subsidiary Guarantees, (c) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness, (d) the issuance by the Company of the Notes, (e) the incurrence by the Company and its Restricted Subsidiaries of Capital Lease Obligations and/or additional Indebtedness constituting purchase money obligations up to an aggregate of $2.5 million at any one time outstanding, provided that the Liens securing such Indebtedness constitute Permitted Liens, (f) the incurrence of Indebtedness between (i) the Company and its Restricted Subsidiaries and (ii) the Restricted Subsidiaries, (g) Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding, (h) the incurrence by the Company and its Restricted Subsidiaries of Indebtedness arising out of letters of credit, performance bonds, surety bonds and bankers' acceptances incurred in the ordinary course of business up to an aggregate of $2.0 million at any one time outstanding, (i) the incurrence by the Company and its Restricted Subsidiaries of Indebtedness consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets, including, without limitation, shares of Capital Stock, and (j) the incurrence by the Company and its Restricted Subsidiaries of Refinancing Indebtedness issued in exchange for, or the proceeds of which are used to repay, redeem, defease, extend, refinance, renew, replace or refund, Indebtedness referred to in clauses (b) through (e) above, and this clause (j). 69 Liens The Indenture will provide that neither the Company nor any of its Restricted Subsidiaries may directly or indirectly create, incur, assume or suffer to exist any Lien (other than a Permitted Lien) upon any property or assets now owned or hereafter acquired, or any income, profits or proceeds therefrom, or assign or otherwise convey any right to receive income therefrom, unless (a) in the case of any Lien securing any Indebtedness that is subordinate to the Notes, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Lien and (b) in the case of any other Lien, the Notes are equally and ratably secured with the obligation or liability secured by such Lien. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (a) (i) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits, or (ii) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (b) make loans or advances to the Company or any of its Restricted Subsidiaries or (c) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reasons of (1) Existing Indebtedness as in effect on the date of the Indenture, (2) the Credit Agreement as in effect as of the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancing thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive in the aggregate with respect to such dividend and other payment restrictions than those contained in the Credit Agreement as in effect on the date of the Indenture, (3) the Indenture and the Notes, (4) applicable law, (5) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that the EBITDA of such Person is not taken into account in determining whether such acquisition was permitted by the terms of the Indenture, (6) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (7) restrictions on the transfer of property subject to purchase money or capitalized lease obligations otherwise permitted by clause (e) of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock," or (8) permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Refinancing Indebtedness are no more restrictive in the aggregate than those contained in the agreements governing the Indebtedness being refinanced. Merger, Consolidation, or Sale of Assets The Indenture will provide that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless (a) the Company is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes and the Indenture pursuant to a supplemental indenture in a form and in substance reasonably satisfactory to the Trustee; (c) immediately after such transaction no Default or Event of Default exists; and (d) the Company or Person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made, 70 will, at the time of such transaction and after giving pro forma effect thereto, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock." Transactions with Affiliates The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with a non-Affiliated Person and (b) the Company delivers to the Trustee (i) with respect to any Affiliate Transaction involving aggregate payments in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (a) above and such Affiliate Transaction is approved by a majority of the disinterested members of the Board of Directors and (ii) with respect to any Affiliate Transaction involving aggregate payments in excess of $5.0 million, an opinion as to the fairness to the Company or such Restricted Subsidiary from a financial point of view issued by an investment banking firm of national standing; provided, however, that (A) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, (B) transactions between or among the Company and/or its Restricted Subsidiaries, (C) transactions permitted by the provisions of the Indenture described above under the covenant "Restricted Payments" and (D) the grant of stock, stock options or other equity interests to employees and directors of the Company in accordance with duly adopted Company stock grant, stock option and similar plans, in each case, shall not be deemed Affiliate Transactions; and further provided that (1) the provisions of clause (b) shall not apply to sales of inventory by the Company or any Restricted Subsidiary to any Affiliate in the ordinary course of business and (2) the provisions of clause (b) (ii) shall not apply to loans or advances to the Company or any Restricted Subsidiary from, or equity investments in the Company or any Restricted Subsidiary by, any Affiliate to the extent permitted by the provisions of the Indenture described above under the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock." Certain Senior Subordinated Debt The Indenture will provide that (a) the Company will not incur any Indebtedness that is subordinated or junior in right of payment to any Senior Debt of the Company and senior in any respect in right of payment to the Notes, and (b) the Company will not permit any Restricted Subsidiary to incur any Indebtedness that is subordinated or junior in right of payment to its Senior Debt and senior in any respect in right of payment to its Subsidiary Guarantee. Additional Subsidiary Guarantees The Indenture will provide that if any entity (other than an Excluded Restricted Subsidiary) shall become a Restricted Subsidiary after the date of the Indenture, then such Restricted Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion of counsel with respect thereto, in accordance with the terms of the Indenture. The Indenture will provide that no Restricted Subsidiary may consolidate with or merge with or into (whether or not such Restricted Subsidiary is the surviving Person), another Person (other than the Company) whether or not affiliated with such Restricted Subsidiary unless (a) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Restricted Subsidiary) assumes all the obligations of such Restricted Subsidiary under its Subsidiary Guaranty, if any, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee; (b) immediately after giving effect to such transaction, no Default or Event of Default exists; and (c) such Restricted Subsidiary, or any Person formed by or surviving any such consolidation or merger, would be permitted to incur, immediately after giving effect to such transaction, at least $1.00 of additional Indebtedness pursuant to the test set forth in the first paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock." The Indenture will provide that in the event of (a) a sale or other disposition of all of the assets of any Restricted Subsidiary, by way of merger, consolidation or otherwise, (b) a sale or other disposition of all of the capital stock 71 of any Restricted Subsidiary, or (c) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary in accordance with the terms of the covenant entitled "Unrestricted Subsidiaries," then such Subsidiary (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Restricted Subsidiary) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such Restricted Subsidiary) will be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "Redemption or Repurchase at Option of Holders--Asset Sales." Unrestricted Subsidiaries The Board of Directors may designate any Subsidiary (including any Restricted Subsidiary or any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary so long as: (i) neither the Company nor any Restricted Subsidiary is directly or indirectly liable for any Indebtedness of such Subsidiary; (ii) no default with respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; (iii) any Investment in such Subsidiary deemed to be made as a result of designating such Subsidiary an Unrestricted Subsidiary will not violate the provisions of the covenant entitled "Limitation on Restricted Payments;" (iv) neither the Company nor any Restricted Subsidiary has a contract, agreement, arrangement, understanding or obligation of any kind, whether written or oral, with such Subsidiary other than (A) those that might be obtained at the time from Persons who are not Affiliates of the Company or (B) administrative, tax sharing and other ordinary course contracts, agreements, arrangements and understandings or obligations entered into in the ordinary course of business; and (v) neither the Company nor any Restricted Subsidiary has any obligation to subscribe for additional shares of Capital Stock or other Equity Interests in such Subsidiary, or to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results other than as permitted under the covenant entitled "Limitation on Restricted Payments." Notwithstanding the foregoing, the Company may not designate as an Unrestricted Subsidiary any Subsidiary which, on the date of the Indenture, is a Significant Subsidiary, and may not sell, transfer or otherwise dispose of any properties or assets of any such Significant Subsidiary to an Unrestricted Subsidiary, other than in the ordinary course of business. The Board of Directors may designate any Unrestricted Subsidiary as a Restricted Subsidiary; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if (i) such Indebtedness is permitted under the "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant and (ii) no Default or Event of Default would occur as a result of such designation. Reports Whether or not required by the rules and regulations of the Securities and Exchange Commission (the "Commission"), so long as any Notes are outstanding, the Company will furnish to the Holders of Notes (a) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (b) all financial information that would be required to be included in a Form 8-K filed with the Commission if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to investors who request it in writing. Events of Default and Remedies The Indenture will provide that each of the following constitutes an Event of Default: (a) default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (b) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (c) failure by the Company to comply with the provisions described under "Change of Control;" (d) failure by the Company or any Restricted Subsidiary for 60 72 days after written notice from the Trustee or Holders of not less than 25% of the aggregate principal amount of the Notes outstanding to comply with any of its other agreements in the Indenture, Notes or the Subsidiary Guarantees; (e) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee exists on the date of the Indenture or is created thereafter, if (i) such default results in the acceleration of such Indebtedness prior to its express maturity or shall constitute a default in the payment of such Indebtedness at final maturity of such Indebtedness, and (ii) the principal amount of any such Indebtedness that has been accelerated or not paid at maturity, when added to the aggregate principal amount of all other such Indebtedness that has been accelerated or not paid at maturity, exceeds $5.0 million; (f) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which judgments remain unpaid, undischarged or unstayed for a period of 60 days; (g) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries; and (h) except as permitted by the Indenture, any Subsidiary Guarantee issued by a Restricted Subsidiary shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect, or any Restricted Subsidiary or any Person acting on behalf of any Restricted Subsidiary shall deny or disaffirm its obligations under its Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided, however, that if any Obligation with respect to Senior Bank Debt is outstanding pursuant to the Credit Agreement upon a declaration of acceleration of the Notes, the principal, premium, if any, and interest on the Notes will not be payable until the earlier of (i) the day which is five business days after written notice of acceleration is received by the Company and the Credit Agent, or (ii) the date of acceleration of the Indebtedness under the Credit Agreement. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company or any Restricted Subsidiary that is a Significant Subsidiary, the principal of, and premium, if any, and any accrued and unpaid interest on all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. In the event of a declaration of acceleration of the Notes because an Event of Default has occurred and is continuing as a result of the acceleration of any Indebtedness described in clause (e) of the preceding paragraph, the declaration of acceleration of the Notes shall be automatically annulled if the holders of any Indebtedness described in clause (e) have rescinded the declaration of acceleration in respect of such Indebtedness within 30 days of the date of such declaration and if (i) the annulment of the acceleration of the Notes would not conflict with any judgment or decree of a competent jurisdiction, and (ii) all existing Events of Default, except non- payment of principal or interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to , 2004 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to , 2004, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. 73 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 74 the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Transfer and Exchange A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered Holder of a Note will be treated as the owner of it for all purposes. Book-Entry, Delivery and Form The Notes will be represented by one or more fully registered global notes (collectively, the "Global Note"). The Global Note will be deposited upon issuance with, or on behalf of, The Depository Trust Company, as Depositary (the "Depositary") and registered in the name of the Depositary or a nominee of the Depositary (the "Global Note Registered Owner"). Except as set forth below, the Global Note may be transferred, in whole and not in part, only to another nominee of the Depositary or to a successor of the Depositary or its nominee. The Depositary has advised the Company that the Depositary is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between the Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the Underwriters), banks, trust companies, clearing corporations and certain other organizations. Access to the Depositary's systems is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of the Depositary only through the Participants or the Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of the Depositary are recorded on the records of the Participants and Indirect Participants. The Depositary has also advised the Company that, pursuant to procedures established by it (i) upon deposit of the Global Note, the Depositary will credit the accounts of Participants designated by the Underwriters with portions of the principal amount of the Global Note and (ii) ownership of such interests in the Global Note will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depositary (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Note). The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer the Notes will be limited to that extent. Except as provided below, owners of interests in the Global Note will not have Notes registered in their names, will not receive physical delivery of the Notes in definitive form and will not be considered the registered owners or holders thereof under the Indenture for any purpose. Payments in respect of the principal of and premium, if any, and interest on any Notes registered in the name of the Global Note Registered Owner will be payable by the Trustee to the Global Note Registered Owner in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the persons in whose names the Notes, including the Global Note, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for (i) any aspect of the Depositary's records or any Participant's records relating to or payments made on account of beneficial ownership interests in the Global Note, or for maintaining, supervising or reviewing any of the Depositary's records or any Participant's records relating to the beneficial ownership interests in the Global Note or (ii) any other matter relating to the actions and practices of the Depositary or any of its Participants. The 75 Depositary has advised the Company that its current practice, upon receipt of any payment in respect of securities such as the Notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security as shown on the records of the Depositary. Payments by the Participants and the Indirect Participants to the beneficial owners of the Notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of the Depositary, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by the Depositary or any of its Participants in identifying the beneficial owners of the Notes, and the Company and Trustee may conclusively rely on and will be protected in relying on instructions from the Global Note Registered Owner for all purposes. The Global Note is exchangeable for definitive Notes: (i) if the Depositary notifies the Company that it is unwilling or unable to continue as Depositary of the Global Note and the Company thereupon fails to appoint a successor Depositary; (ii) if the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Notes in definitive registered form; or (iii) if there shall have occurred and be continuing an Event of Default or any event which after notice or lapse of time or both would be an Event of Default with respect to the Notes. Such definitive Notes shall be registered in the names of the owners of the beneficial interests in the Global Note as provided by the Participants. Upon issuance of the Notes in definitive form, the Trustee is required to register the Notes in the name of, and cause the Notes to be delivered to, the person or persons (or the nominee thereof) identified as the beneficial owners as the Depositary shall direct. Settlement for purchases of beneficial interests in the Global Note upon the original issuance thereof will be required to be made by wire transfer in immediately available funds. Payments in respect of the Notes represented by the Global Note (including principal, premium, if any, and interest) will be made by wire transfer in immediately available funds to the accounts specified by the Global Note Registered Owner. With respect to the definitive Notes, the Company will make all payments of principal, premium, if any, and interest by wire transfer in immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to such Holder's registered address. Secondary trading in long-term notes of corporate issuers is generally settled in clearing-house or next-day funds. In contrast, the beneficial interests in the Global Note are expected to trade in the Depositary's Same-Day Funds Settlement System, in which secondary market trading activity in those beneficial interests would be required by the Depositary to settle in immediately available funds. There is no assurance as to the effect, if any, that settlement in immediately available funds would have on trading activity in such beneficial interests. Amendment, Supplement and Waiver Except as provided in the next two succeeding paragraphs, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder of Notes) (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (b) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes in a manner adverse to the Holders of the Notes, (c) reduce the rate of or change the time for payment of interest on any Note, (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration), (e) make any Note payable in money other than that stated in the Notes, (f) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes, (g) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption "Repurchase at the Option of Holders"), (h) except pursuant to the Indenture, release any Restricted Subsidiary from its obligations under its Subsidiary Guarantee, or change any 76 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." 77 "Adjusted EBITDA" means, as of any date of determination and without duplication, the sum of (a) EBITDA of the Company and its Restricted Subsidiaries for the most recent fiscal quarter for which internal financial statements are available at such date of determination, multiplied by four, and (b) Acquisition EBITDA of each business or Person that is an Acquisition EBITDA Entity as of such date of determination, multiplied by a fraction, the numerator of which is three minus the number of months (and/or any portion thereof) in such most recent fiscal quarter for which the financial results of such Acquisition EBITDA Entity are included in the EBITDA of the Company and its Restricted Subsidiaries under clause (a) above, and (ii) the denominator of which is three. The effects of unusual or non-recurring items in respect of the Company, a Restricted Subsidiary or an Acquisition EBITDA Entity occurring in any period shall be excluded in the calculation of Adjusted EBITDA. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be so required to be capitalized on the balance sheet in accordance with GAAP. "Capital Stock" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, including, without limitation, with respect to partnerships, partnership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership. "Cash Equivalents" means (a) securities with maturities of one year or less from the date of acquisition, issued, fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit, time deposits, overnight bank deposits, bankers acceptances and repurchase agreements issued by a Qualified Issuer having maturities of 270 days or less from the date of acquisition, (c) commercial paper of an issuer rated at least A-2 by Standard & Poor's Rating Group, a division of McGraw Hill, Inc., or P-2 by Moody's Investors Service, or carrying an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments and having maturities of 270 days or less from the date of acquisition, (d) money market accounts or funds with or issued by Qualified Issuers and (e) Investments in money market funds substantially all of the assets of which are comprised of securities and other obligations of the types described in clauses (a) through (c) above. "Consolidated Adjusted Net Income" means, for any period, the net income (or net loss) of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, adjusted to the extent included in calculating such net income or loss by excluding (a) any net after-tax extraordinary gains or losses (less all fees and expenses relating thereto), (b) any net after-tax gains or losses (less all fees and expenses relating thereto) attributable to Asset Sales, (c) the portion of net income (or loss) of any Person (other than the Company or a Restricted Subsidiary), including Unrestricted Subsidiaries, in which the Company or any Restricted Subsidiary has an ownership interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any Restricted Subsidiary in cash dividends or distributions by such Person during such period, and (d) the net income (or loss) of any Person combined with the Company or any Restricted Subsidiary on a "pooling of interests" basis attributable to any period prior to the date of combination. "Consolidated Income Tax Expense" means, for any period, the provision for federal, state, local and foreign income taxes of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, for any period, without duplication, the sum of (a) the amount which, in conformity with GAAP, would be set forth opposite the caption "interest expense" (or any like caption) on a consolidated statement of operations of the Company and its Restricted Subsidiaries for such period, including, without limitation, (i) amortization of debt discount, (ii) the net cost of interest rate contracts (including amortization of discounts), (iii) the interest portion of any deferred payment obligation, (iv) amortization of debt issuance costs, 78 and (v) the interest component of Capital Lease Obligations of the Company and its Restricted Subsidiaries, plus (b) all interest on any Indebtedness of any other Person guaranteed and paid by the Company or any of its Restricted Subsidiaries; provided, however, that Consolidated Interest Expense will not include any gain or loss from extinguishment of debt, including write-off of debt issuance costs. "Consolidated Non-Cash Charges" means, for any period, the aggregate depreciation, amortization and other non-cash expenses of the Company and its Restricted Subsidiaries reducing Consolidated Adjusted Net Income for such period, determined on a consolidated basis in accordance with GAAP (excluding any such non-cash charge that requires an accrual of or reserve for cash charges for any future period). "Credit Agent" means , in its capacity as agent for the lenders party to the Credit Agreement, or any successor or successors thereto. "Credit Agreement" means that certain Credit Agreement, dated as of , 199 , among the Company, the lenders party thereto and the Credit Agent, as amended, restated, supplemented, modified, renewed, refunded, replaced or refinanced from time to time. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Designated Senior Debt" means (a) Senior Bank Debt and (b) other Senior Debt the principal amount of which is $50.0 million or more at the date of designation by the Company in a written instrument delivered to the Trustee; provided that Senior Debt designated as Designated Senior Debt pursuant to clause (b) shall cease to be Designated Senior Debt at any time that the aggregate principal amount thereof outstanding is $10.0 million or less. "Disqualified Stock" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the Holder thereof, in whole or in part, in each case on or prior to the stated maturity of the Notes. "Dollars" and "$" mean lawful money of the United States of America. "EBITDA" means for any period Consolidated Adjusted Net Income for such period increased by (a) Consolidated Interest Expense for such period, plus (b) Consolidated Income Tax Expense for such period, plus (c) Consolidated Non-Cash Charges for such period. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Proceeds" means (a) with respect to Equity Interests (or debt securities converted into Equity Interests) issued or sold for cash Dollars, the aggregate amount of such cash Dollars and (b) with respect to Equity Interests (or debt securities converted into Equity Interests) issued or sold for any consideration other than cash Dollars, the aggregate Market Price thereof computed on the date of the issuance or sale thereof. "Excluded Restricted Subsidiary" means any Wholly Owned Restricted Subsidiary principally engaged in the records management business domiciled outside the United States of America if the issuance of a Subsidiary Guarantee by such Subsidiary would, as determined in a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee, create a tax disadvantage that is material in relation to the aggregate amount of the Company's and any Restricted Subsidiary's Investment or proposed Investment therein. "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than under the Credit Agreement) in existence on the date of the Indenture, until such amounts are repaid. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States of America is pledged. "Guarantee" means, as applied to any obligation, (a) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (b) an agreement, direct or indirect, contingent or otherwise, the practical effect of which 79 is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the obligation to reimburse amounts drawn down under letters of credit securing such obligations. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (a) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (b) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Indebtedness" means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person, and whether or not contingent, (a) every obligation of such Person for money borrowed, (b) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (d) every obligation of such Person issued or assumed as the deferred purchase price of property or services, (e) every Capital Lease Obligation and every obligation of such Person in respect of Sale and Leaseback Transactions that would be required to be capitalized on the balance sheet in accordance with GAAP, (f) all Disqualified Stock of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price, plus accrued and unpaid dividends (unless included in such maximum repurchase price), (g) all obligations of such Person under or with respect to Hedging Obligations which would be required to be reflected on the balance sheet as a liability of such Person in accordance with GAAP and (h) every obligation of the type referred to in clauses (a) through (g) of another Person and dividends of another Person the payment of which, in either case, such Person has guaranteed. For purposes of this definition, the "maximum fixed repurchase price" of any Disqualified Stock that does not have a fixed repurchase price will be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were repurchased on any date on which Indebtedness is required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Stock, such fair market value will be determined in good faith by the board of directors of the issuer of such Disqualified Stock. Notwithstanding the foregoing, trade accounts payable and accrued liabilities arising in the ordinary course of business and any liability for federal, state or local taxes or other taxes owed by such Person shall not be considered Indebtedness for purposes of this definition. The amount outstanding at any time of any Indebtedness issued with original issue discount is the aggregate principal amount at maturity of such Indebtedness, less the remaining unamortized portion of the original issue discount of such Indebtedness at such time, as determined in accordance with GAAP. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Leverage Ratio" means, at any date, the ratio of (a) the aggregate principal amount of Indebtedness of the Company and its Restricted Subsidiaries outstanding as of the most recent available quarterly or annual balance sheet to (b) Adjusted EBITDA, after giving pro forma effect, without duplication, to (i) the incurrence, repayment or retirement of any Indebtedness by the Company or its Restricted Subsidiaries since the last day of the most recent full fiscal quarter of the Company, (ii) if the Leverage Ratio is being determined in connection with the incurrence of Indebtedness by the Company or a Restricted Subsidiary, such Indebtedness to be incurred, and (iii) the Indebtedness to be incurred in connection with the acquisition of any Acquisition EBITDA Entity. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code, or equivalent statutes, of any jurisdiction). "Market Price" means, (a) with respect to the calculation of Equity Proceeds for the issuance or sale of debt securities which have been converted into Equity Interests, the value received upon the original issuance or sale of such converted debt securities, as determined reasonably and in good faith by the Board of Directors, and (b) with respect to the calculation of Equity Proceeds for the issuance or sale of Equity Interests, the average of the daily closing prices for such Equity Interests for the 20 consecutive trading days preceding the date of such 80 computation. The closing price for each day shall be (a) if such Equity Interests are then listed or admitted to trading on the New York Stock Exchange, the closing price on the NYSE Consolidated Tape (or any successor consolidated tape reporting transactions on the New York Stock Exchange) or, if such composite tape shall not be in use or shall not report transactions in such Equity Interests, or if such Equity Interests shall be listed on a stock exchange other than the New York Stock Exchange (including for this purpose the Nasdaq National Market), the last reported sale price regular way for such day, or in case no such reported sale takes place on such day, the average of the closing bid and asked prices regular way for such day, in each case on the principal national securities exchange on which such Equity Interests are listed or admitted to trading (which shall be the national securities exchange on which the greatest number of such Equity Interests have been traded during such 20 consecutive trading days), or (b) if such Equity Interests are not listed or admitted to trading on any such exchange, the average of the closing bid and asked prices thereof in the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotation System or any successor system, or if not included therein, the average of the closing bid and asked prices thereof furnished by two members of the National Association of Securities Dealers selected reasonably and in good faith by the Board of Directors for that purpose. In the absence of one or more such quotations, the Market Price for such Equity Interests shall be determined reasonably and in good faith by the Board of Directors. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale, which amount is equal to the excess, if any, of (a) the cash received by the Company or such Restricted Subsidiary (including any cash payments received by way of deferred payment pursuant to, or monetization of, a note or installment receivable or otherwise, but only as and when received) in connection with such disposition over (b) the sum of (i) the amount of any Indebtedness which is secured by such asset and which is required to be repaid in connection with the disposition thereof, plus (ii) the reasonable out- of-pocket expenses incurred by the Company or such Restricted Subsidiary, as the case may be, in connection with such disposition or in connection with the transfer of such amount from such Restricted Subsidiary to the Company, plus (iii) provisions for taxes, including income taxes, attributable to the disposition of such asset or attributable to required prepayments or repayments of Indebtedness with the proceeds thereof, plus (iv) if the Company does not first receive a transfer of such amount from the relevant Restricted Subsidiary with respect to the disposition of an asset by such Restricted Subsidiary and such Restricted Subsidiary intends to make such transfer as soon as practicable, the out-of-pocket expenses and taxes that the Company reasonably estimates will be incurred by the Company or such Restricted Subsidiary in connection with such transfer at the time such transfer is expected to be received by the Company (including, without limitation, withholding taxes on the remittance of such amount). "Obligations" means any principal, interest (including post-petition interest), penalties, fees, costs, expenses, indemnifications, reimbursements damages and other liabilities payable under or in connection with any Indebtedness. "Officers' Certificate" means a certificate signed, unless otherwise specified, by any two of the Chairman of the Board, a Vice Chairman of the Board, the President, the Chief Financial Officer, the Controller, or an Executive Vice President of the Company, and delivered to the Trustee. "Permitted Investments" means (a) any Investments in the Company or in a Restricted Subsidiary (other than an Excluded Restricted Subsidiary) of the Company; (b) any Investments in Cash Equivalents; (c) Investments by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary (other than an Excluded Restricted Subsidiary) of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary (other than an Excluded Restricted Subsidiary) of the Company; (d) Investments in assets (including accounts and notes receivable) owned or used in the ordinary course of business; (e) Investments for any purpose related to the Company's records management business in an aggregate amount not to exceed $10.0 million; and (f) Investments by the Company or a Restricted Subsidiary in one or more Excluded Restricted Subsidiaries, the aggregate amount of which does not exceed 10% of the consolidated assets of the Company and its Restricted Subsidiaries. "Permitted Liens" means: (a) Liens existing as of the date of issuance of the Notes; (b) Liens on property or assets of the Company or any Restricted Subsidiary securing Senior Debt; 81 (c) Liens on any property or assets of a Restricted Subsidiary granted in favor of the Company or any Wholly Owned Restricted Subsidiary; (d) Liens securing the Notes or the Guarantees; (e) any interest or title of a lessor under any Capital Lease Obligation or Sale and Leaseback Transaction so long as the Indebtedness, if any, secured by such Lien does not exceed the principal amount of Indebtedness permitted under the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock;" (f) Liens securing Acquired Debt created prior to (and not in connection with or in contemplation of) the incurrence of such Indebtedness by the Company or any Restricted Subsidiary; provided that such Lien does not extend to any property or assets of the Company or any Restricted Subsidiary other than the assets acquired in connection with the incurrence of such Acquired Debt; (g) Liens securing Hedging Obligations permitted to be incurred pursuant to clause (g) of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock;" (h) Liens arising from purchase money mortgages and purchase money security interests, or in respect of the construction of property or assets, incurred in the ordinary course of the business of the Company or a Restricted Subsidiary; provided that (i) the related Indebtedness is not secured by any property or assets of the Company or any Restricted Subsidiary other than the property and assets so acquired or constructed and (ii) the Lien securing such Indebtedness is created within 60 days of such acquisition or construction; (i) statutory Liens or landlords' and carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other like Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate proceedings, if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor; (j) Liens for taxes, assessments, government charges or claims with respect to amounts not yet delinquent or that are being contested in good faith by appropriate proceedings diligently conducted, if a reserve or other appropriate provision, if any, as is required in conformity with GAAP has been made therefor; (k) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance bonds and other obligations of a like nature incurred in the ordinary course of business (other than contracts for the payment of money); (l) easements, rights-of-way, restrictions and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any Restricted Subsidiary incurred in the ordinary course of business; (m) Liens arising by reason of any judgment, decree or order of any court so long as such Lien is adequately bonded and any appropriate legal proceedings that may have been duly initiated for the review of such judgment, decree or order shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (n) Liens arising under options or agreements to sell assets; (o) other Liens securing obligations incurred in the ordinary course of business, which obligations do not exceed $1.0 million in the aggregate at any one time outstanding; and (p) any extension, renewal or replacement, in whole or in part, of any Lien described in the foregoing clauses (a) through (o); provided that any such extension, renewal or replacement shall not extend to any additional property or assets. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Principal Stockholders" means each of Vincent J. Ryan, Schooner Capital Corporation, C. Richard Reese, Eugene B. Doggett, and their respective Affiliates. 82 "Qualified Equity Offering" means an offering of Capital Stock, other than Disqualified Stock, of the Company for Dollars, whether registered or exempt from registration under the Securities Act. "Qualified Issuer" means (a) any lender party to the Credit Agreement or (b) any commercial bank (i) which has capital and surplus in excess of $500,000,000 and (ii) the outstanding short- term debt securities of which are rated at least A-2 by Standard & Poor's Rating Group, a division of McGraw-Hill, Inc. or at least P-2 by Moody's Investors Service, or carry an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments. "Qualifying Sale and Leaseback Transaction" means any Sale and Leaseback Transaction between the Company or any of its Restricted Subsidiaries and any bank, insurance company or other lender or investor providing for the leasing to the Company or such Restricted Subsidiary of any property (real or personal) which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such lender or investor or to any Person to whom funds have been or are to be advanced by such lender or investor and where the property in question has been constructed or acquired after the date of the Indenture. "Refinancing Indebtedness" means new Indebtedness incurred or given in exchange for, or the proceeds of which are used to repay, redeem, defease, extend, refinance, renew, replace or refund, other Indebtedness; provided, however, that (a) the principal amount of such new Indebtedness shall not exceed the principal amount of Indebtedness so repaid, redeemed, defeased, extended, refinanced, renewed, replaced or refunded (plus the amount of fees, premiums, consent fees, prepayment penalties and expenses incurred in connection therewith); (b) such Refinancing Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness so repaid, redeemed, defeased, extended, refinanced, renewed, replaced or refunded or shall mature after , 2006; (c) to the extent such Refinancing Indebtedness refinances Indebtedness that has a final maturity date occurring after ______, 2006, such new Indebtedness shall have a final scheduled maturity not earlier than the final scheduled maturity of the Indebtedness so repaid, redeemed, defeased, extended, refinanced, renewed, replaced or refunded and shall not permit redemption at the option of the holder earlier than the earliest date of redemption at the option of the holder of the Indebtedness so repaid, redeemed, defeased, extended, refinanced, renewed, replaced or refunded; (d) to the extent such Refinancing Indebtedness refinances Indebtedness subordinate to the Notes, such Refinancing Indebtedness shall be subordinated in right of payment to the Notes and to the extent such Refinancing Indebtedness refinances Notes or Indebtedness pari passu with the Notes, such Refinancing Indebtedness shall be pari passu with or subordinated in right of payment to the Notes, in each case on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness so repaid, redeemed, defeased, extended, refinanced, renewed, replaced or refunded; and (e) with respect to Refinancing Indebtedness incurred by a Restricted Subsidiary, such Refinancing Indebtedness shall rank no more senior, and shall be at least as subordinated, in right of payment to the Subsidiary Guarantee of such Restricted Subsidiary as the Indebtedness being extended, refinanced, renewed, replaced or refunded. "Restricted Subsidiary" means (a) each direct or indirect Subsidiary of the Company existing on the date of the Indenture and (b) any other direct or indirect Subsidiary of the Company formed, acquired or existing after the date of the Indenture, in each case which is not designated by the Board of Directors as a "Unrestricted Subsidiary." "Sale and Leaseback Transaction" means any transaction or series of related transactions pursuant to which a Person sells or transfers any property or asset in connection with the leasing, or the resale against installment payments, of such property or asset to the seller or transferor. "Senior Bank Debt" means all Obligations outstanding under or in connection with the Credit Agreement as such agreement may be restated, further amended, supplemented or otherwise modified or replaced from time to time hereafter, together with any refunding or replacement of such Indebtedness. "Senior Debt" means (a) the Senior Bank Debt and (b) any other Indebtedness permitted to be incurred by the Company or any Restricted Subsidiary, as the case may be, under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes. Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not include (i) any liability for federal, state, local or other taxes owed or owing by the Company, (ii) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (iii) any trade payables or (iv) any Indebtedness that is incurred in violation of the Indenture. 83 "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof. "Unrestricted Subsidiary" means (a) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary in accordance with the "Unrestricted Subsidiaries" covenant and (b) any Subsidiary of an Unrestricted Subsidiary. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of the Company all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by the Company or by one or more Wholly Owned Restricted Subsidiaries of the Company. DESCRIPTION OF NEW CREDIT FACILITY The Company intends to replace the Credit Agreement with the New Credit Facility. The following description is based upon a term sheet relating to the New Credit Facility. No assurances can be given that the Company will enter into the New Credit Facility on these or any other terms. The Offering is not conditioned on the closing of the New Credit Facility. It is anticipated that the New Credit Facility will be a $100 million revolving credit facility with up to $2 million of availability for letters of credit. The New Credit Facility is expected to terminate on September 30, 2001, at which time all outstanding revolving credit loans and other amounts payable thereunder will become due. Borrowings under the New Credit Facility may be used to finance possible future acquisitions, as well as for working capital and general corporate purposes. As with the Credit Agreement, the Company's obligations under the New Credit Facility are expected to be guaranteed by substantially all of the Company's subsidiaries; however, unlike the Credit Agreement, the New Credit Facility is expected to be secured only by the pledge of the stock of such subsidiaries. Prepayments of outstanding borrowings under the New Credit Facility will be required in certain circumstances out of the proceeds of certain insurance payments, condemnations, issuance of indebtedness, and asset dispositions. The New Credit Facility is expected to permit the Company to elect from time to time, as to all or any portion of the borrowings thereunder, an interest rate based upon (i) a fluctuating rate equal to the highest of the prime rate of The Chase Manhattan Bank, as agent under the New Credit Facility, the secondary market rate for three- month certificates of deposit (adjusted for statutory reserve requirements), plus 1%, or the overnight federal funds rate plus 1/2 of 1% (the "Adjusted Base Rate") or (ii) the interest rates prevailing on the date of determination in the London interbank market (the "Eurodollar Rate") for the interest period selected by the Company, plus, in the case of either (i) or (ii), a margin (the "Applicable Margin") over the Adjusted Base Rate or the Eurodollar Rate. The Applicable Margins for loans bearing interest at a rate based upon the Adjusted Base Rate or the Eurodollar Rate ("Eurodollar Loans"), and commitment fees on the undrawn portion of the New Credit Facility, will vary based on the Company's achieving and maintaining specified ratios of indebtedness to EBITDA. The New Credit Facility is expected to provide for payment by the Company in respect of letters of credit of: (i) a per annum fee equal to the Applicable Margin for Eurodollar Loans from time to time in effect; (ii) a fronting fee of 1/4 of 1%; plus (iii) customary issuing fees and expenses. The New Credit Facility is expected to contain covenants restricting the ability of the Company and its subsidiaries to, among other things: (i) declare dividends or redeem or repurchase capital stock; (ii) make optional payments and modifications of subordinated and other debt instruments; (iii) incur liens and engage in sale and 84 leaseback transactions; (iv) make loans and investments; (v) incur indebtedness and contingent obligations; (vi) make capital expenditures; (vii) engage in mergers, acquisitions and asset sales; (viii) enter into transactions with affiliates; and (ix) make changes in their lines of business. It is also expected that the Company will be required to comply with financial covenants with respect to: (i) a maximum leverage ratio; (ii) a minimum interest coverage ratio; and (iii) a minimum fixed charge coverage ratio. The Company will also be required to make certain customary affirmative covenants. Events of default under the New Credit Facility are expected to include: (i) the Company's failure to pay principal or interest when due; (ii) the Company's material breach of any covenant, representation or warranty contained in the loan documents; (iii) customary cross-default provisions; (iv) events of bankruptcy, insolvency or dissolution of the Company or its subsidiaries; (v) the levy of certain judgments against the Company, its subsidiaries or their assets; (vi) certain adverse events under ERISA plans of the Company or its subsidiaries; (vii) the actual or asserted invalidity of security documents or guarantees of the Company or its subsidiaries; and (viii) a change of control of the Company. DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 13,000,000 shares of Common Stock, 1,000,000 shares of Nonvoting Common Stock, $.01 par value per share (the "Nonvoting Common Stock"), and 2,000,000 shares of Preferred Stock, $.01 par value per share. On August 14, 1996, 9,627,141 shares of Common Stock were outstanding and 500,000 shares of Nonvoting Common Stock were outstanding. Holders of shares of Common Stock are entitled to one vote per share for each matter submitted to the stockholders of the Company without cumulative voting rights in the election of Directors. Holders of Nonvoting Common Stock have no right to vote on any matter voted on by the stockholders of the Company, except as may otherwise be provided by law. In all other respects (other than as to convertibility), the rights of holders of the Common Stock and the Nonvoting Common Stock are identical. Shares of Nonvoting Common Stock are convertible, at any time at the option of the holder, on a share-for-share basis into shares of Common Stock without the payment of any additional consideration; provided that the conversion of any shares of Nonvoting Common Stock by a "bank holding company" under the Bank Holding Company Act of 1956, as amended, or an affiliate thereof is prohibited if the conversion of the total number of shares of Nonvoting Common Stock held by such holder would cause it to be in violation of such Act. The 2,000,000 authorized and unissued shares of Preferred Stock may be issued with such designations, preferences, limitations and relative rights as the Board of Directors may authorize including, but not limited to: (i) the distinctive designation of each series and the number of shares that will constitute such series; (ii) the voting rights, if any, of shares of such series; (iii) the dividend rate on the shares of such series, any restriction, limitation or condition upon the payment of such dividends, whether dividends shall be cumulative, and the dates on which dividends are payable; (iv) the prices at which, and the terms and conditions on which, the shares of such series may be redeemed, if such shares are redeemable; (v) the purchase or sinking fund provisions, if any, for the purchase or redemption of shares of such series; (vi) any preferential amount payable upon shares of such series in the event of the liquidation, dissolution or winding-up of the Company or the distribution of its assets; and (vii) the price or rates of conversion at which, and the terms and conditions on which the shares of such series may be converted into other securities, if such shares are convertible. Although the Company has no present intention to issue shares of Preferred Stock, the issuance of Preferred Stock, or the issuance of rights to purchase such shares, could discourage an unsolicited acquisition proposal and the rights of holders of Common Stock will be subject to, and may be adversely affected by, the rights of holders of any Preferred Stock that may be issued in the future. 85 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement (the "Underwriting Agreement") between the Company and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Bear, Stearns & Co. Inc. ("Bear Stearns") and Prudential Securities Incorporated (together with DLJ and Bear Stearns, the "Underwriters"), each of the several Underwriters has severally agreed to purchase from the Company, and the Company has agreed to sell to each of the Underwriters, the respective principal amounts of Notes set forth opposite its name below, at the public offering price set forth on the cover page of this Prospectus, less the underwriting discount: Principal Amount Underwriters of Notes ------------ ---------------- Donaldson, Lufkin & Jenrette Securities Corporation $ Bear, Stearns & Co. Inc. Prudential Securities Incorporated ------------ $150,000,000 ============ The Underwriting Agreement provides that the obligations of the several Underwriters are subject to certain conditions precedent, including the approval of certain legal matters by counsel. The Company and the Guarantors have agreed to indemnify the Underwriters against certain liabilities and expenses, including liabilities under the Securities Act or to contribute to payments that the Underwriters may be required to make in respect thereof. The nature of the Underwriters' obligations is such that the Underwriters are committed to purchase all of the Notes if any of the Notes are purchased. The Underwriters have advised the Company that they propose to offer the Notes directly to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such offering price less a concession not to exceed % of the principal amount of the Notes. The Underwriters may allow, and such dealers may reallow, discounts not in excess of % of the principal amount of the Notes to certain other dealers. After the initial public offering of the Notes, the offering price and other selling terms may be changed by the Underwriters. The Notes are a new issue of securities, have no established trading market, will not be listed on any securities exchange or included in the National Association of Securities Dealers Automated Quotation System and may not be widely distributed. The Company has been advised by the Underwriters that, following the completion of this Offering, the Underwriters presently intend to make a market in the Notes as permitted by applicable laws and regulations. The Underwriters, however, are under no obligation to do so and may discontinue any market-making activities at any time at the sole discretion of the Underwriters. No assurances can be given as to the liquidity of any trading market for the Notes. VALIDITY OF NOTES The validity of the Notes offered hereby will be passed upon for the Company by Sullivan & Worcester LLP, Boston, Massachusetts, and for the Underwriters by Jones, Day, Reavis & Pogue, New York, New York. Jas. Murray Howe, Secretary of the Company, is of counsel to Sullivan & Worcester LLP and beneficially owns 3,855 shares of Common Stock. EXPERTS The consolidated financial statements and schedule of Iron Mountain Incorporated and its subsidiaries for each of the three years ended December 31, 1995 included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The financial statements of National Business Archives, Inc. for the two years ended December 31, 1993 and 1994, included in this Prospectus and elsewhere in the Registration Statement have been audited by Wolpoff & Company, LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. 86 The financial statements of Data Management Business Records Storage, Inc. for the year ended June 30, 1995, included in this Prospectus and elsewhere in the Registration Statement have been audited by Morrison and Smith, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. The financial statements of Nashville Vault Company, Ltd., for the year ended December 31, 1995, included in this Prospectus and elsewhere in the Registration Statement have been audited by Geo. S. Olive & Co. LLC, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. The combined financial statements of Data Archive Services, Inc. and Data Archive Services of Miami, Inc. for the year ended May 31, 1996, included in this Prospectus and elsewhere in the Registration Statement have been audited by Perless, Roth, Jonas & Hartney, CPAs, PA, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. The financial statements of Data Storage Systems, Inc. for the year ended December 31, 1995, included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. The financial statements of DataVault Corporation, for the year ended December 31, 1995, included in this Prospectus and elsewhere in the Registration Statement have been audited by Robert F. Gayton, CPA, independent public accountant, as indicated in his report with respect thereto, and are included herein in reliance upon the authority of said firm as an expert in giving said report. The financial statements of International Record Storage and Retrieval Service, Inc. for the year ended December 31, 1995, included in this Prospectus and elsewhere in the Registration Statement have been audited by Rothstein, Kass & Company, P.C., independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. ADDITIONAL INFORMATION The Company has filed with the Commission, Washington, D.C. 20549, a Registration Statement on Form S-1 under the Securities Act with respect to the Notes offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Notes offered hereby, reference is made to the Registration Statement and the exhibits and schedules filed therewith. Statements contained in this Prospectus as to the contents of any contract or any other document to which reference is made are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement. Each such statement is qualified in all respects by such reference. A copy of the Registration Statement may be inspected without charge at the offices of the Commission in Washington D.C. 20549, and copies of all or any part of the Registration Statement may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 upon the payment of the fees prescribed by the Commission. The Company is subject to the informational requirements of the Exchange Act and in accordance therewith files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549, and at the Commission's Regional Offices at Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549, at prescribed rates. In addition, the Common Stock is listed on the Nasdaq National Market, and such reports, proxy statements and certain other information can also be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a Web site that contains reports, proxy statements and other information filed with the Commission; the address of such site is http://www.sec.gov. Certain such reports, proxy statements and other information filed with the Commission by the Company on or after August 14, 1996 may be found at such Web site. 87 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 Financial Statements of Pending Acquisition: International Record Storage and Retrieval Service, Inc. F-72
F-1 IRON MOUNTAIN INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) ASSETS
December 31, June 30, 1995 1996 --------- --------- 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 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-2 IRON MOUNTAIN INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) (Unaudited)
Three Months Ended June 30, -------------------- 1995 1996 -------- -------- 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 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-3 IRON MOUNTAIN INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) (Unaudited)
Six Months Ended June 30, -------------------- 1995 1996 -------- -------- 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 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-4 IRON MOUNTAIN INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended June 30, -------------------- 1995 1996 -------- -------- 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 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. F-5 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 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 three records management businesses for $20,887 in transactions that were accounted for as purchases. F-7 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 IRON MOUNTAIN INCORPORATED CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1994 AND 1995 (In thousands) ASSETS
December 31, ---------------------- 1994 1995 --------- --------- 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 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-9 IRON MOUNTAIN INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (In thousands except per share data)
1993 1994 1995 --------- --------- --------- 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
The accompanying notes are an integral part of these consolidated financial statements. F-10 IRON MOUNTAIN INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AS OF DECEMBER 31, 1993, 1994 AND 1995 (Dollars in thousands)
December 31, ---------------------------------- 1993 1994 1995 -------- -------- ---------- 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 ------ ------ --------
The accompanying notes are an integral part of these consolidated financial statements. F-11 IRON MOUNTAIN INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (Continued)
December 31, -------------------------------- 1993 1994 1995 -------- -------- -------- 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 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-12 IRON MOUNTAIN INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (In thousands)
1993 1994 1995 -------- -------- -------- 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 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-13 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 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 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:
December 31, --------------------- 1994 1995 --------- --------- 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 ========= =========
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 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 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 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 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 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 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 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 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 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 NATIONAL BUSINESS ARCHIVES, INC. BALANCE SHEETS LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
December 31, -------------------------- 1993 1994 ----------- ----------- 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 =========== ===========
The notes to financial statements are an integral part of this statement. F-26 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 NATIONAL BUSINESS ARCHIVES, INC. STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
Year Ended December 31, -------------------------- 1993 1994 ----------- ----------- 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) =========== ===========
The notes to financial statements are an integral part of this statement. F-28 NATIONAL BUSINESS ARCHIVES, INC. STATEMENTS OF CASH FLOWS
Year Ended December 31, -------------------------- 1993 1994 ---------- ------------ 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 ======== ==========
The notes to financial statements are an integral part of this statement. F-29 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 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:
Balance -------------------- Interest Lender 12/31/93 12/31/94 Rate Terms Maturity Date - ------------- --------- --------- ------------ ---------- -------------- Stockholder $1,558,333 $ -0- Prime + 2% * October 1, 1996 Non-interest October 1, 1996 Stockholder 355,000 355,000 -- bearing ---------- -------- $1,913,333 $355,000 ========== ========
- ------------- * 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:
Balance ------------------ Total Interest Monthly Lender 12/31/93 12/31/94 Rate Payments Maturity Collateral - -------------------- --------- --------- -------- -------- --------- ----------- Ford Motor Credit $171,636 $100,582 6.42-12% $9,442 3/95-8/97 Automobiles/ Trucks Less Current Portion 103,077 63,092 -------- -------- $ 68,559 $ 37,490 ======== ========
F-31 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:
Square Effective Lease Free Expiration Lessor* Feet Date Term Rent Date - --------------------------------- ------ ------- ---------------- ------- ---------- B.W.I.P. Associates Limited 11 Yrs. 7.5 Partnership 68,200 12/01/87 Mths.** 8 Mths. 7/15/99 Dorsey Run Industrial Park Limited Partnership (DRIP) 142,885 11/01/89 10 Yrs. 9 Mths. 14 Mths. 7/31/00 DRIP 42,413 9/01/94 5 Years -- 8/31/99 DRIP 97,587 3/01/95 4 Yrs. 6 Mths. -- 8/31/99
- ------------- * 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 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 DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC. BALANCE SHEETS
June 30, September 30, 1995 1995 ----------- ----------- (unaudited) 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 =========== ===========
The accompanying notes are an integral part of these financial statements. F-34 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 DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC. STATEMENTS OF CASH FLOWS
Three Year Ended Months Ended June 30, September 30, 1995 1995 ----------- ----------- (Unaudited) 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 =========== ===========
The accompanying notes are an integral part of these financial statements. F-36 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 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 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 DATA MANAGEMENT BUSINESS RECORDS STORAGE, INC. NOTES TO FINANCIAL STATEMENTS -- (Continued) NOTE 7--NOTES PAYABLE
Interest Balance Maturity Collateral and Repayment Terms Rate June 30, 1995 - ---------- --------------------------------------------------- ------------ -------------- 6/96 Substantially all of assets of the Company except 7.62%- $5,124,242 those subject to prior liens and the outstanding LIBOR+ stock of the Company pari passu with other major 3.25% lender. Interest due monthly and principal payments of approximately $60,000 due 9/30/95; 12/31/95 and 3/31/96. Remaining principal balance due 6/30/96. 2/01-3/01 Certain assets of DMS on purchase money 10.00% 1,071,038 contracts, non-competes; due $16,667 monthly 9/99 Real estate of DMS due $4,152 monthly 9.00% 384,892 9/94-4/96 Rolling stock and equipment, principal and Various 102,533 interest of approximately $9,000 due monthly $6,682,705 ==========
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 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, Leased 1995 Termination Property Balance Dates - -------------- ----------- ---------------- Equipment $182,457 10/05/96-12/19/99 ========
F-41 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 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 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 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 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 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 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 NASHVILLE VAULT COMPANY, LTD. (A TENNESSEE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (Continued) 5. Partnership Agreement The Agreement of Limited Partnership (as amended) specifies the allocation of profits, losses, and distributions to be allocated 1% to the General Partner and 99% to the Investor Limited Partners. Under the agreement, the limited partners are not liable for any debts of the Partnership nor are they required to make any additional capital contributions. 6. Related Party Transactions The Partnership leases the ground on which its building is located from family members of stockholders of the General Partner and pays real estate taxes and other related expenses under the lease which expires November 30, 2000. On January 1, 1996, the Partnership exercised an option to purchase the land for $250,000. Rent expense in 1995 was $29,000. The General Partner, USA Vault Corporation, is guaranteed a monthly management fee for the operation of the Partnership. The fee begins at $1,000 per month increasing to $2,000 and $3,000 monthly when annual gross revenue exceeds $200,000 and $300,000, respectively. The Partnership incurred management fees to the General Partner of $32,000 in 1995. The Partnership pays fees to a company owned by the president of USA Vault Corporation for accounting and bookkeeping services. Fees paid totaled $12,000 for 1995. 7. Major Customer Sales from a major customer approximated 10% of sales and 19% of accounts receivable at December 31, 1995. 8. Subsequent Event On January 4, 1996, the Partnership sold, effective January 1, 1996, substantially all of its operating assets for approximately $3,450,000 to Iron Mountain Record Management, Inc. F-49 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Directors and Stockholders Data Archive Services, Inc.: We have audited the accompanying combined balance sheet of Data Archive Services, Inc. (a Florida Corporation) and Affiliate as of May 31, 1996, and the related combined statements of operations and retained earnings, and cash flows for the year then ended. These combined financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Data Archive Services, Inc. and Affiliate as of May 31, 1996, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. The combined financial statements include the financial statements of Data Archive Services, Inc., and Data Archive Services of Miami, Inc., which are related through controlled ownership and management. Perless, Roth, Jonas & Hartney, CPAs, PA Miami, Florida July 30, 1996 (except for Note 11, for which the date is August 9, 1996) F-50 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 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 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 DATA ARCHIVE SERVICES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS MAY 31, 1996 NOTE 1--NATURE OF BUSINESS The accompanying financial statements represent the combined accounts of Data Archive Services, Inc. and Data Archive Services of Miami, Inc. (Affiliate). Data Archive Services, Inc. is a Records Management Company providing storage and related services primarily in Dade, Broward and Palm Beach Counties. NOTE 2--SIGNIFICANT ACCOUNTING POLICIES a. Principles of Combination The financial statements reflect the financial position and results of operations of Data Archive Services, Inc. and Affiliate on a combined basis. All significant intercompany balances and transactions have been eliminated. b. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line and declining balance methods with the following useful lives:
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 Company defines cash and cash equivalents to include cash on hand and cash invested in short-term securities which have original maturities of less than 90 days. F-54 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
Long-Term Liabilities consist of the following: Line of Credit with Bank--$100,000 Line of Credit Secured by Substantially all of the Assets. Interest, Paid Monthly, Calculated at 1% above Published Prime. Principal Balance is due and Payable March 22, 1997 $100,000 Financing, Primarily for Shelving Principal and Interest Calculated at 12.27%, Paid in Monthly Installments of 140,552 (A) $3,184 Other Financing for Shelving, Equipment, and a Vehicle. Principal and Interest Ranging from 9.82% to 13.19%, Paid in Monthly Installments of $734 11,863 -------- Long-Term Liabilities 252,415 Less: Current Portion 129,407 -------- Long-Term Liabilities, Net of Current Portion $123,008 ========
The scheduled repayment of long-term liabilities is as follows:
Year Amount - ----- --------- 1997 $129,407 1998 27,891 1999 30,144 2000 32,000 2001 32,973 --------- $252,415 =========
(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 DATA ARCHIVE SERVICES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) NOTE 4--CONTINGENCIES AND COMMITMENTS Obligations Under Operating Leases Data Achive Services, Inc. presently leases all its facilities under various operating leases. Several of these leases have renewal options of three (3) years and have consumer price index escalation clauses. The company also leases computer equipment and warehouse equipment under operating leases expiring at various dates within a two (2) year period. Rent expense for the year ended May 31, 1996 is as follows:
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 Data Archive Services, Inc. maintains its bank accounts with FDIC financial institutions. As at May 31, 1996, the cash balance in one (1) of the accounts exceeded the insured limits by approximately $42,000. NOTE 5--PROFIT SHARING PLAN Effective January 1, 1995, the Company implemented a profit sharing plan described in Internal Revenue Code Section 401(k). All employees of the Company are eligible to participate once they meet the eligibility and participation requirements of the plan. Employees become eligible for participation in the plan after attaining age 21 and completing 12 months of service. Under the terms of the plan, participants may contribute a portion of their compensation to the plan on a tax deferred basis. Employee contributions may be made with a maximum deferral up to 15 percent of compensation, not to exceed the annual limitations established by the Treasury. The Company is required to make contributions to the plan, but the amount of the contribution is determined by the Company. During the year ended May 31, 1996, the Company contributed $12,013 to the plan. NOTE 6--CAPITAL STOCK Common stock of Data Archive Services, Inc. has a par value of $1.00 per share; 1,000 shares are authorized, issued and outstanding. Common stock of Data Archive Services of Miami, Inc. (Affiliate) has a par value of $0.01 per share; 1,000,000 shares are authorized, issued and outstanding. There have been no changes in the capital stock of both companies during the fiscal year ended May 31, 1996. F-56 DATA ARCHIVE SERVICES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) NOTE 7--TRANSACTIONS WITH RELATED PARTIES P. Douglas McCraw, chief operating officer and controlling shareholder of Data Archive Services, Inc. has entered into certain lease and loan arrangements with the companies. The Companies have entered into various lease and loan arrangements either through Mr. McCraw or other companies controlled by Mr. McCraw. These lease and loan arrangements are as follows:
Number Lease of Months Total Expense Remaining Lease Lessor and Description May 31, 1996 on Lease Obligation - ----------------------------------------------- ------------ --------- ---------- DAS Imaging Systems, Inc. Computer Equipment $73,140 17 $ 103,615 P. Douglas McCraw Ft. Lauderdale Storage Facility 22,366 238 4,478,446 Galt Ocean Mile Partnership Ft. Lauderdale Storage Facility 27,943 87 120,147 P. Douglas McCraw Month to Lower Matecumbe Facility 10,845 Month -- P. Douglas McCraw Miami Storage Facility 84,241 84 628,766 P. Douglas McCraw Miami Storage Facility 28,603 160 321,221 Receivables from and Payables to Related Parties: Loan Receivable from: DAS Imaging Systems, Inc. $ 19,379 ========== Loan Payble to: P. Douglas McCraw--Non-Interest Bearing Loan $ 165,154 ========== Amounts Included in Accounts Payable: P. Douglas McCraw--Lease--Miami Storage Facilities $ 27,559 Galt Ocean Mile Partnership--Lease Ft. Lauderdale Storage Facility 7,308 P. Douglas McCraw--Lease--Other Facilities 4,518 ---------- $ 39,385 ==========
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 DATA ARCHIVE SERVICES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued) operating loss carryforward of $318,682, which will expire in 2011. Realization of the deferred tax asset of $118,000 associated with the loss carryforwards is dependent upon the future earnings of the Company. Because of the uncertainty of realization of this asset, a valuation allowance has been recognized for the entire deferred tax asset. NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments." These estimates have been determined by the Company using available market information and appropriate valuation techniques based on information as of May 31, 1996. As considerable judgment is inherent in the development of these estimates, they are not necessarily indicative of the amounts that the companies could realize in the current market exchange. The recorded amounts and fair values are as follows:
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, the Stockholders sold all of the outstanding capital stock of the Companies to Iron Mountain Records Management, Inc. All debt of the Company will be repaid from the proceeds of the sale. F-58 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 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 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
Series A Series B Series C Total Preferred Preferred Preferred Common Accumulated Shareholders' Stock Stock Stock Stock Deficit Deficit --------- --------- --------- --------- ----------- ------------- 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) ========== ======== ======== ========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-61 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 DATA STORAGE SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 1. ORGANIZATION OF THE COMPANY: Data Storage Systems, Inc. (a California corporation) operates a records-storage warehouse in San Jose, California. The Company entered into a merger agreement with Iron Mountain Incorporated in November 1995. The merger was effective as of February 29, 1996. Iron Mountain is the surviving entity and the Company became a wholly owned subsidiary of Iron Mountain. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Cash For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. Equipment and Improvements Equipment and improvements are stated at cost and depreciated using the straight-line method over the estimated useful lives (ranging from three to seven years) or over the shorter of the estimated useful life of the asset or its lease term for leasehold improvements. Equipment and improvements consist of the following:
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 DATA STORAGE SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) payable does not materially differ from the carrying value. On February 29, 1996, these notes and the related accrued interest were converted to shares of common stock in connection with the acquisition of the Company by Iron Mountain, Inc. 4. PREFERRED STOCK: Series A, Series B, and Series C Convertible Preferred Stock The Convertible Preferred Stock outstanding consists of 1,000,000, 266,666, and 1,083,334 shares of Series A Convertible Preferred Stock ("Series A"), Series B Convertible Preferred Stock ("Series B"), and Series C Convertible Preferred Stock ("Series C"), respectively. The rights and preferences of the Series A, Series B and Series C Convertible Preferred Stock are as follows: Dividends The holders of the Series C shall be entitled when and if declared by the Board of Directors, to dividends at a rate of $0.05 per share, per annum, payable in preference and priority to payment of any dividend to the holders of Series A, Series B or Common Stock. The holders of the Series A shall be entitled when and if declared by the Board of Directors, to dividends at a rate of $0.09 per share, per annum, payable in preference and priority to payment of any dividend to the holders of Series B or Common Stock. The holders of the Series B shall be entitled when and if declared by the Board of Directors, to dividends at a rate of $0.12 per share, per annum, payable in preference and priority to payment of any dividend to the holders of Common Stock. After an equal amount per share has been paid on all Common and Preferred Stock, the holders of Series B shall be entitled to dividends in an amount per share equal to any further dividend on Common Stock. Dividends are not cumulative. Liquidation Preference In the event of any liquidation, dissolution, or winding up of the Company, either voluntary or involuntary, distributions to the shareholders of the Company shall be made in the following manner: The holders of the Series C shall be entitled to receive, prior and in preference to any distribution of any assets or surplus funds of the Company to the holders of the Series A, Series B or Common Stock, an amount equal to $0.60 per share for each share of Series C held by them. If the assets and funds are insufficient to permit the payment of the entire preferential amount, then the entire assets and funds legally available for distribution shall be distributed ratably among the holders of Series C. The holders of the Series A shall be entitled to receive, prior and in preference to any distribution of any assets or surplus funds of the Company to the holders of the Series B or Common Stock, an amount equal to $1.00 per share for each share of Series A held by them. If the remaining assets and funds are insufficient to permit the payment of the entire preferential amount, then the entire assets and funds legally available for distribution shall be distributed ratably among the holders of Series A. The holders of the Series B shall be entitled to receive, prior and in preference to any distribution of any assets or surplus funds of the Company to the holders of Common Stock, an amount equal to $1.37 per share for each share of Series B held by them. If the remaining assets and funds are insufficient to permit the payment of the entire preferential amount, then the entire assets and funds legally available for distribution shall be distributed ratably among the holders of Series B. After the distribution of the preferential amounts to the preferred shareholders, the holders of Common Stock shall be entitled to receive an amount equal to $0.40 per share for each share of Common Stock held by them. After the aforementioned distributions to the holders of Preferred and Common Stock, all remaining assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of Common and F-64 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 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 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 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 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 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 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 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 INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC. BALANCE SHEETS
December 31, June 30, 1995 1996 ---------- ------------ (Unaudited) 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 =========== ===========
See independent public accountants' report and notes to financial statements. F-73 INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Year Six Months Ended Ended June 30, December 31, -------------------------- 1995 1995 1996 ----------- ----------- ------------ (Unaudited) (Unaudited) 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) ========== =========== ===========
See independent public accountants' report and notes to financial statements. F-74 INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC. STATEMENTS OF CASH FLOWS
Year Six Months Ended Ended June 30, December 31, ---------------------- 1995 1995 1996 --------- --------- --------- (Unaudited) (Unaudited) 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 ========= ========= =========
See independent public accountants' report and notes to financial statements. F-75 INTERNATIONAL RECORD STORAGE AND RETRIEVAL SERVICE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1--NATURE OF BUSINESS: The Company is engaged principally in the storage of records for customers in the New Jersey-New York area and providing ancillary services in conjunction with such records. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Storage and service revenues are recognized in the month the respective service is provided. Storage material sales are recognized when shipped to the customer. The Company invoices storage charges to its customers in advance and these advanced billings are recorded as accounts receivable and the related revenues are included as deferred income in the accompanying financial statements. Inventories Inventories are carried at the lower of cost or market using the first-in first-out basis or market and are comprised primarily of cartons. Income Taxes The Company has elected to be treated as an "S" Corporation under the applicable sections of the Internal Revenue Code. Under these sections, corporate income or loss is allocated to the stockholders for inclusion in their personal income tax returns. Accordingly, there is no provision for federal income tax in the accompanying financial statements. State income taxes are recorded in accordance with Statement of Financial Accounting Standards No. 109. Equipment and Improvements Equipment and improvements are stated at cost and depreciated using the straight-line method with the following useful lives:
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 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 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 Six Months Ended Ended June 30, December 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 Six Months Ended Ended June 30, December 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:
Six Year Months Ended Ended December 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 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 ========================================================= No dealer, salesperson or other person has been authorized to give any information or to make any representations not contained in this Prospectus in connection with the offer made in this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any of the Underwriters. This Prospectus does not constitute an offer to sell or solicitation of an offer to buy any security other than the Notes offered hereby, nor does it constitute an offer to sell, or a solicitation of an offer to buy, to any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof. ------------- TABLE OF CONTENTS Page Prospectus Summary 3 Summary Historical and Pro Forma Information 8 Risk Factors 10 The Company 15 The Transactions 15 Recent and Pending Acquisitions 17 Use of Proceeds 18 Capitalization 18 Pro Forma Condensed Consolidated Financial Information 19 Selected Consolidated Financial and Operating Information 30 Management's Discussion and Analysis of Financial Condition and Results of Operations 32 Business 42 Management 55 Certain Transactions 60 Principal Stockholders 61 Description of the Notes 63 Description of New Credit Facility 84 Description of Capital Stock 85 Underwriting 86 Validity of the Notes 86 Experts 86 Additional Information 87 Index to Financial Statements F-1 ========================================================= $150,000,000 [TRIANGLE LOGO] Iron Mountain Incorporated % Senior Subordinated Notes due 2006 ------------- P R O S P E C T U S ------------- Donaldson, Lufkin & Jenrette Securities Corporation Bear, Stearns & Co. Inc. Prudential Securities Incorporated , 1996 ========================================================= Part II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. Securities and Exchange Commission fee $ 51,725 NASD filing fee 15,500 Blue Sky fees and expenses 15,000 Rating Agency fees and expenses * Printing and engraving fees * Accountants' fees and expenses * Legal fees and expenses * Trustee's fees and expenses * Miscellaneous * -------- Total $ * ======== - ------------- * To be completed by amendment. The foregoing, except for the Securities and Exchange Commission fee and the NASD filing fee, are estimated. Item 14. Indemnification of Directors and Officers. Section 145 of the Delaware General Corporation Law (the "DGCL") provides, in effect, that any person made a party to any action by reason of the fact that he is or was a director, officer, employee or agent of the Company may and, in certain cases, must be indemnified by the Company against, in the case of a non-derivative action, judgments, fines, amounts paid in settlement and reasonable expenses (including attorney's fees) incurred by him as a result of such action, and in the case of a derivative action, against expenses (including attorney's fees), if in either type of action he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. This indemnification does not apply, in a derivative action, to matters as to which it is adjudged that the director, officer, employee or agent is liable to the Company, unless upon court order it is determined that, despite such adjudication of liability, but in view of all the circumstances of the case, he is fairly and reasonable entitled to indemnity for expenses, and, in a non-derivative action, to any criminal proceeding in which such person had reasonable cause to believe his conduct was unlawful. Article Sixth of the Company's Amended and Restated Certificate of Incorporation provides that the Company shall indemnify each person who is or was an officer or director of the Company to the fullest extent permitted by Section 145 of the DGCL. Article Seventh of the Company's Amended and Restated Certificate of Incorporation states that no director of the Company shall be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that exculpation from liability is not permitted under the Delaware General Corporation Law as in effect when such breach occurred. Reference is made to Section 7 of the Underwriting Agreement filed as Exhibit 1 hereto, pursuant to which the underwriters have agreed to indemnify officers and directors of the Company against certain liabilities. Item 15. Recent Sales of Unregistered Securities. The Company's Amended and Restated Certificate of Incorporation provides for 16,000,000 shares of authorized capital stock, each with par value $.01 per share, as follows: 13,000,000 shares of authorized Common Stock, 1,000,000 shares of authorized Nonvoting Common Stock and 2,000,000 shares of Preferred Stock. On February 6, 1996, simultaneously with the consummation of the Company's Initial Public Offering and without any action on the part of the holders thereof, all outstanding shares of the Company's Series A1 Convertible Preferred Stock, par value $0.01 per share ("Series A1 Preferred Stock"), Series A2 Convertible Preferred Stock, par value $0.01 per share, Series A3 Convertible Preferred Stock, par value $0.01 per share, and Series C Convertible Preferred Stock, par value $0.01 per share (the "Old Preferred Stock"), was automatically converted into shares II-1 of Common Stock (or, in the case of one holder, shares of Common Stock and 500,000 shares of Nonvoting Common Stock). All of the shares of Common Stock and Nonvoting Common Stock issued as a result of such conversion were issued by the Company in reliance on the exemptions provided by Sections 3(a)(9) and 4(2) of the Securities Act. No commission or other remuneration was paid or given by the Company directly or indirectly for effecting the exchange. In 1995, the Company (i) issued options to acquire an aggregate of 162,184 shares of its Class A Common Stock pursuant to its stock option plan to certain of its officers and employees and (ii) issued to one employee an aggregate of 1,036 shares of Class A Common Stock pursuant to the exercise of stoock options granted under the Company's stock option plan for an aggregate purchase price of $200,984. In 1995, the Company also issued options to acquire an aggregate of 65,152 shares of its Common Stock pursuant to its stock option plan to certain of its officers and employees (which grants were conditioned on the consummation of the Initial Public Offering). In April 1996, the Company issued options to acquire an additional 361,452 shares. All securities referred to in this paragraph were issued by the Company in reliance on the exemption provided by Section 4(2) of the Securities Act or Rule 701 promulgated thereunder. On January 31, 1994, one shareholder of the Company exchanged 98,000 shares of Series A1 Preferred Stock for an equal number of shares of Series A2 Preferred Stock. On November 28, 1995, another shareholder of the Company exchanged 43,500 shares of Series A1 Preferred Stock for an equal number of shares of Series A3 Preferred Stock. All such shares were issued by the Company in reliance on the exemptions provided by Sections 3(a)(9) and 4(2) of the Securities Act. No commission or other remuneration was paid or given by the Company directly or indirectly for effecting the exchange. Item 16. Exhibits and Financial Statement Schedules. Each exhibit marked by an asterisk (*) is incorporated by reference to the Company's Registration Statement No. 33-99950 filed with the Securities and Exchange Commission on December 1, 1995. Each exhibit marked with a double asterisk (**) is incorporated by reference to Amendment No. 2 to the Company's Registration Statement filed with the Securities and Exchange Commission on January 11, 1996. Exhibit 3.2 is incorporated by reference to the Company's Quarterly Report on Form 10-Q (File No. 0-27584) filed with the Securities and Exchange Commission on August 14, 1996. Exhibit numbers in parentheses refer to the exhibit numbers in the applicable filing. (a) Exhibits
Exhibit Number Item Exhibit - ------- --------------------------------------------------------- ----------------- 1 Form of Underwriting Agreement To be filed by amendment 3.1 Amended and Restated Certificate of Incorporation of the *(3.1) Registrant 3.2 By-Laws of the Registrant, as amended (3) 4.1 Registration Rights Agreement between the Registrant * (4.1) and certain Stockholders, dated as of December 14, 1990 4.2 Form of Indenture for the Notes To be filed by amendment 5 Opinion of Sullivan & Worcester LLP To be filed by amendment 10.1 Credit Agreement between the Registrant and Chase * 10.1 Manhattan Bank (N.A.) as Agent, dated as of December 10, 1990, amended and restated as of April 15, 1993 and further amended and restated as of January 31, 1995 10.2 Consent and Amendment No. 1 to the Credit Agreement, * (10.2) dated as of November 1, 1995 between the Registrant and Chase Manhattan Bank (N.A.) as Agent 10.3 Consent and Amendment No. 2 to the Credit Agreement, * (10.3) dated as of November 2, 1995 between the Registrant and Chase Manhattan Bank (N.A.) as Agent
II-2
Exhibit Number Item Exhibit - ------- ------------------------------------------------------- ----------------- 10.4 Note Purchase Agreement between the Registrant and * (10.4) Chrysler Capital Corporation, dated as of December 14, 1990, as amended. 10.4A Letter agreement, dated July 15, 1996, between the Filed herewith as Registrant and Chrysler Capital Corporation Exhibit 10.4A 10.5 Subordinated Term Note between the Registrant and * (10.5) Schooner Capital Corporation, dated February 11, 1991 10.6 Iron Mountain Incorporated 1995 Stock Incentive Plan * (10.6) 10.7 Form of Iron Mountain Incorporated 1995 Stock Option ** (10.7) Plan for Non-Employee Directors 10.8 Asset Purchase and Sale Agreement, dated as of July 8, * (10.8) 1994, between Iron Mountain Data Protection Services, Inc. and Digital Equipment Corporation 10.9 Asset Purchase and Sale Agreement, dated as of October * (10.9) 31, 1994, among Iron Mountain Records Management of Ohio, Inc., Storage and Retrieval Concepts, Inc., Thomas Waldon and Dann Scheiferstein 10.10 Asset Purchase and Sale Agreement, dated as of February * (10.10) 28, 1995, among Iron Mountain Records Management ("IMRM"), National Business Archives, Inc., and James F. Knott 10.11 Asset Purchase Agreement, dated July 19, 1995, among * (10.11) IMRM, DataFile Services, Inc. and Cynthia and Lee Macklin 10.12 Asset Purchase and Sale Agreement, dated as of October * (10.12) 5, 1995, among IMRM, Brooks Records Center, Inc. and Forty Acres, Ltd. 10.13 Asset Purchase and Sale Agreement, dated as of November * (10.13) 1, 1995, among IMRM, Nashville Vault Company, Ltd. and USA Vault Corporation 10.14 Asset Purchase and Sale Agreement, dated November 14, * (10.14) 1995, among IMRM, Data Vault Corporation and Ralph Stoddard III 10.15 Merger Agreement, dated as of November 17, 1995, among * (10.15) IMRM, Temp DSSI, Inc. and Data Storage Systems, Inc. 10.16 Asset Purchase and Sale Agreement, dated November 17, * (10.16) 1995, among IMRM, Florida Data Bank, Inc., Carl J. Strang III, Carl J. Strang II and 6/10 Corporation 10.17 Asset Purchase and Sale Agreement, dated November 22, * (10.17) 1995 among IMRM, Data Management Business Records Storage, Inc. and Outdoor West, Inc. 10.18 Record Center Storage Services Agreement between IMRM * (10.18) and Resolution Trust Corporation, dated July 31, 1992 10.19 Lease between IMRM and IM Houston (CR) Limited * (10.19) Partnership, dated January 1, 1991 10.20 Asset Purchase and Sale Agreement, dated July 11, 1996, Filed herewith as among IMRM, The Fortress Corporation and certain Exhibit 10.20 subsidiaries 10.21 Stock Purchase and Sale Agreement, dated as of August 9 Filed herewith as 1996, among IMRM and the shareholders of Data Archive Exhibit 10.21 Services of Miami, Inc. and Data Archives Services, Inc. 10.22 Asset Purchase and Sale Agreement, dated August 13, Filed herewith as 1996, among IMRM, International Record Storage and Exhibit 10.22 Retrieval Service, Inc. and Laurance Winnerman, Sanford Winnerman and Penny Novak 11 Statement re: computation of per share earnings Filed herewith as Exhibit 11 12 Statement re: computation of ratio of earnings to fixed Filed herewith as charges Exhibit 12 21 Subsidiaries of the Registrant Filed herewith as Exhibit 21
II-3
Exhibit Number Item Exhibit - ------- --------------------------------------------------- ------------------ 23.1 Consent of Sullivan & Worcester LLP Contained in Exhibit 5; to be filed by amendment 23.2 Consent of Arthur Andersen LLP Filed herewith as Exhibit 23.2 23.3 Consent of Wolpoff & Company, LLP Filed herewith as Exhibit 23.3 23.4 Consent of Morrison and Smith Filed herewith as Exhibit 23.4 23.5 Consent of Geo. S. Olive & Co. LLC Filed herewith as Exhibit 23.5 23.6 Consent of Robert F. Gayton, CPA Filed herewith as Exhibit 23.6 23.7 Consent of Perless, Roth, Jonas & Hartney, CPAs, PA Filed herewith as Exhibit 23.7 23.8 Consent of Rothstein, Kass & Company, P.C. Filed herewith as Exhibit 23.8 24 Powers of Attorney Contained on Pages II-6 and II-7 of the Registration Statement 25 Statement re eligibility of trustee To be filed by amendment
(b) Financial Statement Schedules The following Financial Statement Schedule is filed herewith: Schedule II--Valuation and Qualifying Accounts Item 17. Undertakings Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Company, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-4 The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Iron Mountain Incorporated has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts, on August 16, 1996. IRON MOUNTAIN INCORPORATED By: /s/ C. Richard Reese ------------------------------------- Name: C. Richard Reese Title: Chairman of the Board of Directors and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-1 relating to Iron Mountain Incorporated's Senior Subordinated Notes and the guarantees thereof has been signed below by the following persons in the capacities and on the dates indicated; and each of the undersigned officers and directors of Iron Mountain Incorporated hereby severally constitutes and appoints C. Richard Reese, David S. Wendell and Eugene B. Doggett, and each of them, to sign for him or her, and in his or her name in the capacity indicated below, such Registration Statement for the purpose of registering such securities under the Securities Act of 1933, as amended, and any and all amendments thereto, including without limitation any registration statement or post-effective amendment thereof filed under and meeting the requirements of Rule 462(b) under the Securities Act, hereby ratifying and confirming our signatures as they may be signed by our attorneys to such Registration Statement and any and all amendments thereto. Signature Title Date - ------------------------ --------------------------------- ---------------- /s/ C. Richard Reese Chairman of the Board of Directors August 16, 1996 - ------------------------ and Chief Executive Officer C. Richard Reese /s/ David S. Wendell President, Chief Operating Officer August 16, 1996 - ------------------------ and Director David S. Wendell /s/ Eugene B. Doggett Executive Vice President, Chief August 16, 1996 - ------------------------ Financial Officer and Director Eugene B. Doggett August , 1996 Director - ------------------------ Constantin R. Boden /s/ Arthur D. Little Director August 16, 1996 - ------------------------ Arthur D. Little /s/ Vincent J. Ryan, Jr. Director August 16, 1996 - ------------------------ Vincent J. Ryan, Jr. /s/ Jean A. Bua Vice President and Corporate August 16, 1996 - ------------------------ Controller Jean A. Bua II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Iron Mountain Records Management, Inc. Metro Business Archives, Inc., Criterion Atlantic Property, Inc., Criterion Property, Inc., Hollywood Property, Inc., IM San Diego, Inc., Iron Mountain Information Partners, Inc., Iron Mountain Data Protection Services, Inc., Iron Mountain Records Management of Maryland, Inc., Iron Mountain Records Management of Ohio, Inc., Iron Mountain Wilmington, Inc., Data Storage Systems, Inc., Iron Mountain Records Management of Missouri LLC, Iron Mountain Records Management of Boston, Inc., Data Archive Services, Inc., and Data Archive Services of Miami, Inc., have each duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts, on August 16, 1996. IRON MOUNTAIN RECORDS MANAGEMENT, INC. IRON MOUNTAIN RECORDS MANAGEMENT OF METRO BUSINESS ARCHIVES, INC. OHIO, INC. CRITERION ATLANTIC PROPERTY, INC. IRON MOUNTAIN WILMINGTON, INC. CRITERION PROPERTY, INC. DATA STORAGE SYSTEMS, INC. HOLLYWOOD PROPERTY, INC. IRON MOUNTAIN RECORDS MANAGEMENT OF IM SAN DIEGO, INC. MISSOURI LLC IRON MOUNTAIN INFORMATION PARTNERS, INC. IRON MOUNTAIN RECORDS MANAGEMENT OF IRON MOUNTAIN DATA PROTECTION BOSTON, INC. SERVICES, INC. DATA ARCHIVE SERVICES, INC. IRON MOUNTAIN RECORDS MANAGEMENT OF DATA ARCHIVE SERVICES OF MIAMI, INC. MARYLAND, INC. By: /s/ C. Richard Reese ---------------------------------------- Name: C. Richard Reese Title: Chairman of the Board of Directors and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-1 relating to Iron Mountain Incorporated's Senior Subordinated Notes and the guarantees thereof has been signed below by the following persons in the capacities and on the dates indicated; and each of the undersigned officers and directors or managers of Iron Mountain Records Management, Inc., Metro Business Archives, Inc., Criterion Atlantic Property, Inc., Criterion Property, Inc., Hollywood Property, Inc., IM San Diego, Inc., Iron Mountain Information Partners, Inc., Iron Mountain Data Protection Services, Inc., Iron Mountain Records Management of Maryland, Inc., Iron Mountain Records Management of Ohio, Inc., Iron Mountain Wilmington, Inc., Data Storage Systems, Inc., Iron Mountain Records Management of Missouri LLC, Iron Mountain Records Management of Boston, Inc., Data Archive Services, Inc., and Data Archive Services of Miami, Inc., hereby severally constitutes and appoints C. Richard Reese, David S. Wendell and Eugene B. Doggett, and each of them, to sign for him or her, and in his or her name in the capacity indicated below, such Registration Statement for the purpose of registering such securities under the Securities Act of 1933, as amended, and any and all amendments thereto, including without limitation any registration statement or post-effective amendment thereof filed under and meeting the requirements of Rule 462(b) under the Securities Act, hereby ratifying and confirming our signatures as they may be signed by our attorneys to such Registration Statement and any and all amendments thereto. Signature Title Date - --------------------- ----------------------------------- --------------- /s/ C. Richard Reese Chairman of the Board and Director, August 16, 1996 - --------------------- and Chief Executive Officer C. Richard Reese /s/ Eugene B. Doggett Executive Vice President and Chief August 16, 1996 - --------------------- Financial Officer, and Manager of Eugene B. Doggett Iron Mountain Records Management of Missouri, LLC /s/ Jean A. Bua Vice President and Corporate August 16, 1996 - --------------------- Controller Jean A. Bua II-7 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Iron Mountain Incorporated: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Iron Mountain Incorporated for each of the three years in the period ended December 31, 1995 and have issued our report thereon dated February 26, 1996. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The accompanying supplemental schedule is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and regulations under the Securities and Exchange Act of 1934 and is not a required part of the basic financial statements. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Los Angeles, California February 26, 1996 S-1 SCHEDULE II IRON MOUNTAIN INCORPORATED VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1993, 1994 and 1995 (In thousands) Balance at Charged Balance beginning to at end of year expense Deductions of year --------- -------- ---------- ------- Year ended December 31, 1993 Allowance for doubtful accounts $424 $581 $(503) $502 Year ended December 31, 1994 Allowance for doubtful accounts $502 $356 $(327) $531 Year ended December 31, 1995 Allowance for doubtful accounts $531 $630 $(510) $651 S-2 Exhibit Index
Exhibit Number Item Exhibit - --------- ------------------------------------------------------------- ------------------------ 1 Form of Underwriting Agreement To be filed by amendment 3.1 Amended and Restated Certificate of Incorporation of the *(3.1) Registrant 3.2 By-Laws of the Registrant, as amended (3) 4.1 Registration Rights Agreement between the Registrant *(4.1) andcertain Stockholders, dated as of December 14, 1990 4.2 Form of Indenture for the Notes To be filed by amendment 5 Opinion of Sullivan & Worcester LLP To be filed by amendment 10.1 Credit Agreement between the Registrant and Chase Manhattan * 10.1 Bank (N.A.) as Agent, dated as of December 10, 1990, amended and restated as of April 15, 1993 and further amended and restated as of January 31, 1995 10.2 Consent and Amendment No. 1 to the Credit Agreement, dated as * (10.2) Manhattan Bank (N.A.) as Agent 10.3 Consent and Amendment No. 2 to the Credit Agreement, dated as * (10.3) of November 2, 1995 between the Registrant and Chase Manhattan Bank (N.A.) as Agent 10.4 Note Purchase Agreement between the Registrant and Chrysler * (10.4) Capital Corporation, dated as of December 14, 1990, as amended. 10.4A Letter agreement, dated July 15, 1996, between the Registrant Filed herewith as and Chrysler Capital Corporation Exhibit 10.4A 10.5 Subordinated Term Note between the Registrant and Schooner * (10.5) Capital Corporation, dated February 11, 1991 10.6 Iron Mountain Incorporated 1995 Stock Incentive Plan * (10.6) 10.7 Form of Iron Mountain Incorporated 1995 Stock Option Plan for ** (10.7) Non-Employee Directors 10.8 Asset Purchase and Sale Agreement, dated as of July 8, 1994, * (10.8) between Iron Mountain Data Protection Services, Inc. and Digital Equipment Corporation 10.9 Asset Purchase and Sale Agreement, dated as of October 31, * (10.9) 1994, among Iron Mountain Records Management of Ohio, Inc., Storage and Retrieval Concepts, Inc., Thomas Waldon and Dann Scheiferstein 10.10 Asset Purchase and Sale Agreement, dated as of February 28, * (10.10) 1995, among Iron Mountain Records Management ("IMRM"), National Business Archives, Inc., and James F. Knott 10.11 Asset Purchase Agreement, dated July 19, 1995, among IMRM, * (10.11) DataFile Services, Inc. and Cynthia and Lee Macklin 10.12 Asset Purchase and Sale Agreement, dated as of October 5, * (10.12) 1995, among IMRM, Brooks Records Center, Inc. and Forty Acres, Ltd. 10.13 Asset Purchase and Sale Agreement, dated as of November 1, * (10.13) 1995, among IMRM, Nashville Vault Company, Ltd. and USA Vault Corporation 10.14 Asset Purchase and Sale Agreement, dated November 14, 1995, * (10.14) among IMRM, Data Vault Corporation and Ralph Stoddard III 10.15 Merger Agreement, dated as of November 17, 1995, among IMRM, * (10.15) Temp DSSI, Inc. and Data Storage Systems, Inc. 10.16 Asset Purchase and Sale Agreement, dated November 17, 1995, * (10.16) among IMRM, Florida Data Bank, Inc., Carl J. Strang III, Carl J. Strang II and 6/10 Corporation 10.17 Asset Purchase and Sale Agreement, dated November 22, 1995 * (10.17) among IMRM, Data Management Business Records Storage, Inc. and Outdoor West, Inc. Exhibit Number Item Exhibit - --------- ------------------------------------------------------------- ------------------------ 10.18 Record Center Storage Services Agreement between IMRM and * (10.18) Resolution Trust Corporation, dated July 31, 1992 10.19 Lease between IMRM and IM Houston (CR) Limited Partnership, * (10.19) dated January 1, 1991 10.20 Asset Purchase and Sale Agreement, dated July 11, 1996, among Filed herewith as IMRM, The Fortress Corporation and certain subsidiaries Exhibit 10.20 10.21 Stock Purchase and Sale Agreement, dated as of August 9, Filed herewith as 1996, among IMRM and the shareholders of Data Archive Exhibit 10.21 Services of Miami, Inc. and Data Archives Services, Inc. 10.22 Asset Purchase and Sale Agreement, dated August 13, 1996, Filed herewith as among IMRM, International Record Storage and Retrieval Exhibit 10.22 Service, Inc. and Laurance Winnerman, Sanford Winnerman and Penny Novak 11 Statement re: computation of per share earnings Filed herewith as Exhibit 11 12 Statement re: computation of ratio of earnings to fixed Filed herewith as charges Exhibit 12 21 Subsidiaries of the Registrant Filed herewith as Exhibit 21 23.1 Consent of Sullivan & Worcester LLP Contained in Exhibit 5; to be filed by amendment 23.2 Consent of Arthur Andersen LLP Filed herewith as Exhibit 23.2 23.3 Consent of Wolpoff & Company, LLP Filed herewith as Exhibit 23.3 23.4 Consent of Morrison and Smith Filed herewith as Exhibit 23.4 23.5 Consent of Geo. S. Olive & Co. LLC Filed herewith as Exhibit 23.5 23.6 Consent of Robert F. Gayton, CPA Filed herewith as Exhibit 23.6 23.7 Consent of Perless, Roth, Jonas & Hartney, CPAs, PA Filed herewith as Exhibit 23.7 23.8 Consent of Rothstein, Kass & Company, P.C. Filed herewith as Exhibit 23.8 24 Powers of Attorney Contained on Pages II-6 and II-7 of the Registration Statement 25 Statement re eligibility of trustee To be filed by amendment
Each exhibit marked by an asterisk (*) is incorporated by reference to the Company's Registration Statement No. 33-99950 filed with the Securities and Exchange Commission on December 1, 1995. Each exhibit marked with a double asterisk (**) is incorporated by reference to Amendment No. 2 to the Company's Registration Statement filed with the Securities and Exchange Commission on January 11, 1996. Exhibit 3.2 is incorporated by reference to the Company's Quarterly Report on Form 10-Q (File No. 0-27584) filed with the Securities and Exchange Commission on August 14, 1996. Exhibit numbers in parentheses refer to the exhibit numbers in the applicable filing. EX-10.4A 2 MATERIAL CONTRACTS July 15, 1996 Mr. Tom Allen FAX # 203-975-3907 Sr. Account Executive Chrysler Capital 225 High Ridge Road Stamford, CT 06905-3032 Dear Mr. Allen: This will confirm an agreement which I have developed with Frank Diceglie relating to the possible pre-payment by Iron Mountain of its subordinated note held by Chrysler Capital Corporation. We are considering such pre-payment in connection with a public offering of senior subordinated notes planned to be made later this summer. We offered Chrysler the opportunity to exchange its note for notes to be registered in the offering, but Chrysler has declined this opportunity. We understand that Chrysler would prefer either to hold the note it presently has or accept a pre-payment thereof which would include a negotiated pre-payment penalty. Chrysler has proposed and Iron Mountain agrees that if Iron Mountain elects to prepay, the pre-payment penalty will be $1,400,000 as of September 1, 1996. We have also agreed that if the pre-payment occurs at a date before or after September 1, the pre-payment will be adjusted respectively by an increase or decrease in the amount of $1,216.67 per day. If the foregoing correctly sets forth our understanding, please have this letter countersigned by an authorized official of Chrysler Capital Corporation and return it to me by mail or fax at 617-350-7881. To the extent that additional documentation is required to implement the pre-payment, it will be prepared by our counsel and forwarded for Chrysler's approval. In the meantime, this letter is intended to express our agreement on the matter so that Iron Mountain may plan appropriately. If you have any questions, please call me at 617-357-6966 ext. 210. Sincerely /s/ Eugene B. Doggett Eugene B. Doggett Executive Vice President & CFO Accepted Chrysler Capital Corporation /s/ Linda A. Harvey EX-10.20 3 SALE AGREEMENT ASSET PURCHASE AND SALE AGREEMENT between IRON MOUNTAIN RECORDS MANAGEMENT, INC. as Buyer THE FORTRESS-BOSTON CORPORATION and THE FORTRESS-MIAMI CORPORATION as Sellers and THE FORTRESS CORPORATION as Stockholder As of July 11, 1996 TABLE OF CONTENTS ARTICLE I....................................................................1 DEFINITIONS.........................................................1 ARTICLE II...................................................................4 SALE AND PURCHASE OF SUBJECT ASSETS.................................4 ARTICLE III..................................................................7 REPRESENTATIONS AND WARRANTIES OF SELLERS AND STOCKHOLDER...........7 ARTICLE IV..................................................................13 REPRESENTATIONS AND WARRANTIES OF BUYER............................13 ARTICLE V...................................................................14 PRE-CLOSING AGREEMENTS.............................................14 ARTICLE VI..................................................................16 CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE...............16 ARTICLE VII.................................................................19 CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS AND STOCKHOLDER......19 ARTICLE VIII................................................................20 THE CLOSING........................................................20 ARTICLE IX..................................................................21 POST-CLOSING MATTERS...............................................21 ARTICLE X...................................................................24 TERMINATION........................................................24 ARTICLE XI..................................................................26 INDEMNIFICATION....................................................26 ARTICLE XII.................................................................30 MISCELLANEOUS PROVISIONS...........................................30 Schedule 1.12A Owned Tangible Assets Schedule 3.4 Consents Schedule 3.5 Encumbrances; Leases Schedule 3.8 Litigation; Claims Schedule 3.9 Permits, Licenses Schedule 3.15 Customers Terminating/Seeking Bids Schedule 3.17 Employee Information Schedule 3.22 Transactions with Interested Persons Exhibit 6.3 Noncompetition and Confidentiality Agreement Exhibit 6.12 Opinion of Seller's Counsel Exhibit 7.4 Opinion of Buyer's General Counsel ASSET PURCHASE AND SALE AGREEMENT THIS AGREEMENT ("Agreement") is made as of the 11th day of July, 1996 by and between Iron Mountain Records Management, Inc., a Delaware corporation ("Buyer"), The Fortress-Boston Corporation, a Delaware corporation ("Fortress-Boston"), The Fortress-Miami Corporation, a Florida corporation ("Fortress-Miami"; together with the Fortress-Boston, the "Sellers" and each a "Seller"), and The Fortress Corporation, a Delaware corporation ("Stockholder"). RECITALS A. Fortress-Boston is engaged in the business of providing records management and storage services in the metropolitan area of Boston, Massachusetts and Fortress-Miami is engaged in the business of providing records management and storage services in the metropolitan areas of Dade and Broward Counties, Florida, each under the trade name "Fortress". B. Stockholder owns all the issued and outstanding capital stock of Fortress-Boston and Fortress-Miami. C. Buyer desires to purchase, and Sellers desire to sell, substantially all the assets of the Business (as hereinafter defined) operated by each of them on the terms and subject to the conditions contained in this Agreement, and Stockholder, as ultimate recipient of all or a significant portion of the consideration to be paid by Buyer, is willing to confirm the representations and warranties and covenants of Sellers contained herein. In consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Sellers, Stockholder and Buyer, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, certain terms used in this Agreement and not otherwise defined herein shall have the meanings designated below: Section 1.1 Agreement means all or any part of this Agreement, including schedules, exhibits, and appendices, as any of the foregoing may be amended, modified or supplemented in writing from time to time. Section 1.2 Business means the paper and magnetic media records management and storage business conducted by Fortress-Boston in metropolitan Boston, Massachusetts and the paper and magnetic media records management and storage business conducted by Fortress-Miami in metropolitan Dade and Broward Counties, Florida, each under the trade name "Fortress". Section 1.3 Closing means the occasion upon which the transactions contemplated by this Agreement are carried out by the delivery of documents, payment of funds and other actions contemplated herein, as described in Article VIII. Section 1.4 Closing Date shall be July 17, 1996, or such other date as the parties may agree, provided that Sellers may elect by written notice to Buyer not later than the close of business on July 15, 1996 that they elect to postpone the Closing for up to thirty (30) days in order to have additional time to obtain consents of landlords to assignment of the Leases, as required by Section 6.4; such notice shall indicate the date to which the Closing has been postponed. In the event that Sellers select a closing date after August 1, 1996, the Effective Time shall be 12:00 a.m. in Boston, Massachusetts on August 1, 1996 and all adjustments to the Purchase Price which are affected by the Effective Time shall be made as of August 1, 1996 instead of July 1, 1996 (including, without limitation, the reference to amounts billable for the month of June, 1996) in Section 2.2A, which shall become amounts billable for the month of July, 1996 Section 1.5 Effective Time means 12:00 a.m. in Boston, Massachusetts on July 1, 1996, or August 1, 1996 in the event Sellers elect to postpone the Closing Date to a date after August 1, 1996. Section 1.6 Encumbrances means any and all encumbrances, mortgages, security interests, liens, Taxes, claims, liabilities, options, commitments, charges, restrictions or other obligations of whatsoever kind, quantity or nature, whether accrued, absolute, contingent or otherwise, which affect title to the Subject Assets. Section 1.7 Excluded Assets means (i) Sellers' cash and cash equivalents and sums in checking and depository accounts (including cash representing payments for storage or services provided after the Effective Time), (ii) Sellers' museum quality storage business and all assets related thereto, (iii) corporate records not relating to the Business, (iv) refunds of taxes and insurance premiums, (v) the names "Fortress" and "Museum Quality Storage", and variants thereof except (with respect to "Fortress") to the extent provided in Section 9.2, (vi) abatements, and (vii) Dimensional Parking Technology Corporation's containers located in the parking lot of the Hialeah, Florida Leased Space and a jig related to such containers located at the Bowen Building parking lot. Section 1.8 Knowledge or the phrases "to the knowledge of" or "to the best of Sellers' or Stockholder's knowledge", when used in reference to either Sellers or Stockholder, means matters actually known by James N. Levis, Ladd M. Levis-Thorne, William Snyder or Denis Holler, after reasonable inquiry of subordinates who would reasonably be expected to know the information in question. Section 1.9 Information Materials means the written information annexed to this Agreement as Schedule 3.27. Section 1.10 Leases means: (i) the lease dated November 1, 1989, as amended March 25, 1991 and August ___, 1994 between Property Asset Management, Inc., as successor landlord, and Fortress-Miami as successor to Fortress-Fort Lauderdale, Inc., as tenant, for approximately 21,276 square feet of space at Interstate Commerce Center, N. W. 23rd Avenue, Ft. Lauderdale, Florida. 2 (ii) the lease dated as of October 1, 1994 between Triple-A Industries, as landlord, and Fortress-Miami as successor to The Fortress-Miami Corporation, as tenant, for approximately 41,000 square feet of space at 445-455 West 26th Street, Hialeah, Florida; (iii) the lease dated October 31, 1986, as amended by instrument dated December 28, 1994, between E Street Associates, as landlord, and Fortress-Boston as successor to The Fortress-Boston Corporation, as tenant, for approximately 21,250 square feet of space at 415 E Street, Boston, Massachusetts; and (iv) the sublease dated February 1, 1994, as amended by amendment dated July 1, 1994 to increase the space subject to the sublease, between Greater Boston Rehabilitation Services, Inc., as sublessor, and Stockholder, as sublessee, for approximately 39,000 square feet of space at 31 Monsignor O'Brien Highway, Cambridge, Massachusetts. Section 1.11 Leased Space means the space occupied by Sellers pursuant to the Leases. Section 1.12 Subject Assets means all of Sellers' assets and properties of whatever kind, character and description, and whether tangible, intangible, real, personal or mixed, and wherever located, except for the Excluded Assets. The Subject Assets include the following Tangible Assets and Interests: A. Tangible Assets means all tangible property used in the Business, such as inventory; computers, computer peripherals and maintenance manuals; word processors; typewriters and other business equipment; vehicles; equipment;; racking and shelving; furniture, furnishings, and office equipment; and supplies. Principal items of Tangible Assets, including vehicles, are listed on Schedule 1.12A. The Tangible Assets also includes the land and improvements thereon located at 1630 Northeast First Avenue, Miami, Florida (the "Bowen Property"). B. Interests means all intangible property used in the Business to the extent assignable (Buyer acknowledges that certain of such items may not be assignable by their terms or their terms may be silent as to assignability), including rights, privileges, benefits and interests under all contracts, agreements, consents, licenses and files and correspondence related thereto; computer software used in the Business (including software licensed to Seller by Infotrac); permits or certificates; agreements, leases and arrangements with respect to intangible or tangible property or interests therein; Sellers' right to occupy the Leased Space (pursuant to the Leases); confidentiality and non-competition agreements with employees and other parties, whether oral or written; consents; agreements with suppliers and customers; deposits held by contract parties, including any lease deposits; accounts receivable; all financial and operating records related to the Business; and any sales agent or sales affiliate agreements used in connection with the Business. Section 1.13 Taxes means any and all taxes, sums or amounts assessed or assessable, levied and due by any federal, state or county or other local governmental authority or agency, including without limitation, real and personal property taxes, income taxes, whether measured by gross or net income or profit, franchise, excise, sales and use taxes, employee withholding, social security, unemployment taxes and any other taxes required to be paid by Sellers, including interest and penalties in respect thereof whether disputed or not, and whether accrued, contingent, due, absolute, 3 deferred, unknown or other, together with any and all penalties, interests and additions to all such taxes, sums or amounts. (ARTICLE II COMMENCES ON THE NEXT PAGE) 4 ARTICLE II SALE AND PURCHASE OF SUBJECT ASSETS Section 2.1 Sale and Transfer. Subject to the terms and conditions set forth in this Agreement, each Seller shall sell, convey, transfer, assign and deliver to Buyer, and Buyer shall purchase and receive from each Seller, at the Closing, free and clear of all Encumbrances, all of the Subject Assets owned by such Seller and the Interests. Section 2.2 Purchase Price; Assumption of Certain Obligations. A. Purchase Price. The Purchase Price to be paid by Buyer for all the Subject Assets shall be (i) plus (ii) an amount equal to ninety percent (90%) of the face amount of Sellers' net eligible accounts receivable as of the Effective Time, plus amounts billable for services performed during the month of June, 1996 which are billed to customers on or about July 8, 1996. For purposes of this Agreement, "net eligible accounts receivable" shall mean gross accounts receivable of either Seller which are owed by customers of the Business for work performed by Sellers prior to the Effective Time minus Seller's reasonable bad debt reserve in respect of such accounts receivable. B. Payment of Purchase Price. The Purchase Price shall be payable to Sellers or Sellers' lenders (allocated between the Sellers as the parties shall agree) at the Closing by wire transfer or certified or bank check of immediately available funds to such account as Stockholder shall designate in writing not less than two business days prior to the Closing Date. Sellers may apply all or a portion of the Purchase Price to retire indebtedness required to obtain releases of any Encumbrances. C. Limited Assumption of Contracts and Obligations. Buyer shall assume no obligations or liabilities of Sellers other than the following. Buyer shall assume and perform: (i) all obligations of Sellers arising or accruing after the Closing Date in respect of Sellers' contracts, agreements and arrangements with their customers providing for storage of business records at customary rates; (ii) Sellers' obligations under routine contracts for goods and services (none of which are for capital expenditures) to be delivered or performed after the Closing Date; (iii) Sellers' obligations under vehicle and other equipment leases listed on Schedule 3.5 which relate or are properly accruable to periods after the Closing Date; and (iv) Sellers' obligations under the Leases which relate or are properly accruable to periods after the Closing Date (Buyer shall not assume Fortress-Boston's obligation with respect to past-due rent in respect of the E Street Leased Premises). D. Sellers to Pay Pre-Closing Expenses. Sellers shall be responsible for and pay when due all costs and expenses of operating the Business accrued or accruable prior to the Effective Time. 5 Section 2.3 Allocation. The Purchase Price shall be allocated among the Subject Assets pursuant to a written agreement between the parties which shall be negotiated and agreed upon prior to August 31, 1996 or if later, the date which is forty-five days after the Closing Date; provided that the maximum amount allocated to the Noncompetition and Confidentiality Agreements to be signed by individuals as described in Section 6.3 shall not exceed $500,000 in the aggregate; said $500,000 to be allocated among the individuals as directed by Stockholder. Section 2.4 Sellers' Employees. Buyer shall not be obligated to offer employment to any employee of Sellers in connection with the acquisition of the Subject Assets, and such acquisition shall not grant any employee of Sellers a right of continued employment with Buyer. For a period of one year after the Closing Date, Sellers and Stockholder shall not offer conflicting employment to any person who accepts employment with Buyer. Notwithstanding the foregoing, Buyer anticipates that it will offer employment to all of Sellers' employees employed in the Business except Dennis Biddle (who will remain in the employ of Sellers), subject to further review of Sellers' operations. Buyer shall notify Sellers on or prior to the Closing Date as to any of Sellers' employees to whom Buyer does not intend to offer employment. Section 2.5 Operations between Effective Time and Closing Date. Notwithstanding any other provision in this Agreement to the contrary, provided that the Closing occurs, operation of the Business from the Effective Time to the Closing Date will be at the risk and for the account of Buyer, except that: (i) Sellers shall be solely responsible for any injury, death or damage caused by their employees or agents during such period, and (ii) Sellers have made and shall make no capital expenditures without the consent of Buyer during such period (which shall not be unreasonably withheld). Sellers shall not be responsible for claims or causes of action covered by Sellers' liability insurance, provided that Buyer shall have been identified as an additional insured on Sellers' liability policy; Sellers shall provide a certificate of insurance to such effect. Approximately $30,000 of racking was previously ordered by Sellers; such racking has been delivered, and will be paid for by Sellers. Provided that the Closing occurs, Buyer shall be responsible for and pay when due all expenses of operating the Business accrued or accruable between the Effective Time and the Closing Date, and shall reimburse Sellers for any such costs and expenses paid by Sellers, including sales, general and administrative expenses; and Buyer shall be entitled to all revenue earned in such period. During the portion of such period after the date hereof, in addition to Sellers' obligation to conduct business in the ordinary course, Sellers shall not make any commitment for capital expenditures, and Buyer's personnel shall have the right to observe the conduct of the Business upon 24 hours' notice. Section 2.6 Post-Closing Adjustment Date. Buyer and Sellers shall make all proration adjustments and payments arising hereunder, to the extent known, on the Closing Date. On September 17, 1996 (or if later, sixty days after the Closing Date), Buyer and Sellers shall make any additional net adjustment by payment of one to the other to effect a final adjustment in the Purchase Price. If any adjustments are at that date not determined, Buyer and Sellers shall agree in writing as to the date and method of settlement of such undetermined amounts. Section 2.7 Prepaid Storage. Sellers shall grant to Buyer a credit against the Purchase Price equal to payments which Sellers have received prior to the Closing Date in respect of storage and services (if any) to be provided after the Effective Time. 6 Section 2.8 Earnest Money Escrow Deposit. On or prior to the date of this Agreement, Buyer, Sellers and Stockholder have executed an Earnest Money Escrow Agreement (the "Escrow Agreement") with the law firm of Warner & Stackpole LLP, as escrow agent (the "Escrow Agent"). On the date when Sellers and Stockholder have executed and delivered a copy of this Agreement to Buyer, Buyer shall deliver to the Escrow Agent an earnest money deposit in the amount of Five Hundred Thousand Dollars ($500,000) to be held and disbursed as provided therein. Section 2.9 Certain Leased Racking. Stockholder has approximately 50,000 cubic feet of leased racking in the Hialeah Building which is leased from Eaton Financial pursuant to two leases (rack lease numbers 246828 and 268924), one of which has approximately 13 months to expiration and the other of which has approximately 15 months to expiration. In order to enable Stockholder to avoid a significant prepayment penalty, Buyer will not require Stockholder to pay off such leases and purchase the racking as of the Closing Date. Instead, Buyer will have the use of the affected racking from and after the Closing Date. Stockholder will continue making lease payments through the expiration of the leases, will purchase the racking from the lessor upon expiration of the leases, and will transfer, sell and assign the racking to Buyer promptly thereafter, for no additional consideration. (ARTICLE III COMMENCES ON THE NEXT PAGE) 7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS AND STOCKHOLDERES Sellers and Stockholder jointly and severally represent and warrant to Buyer as follows as of the date hereof: Section 3.1 Organization and Good Standing. Each of Fortress-Boston and Stockholder is (or at the Closing Date will be) a corporation duly organized and validly existing under the laws of the State of Delaware and Fortress-Miami is (or at the Closing Date will be) a corporation duly organized and validly existing under the laws of the State of Florida. Certain of Sellers and Stockholder may not be in good standing on the date hereof or the Closing Date because of failure to file certain annual reports, a list of which has been supplied to Buyer. All such annual reports and other filings necessary to place each entity in good standing will have been filed (together with payment of required fees) with the appropriate governmental agencies on or prior to the Closing Date. Sellers and Stockholder shall provide copies of good standing certificates for Fortress-Boston and Stockholder from Delaware and Massachusetts, and for Fortress-Miami from Florida, prior to August 31, 1996. Each of Sellers and Stockholder has all requisite corporate power and authority to own, operate, sell and lease its properties and to carry on its respective business as presently conducted. Each of Sellers and Stockholder has all requisite corporate power and authority to execute and deliver, and perform its corporate obligations under, this Agreement. Each of Fortress-Boston and Stockholder is (or at the Closing Date will be) duly qualified to transact business and in good standing in the Commonwealth of Massachusetts and in each other jurisdiction in which the nature of property owned or leased by it or the conduct of its business requires it to be qualified, and Fortress-Miami is (or at the Closing Date will be) duly qualified to transact business and in good standing in each jurisdiction in which the nature of property owned or leased by it or the conduct of its business requires it to be qualified, except (as to each entity) where the failure to be duly qualified to transact business or in good standing would not have a material adverse effect on its business or assets. Section 3.2 Authorization. The execution and delivery of this Agreement and performance by Sellers and Stockholder of their respective obligations hereunder, and all transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action. This Agreement has been, and the other agreements and documents required to be delivered by Sellers and Stockholder in accordance with the provisions hereof (the "Sellers' Documents") will be, duly executed and delivered on behalf of Sellers and Stockholder, by duly authorized officers of each; and this Agreement constitutes, and Sellers' Documents when executed and delivered will constitute, the valid and binding obligations of such of Sellers and Stockholder which sign such Sellers' Documents, enforceable in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization or similar laws from time to time in effect affecting creditors' rights generally and by legal and equitable limitations on the availability of specific remedies. Section 3.3 Compliance With Other Instruments. Neither the execution and delivery by Sellers and Stockholder of this Agreement and the Sellers' Documents, nor the consummation by Sellers and Stockholder of the transactions contemplated hereby and thereby, will, with or without the giving of notice or passage of time, or both, be contrary to or violate, breach, or constitute a default under, or permit the termination or acceleration of maturity of, or result in the imposition of any 8 lien, claim or encumbrance upon any property or asset of Sellers or Stockholder pursuant to any provision of, any note, bond, indenture, mortgage, deed of trust, evidence of indebtedness or lease agreement, other agreement or instrument or any judgment, order, injunction or decree by which Sellers or Stockholder are bound, to which any of them is a party, or to which the assets of Sellers or Stockholder are subject; nor is the effectiveness or enforceability of this Agreement or such other documents adversely affected by any provision of the corporate charter or by-laws of Sellers or Stockholder. Section 3.4 No Governmental or Other Authorization Required. To the best of Sellers' knowledge, no authorization or approval of, or filing with, any governmental agency, authority or other body or any other third persons will be required in connection with Sellers' or Stockholder's execution and delivery of this Agreement or the consummation by Sellers and Stockholder of the transactions contemplated hereby and thereby other than (i) the consent of the landlords pursuant to the Leases and (ii) as set forth in Schedule 3.4. Section 3.5 Title to Subject Assets; Sufficiency. Sellers have good title to all the Subject Assets; to the best of their knowledge, title to the Subject Assets is free and clear of all Encumbrances except as set forth on Schedule 3.5, which lists Encumbrances of which Sellers have knowledge and identifies leased equipment and vehicles. Neither Seller is a party to, nor are the Subject Assets subject to, any judgment, judicial order, writ, injunction or decree that materially adversely affects the Subject Assets or the use thereof by Sellers. The Subject Assets include all assets regularly used by Sellers in the operation of the Business. Section 3.6 Contracts and Other Interests. To the best of Sellers' knowledge, all material contracts for goods and services (contracts requiring payment by Sellers of more than $500 per month) and all customer contracts in respect of Sellers' customers whose business averaged in excess of 2,000 cubic feet of storage per month for the six months ended December 31, 1995 are in full force and effect, valid and enforceable in accordance with their respective terms against the other parties thereto. Sellers have received no notice of default of either Seller under any such material contracts and customer contracts, nor, to the best of Sellers' knowledge, are material amendments pending with respect to any material contracts or customer contracts to which either Seller is a party. To the best of Sellers' knowledge, Sellers have no oral agreements with customers which require Sellers to provide storage or services at no charge or at rates significantly below the average rates for such services set forth in Sellers' written customer contracts, except for immaterial discounts and/or free services provided as incentives to certain accounts, and except for Fortress-Boston's contract with the Massachusetts Department of Employment and Training. Section 3.7 Taxes. Sellers have filed all federal, state and local income tax returns, excise or franchise tax returns, real estate and personal property tax returns, sales and use tax returns and other Tax returns (including returns in respect of withholding and unemployment tax) required to be filed by either of them and has paid all taxes owing by them, including any interest and penalties thereon, except Taxes which have not yet accrued or otherwise become due for which adequate provision has been made, and except that Sellers have filed for an extension for filing of federal and state income tax returns for 1995. Section 3.8 Litigation; Claims; Defaults. Except as set forth in Schedule 3.8, Sellers have not been served with any currently effective summons or complaint and there is no action or suit, equitable or legal, to which either Seller is a party, nor any administrative, arbitration or other 9 proceeding pending or, to Sellers' knowledge, threatened against Sellers in respect of the Subject Assets or the Business. Except as set forth on Schedule 3.8, during the past six months Sellers have not received any material written assertions from customers of the Business to the effect that the customer's materials stored with Sellers have been lost, damaged or inappropriately destroyed or that such customer is being billed inaccurately to a material extent for storage of materials or records. Sellers are not in default with respect to any currently effective judgment, order, writ, injunction, decree, demand or assessment issued by any court or of any federal, state, municipal or other governmental agency, board, commission, bureau, instrumentality or department and applicable to either Seller. Sellers are not charged or, to the best of Sellers' knowledge, threatened with or under investigation with respect to, any violation of any provision of any federal, state, municipal or other law or administrative rule or regulation with respect to the Subject Assets or the Business. Section 3.9 Compliance with Laws. To the best of Sellers' knowledge (i) Sellers have complied, and through the Closing will continue to comply, in all material respects with federal, state and local laws, rules and regulations applicable to the Business and the Subject Assets; and (ii) Sellers possess such certificates, authorities or permits issued by the appropriate local, state or federal regulatory agencies or bodies as are necessary to conduct the Business in all material respects. To the best of Sellers' knowledge, Schedule 3.9 lists all certificates, authorities and permits issued by local, state or federal regulatory agencies or bodies in connection with Sellers' operation of the Business. Sellers have not received any written notice of proceedings relating to the revocation or modification of any such certificate, authority or permit. Section 3.10 Certain Environmental Matters. To the best of Sellers' knowledge, Sellers are operating and have operated the Business from the Leased Premises in material compliance with all applicable local, state and federal environmental laws, regulations and ordinances, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. ss.ss.9601 et seq. ("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss.6901 et seq., the Clean Water Act, 33 U.S.C. ss.ss.1251 et seq., and the environmental laws and regulations of the States of Massachusetts and Florida as each such statute or regulation has been amended from time to time ("Environmental Laws and Regulations"). Sellers have not knowingly accepted for storage, and to the best of their knowledge do not store, any nitrate film or any hazardous substance or hazardous material at the Leased Premises except for de minimis amounts used in the ordinary course of business. Sellers have never knowingly caused the release from the Leased Premises of an amount of any hazardous substance or hazardous material into the environment which release would constitute a material violation of any Environmental Laws and Regulations. For purposes of this paragraph, "hazardous substance", "release" and "environment" shall have the same meanings as those terms are defined by Section 101 of CERCLA, 42 U.S.C. ss.9601, and "hazardous material" shall have the same meaning as that term is defined by Environmental Laws and Regulations. Sellers do not own, lease, rent or otherwise utilize any underground storage tanks in connection with the Business, and, to the best of Sellers' knowledge (without having conducted an investigation), there are no waste tanks, containers, cylinders, drums or cans buried, stored or deposited in or at the Leased Premises, and, the Leased Premises do not contain (i) any asbestos, (ii) any polychlorinated biphenyl (PCB) substances or (iii) any waste petroleum products. 10 Section 3.11 No Inconsistent Agreements. Sellers and Stockholder have not entered into any letter of intent, preliminary agreement or other agreement, written or oral, with any other party which would be inconsistent with the terms of this Agreement. Section 3.12 Financial Information. Sellers have delivered to Buyer (i) separate statements of operating results of Fortress-Boston and Fortress-Miami in respect of the Business for the years ended December 31, 1994 and 1995 showing revenues, cost of sales and gross profits; (ii) consolidated statements of operating results of Sellers for the years ended December 31, 1994 and 1995 showing the same information as described in clause (i); and (iii) separate and consolidated statements of operating results of Sellers in respect of the Business for the five months ended May 31, 1996 (the "Financial Statements"). The Financial Statements are true, correct and complete in all material respects for the periods covered, prepared pursuant to generally accepted accounting principles ("GAAP") on a consistent basis, and fairly present the results of operation of the Business for the periods covered. Section 3.13 ERISA Plans. Sellers maintain a 401(k) profit sharing retirement plan and an employee health benefit plan, neither of which shall be assumed by Buyer. Sellers do not maintain any other Employee Pension Benefit Plan or Employee Welfare Benefit Plan, as each term is defined in the Employee Retirement Income Security Act of 1974. Section 3.14 Condition of Subject Assets. To the best of Sellers' knowledge, all the material tangible Subject Assets (i) are at present, and will be as of the Closing Date, in good operating condition to perform tasks for which they are regularly used, normal wear and tear excepted, and (ii) are, and will be on such date, in compliance with the Occupational Safety and Health Act and rules and regulations issued thereunder. Section 3.15 Absence of Certain Changes. Except as disclosed on Schedule 3.15, since January 1, 1996, none of Sellers' customers whose business averaged in excess of 2,000 cubic feet of storage per month for the six months ended December 31, 1995 has terminated or indicated in writing an intention to terminate its business with, or reduce the volume of its business with, either Seller. Except as otherwise stated in Schedule 3.15, to the best of Sellers' knowledge Sellers have no customers whose storage business is or has within 90 days prior to the date of this Agreement been the subject of competitive bidding procedures. Section 3.16 No Material Undisclosed Liabilities. Except as described in this Agreement or reflected in the Financial Statements, since December 31, 1995 Sellers have incurred no liability or obligation related to the operation of the Business, other than liabilities and obligations that have been incurred in the ordinary course of business consistent with past practice and are not material in the aggregate to the Business. Section 3.17 Personnel Information. Schedule 3.17 lists the names of all full- and part-time employees of Sellers (or leased employees utilized by Sellers) who perform services for the Business and sets forth a brief job description or title and compensation for each such person. Schedule 3.17 also sets forth a list of all written and oral employment and noncompetition agreements with Sellers' employees employed in the Business. Section 3.18 Patents, Trademarks, Etc. Except for the trade name "Fortress", which is a federally registered trade name used by Sellers, to the best of Sellers' knowledge, there are no 11 trademarks, service marks, trade names, copyrights, patents, computer programs or programs (except for the "Infotrack" program) rights, licenses or other similar intangible property rights and interests which Sellers use in connection with the Business other than computer programs and software generally available from software retailers. Section 3.19 Labor Relations. During the past three years there has not been, and there is not now, any strike, labor dispute, slowdown, stoppage, or other material interference with or impairment by labor of the Business pending or, to the knowledge of Sellers, threatened or contemplated against or directly affecting the Business. Sellers' employees are not represented by any labor or trade union, nor, to the best of Sellers' knowledge, has there been any attempt to organize Sellers' employees during the 180 day period prior to the date hereof. Section 3.20 Insurance. There is in force comprehensive general liability and casualty insurance for the Subject Assets and the Business which, in the reasonable opinion of Sellers, is appropriate and adequate coverage for such assets and operations. Section 3.21 Trade Secrets and Customer Lists. Sellers have received no written claims challenging their right to use any trade secrets, customer lists, intellectual property and operating methods required for or incident to the operation of the Business. To the best of their knowledge, Sellers are not using or in any way making use of any confidential information or trade secrets of any third party, including without limitation, a former employer of any present or past employee or Sellers. Section 3.22 Transactions with Interested Persons. Except as set forth on Schedule 3.22, none of Sellers' customers whose business averaged in excess of 2,000 cubic feet of storage per month for the six months ended December 31, 1995, and no supplier of the Business, or any other organization which has a material contract or arrangement (requiring payment of more than $500 per month) with the Business, is an entity (i) the majority of the capital stock of which is owned by James Levis, Ladd Levis-Thorne or William Snyder, or any owner of 5% or more of the capital stock of Stockholder, or (ii) of which any of such persons is a manager or director. Section 3.23 Records Services and Storage Arrangements. Substantially all items received and stored by Sellers on behalf of customers are held in storage by Sellers except for items withdrawn or destroyed at the respective customer's request. The stored items for which customers are billed exist and, in all material respects, can be accounted for. Sellers average not more than one extended search (i.e., a search requiring more than one hour to locate the requested carton) per week in each of the Boston market and the South Florida market. Sellers have provided to Buyer for review all of Sellers' customer contracts. Section 3.24 Business in Ordinary Course. From December 31, 1995 until the date hereof, the Business has been conducted in the ordinary course in accordance with past practice. Sellers have used their best efforts to maintain and service the Business, and to keep available the services of present employees and agents and maintain existing business relationships. Without limiting the generality of the foregoing, Sellers have not, since December 31, 1995 (i) sold, assigned, transferred or waived rights with respect to any material part of the Subject Assets (except in the ordinary course of business); 12 (ii) entered into or adopted any employee benefit plan or any employment or severance agreement, or increased in any manner the compensation or fringe benefits of their officers or employees employed in the Business (except in the ordinary course of business and consistent with past practice or pursuant to pre-existing agreements or as required by law); (iii) changed their billing, accounts payable, collections or other cash management practices in respect of the Business; or (iv) agreed to take any of the foregoing actions. Section 3.25 Filing. Sellers have filed or refiled substantially all customers' storage materials delivered to their facilities more than five business days prior to the date hereof. Section 3.26 No Material Adverse Change. There has been no material adverse change in the Subject Assets (including, without limitation, loss of or damage to a material amount or part of the Subject Assets) since December 31, 1995 or in the Business, or the prospects of the Business, between December 31, 1995 and the date hereof. Section 3.27 No Misrepresentation or Omission. No representation or warranty by Sellers or Stockholder in this Agreement, or in any certificate or other document furnished or to be furnished by Sellers or Stockholder pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading to a person experienced in the business of records management. The foregoing representation as to absence of omitted material facts is made only in respect of information known to the best of Sellers' knowledge. (ARTICLE IV COMMENCES ON THE NEXT PAGE) 13 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Sellers and Stockholder as follows: Section 4.1 Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer possesses all requisite corporate power and authority to own, operate and lease its properties and carry on its business, and to execute and deliver, and perform its obligations under, this Agreement. Buyer is duly qualified to transact business and in good standing in the State of Florida. Section 4.2 Authorization. The execution and delivery of this Agreement and performance by Buyer of its obligations hereunder, and all transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action. This Agreement has been, and the other agreements and documents required to be delivered by Buyer in accordance with the provisions hereof (the "Buyer's Documents") will be, duly executed and delivered on behalf of Buyer by duly authorized officers of Buyer; and this Agreement constitutes, and Buyer's Documents when executed and delivered will constitute, the valid and binding obligations of Buyer, enforceable in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization or similar laws from time to time in effect affecting creditor's rights generally and by legal and equitable limitations on the availability of specific remedies. Section 4.3 Compliance with Other Instruments. Neither the execution and delivery by Buyer of this Agreement and the Buyer's Documents, nor the consummation by Buyer of the transactions contemplated hereby and thereby, will, with or without the giving of notice or passage of time, or both, be contrary to or violate, breach, or constitute a default under, or permit the termination or acceleration of maturity of, or result in the imposition of any lien, claim or encumbrance on any property or asset of Buyer pursuant to any provision of, any note, bond, indenture, mortgage, deed of trust, evidence of indebtedness or lease agreement, other agreement or instrument or any judgment, order, injunction or decree by which Buyer is bound, to which Buyer is a party, or to which the assets of Buyer are subject; nor is the effectiveness or enforceability of this Agreement or such other documents adversely affected by any provision of the certificate of incorporation or by-laws of Buyer. Section 4.4 Litigation. There is no action, suit or proceeding pending or, to the knowledge of Buyer, threatened against Buyer which might interfere with its ability to consummate the transactions contemplated hereunder. Section 4.5 No Governmental or Other Authorization Required. No authorization or approval of, or filing with, any governmental agency, authority or other body or any other third persons will be required in connection with Buyer's execution and delivery of this Agreement and Buyer's Documents or its consummation of the transactions contemplated hereby and thereby. (ARTICLE V COMMENCES ON THE NEXT PAGE) 14 ARTICLE V PRE-CLOSING AGREEMENTS Section 5.1 Access to Information and Facilities. (a) Sellers shall afford Buyer and its representatives full access during normal business hours to all facilities, properties, books, accounts, records, contracts and documents of or relating to the Business in Sellers' or Stockholder's possession or control, subject to reasonable requirements that Buyer not interfere with the operations and activity of the Business. (b) Buyer may retain consultants (including, without limitation, experts in assessment of environmental risk and experts in assessment of fire/safety hazards and compliance with fire and safety codes) to inspect and report on the Leased Premises, the cost of which shall be borne equally by Buyer and Sellers; provided that the aggregate cost thereof to Sellers shall not exceed $12,500. Such persons shall be given prompt access to the Leased Space and the Bowen Building. Section 5.2 Confidentiality. Sellers, Stockholder and Buyer shall not use or disclose to others, or permit the use or disclosure of, any non-public information furnished by each to the other in the course of negotiations relating to this Agreement and the business and financial reviews and investigations referred to in this Agreement, except to their respective officers, directors, employees and representatives who need to know such information in connection with this Agreement or except to the extent that any such information may become generally available to the public other than through the actions of the parties or any other person under a duty of confidentiality. Notwithstanding the foregoing, disclosure of such information may be made to the extent required by applicable law or regulation, judicial or regulatory process, and reviews by financial institutions which are lenders or financial advisers to either party; and such information may be used to the extent necessary as evidence in or in connection with any pending or threatened litigation relating to this Agreement or any transaction contemplated hereby. In the event that the sale contemplated by this Agreement is not consummated for any reason, each party agrees to return to the other party all materials containing nonpublic information provided by the other immediately on request. The confidentiality obligation set forth in this Section 5.2 shall survive termination of this Agreement. Each party agrees that the confidential information of the other party is unique and that its release or misuse may not be compensable in monetary damages and that the non-breaching party shall be entitled to seek appropriate injunctive relief therefor. In connection with any such breach, the parties waive the claim or defense that an adequate remedy exists at law or that a bond is necessary. Section 5.3 Public Announcement. No party shall issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of the other party; provided, however, that Buyer and/or Sellers may (a) make appropriate announcements to customers of the Business and to the trade, and (b) make a public announcement after the Closing Date to the effect that the transaction has occurred (without any information as to price or terms). Buyer and Sellers shall give each other an opportunity to review and comment upon such proposed announcements, and the parties shall agree on the content thereof prior to release. In addition, either party may make any public disclosure it believes in good faith is 15 required by applicable law or any listing or trading agreement concerning its publicly-traded securities. Stockholder shall have the right to provide information concerning the transaction to its stockholders and lenders as part of normal and customary reports prepared for such persons; such disclosure may include financial information to the extent necessary for appropriate disclosure. Stockholder will consult with Buyer prior to such disclosure, and the parties shall agree on the content. Section 5.4 Communications to Sellers' Employees. Buyer and Sellers shall mutually agree on the timing and content of a program of communications to employees of the Business in respect of the transactions contemplated hereby. Section 5.5 Continued Efforts. Sellers shall use commercially reasonable efforts to (a) cause to be fulfilled and satisfied all of the conditions to the Closing which are the responsibility of Sellers; (b) cause to be performed all of the matters required upon the Closing which are the responsibility of Sellers; and (c) take such steps and do such acts as may be necessary to make all of their warranties and representations true and correct as of the Closing Date with the same effect as if the same had been made, and this Agreement had been dated, as of the Closing Date. Buyer shall use commercially reasonable efforts to (a) cause to be fulfilled and satisfied all of the conditions to the Closing which are the responsibility of Buyer; (b) cause to be performed all of the matters required upon the Closing which are the responsibility of Buyer; and (c) take such steps and do such acts as may be necessary to make all of their warranties and representations true and correct as of the Closing with the same effect as if the same had been made, and this Agreement had been dated, as of the Closing Date. Neither party shall be required by this section to make a payment (other than payments otherwise required under the terms of existing agreements) to obtain the consent of any third party required to carry out the transactions contemplated by this Agreement. Section 5.6 Operation of Business Prior to Closing. From the date hereof until the Closing Date, Sellers shall conduct the Business in the ordinary course consistent with past practice, and shall use their commercially reasonable efforts to maintain and service the Business, to keep available the services of present employees and agents and to maintain existing business relationships. Without limiting the generality of the foregoing, Sellers shall not take any of the actions described in clauses (i) through (v) of Section 3.24. (ARTICLE VI COMMENCES ON THE NEXT PAGE) 16 ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE The obligation of Buyer to purchase the Subject Assets and carry out the other transactions contemplated hereby are, unless waived in writing by Buyer, subject to the satisfaction, on the Closing Date, of the following conditions: Section 6.1 Accuracy of Representations and Performance of Seller. The representations and warranties of Sellers and Stockholder contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same force and effect as though made on and as of such date, except to the extent that such representations and warranties are updated pursuant to updated Schedules provided by Sellers or shall be incorrect as of the Closing Date because of events or changes occurring in the ordinary course of the Business or as otherwise permitted by this Agreement, none of which, singly or in the aggregate, constitutes a material adverse change; each and all of the conditions and covenants to be performed or satisfied by Sellers and/or Stockholder hereunder at or prior to the Closing Date shall have been duly performed or satisfied in all material respects; and Sellers and Stockholder shall have furnished Buyer with a certificate to that effect. Section 6.2 Absence of Certain Litigation. On the Closing Date, no suit, action or other proceeding, or injunction or final judgment relating thereto, shall be threatened in writing or pending before any court or governmental or regulatory official or agency in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby (provided that any such suit, action or other proceeding which would not have a material effect on the transactions contemplated hereby shall not constitute a failure to satisfy this condition), and no investigation that might result in any such suit, action or proceeding shall be pending. Section 6.3 Noncompetition and Nondisclosure Agreement. Sellers, Stockholder, Ladd Levis-Thorne, James Levis and William Snyder shall each have executed and delivered a Noncompetition and Confidentiality Agreement in the form of Exhibit 6.3. Section 6.4 Leases. The Leases shall have been assigned to Buyer with the consent of the landlords. Section 6.5 Bowen Building. Fortress-Miami shall have delivered to Buyer a deed for the Bowen Building and the parcel of land on which it is situated, conveying good and clear record and marketable title by the customary form of deed used in commercial real property transaction in Florida, and Buyer shall have received confirmation from a title insurance company that such title insurance company is prepared, upon recording of the deed and any discharges deliverable at Closing to provide title insurance equivalent to that held by Fortress-Miami, but discharging all Encumbrances created or suffered to exist by such owner. Buyer will accept the property as-is, where-is. Section 6.6 Evidence of Corporate Approval (Sellers). Sellers shall have delivered certified copies of resolutions of their Board of Directors and Stockholder, as sole stockholder of each, pertaining to the authorization of this Agreement and the consummation of the transactions contemplated hereby, and a certificate executed by the secretary or assistant secretary of each as to 17 the due election, qualification and incumbency and genuine signature of the person or persons authorized to sign this Agreement or any document, instrument or certificate to be delivered hereunder. Section 6.7 Evidence of Corporate Approval (Stockholder). Stockholder shall have delivered certified copies of resolutions of its Board of Directors pertaining to the authorization of this Agreement and the consummation of the transactions contemplated hereby, and a certificate executed by its secretary or assistant secretary as to the due election, qualification and incumbency and genuine signature of the person or persons authorized to sign this Agreement or any document, instrument or certificate to be delivered hereunder. Section 6.8 Corporate Existence and Good Standing. Sellers and Stockholder shall have delivered copies of their certificates of incorporation certified by the Delaware Secretary of State as of a recent date and certificates of legal existence and corporate good standing as foreign corporations from the Secretary of State and Department of Revenue, as appropriate, of the Commonwealth of Massachusetts in respect of Fortress-Boston and Stockholder and from the Secretary of State of Florida in respect of Fortress-Miami. Section 6.9 Tax Lien Waiver. Fortress-Boston shall have applied for a tax lien waiver from the Massachusetts Department of Revenue, and the Department of Revenue shall not have indicated that any tax returns or tax payments must be filed or made prior to issuance thereof. Section 6.10 Encumbrances. Sellers shall deliver evidence reasonably satisfactory to Buyer of the satisfaction and release of any Encumbrances affecting the Subject Assets. Section 6.11 No Material Adverse Change. There shall have been no material adverse change in the Subject Assets (including, without limitation, loss of or damage to a material amount or part of the Subject Assets) between December 31, 1995 and the Closing Date, and no material adverse change in the Business or the prospects of the Business, between December 31, 1995 and the Closing Date (and if the Closing Date is extended by Sellers pursuant to Section 1.4, there shall have been no material adverse change in the Business, or the prospects of the Business, between May 31, 1996 and the Closing Date). Section 6.12 Opinion of Seller's Counsel. Seller shall have delivered the opinion of Seller's counsel, Warner & Stackpole LLP, substantially in the form of Exhibit 6.12 hereto. Section 6.13 Further Documents. Sellers shall have executed and delivered to Buyer such bills of sale, assignments and other documents, instruments, agreements, and certificates as may reasonably be needed to carry out the transactions contemplated by this Agreement, including such documents, instruments and agreements as Buyer's general counsel may reasonably request and prepare in connection therewith. Notwithstanding any provision herein to the contrary, Buyer shall, if requested by Seller, waive the requirement of landlord consent in respect of any or all of the Leases, as provided in Section 6.4, provided that: (i) If the landlord of the Leased Space at (a) Interstate Commerce Center, Ft. Lauderdale, (b) West 26th Street, Hialeah, or (c) 31 Monsignor O'Brien Highway, Cambridge 18 asserts that a lease is in default because of the assignment to Buyer without the consent of such landlord, Sellers and Stockholder shall take all reasonable steps to defend Buyer's right to continue to occupy the Leased Space in accordance with the terms of each Lease, and shall be responsible for the cost of any judgment in favor of, or settlement with, such landlord. Buyer will pay rent for any premises in accordance with the rent specified in any Lease subject to such assertion as long as it continues to occupy the space. If Buyer is required to vacate any of such premises because the assignment of the Lease to Buyer constituted a default thereunder, Buyer shall bear equally with Sellers and Stockholder the cost of relocation of storage cartons and racking systems to new space. (ii) If the landlord of the Leased Space at 415 E Street, Boston asserts that the lease is in default because of the assignment to Buyer without the consent of the landlord, Sellers and Stockholder shall take all reasonable steps to defend Buyer's right to continue to occupy the Leased Space and shall be responsible for the cost of any judgment in favor of, or settlement with, such landlord, provided that Sellers and Stockholder shall not be required to expend more than $25,000 in legal fees in such defense. Buyer will pay the rent as specified in the Lease as long as it continues to occupy the Leased Space. If Buyer is forced to vacate the space, Sellers and Stockholder will reimburse Buyer for the first $25,000 of relocation costs. Buyer shall have the right to participate in any defense of its right to occupy the Leased Space, at its cost and expense. (ARTICLE VII COMMENCES ON THE NEXT PAGE) 19 ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS AND STOCKHOLDER The obligation of Sellers and Stockholder to sell, assign, transfer and deliver the Subject Assets to Buyer hereunder and to carry out the other transactions contemplated hereby are, unless waived in writing by Sellers and Stockholder, subject to the satisfaction at or prior to the Closing Date of the following conditions: Section 7.1 Accuracy of Representations and Performance of Conditions. The representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same force and effect as though made on and as of such Date; each and all of the conditions and covenants to be performed or satisfied by Buyer hereunder at or prior to the Closing Date shall have been duly performed or satisfied in all material respects; and Buyer shall have furnished Sellers and Stockholder with Buyer's certificate to that effect. Section 7.2 Approval. Buyer shall deliver certified copies of resolutions adopted by Buyer's Board of Directors pertaining to the authorization of this Agreement and the consummation of the transactions contemplated herein, and a certificate executed by the secretary or assistant secretary of Buyer as to the due election, qualification and incumbency and genuine signatures of its officers authorized to sign this Agreement or any document or certificates to be delivered under it. Section 7.3 Absence of Certain Litigation. On the Closing Date, no suit, action or other proceeding, or injunction or final judgment relating thereto, shall be threatened or pending before any court or governmental or regulatory official or agency, in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending. Section 7.4 Opinion of Buyer's General Counsel. Buyer's General Counsel shall have delivered his opinion substantially in the form of Exhibit 7.4 hereto. Section 7.5 Payment of Purchase Price. Buyer shall have paid the Purchase Price as specified in Section 2.2. Section 7.6 Further Documents. Buyer shall have executed and delivered to Sellers such documents, instruments, agreements, and certificates as may reasonably be needed to carry out the transactions contemplated by this Agreement, including such documents, instruments, agreements as Sellers' counsel may reasonably request in connection therewith. (ARTICLE VIII COMMENCES ON THE NEXT PAGE) 20 ARTICLE VIII THE CLOSING Section 8.1 Closing and Closing Provisions. The Closing Date shall be July 17, 1996, or such other date as is provided herein, or such other date as the parties may agree. The Closing shall be effected by delivery of documents at the office of Warner & Stackpole, 75 State Street, Boston, Massachusetts 02109, and payment of the Purchase Price as provided herein or in such other manner and at such place as the parties may agree. Section 8.2 Deliveries by Sellers and Stockholder. At or prior to the Closing, Sellers and Stockholder shall execute and deliver to Buyer all of the agreements, instruments, certificates and other documents designated as conditions precedent and deliveries precedent to Buyer's obligation to close under this Agreement or to carry out the transactions contemplated hereby. Section 8.3 Deliveries by Buyer. At the Closing Buyer shall deliver to Sellers and Stockholder the Purchase Price, subject to adjustments as permitted by this Agreement, in the manner and form provided for in this Agreement, and all the certificates and other documents designated as conditions precedent and deliveries precedent to Sellers' obligation to close under this Agreement. (ARTICLE IX COMMENCES ON NEXT PAGE) 21 ARTICLE IX POST-CLOSING MATTERS Section 9.1 Records of the Business. For a period of four years following the Closing Date or for such longer period as the statute of limitations applicable to claims for taxes relating to the Business for any period through the Closing Date shall be extended (through voluntary extension or otherwise), Buyer shall grant to Sellers and their representatives, at Sellers' request, access to and the right to make copies of those records and documents which report the conduct of the Business or the results thereof as may be necessary in connection with Sellers' affairs or the Business. Sellers shall reimburse Buyer for its reasonable copying costs. If Sellers notify Buyer that Sellers require retention of such records beyond four years, Sellers shall have the right to take such records or pay Buyer's customary storage charges for such post-four-year period. Sellers shall, for at least two years after the Closing Date, retain copies of all records of the Business retained by Sellers, and shall grant access thereto to Buyer upon reasonable request. Section 9.2 Incidental Use of "Fortress" Name. Buyer shall have the right to use the "Fortress" name and variants thereof, and any Seller logo imprinted on consumable items of the Subject Assets, such as stationery, invoices, manifests and the like so long as supplies last or such items are useful. Buyer shall not be required to discontinue the use of any cartons currently stored in the facilities or included in the Subject Assets which have the "Fortress" name or logo printed thereon. Buyer shall remove signs containing the "Fortress" name from the Leased Buildings and remove or paint over the "Fortress" name and logo on vehicles within sixty days after the Closing Date. Until such vehicle repainting, Sellers and Stockholder shall be identified as additional insureds on Buyer's auto liability insurance policy, and Buyer shall deliver to Stockholder a certificate to such effect. Section 9.3 Removal from Certain Locations. Fortress-Boston utilizes space at its facility 99 Boston Street, Boston, Massachusetts for storage of hard copy records and tapes in connection with the Business, as well as for the operation of other businesses not included in the Subject Assets. Buyer shall remove all hard copy records (approximately 8300 cartons) from the 99 Boston Street facility within 30 days after the Closing Date, and shall remove all tape records (approximately 18,000 tapes) from such facility within 90 days after the Closing Date. In addition, Fortress-Miami utilizes space in its building at 1629 Northeast First Avenue, Miami, Florida for storage of hard copy materials and tapes in connection with the Business as well as operation of other businesses not included in the Subject Assets. Buyer shall have the right to keep the hard copy records presently on floors 4 and 8 of the Miami building and in Building A (approximately 32,000 cubic feet), and the tapes currently stored in the second-floor vault, in such locations until December 31, 1997 without payment of rent or other charges. Buyer shall remove all hard copy records currently on the sixth floor of the Miami building either (i) to locations on floors 4 and 8 of the Miami building (to the extent there are currently existing vacant racked spaces) or (ii) to locations outside the Miami building. Such sixth floor removal (approximately 10,000 cubic feet) shall be completed within 90 days after Closing. Sellers shall reimburse Buyer at the rate of $2.00 per carton for the aggregate number of cartons of hard copy materials which Buyer must relocate from the Sellers' facilities in excess of 19,000 cartons. 22 Fortress-Boston stores museum-quality storage items in approximately 5,000 square feet of the Leased Premises at 31 Monsignor O'Brien Highway, Cambridge, Massachusetts. Sellers shall remove all such materials from the Leased Premises within 120 days after the Closing Date, and shall use their best efforts to remove the most valuable of such items as quickly as practicable. In addition, Sellers shall remove the Dimensional Parking Technology Corporation containers from the Hialeah property parking lot and the related jig from the Bowen Building parking lot, within 120 days after the Closing Date. As to all relocation activities described in the preceding paragraphs, the removing party shall have access to the other party's facilities during regular business hours, and shall observe other party's reasonable work rules and security procedures. Buyer shall remove related racking and shelving from the facilities as well as the stored materials. During the relocation period, the removing party shall also have access to the materials for purposes of customer retrievals, refiles and performance of similar customer-requested services. The removing party shall not be required to pay any fees or rent for use of the space occupied by the relocation materials. The removing party shall indemnify the other party for any injury to persons or damage to property caused by the removing party's employees or agents during the course of relocation activity. Each party shall have the right to have its personnel monitor the removing party's activities when accessing or removing material in order to avoid damage or loss to its customers' stored material. During the period when Buyer's customers' records are in Sellers' premises as permitted hereunder, Buyer shall have twenty-four hour access (including weekends and holidays) to Sellers' facilities to retrieve such records as may be requested by Buyer's customers for immediate delivery. Sellers may at their election arrange for Sellers' personnel to escort Buyer's personnel in Sellers' premises. Buyer shall observe all reasonable security and operating rules adopted by Sellers with respect to operations in Sellers' premises. In the event Buyer requires after-hours (including weekend and holidays) access more than 12 times in any twelve-month period, Buyer shall pay Fortress-Miami for each succeeding after-hours access a fee equal to Fortress-Miami's customary emergency vault access charge. Section 9.4 Additional Financial Statements. In the event that Buyer is required by any law (including securities laws), statute, regulation or securities listing agreement to file or disclose financial information related to the Business (including audited financial information) which is in addition to information prepared by Sellers and previously delivered to Buyer, Sellers shall make available to Buyer any relevant information related to the Business or the Subject Assets not previously delivered to Buyer and otherwise cooperate with Buyer, at Buyer's expense, in preparing such information. Buyer shall provide not less than thirty days' notice to Sellers and Stockholder of its anticipated need for commencement of preparation of such information. Sellers and Stockholder shall use their reasonable efforts to cause their accounting staff and independent public accountants to assist Buyer in preparing required audits, provided that Sellers' and Stockholder's accounting staff shall not be required to devote such time thereto that their ability to provide regular financial services is materially affected. If requested by Buyer, Sellers shall use commercially reasonable efforts to obtain Sellers' auditors' consent to Buyer's use of financial statements which they have audited, or shall consent to Sellers' auditors' preparing required audits for Buyer; and Buyer shall have the right to file and disclose such information as required by any such law, statute, regulation or securities listing agreement. 23 Section 9.5 Tax Lien Waiver. Fortress-Boston and Stockholder shall obtain the tax lien waiver referred to in Section 6.9 prior to August 31, 1996 and shall deliver the original thereof to Buyer promptly upon obtaining it. Section 9.6 Services of William Snyder. After the Closing Sellers shall make available to Buyer the services of William Snyder for purposes of customer communications, employee communications and consulting with respect to administration of the Business for ninety days after the Closing Date. Such services shall be without charge and shall not exceed 120 hours during the 90 day period. Seller shall not be required to make William Snyder available for more than 40 hours in each 30-day period after the Closing. Sellers and Stockholder shall not be liable or responsible for any action or decision made by William Snyder in the performance of such services unless it is undertaken in bad faith at the direction of Sellers. Section 9.7 Services of Dennis Biddle. Sellers shall make Dennis Biddle available for up to 90 days, without charge, to Buyer as needed to complete the conversion of Fortress-Miami's operation to Infotrac. Sellers and Stockholder shall not be liable or responsible for any action taken by Dennis Biddle or for the results of his work unless it is undertaken in bad faith at the direction of Sellers. Section 9.8 Post-Closing Storage of Sellers' Records. Buyer will store Sellers' and Stockholder's records for sixty days after the Closing Date at no charge. Thereafter, any of Sellers' or Stockholder's records stored or serviced by Buyer will be charged standard storage and service charges except as the parties may otherwise agree. All storage and service will be pursuant to the terms and conditions of Buyer's printed contract, including limitation of liability. Sellers and Stockholders may terminate storage at any time on thirty days' notice. Section 9.9 Voice Mail System. Fortress-Miami uses a Telerad voice mail system; some elements of the system are shared by the Business and Fortress-Miami's museum quality storage business. The voice mail system is included in the Subject Assets, but Fortress-Miami shall have the right to continue to use the shared elements of the systems until September 17, 1996, by which date Fortress-Miami will have acquired separate items of equipment to substitute for the shared elements, so that both Buyer and Fortress-Miami will have stand-alone systems. (ARTICLE X COMMENCES ON THE NEXT PAGE) 24 ARTICLE X TERMINATION Section 10.1 Termination of Agreement. The parties may terminate this Agreement as provided below: (i) Buyer, Sellers and Stockholder may terminate this Agreement by mutual written consent at any time prior to the Closing; (ii) Buyer may terminate this Agreement by giving written notice to Sellers and Stockholder on or before 1:00 p.m. on July 15, 1996 if Buyer's consultants report that remedial action is required to bring the Leased Space or the racking therein into compliance with Environmental Laws and Regulations or laws or ordinances concerning construction, fire prevention, occupancy or safety. (iii) Buyer may terminate this Agreement by giving written notice to Sellers and Stockholder at any time prior to the Closing (A) in the event Sellers and/or Stockholder has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Buyer has notified Sellers and Stockholder of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach, or (B) if the Closing shall not have occurred on or before July 31, 1996 (or August 19, 1996 if Sellers have elected to extend the Closing Date as provided in Section 1.4), by reason of the failure of any condition precedent under Article VI hereof (unless the failure results primarily from Buyer itself breaching any representation, warranty, or covenant contained in this Agreement); and (iv) Sellers and Stockholder may terminate this Agreement by giving written notice to Buyer at any time prior to the Closing (A) in the event Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Sellers and Stockholder have notified Buyer of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach or (B) if the Closing shall not have occurred on or before July 31, 1996 (or August 19, 1996 if Sellers have elected to extend the Closing Date as provided in Section 1.4), by reason of the failure of any condition precedent under Article VII hereof (unless the failure results primarily from Sellers or Stockholder themselves breaching any representation, warranty, or covenant contained in this Agreement). Section 10.2 Effect of Termination. (a) If this Agreement is terminated pursuant to Section 10.1(i), (ii) or (iii), the escrow fund held by the Escrow Agent shall be disbursed to Buyer; except that if Buyer terminates this Agreement pursuant solely to Section 10.1(ii)(B), Sellers shall be entitled to $100,000 of the escrow fund). (b) If Buyer rightfully terminates this Agreement pursuant to Section 10.1(iii), in addition to release of the funds held by the Escrow Agent, Sellers and Stockholder shall be jointly and severally liable to Buyer for liquidated damages suffered by Buyer due to Sellers' or Stockholder's breach in the amount of $500,000; provided that Sellers and Stockholder shall not be liable for liquidated damages, or other damages, if the reason for termination is (i) Sellers' inability to obtain the consent of any landlord as required by Section 6.4, (ii) Sellers' inability to provide good title to the Bowen Property as required by Section 6.5, (iii) Sellers' inability to provide good 25 standing certificates as provided in Section 6.8 (provided that Sellers shall provide such certificates as promptly as practicable after closing, as provided in Section 3.1), (iv) Sellers' inability to release Encumbrances in respect of the Bowen Property as provided in Section 6.10 (provided that Buyer does not hereby waive any of such conditions to closing) or (v) Buyer's determination that any representation or warranty was materially incorrect or omitted to state information material to the Business. (c) If Sellers or Stockholder rightfully terminate this Agreement pursuant to Section 10.1(iv), then Seller shall be entitled to receive the funds held by the Escrow Agent under the Earnest Money Escrow Agreement as liquidated damages. (d) Neither party shall be liable to the other hereunder for damages of any kind or character for breach leading to termination of this Agreement other than the liquidated damages provided in clauses (b) and (c) above. Section 10.3 Risk of Loss. Prior to Closing the risk of loss, damage or destruction with respect to the Subject Assets shall be borne solely by Seller. If at the Closing Date the Subject Assets shall have suffered loss, damage or destruction to an extent which materially affects the value thereof, Buyer shall have the right at its election to terminate this Agreement (in which case the funds held by the Escrow Agent shall be returned to Buyer and the parties shall have no further liability to each other), or complete the transactions with such adjustment of the Purchase Price as may be agreed in good faith between Buyer and Seller in advance. (ARTICLE XI COMMENCES ON THE NEXT PAGE) 26 ARTICLE XI INDEMNIFICATION Section 11.1 General Indemnification Obligation of Sellers and Stockholder. From and after the Closing, Sellers and Stockholder jointly and severally shall reimburse, indemnify and hold harmless Buyer and its successors and assigns (each an "Indemnified Buyer Party") against and in respect of: (a) any and all damages, losses, deficiencies, liabilities, costs and expenses incurred or suffered by any Indemnified Buyer Party that result from, relate to or arise out of: (i) any and all liabilities and obligations of Sellers of any nature whatsoever (including liabilities for Taxes) relating to the operation of the Business prior to the Effective Time, except for those liabilities and obligations of Sellers which Buyer specifically assumes pursuant to this Agreement; (ii) any and all actions, suits, claims, or legal, administrative, arbitration, governmental or other proceedings or investigations against any Indemnified Buyer Party to the extent relating to Sellers or Stockholder or the Business in which the principal event giving rise thereto occurred prior to the Closing Date or which result from or arise out of any action or inaction prior to the Closing Date of Sellers or Stockholder or any director, officer, employee, agent, representative or subcontractor of Sellers or Stockholder, except for those which Buyer specifically assumes pursuant to this Agreement; or (iii) any misrepresentation, breach of warranty or nonfulfillment of any agreement or covenant on the part of Sellers or Stockholder under this Agreement, or from any misrepresentation in or omission from any certificate, schedule, statement, document or instrument furnished to Buyer at the Closing pursuant hereto; and (b) any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any of the foregoing or to the enforcement of this Section 11.1. Notwithstanding anything herein contained to the contrary, Sellers and Stockholder shall have no obligations to Buyer under Section 11.1(a)(iii) with respect to any claim of which Buyer gives notice to Sellers or Stockholder later than the last day of the twelfth month after the Closing Date. Notwithstanding any other provision herein contained, Sellers and Stockholder shall not have any indemnification obligation with respect to the first $120,000 of total claims incurred under Section 11.1 unless total aggregate claims exceed such amount, in which case the indemnification obligations of Seller shall include all liabilities incurred, without regard to the $120,000 threshold. In no event shall Seller's indemnification obligation exceed $6,000,000. In case any event shall occur which would otherwise entitle either party to assert a claim for indemnification hereunder, no loss shall be deemed to have been sustained by such party to the extent of (i) any tax savings realized by such party with respect thereto, or (ii) any after-tax 27 proceeds received by such party from any third party, including but not limited to any insurance carrier. Section 11.2 General Indemnification Obligation of Buyer. From and after the Closing, Buyer will reimburse, indemnify and hold harmless Sellers and Stockholder and their successors or assigns (an "Indemnified Seller Party") against and in respect of: (a) any and all damages, losses, deficiencies, liabilities, costs and expenses incurred or suffered by any Indemnified Seller Party that result from, relate to or arise out of: (i) any and all liabilities and obligations of Sellers which have been specifically assumed by Buyer pursuant to this Agreement; (ii) any and all liabilities and obligations arising from the operation of the Business after the Closing Date; or (iii) any misrepresentation, breach of warranty or non-fulfillment of any agreement or covenant on the part of Buyer under this Agreement, or from any misrepresentation in or omission from any certificate, schedule, statement, document or instrument furnished to Sellers or Stockholder pursuant hereto or in connection with the negotiation, execution or performance of this Agreement; and (b) any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any of the foregoing or to the enforcement of this Section 11.2. Notwithstanding anything herein contained to the contrary, Buyer shall have no obligations to Sellers or Stockholder under Section 11.2(a)(iii) with respect to any claim of which Sellers or Stockholder gives notice to Buyer later than the last day of the twelfth month after the Closing Date. In case any event shall occur which would otherwise entitle either party to assert a claim for indemnification hereunder, no loss shall be deemed to have been sustained by such party to the extent of (i) any tax savings realized by such party with respect thereto, or (ii) any after-tax proceeds received by such party from any third party, including but not limited to any insurance carrier. Section 11.3 Method of Asserting Claims, Etc. In the event that any claim or demand for which Sellers or Stockholder (the "Indemnifying Party") would be liable to an Indemnified Buyer Party hereunder is asserted against or sought to be collected from an Indemnified Buyer Party by a third party, the Indemnified Buyer Party shall promptly notify Stockholder of such claim or demand, specifying the nature of such claim or demand and the amount or the estimated amount thereof to the extent then feasible, which estimate shall not be conclusive of the final amount of such claim and demand (the "Claim Notice"). Indemnifying Party shall have thirty days from the personal delivery or mailing of the Claim Notice (the "Notice Period") to notify the Indemnified Buyer Party (A) whether or not it disputes its liability to the Indemnified Buyer Party hereunder with respect to 28 such claim or demand and (B) notwithstanding any such dispute, whether or not it desires, at its sole cost and expense, to defend the Indemnified Buyer Party against any such claim or demand. (a) If Indemnifying Party disputes its obligation to indemnify Buyer with respect to such claim or demand or the amount thereof (whether or not Indemnifying Party desires to defend the Indemnified Buyer Party against such claim or demand as provided in paragraphs (b) and (c) below), such dispute shall be resolved in accordance with Section 11.5 hereof. Pending the resolution of any dispute by Indemnifying Party of its liability with respect to any claim or demand, such claim or demand shall not be settled without the prior written consent of both Buyer and Stockholder, which consent shall not be unreasonably withheld or delayed. (b) In the event that Indemnifying Party notifies the Indemnified Buyer Party within the Notice Period that it desires to defend the Indemnified Buyer Party against such claim or demand then, except as hereinafter provided, Indemnifying Party shall have the right to defend the Indemnified Buyer Party, at the Indemnifying Party's sole cost and expense, by appropriate proceedings, which proceedings shall be promptly settled or prosecuted by it to a final conclusion in such a manner as to avoid any risk of Indemnified Buyer Party becoming subject to further liability in respect of such matter; provided, however, Indemnifying Party shall not, without the prior written consent of the Indemnified Buyer Party (which consent shall not be unreasonably withheld or delayed), consent to the entry of any judgment against the Indemnified Buyer Party or enter into any settlement or compromise which does not include, as an unconditional term thereof, the giving by the claimant or plaintiff to the Indemnified Buyer Party of a release, in form and substance satisfactory to the Indemnified Buyer Party, as the case may be, from all liability in respect of such claim or litigation. If any Indemnified Buyer Party desires to participate in, but not control, any such defense or settlement, it may do so at its sole cost and expense. (c) (i) If Indemnifying Party elects not to defend the Indemnified Buyer Party against such claim or demand, whether by not giving the Indemnified Buyer Party timely notice as provided above or otherwise, then the amount of any such claim or demand as reduced to judgment or settlement, or if the same be defended by Indemnifying Party or by the Indemnified Buyer Party (but none of the Indemnified Buyer Party shall have any obligation to defend any such claim or demand), then that portion thereof as to which such defense is unsuccessful, in each case, shall be conclusively deemed to be a liability of Indemnifying Party hereunder, unless Indemnifying Party shall have disputed its liability to the Indemnified Buyer Party hereunder, as provided in (a) above, in which event such dispute shall be resolved as provided in Section 11.5 hereof. (ii) In the event an Indemnified Buyer Party should have a claim against Indemnifying Party hereunder that does not involve a claim or demand being asserted against or sought to be collected from it by a third party, the Indemnified Buyer Party shall promptly send a Claim Notice with respect to such claim to Indemnifying Party. If Indemnifying Party disputes its liability with respect to such claim or demand, such dispute shall be resolved in accordance with Section 11.5 hereof. (d) All claims for indemnification by an Indemnified Seller Party under this Agreement shall be asserted and resolved under the procedures set forth above substituting in the appropriate place "Indemnified Seller Party" for "Indemnified Buyer Party", "Buyer" for "Indemnifying Party" and variations thereof. 29 Section 11.4 Payment. Upon the determination of liability under Section 11.3 or 11.5 hereof, the appropriate party shall pay to the other, as the case may be, within ten days after such determination, the amount of any claim for indemnification made hereunder. In the event that the indemnified party is not paid in full for any such claim pursuant to the foregoing provisions promptly after the other party's obligation to indemnify has been determined in accordance herewith, it shall have the right, notwithstanding any other rights that it may have against any other person, firm or corporation, to set off the unpaid amount of any such claim against any amounts owed by it under any agreements entered into pursuant to this Agreement. Upon the payment in full of any claim, either by setoff or otherwise, the entity making payment shall be subrogated to the rights of the indemnified party against any person, firm or corporation with respect to the subject matter of such claim. Section 11.5 Compliance with Bulk Sales Law. Buyer, Sellers and Stockholder hereby waive compliance by Sellers with the bulk sales law and any other similar laws in any applicable jurisdiction in respect of the transactions contemplated by this Agreement. Sellers shall indemnify Buyer from, and hold it harmless against, any liabilities, damages, costs and expenses resulting from or arising out of (i) the parties' failure to comply with any of such laws in respect of the transactions contemplated by this Agreement, or (ii) any action brought or levy made as a result thereof, other than those liabilities which have been expressly assumed, on such terms as expressly assumed, by Buyer pursuant to this Agreement. Section 11.6 Other Rights and Remedies Not Affected. The indemnification rights of the parties under this Article XI are the sole and exclusive rights and remedies available to the parties at law or in equity or otherwise for any misrepresentation, breach of warranty or failure to fulfill any agreement or covenant hereunder on the part of any party hereto. (ARTICLE XII COMMENCES ON THE NEXT PAGE) 30 ARTICLE XII MISCELLANEOUS PROVISIONS Section 12.1 Commissions. Each party represents and warrants that, except as stated in the following sentence, it has dealt with no broker or finder in connection with this Agreement and, insofar as it knows, no broker or other person is entitled to any commission or finder's fee in connection with the consummation of the transactions contemplated by this Agreement. Sellers and Stockholder have retained the services of The Bigelow Company, Incorporated in connection with the transactions contemplated hereby, pursuant to a separate agreement. Sellers and Stockholder shall be solely responsible for fees and commissions payable to such entity. Section 12.2 Expenses. Except as otherwise provided herein, each of the parties shall pay all costs and expenses incurred or to be incurred by it in the negotiation and preparation of this Agreement and in closing and carrying out the transactions contemplated by this Agreement. Section 12.3 Headings; Schedules. The subject headings of the sections and subsections of this Agreement are included only for purposes of convenience, and shall not affect the construction or interpretation of any of its provisions. Any disclosure made by Sellers or Stockholder in a Schedule hereto shall be deemed a disclosure on all Schedules hereto. Section 12.4 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures on this Agreement delivered by fax or telecopier shall be considered original signatures for purposes of effectiveness of this Agreement. Section 12.5 Rights of Parties. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third person to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action against any party to this Agreement. Section 12.6 Assignment. Except as provided in the next following paragraph, the rights and obligations of the parties to this Agreement or any interest in this Agreement shall not be assigned, transferred, hypothecated, pledged or otherwise disposed of without the prior written consent of the nonassigning party which consent may be withheld in such party's sole discretion. This Agreement and all rights and obligations of Buyer hereunder may be assigned or transferred by Buyer to any 100%-owned affiliate of Buyer, in which event all instruments, documents and agreements required to be delivered to Buyer hereunder shall be delivered to and run for the benefit of such entity, and such entity (rather than Buyer) shall execute and delivery any instruments, documents or arguments required to be executed and delivered by Buyer hereunder. In the alternative, Buyer may elect to assign its rights and obligations with respect to a portion of the Business (such as the Subject Assets of Fortress-Miami) to an affiliate. Section 12.7 Survival of Representations and Warranties. All representations, warranties, covenants and agreements shall survive the Closing until the end of the twelfth month after the Closing Date, except for ongoing agreements to indemnify the other party for post-Closing actions. 31 Section 12.8 Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if delivered by telecopier (with notice of receipt), or if served personally on the party to whom notice is to be given; or if delivered by overnight private carrier, on the date of delivery; or on the third day after mailing if mailed to the party to whom notice is to be given by first class mail, certified, postage prepaid, and properly addressed as following: To Seller: The Fortress Corporation One Design Center Place Suite 715 Boston, Massachusetts 02210-2313 Attn: James Levis Telecopier: (617) 790-3077 With a copy (which shall not constitute notice but which is nonetheless required for notice) to: Robert W. Holmes, Jr., Esq. Warner & Stackpole LLP 75 State Street Boston, Massachusetts 02109 Telecopier: (617) 951-9151 To Buyer: Iron Mountain Records Management, Inc. 745 Atlantic Avenue 10th Floor Boston, Massachusetts 02111-2735 Attention: David S. Wendell Telecopier: (617) 350-7881 With a copy (which shall not constitute notice but which is nonetheless required for notice) to: Garry B. Watzke, Esq. 745 Atlantic Avenue 10th Floor Boston, Massachusetts 02111-2735 Telecopier: (617) 350-7881 Any party may change its address for purposes of this paragraph by giving the other parties written notice of the new address in the manner set for above. Section 12.9 Applicable Law and Remedies. The terms, conditions and other provisions of this Agreement and any documents or instruments delivered in connection with it shall be governed and construed according to the internal laws of the Commonwealth of Massachusetts (other than the choice of law rules thereof) except as to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters, the 32 jurisdiction under which such entity derives its powers shall govern. All remedies at law, in equity, by statute or otherwise shall be cumulative and may be enforced concurrently or from time to time and, subject to the express terms of this Agreement, the election of any remedy or remedies shall not constitute a waiver of the right to pursue any other available remedies. The parties agree that all disputes arising under this Agreement shall be settled through arbitration procedures as described in Section 11.5. Section 12.10 Expenses of Enforcement. If either party initiates an action to enforce a provision of this Agreement or any agreement, instrument or document made or delivered at Closing in connection herewith, or for damages by reason of an alleged breach of any provision, the prevailing party shall be entitled to receive from the other party all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. Section 12.11 Additional Instruments and Assistance. Each party hereto shall from time to time execute and deliver such further instruments, provide additional information and render such further assistance as the other party or its counsel may reasonably request in order to complete and perfect the transactions contemplated herein. Section 12.12 Severability. If any provision of this Agreement is held or deemed to be invalid or unenforceable to any extent when applied to any person or circumstance, such invalidity or unenforceability shall not affect the remaining provisions of this Agreement; the remaining provisions hereof and the enforcement of such provision with respect to other persons or circumstances, or to another extent, shall not be affected thereby and each provision hereof shall be enforced to the fullest extent allowed by law. Moreover, the invalid or inoperative provision shall be reformed and construed so that it shall be valid and enforceable to the maximum extent permitted. Section 12.13 Pronouns and Terms. In this Agreement, the singular shall include the plural, the plural the singular, and the use of any gender shall include all genders. Section 12.14 Taxes. The party upon whom state law imposes the economic burden thereof shall pay any Massachusetts or Florida sales taxes imposed on the transaction. Buyer and Seller shall each pay its portion prorated as of the Effective Time of state and local ad valorem taxes on the Business. Section 12.15 Disclosure. No representation or warranty made by either party in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement of facts contained within it not misleading. Section 12.16 Entire Agreement, Amendments and Waivers. This Agreement, together with all Exhibits and Schedules hereto, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties (including the letter of intent dated July 3, 1996), and there are no representations, warranties or other agreements among the parties in connection with the subject matter hereof except as set forth specifically herein or contemplated hereby. No supplement, modification or wavier of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether 33 or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on the date first above written. The Fortress Corporation Iron Mountain Records Management, Inc. By /s/ By /s/ ----------------------------------- ----------------------------------- James N. Levis C. Richard Reese Chief Executive Officer Chairman The Fortress-Boston Corporation By /s/ ----------------------------------- James N. Levis Chief Executive Officer The Fortress-Miami Corporation By /s/ ----------------------------------- James N. Levis Chief Executive Officer The Fortress Corporation-Fort Lauderdale, Inc. hereby joins this Agreement for purposes of confirming its agreement to assign and transfer to Buyer its interest as tenant in the building at Interstate Commerce Center, Ft. Lauderdale, Florida, which is its only assets. The Fortress Corporation-Fort Lauderdale, Inc. By /s/ ---------------------------------------- 34 EX-10.21 4 SALES AGREEMENT STOCK PURCHASE AND SALE AGREEMENT among Iron Mountain Records Management, Inc. (Purchaser) and the Shareholders of Data Archive Services of Miami, Inc. (DAS-Miami) and Data Archive Services, Inc. (DAS-Ft. Lauderdale) As of August 9, 1996 TABLE OF CONTENTS 1. DEFINITIONS..............................................................1 2. PURCHASE AND SALE OF THE COMPANIES SHARES................................2 3. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES..................4 4. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION...............16 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.............................17 6. OTHER COVENANTS AND AGREEMENTS..........................................18 7. CONDITIONS TO CLOSING...................................................26 8. TERMINATION AND ABANDONMENT.............................................29 9. INDEMNIFICATION.........................................................29 10. MISCELLANEOUS..........................................................36 11. PRINCIPAL SHAREHOLDER..................................................40 Disclosure Schedule Exhibit 6.3 Auditing Agreements Exhibit 7.1(f) Seller's Opinion - Hodges & Carry Exhibit 7.1(j) Noncompetition and Confidentiality Agreement Exhibit 7.2(f) Purchaser's Opinion - Garry B. Watzke, Esq. STOCK PURCHASE AND SALE AGREEMENT --------------------------------- This Agreement entered into as of August ____, 1996 by and among Iron Mountain Records Management, Inc., a Delaware corporation ("Purchaser"), and the individuals whose signatures appear on the signature page hereof (the "Shareholders") as stockholders of Data Archive Services of Miami, Inc., a Florida corporation ("DAS-Miami"), and Data Archive Services, Inc., a Florida corporation ("DAS-Ft. Lauderdale" and together with DAS-Miami, the "Companies"). R E C I T A L S The Shareholders in the aggregate constitute the owners of all the issued and outstanding capital stock of DAS-Miami and DAS-Ft. Lauderdale. Each Shareholder owns that number of shares of the capital stock of the Companies as set forth in Section 1 of the Disclosure Schedule (as hereinafter defined). This Agreement contemplates a transaction in which Purchaser will purchase from the Shareholders, and the Shareholders will sell to Purchaser, all of the issued and outstanding capital stock of DAS-Miami and DAS-Ft. Lauderdale for a price, a portion of which is contingent upon certain matters, as herein set forth. NOW, THEREFORE, in consideration of the premises and the mutual provisions herein made, the parties agree as follows: 1. DEFINITIONS. 1.1 "Closing" shall mean the closing of the transactions contemplated by this Agreement. 1.2 "Closing Date" shall mean August 9, 1996 or such other date as the parties may agree. 1.3 "Companies Shares" shall mean the capital stock of DAS-Miami and DAS-Ft. Lauderdale issued and outstanding on the Closing Date. 1.4 "Disclosure Schedule" shall mean the Disclosure Schedule annexed hereto and made a part hereof. 1.5 "Eligible Revenues" shall mean all revenues recognized by the Companies in accordance with generally accepted accounting principles, including revenues from storage, service and sale of cartons and other materials, but excluding (a) permanent removal revenue related to termination of a customer's relationship with the Companies; (b) special projects revenue which exceeds the average percentage of special projects revenue recognized by the Companies on a combined basis in the months of January through July, 1996; and (c) product sales revenue which exceeds the average percentage of product sales revenue recognized by the Companies on a combined basis in the months of January through July, 1996; and (d) Storage and service revenues in the month of July in respect of a terminating customer. In addition, there shall be excluded from Eligible Revenues amounts recognized for provision of storage boxes and indexing services related to the FDMS account unless the pricing for such indexing services is increased to at least $0.10 per batch (as compared to present pricing of $0.50 per box). 1.6 "The Companies' or Shareholders' Knowledge" or "to the knowledge of the Companies' or Shareholders'" or phrases of similar import means information of which either the Principal Shareholder or Christopher Howard is aware or should be aware after reasonable inquiry of the key personnel who regularly perform services for the Companies whose responsibilities would make the information in question within their purview. 1.7 "Principal Shareholder" shall mean P. Douglas McCraw. 1.8 "Purchase Price" shall mean the total sum to be paid for all the Companies Shares, as described in Section 2.2. 2. PURCHASE AND SALE OF THE COMPANIES SHARES. 2.1 Basic Transaction. On and subject to the terms and conditions of this Agreement, Purchaser agrees to purchase from each of the Shareholders, and each of the Shareholders agrees to sell to Purchaser, all of his or her shares of DAS-Miami and DAS-Ft. Lauderdale for the consideration specified in Section 2.2. 2.2 Purchase Price. The Purchase Price for all of the issued and outstanding shares of capital stock of DAS-Miami and DAS-Ft. Lauderdale shall consist of an initial payment (the "Initial Payment") and, if earned, one or two contingent payments (each a "Contingent Payment"), as follows: (a) Initial Payment. Subject to adjustments to the Purchase Price as provided herein, the Initial Payment shall be equal to (i) (b) Purchase Price Adjustments. Notwithstanding any provision herein to the contrary, the Purchase Price shall be subject to adjustment for the matters described in Sections 2.2(e), 6.3(f) and 6.3(g). (c) Contingent Payments. (i) The maximum aggregate amount of the Contingent Payments (the "Maximum Contingent Payment") shall be . (ii) A Contingent Payment shall be payable, if at all, only if aggregate Eligible Revenues received from the existing customer and prospective customers of the Companies referenced in Section 2.2 of the Disclosure Schedule (the "Listed Customers") with respect to the months of October, 1996 and/or January, 1997 exceed the aggregate of Eligible Revenues received from Listed Customers for the month of July, 1996, and the amount of each Contingent Payment shall be determined as follows. (iii) If such aggregate Eligible Revenues in respect of the Listed Customers in the month of October, 1996 exceed the aggregate Eligible Revenues from the Listed Customers for July, 1996 as set forth in Section 2.2 of the Disclosure Schedule, a first Contingent Payment shall be paid not later than November 29, 1996 equal to (a) the excess of such aggregate Eligible Revenues from Listed Customers for October, 1996 over the aggregate Eligible Revenues from Listed Customers for July, 1996 (b) adjusted either to (y), if it is determined that Eligible Revenues from all customers for July, 1996 (the "July Eligible Revenues") were more than $148,550, add to Eligible Revenues from the Listed Customers such excess of July Eligible Revenues over $148,550, or (z), if it is determined that July Eligible Revenues were less than $148,550, subtract from Eligible Revenues from the Listed Customers the difference between $148,550 and the July Eligible Revenues, which result shall be multiplied by 34.50. If aggregate Eligible Revenues from Listed Customers in the month of January, 1997 exceed the aggregate Eligible Revenues from Listed Customers for the month of October, 1996, a second Contingent Payment shall be paid not later than February 28, 1997 equal to such excess of such aggregate Eligible Revenues for January, 1997 over such aggregate Eligible Revenues for the month of October, 1996 multiplied by 34.50. In no event, however, shall the sum of the first and second Contingent Payments exceed the Maximum Contingent Payment. (iv) With each Contingent Payment Purchaser shall deliver to Principal Shareholder a statement showing the Eligible Revenues received from the Listed Customers, or from all the customers, as applicable in respect of July Eligible Revenues, for the relevant month and other details showing how the amount of the Contingent Payment was calculated. Principal Shareholder shall have the right during business hours and upon reasonable notice to review and audit Purchaser's books and records to verify that the calculation of the Contingent Payment was performed properly; provided that Principal Shareholder shall have no right of audit if the Maximum Contingent Payment shall have been paid, and Principal Shareholder's right of audit shall terminate on March 31, 1997 2 unless the audit was commenced prior to March 31, 1997 and in good faith extends beyond such date, but not beyond April 30, 1997. Fees and expenses of the audit shall be borne by the party whose position is not upheld in the audit. (d) Miami/Ft. Lauderdale. The Purchase Price shall be allocated between the Shareholders of DAS-Miami and DAS-Ft. Lauderdale as follows. The sum of $ shall be allocated to each of DAS-Miami and DAS-Ft. Lauderdale. There shall be subtracted from the amount so allocated to each Company an amount equal to the reduction in Purchase Price, if any, to be made in respect of each Company because of balance sheet adjustments to be made pursuant to Section 2.2 (e). The result of such calculation in respect of DAS-Miami shall be the "DAS-Miami Purchase Price", and the result of such calculation in respect of DAS-Ft. Lauderdale shall be the "DAS-Ft. Lauderdale Purchase Price". The Shareholders of each Company shall share in the Purchase Price of each Company pro rata in accordance with the number of shares of such Company held of record on the Closing Date by such Shareholders as set forth in the Disclosure Schedule. The Initial Payment and each Contingent Payment shall be allocated pro rata between the Shareholders of DAS-Miami and DAS-Ft. Lauderdale in the same ratio that the DAS-Miami Purchase Price bears to the DAS-Ft. Lauderdale Purchase Price. (e) The Companies' Closing Balance Sheet. As of July 31, 1996, each of the Companies shall have (i) at least $1.00 of cash and (ii) current assets (net of doubtful accounts receivable) equal to or greater than total liabilities of such Company. If total liabilities of either Company exceed its current assets, the Purchase Price with respect to such Company shall be reduced dollar-for-dollar by such excess of total liabilities over current assets; and if current assets of either Company exceed its total liabilities, the Purchase Price with respect to such Company will be increased dollar-for-dollar. Any such adjustment is hereinafter referred to as an "Adjustment". (f) Escrow. An amount equal to the Maximum Contingent Payment (the "Contingent Payment Escrow") shall be paid on the Closing Date to the law firm of Alston & Bird (the "Escrow Agent") as escrow agent under an escrow agreement among Purchaser, Principal Shareholder and Escrow Agent (the "Escrow Agreement"). The first and second installments of the Contingent Payment shall be disbursed to the Shareholders in accordance with the terms hereof, or disbursed to Purchaser on March 31, 1997 (or later in the event of an audit which extends beyond March 31, 1997 as provided in Section 2.2(c)(iv)) if and to the extent that the amount of Contingent Payments earned is less than the Maximum Contingent Payment, all as more fully described in the Escrow Agreement. Interest accrued on the funds in escrow shall accrue and be paid pro rata to the parties to whom funds are disbursed as if such funds were the property of the payees from the date of deposit. 2.3 Procedure for Payment. The Initial Payment shall be paid by wire transfer of immediately available funds to such account as each Shareholder may designate in writing not less than two business days prior to the Closing Date; or, if no such designation is made, by check to such Shareholder at his or her address as set forth in Section 1 of the Disclosure Schedule. Payment of the installments of the Contingent Payment, if any, shall be made by regular check mailed by the Escrow Agent to each Shareholder at such Shareholder's address as set forth in Section 1 of the Disclosure Schedule. 3. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES. The Shareholders represent and warrant to Purchaser that the statements contained in this Section 3 are correct and complete in all material respects as of the date of this Agreement and will be correct and complete in all material respects as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3), except as set forth in the Disclosure Schedule. The Disclosure Schedule, where relevant, is arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 3. Disclosure of a matter in any section or paragraph of the Disclosure Schedule shall constitute disclosure of such matter in each other paragraph or section of the Disclosure Schedule. 3.1 Existence; Good Standing; Corporate Authority. Each of the Companies is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Florida. Neither of the Companies is required to be licensed or qualified to do business as a foreign corporation in any jurisdiction. Each of the Companies has all requisite corporate power and authority to own its properties and carry on its business as now conducted. Neither of the Companies is in default under or in violation of any provision of its Articles of Incorporation or Bylaws. 3.2 Governmental Consents. Other than as set forth in the Disclosure Schedule, neither of the Companies needs to give any notice to, make any filing with or obtain any authorization, consent or approval of any government or governmental agency in order for the parties to consummate the transactions contemplated by this Agreement. 3 3.3 Noncontravention. Except as set forth in the Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) require the consent of any party to any material contract (which term when used in this Agreement shall mean any contract or agreement described in Section 3.15) with the Companies, or (ii) result in the breach of any term or provision of, or constitute a default under, or result in the acceleration of or entitle any party to accelerate (whether after the giving of notice or the lapse of time or both) any obligation under, or result in the creation or imposition of any lien, charge, pledge, security interest or other encumbrance upon any part of the property of either of the Companies pursuant to any provision of, any order, judgment, arbitration award, injunction, decree, indenture, mortgage, lease, license, lien, or other agreement or instrument to which either Company is a party or by which it is bound and which would have a material adverse effect on the Companies taken as a whole, or violate or conflict with any provision of any statute, law, regulation, rule or injunction to which either Company is subject and which (as to any such violation of or conflict with any statute, law, registration, rule or injunction) would have a material adverse effect on the Companies taken as a whole, or the Bylaws or Articles of Incorporation of either Company as amended to the date of this Agreement. 3.4 Affiliated Entities. Neither Company owns any equity securities, or rights to acquire the equity securities, of any corporation, business trust, joint stock company, partnership or other business organization or association; and neither Company controls, through voting stock, board of director seats or any other means, any other corporation, partnership or other entity. 3.5 Capitalization. The capitalization of each of the Companies is as set forth in the Disclosure Schedule. No shares of capital stock are held in treasury by either Company. Except as set forth in the Disclosure Schedule, there are no outstanding or authorized rights, warrants, options, subscriptions, agreements or binding commitments giving anyone any right to require the Companies to sell or issue, or any person the right to buy or acquire, from the Companies any capital stock of either Company. To the extent any such rights are outstanding they will be terminated prior to the Closing. All of the issued and outstanding Companies Shares of each Company are duly authorized, validly issued, fully paid, nonassessable, and are held of record by the respective Shareholders as set forth in Section 1 of the Disclosure Schedule. The shares of capital stock of DAS-Ft. Lauderdale are free of all pre-emptive rights, and the pre-emptive rights accorded to the shares of capital stock of DAS-Miami have been fully satisfied and complied with in every respect or waived in writing, and no person has any claim under such pre-emptive rights. There are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to either Company. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any Companies Shares. All of the issued and outstanding Companies Shares were issued in compliance with applicable federal and state securities laws. 3.6 Records. The corporate minute books of each of the Companies to be delivered to Purchaser at the Closing shall contain true and complete copies of the Articles of Incorporation, as amended to the Closing Date, Bylaws, as amended to the Closing Date, and, to the extent records exist, the minutes of all meetings of directors and shareholders and instruments reflecting all actions taken by the directors or shareholders without a meeting, from the date of incorporation of each Company to the Closing Date. 3.7 Officers and Directors; Bank Accounts; Powers of Attorney. The officers and directors of each Company are as set forth in the Disclosure Schedule. The Disclosure Schedule also sets forth (i) the name of each bank, savings institution or other person with which each Company has an account or safe deposit box and the names and identification of all persons authorized to draw thereon or to have access thereto and (ii) the names of all persons, if any, holding powers of attorney from either Company. 3.8 Financial Statements. Each Company has furnished to Purchaser unaudited financial statements of each Company, including balance sheets and statements of operations, changes in shareholders' deficit and cash flow as of and for the years ended May 31, 1996 and 1995 and unaudited financial statements of each Company as of and for the one-month period ended June 30, 1996, including a balance sheet and statement of operations as of and for the period then ended. The financial statements described in the preceding paragraph of this Section 3.8 are hereinafter referred to as the "Pre-Signing Financial Statements". The Pre-Signing Financial Statements fairly set forth in all material respects the financial condition of the Companies as of the dates indicated, and the results of their operations for the periods indicated on a tax basis, consistently applied. The Pre-Signing Financial Statements are included in the Disclosure Schedule. 4 3.9 Undisclosed Liabilities. To the best of the Shareholders' knowledge, neither of the Companies has any material liabilities or material obligations whatsoever, either accrued, absolute, contingent or otherwise, which are not reflected or provided for in the Pre-Signing Financial Statements as of June 30, 1996 except (i) those arising after June 30, 1996 which were incurred in the ordinary course of business and none of which, individually or in the aggregate, is materially adverse, and (ii) as and to the extent specifically described in the Disclosure Schedule. 3.10 Absence of Certain Changes or Events. To the best of the Shareholders' knowledge, since June 30, 1996, except as set forth in the Disclosure Schedule, neither of the Companies has: (a) incurred any material obligation or liability (fixed or contingent), except normal trade or business obligations incurred in the ordinary course of business, none of which is materially adverse, and except in connection with this Agreement and the transactions contemplated hereby; (b) discharged or satisfied any material lien, security interest or encumbrance or paid any material obligation or liability (fixed or contingent), other than in the ordinary course of business, except for possible accelerated payments of debt; (c) mortgaged, pledged or subjected to any lien, security interest or other encumbrance any of its material assets or properties (other than purchase money security interests arising as a matter of law between the date of delivery and payment); (d) transferred, leased or otherwise disposed of any material part of its assets or properties except for fair consideration in the ordinary course of business or, except in the ordinary course of business, acquired any material assets or properties; (e) cancelled or compromised any material debt or claim owed to it, except in the ordinary course of business; (f) waived or released any rights of material value; (g) transferred or granted any rights under any material leases, licenses, agreements, patents, inventions, trademarks, trade names, service marks or copyrights or with respect to any know-how; (h) made or granted any wage or salary increase applicable to any group or classification of employees generally or to any officer of either Company, entered into any employment contract with, or made any material loan to, or entered into any material transaction of any other nature with, any officer or employee of either Company; (i) entered into any material transaction, contract or commitment, except (i) transactions in the ordinary course of business and (ii) this Agreement and the transactions contemplated hereby; (j) suffered any casualty, loss or damage (whether or not such loss or damage shall have been covered by insurance) which affects in any material respect such Company's ability to conduct business; or (k) declared any dividends or bonuses, or authorized or effected any amendment or restatement of the articles of incorporation or by-laws of such Company or taken any steps looking toward the dissolution or liquidation of such Company other than as permitted or contemplated by this Agreement. 3.11 Taxes. With respect to Taxes (as defined below), except as set forth in the Disclosure Schedule: (a) each of the Companies has filed, within the time and in the manner prescribed by law, all returns, declarations, reports, estimates, information returns and statements ("Returns") required to be filed under federal, state or local Tax laws by such Companies, and all such Returns are true, correct and complete in all material respects; (b) each of the Companies has within the time and in the manner prescribed by law, paid (and until the Effective Time will, within the time and in the manner prescribed by law, pay) all Taxes that are due 5 and payable, except to the extent that the failure to so pay would not have a material adverse effect on the Companies, taken as a whole; (c) each of the Companies has established (and until the Effective Time will maintain) on its books and records reserves that are adequate for the payment of all Taxes not yet due and payable; (d) there are no liens for Taxes upon the assets of either of the Companies except liens for Taxes not yet due; (e) neither of the Companies has filed (and neither of the Companies will file prior to the Effective Time) any consent agreement under Section 341(f) of the Internal Revenue Code of 1986, amended (the "Code") and none of the assets of either of the Companies are subject to an election under Section 341(f) of the Code, nor has either of the Companies been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code; (f) neither of the Companies has consented to any staying or tolling of the statute of limitations for the assessment of federal income taxes or the statute of limitations for the assessment of state and local income taxes, and no deficiency for any Taxes has been proposed, asserted or assessed against either of the Companies which has not been resolved and paid in full. No examination or audit of any Returns of either of the Companies by any governmental entity is currently in progress or, to the knowledge of the Companies or Shareholders, threatened or contemplated. (g) there are no outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Returns that have been given by either of the Companies; (h) no federal, state or local audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Returns; (i) neither of the Companies is a party to any tax-sharing or allocation agreement, nor do the Companies owe any amount under any tax-sharing or allocation agreement; (j) neither of the Companies has any actual or potential liability for any tax obligation of any taxpayer (including without limitation any affiliated group of corporations or other entities that included the Companies during a prior period) other than the Companies; (k) no amounts payable under any employee benefit plans will fail to be deductible for federal income tax purposes by virtue of Section 280G of the Code; and (l) each of the Companies has complied (and until the Effective Time will comply) in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 or 1442 of the Code) and has, within the time and in the manner prescribed by law, withheld from employees' wages and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under all applicable laws except to the extent that the failure to so comply or pay over would not have a material adverse effect on the Companies, taken as a whole and would not subject the Companies to a fine or penalty in excess of $5,000 in the aggregate. For purposes of this Agreement, "Taxes" shall mean all taxes, charges, fees, levies or other assessments of whatever kind or nature, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, value-added, transfer, franchise, profits, license, withholding, payroll, employment, excise, stamp, occupancy or property taxes, customs duties, fees, assessments or charges of any kind whatsoever (together with any interest and any penalties, additions to tax or additional amounts) imposed by any taxing authority (domestic or foreign) upon or payable by the Companies. Copies of all federal, state and local tax returns, examinations, reports and statements of deficiencies assessed against or agreed to by either or both of the Companies for any and all taxable periods with respect to which the statute of limitations for the collection of any Tax has not expired have been made available for inspection by Purchaser. 6 3.12 Title to Property and Assets. Each of the Companies has good and marketable title to all of the properties and assets purported to be owned by it and used by it in the conduct of its business (including, without limitation, the properties and assets reflected in the June 30, 1996 balance sheet included in the Pre-Signing Financial Statements) except any thereof since disposed of in the ordinary course of business and none of such properties or assets is, except as disclosed in the Pre-Signing Financial Statements or the Disclosure Schedule, subject to security interests, mortgages, encumbrances, liens or charges of any kind or character except for purchase money security interests which arise by law between the date of delivery of goods and the date of payment, liens for taxes not yet due and payable and inchoate mechanic's material man's and landlord liens.. The Disclosure Schedule identifies all leases under which the Companies lease equipment or vehicles used in their businesses. 3.13 Condition of Personal Property. Except as set forth in the Disclosure Schedule, tangible personal property, equipment, fixtures and inventories included within the assets of the Companies or required to be used in the ordinary course of business, taken as a whole, are in good or reasonably repairable condition for their age, reasonable wear and tear excepted, and are suitable for the purposes for which they are currently used except for miscellaneous items not material to the operation of the Company's business. 3.14 Real Estate. (a) Neither Company owns any real property. The Disclosure Schedule contains a list of all real property in which either Company has a leasehold or other interest and of any material lien, charge or encumbrance on such Company's interest therein except for purchase money security interests which arise by law between the date of delivery of goods and the date of payment, liens for taxes not yet due and payable and inchoate mechanic's, material man's and landlord liens. The Shareholders have provided Purchaser with true and correct copies of all such leases or other instruments listed on the Disclosure Schedule. Neither of the Companies has received written notice to the effect that the improvements on such properties do not, and to the best of the Shareholders' knowledge such improvements and use thereof by the Companies do, conform to all applicable lease restrictions and zoning and other local ordinances, except where failure to conform to such restrictions and ordinances does not have a material adverse effect on the Companies taken as a whole. (b) Subject to the receipt of any consents required thereunder as disclosed in the Disclosure Schedule, each such lease or sublease will continue to be legal, valid, binding and enforceable against the Companies following the Closing in accordance with the terms thereof as in effect prior to the Closing, subject to the effect of applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and similar laws of general application relating to the enforcement of creditors' rights generally and to the discretion of a court in granting equitable relief (the "Enforceability Exceptions"). Neither of the Companies nor, to the Shareholders' knowledge, any other party to any such lease or sublease is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default by the Companies or, to the Shareholders' knowledge, by the other parties thereto, or permit termination, modification, or acceleration thereunder by the other party or, to the Shareholders' knowledge, by the Company, other than possible defaults arising from prohibitions on the transfer of the Companies' capital stock contained in the provisions of leases. There are no disputes, written agreements or forbearance programs in effect as to any such lease or sublease. Except as disclosed in the Disclosure Schedule, no consent is required by the terms of any such lease or, to the Shareholders' knowledge, by any holder of a mortgage or deed of trust affecting the leased real property in connection with the transactions contemplated by this Agreement. 3.15 List of Contracts and Other Data. The Disclosure Schedule sets forth the following: (a) all material computer software (except software readily available from retail vendors), material patents and registrations for material trademarks, trade names, service marks and copyrights which are used in connection with the operation of the Companies' business, as well as all applications pending for material patents or for material trademark, trade name, service mark or copyright registrations, and all similar intellectual property rights, owned or held by either Company and which are reasonably necessary to, or used in connection with, the business of the Companies, and (ii) all material licenses granted by or to the Companies and all other material agreements to which either of the Companies is a party and which relate, in whole or in part, to any items of the categories mentioned in (i) above or to other material intellectual property rights of either Company which are reasonably necessary to, or used in connection with, the business of such Company; (b) all written sales agent agreements and other marketing agreements to which either Company is a party; 7 (c) all written employment and consulting agreements, executive compensation plans, bonus plans, profit-sharing plans, deferred compensation agreements, employee pension or retirement plans, employee stock purchase and stock option plans, group life insurance, hospitalization insurance or other plans or arrangements providing for benefits to employees of either Company; (d) any written arrangement (or group of related written arrangements) for the lease of personal property from or to third parties providing for lease payments by either Company in excess of $5,000 per annum; (e) any written arrangement (or group of related written arrangements) for the purchase by either Company of materials, supplies, products or other personal property or for the receipt of services, excluding utility services, which involves more than $5,000, is not terminable on less than 90 days notice by the Companies or was not entered into in the ordinary course of business; (f) any written arrangement establishing a partnership or joint venture to which either Company is a party; (g) any written arrangement (or group of related written arrangements) under which either Company has created, incurred, assumed, or guaranteed (or may create, incur, assume, or guarantee) indebtedness for borrowed money in excess of $10,000 or leased property in excess of $10,000 (including capitalized lease obligations) or under which it has granted (or may grant) a security interest on any of its material assets, tangible or intangible; (h) any written arrangement concerning confidentiality or noncompetition which restricts or protects either Company; (i) any written arrangement involving Principal Shareholder or any affiliates of Principal Shareholder to which either Company is a party and any material written arrangements involving any other Shareholder to which either Company is a party; (j) any written arrangement under which the consequences of a default or termination could reasonably be expected to have a material adverse effect on the assets, business, financial condition, results of operations or future prospects of the Companies, taken as a whole; (k) any other written arrangement (or group of related written arrangements) to which either Company is a party either involving more than $10,000 or not entered into in the ordinary course of business; and (l) the names and current annual compensation rates of all employees of both Companies. True and complete copies of all documents and written descriptions of all understandings, if any, referred to in the Disclosure Schedule have been provided, or will be provided, to Purchaser upon request. With respect to each written arrangement so listed, except as otherwise described in this Agreement or the Disclosure Schedule,: (i) the written arrangement is legal, valid, binding and enforceable (subject to the Enforceability Exceptions) and in full force and effect with respect to the Company, and to the best of Shareholders' knowledge, with respect to the other party thereto; and (ii) the written arrangement will continue to be legal, valid, binding and enforceable (subject to the Enforceability Exceptions) and in full force and effect with respect to the Company, and to the best of Shareholders' knowledge, with respect to the other party thereto following the Closing in accordance with the terms thereof as in effect prior to the Closing. 3.16 Business Property Rights. The property referred to in Section 3.15(a), together with (i) all designs, methods, inventions and know-how related thereto and (ii) all trademarks, trade names, service marks, and copyrights claimed or used by either Company which have not been registered (collectively "Business Property Rights"), constitute all such intellectual property rights owned or held by such Company and which are reasonably necessary to, or used in, the conduct of the business of such Company, including all computer programs necessary to perform the billing, work-order and inventory operations of such Company. 8 Each item of Business Property Rights owned by or used in the operation of the business of each Company during the six months ended June 30, 1996 will be owned or available for use by the Companies on identical terms and conditions immediately following the Closing. Computer software developed by either Company and all related designs, methods, inventions and know-how are regarded by such Company as trade secrets of the Company within the meaning of all applicable laws, and such Company has taken reasonable steps to protect these trade secrets as such. To the best of Shareholders' knowledge, such Company owns or has valid rights to use all such Business Property Rights without conflict with the rights of others. Neither Company has received written notice from any third party that its Business Property Rights conflict with the rights of others. To the best of Shareholders' knowledge, no person or corporation has made or, threatened to make any claims that the operation of the business of either Company is in violation of or infringes any Business Property Rights of any third party. 3.17 Governmental Authorizations. Each of the Companies has obtained all licenses, permits and other authorizations and has taken all actions required by applicable laws or governmental regulations in connection with its business as now conducted except for such licenses, permits or authorizations, and such actions, the absence of which would not have a material adverse effect on the Companies, taken as a whole. The Disclosure Schedule sets forth a true and complete list of all material governmental licenses, permits and authorizations held by the Companies. The Companies are in full compliance with all such licenses, permits and authorizations, except for such noncompliance which would not have a material adverse effect on the Companies taken as a whole. 3.18 No Breach or Default. Neither of the Companies is in default under any material contract (as defined in Section 3.3) to which it is a party or by which it is bound, nor to the best of Shareholders' knowledge, has any event occurred which, after the giving of notice or the passage of time or both, would constitute a default under any such contract, except for such defaults or events which, in the aggregate, would not have a material adverse effect on the business, prospects, financial condition properties, or cash flow of the Companies taken as a whole. 3.19 Labor Controversies; Employee Benefit Plan Matters. Neither of the Companies is a party to any collective bargaining agreement. To the best of Shareholders' knowledge, there are no controversies between either of the Companies and any of its employees which might reasonably be expected to affect materially and adversely the conduct of their business taken as a whole, or any unfair labor practice proceedings pending or, threatened relating to their business, and, to the best of Shareholders' knowledge, there are no union organization efforts presently being made or threatened involving any of either Company's employees. Neither of the Companies has received written notice of any claim that such Company has not complied with any laws relating to the employment of labor, including any provisions thereof relating to wages, hours, collective bargaining, the payment of social security and similar taxes, equal employment opportunity, employment discrimination and employment safety, or that such Company is liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. Neither of the Companies maintains or contributes to, and neither Company is required by agreement to maintain or contribute to, and has no liability with respect to, any (i) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, as defined in the Employee Retirement Income Security Act of 1974 ("ERISA") ss.3(3), (ii) qualified deferred contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (iii) qualified deferred benefit retirement plan or arrangement which is an Employee Benefit Plan (including any Multiemployer Plan as defined in ERISA ss.3(37)), or (iv) Employee Welfare Benefit Plan, as defined in ERISA ss.3(1) (collectively "Employee Benefit Plans") 3.20 Litigation. Except as set forth in the Disclosure Schedule, and except for the disputes described in Section 2.4 of this Agreement, there are no actions, suits or proceedings with respect to either Company involving claims by or against Principal Shareholder or either Company which are pending or, to the Shareholders' knowledge, threatened against Principal Shareholder or either Company, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality. To the Shareholders' knowledge, except as set forth in the Disclosure Schedule, no valid basis for any action, suit or proceeding exists, and there are no writs, judgments, injunctions or decrees of any court or governmental agency with respect to which Principal Shareholder or either Company is a party, which apply, in whole or in part, to the business of either Company or to any of the assets or properties of either Company or any of the Companies Shares or which would result in any material adverse change in the business, financial condition or prospects of the Companies taken as a whole. 3.21 Environmental Matters. To the best of Shareholders' knowledge, except as to matters which would not have a material adverse effect on the Companies taken as a whole: 9 (a) each of the Companies and their respective predecessors and affiliates has complied with all Environmental Laws (as hereinafter defined), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply except for minor failures to so comply which would not have a material adverse effect on the Companies taken as a whole. Without limiting the generality of the preceding sentence, each of the Companies and their respective predecessors and affiliates has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all Environmental Laws; (b) neither of the Companies has any liability (and neither of the Companies and their respective predecessors and affiliates has handled or disposed of any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated any property or facility in any manner that could form the basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against either of the Companies giving rise to any liability) for damage to any site, location, or body of water (surface or subsurface), for any illness of or personal injury to any employee or other individual, or for any other reason under any Environmental Law; and (c) all properties and equipment used in the business of the Companies and their respective predecessors and affiliates are free of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous Substances (as hereinafter defined). For purposes of this Section, "Environmental Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and the Resource Conservation and Recovery Act of 1976, each as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes; and "Extremely Hazardous Substance" has the meaning set forth in ss.302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. Each of the Companies uses minor amounts of cleaning fluids and agents, toner and similar chemical substances commonly used in office and warehouse environments, but only in amounts customary for the records storage and management businesses operated by the Companies. The Companies have never operated or participated in any business other than the records storage and management business. To the best of the Shareholders' knowledge, no facility owned or operated by either Company (other than the facilities identified as presently leased facilities in the Disclosure Schedule) have located in, on or under them any material which is considered a "hazardous substance" or "hazardous material", as those terms are defined in the Environmental Laws for which either of the Companies may be responsible for removal or remediation. Neither of the Companies has accepted for storage any nitrate film. 3.22 No Brokers. Except as set forth in this section and in the Disclosure Schedule, neither of the Companies has entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of Purchaser or either Company to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, and neither Principal Shareholder nor the Companies have knowledge of any claim or basis for any claim for payment of any finder's fees, brokers or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. Christopher Howard is a financial adviser to the Companies to whom the Companies have a contractual obligation to pay a fee at Closing, which fee will either be included as a liability of the Companies on the Interim Closing Balance Sheet (as hereinafter defined) or satisfied by the Shareholders. In no event shall Purchaser bear the economic burden of such fee, nor shall any fee or commission be owed to Mr. Howard by the Companies after the Closing Date. 3.23 Insurance. The assets, properties and operations of both Companies are insured under various policies of general liability and other forms of insurance, all of which are listed in the Disclosure Schedule. The Companies have provided to Purchaser an insurance claims analysis for the period from January, 1992 through the present. To the best of Shareholder's knowledge, all policies listed in the Disclosure Schedule as current policies are in full force and effect in accordance with their terms, no notice of cancellation has been received, and there is, to the best 10 of Shareholders' knowledge, no existing default or event which, with the giving of notice or lapse of time or both, would constitute a default thereunder. Neither Company has been refused any insurance by any insurance carrier to which it has applied for insurance or with which it has carried insurance since January 1, 1992. The Disclosure Schedule also contains a true and complete list of all outstanding bonds and other surety arrangements issued or entered into in connection with the business, assets and liabilities of either Company. 3.24 Records Storage Matters. (a) All items received and stored by each of the Companies on behalf of customers are held in storage by such Company (except for items withdrawn or destroyed at the customer's request). Each of the Companies averages not more than two extended searches (i.e., a search requiring more than two hours to locate the requested carton) per week. The Companies' invoices to customers do not charge customers for storage of nonexistent cartons or services not performed in any material respect. (b) The Disclosure Schedule lists which of the Companies' fifty largest customers have executed a contract with such Company, which limits such Company's liability in the event of loss, damage or destruction of the customer's records to an amount not greater than the cost of replacing the lost medium (and not reproduction or restoration of content). (c) Except as set forth on the Disclosure Schedule, neither of the Companies has received written notice from any customer to which storage charges billed in the twelve months ended June 30, 1996 exceed $5,000 that such customer intends to terminate its business relationship with such Company or that it intends to reduce materially the volume of records stored with such Company. (d) Except as set forth in the Disclosure Schedule, substantially all items in storage have been bar-coded and logged into the Companies' computer system. 3.25 Couriers. To the best of Shareholders' knowledge, after reasonable inquiry, the Companies' contract couriers have not been involved in any automobile accidents in the three year period prior to the date hereof. 3.26 No Misrepresentation or Omission. To the best of the Shareholders' knowledge, no representation or warranty by the Shareholders in this Section 3, the Disclosure Schedule, any other Section of this Agreement, or in any certificate or other document furnished or to be furnished by the Companies or Shareholders pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein and therein, in the light in which they were made, not misleading. 4. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION. Each of the Shareholders represents and warrants to Purchaser that the statements contained in this Section 4 are correct and complete in all material respects as of the date of this Agreement and will be correct and complete in all material respects as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 4) with respect to himself or herself. 4.1 Authorization of Transaction. Such Shareholder has full power and authority to execute and deliver this Agreement and to perform his or her obligations hereunder. This Agreement constitutes the valid and legally binding obligation of such Shareholder, enforceable in accordance with its terms and conditions (subject to the Enforceability Exceptions). Such Shareholder need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. 4.2 Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statue, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which such Shareholder is subject or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which such Shareholder is a party or by which he or she is bound or to which any of his or her assets is subject. 11 4.3 Brokers' Fees. Such Shareholder has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Purchaser could become liable or obligated. 4.4 Companies Shares. Such Shareholder holds of record and owns beneficially the number of Companies Shares set forth next to his or her name in Section 1 of the Disclosure Schedule, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act of 1933, as amended, and state securities laws), Taxes, security interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. Such Shareholder is not a party to any option, warrant, purchase right, or other contract or commitment that could require the Shareholder to sell, transfer, or otherwise dispose of any capital stock of the Companies (other than this Agreement). Such Shareholder is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any capital stock of the Companies. 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and warrants to Shareholders that the statements in this Section 5 are true, correct and complete in all material respects as of the date of this Agreement and will be correct and complete as of the Closing Date in all material respects (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 5). 5.1 Existence; Good Standing; Corporate Authority; Compliance with Law. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Purchaser is duly licensed or qualified to do business as a foreign corporation and is in good standing under the laws of all other jurisdictions in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so licensed, qualified or in good standing would not have a material adverse effect on Purchaser and its subsidiaries, taken as a whole. Purchaser has all requisite corporate or other power and authority to own its properties and carry on its business as now conducted. Purchaser is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal to which it is a party or is subject, and is not in violation of any laws, ordinances, governmental rules or regulations to which it is subject, except where such default or violation would not have a material adverse effect on Purchaser and its subsidiaries, taken as a whole. Purchaser is not in default under or in violation of any provision of its Certificate of Incorporation or Bylaws. Purchaser has obtained all licenses, permits or other authorizations and has taken all actions required by applicable laws or governmental regulations in connection with its business as now conducted, except where the failure to obtain such license, permit or other authorization, or to take action, would not have a material adverse effect on Purchaser and its subsidiaries, taken as a whole. 5.2 Authorization; Validity and Effect. Purchaser has all requisite corporate power and authority to own its properties and assets, to carry on the business in which it is now engaged, and to execute and deliver this Agreement and all other agreements and documents contemplated hereby and to perform its respective obligations hereunder and thereunder. The execution and delivery of this Agreement and all agreements and documents contemplated hereby by Purchaser, and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by all requisite corporate action. This Agreement constitutes, and all agreements and documents contemplated hereby when executed and delivered pursuant hereto for value received will constitute, the valid and legally binding obligations of Purchaser, enforceable in accordance with their terms, subject to the Enforceability Exceptions. 5.3 Absence of Conflict. Neither the execution and delivery by Purchaser of this Agreement and the other documents executed or required to be executed by each hereunder, nor the consummation by Purchaser of the transactions contemplated hereby and thereby, will, with or without the giving of notice or passage of time, or both, (a) be contrary to any provision of the Certificate of Incorporation or Bylaws of Purchaser, (b) require on the part of Purchaser any filing with, or permit, authorization or consent or approval of, any governmental authority, or (c) violate, breach, or constitute a default under, or permit the termination or acceleration of maturity of, or result in the imposition of any lien, claim or encumbrance upon any property or asset of either pursuant to any provision of, any agreement, instrument, judgment, order, injunction or decree by which Purchaser is bound, to which it is a party, or to which its assets are subject. 5.4 No Brokers. Purchaser has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of Shareholders to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, and (except for the arrangement under which the Companies may be required 12 to pay a fee or commission to Christopher Howard) Purchaser is not aware of any or basis for any claim for payment of any finder's fees, brokers or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 6. OTHER COVENANTS AND AGREEMENTS. 6.1 Additional Financial Statements. (a) Purchaser has requested that the Companies commence preparation of audited financial statements for certain periods, and if such audited financial statements have not been completed by the Closing Date, after the Closing Principal Shareholder shall provide any assistance reasonably requested by Purchaser therefor. The auditing fees and expenses of the independent public accountants who audit such statements (which may be the Companies' current accountants or such other auditors as Purchaser may designate) shall be paid by Purchaser. (b) The financial statements delivered pursuant to this Section 6.1 are hereinafter referred to as the "Post-Signing Financial Statements". The Pre-Signing Financial Statements and the Post-Signing Financial Statements are herein referred to as the "Financial Statements". 6.2 Certain Transactions; Interim Closing Balance Sheets. (a) From July 1, 1996 to the Closing Date (i) neither of the Companies has made or shall make cash payments or other distributions to shareholders or payments to other persons other than trade creditors of the Companies and persons holding financial obligations of the Companies if and to the extent payments to such holders of financial obligations were included as liabilities on the Interim Closing Balance Sheets. and (ii) neither of the Companies has incurred liabilities other than trade payables in the ordinary course of business. (b) The Companies have prepared interim combined and combining balance sheets stating the current assets and total liabilities of the Companies as of June 30, 1996 Such balance sheets are annexed to Exibit 6.2. For purposes of estimating the current assets and total liabilities of each of the Companies as of July 31, 1996, Purchaser and Shareholders have agreed upon certain adjustments to the June 30, 1996 balance sheets to reflect certain changes in the Companies' balance sheets which have occurred prior to July 31, 1996, which adjustments are described in Schedule 6.2. The June 30, 1996 balance sheets, as so adjusted, are herein referred to as the "Interim Closing Balance Sheets". 6.3 Audited Closing Balance Sheet and Adjustments. (a) As promptly as practicable after the Closing Date Purchaser and the Companies shall prepare combining and combined statements of current assets and total liabilities of the Companies as of the close of business on July 31, 1996 (the "Closing Balance Sheets"). The Closing Balance Sheets shall be prepared in accordance with GAAP except for departures from GAAP agreed upon by Purchaser and Principal Shareholder as provided in this section 6 and Schedule 6.3. The closing balance sheets shall not be in accordance with GAAP in that the auditors will present only the balance sheets of the Companies and not income and expense statements, statements of cash flow and other presentations required for statements in accordance with GAAP; in addition, the audited Closing Balance Sheets shall omit footnotes which would be required in order to be in accordance with GAAP.The Closing Balance Sheets shall include as liabilities, without limitation, (x) all unpaid fees and charges payable by the Companies to any broker or financial adviser in connection with the transactions contemplated by this Agreement (if either of the Companies is liable therefor) and to the Companies' attorneys and auditors (excluding work performed by the auditors upon Purchaser's request) in connection with the transactions contemplated by this Agreement (whether or not billed to the Companies as of the Closing Date) (y) the Companies' obligations as of the close of business on July 31, 1996 in respect of services to be performed for customers after July 31, 1996 which were billed to customers prior to July 31, 1996, and (z) the amount of any prepayment premium or penalty and accrued interest in respect of indebtedness of the Companies as of July 31, 1996. The Companies shall confirm that no cash payments or distributions were made to the Shareholders or others (other than trade creditors and others as permitted by Section 6.2(a)) during the period from July 1, 1996 to the Closing Date (the "Cash Distribution Statement"). (b) The Closing Balance Sheets shall be audited and the Cash Distribution Statement shall be reviewed by an independent accounting firm selected by Purchaser at Purchaser's expense. The auditors' review 13 of the Cash Distribution Statement shall consist of preparing a list of all payments made by the Companies from July, 1996 through the Closing Date, comparing payments with the check register and testing and verifying the payments made. Except as Purchaser and Principal Shareholder otherwise agree in Schedule 6.3, the audit shall be carried out in accordance with generally accepted auditing standards. (c) The parties shall cooperate in the preparation of the Closing Balance Sheets and the Cash Distribution Statement and the audit thereof, and shall use their respective commercially reasonable best efforts to cause their respective accountants to make available to each other their respective work papers with respect to the Closing Balance Sheets. The audited Closing Balance Sheets shall contain the draft opinion of the preparing accountants, addressed to Purchaser and Principal Shareholder, which shall be unqualified except that appropriate qualifications can be stated to reflect agreed-upon instructions of the parties which vary from GAAP as set forth in Schedule 6.3. (d) Purchaser shall use its best efforts to cause the Closing Balance Sheets and the Cash Distribution Statement to be delivered to Principal Shareholder no later than 75 days after the Closing Date. (e) Principal Shareholder shall have forty-five (45) days after receipt of the Closing Balance Sheets and the Cash Distribution Statement (the "Dispute Period") to dispute any of the elements of the Closing Balance Sheets or the Cash Distribution Statement (a "Dispute"). If Principal Shareholder does not give written notice of a Dispute (a "Dispute Notice") to Purchaser within the Dispute Period, such Closing Balance Sheets and the Cash Distribution Statement shall be deemed to have been accepted by Principal Shareholder in the form in which they were delivered by Purchaser and shall be final and binding upon the parties in the absence of fraud or manifest error. In the event Principal Shareholder does not agree with any amount or element reflected on the Closing Balance Sheets or the Cash Distribution Statement, he may give Purchaser a Dispute Notice within the Dispute Period, setting forth in reasonable detail the elements and amounts with which he disagrees, and Purchaser shall, within thirty (30) days after receipt by Purchaser of such Dispute Notice, attempt to resolve such Dispute and agree in writing upon the final content of such Closing Balance Sheets or the Cash Distribution Statement. In the event that Principal Shareholder and Purchaser are unable to resolve any such Dispute within such thirty (30) day period, then an independent public accounting firm acceptable to both parties (the "Arbitrating Accountant") shall be employed as arbitrator hereunder to settle such Dispute as soon as practicable. In connection with the resolution of any Dispute, the Arbitrating Accountant shall have access to all documents and facilities necessary to perform its functions as arbitrator. The Arbitrating Accountant's function shall be to conform the Closing Balance Sheets and the Cash Distribution Statement to the standards required by the terms and provisions of this Section 6.3. The Arbitrating Accountant's determination with respect to any Dispute shall be final and binding upon the parties hereto. Principal Shareholder and Purchaser shall each pay one-half of the fees and expenses of the Arbitrating Accountant; provided that if the Arbitrating Accountant determines all issues raised in favor of one party or the other, the party whose positions were not upheld shall pay all of such fees and expenses. Following the resolution of any Disputes, the Closing Balance Sheets and the Cash Distribution Statement shall be revised to reflect such resolution. Following such resolution, or, if there are no Disputes, following the expiration of the Dispute Period, Purchaser shall cause the Closing Balance Sheets and the Cash Distribution Statement, containing the signed unqualified opinion of the preparing accountants, to be issued and delivered to Principal Shareholder. (f) In the event that the audited Closing Balance Sheets state that cash is less than $1.00, Purchaser shall make a written demand on Shareholders for the amount by which $1.00 exceeds the cash of the Companies at July 31, 1996, and such amount shall be paid by Principal Shareholder to Purchaser; and in the event that the Cash Distribution Statement reports that cash was paid during the period from July 1, 1996 to the Closing Date to the Shareholders or others in contravention of Section 6.2(a), such amount shall be paid by Principal Shareholder to Purchaser, in each case within three business days after the end of the Dispute Period, or if there is a Dispute, within three business days after the resolution thereof. (g) In the event that the Closing Balance Sheet for either Company indicates that the difference between current assets and total liabilities varies from that reported on the Interim Closing Balance Sheet for such Company by an amount not previously accounted for as an adjustment in the Purchase Price, then either (i) the Purchase Price shall be decreased if the excess of current assets over total liabilities is less than indicated on the Interim Closing Balance Sheet, or (ii) the Purchase Price shall be increased if the excess of current assets over total liabilities is greater than indicated on the Interim Closing Balance Sheet. Either Purchaser or Principal Shareholder shall make an appropriate adjusting payment within three business days after the end of the Dispute Period, or if there is a Dispute, after resolution thereof. 14 (h) Principal Shareholder's obligation to make payments pursuant to this Section 6.3 is independent of, and in addition to, the indemnity obligations set forth in Section 9 of this Agreement. (i) The Shareholders shall be severally liable to Principal Shareholder to pay to Principal Shareholder that part of any distribution received by each Shareholder which is in excess of the distribution such Shareholder should have received as determined by the audited Closing Balance Sheet and audited Cash Distribution Statement. (j) Notwithstanding any other provision contained herein to the contrary, in the event Principal Shareholder would be required to make any payment pursuant to Section 6.3 (g), and there are funds held by the Escrow Agent in respect of the Contingent Payments, Purchaser shall obtain payment of the amount due to purchaser from the Contingent Payment Escrow instead of Principal Shareholder unless Purchaser reasonably believes that the portion of the Contingent Payment Escrow which will be due and payable as a Contingent Payment is less than the amount due to Purchaser, in which event Principal Shareholder shall pay the required amount to Purchaser and shall be entitled to pro rata reimbursement from the Shareholders. 6.4 Taxes and Expenses. (a) Shareholders hereby covenant and agree to pay all stamp and transfer taxes on the transactions contemplated hereby. Except to the extent such costs and liabilities are included in total liabilities of the Companies for purposes of the Closing Balance Sheets, Shareholders shall be responsible for and shall pay all costs, liabilities and other obligations incurred by the Companies in connection with the performance of and compliance with all transactions, agreements and conditions contained in this Agreement to be performed or complied with by each of them, including legal and accounting fees (except those incurred at Purchaser's request). (b) Except as otherwise specifically provided for in this Agreement, Purchaser will assume and pay all costs, liabilities and other obligations incurred by Purchaser in connection with the performance of and compliance with all transactions, agreements and conditions contained in this Agreement to be performed or complied with by Purchaser. 6.5 Proprietary Information. (a) Shareholders covenant and represent that (except as shareholders of the Companies) none of them has any interest in, or claim to, any of the procedures, written technical data, customer lists, computer software and related documentation, patents, copyrights, formulas, methods, practices, statistics, trade secrets, trademarks, service marks or trade names relating to any processes or procedures used by the Companies, or related to their business or operations or in the current possession of the Companies; and all knowledge or information of a confidential nature acquired at or before the Closing Date with respect to the business and operations of the Companies, including customer lists, customer names and pricing information, will be held in confidence by Shareholders and will not be disclosed or made public or, except for the benefit of Purchaser or the Companies, made use of, by or through Shareholders, directly or indirectly, for a period of five years after the Closing Date. Notwithstanding the foregoing, Principal Shareholder shall have the non-exclusive right to use software programs known as "Easy Box" and "Easy File" (i) in business applications other than management and storage of hard copy and magnetic media records and (ii) in records management and storage businesses which serve customers outside Dade, Broward and Palm Beach Counties, Florida. (b) Each Shareholder acknowledges that a breach of Section 6.5(a) would cause irreparable damage to Purchaser and/or the Companies, and in the event of any Shareholder's actual or threatened breach of the provisions of Section 6.5(a), Purchaser shall be entitled to a temporary restraining order and an injunction restraining such Shareholder from breaching such covenants without the necessity of posting bond or proving irreparable harm, such being conclusively admitted by such Shareholder. Nothing shall be construed as prohibiting Purchaser from pursuing any other available remedies for such breach or threatened breach, including the recovery of damages from such Shareholder. 6.6 Agreements of Shareholders Pending Closing. The Companies shall agree that, pending the Closing, and except as agreed by Purchaser: (a) Business in Ordinary Cases. The business of such Company shall be conducted solely in the ordinary course in accordance with past practice except as otherwise contemplated herein. The Companies 15 shall use their commercially reasonable best efforts to maintain and preserve their business, and to keep available the services of present employees and agents and maintain existing business relationships, insurance and licenses. Without limiting the generality of the foregoing, prior to the Closing Date, neither of the Companies shall, without the written consent of Purchaser, except as permitted herein: (i) issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) or authorize the issuance, sale or delivery of any stock of any class or any other securities or any rights, warrants or options to acquire any such stock or other securities; (ii) split, combine or reclassify any shares of its capital stock; or, except as permitted by this Agreement, declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem, purchase or otherwise acquire any securities of either of the Companies. (iii) create, incur or assume any debt for borrowed money or any obligations in respect of capital leases not currently outstanding other than minor items not exceeding $2,500 in the aggregate, assume, guarantee, endorse (other than checks in the ordinary course of business) or otherwise become liable or responsible (whether directly, contingently or otherwise) for the material obligations of any other person, or make any material loans, advances (other than to employees for travel expenses incurred in the ordinary course of business) or capital contributions to, or investments in, any other person or entity; (iv) enter into, adopt or amend any employee benefit plan or any employment or severance agreement or arrangement or increase in any manner the compensation or fringe benefits of its directors, officers or employees, generally or individually, other than ordinary increases in accordance with past practice in compensation or benefits to non-officer employees, or pay any benefit not required by the terms in effect on the date hereof of any existing employee benefit plan; (v) acquire, sell, lease, encumber or dispose of any shares or other equity interests in or securities of any corporation, partnership, association or other business organization or division thereof or any material assets, other than purchases and sales of assets in the ordinary course of business (and in no event shall any leases of equipment be capital leases); (vi) amend its charter or By-laws; (vii) change in any material respect its accounting methods, principles or practices, except insofar as may be required by a generally applicable change in GAAP; (viii) mortgage or pledge any of its property or assets or subject any such assets to any security interest; (ix) sell, assign, transfer or license any Business Property Rights, other than in the ordinary course of business; (x) enter into, amend, take or omit to take any action that would constitute a violation of or default under, or waive any rights under, any material contract or agreement any of which would have a material adverse effect on the Companies, taken as a whole; (xi) make or commit to make any capital expenditure in excess of $5,000 per item or $15,000 in the aggregate; (xii) disclose any material confidential information of the Companies to any third party not subject to a confidentiality agreement with the Companies (and then only to the extent that such third party has a need to know the disclosed information); (xiii) hire any new employee whose annual compensation is expected to exceed $30,000 without the consent of Purchaser; 16 (xiv) make any changes in its cash management practices or accelerate its collection of accounts payable; or (xv) agree in writing or otherwise to take any of the foregoing actions. (b) Update Schedules. The Companies shall promptly disclose to Purchaser any information contained in its representations and warranties or the Disclosure Schedule which, because of an event occurring after the date hereof, becomes incomplete or is no longer correct as of all times after the date hereof until the Closing Date. Purchaser's sole remedy in respect of updated disclosure items which Purchaser finds unacceptable shall be to elect not to close the transactions contemplated hereby, unless the information in such schedules which is unacceptable to Purchaser has resulted from the Company's breach of any other agreement or covenant on the part of the Companies hereunder. (c) Notice of Breaches. The Shareholders shall promptly deliver to Purchaser written notice of any event or development subsequent to the date of this Agreement known to Shareholders that would (i) render any statement, representation or warranty made by the Companies in this Agreement (including the Disclosure Schedule) inaccurate or incomplete in any material respect, or (ii) constitute or result in a breach by Shareholders of, or a failure by the Shareholders to comply with, any agreement or covenant in this Agreement applicable to such party. (d) Best Efforts. The Companies and Shareholders shall cooperate with Purchaser and use their commercially reasonable best efforts to cause all of the conditions to the obligations of the parties under this Agreement to be satisfied on or prior to the Closing Date. (e) Inconsistent Negotiations. Until the closing of the transactions contemplated hereby or the earlier termination of this Agreement pursuant to Article 8, the Companies and Shareholders shall not, directly or indirectly, initiate, solicit or encourage the submission of a proposal from, or negotiate with, any person related to the sale of any of the Companies Shares or substantially all the assets of the Companies other than pursuant to this Agreement, or initiate or participate in any discussions or negotiations or enter into any agreement to do any of the foregoing. Except as set forth in this Agreement, Shareholders shall not provide any confidential information concerning the Companies or their properties or assets to any third party. (f) Access. The Companies shall give to Purchaser's officers, employees, counsel, accountants and other representatives free and full access to, and the right to inspect, during normal business hours, all of the premises, properties, assets, records, contracts and other documents relating to the Companies and shall permit them to consult with the officers, employees, accountants, counsel and agents of the Companies for the purpose of making such investigation of the Companies as Purchaser shall desire to make, provided that such investigation shall not unreasonably interfere with the Company's business operations and shall be coordinated with Christopher Howard. The Companies and Shareholders shall furnish to Purchaser all such documents and copies of documents and records and information with respect to the affairs of the Companies and copies of any working papers relating thereto as Purchaser shall from time to time reasonably request. (g) Disclosure. Except as required by applicable law, the Companies and Shareholders shall not disclose to third parties (other than to advisers, the Companies' lenders, management personnel and others who have a need to know of the pending transaction for purposes of the Closing, who shall be informed that the information is strictly confidential) any information about, or issue any public statement or press release concerning, this Agreement or the transactions contemplated hereby except for such written information as shall have been approved in writing as to form and content by Purchaser. Purchaser acknowledges that a competitor of the Companies has learned that Purchaser is negotiating to acquire the Companies, and Purchaser agrees that such disclosure (not done with the knowledge of the Companies or Principal Shareholder) does not constitute a breach of the Companies' and Shareholders' obligations hereunder. The Companies and Purchaser shall coordinate disclosure of the transactions contemplated by this Agreement to employees of the Companies. (h) Additional Financial Statements. In the event Purchaser or its parent is required either before or after the Closing Date by any law (including securities laws), regulation or securities listing agreement to file or disclose financial information related to the Companies (including audited financial information) which is in addition to information prepared by the Companies or Shareholder and previously delivered to Purchaser, the Companies and Shareholders shall make available to Purchaser any relevant information related to the Companies not 17 previously delivered to Purchaser and otherwise cooperate with Purchaser, at Purchaser's expense, in preparing such information. The Companies and Shareholders shall not object to the Companies' accountants consenting to Purchaser's use of financial statements which they have prepared, and/or agreeing to assist Purchaser in preparing required financial statements and/or audits; and Purchaser shall have the right to file and disclose such information as required by any such law, statute or regulation. Prior to the Closing, Purchaser shall not file any information related to the Companies with the SEC or any other government agency without the prior written consent of Principal Shareholder unless (i) such information related to the Companies is incorporated into other information so that a third party reading the filed information could not recognize that information concerning the Companies is included in such filing, or (ii) such filing is made on a confidential basis and will not be available to persons other than SEC personnel for the purposes of examining Purchaser's filing. 6.7 Agreements of Purchaser Pending the Closing. Purchaser covenants and agrees that, pending the Closing and except as otherwise agreed to in writing by Principal Shareholder: (a) Best Efforts. Purchaser shall cooperate with the Companies and use its commercially reasonable best efforts to cause all of the conditions to the obligations of the parties under this Agreement to be satisfied on or prior to the Closing Date. (b) Confidentiality. Unless and until the Closing has been consummated, Purchaser shall hold, and shall cause its counsel, accountants, appraisers and agents to hold, in confidence any confidential data or information made available to Purchaser in connection with this Agreement with respect to the Companies. Purchaser shall use the same standard of care to protect such confidential data or information as is used to protect Purchaser's confidential information. If the transactions contemplated by this Agreement are not consummated, Purchaser shall not disclose or use and, upon request, shall return or cause to be returned to the Companies all written materials and other tangible media and all copies thereof that were supplied to Purchaser by the Companies and that contain any such confidential data or information and all written materials and other tangible media that contain summaries of or notes of the Company's confidential data or information. Purchaser may, however, keep one copy thereof for its legal files, subject to the foregoing confidentiality requirements (and excluding any information which identifies customers). In the event the transactions contemplated hereby do not close, Purchaser shall not solicit the Companies' existing customers for a period of eighteen months after the termination of this Agreement. (c) Disclosure. Purchaser shall not disclose to third parties any information about, or issue any public statement or press release concerning, this Agreement or the transactions contemplated hereby except that: (i) Purchaser may disclose to its lenders and others who have a need to know of the pending transaction for purposes of Purchaser's conduct of its business and the Closing, all of which persons shall be bound by this provision; (ii) After the Closing, Purchaser may disclose information as required by law (including the Securities Act of 1933 or the Securities Exchange Act of 1934) or any listing or trading agreements related to Purchaser's parent's publicly traded securities, provided that the price paid by the Purchaser for the Companies shall not be specifically disclosed unless required by law or any such agreement; and (iii) After the Closing Purchaser may make customary trade announcements. (iv) Except as required by law, Purchaser shall not disclose the price or other terms of this transaction. (d) Purchaser has no knowledge that any representation or warranty made by the Companies or the Shareholders herein is incorrect or incomplete in any respect, or that the Companies or Shareholders are in material breach of any covenant or agreement made by the Companies or Shareholders in this Agreement; and Purchaser shall promptly notify Principal Shareholder in the event that prior to Closing Purchaser becomes aware of information to the effect that any representation or warranty made by the Companies or Shareholders herein is incorrect or incomplete in any respect or that the Companies or Shareholders are in breach of any covenant or agreement made by the Companies or Shareholders herein. 18 6.8 Forecasts, Projections. The parties acknowledge that any forecasts, projections, or other information delivered by one party to another but not contained in this Agreement shall not be considered a representation or warranty, or guaranty of future performance, and no claim shall be made based upon such forecast, statement or other information. 6.9 Principal Shareholder Agreements. Principal Shareholder's execution hereof constitutes the termination, effective as of the Closing, of any written or oral agreement between the Companies and Principal Shareholder. 7. CONDITIONS TO CLOSING. 7.1 Purchaser's Conditions to Closing. The obligation of Purchaser to consummate the transactions to be performed by it in connection with the Closing shall be subject to and conditioned upon the satisfaction at the Closing of each of the following conditions: (a) All representations and warranties of Shareholders contained in this Agreement, including the Disclosure Schedule, shall be true and correct at and as of the Closing Date in all material respects, as if restated on the Closing Date, the Companies and Shareholders shall have performed in all material respects all agreements and covenants and satisfied in all material respects all conditions on their part to be performed or satisfied by the Closing Date pursuant to the terms of this Agreement, and Purchaser shall have received a certificate of the Principal Shareholder dated the Closing Date to such effect. (b) There shall have been no material adverse change since June 30, 1996 in the business, prospects, properties, financial condition (including operating cash flow), or affairs of the Companies taken as a whole, and the Companies shall not have suffered any material loss (whether or not insured) by reason of physical damage caused by fire, earthquake, accident or other calamity which substantially affects the value of its assets, properties or business, and Purchaser shall have received a certificate of Principal Shareholder dated the Closing Date to such effect. (c) Each of the Companies shall have delivered to Purchaser certificates of the Secretary of State (or other authorized officer) of the State of Florida certifying as of a date reasonably close to the Closing Date that each of the Companies is, as of such date, in good standing and authorized to transact business as a domestic corporation. (d) Each of the Companies shall have delivered to Purchaser a copy of such Company's Articles of Incorporation, certified by the Secretary of State (or other authorized officer) of the State of Florida. (e) Each of the Companies shall have delivered the written resignations, effective on the Closing Date, of all members of the Board of Directors and all officers of such Company. (f) Purchaser shall have received from Hodges & Carry, P.A. an opinion, dated the Closing Date, in the form attached hereto as Exhibit 7.1(f). (g) Each person who holds indebtedness of the Companies shall have confirmed to Purchaser the amount of such indebtedness (including accrued interest and any prepayment premium as of a date not more than ten (10) days prior to the Closing Date) as of the Closing Date, and that such Company is not in default under such indebtedness. (h) All approvals and consents from third parties and governmental agencies (other than approvals or consents the absence of which would not have a material adverse effect on the ability of the Companies, taken as a whole, to operate their business after the Closing) required to consummate the transactions contemplated hereby shall have been obtained, and any such governmental approvals or consents shall have become final and not subject to appeal. (i) No suit, action, investigation, inquiry or other proceeding by any governmental body or other third person or legal or administrative proceeding shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby, and there shall be no effective injunction, writ, preliminary restraining order or any order of any nature issued by a court of competent jurisdiction directing that the 19 transactions provided for herein or any of them not be consummated as so provided or imposing any conditions on the consummation of the transactions contemplated hereby which is unduly burdensome on Purchaser. (j) Principal Shareholder shall have executed a Noncompetition and Confidentiality Agreement in the form of Exhibit 7.1(j) (k) No information shall have come to the attention of Purchaser which reasonably causes Purchaser to believe that the information received by Purchaser from the Companies or Shareholders prior to the date of this Agreement or information developed or discussed by Purchaser in the course of its due diligence investigation was materially incorrect with respect to the Companies, taken as a whole. (l) The Companies and Shareholders shall have executed and delivered to Purchaser stock powers, stock certificates representing the Shares, and such additional documents, certificates and agreements as may be reasonably needed, in the opinion of Purchaser's counsel, to carry out the transactions contemplated hereby. (m) Purchaser (or an affiliate) shall simultaneously purchase the real property located at 20 and 30 NE 11th Street, Miami, Florida from P. Douglas McCraw pursuant to a Purchase Agreement and Escrow Instructions for such transactions dated the date hereof; (n) The present lease for the property at 3821 SW 47th Avenue, Ft. Lauderdale shall have been terminated and a new lease shall have been executed between P. Douglas McCraw and Purchaser; and (o) DAS-Ft. Lauderdale shall have completed relocation of all records from the "Moy" building to 3821 SW 47th Avenue. 7.2 The Shareholders' Conditions to Closing. The obligation of Shareholders to consummate the transactions to be performed by them in connection with the Closing shall be subject to and conditioned upon the satisfaction at the Closing of each of the following conditions: (a) All representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date and Purchaser shall have performed in all material respects all agreements and covenants and satisfied in all material respects all conditions on its part to be performed or satisfied by the Closing Date pursuant to the terms of this Agreement, and Shareholders shall have received a certificate of Purchaser dated the Closing Date to such effect. (b) No suit, action, investigation, inquiry or other proceeding by any governmental body or other third person or legal or administrative proceeding shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby, and there shall be no effective injunction, writ, preliminary restraining order or any order of any nature issued by a court of competent jurisdiction directing that the transactions provided for herein or any of them not be consummated as so provided or imposing any conditions on the consummation of the transactions contemplated hereby which is unduly burdensome on the shareholders of the Companies. (c) Purchaser shall have delivered to Principal Shareholder a certificate of the Secretary of State of the State of Delaware, as of a date reasonably close to the Closing Date, that as of such date Purchaser is in good standing as a domestic corporation. (d) Purchaser shall have delivered to Shareholders a certificate of its corporate Secretary certifying: (i) Resolutions adopted by its Board of Directors authorizing execution of this Agreement and the execution, performance and delivery of all agreements, documents and transactions contemplated hereby; and (ii) The incumbency of its officers executing this Agreement and all agreements and documents contemplated hereby. (e) Purchaser shall have delivered to Shareholders the additional certificates and documents required of it hereby, which shall be satisfactory in form and substance to Shareholders' counsel. 20 (f) Shareholders shall have received from Garry B. Watzke, counsel to Purchaser, an opinion in the form attached hereto as Exhibit 7.2(f). (g) Purchaser (or an affiliate) shall simultaneously purchase the real property located at 20 and 30 NE 11th Street, Miami, Florida as described in Section 7.1(m). (h) P. Douglas McCraw and Purchaser shall be parties to a new lease for 3821 S.W. 47th Avenue, Ft. Lauderdale, and the existing lease shall have been terminated. 7.3 Post-Closing Payments. Immediately after the Closing Date, Purchaser shall discharge, or cause the Companies to discharge and pay in full, the liabilities of the Companies, including interest accrued thereon and prepayment penalties related thereto reflected on the Interim Closing Balance Sheets, other than accounts payable, accrued expenses, sales taxes, bonuses payable to employees and other current liabilities (which Purchaser shall cause the Companies to pay in the ordinary course). 8. TERMINATION AND ABANDONMENT. 8.1 Termination of Agreement. The parties may terminate this Agreement as provided below: (a) Purchaser and Shareholders may terminate this Agreement by mutual written consent at any time prior to the Closing; (b) Purchaser may terminate this Agreement by giving written notice to Principal Shareholder at any time prior to the Closing (i) in the event the Companies or Shareholders have breached any material representation, warranty or covenant contained in this Agreement in any material respect, Purchaser has notified Principal Shareholder of the breach, and the breach has continued without cure for a period of 20 days after the notice of breach or (ii) if the Closing shall not have occurred on or before September 1, 1996; and (c) Shareholders may terminate this Agreement by Principal Shareholder; giving written notice to Purchaser at any time prior to the Closing (i) in the event Purchaser has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Principal Shareholder has notified Purchaser of the breach, and the breach has continued without cure for a period of 20 days after the notice of breach or (ii) if the Closing shall not have occurred on or before September 1, 1996. 8.2 Effect of Termination. If any party terminates this Agreement pursuant to Section 8.1 above, all rights and obligations of the parties hereunder shall terminate, and no party shall have any liability for damages to any other party. 9. INDEMNIFICATION. 9.1 General Indemnification Covenants. (a) Subject to the provisions of Sections 9.3, 9.4 and 9.1(d), Principal Shareholder shall indemnify, save and keep Purchaser, and its affiliates, successors and permitted assigns, including the Companies (the "Purchaser Indemnitees"), harmless against and from all direct liability, demands, claims, actions or causes of action, assessments, losses, fines, penalties, costs, damages and expenses, including reasonable attorneys' fees, disbursements and expenses (collectively, "Damages"), sustained or incurred by any of the Purchaser Indemnitees as a result of, arising out of or by virtue of any misrepresentation, breach of any warranty or representation, or non-fulfillment of any agreement or covenant on the part of Shareholders, whether contained in this Agreement or the Disclosure Schedule or any written statement or certificate furnished or to be furnished to Purchaser pursuant hereto or in any closing document delivered by the Companies or Shareholders to Purchaser in connection herewith. (b) Subject to the provisions of Sections 9.3 and 9.4, Principal Shareholder shall indemnify, save and keep Purchaser Indemnitees harmless against and from any direct cost, claim, expense or liability (including legal fees and costs of litigation) which Purchaser Indemnitees may incur by a customer in excess of $1.00 per carton, linear foot of open-shelf files, disk pack or other storage unit in connection with lost, damaged or destroyed records of any customer with which such Company did not, as of the Closing Date, have a contract which limited Company's liability in the event of loss, damage or destruction to such amount; provided that Principal Shareholder shall 21 not be required to indemnify Purchaser Indemnitees in respect of any loss, damage or destruction which (i) relates to new cartons moved into the Companies' premises after the Closing Date, or (ii) Purchaser is unable to demonstrate occurred before the Closing Date. Notwithstanding the foregoing, with respect to loss, damage or destruction the date of which cannot be determined, Principal Shareholder's indemnification obligation shall be equal to 50% of Purchaser Indemnitees' direct costs, expenses and liability (including legal fees and costs of litigation) provided that (i) Purchaser shall use its commercially reasonable best efforts to determine when the loss, destruction or damage ocurred, (ii) if Purchaser shall be unable to make such determination, Purchaser shall afford Principal Shareholder access to relevent books and records of the Companies so that Principal Shareholder can attempt to determine when the loss, damage or destruction occurred, and (iii) if neither Purchaser nor Principal Shareholder is able to determine the date of such loss, destruction or damage (or if Purchaser and Principal Shareholder disagree as to whether such date can be, or has been, determined), the parties shall submit such dispute to arbitration as provided in Section 10.15 hereof. The sole decision in such arbitration shall be the date of loss, destruction or damage. If such date is not determinable, Principal Shareholder's indemnification obligation shall be as set forth above. (c) Principal Shareholder shall indemnify the Purchaser Indemnitees from and against any cost, expense, liability or obligation related to those certain disputes between DAS-Ft. Lauderdale and Bekins Moving & Storage, Bentson Electric and DAS-Ft. Lauderdale's former landlord under the lease for 5300 Powerline Rd., Ft. Lauderdale described in the Disclosure Statement. (d) Each Shareholder, including Principal Shareholder, shall severally, and not jointly indemnify, save, keep and hold Purchaser Indemnitees harmless against and from any direct cost, claim, expense or liability (including legal fees and costs of litigation) which Purchaser Indemnitees may incur as a result of, arising out of or by virtue of any misrepresentation, breach of any warranty or representation, or non-fulfillment of any agreement or covenant on the part of such Shareholder (i) contained in Section 4 of this Agreement and (ii) with respect to any breach of such Shareholder's obligations in respect of Sections 6.5, 6.6(c), 6.6(d), 6.6(e) and 6.6(g) of this Agreement. (e) Shareholders other than Principal Shareholder shall have no liability to Purchaser Indemnitees under Sections 9.1(a), 9.1(b) and 9.1(c). 9.2 Tax Indemnity. (a) Principal Shareholder hereby agrees to pay, indemnify, defend and hold Purchaser and the Companies harmless from and against any and all Taxes of the Companies with respect to any period (or any portion thereof) up to and including the July 31, 1996, except for Taxes of the Companies which are reflected as liabilities for Taxes that exist as of July 31, 1996 ("Tax Liabilities") on the Closing Balance Sheets, together with all reasonable legal fees, disbursements and expenses incurred by Purchaser in connection therewith. (b) Principal Shareholder shall provide any assistance which is within his powers reasonably to provide (subject to commercial reasonableness) to assist the Companies in preparing and filing any Return of the Companies which is required to be filed after the Closing Date. The cost of preparing such Return which is due after the Closing Date notwithstanding the fact that all or a portion of the period covered thereby includes periods prior to July 31, 1996 (but not of any tax proceeding related thereto) shall be borne by the Purchaser as a post-Closing expense. Purchaser shall within forty-five (45) days prior to the due date of any such Return (or any interim filing and payment in the event filing of a return is postponed as permitted by law), deliver a draft copy to Principal Shareholder. Within thirty (30) days of the receipt of any such Return, Principal Shareholder may reasonably request changes, in which event Purchaser and Principal Shareholder shall attempt to agree on a mutually acceptable resolution of the issues in dispute. If a resolution is reached, such Return shall be filed in accordance therewith. If resolution is not reached, then at the expense of Purchaser and Principal Shareholder (such expense to be shared equally unless all issues are decided in favor of one party, in which event the other party shall bear all such expense), such Return shall be submitted to a firm of independent certified public accountants selected by Principal Shareholder and reasonably acceptable to Purchaser, which shall be directed to resolve the issues in dispute and prepare the Return for filing. As soon as is practicable after notice from Purchaser to Principal Shareholder at any time prior to the date any payment for Taxes attributable to any such Return is due (but in any event not less than thirty days after such notice), provided such Return is prepared for filing in accordance with the foregoing, an amount equal to the excess, if any, of (i) the net amount of Taxes that are due from the Companies with respect to any taxable period ending on or before July 31, 1996, or Taxes that would have been due with respect to a taxable period beginning before and ending after July 31, 1996 if such period had ended on such date over (ii) the amount of such Taxes of the Companies with respect to such taxable period which are reflected as Tax Liabilities on the Closing Balance Sheets shall be paid by Principal Shareholder to Purchaser; provided that Principal Shareholder shall not be required to make such payment if the excess is less than $10,000. The 22 foregoing threshold shall not be applied to any adjustment which the auditors of the Closing Balance Sheet determine are appropriate in respect of liabilities of the Companies as of July 31, 1996 in accordance with Section 6.3. (c) The indemnity provided for in this Section 9.2 shall be independent of any other indemnity provision hereof and anything in this Agreement to the contrary notwithstanding, shall survive until the expiration of the applicable statute of limitation for the Taxes referred to herein, and any Taxes subject to the indemnification for Taxes set forth in this Section 9.2 shall not be subject to the provisions of Sections 9.3 and 9.4 hereof. (d) Purchaser shall provide any assistance to Principal Shareholder which is within its power (subject to commercial reasonableness) to assist Principal Shareholder in respect of any Return of the Companies filed prior to the Closing Date , including giving reasonable access to Principal Shareholder of any books and records related thereto. 9.3 Limitations on Indemnification. The obligations of Principal Shareholder pursuant to Section 9.1 are subject to the following limitations: (a) Notwithstanding any other provision contained in this Agreement, Principal Shareholder shall not have any indemnification obligation with respect to the first $35,000of total claims incurred under Section 9.1(a); if total claims exceed such amount, the indemnification obligations of Principal Shareholder shall include all liabilities incurred, without regard to such threshold. Principal Shareholder's indemnification obligation in respect of Section 9.1(a) shall not exceed one-half of the Purchase Price, minus any payments made under Section 9.1(b) in the aggregate; provided that there shall be no limit on the Principal Shareholder's liability hereunder for matters which constitute fraud by the Principal Shareholder. (b) Notwithstanding any other provision contained in this Agreement, Shareholders shall not have any indemnification obligation with respect to the first $35,000 of total claims under Section 9.1(b); if total claims exceed such amount, the indemnification obligations of Shareholders shall include all liabilities incurred, without regard to such threshold. In no event shall Shareholders' indemnification obligation in respect of Section 9.1(b) exceed one-half of the Purchase Price, minus any payments made under Section 9.1(a) in the aggregate. (c) There shall be no threshold in respect of the Shareholders' indemnification provisions under Section 9.1(c), and the maximum aggregate liability of each Shareholder thereunder shall be equal to the portion of the Purchase Price allocable to such Shareholder in accordance with his or her shares of the Companies. (d) Any claims made under e Section 9.1, shall be made within six months after the Closing Date in respect of matters arising under Section 9.1(a) and (c), and twelve months after the Closing Date in respect of matters arising under Section 9.1(b). The applicable statute of limitations shall be the claim period under Section 9.1(d) 9.4 Conditions of Indemnification Pursuant to Section 9.1. (a) Promptly following the receipt by a Purchaser Indemnitee of notice of a demand, claim, action, assessment or proceeding made or brought by a third party, including a governmental agency (a "Third Party Claim"), the Purchaser Indemnitee receiving the notice of the Third Party Claim (i) shall notify Principal Shareholder (or, if the indemnification obligation arises under Section 9.1(c), the relevant Shareholder) of its existence in writing, setting forth the facts and circumstances of which such Purchaser Indemnitee has received notice, and (ii) if the Purchaser Indemnitee giving such notice is a person entitled to indemnification under this Section 9 (an "Indemnified Party"), specifying the basis hereunder upon which the Indemnified Party's claim for indemnification is asserted. The Principal Shareholder or other Shareholder who is obligated to indemnify the Purchaser Indemnities under the particular circumstances is herein referred to as the "Indemnifying Shareholder"). (b) The Indemnified Party shall, upon reasonable notice by Indemnifying Shareholder, tender by written instrument the defense of a Third Party Claim to Indemnifying Shareholder. If Indemnifying Shareholder accepts responsibility for the defense of a Third Party Claim, then Indemnifying Shareholder shall have the exclusive right to contest, defend and litigate the Third Party Claim and shall have the exclusive right, in his discretion exercised in good faith and upon the advice of counsel, to settle any such matter, either before or after the initiation of litigation, at such time and upon such terms as he deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, Indemnifying Shareholder shall give written notice of his or her intention to settle to the 23 Indemnified Party. The Indemnified Party shall have the right to be represented by counsel at its own expense in any defense conducted by Indemnifying Shareholder. (c) Notwithstanding the foregoing, in connection with any settlement negotiated by Indemnifying Shareholder, no Indemnified Party shall be required to (x) enter into any settlement (i) that does not include the delivery by the claimant or plaintiff to the Indemnified Party of a release from all liability in respect of such claim or litigation, (ii) if the Indemnified Party shall, in writing to Indemnifying Shareholder within the ten (10) day period prior to such proposed settlement, disapprove of such settlement proposal and desire to have Indemnifying Shareholder tender the defense of such matter back to the Indemnified Party, or (iii) that requires an Indemnified Party to take any unreasonable affirmative actions as a condition of such settlement, or (y) consent to the entry of any judgment that does not include a full dismissal of the litigation or proceeding against the Indemnified Party with prejudice; provided, however, that should the Indemnified Party disapprove of a settlement proposal pursuant to clause (ii) above, the Indemnified Party shall thereafter have all of the responsibility for defending, contesting and settling such Third Party Claim but shall not be entitled to indemnification by Shareholder to the extent that, upon final resolution of such Third Party Claim, Shareholder's liability to the Indemnified Party but for this proviso exceeds what Shareholder's liability to the Indemnified Party would have been if Indemnifying Shareholder were permitted to settle such Third Party Claim in the absence of the Indemnified Party exercising its right under clause (ii) above. (d) If, in accordance with the foregoing provisions of this Section 9.4, an Indemnified Party shall be entitled to indemnification against a Third Party Claim, and if Indemnifying Shareholder shall fail to accept the defense of a Third Party Claim which has been tendered in accordance with this Section 9.4, the Indemnified Party shall have the right, without prejudice to its right of indemnification hereunder, in its discretion exercised in good faith and upon the advice of counsel, to contest, defend and litigate such Third Party Claim, and may settle such Third Party Claim, either before or after the initiation of litigation, at such time and upon such terms as the Indemnified Party deems fair and reasonable, provided at least ten (10) days prior to any such settlement, written notice of its intention to settle is given to Indemnifying Shareholder. Indemnifying Shareholder shall not be required by such proposed settlement to consent to the entering of any judgment that does not include a full dismissal of the litigation or proceeding against Indemnifying Shareholder with prejudice or a full release of Indemnifying Shareholder. If, pursuant to this Section 9.4, the Indemnified Party so defends or settles a Third Party Claim for which it is entitled to indemnification hereunder, as hereinabove provided, the Indemnified Party shall be reimbursed by the Indemnifying Shareholder for the reasonable attorneys' fees and other expenses of defending the Third Party Claim which are incurred from time to time, forthwith following the presentation to Indemnifying Shareholder of itemized bills for said attorneys' fees and other expenses. No failure by Indemnifying Shareholder to acknowledge in writing the Indemnifying Shareholder's indemnification obligations under this Section 9 shall relieve the Indemnifying Shareholder of such obligations to the extent they exist. (e) If an Indemnified Party shall have a claim for damages which does not involve a Third Party Claim, the Indemnified Party shall deliver a Claim Notice with respect thereto to Indemnifying Shareholder or, if the indemnification obligation arises under Section 9.1(c), the relevant Shareholder (the "Indemnifying Shareholder"). If Indemnifying Shareholder disputes his or her liability with respect to such claim or demand within twenty days after receipt of such Claim Notice, such dispute shall be settled by arbitration. If Indemnifying Shareholder does not dispute such liability within twenty days after receipt of the Claim Notice, the amount of such claim shall be conclusively deemed a liability of Indemnifying Shareholder. 9.5 Certain Tax and Other Matters. (a) If, in connection with the audit of any Return, a proposed adjustment is asserted in writing with respect to any Taxes of the Companies for which Principal Shareholder is required to indemnify Purchaser pursuant to Section 9.2(a) hereof, Purchaser shall notify Principal Shareholder of such proposed adjustment within twenty (20) days after the receipt thereof. Upon notice to Purchaser within twenty (20) days after receipt of the notice of such proposed adjustment from Purchaser, Principal Shareholder may assume (at Principal Shareholder's own cost and expense) complete control of and contest such proposed adjustment and may agree to settle such contest in its sole discretion, provided that such settlement does not materially and adversely affect Taxes of the Companies in subsequent periods. (b) Alternatively, if Principal Shareholder requests within twenty (20) days after receipt of notice of such proposed adjustment from Purchaser, Purchaser shall contest such proposed adjustment. Principal Shareholder shall be obligated to pay all reasonable out-of-pocket costs and expenses (including legal fees and expenses) which Purchaser may incur in so contesting such proposed adjustment as such costs and expenses are 24 incurred, and Purchaser shall have the full right to contest such proposed adjustment and shall be entitled to settle or agree to pay in full such proposed adjustment (in its sole discretion) and thereafter pursue its rights under this Agreement. Principal Shareholder shall pay to Purchaser all indemnity amounts in respect of any such proposed adjustment within thirty (30) days after written demand to Principal Shareholder therefor. If (i) Principal Shareholder has not assumed control of the proposed adjustment, and has not requested Purchaser to contest the proposed adjustment, or (ii) Principal Shareholder has assumed control of the contest of such proposed adjustment as provided above (or has requested Purchaser to contest such proposed adjustment within the time provided above), Principal Shareholder shall pay to Purchaser all indemnity amounts within thirty (30) days after such proposed adjustment is settled or a Final Determination has been made with respect to such proposed adjustment. (c) For purposes of this Section 9.5, a "Final Determination" shall mean (i) the entry of a decision of a court of competent jurisdiction at such time as an appeal may no longer be taken from such decision or (ii) the execution of a closing agreement or its equivalent between the particular taxpayer and the Internal Revenue Service, as provided in Section 7121 and Section 7122, respectively, of the Code, or a corresponding agreement between the particular taxpayer and the particular state or local taxing authority. The obligation of Principal Shareholder to make any indemnity payment pursuant to Section 9.2 shall be premised on the receipt by Principal Shareholder from Purchaser of a written notice setting forth the relevant portion of any Final Determination, and in cases where the amount of the indemnity payment exceeds $25,000, a certified statement by a nationally recognized accounting firm setting forth the amount of the indemnity payment (and in all other cases, a similar statement certified by the chief financial officer of Purchaser) and describing in reasonable detail the calculation thereof. 9.6 Certain Information. Purchaser, Principal Shareholder and the Companies shall furnish or cause to be furnished to each other (at reasonable times and at no charge) upon request as promptly as practicable such information (including access to books and records) pertinent to the Companies and assistance relating to the Companies as is reasonably necessary for the preparation, review and audit of financial statements, the preparation, review, audit and filing of any Return, the preparation for any audit or the prosecution or defense of any claim, suit or proceeding relating to any proposed adjustment or which may result in Principal Shareholder's being liable under the indemnification provisions of this Section 9, provided that access shall be limited to items pertaining solely to the Companies. Principal Shareholder shall grant to Purchaser access to all Returns filed by him with respect to the Companies and in his custody if the Companies do not have custody thereof. 9.7 Release by Shareholders. Shareholders, as of the Closing Date, hereby release and discharge the Companies and each of their officers and directors from, and agree and covenant that in no event will Shareholders commence any litigation or other legal or administrative proceeding against, the Companies, or any of their officers or directors, whether in law or equity, relating to any and all claims and demands, known and unknown, suspected and unsuspected, disclosed and undisclosed, for damages, actual or consequential, past, present and future, arising out of or in any way connected with his or her ownership of the Companies Shares prior to the Closing Date, other than claims or demands arising out of the transactions contemplated by this Agreement. 9.8 Indemnification by Purchaser. Upon the terms and subject to the conditions set forth in Section 9.4 hereof in respect of notice, opportunity to defend, right to be represented, right to disapprove settlement and similar matters and this Section 9.8, Purchaser agrees to indemnify and hold Shareholders harmless against, and will reimburse Shareholders on demand by Principal Shareholder for, any Damages (as defined in Section 9.1) sustained or incurred by any such person as a result of, arising out of or by virtue of any misrepresentation, breach of any warranty or representation, or non-fulfillment of any agreement or covenant on the part of Purchaser, whether contained in this Agreement or any written statement or certificate furnished or to be furnished by Purchaser to Shareholders pursuant hereto or in any closing document delivered by the Purchaser to Shareholders in connection herewith. Purchaser shall further indemnify and hold Shareholders harmless against claims, costs or expenses arising from operation of the Companies in respect of periods after the Closing Date. 9.9 Exclusive Remedy. The remedies provided in this Section 9 are, to the extent permitted by law, the sole and exclusive remedies, exclusive of any other remedies that might otherwise be available to any of the parties, for any claim by one party against any other party under this Agreement or with respect to the transactions contemplated by it. No party shall make any claim under any theory, in tort, contract, under statute or otherwise. 9.10 Tax Effect. In case any event shall occur which would otherwise entitle either party to assert a claim for indemnification hereunder, no loss shall be deemed to have been sustained by such party to the extent of any tax savings realized by such party with respect thereto. 25 9.11 Right of Set-Off. Purchaser shall have the right to set off any amounts owing to Shareholders in respect of the Contingent Payments against any claim for indemnification against the Shareholders hereunder. Disbursement of amounts held in the Contingent Payment Escrow may be suspended in respect of indemnification claims until settled or resolved, as provided in the Escrow Agreement. 10. MISCELLANEOUS. 10.1 Notice. Any notice required or permitted hereunder shall be in writing and shall be sufficiently given if personally delivered or mailed by certified or registered mail, return receipt requested, addressed as follows: If to Purchaser or (after the Closing Date) the Companies: Iron Mountain Records Management, Inc. 745 Atlantic Avenue Boston, Massachusetts 02111 Attn: Eugene B. Doggett Telecopy: (617) 350-7881 Copy to: Garry B. Watzke, Esq. 745 Atlantic Avenue, 10th Floor Boston, Massachusetts 02111 Telecopy: (617) 350-7881 If to Shareholders or the Companies (prior to the Closing Date) : Douglas McCraw Data Archive Services, Inc. 3821 SW 47th Avenue Ft. Lauderdale, Florida 33314 Telecopy: (954) 584-0098 If to Shareholders after the Closing Date: Douglas McCraw 4800 Bayview Drive Ft. Lauderdale, Florida 33308 Telecopy: (954) 491-3888 Copy to: Stephen Opler, Esq. Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309 Telecopy: (404) 881-7777 and to John W. Carry, Esq. Hodges & Carry, P. A. 644 S. E. 4th Avenue Fort Lauderdale, Florida 33301 Telecopy: (954) 764-6789 (or to such other address as any party shall specify by written notice so given), and shall be deemed to have been delivered as of the date so personally delivered or mailed. 10.2 Execution of Additional Documents. The parties hereto will at any time, and from time to time after the Closing Date, upon reasonable request of the other party, execute, acknowledge and deliver all such 26 further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be required to carry out the intent of this Agreement. 10.3 Binding Effect; Benefits. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 10.4 Entire Agreement. This Agreement, together with the Exhibits, the Disclosure Schedule and other documents contemplated hereby, constitute the final written expression of all of the agreements between the parties, and is a complete and exclusive statement of those terms. It supersedes all understandings and negotiations concerning the matters specified herein. Any representations, promises, warranties or statements made by either party that differ in any way from the terms of this written Agreement and the Exhibits, the Disclosure Schedule and other documents contemplated hereby, shall be given no force or effect. The parties specifically represent, each to the other, that there are no additional or supplemental agreements between them related in any way to the matters herein contained unless specifically included or referred to herein. No addition to or modification of any provision of this Agreement shall be binding upon any party unless made in writing and signed by all parties. 10.5 Governing Law; Consent to Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida exclusive of the conflict of law provisions thereof. The Companies and Shareholders, to the extent they may lawfully do so, hereby consent to the jurisdiction of the courts of the State of Florida and the United States District Court for the South District of Florida, as well as to the jurisdiction of all courts from which an appeal may be taken from such courts, for the purpose of any suit, action or other proceeding arising out of any of their obligations arising hereunder or with respect to the transactions contemplated hereby and expressly waive any and all objections they may have as to venue in any of such courts. 10.6 Survival. All of the terms, conditions, warranties and representations contained in this Agreement shall survive, in accordance with their terms, delivery by Purchaser of the consideration to be given by him hereunder and delivery by Shareholders of the consideration to be given by them hereunder, and shall survive the execution hereof and the Closing hereunder. 10.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 10.8 Headings. Headings of the Sections of this Agreement are for the convenience of the parties only, and shall be given no substantive or interpretive effect whatsoever. 10.9 Waivers. Either Purchaser or Principal Shareholder may, by written notice to the other, (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement; (ii) waive any inaccuracies in the representations or warranties of the other contained in this Agreement or in any document delivered pursuant to this Agreement; (iii) waive compliance with any of the conditions or covenants of the other contained in this Agreement; or (iv) waive performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder. 10.10 Merger of Documents. This Agreement and all agreements and documents contemplated hereby constitute one agreement and are interdependent upon each other in all respects. 10.11 Incorporation of Exhibits and Schedules. All Exhibits and the Disclosure Schedule are by this reference incorporated herein and made a part hereof for all purposes as if fully set forth herein. 10.12 Severability. If for any reason whatsoever, any one or more of the provisions of this Agreement shall be held or deemed to be inoperative, unenforceable or invalid as applied to any particular case or in all 27 cases, such circumstances shall not have the effect of rendering such provision invalid in any other case or of rendering any of the other provisions of this Agreement inoperative, unenforceable or invalid. 10.13 Assignability. Neither this Agreement nor any of the parties' rights hereunder shall be assignable by any party hereto without the prior written consent of the other parties hereto. 10.14 Records of the Companies. For a period of three years following the Closing Date or for such longer period as the statute of limitations applicable to claims for Taxes relating to the Companies for any period through the Closing Date shall be extended (through voluntary extension or otherwise), Purchaser shall grant to Shareholders and their representatives, at Shareholders' reasonable request, access to and the right to make copies of records and documents of the Companies related to the period prior to the Closing Date as may be necessary in connection with Shareholder's affairs. If Principal Shareholder notifies Purchaser that Shareholders require retention of such records beyond three years, Shareholders shall pay Purchaser's storage charges for such post-three-year period. 10.15 Arbitration. (a) All disputes arising under this Agreement shall be settled by arbitration in Miami, Florida, before a single arbitrator pursuant to the rules of the American Arbitration Association. Arbitration may be commenced at any time by any party hereto giving written notice to each other party to a dispute that such dispute has been referred to arbitration under this Section 10.15. (i) Within 10 business days after receipt of such notice, Principal Shareholder and Purchaser shall designate in writing one arbitrator to resolve the dispute; provided, that if the parties cannot agree on an arbitrator within such 10-day period, the arbitrator shall be selected by the American Arbitration Association. The arbitrator so designated shall not be an employee, consultant, officer, director, stockholder or an affiliate of any party hereto. (ii) Within 15 business days after the designation of the arbitrator, the arbitrator, Principal Shareholder and Purchaser shall meet, at which time Principal Shareholder and Purchaser shall submit in writing all disputed issues and a proposed ruling on each such issue. (iii) The arbitrator shall set a date for a hearing, which shall be no later than 20 business days after the submission of written proposals pursuant to clause (ii), to discuss each of the issues identified by Shareholder and Purchaser. Each such party shall have the right to be represented by counsel. The arbitration shall be governed by the rules of the American Arbitration Association; provided, that the arbitrator shall have sole discretion with regard to the admissibility of evidence. (iv) The arbitrator shall use his or her best efforts to rule on each disputed issue within 20 business days after the completion of the hearings described in clause (iii). The arbitrator shall rule in favor of the position of one party or the other in the matter, and shall not "split" or compromise the position of the parties. The determination of the arbitrator to the resolution of any dispute shall be binding and conclusive upon all parties hereto. All rulings of the arbitrator shall be in writing and shall be delivered to the parties hereto. (v) The prevailing party in any arbitration shall be entitled to an award of reasonable attorneys' fees incurred in connection with the arbitration. The non-prevailing party shall pay such fees, together with the fees of the arbitrator and the costs and expenses of the arbitration. (vi) Any arbitration award may be entered in and enforced by any court having jurisdiction thereover and shall be final and binding upon the parties. (b) To the extent that arbitration is not legally permitted, any party may commence a civil action in a court of appropriate jurisdiction to solve disputes hereunder. Nothing contained in this Section 10.15 shall prevent the parties from settling any dispute by mutual agreement at any time. 11. PRINCIPAL SHAREHOLDER. 11.1 Shareholders other than Principal Shareholder hereby appoint Principal Shareholder as their representative for purposes of this Agreement and as their attorney-in-fact and agent for and on behalf of each such Shareholder, and authorize Principal Shareholder to take any and all actions and make any decisions required or 28 permitted to be taken or made by Principal Shareholder under this Agreement, including receipt and giving of notices. Principal Shareholder shall have full power and authority to represent Shareholders, and their successors, with respect to all matters arising under this Agreement and all action taken by Principal Shareholder hereunder shall be binding upon Shareholders, and their successors, as if expressly confirmed and ratified in writing by each of them. Without limiting the generality of the foregoing, Principal Shareholder shall have full power and authority to interpret all of the terms and provisions of this Agreement, and to authorize payments to be made with respect thereto, on behalf of Shareholders and their successors. 11.2 Principal Shareholder shall incur no liability with respect to any action taken or suffered by him in reliance upon any notice, direction, instruction, consent, statement or other documents believed by him to be genuinely and duly authorized, nor for other action or inaction except his own willful misconduct or gross negligence. Principal Shareholder shall be indemnified and held harmless by Shareholders other than Principal Shareholder from all losses, costs and expenses which he may incur as a result of involvement in any legal proceedings arising from the performance of his duties hereunder. 11.3 In the event of the death or permanent disability of Principal Shareholder, or his resignation hereunder, a successor shall be appointed by the remaining Shareholders. Each successor shall have the power, authority, rights and privileges conferred by this Agreement upon Principal Shareholder, and the term "Principal Shareholder" as used herein shall be deemed to include such successor. IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year hereinabove first set forth. PURCHASER: STOCKHOLDERS OF Iron Mountain Records Management, Inc. DAS-FT. LAUDERDALE By /s/ By /s/ ------------------------------- ------------------------------- Name __________________________ P. Douglas McCraw Title ___________________________ STOCKHOLDERS OF DAS-MIAMI ------------------------------- Alisa Jo Heyman Zecker /s/ /s/ - ---------------------------------- ------------------------------- P. Douglas McCraw Sylvia Heyman /s/ /s/ - ---------------------------------- ------------------------------- Fonda B. Furnish Lucretia Saraceno /s/ /s/ - ---------------------------------- ------------------------------- Anthony S. Cushenberry Lorraine Saraceno /s/ - ---------------------------------- ------------------------------- Lawrence T. Einbinder Fred Saraceno 29 /s/ /s/ - ---------------------------------- ------------------------------- Roslyn D. Smith Burt and Mitzi Jones /s/ /s/ - ---------------------------------- ------------------------------- David H. Mundy Fonda B. Furnish /s/ ------------------------------- Anthony S. Cushenberry /s/ ------------------------------- Lawrence T. Einbinder /s/ ------------------------------- Roslyn D. Smith /s/ ------------------------------- David H. Mundy 30 EX-10.22 5 SALES AGREEMENT ASSET PURCHASE AND SALE AGREEMENT among IRON MOUNTAIN RECORDS MANAGEMENT, INC., as Buyer INTERNATIONAL RECORDS STORAGE AND RETRIEVAL SERVICES, INC. as Seller and Lawrence Winnerman and Sanford Winnerman as stockholders of Seller August 13, 1996 TABLE OF CONTENTS ARTICLE I....................................................................1 DEFINITIONS............................................................1 ARTICLE II...................................................................4 SALE AND PURCHASE OF SUBJECT ASSETS....................................4 ARTICLE III..................................................................7 REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDERS..............7 ARTICLE IV..................................................................12 REPRESENTATIONS AND WARRANTIES OF BUYER...............................12 ARTICLE V...................................................................13 PRE-CLOSING AGREEMENTS................................................13 ARTICLE VI..................................................................15 CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE..................15 ARTICLE VII.................................................................17 CONDITIONS PRECEDENT TO OBLIGATION OF SELLER..........................17 ARTICLE VIII................................................................18 THE CLOSING...........................................................18 ARTICLE IX..................................................................19 POST-CLOSING MATTERS..................................................19 ARTICLE X...................................................................21 TERMINATION...........................................................21 ARTICLE XI..................................................................22 INDEMNIFICATION.......................................................22 ARTICLE XII.................................................................26 MISCELLANEOUS PROVISIONS..............................................26 TABLE OF CONTENTS (cont'd) Schedule 1.11 Owned Tangible Assets Schedule 2.3 Allocation Schedule 3.5 Encumbrances Schedule 3.8 Litigation Schedule 3.9 Permits, Licenses Schedule 3.15 Certain Changes; Competitive Bids Schedule 3.17 Employee Information Schedule 12.1 Brokers Exhibit 2.5 Escrow Agreement Exhibit 6.3 Noncompetition and Confidentiality Agreement Exhibit 6.8 Seller's Counsel's Opinion Exhibit 6.9 Software Support Agreement Exhibit 7.4 Buyer's Counsel's Opinion ASSET PURCHASE AND SALE AGREEMENT THIS AGREEMENT ("Agreement") is made as of the 13th day of August, 1996, by and among International Records Storage and Retrieval Services, Inc., a New Jersey corporation ("Seller"), Lawrence Winnerman and Sanford Winnerman, stockholders of Seller (each a "Stockholder"), and Iron Mountain Records Management, Inc., a Delaware corporation ("Buyer"). RECITALS A. Seller is engaged in the business of providing records management and storage services to customers located in the New York metropolitan area under the trade name "International Records Storage". B. Buyer desires to purchase, and Seller desires to sell, substantially all the assets of the Business (as hereinafter defined) on the terms and subject to the conditions contained in this Agreement. C. Stockholders, as the majority stockholders of Seller, join in this Agreement for purposes of confirming the representations and warranties of Seller and providing indemnification against breach of warranties. In consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller, Stockholders and Buyer, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, certain terms used in this Agreement and not otherwise defined herein shall have the meanings designated below: Section 1.1 Agreement means all or any part of this Agreement, including schedules, exhibits, and appendices, as any of the foregoing may be amended, modified or supplemented in writing from time to time. Section 1.2 Business means the records management and storage business conducted by Seller in metropolitan New York area (with customers in New York and New Jersey) under the trade name "International Records Storage". Section 1.3 Closing means the occasion upon which the transactions contemplated by this Agreement are carried out by the delivery of documents, payment of funds and other actions contemplated herein, as described in Article VIII. Section 1.4 Closing Date shall be September 4, 1996, or such other date as the parties may agree. Section 1.5 Effective Time means 12:01 a.m. in Boston, Massachusetts on September 1, 1996. Section 1.6 Encumbrances means any and all encumbrances, security interests, liens, Taxes, claims, liabilities, options, commitments, charges, restrictions or other obligations of whatsoever kind, quantity or nature, whether accrued, absolute, contingent or otherwise, which affect title to the Subject Assets. Section 1.7 Excluded Assets means (i) Seller's cash, cash equivalents and sums in checking and other depository accounts at the Effective Time and (ii) Seller's minute books, stock records, stock ledger and similar corporate records, (iii) Seller's interest in a note receivable from Penny Novak, Seller's right to receive a partial premium refund on insurance carried by the Business, (v) leased postage meter and two leased copiers (one of which Buyer will lease from Seller for the rent paid by Seller to its lessor for the remainder of the lease term), and (vi) a portion of earned accounts receivable, as described in Section 2.2D(iii). Section 1.8 Lease means the lease dated October 7, 1993 between Berkowitz Company, L. P., successor to Central Paper Distribution Services, Inc., as landlord, and Seller, as tenant, pursuant to which Seller occupies approximately 141,516 square feet of space in the Leased Building. Section 1.9 Leased Building means the building located at 110 Edison Place, Newark, New Jersey at which Seller conducts the Business. Section 1.10 Major Customer means any of Seller's customers which stored in excess of 5,000 cubic feet of material at any time during the three months ended March 31, 1996. Section 1.11 Subject Assets means all of Seller's assets and properties related to the Business of whatever kind, character and description, and whether tangible, intangible, real, personal or mixed, and wherever located, except for the Excluded Assets. The Subject Assets include the following Tangible Assets and Interests: A. Tangible Assets means all tangible personal property used in the Business, such as inventory; computers, computer peripherals and maintenance manuals; word processors; typewriters and other business machines; automobiles, trucks and other vehicles; equipment; tools and machines; racking and shelving currently used in the Business or in the Leased Building; furniture, furnishings, and office equipment; and supplies. Principal items of Tangible Assets are listed on Schedule 1.11. B. Interests means all intangible property used in the Business, including rights, privileges, benefits and interests under all contracts, agreements, consents, licenses and files and correspondence related thereto; computer software used in the Business; permits or certificates; agreements, leases and other arrangements with respect to intangible or tangible property or interests therein, including the Lease; confidentiality and non-competition agreements with present and former employees, whether oral or written; consents; agreements with suppliers and customers; financial and operating records of the Business; deposits held by contract parties (including the security deposit held by the landlord under the Lease); accounts receivable issued in respect of storage to be provided after the Closing Date and a portion of earned accounts receivable as described in Section 2.2D(iii); prepaid expenses; the unregistered trade name "International 2 Records Storage"; and any sales agent or sales affiliate agreements used in connection with the Business. Section 1.12 Taxes means any and all taxes, sums or amounts assessed or assessable, levied and due by any federal, state or county or other local governmental authority or agency, including without limitation, real and personal property taxes, income taxes, whether measured by gross or net income or profit, franchise, excise, sales and use taxes, employee withholding, social security, unemployment taxes and any other taxes required to be paid by Seller, including interest and penalties in respect thereof whether disputed or not, and whether accrued, contingent, due, absolute, deferred, unknown or other, together with any and all penalties, interests and additions to all such taxes, sums or amounts. (ARTICLE II COMMENCES ON THE NEXT PAGE) 3 ARTICLE II SALE AND PURCHASE OF SUBJECT ASSETS Section 2.1 Sale and Transfer. A. The Sale. Subject to the terms and conditions set forth in this Agreement, Seller shall sell, convey, transfer, assign and deliver to Buyer, and Buyer shall purchase and receive from Seller, at the Closing, free and clear of all Encumbrances, all of the Subject Assets. Section 2.2 Purchase Price; Assumption of Certain Obligations. A. Purchase Price. The Purchase Price to be paid by Buyer for all the Subject Assets shall be . The Purchase Price shall be paid in United States Dollars. B. Payment of Purchase Price. The Purchase Price shall be payable to Seller at the Closing by wire transfer of immediately available funds in the amount of $ to the Escrow Agent under the Escrow Agreement described in Section 2.5 hereof, and the remainder to such account as Seller shall designate in writing not less than two business days prior to the Closing Date. C. Limited Assumption of Contracts and Obligations. Buyer shall assume no obligations or liabilities of Seller other than the following: Buyer shall assume and perform: (i) all obligations of Seller arising or accruing after the Effective Time in respect of Seller's contracts, agreements and arrangements with its customers providing for storage of business records; and (ii) Seller's obligations arising or accruing after the Effective Time under the Lease. The obligations described in clauses(i) and (ii) are hereinafter referred to as the Assumed Liabilities. D. Adjustments. (i) All expenses (including salaries, wages, commissions, vacation and other benefit liabilities and so-called compensatory time) attributable to the operation of the Business during the period on or prior to the Effective Time are for the account of, and shall be paid by, Seller. All expenses attributable to the operation of the Business during the period after the Effective Time are for the account of, and shall be paid by, Buyer. (ii) Buyer shall receive a credit against the purchase price for prepaid services to be performed after the Effective Time for which Seller has received payment prior to the Closing Date. 4 (iii) Buyer and Seller have agreed to split as hereinafter provided Earned Accounts Receivable, which are accounts receivable arising from invoices issued prior to the Effective Time for storage or service provided or performed prior to the Effective Time. Buyer and Seller shall identify and agree on the Earned Accounts Receivable at the closing and the aggregate amount thereof. As payments are received by Buyer from account debtors a portion of whose accounts are Earned Accounts Receivable ("EAR account debtors"), Buyer shall record such payments against Earned Accounts Receivable derived from such EAR account debtor. Buyer will not allocate payments from any EAR account debtor to "unearned" accounts receivable owed by such account debtor until all of such EAR account debtor's Earned Accounts Receivable have been paid unless such EAR account debtor specifically directs that a payment be so applied. If an EAR account debtor makes such specific request (with an indication that such EAR account debtor intends not to pay all or part of its Earned Accounts Receivable), or if an EAR account debtor contests the appropriateness of any invoice included in the Earned Accounts Receivable, Buyer shall promptly notify Seller, and Seller shall have a right to participate with Buyer in attempting to resolve the applicable EAR account debtor's objection. Buyer shall retain for its own account collections from Earned Accounts Receivable until the aggregate so collected equals one-half of the total Earned Accounts Receivable. Thereafter, all remaining Earned Accounts Receivable collected shall be paid over to Seller. Buyer shall provide a monthly accounting to Seller of collections from EAR account debtors, identifying the invoices against which collections are credited, and providing such other information as Seller may reasonably request. Seller shall have the right during normal business hours to audit and review Buyer's books and records in respect of collection of Earned Accounts Receivable. Buyer's obligation to remit portions of the Earned Accounts Receivable to Seller shall terminate with respect to amounts received after the sixth month after the Closing Date. (iv) All such adjustments shall be calculated as of the Effective Time and shall be paid or credited, as the case may be, on the Closing Date, to the extent known, or on the date which is forty-five days after the Closing Date to the extent they are not determinable on the Closing Date. If Buyer agrees to pay any Seller obligations (other than the Assumed Liabilities) in exchange for a credit against the Purchase Price, Buyer shall not be deemed to have assumed any Seller obligations with respect thereto other than payment of such assumed amount. Seller shall pay all pre-Closing accruals and expenses other than the Assumed Liabilities at the scheduled time of payment except to the extent (other than with respect to Assumed Liabilities) Buyer has agreed to make such payment in exchange for a credit against the Purchase Price. Buyer will promptly forward to Seller for payment any invoices which Buyer receives related to obligations of Seller which were not assumed by Buyer. Section 2.3 Allocation. The Purchase Price shall be allocated among the Subject Assets as described in Schedule 2.3; or, if Schedule 2.3 has not been completed on the date hereof, on or prior to the Closing Date. The parties shall for tax purposes report the transactions contemplated by this Agreement in accordance with such allocation. Section 2.4 Seller's Employees. Buyer shall not be obligated to offer employment to any employee of Seller in connection with its acquisition of the Subject Assets, and such acquisition 5 shall not grant any employee of Seller a right of continued employment with Buyer. Buyer shall have the right to offer employment to such of Seller's employees as it chooses, and Seller shall not offer conflicting employment to any person to whom Buyer offers employment for a period of two years after the Closing Date. Section 2.5 Escrow Agreement. The performance by Seller and Stockholders of their covenants, indemnities and obligations under this Agreement shall be secured by $250,000 (together with interest thereon, the "Escrow Fund") to be held and disbursed by Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer & Gladstone (the "Escrow Agent") pursuant to an Escrow Agreement in the form set forth as Exhibit 2.5 hereto, which shall be executed and delivered by Seller, Stockholders, Buyer and the Escrow Agent at the Closing. (ARTICLE III COMMENCES ON THE NEXT PAGE) 6 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDERS Seller and Stockholders hereby jointly and severally represent and warrant to Buyer as follows, except as otherwise stated in Schedules hereto, as of the date hereof: Section 3.1 Organization and Good Standing. Seller is a corporation duly organized, under the laws of the State of New Jersey, and has all requisite power and authority to own and operate the Subject Assets, to carry on the Business as presently conducted and to execute and deliver, and perform its obligations under, this Agreement. Section 3.2 Authorization. The execution and delivery of this Agreement and performance by Seller of its obligations hereunder has been, and all the other agreements and documents required to be delivered by Seller in accordance with the provisions hereof (the Seller's Documents) have been duly and validly authorized by all necessary corporate actions on the part of Seller. This Agreement has been, and the Seller's Documents upon execution will be, duly executed and delivered on behalf of Seller, by duly authorized officers of Seller; and this Agreement constitutes, and Seller's Documents when executed and delivered will constitute, the valid and binding obligations of Seller, enforceable in accordance with their respective terms. Section 3.3 Compliance With Other Instruments. Neither the execution and delivery by Seller of this Agreement and the Seller's Documents, nor the consummation by Seller of the transactions contemplated hereby and thereby, will, with or without the giving of notice or passage of time, or both, be contrary to or violate, breach, or constitute a default under, or permit the termination or acceleration of maturity of, or result in the imposition of any lien, claim or encumbrance on any property or asset of Seller pursuant to any provision of, any note, bond, indenture, mortgage, deed of trust, evidence of indebtedness or lease agreement, other agreement or instrument (or, to Seller's knowledge, any judgment, order, injunction or decree) by which Seller is bound, to which Seller is a party, or to which the assets of Seller are subject; nor is the effectiveness or enforceability of this Agreement or such other documents adversely affected by any provision of the Articles of Organization or Bylaw of Seller. Section 3.4 No Governmental or Other Authorization Required. No authorization or approval of, or filing with, any governmental agency, authority or other body or any other third persons will be required in connection with Seller's execution and delivery of this Agreement or its consummation of the transactions contemplated hereby. Section 3.5 Title to Subject Assets. Except as set forth in Schedule 3.5, Seller has good title to all the Subject Assets, free and clear of all Encumbrances. Seller is not a party to, nor are the Subject Assets subject to, any judgment, judicial order, writ, injunction or decree of which Seller has knowledge that materially adversely affects the Subject Assets or the use thereof by Seller. Section 3.6 Contracts and Other Interests. All material contracts (including all Major Customer contracts) and all other material Interests are in full force and effect, valid and enforceable in accordance with their respective terms, and there are no existing defaults of Seller or events of default that, with the giving of notice or lapse of time, or both, would constitute defaults of Seller under any material contracts or other Interests, nor are material amendments pending with respect to 7 any material contracts or other Interests. Seller has no oral agreements with customers which require Seller to provide storage or services at no charge or at rates significantly below the average rates for such services set forth in Seller's written customer contracts, except for immaterial discounts and/or free services provided as incentives to certain accounts. Section 3.7 Taxes. Seller has filed all federal, state and local income, excise or franchise tax returns, real estate and personal property tax returns, sales and use tax returns and other tax returns (including returns in respect of withholding and unemployment tax) required to be filed by it or has timely filed extensions related thereto and has paid all taxes owing by it, including any interest and penalties thereon, except taxes which have not yet accrued or otherwise become due for which adequate provision has been made, or which Seller is contesting in good faith. Neither the Internal Revenue Service nor any other taxing authority is now asserting or, to the knowledge of Seller, threatening to assert against Seller any deficiency or claim for additional taxes or interest thereon or penalties. Section 3.8 Litigation; Claims; Defaults. Except as set forth in Schedule 3.8, Seller has not been served with any currently effective summons or complaint and there is no action or suit, equitable or legal, to which Seller is a party, nor any administrative, arbitration or other proceeding pending or threatened against Seller in respect of the Subject Assets or the Business. Seller has not received any written or oral assertions from customers of the Business to the effect that their materials stored with Seller have been lost, damaged or inappropriately destroyed or that such customers are being billed inaccurately for storage of materials or records. Seller is not in default with respect to any currently effective judgment, order, writ, injunction, decree of which Seller has knowledge, demand or assessment issued by any court or of any federal, state, municipal or other governmental agency, board, commission, bureau, instrumentality or department and applicable to Seller. Seller is not charged or threatened with or under investigation with respect to, any violation of any provision of any federal, state, municipal or other law or administrative rule or regulation. Section 3.9 Compliance with Laws; Permits, Etc. Seller has complied in all material respects with applicable federal, state and local laws, rules and regulations. Seller possesses such certificates, authorities or permits issued by the appropriate local, state or federal regulatory agencies or bodies as are necessary to conduct the Business, all of which are listed on Schedule 3.9; and Seller has not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit. Section 3.10 Certain Environmental Matters. Except as set forth in Schedule 3.10, Seller is operating and has operated the Business in compliance with all applicable local, state and federal environmental laws, regulations and ordinances, including, but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss.ss.9601 et seq. (CERCLA), the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss.6901 et seq., the Clean Water Act, 33 U.S.C. ss.ss.1251 et seq., and the environmental laws and regulations of the State of New Jersey as each such statute or regulation has been amended from time to time (Environmental Laws and Regulations). Seller has not accepted for storage, and to the best of its knowledge does not store, any nitrate film or any Hazardous Material. Seller has never knowingly caused the release of an amount of any Hazardous Material to the environment which release would constitute a violation of any Environmental Laws and Regulations. For purposes of this Agreement Hazardous Material shall have the same meaning as that term is defined by Environmental Laws and Regulations, and shall in any event include (i) any asbestos, (ii) polychlorinated biphenyl substances and 8 (iii) petroleum waste products. Seller does not own, lease, rent or otherwise utilize any underground storage tanks. Section 3.11 No Inconsistent Agreements. Seller has not entered into any letter of intent, preliminary agreement or other agreement, written or oral, with any other party which would be inconsistent with the terms of this Agreement. Section 3.12 Financial Statements. Seller has previously delivered to Buyer Seller's balance sheets and income and expense statements as of and for the years ended December 31, 1994 and December 31, 1995, reviewed by Rothstein, Kass & Company, P. C., independent public accountant (the Financial Statements) and the three-month period ended March 31, 1996. The Financial Statements are true, correct and complete for the periods covered in all material respects, have been prepared in accordance with generally accepted accounting principles on an income tax reporting basis, applied on a consistent basis, and fairly present the results of the operation of the Business for the periods then ended. Seller shall deliver to Buyer, as they become available, unaudited monthly income and expense statements until the Closing, which statements will be true, correct and complete for such periods and prepared on a consistent basis with the Financial Statements. Section 3.13 No ERISA Plans. Seller has not established and does not maintain any employee pension benefit plans which are subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended, other than a 401(k) profit sharing plan which will be terminated by Seller at or prior to the Closing Date. Assets in such plan will be distributed to the beneficiaries. Section 3.14 Condition of Subject Assets; Sufficiency. All the material tangible Subject Assets are in good operating condition, ordinary wear and tear excepted, and are in compliance with all applicable statutes, ordinances, rules and regulations. The tangible Subject Assets constitute all of the tangible assets required to operate the Business in the manner operated by Seller during the six months prior to the date hereof. Section 3.15 Absence of Certain Changes. Except as set forth in Schedule 3.15, since January 1, 1996, none of Seller's Major Customers has terminated or indicated in writing an intention to terminate its business with, or reduce the volume of its business with, Seller. Seller has no Major Customers whose storage business is or has within 90 days prior to the date hereof, been the subject of competitive bidding procedures. Section 3.16 No Material Undisclosed Liabilities. Except as described in this Agreement or reflected in the Financial Statements, to Seller's knowledge, there is no liability or obligation of Seller related to the operation of the Business, whether accrued, absolute or contingent, other than liabilities and obligations that have been incurred in the ordinary course of business since December 31, 1995 and are not material in the aggregate to the Subject Assets, the Business or the, operations or financial condition of Seller. Section 3.17 Personnel Information. Schedule 3.17 lists the names of all full- and part-time employees of Seller (or leased employees utilized by Seller) and sets forth a job description or title and compensation for each such person. Schedule 3.17 also sets forth a list of all written and oral employment and noncompetition agreements with Seller's employees. 9 Section 3.18 Patents, Trademarks, Etc. Except for the trade name "International Records Storage", which is an unregistered trade name used by Seller, and proprietary software programs identified in Section 3.18, Seller has no patents, trademarks, service marks, other trade names, copyrights, computer programs or programs rights, licenses or other similar intangible property rights and interest which it uses in connection with the Business. Section 3.19 Labor Relations. During the past three years there has not been, and there is not now, any strike, labor dispute, slow down, stoppage, or other material interference with or impairment by labor of the business of Seller pending or threatened or contemplated against or directly affecting the Business. Seller's employees are not represented by any labor or trade union, nor to Seller's knowledge has there been any attempt to organize Seller's employees during the 90 day period prior to the date hereof. Section 3.20 Insurance. There is in force comprehensive general liability and casualty insurance for the Subject Assets and the Business which, in the reasonable opinion of Seller, is appropriate and adequate coverage for such assets and operations. Section 3.21 Trade Secrets and Customer Lists. Seller has the right to use, free and clear of any claims or rights of others, all trade secrets, customer lists, computer software, intellectual property and operating methods required for or incident to the operation of the Business. Seller is not using or in any way making use of any confidential information or trade secrets of any third party, including without limitation any confidential information claimed to be the property of a former employer of any present or past employee of Seller. Section 3.22 Transactions with Interested Persons. Seller does not own directly or indirectly, on an individual or joint basis, any material interest in any customer, competitor or supplier of the Business, or any organization which has a material contract or arrangement with the Business. Section 3.23 Records Services and Storage Arrangements. Substantially all items received and stored by Seller on behalf of customers (singly or in the aggregate) are held in storage by Seller and are locatable and accessible without extraordinary effort except for items withdrawn or destroyed at the respective customer's request. The stored items for which customers are billed exist and can be accounted for. Section 3.24 Business in Ordinary Course. From December 31, 1995 until the date hereof, the Business has been conducted in the ordinary course in accordance with past practice. Seller has used its best efforts to maintain and service the Business, and to keep available the services of present employees and agents and maintain existing business relationships. Without limiting the generality of the foregoing, Seller has not: (i) mortgaged or pledged any of its property or assets; (ii) sold, assigned, transferred or waived rights with respect to any of the Subject Assets (except for items of personal property sold because they had reached the end of their useful life and replaced with similar personal property); (iii) entered into or adopted any employee benefit plan or any employment or severance agreement, or increased in any manner the compensation or fringe 10 benefits of its officers or employees (except in the ordinary course of business and consistent with past practice); (iv) changed its billing, accounts payable, accounts receivable collection, accounts receivable write-off or other cash management practices; or (v) agreed to take any of the foregoing actions. Section 3.25 Shelving of Cartons; Filing. Seller has completed the shelving and filing of substantially all cartons and files received from its customers (including refiles) and all internal move cartons on or prior to the date which is two days prior to the date hereof, including permanent filing of all files deposited temporarily in shelving row end bins. Cartons which are received from new customers will be filed to the extent that shelving is available. Section 3.26 No Material Adverse Change. There has been no material adverse change in the Subject Assets (including, without limitation, loss of or damage to a material amount or part of the Subject Assets) or the Business between December 31, 1995 and the date hereof. Section 3.27 Software. The computers included in the Subject Assets contain all programs, software and information required by Buyer to operate the Business, including customer, billing and inventory information, in the manner that Seller has operated the Business prior to the Closing Date, and adequate support therefor is available so that Buyer may operate the Business in the normal course without use of software or computer programs provided by or licensed from any person other than persons with whom there are written agreements. (ARTICLE IV COMMENCES ON THE NEXT PAGE) 11 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller as follows: Section 4.1 Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer possesses all requisite corporate power and authority to own, operate and lease its properties and carry on its business, and to enter into this Agreement and complete the transactions contemplated by it. Section 4.2 Authorization. Buyer has all requisite power and authority to execute and deliver, and perform its obligations under, this Agreement. The execution and delivery of this Agreement and performance by Buyer of its obligations hereunder, and all transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action. This Agreement has been, and the other agreements and documents required to be delivered by Buyer in accordance with the provisions hereof (the Buyer's Documents) will be, duly executed and delivered on behalf of Buyer by duly authorized officers of Buyer; and this Agreement constitutes, and Buyer's Documents when executed and delivered will constitute, the valid and binding obligations of Buyer, enforceable in accordance with their respective terms. Section 4.3 Compliance with Other Instruments. Neither the execution and delivery by Buyer of this Agreement and the Buyer's Documents, nor the consummation by Buyer of the transactions contemplated hereby and thereby, will, with or without the giving of notice or passage of time, or both, be contrary to or violate, breach, or constitute a default under, or permit the termination or acceleration of maturity of, or result in the imposition of any lien, claim or encumbrance upon any property or asset of Buyer pursuant to any provision of, any note, bond, indenture, mortgage, deed of trust, evidence of indebtedness or lease agreement, other agreement or instrument or any judgment, order, injunction or decree by which Buyer is bound, to which Buyer is a party, or to which the assets of Buyer are subject; nor is the effectiveness or enforceability of this Agreement or such other documents adversely affected by any provision of the certificate of incorporation or by-laws of Buyer. Section 4.4 Litigation. There is no action, suit or proceeding pending or, to the knowledge of Buyer, threatened against Buyer which might interfere with its ability to consummate the transactions contemplated hereunder. Section 4.5 No Governmental Authorization Required. No authorization or approval of, or filing with, any governmental agency, authority or other body or any other third persons will be required in connection with Buyer's execution and delivery of this Agreement or its consummation of the transactions contemplated hereby and thereby. (ARTICLE V COMMENCES ON THE NEXT PAGE) 12 ARTICLE V PRE-CLOSING AGREEMENTS Section 5.1 Access to Information and Facilities. Seller shall afford Buyer and its representatives full access during normal business hours to all facilities, properties, books, accounts, records, contracts and documents of or relating to the Business in Seller's or Stockholders' possession or control, subject to reasonable requirements that Buyer not interfere with the operations and activity of the Business. Such access shall include access to confirm the truth and correctness of representations and warranties as of the date hereof and as of the Closing Date. In addition, Buyer's representative shall have an opportunity to meet with Seller's office manager, operations manager and sales/customer service manager, to ensure a smooth transition. Seller has furnished or caused to be furnished to Buyer and its representatives all data and information concerning the Business reasonably requested by Buyer. Without limiting the generality of its obligations hereunder, Buyer agrees that information obtained solely through such sources is subject to the confidentiality provisions of Section 5.2. Section 5.2 Confidentiality. Seller and Buyer shall keep confidential any and all information furnished by each to the other (including confidential information transmitted by each to their representatives, accountants, counsel, advisors or bankers) in the course of negotiations relating to this Agreement and the business and financial reviews and investigations referred to in this Agreement, except to the extent that any such information is or was generally available to the public through no action on the part of the recipient or was known to the recipient prior to receipt. Buyer shall use such confidential information only for purposes of evaluating the transaction contemplated by this Agreement, and not for any other purposes. Notwithstanding the foregoing, disclosure of such information may be made to the extent required by applicable law or regulation, judicial or regulatory process, and reviews by financial institutions which are lenders to either party; and such information may be used as evidence in or in connection with any pending or threatened litigation between the parties relating to this Agreement or any transaction contemplated hereby. In the event that the sale contemplated by this Agreement is not consummated for any reason, each party agrees to return to the other party all materials containing such information immediately on request, except that each party may keep one set of such information for its legal file, where it will remain subject to the confidentiality provisions of this Agreement. Section 5.3 Public Announcement. No party shall issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of the other party; provided, however, that either party may disclose the transfer of the Business to its customers in the ordinary course of business, or make any public disclosure it believes is necessary as a part of its quarterly press release procedure or in good faith is required by applicable law or any listing or trading agreement concerning the publicly-traded securities of the party or its affiliates. Section 5.4 Communications to Seller's Employees. Buyer and Seller shall mutually agree on the timing and content of a program of communications to employees of the Business (other than the three persons mentioned in Section 5.1) in respect of the transactions contemplated hereby. 13 Section 5.5 Continued Efforts. Seller shall use its reasonable best efforts to (a) cause to be fulfilled and satisfied all of the conditions to the Closing which are the responsibility of Seller; (b) cause to be performed all of the matters required upon the Closing which are the responsibility of Seller; and (c) take such steps and do such acts as may be necessary to make all of its warranties and representations materially true and correct as of the Closing Date with the same effect as if the same had been made, and this Agreement had been dated, as of the Closing Date. Buyer shall use its reasonable best efforts to (a) cause to be fulfilled all of the conditions to the Closing to be satisfied by it; (b) cause to be performed all of the matters required of it upon the Closing; and (c) take such steps and do such acts as may be necessary to make all of its warranties and representations materially true and correct as of the Closing with the same effect as if the same had been made, and this Agreement had been dated, as of the Closing Date. Section 5.6 Operation of Business Prior to Closing. From the date hereof until the Closing Date, Seller shall conduct the Business in the ordinary course consistent with past practice, and shall use its reasonable best efforts to maintain, preserve and develop the Business, to keep available the services of present employees and agents and to maintain existing business relationships. Without limiting the generality of the foregoing, Seller shall not take any of the actions described in clauses (i) through (v) of Section 3.24. Section 5.7 Fire Inspection. Seller has advised Buyer that the Newark Fire Department inspected the Leased Building in June, 1995. Seller has provided Buyer with a copy of the Fire Department's report in respect of that portion of the Leased Building occupied by Seller, and Seller has notified Buyer of actions Seller has taken (and actions Seller does not intend to take) in respect of such report, a copy of which is annexed hereto as Schedule 3.10. (ARTICLE VI COMMENCES ON THE NEXT PAGE) 14 ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATION OF BUYER TO CLOSE The obligation of Buyer to purchase the Subject Assets and carry out the other transactions contemplated hereby are, unless waived in writing by Buyer, subject to the satisfaction, on the Closing Date, of the following conditions: Section 6.1 Accuracy of Representations and Performance of Seller and Stockholders. The representations and warranties of Seller and Stockholders contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same force and effect as though made on and as of such date, except to the extent that such representations and warranties shall be incorrect as of the Closing Date because of events or changes occurring in the ordinary course of business of Seller or as otherwise permitted by this Agreement, none of which, singly or in the aggregate, constitutes a material adverse change; each and all of the conditions and covenants to be performed or satisfied by Seller and/or Stockholders hereunder at or prior to the Closing Date shall have been duly performed or satisfied in all material respects; and Seller and Stockholders shall have furnished Buyer with a certificate to that effect. Section 6.2 Absence of Certain Litigation. On the Closing Date, no suit, action or other proceeding, or injunction or final judgment relating thereto, shall be threatened or pending before any court or governmental or regulatory official or agency, in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending. Section 6.3 Noncompetition and Nondisclosure Agreement. Seller and each of the Stockholders shall have executed and delivered a Noncompetition and Confidentiality Agreement in the form of Exhibit 6.3. Section 6.4 Leased Building. Buyer and Berkowitz Company shall be parties to a legal, valid and binding lease pursuant to which Buyer (or an affiliate) shall have leased the entire Leased Building (subject to existing leases), , and Berkowitz Company shall not have taken any actions or made any statements that it intends not to carry out the transactions contemplated by such lease. Section 6.5 Documents of Transfer. Seller shall be prepared to deliver to Buyer all deeds, bills of sale, assignments and other instruments of transfer and assignment necessary or appropriate to transfer to Buyer good and marketable title in and to the Subject Assets, free of any and all Encumbrances, all of which shall be in form and substance satisfactory to Buyer's counsel. Section 6.6 Evidence of Board and Stockholders Action. Seller shall have delivered certified copies of resolutions of the actions taken by Board of Directors and the stockholders of Seller pertaining to the authorization of this Agreement and the consummation of the transactions contemplated hereby, and a certificate executed by the secretary of Seller as to the due election, qualification and incumbency and valid signature of the person or persons authorized to sign this Agreement and the Seller's Documents. 15 Section 6.7 Secured Indebtedness. Seller shall have delivered evidence reasonably satisfactory to Buyer of the satisfaction and release of any Encumbrances affecting, or security interests or liens encumbering, the Subject Assets. Section 6.8 Seller's Counsel's Opinion. Buyer shall have received the opinion of Seller's counsel, Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer & Gladstone, in the form of Exhibit 6.8. Section 6.9 Software Support Agreement. Buyer shall have entered a software support agreement with Integra Services, current supporter of Seller's inventory software system in the form of Exhibit 6.9, or shall otherwise be satisfied that adequate support for such system, and any other software used by Seller (other than off-the-shelf commercially available software) is available to Buyer. Section 6.10 Meetings with Certain Customers. Buyer's representative shall have met with at least five of Seller's ten largest customers (together with Seller) to discuss the proposed transaction, and Buyer shall be satisfied that none of such customers is likely to discontinue its relationship with the Business after the Closing Date. Section 6.10 No Material Adverse Change. There shall have been no material adverse change in the Subject Assets (including, without limitation, loss of or damage to a material amount or part of the Subject Assets) or the Business between December 31, 1995 and the Closing Date. Section 6.11 Further Documents. Seller shall have executed and delivered to Buyer such documents, instruments, agreements, and certificates as may reasonably be needed to carry out the transactions contemplated by this Agreement, and shall have provided to Buyer's General Counsel such documents related to authorization by, and consent of Stockholders as such General Counsel may reasonably require. Section 6.12 Escrow Agreement. The Escrow Agreement shall have been executed by the parties thereto. Section 6.13 Release of Encumbrances on Leased Building. Seller shall have released any lis pendensor similar lien or encumbrances on the Leased Building filed by Seller or Stockholders or any affiliate thereof. (ARTICLE VII COMMENCES ON THE NEXT PAGE) 16 ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATION OF SELLER The obligation of Seller to sell, assign, transfer and deliver the Subject Assets to Buyer hereunder and to carry out the other transactions contemplated hereby are, unless waived in writing by Seller, subject to the satisfaction at or prior to the Closing Date of the following conditions: Section 7.1 Accuracy of Representations and Performance of Conditions. The representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same force and effect as though made on and as of such Date; each and all of the conditions and covenants to be performed or satisfied by Buyer hereunder at or prior to the Closing Date shall have been duly performed or satisfied in all material respects; and Buyer shall have furnished Seller with Buyer's certificate to that effect. Section 7.2 Approval. Buyer shall deliver certified copies of resolutions adopted by Buyer's Board of Directors pertaining to the authorization of this Agreement and the consummation of the transactions contemplated herein, and a certificate executed by the secretary or assistant secretary of Buyer as to the due election, qualification and incumbency and valid signatures of its officers authorized to sign this Agreement or any document or certificates to be delivered under it. Section 7.3 Absence of Certain Litigation. On the Closing Date, no suit, action or other proceeding, or injunction or final judgment relating thereto, shall be threatened or pending before any court or governmental or regulatory official or agency, in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending. Section 7.4 Opinion of Buyer's Counsel. Seller shall have received the opinion of Buyer's General Counsel in the form of Exhibit 7.4. Section 7.5 Escrow Agreement. The Escrow Agreement shall have been executed by the parties thereto. (ARTICLE VIII COMMENCES ON THE NEXT PAGE) 17 ARTICLE VIII THE CLOSING Section 8.1 Closing and Closing Provisions. The Closing Date shall be August 4, 1996, or such other date as the parties may agree. The Closing shall be effected by delivery of documents at the office of Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer & Gladstone, 101 Eisenhower Parkway, Roseland, New Jersey 07068-1067, and payment of the Purchase Price as provided herein or in such other manner and at such other place as the parties may agree. Section 8.2 Deliveries by Seller. At or prior to the Closing, Seller shall execute and deliver to Buyer all of the matters, certificates and other documents designated as conditions precedent and deliveries precedent to Buyer's obligation to close under this Agreement. Section 8.3 Deliveries by Buyer. At the Closing Buyer shall deliver to Seller the Purchase Price, subject to adjustments as permitted by this Agreement, in the manner and form provided for in this Agreement, and all the certificates and other documents designated as conditions precedent and deliveries precedent to Seller's obligation to close under this Agreement. (ARTICLE IX COMMENCES ON NEXT PAGE) 18 ARTICLE IX POST-CLOSING MATTERS Section 9.1 Records of the Business. For a period of four years following the Closing Date or for such longer period as the statute of limitations applicable to claims for taxes relating to the Business for any period through the Closing Date shall be extended (through voluntary extension or otherwise), Buyer shall grant to Seller and its representatives, at Seller's request, access to and the right to make copies of those records and documents which report the conduct of the Business or the results thereof as may be necessary in connection with Seller's affairs or the Business, at Buyer's customary fees therefor. If Seller notifies Buyer that Seller requires retention of such records beyond four years, Seller shall pay Buyer's customary storage charges for such post-four-year period. Seller shall, for at least two years after the Closing Date, retain copies of all records of the Business retained by Seller, and shall grant access thereto to Buyer upon reasonable request for proper purposes. Section 9.2 Use of "International Records Storage" Name. Buyer shall have the right to use the name International Records Storage in connection with the Business. Seller shall change its name to a name which is not similar to "International Records Storage" or any diminutive or abbreviation thereof within three business days after the Closing. Section 9.3 Audited Financial Statements. In the event that Buyer requires audited financial statements for the Business in connection with reporting requirements under federal or state securities laws, Seller shall make available any relevant information not included in the Subject Assets and otherwise cooperate with Buyer in preparing such information, at Buyer's expense. Seller shall use its reasonable best efforts, if requested by Buyer, to have seller's auditors prepare such audits, at Buyer's expense. Seller hereby consents to its auditors' performing any such work for Buyer. Buyer shall have the right to file with the Securities and Exchange Commission any financial statements related to the Business (audited or otherwise) required to be filed by Buyer pursuant to federal securities laws. Section 9.4 Storage of Seller's Records. After the Closing, Buyer will store Seller's records in the Leased Building pursuant to a standard Buyer printed contract. Storage rates will be $0.30 per month per standard carton, and services will be charged at Buyer's customary rates. Prices will be fixed for two years after the Closing Date. Seller may terminate the records storage arrangement at any time on thirty days' notice. Section 9.5 Office Space/Personnel Services. Seller may continue to occupy the office area in the Leased Building presently occupied by personnel of Seller's affiliate, International Management Services, until December 31, 1996; provided that Seller may by written notice elect to extend such occupancy period to March 31, 1997 for purposes of administration and accounting services for International Management Services' business and completing the sale thereof. Seller shall not be required to pay any rent or other charges for the use of such space. Seller shall have the status of a sublessee of such space from Buyer; and Seller shall be responsible for the obligations of the tenant under the Lease with respect to matters such as conduct, indemnification, landlord's being absolved 19 from liability for loss of or damage to tenant's property, as such apply to the space occupied by Seller. Seller shall make its personnel, including Penny Novak, Sanford Winnerman, Jeff Schwartz and Matt Ashbrook, available to consult with Buyer and assist Buyer's personnel in learning the operation of the Business during the period from the Closing Date until December 31, 1996; provided that Seller's obligation to make Penny Novak available shall terminate at such earlier time as she moves from New Jersey. In addition, Seller will be responsible for preparing invoices for customers for the month immediately prior to the Closing Date, which invoices will be scheduled to be sent out one or two days after the Closing Date. Section 9.6 Sublease of Copier. After the Closing, Buyer shall sublease from Seller the copier which Seller used primarily in connection with the Business prior to the Closing Date. Rent under such sublease shall be equal to rent paid by Seller to the lessor of the copier for its use under the terms of its lease. The sublease shall continue for the remaining term of Seller's equipment lease with the lessor. If the lease provides that Seller may purchase the copier upon expiration of the lease, Seller shall offer Buyer the right to purchase the copier at such price; and if Buyer declines, Seller may purchase the copier or return it to the equipment lessor. (ARTICLE X COMMENCES ON THE NEXT PAGE) 20 ARTICLE X TERMINATION Section 10.1 Non Performance. Seller or Buyer each shall have the right to terminate this Agreement on or prior to Closing in the event that (i) the Closing shall not have occurred prior to September 20 , 1996; (ii) the other party is in default in the performance of any of its material obligations to be performed hereunder; or (iii)should any covenant, warranty or representation made by the other party in this Agreement prove to be materially incorrect; provided, however, that the party against whom such termination is to be exercised shall have the right, for a period of ten (10) days following receipt of written notice from the other specifying the alleged default and the basis therefor, to correct or satisfy any such condition or covenant necessary to the consummation of this Agreement. Section 10.2 Termination Due to Default. (a) If Seller rightfully terminates this Agreement pursuant to Section 10.1(ii) or (iii) when (i) Seller is not in default of any of its material covenants, (ii) no material representation and warranty of Seller has been determined to be materially incorrect, and (iii) all conditions to Buyer's obligation to close the transaction contemplated have been satisfied, then Buyer shall be liable to Seller for such damages as may be provable, including out-of-pocket expenses incurred in connection with this transaction. (b) If Buyer rightfully terminates this Agreement pursuant to Section 10.1(ii) or (iii) when (i) Buyer is not in default of any of its material covenants, (ii) no material representation or warranty of Buyer has been determined to be materially incorrect, and (iii) all conditions to Seller's obligation to close the transactions contemplated by this Agreement have been satisfied, then Seller shall be liable to Buyer for such damages as may be provable, including out-of-pocket expenses incurred in connection with this transaction. Section 10.3 Risk of Loss. Prior to Closing the risk of loss, damage or destruction with respect to the Subject Assets shall be borne solely by Seller. If at the Closing Date the Subject Assets shall have suffered loss, damage or destruction to an extent which materially affects the value thereof, Buyer shall have the right at its election to terminate this Agreement, or complete the transactions with such adjustment of the Purchase Price as may be agreed in good faith between Buyer and Seller in advance. (ARTICLE XI COMMENCES ON THE NEXT PAGE) 21 ARTICLE XI INDEMNIFICATION Section 11.1 General Indemnification Obligation of Seller and Stockholders. From and after the Closing, Seller and Stockholders shall jointly and severally reimburse, indemnify and hold harmless Buyer and its successors and assigns (each an Indemnified Buyer Party) against and in respect of: (a) any and all damages, losses, deficiencies, liabilities, costs and expenses incurred or suffered by any Indemnified Buyer Party that result from, relate to or arise out of: (i) any and all liabilities and obligations of Seller to third parties of any nature whatsoever (including liabilities for Taxes), except for those liabilities and obligations of Seller which Buyer specifically assumes pursuant to this Agreement; (ii) any and all actions, suits, claims, or legal, administrative, arbitration, governmental or other proceedings or investigations against any Indemnified Buyer Party that relate to Seller or the Business in which the principal event giving rise thereto occurred prior to the Closing Date or which result from or arise out of any action or inaction prior to the Closing Date of Seller or any partner, employee, agent, representative or subcontractor of Seller, except for those which Buyer specifically assumes pursuant to this Agreement; (iii) any cost, claim, expense or liability (including legal fees and costs of litigation) which Buyer may incur or with which Buyer may be threatened in excess of an amount equal to the monthly storage charge per container (or such higher amounts as may be specified in a contract as a limit of Seller's liability) in connection with any claim by a business or entity which was a customer of the Business prior to the Closing Date for monetary damages arising from lost, damaged or destroyed records of such customers if Seller did not, as of the Closing Date, have a contract with such customer which limited Seller's liability in the event of loss, damage or destruction to such amount; provided, that Seller shall not be required to indemnify Buyer in respect of any loss, damage or destruction which (i) relates to new cartons moved into the Leased Premises after the Closing Date, (ii) Seller is able to demonstrate occurred after the Closing Date or (iii) relates to a record which any Indemnified Buyer Party has picked up, retrieved, moved or otherwise physically dealt with; or (iv) any misrepresentation, breach of warranty or nonfulfillment of any agreement or covenant on the part of Seller or Stockholders under this Agreement, or from any misrepresentation in or omission from any certificate, schedule, statement, document or instrument furnished by Seller or Stockholders to Buyer pursuant hereto or in connection with the negotiation, execution or performance of this Agreement, all of which statements, documents and instruments (other than Schedules annexed hereto) are listed or identified on Schedule 11.1; and (b) any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any of the foregoing or to the enforcement of this Section 11.1. 22 Notwithstanding anything herein contained to the contrary, Seller shall have no obligations to Buyer under Section 11.1(a)(iii) or (iv) with respect to any claim of which Buyer gives notice to Seller later than the first anniversary of the Closing Date. Notwithstanding any other provision herein contained, Seller and Stockholders shall not have any indemnification obligation with respect to the first $25,000 of total claims incurred under Section 11.1 unless total aggregate claims exceed such amount, in which case the indemnification obligations of Seller and Stockholders shall include all liabilities incurred, without regard to the $25,000 threshold. The maximum aggregate liability of Seller and Stockholders hereunder shall be $2,450,000. Section 11.2 General Indemnification Obligation of Buyer. From and after the Closing, Buyer will reimburse, indemnify and hold harmless Seller and the Stockholders and its successors or assigns (an Indemnified Seller Party) against and in respect of: (a) any and all damages, losses, deficiencies, liabilities, costs and expenses incurred or suffered by any Indemnified Seller Party that result from, relate to or arise out of: (i) any and all liabilities and obligations of Seller which have been specifically assumed by Buyer pursuant to this Agreement; (ii) any and all actions, suits, claims, or legal, administrative, arbitration, governmental or other proceedings or investigations against any Indemnified Seller Party that relate to the Business or the Subject Assets in which the principal event giving rise thereto occurred after the Effective Time or which result from or arise out of any action or inaction after the Effective Time on the part of Buyer or any partner, employee, agent, representative or subcontractor of Buyer; (iii) any misrepresentation, breach of warranty or non-fulfillment of any agreement or covenant on the part of Buyer under this Agreement, or from any misrepresentation in or omission from any certificate, schedule, statement, document or instrument furnished to Seller pursuant hereto or in connection with the negotiation, execution or performance of this Agreement; and (b) any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any of the foregoing or to the enforcement of this Section 11.2. Notwithstanding anything herein contained to the contrary, Buyer shall have no obligations to Seller under Section 11.2(a)(iii) with respect to any claim of which Seller gives notice to Buyer later than the first anniversary of the Closing Date. Section 11.3 Method of Asserting Claims, Etc. In the event that any claim or demand for which Seller or Stockholders (collectively, the Indemnifying Party) would be liable to an Indemnified Buyer Party hereunder is asserted against or sought to be collected from an Indemnified Buyer Party by a third party, the Indemnified Buyer Party shall promptly notify Stockholders, as representative of the Indemnifying Party, of such claim or demand, specifying the nature of such claim or demand 23 and the amount or the estimated amount thereof to the extent then feasible, which estimate shall not be conclusive of the final amount of such claim and demand (the Claim Notice). Indemnifying Party shall have ten business days from the personal delivery or mailing of the Claim Notice (the Notice Period) to notify the Indemnified Buyer Party (A) whether or not it disputes its liability to the Indemnified Buyer Party hereunder with respect to such claim or demand and (B) notwithstanding any such dispute, whether or not it desires, at its sole cost and expense, to defend the Indemnified Buyer Party against any such claim or demand. (a) If Indemnifying Party disputes its obligation to indemnify Buyer with respect to such claim or demand or the amount thereof (whether or not Indemnifying Party desires to defend the Indemnified Buyer Party against such claim or demand as provided in paragraphs (b) and (c) below), such dispute shall be resolved in accordance with Section 11.5 hereof. (b) In the event that Indemnifying Party notifies the Indemnified Buyer Party within the Notice Period that it desires to defend the Indemnified Buyer Party against such claim or demand then, except as hereinafter provided, Indemnifying Party shall have the right to defend the Indemnified Buyer Party, at the Indemnifying Party's sole cost and expense, by appropriate proceedings, which proceedings shall be promptly settled or prosecuted by it to a final conclusion in such a manner as to avoid any risk of Indemnified Buyer Party becoming subject to further liability in respect of such matter; provided, however, Indemnifying Party shall not, without the prior written consent of the Indemnified Buyer Party, consent to the entry of any judgment against the Indemnified Buyer Party or enter into any settlement or compromise which does not include, as an unconditional term thereof, the giving by the claimant or plaintiff to the Indemnified Buyer Party of a release, in form and substance reasonably satisfactory to the Indemnified Buyer Party, as the case may be, from all liability in respect of such claim or litigation. If any Indemnified Buyer Party desires to participate in, but not control, any such defense or settlement, it may do so at its sole cost and expense. (c) (i) If Indemnifying Party elects not to defend the Indemnified Buyer Party against such claim or demand, whether by not giving the Indemnified Buyer Party timely notice as provided above or otherwise, then the amount of any such claim or demand as reduced to judgment or settlement, or if the same be defended by Indemnifying Party or by the Indemnified Buyer Party (but none of the Indemnified Buyer Party shall have any obligation to defend any such claim or demand), then that portion thereof as to which such defense is unsuccessful, in each case, shall be conclusively deemed to be a liability of Indemnifying Party hereunder, unless Indemnifying Party shall have disputed its liability to the Indemnified Buyer Party hereunder, as provided in Section 11.5(a) hereof. (ii) In the event an Indemnified Buyer Party should have a claim against Indemnifying Party hereunder that does not involve a claim or demand being asserted against or sought to be collected from it by a third party, the Indemnified Buyer Party shall promptly send a Claim Notice with respect to such claim to Indemnifying Party. If Indemnifying Party disputes its liability with respect to such claim or demand, such dispute shall be resolved in accordance with Section 11.5 hereof; if Indemnifying Party does not notify the Indemnified Buyer Party within the Notice Period that it disputes such claim, the amount of such claim shall be conclusively deemed a liability of Indemnifying Party hereunder. 24 (d) All claims for indemnification by an Indemnified Seller Party under this Agreement shall be asserted and resolved under the procedures set forth above substituting in the appropriate place Indemnified Seller Party for Indemnified Buyer Party and variations thereof. Section 11.4 Payment. Upon the determination of liability under Section 11.3 or 11.5 hereof, the appropriate party shall pay to the other, as the case may be, within ten days after such determination, the amount of any claim for indemnification made hereunder; provided that an Indemnified Purchaser Party may make initial demand to, and receive payment from, the Escrow Agent in accordance with the terms of the Escrow Agreement. In the event that the indemnified party is not paid in full for any such claim pursuant to the foregoing provisions promptly after the other party's obligation to indemnify has been determined in accordance herewith, it shall have the right, notwithstanding any other rights that it may have against any other person, firm or corporation, to set off the unpaid amount of any such claim against any amounts owed by it under any agreements entered into pursuant to this Agreement or the Seller's Documents. Upon the payment in full of any claim, either by setoff or otherwise, the entity making payment shall be subrogated to the rights of the indemnified party against any person, firm or corporation with respect to the subject matter of such claim. Section 11.5 Arbitration. (a) All disputes under this Article XI shall be settled by arbitration in Newark, New Jersey, before a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association pursuant to the procedures described in the Escrow Agreement. (b) To the extent that arbitration may not be legally permitted hereunder and the parties to any dispute hereunder may not at the time of such dispute mutually agree to submit such dispute to arbitration any party may commence a civil action in a court of appropriate jurisdiction to solve disputes hereunder. Nothing contained in this Section 11.5 shall prevent the parties from settling any dispute by mutual agreement at any time. Section 11.6 Compliance with Bulk Sales Laws. Buyer and Seller hereby waive compliance by Seller with the bulk sales law and any other similar laws in any applicable jurisdiction in respect of the transactions contemplated by this Agreement. Seller shall indemnify Buyer from, and hold it harmless against, any liabilities, damages, costs and expenses resulting from or arising out of (i) the parties' failure to comply with any of such laws in respect of the transactions contemplated by this Agreement, or (ii) any action brought or levy made as a result thereof, other than those related to liabilities which have been expressly assumed, by Buyer pursuant to this Agreement. Section 11.7 Other Rights and Remedies Not Affected. The indemnification rights of the parties under this Article XI are independent of and in addition to such rights and remedies as the parties may have at law or in equity or otherwise for any misrepresentation, breach of warranty or failure to fulfill any agreement or covenant hereunder on the part of any party hereto, including without limitation the right to seek specific performance, rescission or restitution, none of which rights or remedies shall be affected or diminished hereby. (ARTICLE XII COMMENCES ON THE NEXT PAGE) 25 ARTICLE XII MISCELLANEOUS PROVISIONS Section 12.1 Commissions. Except as set forth in Schedule 12.1, each party represents and warrants that it has dealt with no broker or finder in connection with this Agreement and, insofar as it knows, no broker or other person is entitled to any commission or finder's fee in connection with the consummation of the transactions contemplated by this Agreement. Section 12.2 Expenses. Except as otherwise provided herein, each of the parties shall pay all costs and expenses incurred or to be incurred by it in the negotiation and preparation of this Agreement and in closing and carrying out the transactions contemplated by this Agreement. Section 12.3 Headings. The subject headings of the sections and subsections of this Agreement are included only for purposes of convenience, and shall not affect the construction or interpretation of any of its provisions. Section 12.4 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures on this Agreement delivered by fax or telecopier shall be considered original signatures for purposes of effectiveness of this Agreement. Section 12.5 Rights of Parties. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third person to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action against any party to this Agreement. Section 12.6 Assignment. Except as provided in the following paragraph, the rights and obligations of the parties to this Agreement or any interest in this Agreement shall not be assigned, transferred, hypothecated, pledged or otherwise disposed of without the prior written consent of the nonassigning party which consent may be withheld in such party's sole discretion. This Agreement and all rights and obligations of Buyer hereunder may be assigned or transferred by Buyer to any affiliate of Buyer, in which event all instruments, documents and agreements required to be delivered to Buyer hereunder shall be delivered to and run for the benefit of such entity, and such entity (rather than Buyer) shall execute and deliver any instruments, documents or arguments required to be executed and delivered by Buyer hereunder. Buyer shall be not relieved of any of its obligations hereunder by reason of such assignment. Section 12.7 Binding Agreement. This Agreement constitutes, and all other documents to be executed by each party shall, when executed and delivered, constitute, the legal, valid and binding obligation of each party enforceable in accordance with their respective terms and shall be binding upon and inure to the benefit of its respective successors and assigns. 26 Section 12.8 Survival of Representations and Warranties. All representations, warranties, covenants and agreements shall survive the Closing the first anniversary of the Closing Date, except for ongoing agreements to indemnify the other party for post-Closing actions. Section 12.9 Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if delivered by telecopier (with notice of receipt), or if served personally on the party to whom notice is to be given; or if delivered by overnightcarrier, on the date of delivery; or on the third day after mailing if mailed to the party to whom notice is to be given by first class mail, certified, postage prepaid, and properly addressed as following: To Seller: International Records Storage and Retrieval Services, Inc. 110 Edison Place Newark, New Jersey 07102 Attn: Sanford Winnerman Telecopier: (201) 623-9145 With a copy (which shall not be required for effective notice) to: Paul Rosenberg, Esq. Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer & Gladstone 101 Eisenhower Parkway Roseland, New Jersey 07068-1067 Telecopier: (201) 228-7852 To Buyer: Iron Mountain Records Management, Inc. 745 Atlantic Avenue, 10th Floor Boston, Massachusetts 02111-2735 Attention: John F. Kenny, Jr. Telecopier: (617) 350-7881 With a copy (which shall not be required for notice) to: Garry B. Watzke, Esq. 745 Atlantic Avenue, 10th Floor Boston, Massachusetts 02111-2735 Telecopier: (617) 350-7881 Any party may change its address for purposes of this paragraph by giving the other parties written notice of the new address in the manner set for above. Section 12.10 Applicable Law and Remedies. The terms, conditions and other provisions of this Agreement and any documents or instruments delivered in connection with it shall be governed and construed according to the internal laws of the Commonwealth of Massachusetts (other than the choice of law rules thereof) except as to matters of law concerning the internal corporate affairs of any corporate or partnership entity which is a party to or the subject of this Agreement, and as to those matters, the jurisdiction under which such entity derives its powers shall govern. All remedies at law, in equity, by statute or otherwise shall be cumulative and may be enforced 27 concurrently or from time to time and, subject to the express terms of this Agreement, the election of any remedy or remedies shall not constitute a waiver of the right to pursue any other available remedies. Section 12.11 Expenses of Enforcement. If either party initiates an action to enforce a provision of this Agreement or any agreement, instrument or document made or delivered in connection herewith, or for damages by reason of an alleged breach of any provision, except as otherwise provided in Section 11.5, the prevailing party shall be entitled to receive from the other party all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. Section 12.12 Additional Instruments and Assistance. Each party hereto shall from time to time execute and deliver such further instruments, provide additional information and render such further assistance as the other party or its counsel may reasonably request in order to complete and perfect the transactions contemplated herein. Section 12.13 Severability. If any provision of this Agreement is held or deemed to be invalid or unenforceable to any extent when applied to any person or circumstance, such invalidity or unenforceability shall not affect the remaining provisions of this Agreement; the remaining provisions hereof and the enforcement of such provision with respect to other persons or circumstances, or to another extent, shall not be affected thereby and each provision hereof shall be enforced to the fullest extent allowed by law. Moreover, the invalid or inoperative provision shall be reformed and construed so that it shall be valid and enforceable to the maximum extent permitted. Section 12.14 Pronouns and Terms. In this Agreement, the singular shall include the plural, the plural the singular, and the use of any gender shall include all genders. Section 12.15 Taxes. The party upon whom state law imposes the economic burden shall pay any New Jersey sales taxes imposed on the sale of personal property in the transaction. Seller shall pay all transfer and conveyance taxes and recording, transfer and similar fees payable or assessable in connection with the sale and transfer contemplated by this Agreement. Buyer shall pay the premium for the Owner's Title Policies. Buyer and Seller shall each pay its portion prorated as of the Closing Date of state and local personal property taxes on the Business. Section 12.16 Disclosure. No representation or warranty made by either party in this Agreement contains any untrue statement of a material fact or to the knowledge of Seller and Stockholders omits to state a material fact necessary to make the statement of facts contained within it not misleading. Section 12.17 Entire Agreement, Amendments and Waivers. This Agreement, together with all Exhibits and Schedules hereto, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties, and there are no representations, warranties or other agreements among the parties in connection with the subject matter hereof except as set forth specifically herein or contemplated hereby. No supplement, modification or wavier of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall 28 constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. (ARTICLE XIII COMMENCES ON THE NEXT PAGE) 29 ARTICLE XIII BUYER'S ELECTION TO CLOSE Notwithstanding any other provision in this Agreement to the contrary, Buyer shall not be required to carry out the transactions contemplated by this Agreement unless and until Buyer delivers to Seller a written "Notice of Election to Close". Such Notice of Election to Close may be delivered by the method of delivery of notice set forth in Section 12.9, and shall be delivered to the office of Paul Rosenberg, Esq., Brach, Eichler, Rosenberg, Silver, Hammer & Gladstone on or before 5:00 p.m. on Monday, August 26, 1996. In the event Buyer elects not to, or fails to deliver, the Notice of Election to Close, this Agreement shall be null and void and the parties shall have no further obligations to each other except with respect to confidentiality as provided in Section 5.2. Prior to the date Buyer delivers the Notice of Election to Close, Buyer shall not make any filing with the Securities and Exchange Commission in which Seller is identified as an acquisition candidate or potential acquisition candidate of Buyer. 30 IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on the date first above written. International Records Storage Iron Mountain Records Management, Inc. and Retrieval Services, Inc. By: By: ------------------------------ ----------------------------------- --------------------------- John F. Kenny, Jr. President Vice President Stockholders: - ------------------------------- Lawrence Winnerman - ------------------------------- Sanford Winnerman EX-11 6 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Exhibit 11 IRON MOUNTAIN INCORPORATED Computation of Earnings per Common Share (Amounts in thousands, except per share data)
Six Months Ended Year Ended December 31, June 30, -------------------------------------------- ---------------- 1991 1992 1993 1994 1995 1995 1996 ------- ---- ---- ------ ------- ------ ------ Weighted Average Shares Outstanding: Common Stock -- -- -- -- -- -- 7,987 Non-Voting Common Stock -- -- -- -- -- -- 415 Class A Common Stock -- 14 29 29 38 31 8 Class C Common Stock 266 266 266 185 -- -- -- Series A1 Preferred Stock 2,962 2,962 2,962 1,152 556 988 22 Series A2 Preferred Stock -- -- -- 1,808 1,948 1,961 330 Series A3 Preferred Stock -- -- -- -- 432 -- 146 Series C Preferred Stock 4,810 4,810 4,810 4,810 4,810 4,810 819 ----- ----- ----- ----- ----- ----- ---- Weighted Average Common Shares Outstanding 8,038 8,052 8,067 7,984 7,784 7,790 9,727 Dilutive Effect of Stock Options Considered Common Stock Equivalents Computed under the Treasury Stock Method Using the Average Price -- -- -- -- -- -- 172 ----- ----- ----- ----- ----- ----- ---- Weight Average Common and Common Equivalent Shares Outstanding 8,038 8,052 8,067 7,984 7,784 7,790 9,899 ===== ===== ===== ===== ===== ===== ===== Net Income (Loss) Applicable to Common Stockholders ($1,814) $ 961 $ 628 ($ 128) ($1,859) ($ 533) $ 417 ====== ====== ====== ====== ====== ====== ====== Net Income (Loss) per Common and Common Equivalent Share ($ 0.23) $ 0.12 $ 0.08 ($ 0.02) ($ 0.24) ($ 0.07) $ 0.04 ====== ====== ====== ====== ====== ====== ======
EX-12 7 STATEMENT RE: COMPUTATION OF RATIOS Exhibit 12 IRON MOUNTAIN INCORPORATED STATEMENT OF THE CALCULATION OF RATIO OF EARNINGS OF FIXED CHARGES (Dollars in thousands)
Pro Forma ------------------------ For the Six Months Year For the Ended Ended Six Months Year Ended December 31, June 30, December Ended ----------------------------------------------- --------------- 31, June 30, 1991 1992 1993 1994 1995 1995 1996 1995 1996 ------- ------ ------ ------ ------ ----- ------ -------- ---------- Earnings: Income (Loss) from Operations before Provision for Income Taxes $(1,292) $ 3,682 $ 3,656 $ 3,241 $ 1,945 $ 1,304 $ 1,585 $ (931) $ (460) Add: Fixed Charges 11,626 11,745 12,125 13,428 16,795 8,339 9,520 24,058 12,347 ------- ------- ------- ------- ------- ------- ------- ------- -------- $10,334 $15,427 $15,781 $16,669 $18,740 $ 9,643 $11,105 $23,127 $11,887 ======= ======= ======= ======= ======== ======= ======= ======= ======== Fixed Charges: Interest Expense $8,612 $ 8,412 $ 8,203 $ 8,954 $ 11,838 $ 5,937 $ 6,385 $17,846 $ 8,921 Interest Portion of Rent Expense 3,014 3,333 3,922 4,474 4,957 2,402 3,135 6,212 3,426 ------- ------- ------- ------- ------- ------- ------- ------- -------- $11,626 $11,745 $12,125 $13,428 $ 16,795 $8,339 $ 9,520 $24,058 $ 12,347 ======= ======= ======= ======= ======== ======= ======= ======= ======== Ratio of Earnings to Fixed Charges 0.9x(1) 1.3x 1.3x 1.2x 1.1x 1.2x 1.2x 0.9x(2) 0.9x(3) ==== ==== ==== ==== ==== ==== ==== ==== ====
(1) The Company reported a pretax loss for the fiscal year ended December 31, 1991. For such period the Company would have needed to generate additional income from continuing operations, before provision for income taxes, of $1,292 to cover its fixed charges of $11,626. (2) On a pro forma basis, the Company would have needed to generate additional income from continuing operations, before provision for income taxes, of $931 to cover its fixed charges of $24,058. (3) On a pro forma basis, the Company would have needed to generate additional income from continuing operations, before provision for income taxes, of $460 to cover its fixed charges of $12,347. EX-21 8 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 LIST OF SUBSIDIARIES OF REGISTRANT Subsidiary of Registrant 1. Iron Mountain Records Management, Inc. State of incorporation -- Delaware In California, also does business as Metro Records Management Subsidiaries of Iron Mountain Records Management, Inc. 1. Metro Business Archives, Inc. State of incorporation -- New York Doing business as Metro Business Archives 2. Criterion Atlantic Property, Inc. State of incorporation -- Delaware 3. Criterion Property, Inc. State of incorporation -- Delaware 4. Hollywood Property, Inc. State of incorportion -- California 5. IM San Diego, Inc. State of incorporation -- Delaware 6. Iron Mountain Information Partners, Inc. State of incorporation -- Delaware 7. Iron Mountain Data Protection Services, Inc. State of incorporation -- Massachusetts 8. Iron Mountain Records Management of Maryland, Inc. State of incorporation -- Maryland 9. Iron Mountain Records Management of Ohio, Inc. State of incorporation -- Ohio 10. Iron Mountain Wilmington, Inc. State of incorporation -- Delaware 11. Data Storage Systems, Inc. State of incorporation -- California 12. Iron Mountain Records Management of Missouri LLC State of organization -- Delaware 13. Iron Mountain Records Management of Boston, Inc. State of incorporation -- Massachusetts 14. Data Archive Services, Inc. State of incorporation -- Florida 15. Data Archive Services of Miami, Inc. State of incorporation -- Florida EX-23.2 9 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports and to all references to our Firm included in or made a part of this registration statement. /s/ Arthur Andersen LLP Boston, Massachusetts August 16, 1996 EX-23.3 10 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this registration statement. /s/ Wolpoff & Company, LLP Baltimore, Maryland August 16, 1996 EX-23.4 11 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23.4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this registration statement. /s/ Morrison and Smith Tuscaloosa, Alabama August 16, 1996 EX-23.5 12 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23.5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this registration statement. /s/ Geo. S. Olive & Co. LLC Indianapolis, Indiana August 16, 1996 EX-23.6 13 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23.6 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this registration statement. /s/ Robert F. Gayton, CPA Natick, Massachusetts August 16, 1996 EX-23.7 14 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23.7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this registration statement. /s/ Perless, Roth, Jonas & Hartney, CPAs, PA Miami, Florida August 16, 1996 EX-23.8 15 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23.8 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this registration statement. /s/ Rothstein, Kass & Company, P.C. Roseland, New Jersey August 16, 1996 -----END PRIVACY-ENHANCED MESSAGE-----