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Table of Contents
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2002
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-13045
IRON MOUNTAIN INCORPORATED
(Exact name of registrant as specified in its charter)
| Pennsylvania | 23-2588479 | |
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | |
| 745 Atlantic Avenue, Boston, Massachusetts | 02111 | |
| (Address of principal executive offices) | (Zip Code) |
617-535-4766
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of Each Class
|
Name of Exchange on Which Registered
|
|
|---|---|---|
| Common Stock, $.01 par value per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý No o
As of June 28, 2002, the aggregate market value of the Common Stock of the registrant held by non-affiliates of the registrant was $2,232,338,238.25 based on the closing price on the New York Stock Exchange on such date.
Number of shares of the registrant's Common Stock at March 3, 2003: 85,098,897
IRON MOUNTAIN INCORPORATED
2002 FORM 10-K ANNUAL REPORT
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References in this Annual Report on Form 10-K to "the Company", "we", "us" or "our" include Iron Mountain Incorporated and its consolidated subsidiaries, unless the context indicates otherwise.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required in Items 10, 11, 12 and 13 of Part III of this Annual Report on Form 10-K is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on or about May 22, 2003.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in this Annual Report on Form 10-K that constitute "forward-looking statements" as that term is defined in the federal securities laws. These forward-looking statements concern our operations, economic performance, financial condition, goals, beliefs, strategies, objectives, plans and current expectations. The forward-looking statements are subject to various known and unknown risks, uncertainties and other factors. When we use words such as "believes," "expects," "anticipates," "estimates" or similar expressions, we are making forward-looking statements.
Although we believe that our forward-looking statements are based on reasonable assumptions, our expected results may not be achieved, and actual results may differ materially from our expectations. Important factors that could cause actual results to differ from expectations include, among others:
You should not rely upon forward-looking statements except as statements of our present intentions and of our present expectations, which may or may not occur. You should read these cautionary statements as being applicable to all forward-looking statements wherever they appear. We assume no obligation to update the forward-looking statements or the reasons why actual results could differ from those projected in the forward-looking statements that may be made to reflect events or circumstances after the date hereof.
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A. Development of Business.
We are the leader in records and information management services ("RIMS"). We are an international, full-service provider of records and information management and related services, enabling customers to outsource these functions. We have a diversified customer base that includes more than half of the Fortune 500 and numerous commercial, legal, banking, healthcare, accounting, insurance, entertainment and government organizations. Our comprehensive solutions help customers save money and manage risks associated with legal and regulatory compliance, protection of vital assets, and business continuity challenges.
Our core business records management services include: records management program development and implementation based on best-practices; secure, cost-effective storage for all major media, including paper, which is the dominant form of records storage, flexible retrieval access and retention of records; digital archiving services for secure, legally compliant and cost-effective long-term archiving of electronic records; secure shredding services that ensure privacy and a secure chain of record custody; and customized services for vital records, film and sound and regulated industries such as healthcare and financial services.
Our off-site data protection services include: disaster recovery planning, testing, impact analysis and consulting; secure, off-site vaulting of backup tapes for fast and efficient data recovery in the event of a disaster, human error or virus; managed, online data backup and recovery services for personal computers and server data; and intellectual property escrow services to secure source code and other proprietary information with a trusted, neutral third party.
In addition to our core records management and off-site data protection services, we sell storage materials, including cardboard boxes and magnetic media, and provide consulting, facilities management, fulfillment and other outsourcing services.
Iron Mountain was founded in 1951 in an underground facility near Hudson, New York. Now in our 52 nd year, we have experienced tremendous growth and organizational change particularly since successfully completing the initial public offering of our common stock in February 1996. Since then, we have built ourselves from a regional business with limited product offerings and annual revenues of $104 million in 1995 into the leader in records and information management services, providing a full range of services to customers in markets around the world. For the year ended December 31, 2002, we had total revenues of more than $1.3 billion.
The growth since 1995 has been accomplished primarily through the acquisition of domestic and international records management companies. The goal of our current acquisition program is to supplement internal growth by continuing to establish a footprint in targeted international markets and adding fold-in acquisitions both domestically and internationally. Having substantially completed our North American geographic expansion by the end of 2000, we shifted our focus from growth through acquisitions to internal revenue growth. In 2001, as a result of this shift, internal revenue growth exceeded growth through acquisitions for the first time since we began our acquisition program in 1996. This was also the case in 2002. In addition, our capital expenditures, made primarily to support internal growth, exceeded the aggregate acquisition consideration we conveyed in both 2001 and 2002. We expect this trend to continue and to achieve this internal growth through the use of aggressive selling efforts to acquire new customers and by offering a wide range of complementary and ancillary services to expand our new and existing customer relationships.
On February 1, 2000, we completed our most important acquisition to date by merging with Pierce Leahy Corp. in a stock-for-stock merger valued at $1.0 billion, including the assumption of debt and
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related transaction costs. Since the merger, we had been integrating the cultures, operating systems and procedures, and information technology systems of Iron Mountain and Pierce Leahy. We completed the integration process in 2002 ahead of schedule. See Note 7 to Notes to Consolidated Financial Statements.
As of December 31, 2002, we provided services to over 150,000 customer accounts in 81 markets in the United States and 47 markets outside of the United States, employed over 11,500 people and operated approximately 650 records management facilities in the United States, Canada, Europe and Latin America.
B. Description of Business.
The Records and Information Management Services Industry
Overview
Companies in the RIMS industry store and manage information in a variety of media formats, which can broadly be divided into paper and electronic records, and provide a wide range of services related to the records stored. We refer to our general paper storage and management services as "business records management." Paper records are defined to include paper documents, as well as all other non-electronic media such as microfilm and microfiche, master audio and videotapes, film, X-rays and blueprints. Electronic records include various forms of magnetic media such as computer tapes and hard drives and optical disks. We include in our electronic records storage and management services (i) "off-site data protection" and (ii) "digital archiving services."
Paper Records
Paper records may be broadly 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 that originated them to ensure ready availability. Inactive paper records are the principal focus of the RIMS industry. Inactive records consist of those records that are not needed for immediate access but which must be retained for legal, regulatory and compliance reasons or for occasional reference in support of ongoing business operations. A large and growing specialty subset of the paper records market is medical records. These are active and semi-active records that are often stored off-site with and serviced by a RIMS vendor. Special regulatory requirements often apply to medical records.
Electronic Records
Electronic records management focuses on the storage of, and related services for, computer media that are either a backup copy of recently processed data or archival in nature. Customer needs for data backup and recovery and archiving are distinctively different. Backup data exists because of the need of many businesses to maintain backup copies of their data in order to be able to recover the data in the event of a system failure, casualty loss or other disaster. It is customary (and a best-practice) for data processing groups to rotate backup tapes to off-site locations on a regular basis and to require multiple copies of such information at multiple sites. We refer to these services as off-site data protection.
In addition to the physical rotation and storage of backup data, we have introduced electronic vaulting services as an alternative way for businesses to transfer data to us, and to access the data they have stored with us. Electronic vaulting is a Web-based service that automatically backs up computer data over the Internet and stores it off site in one of our secure data centers. In early 2003, we announced an expansion of the electronic vaulting service to include backup and recovery for personal
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computer data, answering customers' needs to protect critical business data, which is often orphaned and unprotected on employee laptops and desktop personal computers.
There is a growing need for better ways of archiving data for legal, regulatory and compliance reasons and for occasional reference in support of ongoing business operations. Historically, businesses have relied on backup tapes for storing archived data, but this process can be costly and ineffective when attempting to search and retrieve the data for litigation or other needs. In addition, many industries, such as healthcare and financial services, are facing increased governmental regulation mandating the way in which electronic records are stored and managed. To help customers meet these growing storage challenges, we introduced digital archiving services. We have experienced early market adoption of the service, especially for e-mail archiving, which enables businesses to identify and retrieve electronic records quickly and cost-effectively, while maintaining regulatory compliance.
Growth of Market
We believe that the volume of stored paper and electronic records will continue to increase for a number of reasons, including: (i) the rapid growth of inexpensive document producing technologies such as facsimile, desktop publishing software and desktop printing; (ii) the continued proliferation of data processing technologies such as personal computers and networks; (iii) regulatory requirements; (iv) concerns over possible future litigation and the resulting increases in volume and holding periods of documentation; (v) the high cost of reviewing records and deciding whether to retain or destroy them; (vi) the failure of many entities to adopt or follow policies on records destruction; and (vii) audit requirements to keep backup copies of certain records in off-site locations.
We believe that paper-based information will continue to grow, not in spite of, but because of, new "paperless" technologies such as e-mail and the Internet. These technologies have prompted the creation of hard copies of such electronic information and have also led to increased demand for electronic records services, such as the storage and off-site rotation of backup copies of magnetic media. In addition, we believe that the proliferation of digital information technologies and distributed data networks has created an emerging need for efficient, cost-effective, high quality solutions for digital archiving and the management of electronic documents.
Consolidation of a Highly Fragmented Industry
There was significant consolidation within the highly fragmented RIMS industry from 1995 to 2000. Most RIMS companies serve a single local market, and are often either owner-operated or ancillary to another business, such as a moving and storage company. We believe that the consolidation trend will continue because of the industry's capital requirements for growth, opportunities for large RIMS providers to achieve economies of scale and customer demands for more sophisticated technology-based solutions.
We believe that the consolidation trend in the industry is also due to, and will continue as a result of, the preference of certain large organizations to contract with one vendor in multiple cities and countries for multiple services. In particular, customers increasingly demand a single, large, sophisticated company to handle all of their important paper and electronic records needs. Large, national and multinational companies are better able to satisfy these demands than smaller competitors. We have made, and intend to continue to make, acquisitions of our competitors, many of whom are small, single city operators.
Description of Our Business
We generate our revenues by providing storage for a variety of information media formats, core records management services and an expanding menu of complementary products and services to a large and diverse customer base. Providing outsourced storage for records and information is the
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mainstay of our customer relationships and provides the foundation for our revenue growth. The core services, which are a vital part of a comprehensive records management program, are highly recurring in nature and therefore very predictable. Core services consist primarily of the handling and transportation of stored records and information. In our secure shredding business, core services consist primarily of the scheduled collection and handling of sensitive records. In 2002, our storage and core service revenues represented approximately 85% of our total revenues. In addition to our core services, we offer a wide array of complementary products and services such as performing special project work, selling RIMS-related products, providing fulfillment services and consulting on records management issues. These services address more specific needs and are designed to enhance our customers' overall records management programs. These services complement our core services; however, they are more episodic and discretionary in nature. Revenue generated by our business records and off-site data protection businesses includes both core and complementary components.
Our various operating segments offer the products and services discussed below. In general, our business records management segment offers records management, healthcare information services, vital records services, and service and courier operations in the United States and Canada. Our off-site data protection segment offers data backup and recovery disaster services, vital records services, service and courier operations, and intellectual property protection services in the United States. Our international segment offers elements of all our product and services lines outside the United States and Canada. Our corporate and other segment includes our secure shredding, fulfillment, consulting and digital archiving services. Some of our complementary services and products are offered within all of our segments. The amount of revenues derived from our business records management, off-site data protection, international, and corporate and other operating segments and other relevant data for fiscal years 2000, 2001 and 2002 are set forth in Note 12 to Notes to Consolidated Financial Statements.
Business Records Management
The hard copy business records stored by our customers with us by their nature are not very active. These types of records are stored in cartons packed by the customer. We use a proprietary order processing and inventory management system known as the SafekeeperPLUS ® system to efficiently store and later retrieve a customer's cartons. As a central component of our integration plan for the Pierce Leahy transaction, we developed the SafekeeperPLUS ® system and carried out a city-by-city conversion program that was completed in 2002. Storage charges are generally billed monthly on a per storage unit basis, usually either per carton or per cubic foot of records, and include the provision of space, racking, computerized inventory and activity tracking and physical security.
Off-Site Data Protection
Off-site data protection services consist of the storage and rotation of backup computer media as part of corporate disaster recovery and business continuity plans. Computer tapes, cartridges and disk packs are transported off-site by our 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. We use various proprietery information technology systems such as MediaLink ™ and SecureBase ™ software to manage this process. We also manage tape library relocations and support disaster recovery testing and execution. In addition, we have introduced electronic vaulting services as part of our off-site data protection services product line. Our electronic vaulting service automatically backs up personal computer and server data over the Internet and stores it off site in one of our secure data centers, always available in the event of a disaster.
Healthcare Information Services
Healthcare information services principally include the handling, storage, filing, processing and retrieval of medical records used by hospitals, private practitioners and other medical institutions.
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Medical records tend to be more active in nature and are typically stored on specialized open shelving systems that provide easier access to individual files. Healthcare information services also include recurring project work and ancillary services. Recurring project work involves the on-site removal of aged patient files and related computerized file indexing. Ancillary healthcare information services include release of information (medical record copying), temporary staffing, contract coding, facilities management and imaging.
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. Our charges for providing enhanced security and special climate-controlled environments for vital records are higher than for typical storage functions. We provide the same ancillary services for vital records as we provide for our other storage operations.
Service and Courier Operations
Service and courier operations are an integral part of a comprehensive records management program for all physical media including paper and electronic records. They include adding records to storage, temporary removal of records 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 SafekeeperPLUS ® system controls the service processes from order entry through transportation and invoicing for business records management while MediaLink ™ and SecureBase ™ systems manage the process for the off-site data protection services.
Courier operations consist primarily of the pickup and delivery of records upon customer request. Charges for courier services are based on urgency of delivery, volume and location and are billed monthly. As of December 31, 2002, we were utilizing a fleet of more than 2,100 owned or leased vehicles.
Secure Shredding
Secure shredding is a natural extension of our records management services, completing the lifecycle of a record. The service involves the shredding of sensitive documents for corporate customers that, in many cases, also use our services for management of less sensitive archival records. We believe that customers are motivated by increased privacy regulation and the desire to protect their proprietary trade secrets. These services typically include the scheduled pick-up of loose office records which customers accumulate in specially designed secure containers we provide. Complementary to our shredding operations is the sale of the resultant waste paper to third-party recyclers. We currently perform these services in 40 cities and seek to expand our presence in this business through acquisitions and internal start-ups that leverage our existing records management infrastructure.
Intellectual Property Protection Services
We provide intellectual property protection services through our wholly owned subsidiary, DSI Technology Escrow Services, Inc. DSI specializes in third party technology escrow services that protect intellectual property assets such as software source code. In addition, DSI assists in securing intellectual property as collateral for lending, investments and other joint ventures, in managing domain name registrations and transfers, and provides expertise and assistance to brokers and dealers in complying with electronic records regulations of the Securities and Exchange Commission, the Commission or SEC.
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Digital Archiving Services
Our digital archiving services focus on archiving digital information with long-term preservation requirements. These services represent the digital analogy to our paper records management services. Because of increased litigation risks and regulatory mandates, companies are increasingly aware of the need to apply the same records management policies and retention schedules to electronic data as they do paper records. Typical digital records include e-mail, e-statements, images, electronic documents retained for legal or compliance purposes and other data documenting business transactions.
The growth rate of mission-critical digital information is accelerating, driven in part by the use of the Internet as a distribution and transaction medium. The rising cost and increasing importance of digital information management, coupled with the increasing availability of telecommunications bandwidth at lower costs, may create meaningful opportunities for us. We continue to cultivate marketing and technology partnerships to support this anticipated growth.
We believe the issues encountered by customers trying to manage their electronic records are similar to the ones they face in their business records management programs and consist primarily of: (i) storage capacity and the preservation of data; (ii) access to and control over the data in a secure environment; and (iii) the need to retain electronic records due to regulatory compliance or for litigation support. Our digital archiving service is representative of our commitment to address evolving records management needs and expand the array of services we offer.
Complementary Services and Products
We offer a variety of additional services which customers may request or contract for on an individual basis. These services include conducting records inventories, packing records into cartons or other containers, and creating computerized indices of files and individual documents. We also provide services for the management of active records programs. We can provide these services, which generally include document and file processing and storage, both off-site at our own facilities and by supplying our own personnel to perform management functions on-site at the customer's premises.
Other complementary lines of business that we operate include fulfillment services and professional consulting services. Fulfillment services are performed by our wholly owned subsidiary, COMAC, Inc. COMAC stores customer marketing literature and delivers this material to sales offices, trade shows and prospective customers' sites based on current and prospective customer orders. In addition, COMAC assembles custom marketing packages and orders, and manages and provides detailed reporting on customer marketing literature inventories.
We provide professional consulting services to customers, enabling them to develop and implement comprehensive records and information management programs. Our consulting business draws on our experience in RIMS to analyze the practices of companies and assist them in creating more effective programs of records and information management. Our consultants work with these customers to develop policies for document review, analysis and evaluation and for scheduling of document retention and destruction.
We also sell: (i) a full line of specially designed corrugated cardboard, metal and plastic storage containers; (ii) magnetic media products including computer tapes, cartridges and drives, tape cleaners and supplies and CDs; and (iii) computer room equipment and supplies such as racking systems, furniture, bar code scanners and printers.
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Financial Characteristics of Our Business
Our financial model is based on the recurring nature of our revenues. The historical predictability of this revenue stream and the resulting EBITDA (earnings from continuing operations before interest, taxes, depreciation and amortization) and Adjusted EBITDA 1 allow us to operate with a high degree of financial leverage. Our primary financial goal has always been, and continues to be, to increase consolidated Adjusted EBITDA in relation to capital invested, even as our focus has shifted from growth through acquisitions to internal revenue growth. Adjusted EBITDA is a source of funds for investment in continued growth and for servicing indebtedness. Our business has the following financial characteristics:
Adjusted EBITDA and Adjusted EBITDA-based calculations are used by the holders of our publicly issued debt as important criteria for evaluating our business and, as a result, all of our bond indentures contain covenants in which Adjusted EBITDA-based calculations are used as the primary measure of financial performance. In addition, we use Adjusted EBITDA as the basis for evaluating the performance of and allocating resources to our internal operating segments. However, neither EBITDA nor Adjusted EBITDA are measurements of financial performance under accounting principles generally accepted in the United States and you should not consider EBITDA or Adjusted EBITDA to be substitutes for operating or net income (as determined in accordance with accounting principles generally accepted in the United States, or GAAP) as indicators of our performance or for cash flow from operations (as determined in accordance with GAAP) as measures of liquidity. After March 28, 2003 we will no longer present Adjusted EBITDA in our public filings in compliance with SEC regulations. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for discussions of other measures of performance determined in accordance with GAAP and our sources and applications of cash flow.
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believe that companies that have outsourced RIMS programs are less likely during economic downturns to incur the move-out costs and other expenses associated with switching vendors or moving their RIMS programs in-house. However, some customers may cancel or delay certain non-recurring or discretionary expenditures as a means of reducing their short-term costs.
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Growth Strategy
Our objective is to maintain our position as the leader in RIMS. Domestically, we seek to be one of the largest RIMS providers in each of our geographic markets. Internationally, our objectives are to continue to capitalize on our expertise in the RIMS industry and to make additional acquisitions and investments in selected international markets. Our primary avenues of growth are: (i) increased business with existing customers; (ii) addition of new customers; (iii) the introduction of new products and services such as secure shredding, electronic vaulting and digital archiving; and (iv) selective acquisitions in new and existing markets.
Growth from Existing Customers
Our existing customers storing paper records contribute to storage and storage-related service revenues growth because on average they generate additional Cartons at a faster rate than old Cartons are destroyed or permanently removed. In order to maximize growth opportunities from existing customers, we seek to maintain high levels of customer retention by providing premium customer service through our local management staff.
Through our local account management staff, we leverage existing business relationships with our customers by selling complementary services and products. Services include records tracking, indexing, customized reporting, vital records management and consulting services.
Addition of New Customers
Our sales force is dedicated to two primary objectives: establishing new customer account relationships and expanding new and existing customer relationships by offering a wide array of complementary services and products. In order to accomplish these objectives, our sales force draws on our national marketing organization and senior management. As a result of acquisitions and our decision to recruit additional qualified sales professionals, we have increased the size of our sales force to approximately 450 such professionals as of December 31, 2002 from approximately 390 as of December 31, 2001.
Introduction of New Products and Services
We continue to expand our menu of products and services. We have significantly increased our presence in the secure shredding industry and have developed new electronic vaulting and digital archiving services. These new products and services allow us to further penetrate our existing customer accounts and attract new customers in previously untapped markets.
Growth through Domestic Acquisitions
Our domestic acquisition strategy includes expanding geographically, as necessary, and increasing our presence and scale within existing markets through "fold-in" acquisitions. We have a successful record of acquiring and integrating RIMS companies. Between January 1, 1996 and December 31, 2000, we completed 66 domestic acquisitions for total consideration of approximately $2 billion. During 2001 and 2002, we completed 18 domestic acquisitions for total consideration of $78.6 million. We intend to continue our domestic acquisition program. However, given the small number of large acquisition prospects and our increased revenue base, future acquisitions are expected to be less significant to overall domestic revenue growth than they were prior to 2001.
International Growth Strategy
We also intend to continue to make acquisitions and investments in RIMS businesses outside the United States. We have acquired and invested in, and seek to acquire and invest in, RIMS companies
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in countries, and, more specifically, markets within such countries, where we believe there is sufficient demand from existing multinational customers or the potential for growth. Since beginning our international expansion program in January 1999, directly and through joint ventures, we have expanded our operations into Canada, Europe and Latin America. Through December 31, 2000, we completed 12 international acquisitions for total consideration of $119.2 million. During 2001 and 2002, we completed eight international acquisitions for total consideration of $41.7 million. These transactions have taken, and may continue to take, the form of acquisitions of the entire business or controlling or minority investments, with a long-term goal of full ownership. In addition to the criteria we use to evaluate domestic acquisition candidates, we also evaluate the presence in the potential market of our existing clients as well as the risks uniquely associated with an international investment, including those risks described below.
The experience, depth and strength of local management are particularly important in our international acquisition strategy. As a result, we have formed joint ventures with, or acquired significant interests in, target businesses throughout Europe and Latin America. We have a 50.1% controlling interest in each of our Iron Mountain Europe Limited, Iron Mountain South America, Ltd. and Sistemas de Archivo Corporativo (a Mexican limited liability company) subsidiaries. Iron Mountain South America has in some cases bought controlling, yet not full, ownership in local businesses in order to enhance our local market expertise. We believe this strategy, rather than an outright acquisition, may, in certain markets, better position us to expand the existing business, although our long-term goal is to acquire full ownership of each such business. The local partner benefits from our expertise in the RIMS industry, our access to capital and our technology, and we benefit from our local partner's knowledge of the market, relationships with customers and their presence in the community.
Our international investments are subject to risks and uncertainties relating to the indigenous political, social, regulatory, tax and economic structures of other countries, 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 international investment will be successful in achieving our objectives.
The amount of our revenues derived from international operations and other relevant financial data for fiscal years 2000, 2001 and 2002 are set forth in Note 12 to Notes to Consolidated Financial Statements. For the year ended December 31, 2002, we derived approximately 14% of our total revenues from outside of the United States.
Customers
Our customer base is diversified in terms of revenues and industry concentration. We track customer accounts based on invoices. Accordingly, depending upon how many invoices have been arranged at the request of a customer, one organization may represent multiple customer accounts. As of December 31, 2002, we had over 150,000 customer accounts in a variety of industries. We currently provide services to more than half of the Fortune 500 and numerous commercial, legal, banking, healthcare, accounting, insurance, entertainment and government organizations. No customer accounted for more than 2% of our consolidated revenues for the year ended December 31, 2002.
Competition
We compete with our current and potential customers' internal RIMS capabilities. We can provide no assurance that these organizations will begin or continue to use an outside company such as Iron Mountain for their future records and information management services.
We compete with multiple RIMS providers in all geographic areas where we operate. We believe that competition for customers is based on price, reputation for reliability, quality of service and scope and scale of technology and that we generally compete effectively based on these factors.
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We also compete with other RIMS providers for companies to acquire. Some of our competitors may possess substantial financial and other resources. If any such competitor were to devote additional resources to the RIMS business and such acquisition candidates or focus their strategy on our markets, our results of operations could be adversely affected.
Alternative Technologies
We derive most of our revenues from the storage of paper documents and storage-related services. This storage requires significant physical space. Alternative storage technologies exist, many of which require significantly less space than paper. These technologies include computer media, microform, CD-ROM and optical disk. To date, none of these technologies has replaced paper as the principal means for storing information. However, we can provide no assurance that our customers will continue to store most of their records in paper format. A significant shift by our customers to storage of data through non-paper based technologies, whether now existing or developed in the future, could adversely affect our business. We continue to invest in additional services such as electronic vaulting and digital archiving, designed to address our customers' need for efficient, cost-effective, high quality solutions for electronic records and information management.
Employees
As of December 31, 2002, we employed approximately 8,800 full-time employees in the United States. Directly and through majority-owned joint ventures, as of December 31, 2002, we employed approximately 3,000 full-time employees outside of the United States. A small percentage of our employees are represented by unions. These unionized employees are located in California and one city in Canada. As of December 31, 2002, the aggregate number of unionized employees was approximately 350.
All domestic non-union employees are eligible to participate in our benefit programs, which include medical, dental, life, short and long-term disability, retirement/401(k) 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 domestic 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. International employees participate in separate benefit and incentive-based compensation programs. Management believes that we have good relationships with our employees and unions.
Insurance
For strategic risk transfer purposes, we maintain a comprehensive insurance program with insurers that we believe to be reputable and that have adequate market security in amounts that we believe to be appropriate. Property insurance is purchased on an all-risk basis, including flood, earthquake and terrorism, subject to certain policy conditions, sublimits and deductibles, and inclusive of the replacement cost of real and personal property, including leasehold improvements, business income loss and extra expense. Separate policies for insurer defined Critical Earthquake Zone exposures are maintained at what we believe to be appropriate limits and deductibles for that exposure. Included among other types of insurance that we carry are: workers compensation, general liability, umbrella, automobile, and directors and officers liability policies, subject to certain policy conditions, sublimits and deductibles. In 2002, we established a wholly owned Vermont domiciled captive insurance company as a subsidiary; through the subsidiary we retain and reinsure a portion of our property loss exposure.
Our standard form of storage contract sets forth an agreed maximum valuation for each carton or other storage unit held by us, which serves as a limitation of liability for loss or damage, as permitted under the Uniform Commercial Code. In contracts containing such limits, such values are nominal, and
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we believe that in typical circumstances our liability would be so limited in the event of loss or damage to stored items for which we may be held liable. However, some of our agreements with large volume accounts, some of the contracts assumed in our acquisitions and some of our contracts outside the RIMS businesses contain no such limits or contain higher limits or supplemental insurance arrangements. See "Item 3. Legal Proceedings" for a description of claims by particular customers seeking to rescind their contracts, including limitations on liability, as a result of the fires experienced at our South Brunswick Township, New Jersey facilities in 1997.
Environmental Matters
Some of our currently and formerly owned or operated properties were previously used by entities other than us for industrial or other purposes that involved the use or storage of hazardous substances or petroleum products or may have involved the generation of hazardous wastes. In some instances these properties included the operation of underground storage tanks or the presence of asbestos-containing materials. We have undertaken remediation activities at some of our properties. Although we regularly conduct limited environmental reviews of real property that we intend to purchase, we have not undertaken an in-depth environmental review of all of our owned and operated properties. Under various federal, state and local environmental laws, we may be potentially liable for environmental compliance and remediation costs to address contamination, if any, located at owned and operated properties as well as damages arising from such contamination. Environmental conditions for which we might be liable may also exist at properties that we may acquire in the future. In addition, future regulatory action and environmental laws may impose costs for environmental compliance that do not exist today.
We currently transfer a portion of our risk of financial loss due to currently undetected environmental matters by purchasing a pollution liability insurance policy, which covers all owned and leased locations. Coverage is provided for both liability and remediation costs.
Internet Website
Our Internet address is www.ironmountain.com. Under the "Investor Relations" category on our Internet website, we make available through a hyperlink to a third party SEC website, free of charge, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") as soon as reasonably practicable after such forms are electronically filed or furnished to the SEC. We are not including the information contained on or available through our website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K.
As of December 31, 2002, we conducted operations through 473 leased facilities and 174 facilities that we own or are owned by variable interest entities that we consolidate. Our facilities are divided among our reportable segments as follows: Business Records Management (471), Off-Site Data Protection (65), International (58) and Corporate and Other (53). These facilities contain a total of 43.1 million square feet of space. The leased facilities typically have initial lease terms of ten years with options to renew for an additional five to ten years. In addition, some of the leases contain either a purchase option or a right of first refusal upon the sale of the property. Our facilities are located throughout North America, Europe and Latin America, with the largest number of facilities in California, Florida, Illinois, New Jersey, Texas, Canada and the United Kingdom. We believe that the space available in our facilities is adequate to meet our current needs, although future growth may require that we acquire additional real property either by leasing or purchasing. See Note 13 to Notes
12
to Consolidated Financial Statements for information regarding our minimum annual rental commitments.
South Brunswick Fires Litigation
In March 1997, we experienced three fires, all of which authorities have determined were caused by arson. The fires resulted in damage to one and destruction of another RIMS facility in South Brunswick Township, New Jersey.
Certain of our customers or their insurance carriers have asserted claims as a consequence of the destruction of, or damage to, their records as a result of the fires, including claims with specific requests for compensation and allegations of negligence or other culpability on the part of Iron Mountain. We and our insurers have denied any liability on the part of Iron Mountain as to all of these claims.
We are presently aware of five pending lawsuits that have been filed against Iron Mountain by certain of our customers and/or their insurers, one pending lawsuit filed by the insurers of an abutter of one of the South Brunswick facilities, and one lawsuit filed by a fire official who claims that he was injured in the course of responding to the first fire. Six of these seven lawsuits have been consolidated for pre-trial purposes in the Middlesex County, New Jersey, Superior Court. The seventh lawsuit, brought by a single customer, is pending in the Supreme Court for New York County, New York. An eighth lawsuit, also brought by a single customer, was tried before a federal judge in New Jersey in February 2000. After trial, judgment was entered in favor of Iron Mountain; no appeal was filed in this matter. Several other claims that were originally filed in relation to these lawsuits have been voluntarily dismissed without prejudice by the customers and/or their insurance carriers. One lawsuit filed by an abutter to one of the facilities was similarly voluntarily dismissed without prejudice.
We have denied liability and asserted affirmative defenses in all of the remaining cases arising out of the fires and, in certain of the cases, have asserted counterclaims for indemnification against the plaintiffs. Discovery is ongoing. We deny any liability as a result of the destruction of, or damage to, customer records or property of abutters as a result of the fires, which were beyond our control. We also deny any liability for the injuries allegedly sustained by the fire official. We intend to vigorously defend ourselves against these and any other lawsuits that may arise.
We were paid by our general liability and property insurance carrier for costs incurred as a result of business interruption and property damage due to the fires, and/or the related defense cost of third party claims. However, our errors and omissions carrier made an initial determination denying coverage as to these third party claims. In November 1998, we filed an action in the United States District Court for the District of Massachusetts seeking a declaration of coverage and other relief. The parties, together with the general liability and property carrier, have entered into a settlement agreement regarding reimbursement of defense costs and agreed to ongoing discussions regarding any remaining coverage issues.
Sequedex and Pierce Proceedings
On March 28, 2002, Iron Mountain and Iron Mountain Information Management, Inc. ("IMIM"), one of our wholly owned subsidiaries, commenced an action in the Middlesex County, New Jersey, Superior Court, Chancery Division, captioned Iron Mountain Incorporated and Iron Mountain Information Management, Inc. v. J. Peter Pierce, Sr., Douglas B. Huntley, J. Michael Gold, Fred A. Mathewson, Jr., Michael DiIanni, J. Anthony Hayden, Pioneer Capital, LLC, and Sequedex, LLC. In the complaint, we allege that defendant J. Peter Pierce, Sr., a former member of our Board of Directors and the former President of IMIM until his termination without cause effective June 30,
13
2000, violated his fiduciary obligations, as well as various noncompetition and other provisions of an employment agreement with Iron Mountain, dated February 1, 2000, by providing direct and/or indirect financial, management and other support to defendant Sequedex. Sequedex was established in October 2000, and competed directly with us in the RIMS industry. The complaint also alleges that Mr. Pierce and certain of the other defendants, who were employed by or affiliated with Pierce Leahy prior to the merger of Pierce Leahy with Iron Mountain in February 2000, misappropriated and used our trade secrets and other confidential information. Finally, the complaint asserts claims against Sequedex and others for tortious interference with contractual relations, against all of the defendants for civil conspiracy in respect of the matters described above, and against defendant Michael DiIanni for breach of his employment agreement with IMIM, dated September 6, 2000. The litigation seeks injunctions in respect of certain matters and recovery of damages against the defendants. On April 12, 2002, Iron Mountain also initiated a related arbitration proceeding against Mr. Pierce before the Philadelphia, Pennsylvania, Office of the American Arbitration Association (the "AAA") on account of an arbitration clause in the employment agreement between Iron Mountain and Mr. Pierce. In the arbitration, Mr. Pierce has counterclaimed for indemnification of his expenses, including attorneys' fees. We have disputed Mr. Pierce's claim. On July 19, 2002, the litigation was stayed pending the outcome of the arbitration proceeding, which is currently scheduled for a hearing in April 2003. On February 25, 2003, in response to Iron Mountain's request, the AAA removed the arbitrator; the AAA has not yet appointed a replacement arbitrator. We intend to prosecute the arbitration proceeding and the litigation vigorously.
On December 16, 2002, Hartford Windsor Associates, L.P. ("H-W Associates"), Hartford General, LLC, J. Anthony Hayden, Mr. Pierce, Frank Seidman and John H. Greenwald, Jr. commenced an action in the Court of Common Pleas, Montgomery County, Pennsylvania, against Iron Mountain Incorporated. In the complaint, the plaintiffs allege that H-W Associates purchased a warehouse property in Connecticut to serve as a records storage facility, and entered into a lease for the facility with Sequedex, then a competitor of ours, and that the remaining plaintiffs were limited or general partners of H-W Associates. The plaintiffs also allege that we tortiously interfered with Sequedex's contractual relations with an actual or prospective customer of Sequedex and, as a result, caused Sequedex to default on its lease to H-W Associates. The complaint seeks damages in excess of $100,000.
Also on December 16, 2002, Pioneer Capital L.P. ("Pioneer"), Pioneer Capital Genpar, Inc. ("PCG"), the general partner of Pioneer, and Mr. Pierce, the President of PCG, commenced an action in the Court of Common Pleas, Montgomery County, Pennsylvania, against Iron Mountain Incorporated, C. Richard Reese, John F. Kenny, Jr., Garry Watzke, Schooner Capital LLC ("Schooner") and Vincent J. Ryan. The named individuals are Directors and/or officers of Iron Mountain and Schooner is a shareholder of Iron Mountain. In the complaint, the plaintiffs allege that the defendants had numerous conversations and arrangements with Mr. Carr, one of Mr. Pierce's and Pioneer's business partners in a company named Logisteq LLC. The plaintiffs further allege that, as a result of such conversations and arrangements, defendants conspired to, and did intentionally, interfere with Pioneer's relationship with its partner and Logisteq. The plaintiffs also allege that defendants damaged Mr. Pierce's reputation in the community by telling Iron Mountain employees and other third parties that Mr. Pierce breached his employment agreement with Iron Mountain, misappropriated and used Iron Mountain's confidential information, breached his fiduciary duties to Iron Mountain's shareholders and assisted Sequedex, then a competitor of Iron Mountain, in unfairly competing with Iron Mountain. Finally, the complaint alleges that the business partner in Logisteq taped conversations with Mr. Pierce and others which allegedly violated privacy laws, that the defendants knew, or should have known, that the tapes were being made without the consent of the individuals and, as a result, Mr. Pierce was harmed. The complaint seeks damages in excess of $5,000,000. Iron Mountain and the other defendants have challenged the legal sufficiency of the plaintiffs' pleadings in each of these cases, and intend to vigorously defend ourselves against these lawsuits.
14
Prior to the litigation directly pertaining to Mr. Pierce having been filed, in approximately October 2000, three former management employees of IMIM became employed by or otherwise associated with Sequedex. IMIM commenced actions against these three former employees to enforce its rights under their confidentiality and non-competition agreements. IMIM has also asserted claims against Sequedex for tortious interference with these agreements, and against both Sequedex and the former employees for misappropriation and use of IMIM's trade secrets and confidential information.
The defendants in all three cases have denied the material allegations in IMIM's complaints and asserted various affirmative defenses. In addition, Sequedex and the individual defendants filed counterclaims against IMIM and third party complaints against Iron Mountain. The counterclaims and third party complaints assert claims for tortious interference with certain contracts and prospective business relations between Sequedex and its current and potential customers as well as a claim for trade disparagement and defamation. The defendant in one of these actions sought a declaratory judgment regarding the enforceability of the confidentiality and non-competition agreements at issue in that case and filed a motion for summary judgment seeking to have the non-competition agreement declared void, or to limit its scope. IMIM and Iron Mountain filed motions in all three cases to dismiss the various counterclaims and third-party complaints. All of these motions, i.e., the defendants' motion for summary judgment and IMIM's and Iron Mountain's motions to dismiss, were denied by the court following a hearing on May 7, 2002.
Discovery is proceeding in each of these cases. IMIM intends to prosecute these actions vigorously, as well as to defend vigorously against the counterclaims, and Iron Mountain intends to defend vigorously against the third party complaints.
General
In addition to the matters discussed above, we are involved in litigation from time to time in the ordinary course of business with a portion of the defense and/or settlement costs being covered by various commercial liability insurance policies purchased by us. In the opinion of management, no other material legal proceedings are pending to which we, or any of our properties, are subject.
The outcome of the South Brunswick fires, Sequedex and Pierce proceedings cannot be predicted with certainty. Based on our present assessment of the situation, after consultation with legal counsel, management does not believe that the outcome of these proceedings will have a material adverse effect on our financial condition or results of operations, although there can be no assurance in this regard.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders of Iron Mountain during the fourth quarter of the fiscal year ended December 31, 2002.
15
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters.
Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "IRM." The following table sets forth the high and low sale prices on the NYSE, for the years 2001 and 2002, giving effect to a three-for-two stock split on December 31, 2001:
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Sale Prices
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|---|---|---|---|---|---|---|---|
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High
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Low
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|||||
| 2001 | |||||||
| First Quarter | $ | 28.43 | $ | 21.08 | |||
| Second Quarter | 29.97 | 22.77 | |||||
| Third Quarter | 30.00 | 26.50 | |||||
| Fourth Quarter | 30.47 | 25.33 | |||||
| 2002 | |||||||
| First Quarter | $ | 32.83 | $ | 29.19 | |||
| Second Quarter | 33.17 | 29.10 | |||||
| Third Quarter | 31.30 | 22.72 | |||||
| Fourth Quarter | 34.20 | 20.14 | |||||
The closing price of our common stock on the NYSE on March 3, 2003 was $34.82. As of March 3, 2003, there were 588 holders of record of our common stock. We believe that there are more than 9,800 beneficial owners of our common stock.
Our Board of Directors currently intends to retain future earnings, if any, for the development of our businesses and does not anticipate paying cash dividends on our common stock in the foreseeable future. Future determinations by our Board to pay cash dividends on our common stock would be based primarily upon our financial condition, results of operations and business requirements. Cash dividends, if any, would be payable at the sole discretion of our Board out of the funds legally available for that purpose. Some of our credit agreements and indentures contain provisions that limit the amount of cash dividends we may pay and stock repurchases that we may make.
We have not paid dividends on our common stock, other than stock dividends, during the last two years.
Item 6. Selected Consolidated Financial and Operating Information.
The following selected consolidated statements of operations, balance sheet and other data have been derived from our audited consolidated financial statements. The selected consolidated financial and operating information set forth below should be read in conjunction with Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and the Notes thereto included elsewhere in this filing.
16
|
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Year Ended December 31,
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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1998
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1999
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2000(2)
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2001
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2002(3)
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(In thousands, except per share data)
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| Consolidated Statements of Operations Data: | ||||||||||||||||||
| Revenues: | ||||||||||||||||||
| Storage | $ | 230,702 | $ | 317,387 | $ | 585,664 | $ | 694,474 | $ | 759,536 | ||||||||
| Service and Storage Material Sales (1) | 169,219 | 214,002 | 418,501 | 491,244 | 558,961 | |||||||||||||
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||||||||||||||
| Total Revenues | 399,921 | 531,389 | 1,004,165 | 1,185,718 | 1,318,497 | |||||||||||||
| Operating Expenses: | ||||||||||||||||||
| Cost of Sales (excluding depreciation) (1) | 208,073 | 272,770 | 500,565 | 576,538 | 622,299 | |||||||||||||
| Selling, General and Administrative | 95,867 | 128,948 | 246,559 | 306,934 | 332,332 | |||||||||||||
| Depreciation and Amortization | 48,301 | 65,422 | 126,810 | 153,591 | 109,840 | |||||||||||||
| Stock Option Compensation Expense | — | — | 15,110 | — | — | |||||||||||||
| Merger-related Expenses | — | — | 9,133 | 3,673 | 796 | |||||||||||||
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| Total Operating Expenses | 352,241 | 467,140 | 898,177 | 1,040,736 | 1,065,267 | |||||||||||||
| Operating Income | 47,680 | 64,249 | 105,988 | 144,982 | 253,230 | |||||||||||||
| Interest Expense, Net | 45,673 | 54,425 | 117,975 | 134,742 | 136,632 | |||||||||||||
| Other (Income) Expense, Net | (1,384 | ) | (17 | ) | 6,045 | 18,371 | (3,351 | ) | ||||||||||
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| Income (Loss) from Continuing Operations Before Provision for Income Taxes and Minority Interest | 3,391 | 9,841 | (18,032 | ) | (8,131 | ) | 119,949 | |||||||||||
| Provision for Income Taxes | 6,558 | 10,579 | 9,125 | 26,036 | 49,295 | |||||||||||||
| Minority Interests in Earnings (Losses) of Subsidiaries | — | 322 | (2,224 | ) | (1,929 | ) | 3,629 | |||||||||||
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| (Loss) Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle | (3,167 | ) | (1,060 | ) | (24,933 | ) | (32,238 | ) | 67,025 | |||||||||
| Income from Discontinued Operations (net of tax) | 201 | 241 | — | — | 1,116 | |||||||||||||
| Loss on Sale of Discontinued Operations (net of tax benefit) | — | (13,400 | ) | — | — | — | ||||||||||||
| Extraordinary Charges (net of tax benefit) | — | — | (2,892 | ) | (11,819 | ) | (3,453 | ) | ||||||||||
| Cumulative Effect of Change in Accounting Principle (net of minority interest) | — | — | — | — | (6,396 | ) | ||||||||||||
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| Net (Loss) Income | $ | (2,966 | ) | $ | (14,219 | ) | $ | (27,825 | ) | $ | (44,057 | ) | $ | 58,292 | ||||
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| Net (Loss) Income per Common Share — Basic: | ||||||||||||||||||
| (Loss) Income from Continuing Operations | $ | (0.08 | ) | $ | (0.02 | ) | $ | (0.31 | ) | $ | (0.39 | ) | $ | 0.79 | ||||
| Income from Discontinued Operations (net of tax) | 0.01 | 0.01 | — | — | 0.01 | |||||||||||||
| Loss on Sale of Discontinued Operations (net of tax benefit) | — | (0.27 | ) | — | — | — | ||||||||||||
| Extraordinary Charges (net of tax benefit) | — | — | (0.04 | ) | (0.14 | ) | (0.04 | ) | ||||||||||
| Cumulative Effect of Change in Accounting Principle (net of minority interest) | — | — | — | — | (0.08 | ) | ||||||||||||
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| Net (Loss) Income — Basic | $ | (0.07 | ) | $ | (0.28 | ) | $ | (0.35 | ) | $ | (0.53 | ) | $ | 0.69 | ||||
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| Net (Loss) Income per Common Share — Diluted: | ||||||||||||||||||
| (Loss) Income from Continuing Operations | $ | (0.08 | ) | $ | (0.02 | ) | $ | (0.31 | ) | $ | (0.39 | ) | $ | 0.78 | ||||
| Income from Discontinued Operations (net of tax) | 0.01 | 0.01 | — | — | 0.01 | |||||||||||||
| Loss on Sale of Discontinued Operations (net of tax benefit) | — | (0.27 | ) | — | — | — | ||||||||||||
| Extraordinary Charges (net of tax benefit) | — | — | (0.04 | ) | (0.14 | ) | (0.04 | ) | ||||||||||
| Cumulative Effect of Change in Accounting Principle (net of minority interest) | — | — | — | — | (0.07 | ) | ||||||||||||
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| Net (Loss) Income — Diluted | $ | (0.07 | ) | $ | (0.28 | ) | $ | (0.35 | ) | $ | (0.53 | ) | $ | 0.68 | ||||
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| Weighted Average Common Shares Outstanding — Basic | 41,205 | 50,018 | 79,688 | 83,666 | 84,651 | |||||||||||||
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| Weighted Average Common Shares Outstanding — Diluted | 41,205 | 50,018 | 79,688 | 83,666 | 86,071 | |||||||||||||
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(footnotes follow)
17
|
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Year Ended December 31,
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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1998
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1999
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2000
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2001
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2002
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(In thousands)
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| Other Data: | ||||||||||||||||
| EBITDA | $ | 97,365 | $ | 129,366 | $ | 228,977 | $ | 282,131 | $ | 362,792 | ||||||
| EBITDA as a Percentage of Total Revenues | 24.3 | % | 24.3 | % | 22.8 | % | 23.8 | % | 27.5 | % | ||||||
| Adjusted EBITDA (4) | $ | 95,981 | $ | 129,671 | $ | 257,041 | $ | 302,246 | $ | 363,866 | ||||||
| Adjusted EBITDA as a Percentage of Total Revenues | 24.0 | % | 24.4 | % | 25.6 | % | 25.5 | % | 27.6 | % | ||||||
| Ratio of Earnings to Fixed Charges | 1.1 | x | 1.1 | x | 0.9 | x(5) | 1.0 | x(5) | 1.7 | x | ||||||
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As of December 31,
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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1998
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1999
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2000
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2001
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2002
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(In thousands)
|
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| Consolidated Balance Sheet Data: | |||||||||||||||
| Cash and Cash Equivalents | $ | 1,715 | $ | 3,830 | $ | 6,200 | $ | 21,359 | $ | 56,292 | |||||
| Total Assets | 967,385 | 1,317,212 | 2,659,096 | 2,859,906 | 3,230,655 | ||||||||||
| Total Debt | 456,178 | 612,947 | 1,355,131 | 1,496,099 | 1,732,097 | ||||||||||
| Shareholders' Equity | 338,882 | 488,754 | 924,458 | 885,959 | 944,861 | ||||||||||
Reconciliation of (Loss) Income from Continuing Operations
before Discontinued Operations, Extraordinary Charges and Cumulative Effect of
Change in Accounting Principle to EBITDA to Adjusted EBITDA:
|
|
Year Ended December 31,
|
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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1998
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1999
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2000
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2001
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2002
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||||||||||||||
|
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(In thousands)
|
||||||||||||||||||
| (Loss) Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle | $ | (3,167 | ) | $ | (1,060 | ) | $ | (24,933 | ) | $ | (32,238 | ) | $ | 67,025 | |||||
| Add: Depreciation and Amortization | 48,301 | 65,422 | 126,810 | 153,591 | 109,840 | ||||||||||||||
| Interest Expense, Net. | 45,673 | 54,425 | 117,975 | 134,742 | 136,632 | ||||||||||||||
| Provision for Income Taxes | 6,558 | 10,579 | 9,125 | 26,036 | 49,295 | ||||||||||||||
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|
|
|
|
|||||||||||||||
| EBITDA | 97,365 | 129,366 | 228,977 | 282,131 | 362,792 | ||||||||||||||
| Add: Other (Income) Expense, Net | (1,384 | ) | (17 | ) | 6,045 | 18,371 | (3,351 | ) | |||||||||||
| Stock Option Compensation Expense | — | — | 15,110 | — | — | ||||||||||||||
| Merger-Related Expenses | — | — | 9,133 | 3,673 | 796 | ||||||||||||||
| Minority Interests in Earnings (Losses) of Subsidiaries | — | 322 | (2,224 | ) | (1,929 | ) | 3,629 | ||||||||||||
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|
|
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|
|||||||||||||||
| Adjusted EBITDA | $ | 95,981 | $ | 129,671 | $ | 257,041 | $ | 302,246 | $ | 363,866 | |||||||||
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|
|
|
|
|
|||||||||||||||
(footnotes follow)
18
Adjusted EBITDA and Adjusted EBITDA-based calculations are used by the holders of our publicly issued debt as important criteria for evaluating our business and, as a result, all of our bond indentures contain covenants in which Adjusted EBITDA-based calculations are used as the primary measure of financial performance. In addition, we use Adjusted EBITDA as the basis for evaluating the performance of and allocating resources to our internal operating segments. However, neither EBITDA nor Adjusted EBITDA are measurements of financial performance under accounting principles generally accepted in the United States and you should not consider EBITDA or Adjusted EBITDA to be substitutes for operating or net income (as determined in accordance with accounting principles generally accepted in the United States, or GAAP) as indicators of our performance or for cash flow from operations (as determined in accordance with GAAP) as measures of liquidity. After March 28, 2003 we will no longer present Adjusted EBITDA in our public filings in compliance with SEC regulations. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for discussions of other measures of performance determined in accordance with GAAP and our sources and applications of cash flow.
19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with "Item 6. Selected Consolidated Financial and Operating Information" and the Consolidated Financial Statements and Notes thereto and the other financial and operating information included elsewhere in this filing.
This discussion contains "forward-looking statements," as that term is defined in the federal securities laws. See "Cautionary Note Regarding Forward-Looking Statements" on page ii of this filing.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. On an on-going basis, we evaluate the estimates used, including those related to the allowance for doubtful accounts, impairments of tangible and intangible assets, income taxes, purchase accounting related reserves, self-insurance liabilities, incentive compensation liabilities, litigation liabilities and contingencies. We base our estimates on historical experience, actuarial estimates, current conditions and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources. We use these estimates to assist us in the identification and assessment of the accounting treatment necessary with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies include the following and are in no particular order:
Accounting for Acquisitions
Part of our growth strategy has included the acquisition of numerous businesses. The purchase price of these acquisitions has been determined after due diligence of the acquired business, market research, strategic planning, and the forecasting of expected future results and synergies. Estimated future results and expected synergies are subject to revisions as we integrate each acquisition and attempt to leverage resources.
Each acquisition has been accounted for using the purchase method as defined under the applicable accounting standards at the date of each acquisition, including, Accounting Principles Board Opinion No. 16, "Accounting for Business Combinations," and more recently, SFAS No. 141, "Business Combinations." Accounting for these acquisitions has resulted in the capitalization of the cost in excess of fair value of the net assets acquired in each of these acquisitions as goodwill. We estimated the fair values of the assets acquired in each acquisition as of the date of acquisition and these estimates are subject to adjustment. These estimates are subject to final assessments of the fair value of property, plant and equipment, intangible assets, operating leases and deferred income taxes. We complete these assessments within one year of the date of acquisition. We are not aware of any information that would indicate that the final purchase price allocations for acquisitions completed in 2002 would differ meaningfully from preliminary estimates. See Note 7 to Notes to Consolidated Financial Statements.
In connection with each of our acquisitions, we have undertaken certain restructurings of the acquired businesses to realize efficiencies and potential cost savings. Our restructuring activities include the elimination of duplicate facilities, reductions in staffing levels, and other costs associated with exiting certain activities of the businesses we acquire. The estimated cost of these restructuring activities are included as costs of the acquisition and are recorded as goodwill consistent with the guidance of Emerging Issues Task Force ("EITF") Issue No. 95-3, "Recognition of Liabilities in
20
Connection with a Purchase Business Combination." While we finalize our plans to restructure the businesses we acquire within one year of the date of acquisition, it may take more than one year to complete all activities related to the restructuring of an acquired business.
Our acquisitions have resulted in a significant accumulation of goodwill, which for acquisitions prior to July 1, 2001, we amortized over an estimated benefit period of 20 to 30 years. We have not amortized any goodwill for our acquisitions completed after July 1, 2001 and, beginning on January 1, 2002, ceased to amortize any goodwill in accordance with SFAS No. 142. Through December 31, 2001, we reviewed our existing goodwill for impairment, consistent with the guidelines of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and determined that no amounts of goodwill were impaired using the undiscounted future cash flow methodology of SFAS No. 121. Effective January 1, 2002, we reviewed goodwill for impairment consistent with the guidelines of SFAS No. 142 using a discounted future cash flow approach. The result of testing our goodwill for impairment in accordance with SFAS No. 142, as of January 1, 2002, was a non-cash charge of $6.4 million (net of minority interest of $8.5 million), which, consistent with SFAS No. 142, is reported in the caption "cumulative effect of change in accounting principle" in our consolidated statement of operations. Impairment adjustments recognized in the future, if any, are generally required to be recognized as operating expenses. The $6.4 million charge relates to our South American reporting unit within our international reporting segment. The South American reporting unit failed the impairment test primarily due to a reduction in the expected future performance of the unit resulting from a deterioration of the local economic environment and the devaluation of the currency in Argentina. As goodwill amortization expense in our South American reporting unit is not deductible for tax purposes, this impairment charge is not net of a tax benefit. We have a controlling 50.1% interest in Iron Mountain South America, Ltd ("IMSA") and the remainder is owned by an unaffiliated entity. IMSA has acquired a controlling interest in entities in which local partners have retained a minority interest in order to enhance our local market expertise. These local partners have no ownership interest in IMSA. This has caused the minority interest portion of the non-cash goodwill impairment charge ($8.5 million) to exceed our portion of the non-cash goodwill impairment charge ($6.4 million). In accordance with SFAS No. 142, we selected October 1 as our annual goodwill impairment review date. We performed our annual goodwill impairment review as of October 1, 2002 and noted no impairment of goodwill at our reporting units as of that date. As of December 31, 2002, no factors were identified that would alter this assessment.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses resulting from the potential inability of our customers to make required payments. When calculating the allowance, we consider our past loss experience, current and prior trends in our aged receivables, current economic conditions, and specific circumstances of individual receivable balances. If the financial condition of our customers were to significantly change, resulting in a significant improvement or impairment of their ability to make payments, an adjustment of the allowance may be required.
21
Accounting for Variable Interest Entities
Under our three synthetic lease facilities, three special purpose entities, which we now refer to as variable interest entities, were established to acquire properties and lease those properties to us. These leases were designed to qualify as operating leases for accounting purposes, where the monthly lease expense was recorded as rent expense in our consolidated statements of operations and where the related underlying assets and liabilities were not consolidated in our consolidated balance sheets. As described below, we changed the characterization and the related accounting for properties in one variable interest entity ("VIE III") during the third quarter of 2002 and prospectively for new property acquisitions in the fourth quarter of 2002. In addition, anticipating the requirement to consolidate, and in line with our objective of transparent reporting, we voluntarily guaranteed all of the at-risk equity in VIE III and our two other variable interest entities (together, the "Other Variable Interest Entities" and, collectively with VIE III, our "Variable Interest Entities") as of December 31, 2002. These guarantees resulted in our consolidating all of our Variable Interest Entities' assets and liabilities.
Synthetic lease facilities require the application of complex lease and variable interest entity accounting rules and interpretations. In the course of applying these complex accounting rules and interpretations, we have made certain judgments, estimates and assumptions relative to their treatment. We entered into these synthetic lease facilities because we believe they afforded, and continue to afford, meaningful benefits. Such benefits included rental payments (prospectively interest payments) below those available from traditional landlords and developers, and tax benefits and control provisions normally associated with direct ownership, including the right to buy the properties at original cost. Each of the leases under our synthetic lease facilities has a five to six and one-half year term for specified records storage warehouses; commencement dates for these leases range from 1998 to 2002.
Our Variable Interest Entities were financed with real estate term loans. These real estate term loans have always been and continue to be treated as indebtedness for purposes of our financial covenants under our Amended and Restated Credit Agreement. As of the date they were consolidated into our financial statements, they were considered indebtedness under our Indentures for our Senior Subordinated Notes and our Subsidiary notes. As of December 31, 2002, these real estate term loans amounted to $202.6 million. No further financing is currently available to our Variable Interest Entities to fund further property acquisitions. See Note 5 to Notes to Consolidated Financial Statements.
In light of the impending changes in the accounting rules related to off-balance sheet treatment of variable interest entities, which became final subsequent to December 31, 2002 as discussed below, management undertook an internal review of our Variable Interest Entities during the third quarter of 2002 in order to determine the future treatment of these transactions. During this review, management determined that VIE III should not have qualified for off-balance sheet treatment due to a technical documentation error. VIE III was involved in a series of construction projects and other facility acquisitions that were initiated from mid 2001 through December 31, 2002. As a result, management changed the characterization and the related accounting for properties in VIE III during the third quarter of 2002 and prospectively for new property acquisitions in the fourth quarter of 2002 to record these properties and their related financing obligations in our consolidated results. New property acquisitions in the fourth quarter of 2002 totaled $10.4 million.
Also, as of December 31, 2002, we voluntarily guaranteed all of the at-risk equity in VIE III. This resulted in our consolidating all of its remaining assets and liabilities. VIE III's remaining assets and liabilities relate to an interest rate swap agreement, which it entered into upon its inception. This swap agreement hedges the majority of interest rate risk associated with VIE III's real estate term loans. Specifically, VIE III has swapped $97.0 million of floating rate debt to fixed rate debt. Since the time it entered into the swap agreement, interest rates have fallen. As a result, the estimated fair value of the derivative liability held by VIE III, and now consolidated on our balance sheet, related to the swap agreement was $13.7 million at December 31, 2002. This swap has been since inception and continues
22
to be, as of December 31, 2002, an effective hedge in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
As of December 31, 2002, the total impact related to the change in characterization and the consolidation of VIE III, as compared to December 31, 2001, was an increase in gross property, plant and equipment, accumulated depreciation, long-term debt, and interest expense of $98.7 million, $1.7 million, $98.7 million and $6.2 million, respectively. Additionally, we have recorded an additional derivative liability and deferred tax assets of $13.7 million and $5.0 million, respectively, and a charge to shareholders' equity as a component of accumulated other comprehensive items of $8.7 million as of December 31, 2002. See Notes 3, 4 and 5 to Notes to Consolidated Financial Statements.
In addition, as of December 31, 2002, we voluntarily guaranteed all of the at-risk equity in the Other Variable Interest Entities. This resulted in our consolidating all of their assets and liabilities. As of December 31, 2002, the total impact of consolidating the Other Variable Interest Entities was an increase of $103.9 million both in property, plant and equipment and long-term debt. The underlying leases associated with the Other Variable Interest Entities were treated as operating leases from inception (as early as 1998) through consolidation on December 31, 2002. As a result, during the years ended December 31, 2000, 2001 and 2002, we recorded $4.8 million, $6.7 million and $5.9 million, respectively, in rent expense in our consolidated statements of operations related to these leases. On a prospective basis, we will be recording depreciation expense associated with the properties, interest expense associated with the real estate term loans and will no longer have rent expense related to leases associated with the Other Variable Interest Entities in our consolidated financial results. If the Other Variable Interest Entities had been consolidated in our historical financial statements as of January 1, 2002: (1) depreciation expense would have increased in an amount equal to $2.0 million for the twelve months ended December 31, 2002; and (2) rent expense for these properties would have been reclassified as interest expense in an amount equal to $5.9 million for the twelve months ended December 31, 2002. Consequently, our EBITDA, Adjusted EBITDA, operating income and interest expense would have increased by $5.9 million, $5.9 million, $3.9 million and $5.9 million, respectively, for the twelve months ended December 31, 2002. In addition, net income before provision for income taxes would have decreased by $2.0 million for the twelve months ended December 31, 2002.
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," which addresses the financial reporting by enterprises involved with variable interest entities. FIN 46 addresses both unconsolidated variable interest entities and any new variable interest entities that are created subsequent to the issuance of the interpretation. As a result of the actions described above, as of December 31, 2002, we did not have any unconsolidated variable interest entities. Any future variable interest entities will be accounted for in accordance with FIN 46.
Accounting for Derivative Instruments and Hedging Activities
SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities on its balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; (2) a hedge of the exposure to variable cash flows of a forecasted transaction; or (3) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and resulting designation. Unrealized and realized gains and losses are recognized each period as other comprehensive income which is a component of accumulated other comprehensive items included in
23
shareholders' equity, assets and liabilities or earnings depending on the nature of such derivatives. See Note 4 to Notes to Consolidated Financial Statements for a detailed description of our derivative instruments.
In order for a derivative contract to be designated as a hedge, the relationship between the hedging instrument and the hedged item or transaction must be highly effective. The effectiveness test is performed at the inception of the hedge and each reporting period thereafter, throughout the period that the hedge is designated. Any amounts determined to be ineffective are recorded currently in earnings.
For fair value hedges, the gains and losses are recorded in earnings each period along with the change in the fair value of the hedged item. For cash flow hedges, the effective portions of the gains and losses are recorded to other comprehensive income and are recognized in earnings concurrent with the disposition of the hedged risks. For hedges of foreign currency the accounting treatment generally follows the treatment for cash flow hedges or fair value hedges depending on the nature of the foreign currency hedge.
Although we apply some judgment in the assessment of hedge effectiveness to designate certain derivatives as hedges, the nature of the contracts used to hedge the underlying risks is such that the correlation of the changes in fair values of the derivatives and underlying risks is generally high. We had $35.3 million of interest rate risk management liabilities and had a corresponding amount for unrealized losses to other comprehensive income ($22.5 million, net of tax) related to cash flow hedges at December 31, 2002.
One of our interest rate swaps was used to hedge interest rate risk on certain variable operating lease commitments. As a result of the December 31, 2002 consolidation of one of the Other Variable Interest Entities ("VIE I"), the operating lease commitments that were hedged by this swap are now considered to be inter-company transactions and we determined that this hedge was no longer effective on a prospective basis. We have consolidated the real estate term loans of VIE I and we will prospectively record interest expense instead of rent expense as we make cash interest payments on this debt. The unrealized mark to market losses previously recorded in other comprehensive income attributable to this swap ($1.9 million, net of tax, as of December 31, 2002) will be amortized through other (income) expense, net in our consolidated statement of operations based on the changes in the fair value of the swap each period that the remaining interest payments are made on VIE I's external debt. We will prospectively account for mark to market changes in the derivative liability of this swap agreement through other (income) expense, net in our consolidated statement of operations. This accounting will have a net zero impact within our consolidated statement of operations as it relates to the amortization of unrealized mark to market losses and the fair valuing of the derivative liability.
Accounting for Internal Use Software
We develop various software applications for internal use. We account for those costs in accordance with the provisions of Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires computer software costs associated with internal use software to be expensed as incurred until certain capitalization criteria are met. SOP 98-1 also defines which types of costs should be capitalized and which should be expensed. Payroll and related costs for employees who are directly associated with, and who devote time to, the development of internal use computer software projects, to the extent time is spent directly on the project, are capitalized and depreciated over the estimated useful life of the software. Capitalization begins when the design stage of the application has been completed and it is probable that the project will be completed and used to perform the function intended. Depreciation begins when the software is placed in service. Computer software costs that are capitalized are evaluated for
24
impairment in accordance with SFAS No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
It may be necessary for us to write-off amounts associated with the development of internal use software if the project cannot be completed as intended. Our expansion into new technology-based service offerings requires the development of internal use software that will be susceptible to rapid and significant changes in technology. We may be required to write-off unamortized costs or shorten the estimated useful life if an internal use software program is replaced with an alternative tool prior to the end of the software's estimated useful life. General uncertainties related to expansion into digital businesses, including the timing of introduction and market acceptance of our services, may adversely impact the recoverability of these assets. See Note 2(f) to Notes to Consolidated Financial Statements.
During the year ended December 31, 2002, we replaced one of our internal use software programs, which resulted in the write-off to other (income) expense, net of the remaining net book value of $1.1 million.
Deferred Income Taxes
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have considered estimated future taxable income and ongoing tax planning strategies in assessing the amount needed for the valuation allowance. If actual results differ unfavorably from those estimates used, we may not be able to realize all or part of our net deferred tax assets and additional valuation allowances may be required.
Overview
Our primary financial goal has always been, and continues to be, to increase consolidated Adjusted EBITDA in relation to capital invested, even as our focus has shifted from growth through acquisitions to internal revenue growth. Adjusted EBITDA is a source of funds for investment in continued growth and for servicing indebtedness. We use Adjusted EBITDA as our internal measurement of financial performance and as the basis for allocating resources to our internal operating segments. In addition, substantially all of our financing agreements contain covenants in which Adjusted EBITDA-based calculations are used as a measure of financial performance for financial ratio purposes. Adjusted EBITDA and Adjusted EBITDA-based calculations are used by the holders of our publicly issued debt as important criteria for evaluating our business and, as a result, all of our bond indentures contain covenants in which Adjusted EBITDA-based calculations are used as the primary measure of financial performance. However, you should not consider EBITDA or Adjusted EBITDA to be substitutes for operating or net income (as determined in accordance with accounting principles generally accepted in the United States, or GAAP) as indicators of our performance or for cash flow from operations (as determined in accordance with GAAP) as a measure of liquidity. After March 28, 2003 we will no longer present Adjusted EBITDA in our public filings in compliance with SEC regulations.
Effective July 1, 2001 and January 1, 2002, we adopted the provisions of SFAS No. 141 and SFAS No. 142. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives. Had SFAS No. 142 been effective January 1, 2000, goodwill amortization expense would have been reduced by $53.4 million and $59.2 million ($44.8 million and $50.9 million, net of tax) for the years ended December 31, 2000 and 2001, respectively. See Note 2(g) to Notes to Consolidated Financial Statements.
Our revenues consist of storage revenues as well as service and storage material sales revenues. Storage revenues consist of periodic charges related to the storage of materials (either on a per unit or
25
per cubic foot of records basis) and have accounted for approximately 58% of total consolidated revenues in each of the last five years. In certain circumstances, based upon customer requirements, storage revenues include periodic charges associated with normal, recurring service activities. Service and storage material sales revenues are comprised of charges for related service activities and courier operations and the sale of storage materials. Related service revenues arise from additions of new records, temporary removal of records from storage, refiling of removed records, destructions of records, permanent withdrawals from storage and other complementary and auxiliary services, and sales of specially designed storage containers, magnetic media including computer tapes and related supplies. Courier operations consist primarily of the pickup and delivery of records upon customer request. Customers are generally billed on a monthly basis on contractually agreed-upon terms.
Cost of sales (excluding depreciation) consists primarily of wages and benefits for field personnel, facility occupancy costs including rent and utilities, transportation expenses including vehicle leases and fuel, other product cost of sales and other equipment costs and supplies. Of these, wages and benefits and facility occupancy costs are the most significant. The expansion of our secure shredding operations has resulted in changes to the mix of certain cost of sales components. Our secure shredding operations are more labor intensive, therefore, our labor expense will be higher as a percentage of revenue as compared to our traditional operations. In addition, our secure shredding operations incur higher transportation costs and lower facility costs, respectively, as a percentage of revenue, as compared to our traditional operations.
Selling, general and administrative expenses consist primarily of wages and benefits for management, administrative, information technology, sales, account management and marketing personnel, as well as expenses related to communications and data processing, travel, professional fees, bad debts, training, office equipment and supplies.
Our depreciation and amortization charges result primarily from the capital-intensive nature of our business. The principal components of depreciation relate to storage systems, which include racking, building improvements and leasehold improvements, computer systems hardware and software, and new buildings. Amortization relates primarily to customer relationships and acquisition costs.
Reclassifications and Changes in Presentation
Previously, certain product revenues related to our off-site data protection segment were recorded net of product costs. During the fourth quarter of 2002, we determined that it was more appropriate to record these revenues and costs on the gross rather than net basis. We have reflected this change in all applicable tables and discussions for all periods presented within the following discussion of results of operations. Gross profit, operating income, net income (loss), EBITDA, Adjusted EBITDA and cash flows were not impacted by this change.
We have updated our presentation of segment results to report our operations in Canada, previously analyzed as part of our International segment, and now analyzed within the Business Records Management segment. All applicable tables and discussions have been updated to reflect this change in all periods presented within the following discussion of results of operations. See Note 12 to Notes to Consolidated Financial Statements.
In an effort to further our objective of transparent reporting, our discussion of results for years ended December 31, 2002 and 2001 has been expanded to provide what we believe is more meaningful detail and analysis. These periods represent the first two full years of operations subsequent to the merger with Pierce Leahy. As we have integrated Pierce Leahy and several other significant acquisitions we have improved our data collection systems, resulting in our ability to provide greater insight regarding our operations.
26
Results of Operations
The following table sets forth, for the periods indicated, information derived from our consolidated statements of operations, expressed as a percentage of total consolidated revenues.
|
|
Year Ended December 31,
|
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|---|---|---|---|---|---|---|---|---|---|
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|
2000
|
2001
|
2002
|
||||||
| Revenues: | |||||||||
| Storage | 58.3 | % | 58.6 | % | 57.6 | % | |||
| Service and Storage Material Sales | 41.7 | 41.4 | 42.4 | ||||||
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|
|
|||||||
| Total Revenues | 100.0 | 100.0 | 100.0 | ||||||
| Operating Expenses: | |||||||||
| Cost of Sales (excluding depreciation) | (49.8 | ) | (48.6 | ) | (47.2 | ) | |||
| Selling, General and Administrative | (24.6 | ) | (25.9 | ) | (25.2 | ) | |||
| Depreciation and Amortization | (12.6 | ) | (13.0 | ) | (8.3 | ) | |||
| Stock Option Compensation Expense | (1.5 | ) | — | — | |||||
| Merger-related Expenses | (0.9 | ) | (0.3 | ) | (0.1 | ) | |||
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|
|
|
|||||||
| Total Operating Expenses | (89.4 | ) | (87.8 | ) | (80.8 | ) | |||
| Operating Income | 10.6 | 12.2 | 19.2 | ||||||
| Interest Expense, Net | (11.7 | ) | (11.4 | ) | (10.4 | ) | |||
| Other Expense (Income), Net | 0.6 | 1.5 | (0.3 | ) | |||||
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|
|
|
|||||||
| (Loss) Income from Continuing Operations Before Provision for Income Taxes and Minority Interest | (1.8 | ) | (0.7 | ) | 9.1 | ||||
| Provision for Income Taxes | (0.9 | ) | (2.2 | ) | (3.7 | ) | |||
| Minority Interest in Losses (Earnings) of Subsidiaries | 0.2 | 0.2 | (0.3 | ) | |||||
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|
|||||||
| (Loss) Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle | (2.5 | ) | (2.7 | ) | 5.1 | ||||
| Income from Discontinued Operations (net of tax) | — | — | 0.1 | ||||||
| Extraordinary Charges from Early Extinguishment of Debt (net of tax benefit) | (0.3 | ) | (1.0 | ) | (0.3 | ) | |||
| Cumulative Effect of Change in Accounting Principle (net of minority interest) | — | — | (0.5 | ) | |||||
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| Net (Loss) Income | (2.8 | )% | (3.7 | )% | 4.4 | % | |||
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| Other Data: | |||||||||
| EBITDA | 22.8 | % | 23.8 | % | 27.5 | % | |||
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| Adjusted EBITDA | 25.6 | % | 25.5 | % | 27.6 | % | |||
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27
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Consolidated Results
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2001
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2002
|
Dollar
Change |
Percent
Change |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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|
(In Thousands)
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| Revenues: | ||||||||||||||
| Storage | $ | 694,474 | $ | 759,536 | $ | 65,062 | 9.4 | % | ||||||
| Service and Storage Material Sales | 491,244 | 558,961 | 67,717 | 13.8 | % | |||||||||
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|
||||||||||||
| Total Revenues | 1,185,718 | 1,318,497 | 132,779 | 11.2 | % | |||||||||
| Operating Expenses: | ||||||||||||||
| Cost of Sales (excluding depreciation) | 576,538 | 622,299 | 45,761 | 7.9 | % | |||||||||
| Selling, General and Administrative | 306,934 | 332,332 | 25,398 | 8.3 | % | |||||||||
| Depreciation and Amortization | 153,591 | 109,840 | (43,751 | ) | (28.5 | %) | ||||||||
| Merger-related Expenses | 3,673 | 796 | (2,877 | ) | (78.3 | %) | ||||||||
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|
|
||||||||||||
| Total Operating Expenses | 1,040,736 | 1,065,267 | 24,531 | 2.4 | % | |||||||||
| Operating Income | 144,982 | 253,230 | 108,248 | 74.7 | % | |||||||||
| Interest Expense, Net | 134,742 | 136,632 | 1,890 | 1.4 | % | |||||||||
| Other Expense (Income), Net | 18,371 | (3,351 | ) | (21,722 | ) | (118.2 | %) | |||||||
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|
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| (Loss) Income from Continuing Operations Before Provision for Income Taxes and Minority Interest | (8,131 | ) | 119,949 | 128,080 | 1,575.2 | % | ||||||||
| Provision for Income Taxes | 26,036 | 49,295 | 23,259 | 89.3 | % | |||||||||
| Minority Interest in (Losses) Earnings of Subsidiaries | (1,929 | ) | 3,629 | 5,558 | 288.1 | % | ||||||||
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|
|
||||||||||||
| (Loss) Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle | (32,238 | ) | 67,025 | 99,263 | 307.9 | % | ||||||||
| Income from Discontinued Operations (net of tax) | — | 1,116 | 1,116 | — | ||||||||||
| Extraordinary Charges from Early Extinguishment of Debt (net of tax benefit) | (11,819 | ) | (3,453 | ) | 8,366 | 70.8 | % | |||||||
| Cumulative Effect of Change in Accounting Principle | — | (6,396 | ) | (6,396 | ) | — | ||||||||
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|
|
|
||||||||||||
| Net (Loss) Income | $ | (44,057 | ) | $ | 58,292 | $ | 102,349 | 232.3 | % | |||||
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28
Reconciliation of (Loss) Income From Continuing Operations
Before Discontinued Operations, Extraordinary Charges And
Cumulative Effect of Change in Accounting Principle
to EBITDA to Adjusted EBITDA
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Year Ended
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Dollar
Change |
Percent
Change |
|||||||||||||
|
|
2001
|
2002
|
|||||||||||||
|
|
(In Thousands)
|
|
|||||||||||||
| (Loss) Income From Continuing Operations Before Discontinued Operations, Extraordinary Charges And Cumulative Effect of Change in Accounting Principle | $ | (32,238 | ) | $ | 67,025 | $ | 99,263 | 307.9 | % | ||||||
| Add: Depreciation and Amortization | 153,591 | 109,840 | (43,751 | ) | (28.5 | %) | |||||||||
| Interest Expense, Net | 134,742 | 136,632 | 1,890 | 1.4 | % | ||||||||||
| Provision for Income Taxes | 26,036 | 49,295 | 23,259 | 89.3 | % | ||||||||||
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|
|
|||||||||||||
| EBITDA | 282,131 | 362,792 | 80,661 | 28.6 | % | ||||||||||
| Add: Other Expense (Income), Net | 18,371 | (3,351 | ) | (21,722 | ) | (118.2 | %) | ||||||||
| Merger-Related Expenses | 3,673 | 796 | (2,877 | ) | (78.3 | %) | |||||||||
| Minority Interests in (Losses) Earnings of Subsidiaries | (1,929 | ) | 3,629 | 5,558 | 288.1 | % | |||||||||
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|
|
|||||||||||||
| Adjusted EBITDA | $ | 302,246 | $ | 363,866 | $ | 61,620 | 20.4 | % | |||||||
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29
For the year ended December 31, 2002, our consolidated revenues increased $132.8 million, or 11.2%, compared to the same period of 2001. This increase was principally a result of internal revenue growth, which for the year ended December 31, 2002 was 9.5%, comprised of 8.4% for storage revenue and 11.1% for service and storage material sales revenue. We calculate internal revenue growth in local currency for our international operations.
Consolidated storage revenues increased $65.1 million, or 9.4%, to $759.5 million for the year ended December 31, 2002. The increase was primarily attributable to internal revenue growth of 8.4% resulting from net increases in records and other media stored by existing customers and sales to new customers. The net effect of foreign currency translation on storage revenues was a decrease in revenue of $2.4 million. This was a result of a weakening of the Argentine peso, the Canadian dollar, and the Brazilian real against the U.S. dollar, offset by a strengthening of the British pound sterling and the Euro against the U.S. dollar, based on an analysis of weighted average rates for the comparable periods.
Consolidated service and storage material sales revenues increased $67.7 million, or 13.8%, to $559.0 million for the year ended December 31, 2002. The increase was primarily attributable to internal revenue growth of 11.1% resulting from net increases in service and storage material sales to existing customers and sales to new customers. The net effect of foreign currency translation on service and storage material sales revenues was a decrease in revenue of $0.7 million. This was a result of a weakening of the Argentine peso, the Canadian dollar, and the Brazilian real against the U.S. dollar, offset by a strengthening of the British pound sterling and the Euro against the U.S. dollar, based on an analysis of weighted average rates for the comparable periods.
Internal Growth—Eight-Quarter Trend
|
|
2001
|
2002
|
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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|
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
Full
Year |
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
Full
Year |
||||||||||
| Storage Revenue | 12.7% | 11.5% | 10.9% | 9.6% | 11.1% | 8.4% | 8.6% | 8.6% | 8.0% | 8.4% | ||||||||||
| Service and Storage Material Sales Revenue | 8.7% | 8.7% | 5.1% | 10.6% | 8.4% | 9.1% | 10.0% | 15.4% | 9.8% | 11.1% | ||||||||||
| Total Revenue | 11.0% | 10.3% | 8.5% | 10.0% | 10.0% | 8.7% | 9.2% | 11.4% | 8.8% | 9.5% | ||||||||||
The consecutive quarter storage revenue internal growth trend over the last eight quarters, as calculated quarterly comparing the current quarter to the applicable quarter in the prior year, is primarily attributable to a decline in the rate at which customers have added new cartons to their inventory, which may be a result of current economic conditions. However, we have not seen a decline in the duration that our customers maintain their cartons in inventory nor an increase in the rate of cartons destroyed or permanently removed from inventory as a percentage of the total population. In addition, growth from new sales was adversely affected in 2001 and 2002 as a result of the disruption caused by the merging of our sales force with that of Pierce Leahy in 2000. The sales force reorganization has been completed and growth from new sales has begun to increase.
Service and storage material sales revenue internal growth is subject to fluctuations in the timing of non-recurring service projects ordered by customers and in some cases can be affected by delays or cancellations as some customers seek to reduce short-term costs. During 2002, we benefited from a number of large non-recurring service projects in North America and Europe. While we expect to realize revenue associated with these and similar projects in 2003, it will be difficult to replace all of these projects. The volatility in the service revenue growth for the third and fourth quarters of 2001 and 2002 is primarily due to a disruption in the normal pattern of services we provide to our customers
30
following the events of September 11, 2001 and the resulting shift of some services and related revenue, to the fourth quarter of 2001. This caused a favorable comparison for the service revenue growth rate in the third quarter of 2002 and a difficult comparison in the fourth quarter of 2002.
Cost of Sales
Consolidated cost of sales (excluding depreciation) is comprised of the following expenses:
|
|
|
|
|
|
% of Consolidated
Revenues |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2002
|
Dollar
Change |
Percent
Change |
2001
|
2002
|
Percent
Change (Favorable)/ Unfavorable |
|||||||||||
|
|
(In Thousands)
|
|
|
|
|
|||||||||||||
| Labor | $ | 286,951 | $ | 318,707 | $ | 31,756 | 11.1 | % | 24.2 | % | 24.2 | % | (0.0 | )% | ||||
| Facilities | 173,610 | 184,988 | 11,378 | 6.6 | % | 14.6 | % | 14.0 | % | (0.6 | )% | |||||||
| Transportation | 55,167 | 56,972 | 1,805 | 3.3 | % | 4.7 | % | 4.3 | % | (0.4 | )% | |||||||
| Product Cost of Sales | 31,363 | 34,552 | 3,189 | 10.2 | % | 2.6 | % | 2.6 | % | (0.0 | )% | |||||||
| Other | 29,447 | 27,080 | (2,367 | ) | (8.0 | %) | 2.5 | % | 2.1 | % | (0.4 | )% | ||||||
|
|
|
|
|
|
|
|||||||||||||
| $ | 576,538 | $ | 622,299 | $ | 45,761 | 7.9 | % | 48.6 | % | 47.2 | % | (1.4 | )% | |||||
|
|
|
|
|
|
|
|||||||||||||
Labor
The dollar increase in labor expense is primarily attributable to increases in headcount and changes in our labor mix resulting from the expansion of our secure shredding operations. Our secure shredding operations are more labor intensive, therefore, labor expense will be higher as a percentage of revenue as compared to our traditional operations. In 2002, this impact was mitigated by improved labor management in our off-site data protection segment. In addition, our domestic operations, which comprise approximately 75% of our workforce, experienced an overall increase in wages due to normal inflation, merit increases and significant increases in medical insurance and worker's compensation expenses of approximately $12.0 million. The majority of these increases are attributable to higher premiums and self-insurance requirements.
Facilities
Our property management activities combined with a higher utilization of our space has driven the decrease of our facilities expenses as a percentage of consolidated revenues from 14.6% in 2001 to 14.0% in 2002. The largest component of our facilities cost is rent expense, which decreased $0.3 million for the year ended December 31, 2002. We reduced the number of leased facilities we occupy by 23 in 2002 primarily through the consolidation of our property portfolio as we exited less desirable facilities and consolidated our remaining properties subsequent to the Pierce Leahy merger.
The decrease in leased properties is also a result of the recharacterization of eight properties under synthetic lease facilities at the end of 2001, which are now consolidated on our balance sheet at the end of 2002. During 2001 and 2002, we recorded $1.8 million and $0.0 million of rent expense for these eight properties, respectively. An additional 23 properties under our synthetic leases facilities were consolidated as of December 31, 2002; however, they were accounted for as operating leases during 2002 and their costs were included in rent expense. For the years ended December 31, 2001 and 2002, we recorded rent expense of $6.7 million and $5.9 million, respectively, on these 23 properties and we will prospectively record the rent expense as interest expense beginning in 2003.
The dollar increase in facilities expenses is attributable to property insurance, which increased $4.7 million for the year ended December 31, 2002 compared to the year ended December 31, 2001. The market-wide increase in property insurance premiums in the wake of the events of September 11,
31
2001, in addition to experience based annual premium adjustments, resulted in this dramatic increase. Increased rent and facilities expenses in our European operations of $4.6 million and higher domestic property taxes of $1.8 million have also contributed to the dollar increase in facilities expenses.
Transportation
Our transportation expenses are influenced by several variables including total number of vehicles, owned versus leased vehicles, use of subcontracted couriers, fuel expenses, and maintenance. For the years ended December 31, 2002 and 2001 our fleet of vehicles used in operations totaled 2,140 and 2,032, respectively, of which 1,429 and 1,269, respectively, were under operating leases. The net increase in vehicles is primarily attributable to an increase of 40 vehicles in our secure shredding division that were either acquired through acquisitions or added to support growth in the business. We reduced our operating lease expense by $0.6 million during 2002 as a result of our fleet leasing program, which has benefited from an overall reduction in interest rates and our improving credit rating.
The results of our ongoing transportation efficiency projects and the completion of our conversions to the SafeKeeper Plus ® system have been significant in reducing transportation expenses, including fuel and outside courier fees, as a percentage of consolidated revenues. In 2002 we had an overall reduction in fuel consumption and a decrease in fuel expense of $0.4 million in spite of an average increase in the price per gallon of fuel during 2002. We also benefited from a $0.9 million decline in subcontracted courier expenses, which we believe is the result of better management of internal transportation resources. Our improvements in transportation have been partially offset by increased vehicle insurance and repair costs of $0.7 million and $0.9 million, respectively, for the year ended December 31, 2002 over the year ended December 31, 2001, as a result of the increased size of our fleet. We experienced a $2.0 million increase in transportation expenses in our European operations, which is primarily attributable to the growth of operations and is also impacted by the weakening of the U.S. dollar in comparison to the British pound sterling in 2002 versus 2001.
Product Cost of Sales and Other Cost of Sales
Product and other cost of sales are highly correlated to complementary revenue streams. Product cost of sales for the year ended December 31, 2002 was consistent with the year ended December 31, 2001 as a percentage of product revenues. The decrease in other cost of sales of $2.4 million is directly attributable to decreases in variable expenses from our changing mix of complementary services and will vary as our mix of special projects changes from period to period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses are comprised of the following expenses:
|
|
|
|
|
|
% of Consolidated Revenues
|
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2002
|
Dollar
Change |
Percent
Change |
2001
|
2002
|
Percent
Change (Favorable)/ Unfavorable |
|||||||||||
|
|
(In Thousands)
|
|
|
|
|
|||||||||||||
| General and Administrative | $ | 193,966 | $ | 202,291 | $ | 8,325 | 4.3 | % | 16.4 | % | 15.3 | % | (1.0 | )% | ||||
| Sales and Marketing | 48,580 | 57,198 | 8,618 | 17.7 | % | 4.1 | % | 4.3 | % | 0.2 | % | |||||||
| Information Technology | 48,663 | 52,236 | 3,573 | 7.3 | % | 4.1 | % | 4.0 | % | (0.1 | )% | |||||||
| Bad Debt Expense | 10,334 | 11,533 | 1,199 | 11.6 | % | 0.9 | % | 0.9 | % | 0.0 | % | |||||||
| Digital | 5,391 | 9,074 | 3,683 | 68.3 | % | 0.5 | % | 0.7 | % | 0.2 | % | |||||||
|
|
|
|
|
|
|
|||||||||||||
| $ | 306,934 | $ | 332,332 | $ | 25,398 | 8.3 | % | 25.9 | % | 25.2 | % | (0.7 | )% | |||||
|
|
|
|
|
|
|
|||||||||||||
32
General and Administrative
The dollar increase in general and administrative expenses is primarily attributable to an increase in professional fees, office facilities, telephone, and supplies expenses. However, these costs were consistent with the increasing scale of our business, as indicated by the decrease of 1.4% as a percentage of consolidated revenues. Increased overhead leverage offset an increase in wages due to normal inflation and merit increases.
Sales and Marketing
The majority of our sales and marketing costs are labor related and are primarily driven by the headcount in each of these departments. Increased headcount and commissions are the most significant contributors to the increase in sales and marketing expenses for the year ended December 31, 2002. Throughout 2002, we continued to invest in the expansion and improvement of our sales force. We added approximately 60 new sales and marketing employees since December 31, 2001, a 15% increase in headcount.
Information Technology
Information technology expenses increased $3.6 million, or 7.3%, to $52.2 million (4.0% of consolidated revenues) for the year ended December 31, 2002 principally due to increased compensation costs as a result of increased headcount and normal inflation and merit increases, as well as, a decrease in capitalizable projects. Additionally, these costs were offset by savings of $1.7 million realized through improved management of information technology telecommunication expenses and a reduction of $1.1 million of information technology equipment lease expenses.
Bad Debt Expense
Consolidated bad debt expense increased $1.2 million, or 11.6%, to $11.5 million (0.9% of consolidated revenues) for the year ended December 31, 2002. Our projects to centralize collection efforts within our divisions have contributed significantly to holding bad debt expense flat as a percentage of consolidated revenues.
Digital
Expenses associated with our digital initiatives increased $3.7 million, or 68.3%, to $9.1 million (0.7% of consolidated revenues) for the year ended December 31, 2002 principally due to increases in information technology professionals and sales staff.
Depreciation, Amortization, and Merger-Related Expenses
Consolidated depreciation and amortization expense decreased $43.8 million, or 28.5%, to $109.8 million (8.3% of consolidated revenues) for the year ended December 31, 2002 from $153.6 million (13.0% of consolidated revenues) for the year ended December 31, 2001. Depreciation expense increased $17.6 million, primarily due to the additional depreciation expense related to capital expenditures, including storage systems, which include racking, building improvements and leasehold improvements, computer systems hardware and software, and new buildings, and depreciation associated with facilities accounted for as capital leases. Depreciation associated with our digital initiatives increased $3.7 million during the year ended December 31, 2002 as a result of software and hardware assets placed in service during late 2001 and throughout 2002. In 2002, the recharacterization of eight properties added in 2001 under one of our synthetic lease programs, as well as nine properties added to such program in 2002, resulted in $1.7 million of additional depreciation. Amortization expense decreased $61.3 million, primarily due to eliminating amortization expense related to goodwill
33
in accordance with SFAS No. 142. See Note 2(g) to Notes to Consolidated Financial Statements and "—Critical Accounting Policies—Accounting for Acquisitions."
Merger-related expenses are certain expenses directly related to our merger with Pierce Leahy that cannot be capitalized and include system conversion costs, costs of exiting certain facilities, severance, relocation and pay-to-stay payments and other transaction-related costs. Merger-related expenses were $0.8 million (0.1% of consolidated revenues) for the year ended 2002 compared to $3.7 million (0.3% of consolidated revenues) for the same period of 2001. All merger related activities associated with the Pierce Leahy merger were completed in 2002.
Interest Expense, Net
Consolidated interest expense, net increased $1.9 million, or 1.4%, to $136.6 million for the year ended December 31, 2002 from $134.7 million for the year ended December 31, 2001. This increase was primarily attributable to $6.2 million of interest expense associated with 17 properties within one of our synthetic lease facilities and increased long-term borrowings through our 2001 bond offerings. These increases were offset by a decline in our overall weighted average interest rate resulting from a general decline in interest rates coupled with our refinancing efforts.
Other (Income) Expense, Net
Consolidated other income, net was $3.4 million for the year ended December 31, 2002 compared to other expense, net of $18.4 million for the year ended December 31, 2001. Significant items included in other (income) expense, net include the following:
|
|
2001
|
2002
|
Change
|
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
(In Thousands)
|
|||||||||
| Foreign currency transaction (gains) and losses | $ | 10,437 | $ | (5,043 | ) | $ | (15,480 | ) | ||
| Loss on investments | 6,900 | 827 | (6,073 | ) | ||||||
| Other, net | 1,034 | 865 | (169 | ) | ||||||
|
|
|
|
||||||||
| $ | 18,371 | $ | (3,351 | ) | $ | (21,722 | ) | |||
|
|
|
|
||||||||
Foreign currency gains of $5.0 million based on period-end exchange rates were recorded in the year ended December 31, 2002 primarily due to the strengthening of the Canadian dollar and British pound sterling against the U.S. dollar as these currencies relate to our intercompany balances with our Canadian and European subsidiaries. During the year ended December 31, 2001, the Canadian dollar had weakened compared to the U.S. dollar and was the primary reason for the foreign currency loss of $10.4 million, based on period-end exchange rates. The loss on investments is the result of a $6.9 million impairment charge taken on our investment in convertible preferred stock of a technology development company in the third quarter of 2001. In 2002, we recorded $0.9 million of similar write-downs. The decrease in loss on investments is also attributable to a gain of $2.1 million recorded on the sale of a property held by one of our European subsidiaries during the second quarter of 2002 offset by losses recorded on disposals of software and write-downs of assets held for sale of $1.1 million and $0.9 million, respectively. No such gains or losses were recorded in 2001.
Provision for Income Taxes
The provision for income taxes was $49.3 million for the year ended December 31, 2002 compared to $26.0 million for the year ended December 31, 2001. The effective rate was 41.1% for the year ended December 31, 2002 and the primary reconciling item between the statutory rate of 35% and the effective rate is state income taxes (net of federal benefit). The effective rate was (320.2%) for the year ended December 31, 2001. During 2001, we amortized non-deductible goodwill for book purposes, however, as result of the adoption of SFAS No. 142 in 2002, goodwill amortization ceased, thereby
34
reducing the effective rate and some of the volatility with respect to our effective rate in the future. Additionally, the 2001 effective rate was impacted by state income taxes (net of federal benefit). There may be future volatility with respect to our effective rate related to items including unusual unforecasted permanent items, significant changes in tax rates in foreign jurisdictions and the need for additional valuation allowances. Also, as a result of our net operating loss carryforwards, we do not expect to pay any significant federal and state income taxes in the next three years.
Minority Interest, Discontinued Operations, Extraordinary Charges, and Cumulative Effect of Change in Accounting Principle
Minority interest in earnings of subsidiaries resulted in a charge to income of $3.6 million (0.3% of consolidated revenues) for the year ended December 31, 2002. This represents our minority partners' share of earnings (losses) in our majority-owned international subsidiaries that are consolidated in our operating results. In 2001, our subsidiaries incurred losses and the minority interest resulted in a credit to income of $1.9 million. The improved results are primarily a result of (1) the elimination of goodwill amortization expense in accordance with SFAS No. 142, (2) increased profitability in our European business and (3) our European minority partners' share ($0.7 million, net of tax) of the $2.1 million gain recorded on the sale of a property held by one of our European subsidiaries during the second quarter of 2002.
In the fourth quarter of 2002, we recorded income from discontinued operations of $1.1 million (net of tax of $0.8 million) as a result of resolving several outstanding contingencies remaining from the sale of the Arcus Staffing Resources, Inc. business unit in 1999.
During the year ended December 31, 2002, we recorded an extraordinary charge of $0.8 million (net of tax benefit of $0.4 million) related to the early retirement of debt in conjunction with the refinancing of our credit facility and in the fourth quarter of 2002 we recorded an extraordinary charge of $2.7 million (net of tax benefit of $1.5 million) related to the early retirement of a portion of our 9 1 / 8 % senior subordinated notes in conjunction with our underwritten public offering of the 7 3 / 4 % senior subordinated notes. For the year ended December 31, 2001, we recorded an extraordinary charge of $11.8 million (net of tax benefit of $8.2 million) related to the early retirement of the 11 1 / 8 % and 10 1 / 8 % senior subordinated notes in conjunction with our underwritten public offerings of the 8 5 / 8 % senior subordinated notes. The charges consisted primarily of the write-off of unamortized deferred financing costs and call and tender premiums associated with the extinguished debt. In January 2003, we redeemed the remaining outstanding principal amount of our 9 1 / 8 % notes resulting in a charge of $1.2 million (net of tax benefit of $0.7 million) in the first quarter of 2003 related to the early retirement of these remaining 9 1 / 8 % notes. We will record this charge to other (income) expense, net in accordance with recent changes in accounting requirements.
In the first quarter of 2002, we recorded a non-cash charge for the cumulative effect of change in accounting principle of $6.4 million (net of minority interest of $8.5 million) as a result of our implementation of SFAS No. 142. There was no such charge in 2001.
Net Income (Loss)
As a result of the foregoing factors, consolidated net income increased $102.3 million, or 232.3%, to $58.3 (4.4% of consolidated revenues) for the year ended December 31, 2002 from a net loss of $44.1 (3.7% of consolidated revenues) for the year ended December 31, 2001.
Adjusted EBITDA
As a result of the foregoing factors, consolidated Adjusted EBITDA increased $61.6 million, or 20.4%, to $363.9 million (27.6% of consolidated revenues) for the year ended December 31, 2002 from $302.2 million (25.5% of consolidated revenues) for the year ended December 31, 2001. Excluding the
35
$8.1 million of development costs, net of recorded revenues, for the year ended December 31, 2002 and $5.4 million of development costs, net of recorded revenues, for the year ended December 31, 2001 related to our new technology-related service offerings, Adjusted EBITDA margins were 28.2% and 25.9% for the year ended December 31, 2002 and December 31, 2001, respectively.
Segment Analysis
|
|
Business
Records Management |
Off-Site
Data Protection |
International
|
Corporate
& Other |
Total
Consolidated |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
(In Thousands)
|
|||||||||||||||
| Segment Revenue | ||||||||||||||||
| Year Ended | ||||||||||||||||
| December 31, 2002 | $ | 908,189 | $ | 233,834 | $ | 109,381 | $ | 67,093 | $ | 1,318,497 | ||||||
| December 31, 2001 | 837,994 | 205,134 | 89,475 | 53,115 | 1,185,718 | |||||||||||
|
|
|
|
|
|
||||||||||||
| Increase in Revenues | $ | 70,195 | $ | 28,700 | $ | 19,906 | $ | 13,978 | $ | 132,779 | ||||||
|
|
|
|
|
|
||||||||||||
| Percentage Increase in Revenues | 8.4 | % | 14.0 | % | 22.2 | % | 26.3 | % | 11.2 | % | ||||||
| Segment Adjusted EBITDA | ||||||||||||||||
| Year Ended | ||||||||||||||||
| December 31, 2002 | $ | 258,229 | $ | 61,542 | $ | 21,988 | $ | 22,107 | $ | 363,866 | ||||||
| December 31, 2001 | 227,769 | 49,804 | 16,250 | 8,423 | 302,246 | |||||||||||
| Segment Adjusted EBITDA as a Percentage of Segment Revenue | ||||||||||||||||
| Year Ended | ||||||||||||||||
| December 31, 2002 | 28.4 | % | 26.3 | % | 20.1 | % | 32.9 | % | 27.6 | % | ||||||
| December 31, 2001 | 27.2 | % | 24.3 | % | 18.2 | % | 15.9 | % | 25.5 | % | ||||||
Revenue in our business records management segment increased 8.4% primarily due to increased storage revenues, strong special projects revenues and acquisitions. The increase in Adjusted EBITDA as a percent of segment revenue for our business records management segment is primarily due to labor and transportation efficiencies gained by the increasing scale of our business and the completion of our integration of Pierce Leahy. Lower facilities expenditures, including rent expense and utilities, and lower bad debt expense resulting from our improved collection efforts also contributed to the improvement of Adjusted EBITDA, as a percentage of segment revenue. This increase was partially offset by higher insurance premiums for property and casualty insurance and an increased investment in our sales force. Reductions in spending related to telecommunication expenditures, as a percentage of segment revenue, also contributed to increasing Adjusted EBITDA.
Revenue in our off-site data protection segment increased 14.0% primarily due to internal revenue growth from both existing and new customers. Adjusted EBITDA as a percent of segment revenue for our off-site data protection segment increased primarily due to improved labor and transportation management. This increase was partially offset by higher insurance premiums for property and casualty insurance and an increase in bad debt expense.
Revenue in our international segment increased primarily due to increased sales efforts and a large service project in the United Kingdom, as well as, acquisitions completed in Europe and South America in the fourth quarter of 2002. Adjusted EBITDA as a percent of segment revenue for our international segment increased primarily due to improved gross margins from our European operations and reduced bad debt expense. This increase was partially offset by higher insurance premiums for property and casualty insurance and reduced margins in our South American operations due to the deteriorating local economic conditions and devaluation of the currency in Argentina.
36
Unfavorable currency fluctuations in South America during 2002 reduced revenues, as measured in U.S. dollars, by $5.0 million during the year ending December 31, 2002. This reduction was offset by the impact of favorable currency fluctuations during 2002 in Europe that increased revenue $2.9 million when compared to the prior year rates.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Consolidated Results
|
|
2000
|
2001
|
Dollar
Change |
Percent
Change |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
(In Thousands)
|
|
||||||||||||
| Revenues: | ||||||||||||||
| Storage | $ | 585,664 | $ | 694,474 | $ | 108,810 | 18.6 | % | ||||||
| Service and Storage Material Sales | 418,501 | 491,244 | 72,743 | 17.4 | % | |||||||||
|
|
|
|
||||||||||||
| Total Revenues | 1,004,165 | 1,185,718 | 181,553 | 18.1 | % | |||||||||
| Operating Expenses: | ||||||||||||||
| Cost of Sales (excluding depreciation) | 500,565 | 576,538 | 75,973 | 15.2 | % | |||||||||
| Selling, General and Administrative | 246,559 | 306,934 | 60,375 | 24.5 | % | |||||||||
| Depreciation and Amortization | 126,810 | 153,591 | 26,781 | 21.1 | % | |||||||||
| Stock Compensation Expense | 15,110 | — | (15,110 | ) | (100.0 | )% | ||||||||
| Merger-related Expenses | 9,133 | 3,673 | (5,460 | ) | (59.8 | )% | ||||||||
|
|
|
|
||||||||||||
| Total Operating Expenses | 898,177 | 1,040,736 | 142,559 | 15.9 | % | |||||||||
| Operating Income | 105,988 | 144,982 | 38,994 | 36.8 | % | |||||||||
| Interest Expense, Net | 117,975 | 134,742 | 16,767 | 14.2 | % | |||||||||
| Other Expense, Net | 6,045 | 18,371 | 12,326 | 203.9 | % | |||||||||
|
|
|
|
||||||||||||
| Loss from Continuing Operations Before Provision for Income Taxes and Minority Interest | (18,032 | ) | (8,131 | ) | 9,901 | 54.9 | % | |||||||
| Provision for Income Taxes | 9,125 | 26,036 | 16,911 | 185.3 | % | |||||||||
| Minority Interest in Losses of Subsidiaries | (2,224 | ) | (1,929 | ) | 295 | 13.3 | % | |||||||
|
|
|
|
||||||||||||
| Loss from Continuing Operations before Extraordinary Charges | (24,933 | ) | (32,238 | ) | (7,305 | ) | (29.3 | )% | ||||||
| Extraordinary Charges from Early Extinguishment of Debt (net of tax benefit) | (2,892 | ) | (11,819 | ) | (8,927 | ) | (308.7 | )% | ||||||
|
|
|
|
||||||||||||
| Net Loss | $ | (27,825 | ) | $ | (44,057 | ) | $ | (16,232 | ) | (58.3 | )% | |||
|
|
|
|
||||||||||||
37
Reconciliation of Loss From Continuing Operations
Before Extraordinary Charges to EBITDA to Adjusted EBITDA
|
|
Year ended
|
|
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Dollar
Change |
Percent
Change |
|||||||||||
|
|
2000
|
2001
|
|||||||||||
|
|
(In Thousands)
|
||||||||||||
| Loss From Continuing Operations Before Extraordinary Charges | $ | (24,933 | ) | $ | (32,238 | ) | $ | (7,305 | ) | (29.3 | )% | ||
| Add: Depreciation and Amortization | 126,810 | 153,591 | 26,781 | 21.1 | % | ||||||||
| Interest Expense, Net | 117,975 | 134,742 | 16,767 | 14.2 | % | ||||||||
| Provision for Income Taxes | 9,125 | 26,036 | 16,911 | 185.3 | % | ||||||||
|
|
|
|
|||||||||||
| EBITDA | 228,977 | 282,131 | 53,154 | 23.2 | % | ||||||||
| Add: Other Expense, Net | 6,045 | 18,371 | 12,326 | 203.9 | % | ||||||||
| Merger-Related Expenses | 9,133 | 3,673 | (5,460 | ) | (59.8 | )% | |||||||
| Stock Option Compensation Expense | 15,110 | — | (15,110 | ) | (100.0 | )% | |||||||
| Minority Interests in Losses of Subsidiaries | (2,224 | ) | (1,929 | ) | 295 | 13.3 | % | ||||||
|
|
|
|
|||||||||||
| Adjusted EBITDA | $ | 257,041 | $ | 302,246 | $ | 45,205 | 17.6 | % | |||||
|
|
|
|
|||||||||||
Consolidated revenues increased $181.6 million, or 18.1%, to $1,185.7 million for the year ended December 31, 2001 from $1,004.2 million for the year ended December 31, 2000. Internal revenue growth for the year ended December 31, 2001 was 10.0%, comprised of 11.1% for storage revenue and 8.4% for service and storage material sales revenues. We calculate internal revenue growth in local currency for our international operations and as if Pierce Leahy had merged with us on January 1, 2000.
Consolidated storage revenues increased $108.8 million, or 18.6%, to $694.5 million for the year ended December 31, 2001 from $585.7 million for the year ended December 31, 2000. The increase was primarily attributable to: (1) internal revenue growth of 11.1% resulting primarily from net increases in records and other media stored by existing customers and sales to new customers; and (2) acquisitions, particularly the inclusion of Pierce Leahy's revenue for twelve months of 2001 versus eleven months of 2000. The total increase in storage revenues was partially offset by the unfavorable effects of foreign currency translation of $3.8 million as a result of the strengthening of the U.S. dollar against certain currencies, primarily the Canadian dollar and the British pound sterling.
Consolidated service and storage material sales revenues increased $72.7 million, or 17.4%, to $491.2 million for the year ended December 31, 2001 from $418.5 million for the year ended December 31, 2000. The increase was primarily attributable to: (1) internal revenue growth of 8.4% resulting primarily from net increases in service and storage material sales to existing customers and sales to new customers; and (2) acquisitions, particularly the inclusion of Pierce Leahy's revenue for twelve months of 2001 versus eleven months of 2000. The total increase in service and storage material sales revenues was partially offset by the unfavorable effects of foreign currency translation of $3.3 million as a result of the strengthening of the U.S. dollar against certain currencies, primarily the Canadian dollar and the British pound sterling.
Consolidated cost of sales (excluding depreciation) increased $76.0 million, or 15.2%, to $576.5 million (48.6% of consolidated revenues) for the year ended December 31, 2001 from $500.6 million (49.8% of consolidated revenues) for the year ended December 31, 2000. The dollar increase was primarily attributable to the required costs to support our revenue growth and was partially offset by operating efficiencies at our U.S. and Canadian operations, particularly related to the decrease in rent as a percent of consolidated revenue of 0.7% offset by a 0.2% increase in other facilities costs as a percent of consolidated revenues and a 0.2% increase in utility expenses (primarily,
38
gas and oil charges) as a percent of consolidated revenues. In our U.S. and Canadian operations, facility costs increased $22.1 million and labor costs increased $33.7 million, which represented a decrease of 0.2% and 0.6% of consolidated revenues, respectively. The decrease as a percent of consolidated revenues was offset by relatively lower gross margins in our emerging secure shredding services business, which increased cost of sales by 0.9% of consolidated revenues.
Consolidated selling, general and administrative expenses increased $60.4 million, or 24.5%, to $306.9 million (25.9% of consolidated revenues) for the year ended December 31, 2001 from $246.6 million (24.6% of consolidated revenues) for the year ended December 31, 2000. The dollar increase was primarily attributable to the required costs to support our revenue growth, while the increase as a percent of consolidated revenues was primarily attributable to: (1) higher overhead levels in our emerging secure shredding services business (an increase of 0.6% of consolidated revenues) and our Latin American and European operations (an increase of 0.4% of consolidated revenues); (2) higher data communications costs resulting from network deployment and migration activities (an increase of 0.4% of consolidated revenues); and (3) expenditures for our marketing and information technology initiatives related to the development of complementary technology-based service offerings (an increase of 0.5% of consolidated revenues). These increases were partially offset by a decrease in the provision for doubtful accounts for our U.S. and Canadian operations (a decrease of 0.3% of consolidated revenues).
Consolidated depreciation and amortization expense increased $26.8 million, or 21.1%, to $153.6 million (13.0% of consolidated revenues) for the year ended December 31, 2001 from $126.8 million (12.6% of consolidated revenues) for the year ended December 31, 2000. Depreciation expense increased $20.3 million, primarily due to the additional depreciation expense related to the 2000 and 2001 acquisitions, particularly the inclusion of Pierce Leahy's depreciation expense for twelve months of 2001 versus eleven months of 2000 and capital expenditures including storage systems, information systems and expansion of storage capacity in existing facilities. Amortization expense increased $6.4 million, primarily due to the additional amortization expense related to the goodwill generated by our 2000 and 2001 acquisitions completed prior to July 1, 2001, particularly Pierce Leahy.
Stock option compensation expense of $15.1 million for the year ended December 31, 2000 represents a non-cash charge resulting from the acceleration and extension of previously granted stock options as a part of separation agreements with certain executives. There were no such costs for the year ended December 31, 2001.
Merger-related expenses are certain expenses directly related to our merger with Pierce Leahy that cannot be capitalized and include system conversion costs, costs of exiting certain facilities, severance, relocation and pay-to-stay payments and other transaction-related costs. Merger-related expenses were $3.7 million (0.3% of consolidated revenues) for the year ended December 31, 2001 compared to $9.1 million (0.9% of consolidated revenues) for the same period of 2000.
As a result of the foregoing factors, consolidated operating income increased $39.0 million, or 36.8%, to $145.0 million (12.2% of consolidated revenues) for the year ended December 31, 2001 from $106.0 million (10.6% of consolidated revenues) for the year ended December 31, 2000.
Consolidated interest expense increased $16.8 million, or 14.2%, to $134.7 million for the year ended December 31, 2001 from $118.0 million for the year ended December 31, 2000. The increase was primarily attributable to increased indebtedness related to: (1) $19.6 million of interest expense on the 8 5 / 8 % senior subordinated notes due 2013, or the 8 5 / 8 % notes, which were issued in April and September 2001; (2) the inclusion of term debt related to our credit facility for twelve months versus five months of 2000 resulting in an increase of $6.2 million; and (3) the inclusion of Pierce Leahy's debt for twelve months of 2001 versus eleven months of 2000 resulting in an increase of $4.7 million. These increases were partially offset by reduced interest expense of $11.8 million due to the retirement
39
of our 11 1 / 8 % and 10 1 / 8 % senior subordinated notes as well as a decline in the weighted average interest rate on our variable rate debt.
Consolidated other expense, net was $18.4 million for the year ended December 31, 2001 compared to $6.0 million for the year ended December 31, 2000. The change was partially due to a $6.9 million impairment charge taken on our investment in convertible preferred stock of a technology development company. Additionally, we recorded a non-cash foreign currency loss of $10.4 million, primarily due to the effect of further weakening of the Canadian dollar against the U.S. dollar for the year ended December 31, 2001, versus the same period of 2000, as it relates to Iron Mountain Canada Corporation's 8 1 / 8 % senior notes due 2008, or the 8 1 / 8 % notes, and the intercompany balances with our Canadian and European subsidiaries. In 2000, this amount was $6.3 million.
As a result of the foregoing factors, consolidated loss from continuing operations before provision for income taxes and minority interests decreased $9.9 million to $8.1 million (0.7% of consolidated revenues) for the year ended December 31, 2001 from $18.0 million (1.8% of consolidated revenues) for the year ended December 31, 2000. The provision for income taxes was $26.0 million for the year ended December 31, 2001 compared to $9.1 million for the year ended December 31, 2000. For the year ended December 31, 2001, we recorded approximately $38.9 million of nondeductible goodwill amortization expense.
Consolidated loss from continuing operations before extraordinary charges increased $7.3 million to $32.2 million (2.7% of consolidated revenues) for the year ended December 31, 2001 from $24.9 million (2.5% of consolidated revenues) for the year ended December 31, 2000. In 2001, we recorded an extraordinary charge of $11.8 million (net of tax benefit of $8.2 million) related to the early retirement of our 11 1 / 8 % and 10 1 / 8 % notes in conjunction with our underwritten public offerings of the 8 5 / 8 % notes. In 2000, we recorded an extraordinary charge of $2.9 million (net of tax benefit of $1.9 million) related to the early extinguishment of debt in conjunction with the refinancing of our senior credit facility. The charges primarily represented call and tender premiums and the write-off of unamortized deferred financing costs associated with the extinguished debt.
As a result of the foregoing factors, consolidated Adjusted EBITDA increased $45.2 million, or 17.6%, to $302.2 million (25.5% of consolidated revenues) for the year ended December 31, 2001 from $257.0 million (25.6% of consolidated revenues) for the year ended December 31, 2000. Excluding the $5.4 million of expenses (0.5% of consolidated revenues) related to the development of our new technology-related service offerings, our Adjusted EBITDA margin for the year ended December 31, 2001 was 25.9% of consolidated revenues. There were no such costs in the same period of 2000.
Adjusted EBITDA as a percent of segment revenue for our business records management segment decreased from 27.3% to 27.2%, primarily due to: (1) increases in cost of sales associated with other facility costs, including utilities and property insurance; (2) increases in selling, general and administrative expenses as a result of divisionalization; (3) higher data communications costs resulting from network deployment and migration activities; and (4) an increase in the provision for doubtful accounts. This decrease was partially offset by increases in gross margin driven by real estate management and labor efficiencies obtained as a result of an increase in scale.
Adjusted EBITDA as a percent of segment revenue for our off-site data protection segment increased from 22.7% to 24.3% primarily due to an increase in gross margin as a result of improved labor, transportation and real estate management, as well as the contribution from the segment's acquisition of two higher margin escrow businesses. This increase was partially offset by: (1) the decentralization of various overhead functions; (2) an increase in spending for sales and marketing; and (3) a decrease in contribution from the segment's higher margin complementary services due to the relatively slower growth in revenue for those services.
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The Adjusted EBITDA margin for our international segment increased from 16.5% to 18.2% primarily due to improved margins from our European and Latin American operations. This increase was partially offset by an increase of $0.7 million in the provision for doubtful accounts at our European operations.
Liquidity and Capital Resources
The following is a summary of our cash balances and cash flows for the years ended December 31, 2000, 2001 and 2002 (in millions).
|
|
2000
|
2001
|
2002
|
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Cash flows provided by operating activities | $ | 157.6 | $ | 160.9 | $ | 254.9 | ||||
| Cash flows used in investing activities | (327.6 | ) | (278.1 | ) | (247.8 | ) | ||||
| Cash flows provided by financing activities | 172.4 | 134.9 | 27.1 | |||||||
|
Cash and cash equivalents at the end of year |
|
$ |
6.2 |
|
$ |
21.4 |
|
$ |
56.3 |
|
Net cash provided by operating activities was $254.9 million for the year ended December 31, 2002 compared to $160.9 million for the year ended December 31, 2001. The increase resulted primarily from an increase in operating income and working capital improvements primarily associated with accounts receivable collections.
We have made significant capital investments, including: (1) capital expenditures, primarily related to growth, including investments in storage systems and information systems and discretionary investments in real estate; (2) acquisitions; and (3) customer relationship and acquisition costs. Cash paid for these investments during the year ended December 31, 2002 amounted to $197.0 million, $49.4 million and $8.4 million, respectively. These investments have been funded primarily through cash flows from operations and borrowings under our revolving credit facilities. In addition, we received proceeds from sales of property and equipment of $7.0 million in the year ended December 31, 2002. Included in capital expenditures for the year ended December 31, 2002 is $15.3 million related to our technology-based service offerings. Excluding any potential acquisitions, we expect to invest between $190.0 million and $215.0 million on capital expenditures in 2003. Included in cash paid for acquisitions for the year ended December 31, 2002 is a $7.2 million contingent payment that was paid during the third quarter of 2002 related to an acquisition made in 2000.
Net cash provided by financing activities was $27.1 million for the year ended December 31, 2002, consisting primarily of net proceeds from the issuance of the 7 3 / 4 % Senior Subordinated Notes due 2015 of $99.0 million and borrowings under our credit facilities of $188.8 million, offset by the net repayment of term loans of $99.0 million, the early retirement of 9 1 / 8 % Senior Subordinated Notes due 2007 totaling $54.4 million, and the repayment of debt under our credit facilities and other debt of $113.2 million.
Since December 31, 2002, we completed three acquisitions for total consideration, including related real estate, of approximately $16.8 million. These transactions will be reflected in our consolidated statement of cash flows in the first quarter of 2003.
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We are highly leveraged and expect to continue to be highly leveraged for the foreseeable future. Our consolidated debt as of December 31, 2002 was comprised of the following:
| Revolving Credit Facility due 2005 | $ | 75,360 | ||
| Term Loan due 2008 | 249,750 | |||
| 9 1 / 8 % Senior Subordinated Notes due 2007 (the "9 1 / 8 % notes") | 22,409 | |||
| 8 1 / 8 % Senior Notes due 2008 (the "Subsidiary notes") | 124,666 | |||
| 8 3 / 4 % Senior Subordinated Notes due 2009 (the "8 3 / 4 % notes") | 249,727 | |||
| 8 1 / 4 % Senior Subordinated Notes due 2011 (the "8 1 / 4 % notes") | 149,625 | |||
| 8 5 / 8 % Senior Subordinated Notes due 2013 (the "8 5 / 8 % notes") | 481,097 | |||
| 7 3 / 4 % Senior Subordinated Notes due 2015 (the "7 3 / 4 % notes") | 100,000 | |||
| Real Estate Term Loans | 202,647 | |||
| Real Estate Mortgages | 16,262 | |||
| Seller Notes | 12,864 | |||
| Other | 47,690 | |||
|
|
||||
| Long-term Debt | 1,732,097 | |||
| Less Current Portion | (69,732 | ) | ||
|
|
||||
| Long-term Debt, Net of Current Portion | $ | 1,662,365 | ||
|
|
||||
The indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under our indentures and other agreements governing our indebtedness. We were in compliance with all debt covenants as of December 31, 2002.
Our key bond leverage ratio of indebtedness to Adjusted EBITDA, as calculated per our bond indenture agreements, decreased from 5.2 as of December 31, 2001 to 4.8 as of December 31, 2002. Our calculation of the ratio as of December 31, 2002 included our real estate term loans associated with our synthetic lease facilities. Our target for this ratio is generally in the range of 4.5 to 5.5.
Our ability to pay interest on or to refinance our indebtedness depends on our future performance, working capital levels and capital structure, which are subject to general economic, financial, competitive, legislative, regulatory and other factors which may be beyond our control. There can be no assurance that we will generate sufficient cash flow from our operations or that future financings will be available on acceptable terms or in amounts sufficient to enable us to service or refinance our indebtedness, or to make necessary capital expenditures.
On March 15, 2002, we entered into the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement replaced our prior credit agreement. The Amended and Restated Credit Agreement has an aggregate principal amount of $650.0 million and includes a $400.0 million revolving credit facility, which includes the ability to borrow in certain foreign currencies, and a $250.0 million term loan facility. The revolving credit facility matures on January 31, 2005. Quarterly term loan payments of $0.3 million began in the fourth quarter of 2002 and will continue through maturity on February 15, 2008, at which time the remaining outstanding principal balance on the term loan facility is due. The interest rate on borrowings under the Amended and Restated Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin. The margin applicable to the term loan under the Amended and Restated Credit Agreement is lower than the margin applicable to term loans under our prior credit agreement and has resulted in reduced interest expense on our borrowings as compared to the previous credit agreement. All intercompany notes and the capital stock of all of our domestic subsidiaries are pledged to secure the Amended and Restated Credit Agreement. As of December 31, 2002, we had $75.4 million of
42
borrowings under our revolving credit facility, all of which was denominated in Canadian dollars in the amount of CAD 118.8 million. We also had various outstanding letters of credit totaling $35.9 million. The remaining availability under the revolving credit facility was $288.7 million as of December 31, 2002 and the interest rates in effect ranged from 3.69% to 5.03% as of December 31, 2002.
On November 8, 2002, we completed an exchange of 8 5 / 8 % notes for 9 1 / 8 % notes at an exchange ratio of 1.0237. This resulted in the issuance of $45.9 million in face value of our 8 5 / 8 % notes and the retirement of $44.8 million of our 9 1 / 8 % notes. This non-cash debt exchange resulted in carryover basis and, therefore, no gain (loss) on extinguishment of debt in accordance with EITF No. 96-19, "Debtor's Accounting for Modification or Exchange of Debt Instruments."
In December 2002, we completed an underwritten public offering of $100.0 million in aggregate principal amount of 7 3 / 4 % notes. The 7 3 / 4 % notes were issued at a price to investors of 100% of par. Our net proceeds of $99.0 million, after paying the underwriters' discounts and commissions, were used to fund our offer to purchase and consent solicitation relating to our outstanding 9 1 / 8 % notes, to repay outstanding borrowings under our revolving credit facility and for general corporate purposes.
In December 2002, we received and accepted tenders for $52.0 million of the $75.2 million aggregate principal amount outstanding of our 9 1 / 8 % notes, at a redemption price (expressed as a percentage of principal amount) of 104.563%. We recorded an extraordinary charge of $2.7 million (net of tax benefit of $1.5 million) in the fourth quarter of 2002 related to the early retirement of the 9 1 / 8 % notes. In January 2003, we redeemed the remaining $23.2 million of outstanding principal amount of our 9 1 / 8 % notes, at a redemption price (expressed as a percentage of principal amount) of 104.563%, plus accrued and unpaid interest, totaling $25.3 million. We will record a charge to other (income) expense, net of $1.2 million (net of tax benefit of $0.7 million) in the first quarter of 2003 related to the early retirement of these remaining 9 1 / 8 % notes.
In March 2003, we completed two exchanges of our 7 3 / 4 % notes for 8 3 / 4 % notes. The exchanges resulted in the issuance of $31.3 million in face value of our 7 3 / 4 % notes and the retirement of $30.0 million of our 8 3 / 4 % notes. These non-cash debt exchanges resulted in carryover basis and, therefore, no gain (loss) on extinguishment of debt in accordance with EITF No. 96-19. These exchanges result in a lower interest rate and, therefore, lower interest expense in future periods, as well as, extend the maturity of our debt obligations. From time to time, we may enter into similar exchange transactions that we deem appropriate.
The real estate term loans held by our Variable Interest Entities have always been and continue to be treated as indebtedness for purposes of our financial covenants under our Amended and Restated Credit Agreement. As of the date they were consolidated into our financial statements, they were considered indebtedness under our Indentures for our Senior Subordinated Notes and our Subsidiary notes. As of December 31, 2002, these real estate term loans amounted to $202.6 million. No further financing is currently available to our Variable Interest Entities to fund further property acquisitions. See Notes 3, 4 and 5 to Notes to Consolidated Financial Statements and "—Critical Accounting Policies." The details of each real estate term loan is a follows:
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The following table summarizes our contractual obligations as of December 31, 2002 and the anticipated effect of these obligations on our liquidity in future years (in millions):
|
|
Payments Due by Period
|
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Total
|
Less than 1 Year
|
1-3 Years
|
3-5 Years
|
More than 5 Years
|
||||||||||
| Long-term Debt | $ | 1,741.3 | $ | 70.5 | $ | 191.6 | $ | 108.5 | $ | 1,370.7 | |||||
| Operating Lease Obligations | 775.1 | 125.1 | 217.4 | 152.4 | 280.2 | ||||||||||
| Deferred Tax Liabilities | 166.7 | — | — | — | 166.7 | ||||||||||
|
|
|
|
|
|
|||||||||||
| Total | $ | 2,683.1 | $ | 195.6 | $ | 409.0 | $ | 260.9 | $ | 1,817.6 | |||||
|
|
|
|
|
|
|||||||||||
We expect to meet our cash flow requirements for the next twelve months from cash generated from operations, existing cash, cash equivalents and marketable securities, borrowings under the Amended and Restated Credit Agreement and other financings, which may include secured credit facilities, securitizations and mortgage or capital lease financings. See Notes 5, 10 and 13 to Notes to Consolidated Financial Statements.
Net Operating Loss Carryforwards
At December 31, 2002, we had estimated net operating loss carryforwards of approximately $162 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. These net operating loss carryforwards do not include approximately $79 million of potential preacquisition net operating loss carryforwards of Arcus Group, Inc. and certain foreign acquisitions. Any tax benefit realized related to preacquisition net operating loss carryforwards will be recorded as a reduction of goodwill when, and if, realized. The Arcus Group carryforwards expire in six years. As a result of these loss carryforwards, we do not expect to pay any significant federal and state income taxes in the next three years.
Recent Pronouncements
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." It clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term of the guarantee in the event that the specified triggering events or conditions occur. The objective of the initial measurement of the liability is the fair value of the guarantee at its inception. The initial recognition and measurement provisions of FIN 45 are effective for us on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for us as of December 31, 2002. We will record the fair value of new or modified material guarantees, if any, in accordance with FIN 45. See Notes 3, 5, 6, 7 and 13 to Notes to Consolidated Financial Statements for current disclosure requirements related to our guarantee arrangements.
In January 2003, the FASB issued FIN 46 which addresses both unconsolidated variable interest entities and any new variable interest entities that are created subsequent to the issuance of the interpretation. As of December 31, 2002, we did not have any unconsolidated variable interest entities. Any future variable interest entities will be accounted for in accordance with FIN 46.
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In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, amendment of FASB Statement No. 13, and Technical Corrections," which among other things, limits the classification of gains and losses from extinguishment of debt as extraordinary to only those transactions that are unusual and infrequent in nature as defined by Accounting Principles Board Opinion No. 30 "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 145 is effective no later than January 1, 2003. Upon adoption, gains and losses on certain future debt extinguishments, if any, will be recorded in pre-tax income. In addition, extraordinary losses of $2.9 million, net of tax benefit for the year ended December 31, 2000, $11.8 million, net of tax benefit for the year ended December 31, 2001, and $3.5 million, net of tax benefit for the year ended December 31, 2002 will be reclassified to other (income) expense, net in our accompanying consolidated statements of operations to conform to the requirements under SFAS No. 145.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires a liability for a cost associated with an exit or disposal activity to be recognized and measured initially at its fair value in the period in which the liability is incurred. If fair value cannot be reasonably estimated, the liability shall be recognized initially in the period in which fair value can be reasonably estimated. In periods subsequent to the initial measurement, changes to the liability resulting from revisions to either the timing or the amount of estimated cash flows must be recognized as adjustments to the liability in the period of the change. The provisions of SFAS No. 146 will be effective for us prospectively for exit or disposal activities initiated after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure", which amended SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to a fair value based method of accounting for stock-based compensation. SFAS No. 148 allows for (a) a prospective method, (b) a modified prospective method and (c) a retroactive restatement method. The prospective method involves recognizing expense for the fair value for all awards granted or modified in the year of adoption and thereafter with no expense recognition for previous awards. The modified prospective method involves recognizing expense for the fair value for all awards granted or modified in the year of adoption and thereafter and for all awards previously granted, modified or settled since 1994 (the original SFAS No. 123 implementation date) that are unvested at the beginning of the year of adoption. The retroactive restatement method involves restating all periods presented for the fair value of all awards previously granted, modified or settled since 1994 (the original SFAS No. 123 implementation date). We have elected to adopt the fair value method of accounting in our financial statements beginning in 2003 using the prospective method. We will apply the fair value recognition provisions to all stock based awards granted, modified or settled on or after January 1, 2003 and will continue to provide the required pro forma information in the Notes to our Consolidated Financial Statements on an interim and annual basis. We do not expect the adoption of the fair value method of accounting to have a material effect on our consolidated financial position or consolidated results of operations for the year ending December 31, 2003. We are not contractually committed to grant or modify awards in future accounting periods and we do not anticipate any changes to our policies or procedures in regards to stock-based awards as a result of this implementation.
Seasonality
Historically, our businesses have not been subject to seasonality in any material respect.
45
Inflation
Certain of our expenses, such as wages and benefits, insurance, occupancy costs and equipment repair and replacement, are subject to normal inflationary pressures. Although to date we have been able to offset inflationary cost increases through increased operating efficiencies and the negotiation of favorable long-term real estate leases, we can give no assurance that we will be able to offset any future inflationary cost increases through similar efficiencies, leases or increased storage or service charges.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
In December 2000, January 2001 and May 2001, we and variable interest entities which we now consolidate entered into a total of four derivative financial contracts, which are variable-for-fixed swaps consisting of (a) two contracts for interest payments payable on our term loan of an aggregate principal amount of $195.5 million, (b) one contract for interest payments payable (previously certain variable operating lease commitments payable) on our real estate term loans of an aggregate principal amount of $47.5 million and (c) one contract for interest payments payable on our real estate term loans of an aggregate principal amount of $97.0 million. See Note 4 to Notes to Consolidated Financial Statements and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies" in this Form 10-K.
After consideration of the swap contracts mentioned above, as of December 31, 2002, we had $225.8 million of variable rate debt outstanding with a weighted average variable interest rate of 4.5%, and $1,506.3 million of fixed rate debt outstanding. Over 85% of our total debt outstanding is fixed. If the weighted average variable interest rate on our variable rate debt had increased by 1%, such increase would have had a negative impact on our net income for the year ended December 31, 2002 by $1.3 million. See Note 5 to Notes to Consolidated Financial Statements for a discussion of our long-term indebtedness, including the fair values of such indebtedness as of December 31, 2002.
Currency Risk
Our investments in Iron Mountain Europe Limited, Iron Mountain South America, Ltd. and other international investments may be subject to risks and uncertainties related to fluctuations in currency valuation. Our reporting currency is the U.S. dollar. However, our international revenues are generated in the currencies of the countries in which we operate, primarily the Canadian dollar and British pound sterling. The currencies of many Latin American countries have experienced substantial volatility and depreciation in the past, including the Argentine peso. In addition, one of our Canadian subsidiaries, Iron Mountain Canada Corporation, has U.S. dollar denominated debt. Declines in the value of the local currencies in which we are paid relative to the U.S. dollar will cause revenues in the U.S. dollar terms to decrease and dollar-denominated liabilities to increase in local currency. We also have several intercompany obligations between our foreign subsidiaries and Iron Mountain and our U.S.-based subsidiaries. These intercompany obligations are primarily denominated in the local currency of the foreign subsidiary. We have attempted to limit our exposure to exchange rate fluctuations through borrowings of Canadian dollars in the U.S. at a level that approximates the U.S. dollar denominated borrowings of Iron Mountain Canada Corporation. However, our currency exposures to intercompany borrowings are unhedged. At December 31, 2002, we did not have any outstanding foreign currency hedging contracts.
The impact of devaluation or depreciating currency on an entity depends on the residual effect on the local economy and the ability of an entity to raise prices and/or reduce expenses. Due to our constantly changing currency exposure and the potential substantial volatility of currency exchange rates, we cannot predict the effect of exchange fluctuations on our business.
46
The effect of a change in foreign exchange rates on our net investment in foreign subsidiaries is reflected in the "Accumulated Other Comprehensive Items" component of shareholders' equity. A 10% depreciation in year-end 2002 functional currencies, relative to the U.S. dollar, would result in a $11.1 million reduction in our shareholders' equity.
Item 8. Financial Statements and Supplementary Data.
See Item 15(a).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
On June 19, 2002, our Board of Directors, upon recommendation of the Audit Committee and approval of the Executive Committee, dismissed Arthur Andersen LLP as our independent public accountants and engaged Deloitte & Touche LLP as our independent public accountants for the fiscal year ending December 31, 2002.
The audit reports of Arthur Andersen on our consolidated financial statements for the fiscal years ended December 31, 2000 and 2001 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
During the two fiscal years ended December 31, 2001, December 31, 2000 and the subsequent interim period through June 19, 2002, there were no disagreements with Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Arthur Andersen's satisfaction, would have caused Arthur Andersen to make reference to the subject matter of the disagreement in connection with its reports. None of the reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred within the fiscal years ended December 31, 2001, December 31, 2000 or within the interim period through June 19, 2002.
We provided Arthur Andersen with a copy of the above disclosures. A letter dated June 19, 2002 from Arthur Andersen stating its agreement with our statements was listed under Item 7 and filed as Exhibit 16.1 and incorporated by reference into our report on Form 8-K filed June 19, 2002.
During the two fiscal years ended December 31, 2001 and 2000, and the subsequent interim period through June 19, 2002, we did not consult with Deloitte & Touche with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements or regarding any other matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
47
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 is incorporated by reference to our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on or about May 22, 2003.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated by reference to our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on or about May 22, 2003.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Equity Compensation Plan Information
The following provides certain equity compensation plan information with respect to all of our equity compensation plans in effect as of December 31, 2002:
|
Plan Category
|
Number of securities
to be issued upon exercise of outstanding options, warrants and rights |
Weighted average
exercise price of outstanding options, warrants and rights |
Number of securities
remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) |
|||||
|---|---|---|---|---|---|---|---|---|
| Equity compensation plans approved by security holders | 3,896,816 | (1) | $ | 18.08 | 1,383,167 | (2) | ||
| Equity compensation plans not approved by security holders | 0 | 0 | 0 | |||||
|
|
|
|
||||||
| Total | 3,896,816 | $ | 18.08 | 1,383,167 | ||||
The remainder of the information required by Item 12 is incorporated by reference to our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on or about May 22, 2003.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is incorporated by reference to our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on or about May 22, 2003.
Item 14. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
The term "disclosure controls and procedures" is defined in Rules 13a-14(c) and 15d-14(c) of the Exchange Act. These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Within 90 days prior to the filing date of this Form 10-K (the "Evaluation Date"), we carried out an
48
evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the chief executive officer and chief financial officer have concluded that, as of the Evaluation Date, such disclosure controls and procedures were effective in ensuring that required information will be disclosed on a timely basis in our reports filed under the Exchange Act.
(b) Changes in Internal Controls
We maintain a system of internal accounting controls that are designed to provide reasonable assurance that our transactions are properly recorded and reported and that our assets are safeguarded against unauthorized or improper use. As part of the evaluation of our disclosure controls and procedures, we evaluated our internal controls. There were no significant changes to our internal controls or other factors that could significantly affect the controls subsequent to the Evaluation Date, nor were any corrective actions taken with regard to any significant deficiencies or material weaknesses.
49
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) and (2) Financial Statements and Financial Statement Schedules filed as part of this report:
(a)(3) Exhibits filed as part of this report:
As listed in the Exhibit Index following the signature page hereof.
(b) Reports on Form 8-K:
On December 16, 2002, the Company filed a Current Report on Form 8-K under Item 5 and Item 7 to announce that the Company priced an underwritten public offering of Senior Subordinated Notes and related tender offer and consent solicitation.
On December 17, 2002, the Company filed a Current Report on Form 8-K under Item 5 to announce that on December 16, 2002, Hartford Windsor Associates, L.P., Hartford General, LLC, J. Anthony Hayden, J. Peter Pierce, Frank Seidman and John H. Greenwald, Jr. commenced an action in the Court of Common Pleas, Montgomery County, Pennsylvania, against the Company. See "Item 3. Legal Proceedings."
On December 26, 2002, the Company filed a Current Report on Form 8-K under Item 6 and Item 7 to announce the resignation of J. Peter Pierce as a member of our Board of Directors, effective December 23, 2002.
50
To
the Board of Directors and Shareholders of
Iron Mountain Incorporated:
We have audited the accompanying consolidated balance sheet of Iron Mountain Incorporated (a Pennsylvania corporation) and its subsidiaries (the "Company") as of December 31, 2002, and the related consolidated statements of operations, shareholders' equity and comprehensive income (loss), 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 did not audit the financial statements of Iron Mountain Europe Limited (a consolidated subsidiary) as of October 31, 2002, which statements reflect total assets constituting 8% of consolidated total assets as of December 31, 2002, and total revenues constituting 7%, of the consolidated total revenues for the year then ended. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Iron Mountain Europe Limited, is based solely on the report of such other auditors. The financial statements of Iron Mountain Incorporated and its subsidiaries as of December 31, 2001 and 2000 and for each of the two years in the period then ended were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements and referred to the report of other auditors in their report dated February 22, 2002 (except with respect to Note 17, as to which the date is March 15, 2002).
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of Iron Mountain Incorporated and its subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
As discussed above, the consolidated financial statements of Iron Mountain Incorporated and its subsidiaries as of December 31, 2001 and 2000 and for the two years then ended were audited by other auditors who have ceased operations. As described in Note 2g, these consolidated financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards (Statement) No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note 2g for 2001 and 2000 amounts included (a) agreeing the previously reported net income to the previously issued consolidated financial statements and the adjustments to reported net income representing amortization expense (including any related tax effects) recognized in those periods related to goodwill, intangible assets that are no longer being amortized and changes in amortization periods for intangible assets that will continue to be amortized as a result of initially applying Statement No. 142 (including any related tax effects) to the Company's underlying records obtained from management, and (b) testing the mathematical accuracy of the reconciliation of adjusted net income to reported net income, and the related earnings-per-share amounts. Also, as described in Note 2m, those consolidated financial statements have been reclassified to reflect separately the revenue and expense related to certain product sales rather than as storage revenue net of product costs. We audited the adjustments described in Note 2m that were applied to reclassify the 2001 and 2000 consolidated financial
51
statements. In our opinion, the disclosures for 2001 in Note 2g are appropriate and such adjustments referred to in Note 2m made to the 2001 and 2000 consolidated financial statements are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2001 or 2000 consolidated financial statements of the Company other than with respect to such disclosures and adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2001 or 2000 consolidated financial statements taken as a whole.
/s/ DELOITTE & TOUCHE LLP
Boston,
Massachusetts
February 21, 2003 (Except with respect to Note 16,
as to which the date is March 18, 2003)
52
This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Iron Mountain Incorporated's filing of an Annual Report on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this Annual Report on Form 10-K for the year ended December 31, 2002. See Exhibit 23.3 to this Annual Report on Form 10-K filed with the SEC for further discussion. The consolidated balance sheet as of December 31, 2000 and the consolidated statements of operations, shareholders' equity and comprehensive loss and cash flows for the year ended December 31, 2000 referred to in this report have not been included in the accompanying consolidated financial statements.
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 Pennsylvania corporation) and its subsidiaries as of December 31, 2000 and 2001, and the related consolidated statements of operations, shareholders' equity and comprehensive loss and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of Iron Mountain Incorporated's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the consolidated financial statements of Iron Mountain Europe Limited as of October 31, 2000 and 2001, which statements reflect total assets and total revenues of 6 percent and 5 percent in 2000, and 8 percent and 6 percent in 2001, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for this entity, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, 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, 2000 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.
| /s/ ARTHUR ANDERSEN LLP |
Boston,
Massachusetts
February 22, 2002 (Except with respect to Note 17,
as to which the date is March 15, 2002)
53
IRON MOUNTAIN INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
December 31,
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2002
|
||||||||
| ASSETS | ||||||||||
| Current Assets: | ||||||||||
| Cash and cash equivalents | $ | 21,359 | $ | 56,292 | ||||||
| Accounts receivable (less allowances of $17,086 and $20,274, respectively) | 219,050 | 225,416 | ||||||||
| Deferred income taxes | 31,140 | 34,192 | ||||||||
| Prepaid expenses and other | 37,768 | 51,140 | ||||||||
|
|
|
|||||||||
| Total Current Assets | 309,317 | 367,040 | ||||||||
| Property, Plant and Equipment: | ||||||||||
| Property, plant and equipment | 1,190,537 | 1,577,588 | ||||||||
| Less—Accumulated depreciation | (238,306 | ) | (338,400 | ) | ||||||
|
|
|
|||||||||
| Net Property, Plant and Equipment | 952,231 | 1,239,188 | ||||||||
| Other Assets, net: | ||||||||||
| Goodwill | 1,529,547 | 1,544,974 | ||||||||
| Customer relationships and acquisition costs | 32,884 | 48,213 | ||||||||
| Deferred financing costs | 19,928 | 19,358 | ||||||||
| Other | 15,999 | 11,882 | ||||||||
|
|
|
|||||||||
| Total Other Assets, net | 1,598,358 | 1,624,427 | ||||||||
|
|
|
|||||||||
| Total Assets | $ | 2,859,906 | $ | 3,230,655 | ||||||
|
|
|
|||||||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|||||||||
| Current Liabilities: | ||||||||||
| Current portion of long-term debt | $ | 35,256 | $ | 69,732 | ||||||
| Accounts payable | 64,596 | 76,115 | ||||||||
| Accrued expenses | 153,105 | 168,025 | ||||||||
| Deferred revenue | 85,894 | 95,188 | ||||||||
| Other current liabilities | 20,158 | 18,902 | ||||||||
|
|
|
|||||||||
| Total Current Liabilities | 359,009 | 427,962 | ||||||||
| Long-term Debt, net of current portion | 1,460,843 | 1,662,365 | ||||||||
| Other Long-term Liabilities | 23,705 | 35,433 | ||||||||
| Deferred Rent | 17,884 | 19,438 | ||||||||
| Deferred Income Taxes | 47,213 | 78,464 | ||||||||
| Commitments and Contingencies (see Note 13) | ||||||||||
| Minority Interests | 65,293 | 62,132 | ||||||||
| Shareholders' Equity: | ||||||||||
| Preferred stock (par value $0.01; authorized 10,000,000 shares; none issued and outstanding) | — | — | ||||||||
| Common stock (par value $0.01; authorized 150,000,000 shares; issued and outstanding 84,294,315 shares and 85,049,624 shares, respectively) | 843 | 850 | ||||||||
| Additional paid-in capital | 1,006,836 | 1,020,452 | ||||||||
| Accumulated deficit | (103,695 | ) | (45,403 | ) | ||||||
| Accumulated other comprehensive items | (18,025 | ) | (31,038 | ) | ||||||
|
|
|
|||||||||
| Total Shareholders' Equity | 885,959 | 944,861 | ||||||||
|
|
|
|||||||||
| Total Liabilities and Shareholders' Equity | $ | 2,859,906 | $ | 3,230,655 | ||||||
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements.
54
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
Year Ended December 31,
|
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2000
|
2001
|
2002
|
|||||||||
| Revenues: | ||||||||||||
| Storage | $ | 585,664 | $ | 694,474 | $ | 759,536 | ||||||
| Service and storage material sales | 418,501 | 491,244 | 558,961 | |||||||||
|
|
|
|
||||||||||
| Total Revenues | 1,004,165 | 1,185,718 | 1,318,497 | |||||||||
| Operating Expenses: | ||||||||||||
| Cost of sales (excluding depreciation) | 500,565 | 576,538 | 622,299 | |||||||||
| Selling, general and administrative | 246,559 | 306,934 | 332,332 | |||||||||
| Depreciation and amortization | 126,810 | 153,591 | 109,840 | |||||||||
| Stock option compensation expense | 15,110 | — | — | |||||||||
| Merger-related expenses | 9,133 | 3,673 | 796 | |||||||||
|
|
|
|
||||||||||
| Total Operating Expenses | 898,177 | 1,040,736 | 1,065,267 | |||||||||
| Operating Income | 105,988 | 144,982 | 253,230 | |||||||||
| Interest Expense, Net | 117,975 | 134,742 | 136,632 | |||||||||
| Other Expense (Income), Net | 6,045 | 18,371 | (3,351 | ) | ||||||||
|
|
|
|
||||||||||
| (Loss) Income from Continuing Operations Before Provision for Income Taxes and Minority Interest | (18,032 | ) | (8,131 | ) | 119,949 | |||||||
| Provision for Income Taxes | 9,125 | 26,036 | 49,295 | |||||||||
| Minority Interest in (Losses) Earnings of Subsidiaries | (2,224 | ) | (1,929 | ) | 3,629 | |||||||
|
|
|
|
||||||||||
| (Loss) Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle | (24,933 | ) | (32,238 | ) | 67,025 | |||||||
| Income from Discontinued Operations (net of tax of $768) | — | — | 1,116 | |||||||||
| Extraordinary Charges from Early Extinguishment of Debt (net of tax benefit of $1,928, $8,161 and $1,977) | (2,892 | ) | (11,819 | ) | (3,453 | ) | ||||||
| Cumulative Effect of Change in Accounting Principle (net of minority interest) | — | — | (6,396 | ) | ||||||||
|
|
|
|
||||||||||
| Net (Loss) Income | $ | (27,825 | ) | $ | (44,057 | ) | $ | 58,292 | ||||
|
|
|
|
||||||||||
| Net (Loss) Income per Share—Basic: | ||||||||||||
| (Loss) Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle | $ | (0.31 | ) | $ | (0.39 | ) | $ | 0.79 | ||||
| Income from Discontinued Operations (net of tax) | — | — | 0.01 | |||||||||
| Extraordinary Charges from Early Extinguishment of Debt (net of tax benefit) | (0.04 | ) | (0.14 | ) | (0.04 | ) | ||||||
| Cumulative Effect of Change in Accounting Principle (net of minority interest) | — | — | (0.08 | ) | ||||||||
|
|
|
|
||||||||||
| Net (Loss) Income per Share—Basic | $ | (0.35 | ) | $ | (0.53 | ) | $ | 0.69 | ||||
|
|
|
|
||||||||||
| Net (Loss) Income per Share—Diluted: | ||||||||||||
| (Loss) Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle | $ | (0.31 | ) | $ | (0.39 | ) | $ | 0.78 | ||||
| Income from Discontinued Operations (net of tax) | — | — | 0.01 | |||||||||
| Extraordinary Charges from Early Extinguishment of Debt (net of tax benefit) | (0.04 | ) | (0.14 | ) | (0.04 | ) | ||||||
| Cumulative Effect of Change in Accounting Principle (net of minority interest) | — | — | (0.07 | ) | ||||||||
|
|
|
|
||||||||||
| Net (Loss) Income per Share—Diluted | $ | (0.35 | ) | $ | (0.53 | ) | $ | 0.68 | ||||
|
|
|
|
||||||||||
| Weighted Average Common Shares Outstanding—Basic | 79,688 | 83,666 | 84,651 | |||||||||
|
|
|
|
||||||||||
| Weighted Average Common Shares Outstanding—Diluted | 79,688 | 83,666 | 86,071 | |||||||||
|
|
|
|
||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
55
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share data)
|
|
Common Stock
Voting |
|
|
|
|
|
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
Accumulated
Other Comprehensive Items |
|
|
||||||||||||||||
|
|
Additional
Paid-in Capital |
Accumulated
Deficit |
Treasury
Stock |
Total
Shareholders' Equity |
|||||||||||||||||
|
|
Shares
|
Amount
|
|||||||||||||||||||
| Balance, December 31, 1999 | 55,415,418 | $ | 554 | $ | 560,435 | $ | (31,558 | ) | $ | (1,193 | ) | $ | (39,484 | ) | $ | 488,754 | |||||
| Shares and options issued in connection with acquisitions, net of issuance costs | 28,175,720 | 282 | 444,707 | — | — | — | 444,989 | ||||||||||||||
| Issuance of shares under employee stock purchase plan and option plans, including tax benefit | 1,543,575 | 15 | 9,788 | — | — | — | 9,803 | ||||||||||||||
| Stock option compensation expense | — | — | 15,110 | — | — | — | 15,110 | ||||||||||||||
| Currency translation adjustment | — | — | — | — | (6,373 | ) | — | (6,373 | ) | ||||||||||||
| Retirement of treasury stock | (2,214,866 | ) | (22 | ) | (39,462 | ) | — | — | 39,484 | — | |||||||||||
| Net loss | — | — | — | (27,825 | ) | — | — | (27,825 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance, December 31, 2000 | 82,919,847 | 829 | 990,578 | (59,383 | ) | (7,566 | ) | — | 924,458 | ||||||||||||
| Issuance of shares under employee stock purchase plan and option plans, including tax benefit | 1,374,468 | 14 | 16,258 | — | — | — | 16,272 | ||||||||||||||
| Currency translation adjustment | — | — | — | — | (4,388 | ) | — | (4,388 | ) | ||||||||||||
| Transition adjustment charge | — | — | — | — | (214 | ) | — | (214 | ) | ||||||||||||
| Unrealized loss on hedging contracts | — | — | — | — | (5,857 | ) | — | (5,857 | ) | ||||||||||||
| Adjustment due to differences in consolidation year end | — | — | — | (255 | ) | — | — | (255 | ) | ||||||||||||
| Net loss | — | — | — | (44,057 | ) | — | — | (44,057 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance, December 31, 2001 | 84,294,315 | 843 | 1,006,836 | (103,695 | ) | (18,025 | ) | — | 885,959 | ||||||||||||
| Issuance of shares under employee stock purchase plan and option plans, including tax benefit | 755,309 | 7 | 13,373 | — | — | — | 13,380 | ||||||||||||||
| Deferred compensation | — | — | 243 | — | — | — | 243 | ||||||||||||||
| Currency translation adjustment | — | — | — | — | 3,378 | — | 3,378 | ||||||||||||||
| Unrealized loss on hedging contracts | — | — | — | — | (16,391 | ) | — | (16,391 | ) | ||||||||||||
| Net income | — | — | — | 58,292 | — | — | 58,292 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance, December 31, 2002 | 85,049,624 | $ | 850 | $ | 1,020,452 | $ | (45,403 | ) | $ | (31,038 | ) | $ | — | $ | 944,861 | ||||||
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
2000
|
2001
|
2002
|
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| COMPREHENSIVE (LOSS) INCOME: | |||||||||||
| Net (loss) income | $ | (27,825 | ) | $ | (44,057 | ) | $ | 58,292 | |||
| Other Comprehensive (Loss) Income: | |||||||||||
| Foreign Currency Translation Adjustments | (6,373 | ) | (4,388 | ) | 3,378 | ||||||
| Transition Adjustment Charge | — | (214 | ) | — | |||||||
| Unrealized Loss on Hedging Contracts | — | (5,857 | ) | (16,391 | ) | ||||||
|
|
|
|
|||||||||
| Comprehensive (Loss) Income | $ | (34,198 | ) | $ | (54,516 | ) | $ | 45,279 | |||
|
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements.
56
IRON MOUNTAIN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
Year Ended December 31,
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2000
|
2001
|
2002
|
||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net (loss) income | $ | (27,825 | ) | $ | (44,057 | ) | $ | 58,292 | |||
| Adjustments to reconcile net (loss) income to (loss) income from continuing operations before discontinued operations, extraordinary charges and cumulative effect of change in accounting principle: | |||||||||||
| Income from discontinued operations (net of tax of $768) | — | — | (1,116 | ) | |||||||
| Extraordinary charges from early extinguishment of debt (net of tax benefit of $1,928, $8,161 and $1,977) | 2,892 | 11,819 | 3,453 | ||||||||
| Cumulative effect of change in accounting principle (net of minority interest) | — | — | 6,396 | ||||||||
|
|
|
|
|||||||||
| (Loss) Income from continuing operations | (24,933 | ) | (32,238 | ) | 67,025 | ||||||
| Adjustments to reconcile (loss) income from continuing operations to cash flows provided by operating activities: | |||||||||||
| Minority interests | (2,224 | ) | (1,929 | ) | 3,629 | ||||||
| Depreciation and amortization | 126,810 | 153,591 | 109,840 | ||||||||
| Amortization of deferred financing costs and bond discount | 2,595 | 4,930 | 4,921 | ||||||||
| Provision for deferred income taxes | — | — | 46,089 | ||||||||
| Loss on impairment of long-term assets | — | 6,925 | 1,717 | ||||||||
| Stock option compensation expense | 15,110 | — | — | ||||||||
| Gain on sales of property and equipment, net | — | — | (907 | ) | |||||||
| Loss (Gain) on foreign currency and other, net | 4,737 | 10,399 | (4,940 | ) | |||||||
| Changes in Assets and Liabilities (exclusive of acquisitions): | |||||||||||
| Accounts receivable | (6,167 | ) | (15,677 | ) | (2,547 | ) | |||||
| Prepaid expenses and other current assets | 19,332 | (5,083 | ) | (6,529 | ) | ||||||
| Deferred income taxes | 8,350 | 11,774 | 2,737 | ||||||||
| Accounts payable | (553 | ) | 12,554 | 11,802 | |||||||
| Accrued expenses and other current liabilities | 8,779 | 4,648 | 11,947 | ||||||||
| Deferred rent | 5,527 | 1,821 | 1,547 | ||||||||
| Deferred revenue | 686 | 5,800 | 8,628 | ||||||||
| Other assets and long-term liabilities | (445 | ) | 3,394 | (11 | ) | ||||||
|
|
|
|
|||||||||
| Cash Flows Provided by Operating Activities | 157,604 | 160,909 | 254,948 | ||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Capital expenditures | (168,706 | ) | (197,039 | ) | (196,997 | ) | |||||
| Cash paid for acquisitions, net of cash acquired | (140,940 | ) | (71,397 | ) | (49,361 | ) | |||||
| Additions to customer relationship and acquisition costs | (12,779 | ) | (8,420 | ) | (8,419 | ) | |||||
| Investment in convertible preferred stock | (6,524 | ) | (2,000 | ) | — | ||||||
| Proceeds from sale of property and equipment | 1,320 | 720 | 7,020 | ||||||||
|
|
|
|
|||||||||
| Cash Flows Used in Investing Activities | (327,629 | ) | (278,136 | ) | (247,757 | ) | |||||
| Cash Flows from Financing Activities: | |||||||||||
| Net proceeds from (repayment of) term loans. | 349,750 | (1,000 | ) | (99,000 | ) | ||||||
| Repayment of debt | (596,494 | ) | (117,278 | ) | (113,243 | ) | |||||
| Proceeds from borrowings | 404,993 | 105,595 | 188,842 | ||||||||
| Early retirement of senior subordinated notes | — | (312,701 | ) | (54,380 | ) | ||||||
| Net proceeds from sales of senior subordinated notes. | — | 427,924 | 99,000 | ||||||||
| Debt financing and equity contribution from minority shareholders | 11,430 | 21,216 | (1,241 | ) | |||||||
| Proceeds from exercise of stock options and employee stock purchase plan | 8,180 | 12,079 | 9,522 | ||||||||
| Financing and stock issuance costs | (5,449 | ) | (934 | ) | (2,402 | ) | |||||
|
|
|
|
|||||||||
| Cash Flows Provided by Financing Activities | 172,410 | 134,901 | 27,098 | ||||||||
| Effect of exchange rates on cash and cash equivalents | (15 | ) | (2,515 | ) | 644 | ||||||
|
|
|
|
|||||||||
| Increase in Cash and Cash Equivalents | 2,370 | 15,159 | 34,933 | ||||||||
| Cash and Cash Equivalents, Beginning of Year | 3,830 | 6,200 | 21,359 | ||||||||
|
|
|
|
|||||||||
| Cash and Cash Equivalents, End of Year | $ | 6,200 | $ | 21,359 | $ | 56,292 | |||||
|
|
|
|
|||||||||
| Supplemental Information: | |||||||||||
| Cash Paid for Interest | $ | 98,114 | $ | 133,373 | $ | 133,873 | |||||
|
|
|
|
|||||||||
| Cash Paid for Income Taxes | $ | 2,891 | $ | 4,925 | $ | 3,147 | |||||
|
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements.
57
IRON MOUNTAIN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(In thousands, except share and per share data)
1. Nature of Business
The accompanying financial statements represent the consolidated accounts of Iron Mountain Incorporated, a Pennsylvania corporation, and its subsidiaries. We are an international full-service provider of records and information management and related services for all media in various locations throughout the United States, Canada, Europe, Mexico and South America 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 accompanying financial statements reflect our financial position and results of operations on a consolidated basis. All significant intercompany account balances have been eliminated.
b. Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. On an on-going basis, we evaluate the estimates used, including those related to the allowance for doubtful accounts, impairments of tangible and intangible assets, income taxes, purchase accounting related reserves, self-insurance liabilities, incentive compensation liabilities, litigation liabilities and contingencies. We base our estimates on historical experience, actuarial estimates, current conditions and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources. We use these estimates to assist us in the identification and assessment of the accounting treatment necessary with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions.
c. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and cash invested in short-term securities which have remaining maturities at the date of purchase of less than 90 days. Cash and cash equivalents are carried at cost, which approximates fair value.
d. Foreign Currency Translation
Local currencies are considered the functional currencies for most of our operations outside the United States. All assets and liabilities are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected in the accumulated other comprehensive items component of shareholders' equity. The gain or loss on foreign currency transactions, including those related to U.S. dollar
58
denominated 8 1 / 8 % senior notes of our Canadian subsidiary and those related to the foreign currency denominated intercompany obligations of our foreign subsidiaries to us, are included in Other (Income) Expense, net, on our Consolidated Statements of Operations. The total of such net (gains) losses amounted to $6,293, $10,437 and $(5,043) for the years ended December 31, 2000, 2001 and 2002, respectively.
e. Derivative Instruments and Hedging Activities
Effective January 1, 2001, we adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that every derivative instrument be recorded in the balance sheet as either an asset or a liability measured at its fair value. The adoption of SFAS No. 133 resulted in the recognition of a derivative liability and a corresponding transition adjustment charge to accumulated other comprehensive items of approximately $214 as of January 1, 2001.
Periodically, we acquire derivative instruments that are intended to hedge either cash flows or values which are subject to exchange or other market price risk, and not for trading purposes. We have formally documented our hedging relationships, including identification of the hedging instruments and the hedged items, as well as the risk management objectives and strategies for undertaking each hedge transaction.
f. 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 | 5 to 20 years | |
| Warehouse equipment/vehicles | 4 to 20 years | |
| Furniture and fixtures | 3 to 10 years | |
| Computer hardware and software | 3 to 5 years |
59
Property, plant and equipment, at cost, consist of the following:
|
|
December 31,
|
|||||
|---|---|---|---|---|---|---|
|
|
2001
|
2002
|
||||
| Land and buildings | $ | 393,429 | $ | 623,717 | ||
| Leasehold improvements | 70,434 | 96,509 | ||||
| Racking | 426,776 | 496,919 | ||||
| Warehouse equipment/vehicles | 56,064 | 66,718 | ||||
| Furniture and fixtures | 29,052 | 34,005 | ||||
| Computer hardware and software | 153,546 | 204,444 | ||||
| Construction in progress | 61,236 | 55,276 | ||||
|
|
|
|||||
| $ | 1,190,537 | $ | 1,577,588 | |||
|
|
|
|||||
Minor maintenance costs are expensed as incurred. Major improvements which extend the life, increase the capacity or improve the safety or the efficiency of property owned are capitalized. Major improvements to leased buildings are capitalized as leasehold improvements and depreciated.
We develop various software applications for internal use. Payroll and related costs for employees who are directly associated with, and who devote time to, the development of internal use computer software projects (to the extent of the time spent directly on the project) are capitalized and depreciated over the estimated useful life of the software. Capitalization begins when the design stage of the application has been completed and it is probable that the project will be completed and used to perform the function intended. Depreciation begins when the software is placed in service.
We apply the provisions of Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1") which requires computer software costs associated with internal use software to be expensed as incurred until certain capitalization criteria are met. SOP 98-1 also defines which types of costs should be capitalized and which should be expensed. This accounting pronouncement resulted in certain costs being expensed starting in 1999 that would have been capitalized under the previous policy. The computer software costs incurred and capitalized prior to adoption of SOP 98-1 are being depreciated over their useful lives or the useful lives of the related assets, and are evaluated for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
During the year ended December 31, 2002, we replaced one of our internal use software programs, which resulted in the write-off to other (income) expense, net of the remaining net book value of $1,077.
g. Goodwill and Other Intangible Assets
Effective July 1, 2001 and January 1, 2002, we adopted the provisions of SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets," respectively. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer
60
amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives. Had SFAS No. 142 been effective January 1, 2000, goodwill amortization expense would have been reduced by $53,406 and $59,217 ($44,781 and $50,903, net of tax) for the years ended December 31, 2000 and 2001, respectively.
Through December 31, 2001, we reviewed our existing goodwill for impairment, consistent with the guidelines of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and determined that no amounts of goodwill were impaired using the undiscounted future cash flow methodology of SFAS No. 121. Effective January 1, 2002, we reviewed goodwill for impairment consistent with the guidelines of SFAS No. 142 using a discounted future cash flow approach. The result of testing our goodwill for impairment in accordance with SFAS No. 142, as of January 1, 2002, was a non-cash charge of $6,396 (net of minority interest of $8,487), which, consistent with SFAS No. 142, is reported in the caption "cumulative effect of change in accounting principle" in the accompanying consolidated statement of operations. Impairment adjustments recognized in the future, if any, are generally required to be recognized as operating expenses. The $6,396 charge relates to our South American reporting unit within our international reporting segment. The South American reporting unit failed the impairment test primarily due to a reduction in the expected future performance of the unit resulting from a deterioration of the local economic environment and the devaluation of the currency in Argentina. As goodwill amortization expense in our South American reporting unit is not deductible for tax purposes, this impairment charge is not net of a tax benefit. We have a controlling 50.1% interest in Iron Mountain South America, Ltd ("IMSA") and the remainder is owned by an unaffiliated entity. IMSA has acquired a controlling interest in entities in which local partners have retained a minority interest in order to enhance our local market expertise. These local partners have no ownership interest in IMSA. This has caused the minority interest portion of the non-cash goodwill impairment charge ($8,487) to exceed our portion of the non-cash goodwill impairment charge ($6,396). In accordance with SFAS No. 142, we selected October 1 as our annual goodwill impairment review date. We performed our annual goodwill impairment review as of October 1, 2002 and noted no impairment of goodwill at our reporting units as of that date. As of December 31, 2002, no factors were identified that would alter this assessment.
The changes in the carrying value of goodwill attributable to each reportable operating segment for the year ended December 31, 2002 is as follows:
|
|
Business
Records Management |
Off-Site
Data Protection |
International
|
Corporate
& Other |
Total
Consolidated |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance as of December 31, 2001 | $ | 1,100,870 | $ | 236,850 | $ | 149,928 | $ | 41,899 | $ | 1,529,547 | ||||||
| Goodwill acquired during the year | 5,275 | 895 | 15,163 | 14,451 | 35,784 | |||||||||||
| Adjustments to purchase reserves | (4,993 | ) | (85 | ) | 561 | (141 | ) | (4,658 | ) | |||||||
| Fair value adjustments | (3,693 | ) | 35 | — | (688 | ) | (4,346 | ) | ||||||||
| Other adjustments and currency effects | 2,182 | (517 | ) | 3,896 | (2,031 | ) | 3,530 | |||||||||
| Impairment losses | — | — | (14,883 | ) | — | (14,883 | ) | |||||||||
|
|
|
|
|
|
||||||||||||
| Balance as of December 31, 2002 | $ | 1,099,641 | $ | 237,178 | $ | 154,665 | $ | 53,490 | $ | 1,544,974 | ||||||
|
|
|
|
|
|
||||||||||||
61
Actual results of operations for the year ended December 31, 2002 and pro forma results of operations for the years ended December 31, 2000 and 2001 had we applied the non-amortization provisions of SFAS No. 142 as of January 1, 2000 are as follows:
|
|
Year Ended December 31,
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2000
|
2001
|
2002
|
|||||||
|
|
(Proforma)
|
(Actual)
|
||||||||
| (Loss) Income from Continuing Operations before Provision for Income Taxes and Minority Interest | $ | (18,032 | ) | $ | (8,131 | ) | $ | 119,949 | ||
| Add: Goodwill Amortization | 53,406 | 59,217 | — | |||||||
| Provision for Income Taxes | 18,101 | 34,315 | 49,295 | |||||||
| Minority Interest in (Losses) Earnings of Subsidiaries | (113 | ) | 1,197 | 3,629 | ||||||
|
|
|
|
||||||||
| Adjusted Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle | 17,386 | 15,574 | 67,025 | |||||||
| Income from Discontinued Operations | — | — | 1,116 | |||||||
| Extraordinary Charges from Early Extinguishment of Debt | (2,892 | ) | (11,819 | ) | (3,453 | ) | ||||
| Cumulative Effect of Change in Accounting Principle | — | — | (6,396 | ) | ||||||
|
|
|
|
||||||||
| Net Income | $ | 14,494 | $ | 3,755 | $ | 58,292 | ||||
|
|
|
|
||||||||
| Net (Loss) Income per Share—Basic: | ||||||||||
| (Loss) Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle, as Reported | $ | (0.31 | ) | $ | (0.39 | ) | $ | 0.79 | ||
| Add: Goodwill Amortization, Net of Change in Provision for Income Taxes and Minority Interest | 0.53 | 0.57 | — | |||||||
|
|
|
|
||||||||
| Adjusted Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle | 0.22 | 0.19 | 0.79 | |||||||
| Income from Discontinued Operations | — | — | 0.01 | |||||||
| Extraordinary Charges from Early Extinguishment of Debt | (0.04 | ) | (0.14 | ) | (0.04 | ) | ||||
| Cumulative Effect of Change in Accounting Principle | — | — | (0.08 | ) | ||||||
|
|
|
|
||||||||
| Net Income per Share—Basic | $ | 0.18 | $ | 0.04 | $ | 0.69 | ||||
|
|
|
|
||||||||
| Net (Loss) Income per Share—Diluted: | ||||||||||
| (Loss) Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle, as Reported | $ | (0.31 | ) | $ | (0.39 | ) | $ | 0.78 | ||
| Add: Goodwill Amortization, Net of Change in Provision for Income Taxes and Minority Interest | 0.52 | 0.56 | — | |||||||
|
|
|
|
||||||||
| Adjusted Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle | 0.21 | 0.18 | 0.78 | |||||||
| Income from Discontinued Operations | — | — | 0.01 | |||||||
| Extraordinary Charges from Early Extinguishment of Debt | (0.04 | ) | (0.14 | ) | (0.04 | ) | ||||
| Cumulative Effect of Change in Accounting Principle | — | — | (0.07 | ) | ||||||
|
|
|
|
||||||||
| Net Income per Share—Diluted | $ | 0.18 | $ | 0.04 | $ | 0.68 | ||||
|
|
|
|
||||||||
62
Estimated amortization expense for intangible assets (excluding deferred financing costs which are amortized through interest expense) for the next five succeeding fiscal years is as follows:
|
|
Estimated Amortization Expense
|
||
|---|---|---|---|
| 2003 | $ | 3,839 | |
| 2004 | 3,071 | ||
| 2005 | 2,386 | ||
| 2006 | 2,145 | ||
| 2007 | 2,140 | ||
h. Long-Lived Assets
In accordance with SFAS No. 144, we review long-lived assets and all intangible assets (excluding goodwill) for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to their carrying amount. The operations are generally distinguished by the business segment and geographic region in which they operate. If the operation is determined to be unable to recover the carrying amount of its assets, then intangible assets are written down first, followed by the other long-lived assets of the operation, to fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets.
i. Customer Relationships and Acquisition Costs and Other
In connection with adopting SFAS No. 142, we reassessed the useful lives and classification of our intangible assets. Costs related to the acquisition of large volume accounts, net of revenues received for the initial transfer of the records, are capitalized and amortized for periods ranging from five to 30 years (weighted average of 29 years at December 31, 2002). These costs had previously been amortized over periods not to exceed 12 years. If the customer terminates its relationship with us, the unamortized cost is charged to expense. However, in the event of such termination, we collect, and record as income, permanent removal fees that generally equal or exceed the amount of the unamortized costs. Customer relationship intangible assets acquired through business combinations are amortized over 30 years. As of December 31, 2001 and 2002, the gross carrying amount of customer relationships and acquisition costs was $41,722 and $58,781, respectively, and accumulated amortization of those costs was $8,838 and $10,568, respectively. For years ended December 31, 2000, 2001 and 2002, amortization expense was $1,974, $3,053 and $1,770, respectively.
Other intangible assets, including noncompetition agreements and trademarks, are capitalized and amortized over a weighted average period of five years. As of December 31, 2001 and 2002, the gross carrying amount of other intangible assets was $20,898 and $21,088, respectively, and accumulated amortization of those costs was $13,801 and $16,857, respectively. For the years ended December 31, 2000, 2001 and 2002, amortization expense was $4,329, $3,872 and $3,046, respectively.
63
j. Deferred Financing Costs
Deferred financing costs are amortized over the life of the related debt using the effective interest rate method. If debt is retired early, the related unamortized deferred financing costs are written off as an extraordinary charge in the period the debt is retired. As of December 31, 2001 and 2002, gross carrying amount of deferred financing costs was $24,694 and $25,883, respectively, and accumulated amortization of those costs was $4,766 and $6,525, respectively.
k. Investment in Preferred Stock
In May 2000, we made a $6,500 investment in the convertible preferred stock of LiveVault Corporation, a technology development company. This investment is accounted for at the lower of cost or market. In September 2001, we recorded an impairment charge in other (income) expense, net of $6,900, including the original investment and certain loans related to such investment. In December 2001, in connection with a recapitalization of LiveVault, we made an additional $2,000 investment in LiveVault's convertible preferred stock. In December 2002, we recorded an impairment charge related to this investment in other (income) expense, net of $600. As of December 31, 2001 and 2002, $2,000 and $1,400, respectively, of carrying value related to this investment is included in other assets in the accompanying consolidated balance sheets.
l. Accrued Expenses
Accrued expenses consist of the following:
|
|
December 31,
|
|||||
|---|---|---|---|---|---|---|
|
|
2001
|
2002
|
||||
| Interest | $ | 29,715 | $ | 26,647 | ||
| Payroll and vacation | 31,952 | 36,634 | ||||
| Restructuring costs (see Note 7) | 16,225 | 9,906 | ||||
| Incentive compensation | 17,555 | 23,752 | ||||
| Other | 57,658 | 71,086 | ||||
|
|
|
|||||
| $ | 153,105 | $ | 168,025 | |||
|
|
|
|||||
m. Revenues
Our revenues consist of storage revenues as well as service and storage material sales revenues. Storage revenues consist of periodic charges related to the storage of materials (either on a per unit or per cubic foot of records basis). In certain circumstances, based upon customer requirements, storage revenues include periodic charges associated with normal, recurring service activities. Service and storage material sales revenues are comprised of charges for related service activities and courier operations and the sale of storage materials. Customers are generally billed on a monthly basis on contractually agreed-upon terms. Previously, certain product revenues related to our off-site data protection segment were recorded net of product costs. During the fourth quarter of 2002, we
64
determined that it was more appropriate to record these revenues and costs on the gross rather than the net basis. As a result, service and storage material sales revenues and cost of sales have increased by $17,794, $14,602 and $17,749 for the years ending December 31, 2000, 2001 and 2002, respectively.
Storage and service revenues are recognized in the month the respective service is provided. Storage material sales are recognized when shipped to the customer. Amounts related to future storage for customers where storage fees are billed in advance are accounted for as deferred revenue and amortized over the applicable period.
n. Deferred Rent
We have 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 consolidated balance sheets. In addition, we have assumed various above market leases in connection with certain of our acquisitions. The difference between the present value of these lease obligations and the market rate at the date of the acquisition was recorded as a net deferred rent liability and is being amortized over the remaining lives of the respective leases.
o. Stock-based Compensation
Effective January 1, 1996, we adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." We have elected to continue to account for stock options issued to employees in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," which requires compensation equal to the intrinsic value at the date of measurement. Had we elected to recognize compensation cost based on the fair value of the options granted at grant date
65
as prescribed by SFAS No. 123, net income (loss) and net income (loss) per share would have been changed to the pro forma amounts indicated in the table below:
|
|
Year Ended December 31,
|
||||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
2000
|
2001
|
2002
|
||||||
| (Loss) Income from continuing operations before discontinued operations, extraordinary charges and cumulative effect of change in accounting principle, as reported | $ | (24,933 | ) | $ | (32,238 | ) | $ | 67,025 | |
| (Loss) Income from continuing operations before discontinued operations,extraordinary charges and cumulative effect of change in accounting principle, pro forma | (27,877 | ) | (36,175 | ) | 64,338 | ||||
| Net (loss) income, as reported | (27,825 | ) | (44,057 | ) | 58,292 | ||||
| Net (loss) income, pro forma | (30,769 | ) | (47,994 | ) | 55,605 | ||||
| (Loss) Income from continuing operations before discontinued operations, extraordinary charges and cumulative effect of change in accounting principle—diluted, as reported | (0.31 | ) | (0.39 | ) | 0.78 | ||||
| (Loss) Income from continuing operations before discontinued operations, extraordinary charges and cumulative effect of change in accounting principle—diluted, pro forma | (0.35 | ) | (0.43 | ) | 0.75 | ||||
| Net (loss) income per share—diluted, as reported | (0.35 | ) | (0.53 | ) | 0.68 | ||||
| Net (loss) income per share—diluted, pro forma | (0.39 | ) | (0.57 | ) | 0.65 | ||||
The weighted average fair value of options granted in 2000, 2001 and 2002 was $8.66, $8.74 and 9.70 per share, respectively. The values were estimated on the date of grant using the Black-Scholes option pricing model. The following table summarizes the weighted average assumptions used for grants in the year ended December 31:
|
Assumption
|
2000
|
2001
|
2002
|
||||
|---|---|---|---|---|---|---|---|
| Expected volatility | 31.5 | % | 27.0 | % | 27.5 | % | |
| Risk-free interest rate | 5.99 | 4.65 | 4.08 | ||||
| Expected dividend yield | None | None | None | ||||
| Expected life of the option | 5.0 years | 5.0 years | 5.0 years |
66
2. Summary of Significant Accounting Policies (Continued)
During the second and third quarters of 2000, we entered into separation agreements with certain executives. The separation agreements for these executives included the acceleration of vesting and extension of the exercise period of previously granted stock options, which resulted in a non-cash charge of $15,110. There were no such costs in 2001 and 2002.
p. Merger-related Expenses
Merger-related expenses as presented in the accompanying consolidated financial statements relate primarily to non-capitalizable expenses directly related to our merger with Pierce Leahy Corp. and consist primarily of severance, relocation and pay-to-stay payments, costs of exiting certain facilities, system conversion costs and other transaction-related costs.
q. Income Taxes
We account for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carryforwards. Valuation allowances are provided when recovery of deferred tax assets is not considered likely.
r. Income (Loss) Per Share—Basic and Diluted
In accordance with SFAS No. 128, "Earnings per Share," basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding. The calculation of diluted net income (loss) per share is consistent with that of basic net income (loss) per share but gives effect to all potential common shares (that is, securities such as options, warrants or convertible securities) that were outstanding during the period, unless the effect is antidilutive.
Because their effect is antidilutive, 5,048,543 and 4,284,392 shares of potential common shares underlying outstanding options have been excluded from the above calculation for the years ended December 31, 2000 and 2001, respectively. Potential common shares, substantially attributable to stock options, included in the calculation of diluted net income per share totaled 1,420,655 shares for the year ended December 31, 2002.
s. Reclassifications
Certain reclassifications have been made to the 2000 and 2001 consolidated financial statements to conform to the 2002 presentation.
t. New Accounting Pronouncements
In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." It clarifies that a guarantor is required to recognize, at
67
the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term of the guarantee in the event that the specified triggering events or conditions occur. The objective of the initial measurement of the liability is the fair value of the guarantee at its inception. The initial recognition and measurement provisions of FIN 45 are effective for us on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for us as of December 31, 2002. We will record the fair value of new or modified material guarantees, if any, in accordance with FIN 45. See Notes 3, 5, 6, 7 and 13 for current disclosure requirements related to our guarantee arrangements.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," which addresses the financial reporting by enterprises involved with variable interest entities. FIN 46 addresses both unconsolidated variable interest entities and any new variable interest entities that are created subsequent to the issuance of the interpretation. As of December 31, 2002, we did not have any unconsolidated variable interest entities. Any future variable interest entities will be accounted for in accordance with FIN 46.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, amendment of FASB Statement No. 13, and Technical Corrections," which among other things, limits the classification of gains and losses from extinguishment of debt as extraordinary to only those transactions that are unusual and infrequent in nature as defined by APB Opinion No. 30 "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 145 is effective no later than January 1, 2003. Upon adoption, gains and losses on certain future debt extinguishments, if any, will be recorded in pre-tax income. In addition, extraordinary losses of $2,892, net of tax benefit for the year ended December 31, 2000, $11,819, net of tax benefit for the year ended December 31, 2001, and $3,453, net of tax benefit for the year ended December 31, 2002 will be reclassified to other (income) expense, net in our accompanying consolidated statements of operations to conform to the requirements under SFAS No. 145.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires a liability for a cost associated with an exit or disposal activity to be recognized and measured initially at its fair value in the period in which the liability is incurred. If fair value cannot be reasonably estimated, the liability shall be recognized initially in the period in which fair value can be reasonably estimated. In periods subsequent to the initial measurement, changes to the liability resulting from revisions to either the timing or the amount of estimated cash flows must be recognized as adjustments to the liability in the period of the change. The provisions of SFAS No. 146 will be effective for us prospectively for exit or disposal activities initiated after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure," which amended SFAS No. 123, to provide alternative methods of transition
68
for a voluntary change to a fair value based method of accounting for stock-based compensation. SFAS No. 148 allows for (a) a prospective method, (b) a modified prospective method and (c) a retroactive restatement method. The prospective method involves recognizing expense for the fair value for all awards granted or modified in the year of adoption and thereafter with no expense recognition for previous awards. The modified prospective method involves recognizing expense for the fair value for all awards granted or modified in the year of adoption and thereafter and for all awards previously granted, modified or settled since 1994 (the original SFAS No. 123 implementation date) that are unvested at the beginning of the year of adoption. The retroactive restatement method involves restating all periods presented for the fair value of all awards previously granted, modified or settled since 1994 (the original SFAS No. 123 implementation date). We have elected to adopt the fair value method of accounting in our financial statements beginning in 2003 using the prospective method. We will apply the fair value recognition provisions to all stock based awards granted, modified or settled on or after January 1, 2003 and will continue to provide the required pro forma information in the Notes to our Consolidated Financial Statements on an interim and annual basis. We do not expect the adoption of the fair value method of accounting to have a material effect on our consolidated financial position or consolidated results of operations for the year ending December 31, 2003. We are not contractually committed to grant or modify awards in future accounting periods and we do not anticipate any changes to our policies or procedures in regards to stock-based awards as a result of this implementation.
u. Rollforward of Allowance for Doubtful Accounts
|
Year Ended December 31,
|
Balance at
Beginning of the Year |
Charged to
Expense |
Other
Additions(1) |
Deductions
|
Balance at
End of the Year |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | $ | 17,086 | $ | 11,597 | $ | 783 | $ | (9,192 | ) | $ | 20,274 | ||||
3. Variable Interest Entities
Under our three synthetic lease facilities, three special purpose entities, which we now refer to as variable interest entities, were established to acquire properties and lease those properties to us. These leases were designed to qualify as operating leases for accounting purposes, where the monthly lease expense was recorded as rent expense in our consolidated statements of operations and where the related underlying assets and liabilities were not consolidated in our consolidated balance sheets. As described below, we changed the characterization and the related accounting for properties in one variable interest entity ("VIE III") during the third quarter of 2002 and prospectively for new property acquisitions in the fourth quarter of 2002. In addition, anticipating the requirement to consolidate, and in line with our objective of transparent reporting, we voluntarily guaranteed all of the at-risk equity in VIE III and our two other variable interest entities (together, the "Other Variable Interest Entities"
69
and, collectively with VIE III, our "Variable Interest Entities") as of December 31, 2002. These guarantees resulted in our consolidating all of our Variable Interest Entities' assets and liabilities.
We entered into these synthetic lease facilities because we believe they afforded, and continue to afford, meaningful benefits. Such benefits included rental payments (prospectively interest payments) below those available from traditional landlords and developers, and tax benefits and control provisions normally associated with direct ownership, including the right to buy the properties at original cost. Each of the leases under our synthetic lease facilities has a five to six and one-half year term for specified records storage warehouses; commencement dates for these leases range from 1998 to 2002.
Our Variable Interest Entities were financed with real estate term loans. These real estate term loans have always been and continue to be treated as indebtedness for purposes of our financial covenants under our Amended and Restated Credit Agreement. As of the date they were consolidated into our financial statements, they were considered indebtedness under our Indentures for our Senior Subordinated Notes and our Subsidiary notes. As of December 31, 2002, these real estate term loans amounted to $202,647. No further financing is currently available to our Variable Interest Entities to fund further property acquisitions. See Note 5.
In light of the impending changes in the accounting rules related to off-balance sheet treatment of variable interest entities, which became final subsequent to December 31, 2002 as discussed at Note 2(t), management undertook an internal review of our Variable Interest Entities during the third quarter of 2002 in order to determine the future treatment of these transactions. During this review, management determined that VIE III should not have qualified for off-balance sheet treatment due to a technical documentation error. VIE III was involved in a series of construction projects and other facility acquisitions that were initiated from mid 2001 through December 31, 2002. As a result, management changed the characterization and the related accounting for properties in VIE III during the third quarter of 2002 and prospectively for new property acquisitions in the fourth quarter of 2002 to record these properties and their related financing obligations in our consolidated results. New property acquisitions in the fourth quarter of 2002 totaled $10,412.
Also, as of December 31, 2002, we voluntarily guaranteed all of the at-risk equity in VIE III. This resulted in our consolidating all of its remaining assets and liabilities. VIE III's remaining assets and liabilities relate to an interest rate swap agreement, which it entered into upon its inception. This swap agreement hedges the majority of interest rate risk associated with VIE III's real estate term loans. Specifically, VIE III has swapped $97,000 of floating rate debt to fixed rate debt. Since the time it entered into the swap agreement, interest rates have fallen. As a result, the estimated fair value of the derivative liability held by VIE III, and now consolidated on our balance sheet, related to the swap agreement was $13,658 at December 31, 2002. This swap has been since inception and continues to be, as of December 31, 2002, an effective hedge in accordance with SFAS No. 133.
As of December 31, 2002, the total impact related to the change in characterization and the consolidation of VIE III, as compared to December 31, 2001, was an increase in gross property, plant and equipment, accumulated depreciation, long-term debt, and interest expense of $98,715, $1,675, $98,715 and $6,193, respectively. Additionally, we have recorded an additional derivative liability and deferred tax assets of $13,658 and $4,972, respectively, and a charge to shareholders' equity as a
70
component of accumulated other comprehensive items of $8,686 as of December 31, 2002. See Notes 4 and 5.
In addition, as of December 31, 2002, we voluntarily guaranteed all of the at-risk equity in the Other Variable Interest Entities. This resulted in our consolidating all of their assets and liabilities. As of December 31, 2002, the total impact of consolidating the Other Variable Interest Entities was an increase of $103,932 both in property, plant and equipment and long-term debt. The underlying leases associated with the Other Variable Interest Entities were treated as operating leases from inception (as early as 1998) through consolidation on December 31, 2002. As a result, during the years ended December 31, 2000, 2001 and 2002, we recorded $4,823, $6,733 and $5,915, respectively, in rent expense in our consolidated statements of operations related to these leases. On a prospective basis, we will be recording depreciation expense associated with the properties, interest expense associated with the real estate term loans and will no longer have rent expense related to leases associated with the Other Variable Interest Entities in our consolidated financial results.
4. Derivative Instruments and Hedging Activities
We have entered into two interest rate swap agreements, which are derivatives as defined by SFAS No. 133 and designated as cash flow hedges. These swap agreements hedge interest rate risk on certain amounts of our term loan. For all qualifying and highly effective cash flow hedges, the changes in the fair value of the derivatives are recorded in other comprehensive income (loss) which is a component of accumulated other comprehensive items included in shareholders' equity in the accompanying consolidated balance sheets. Specifically, we chose to swap the interest rates on $195,500 of floating rate debt to fixed rate. Since entering into these two swap agreements, interest rates have fallen. As a result, the estimated cost to terminate these swaps (fair value of derivative liability) would be $7,815 and $18,713 at December 31, 2001 and 2002, respectively. We have recorded, in the accompanying consolidated balance sheets, the fair value of the derivative liability, a deferred tax asset and a corresponding charge to accumulated other comprehensive items of $18,713 ($8,069 recorded in accrued expenses and $10,644 recorded in other long-term liabilities), $6,812 and $11,901, respectively, as of December 31, 2002. Additionally, as a result of the foregoing, for the years ended December 31, 2001 and 2002, we recorded additional interest expense of $2,677 and $7,534 resulting from interest rate swap settlements. These interest rate swap agreements were determined to be highly effective whereby no ineffectiveness was recorded in earnings.
We have entered into a third interest rate swap agreement, which was designated as a cash flow hedge through December 31, 2002. This swap agreement hedged interest rate risk on certain amounts of our variable operating lease commitments. Specifically, we chose to swap the variable component of $47,500 of certain operating lease commitments to fixed operating lease commitments. Since entering into the swap agreement, interest rates have fallen. As a result, the estimated cost to terminate these swaps (fair value of derivative liability) would be $2,042 and $2,949 at December 31, 2001 and 2002, respectively. We have recorded, in the accompanying consolidated balance sheets, the fair value of the derivative liability, a deferred tax asset and a corresponding charge to accumulated other comprehensive items of $2,949 ($1,272 recorded in accrued expenses and $1,677 recorded in other long-term liabilities), $1,074 and $1,875, respectively, as of December 31, 2002. Additionally, as a result
71
of the foregoing, for the years ended December 31, 2001 and 2002, we recorded additional rent expense of $743 and $1,807 resulting from the settlements associated with this interest rate swap agreement. From inception through December 31, 2002, this interest rate swap agreement was determined to be highly effective whereby no ineffectiveness was recorded in earnings. As a result of the December 31, 2002 consolidation of one of the Other Variable Interest Entities ("VIE I"), the operating lease commitments that were hedged by this swap are now considered to be inter-company transactions and this hedge was deemed to be no longer effective on a prospective basis. We have consolidated the real estate term loans of VIE I and we will prospectively record interest expense instead of rent expense as we make cash interest payments on this debt. The unrealized mark to market losses previously recorded in other comprehensive income attributable to this swap ($1,875, net of tax, as of December 31, 2002) will be amortized through other (income) expense, net in the accompanying consolidated statement of operations based on the changes in the fair value of the swap each period that the remaining interest payments are made on VIE I's real estate term loans. We will prospectively account for mark to market changes in the derivative liability of this swap through other (income) expense, net in the accompanying consolidated statement of operations. This accounting will have a net zero impact within our consolidated statement of operations as it relates to the amortization of unrealized mark to market losses and the fair valuing of the derivative liability.
Also, as of December 31, 2002, we consolidated VIE III which had entered into an interest rate swap agreement upon its inception which was designated as a cash flow hedge. This swap agreement hedges the majority of interest rate risk associated with VIE III's real estate term loans. Specifically, VIE III has swapped $97,000 of floating rate debt to fixed rate debt. Since the time it entered into the swap agreement, interest rates have fallen. As a result, the estimated cost to terminate these swaps (fair value of derivative liability) would be $13,658 at December 31, 2002. We have recorded, in the accompanying consolidated balance sheets, the fair value of the derivative liability, a deferred tax asset and a corresponding charge to accumulated other comprehensive items of $13,658 ($4,438 recorded in accrued expenses and $9,220 recorded in other long-term liabilities), $4,972 and $8,686, respectively, as of December 31, 2002. Additionally, as a result of the foregoing, for the year ended December 31, 2002, we recorded additional interest expense of $3,423 resulting from interest rate swap settlements. This interest rate swap agreement has been since inception and continues to be a highly effective hedge whereby no ineffectiveness was recorded in earnings.
72
5. Debt
Long-term debt consists of the following:
|
|
December 31,
|
||||||
|---|---|---|---|---|---|---|---|
|
|
2001
|
2002
|
|||||
| Revolving Credit Facility due 2005 | $ | — | $ | 75,360 | |||
| Tranche A Term Loan due 2005 | 150,000 | — | |||||
| Tranche B Term Loan due 2006 | 198,750 | — | |||||
| Term Loan due 2008 | — | 249,750 | |||||
| 9 1 / 8 % Senior Subordinated Notes due 2007 (the "9 1 / 8 % notes") | 115,106 | 22,409 | |||||
| 8 1 / 8 % Senior Notes due 2008 (the "Subsidiary notes") | 122,758 | 124,666 | |||||
| 8 3 / 4 % Senior Subordinated Notes due 2009 (the "8 3 / 4 % notes") | 249,687 | 249,727 | |||||
| 8 1 / 4 % Senior Subordinated Notes due 2011 (the "8 1 / 4 % notes") | 149,580 | 149,625 | |||||
| 8 5 / 8 % Senior Subordinated Notes due 2013 (the "8 5 / 8 % notes") | 438,059 | 481,097 | |||||
| 7 3 / 4 % Senior Subordinated Notes due 2015 (the "7 3 / 4 % notes") | — | 100,000 | |||||
| Real Estate Term Loans | — | 202,647 | |||||
| Real Estate Mortgages | 19,337 | 16,262 | |||||
| Seller Notes | 12,383 | 12,864 | |||||
| Other | 40,439 | 47,690 | |||||
|
|
|
||||||
| Long-term Debt | 1,496,099 | 1,732,097 | |||||
| Less Current Portion | (35,256 | ) | (69,732 | ) | |||
|
|
|
||||||
| Long-term Debt, Net of Current Portion | $ | 1,460,843 | $ | 1,662,365 | |||
|
|
|
||||||
a. Revolving Credit Facility and Term Loans
On March 15, 2002, we entered into a new amended and restated revolving credit agreement (the "Amended and Restated Credit Agreement"). The Amended and Restated Credit Agreement replaced our prior credit agreement. As a result, we recorded an extraordinary charge of $777 (net of tax benefit of $445) related to the early retirement of debt in conjunction with the refinancing of our credit facility. The Amended and Restated Credit Agreement has an aggregate principal amount of $650,000 and includes a $400,000 revolving credit facility, which includes the ability to borrow in certain foreign currencies, and a $250,000 term loan facility. The revolving credit facility matures on January 31, 2005. Quarterly term loan payments of $250 began in the fourth quarter of 2002 and will continue through maturity on February 15, 2008, at which time the remaining outstanding principal balance of the term loan facility is due. The interest rate on borrowings under the Amended and Restated Credit Agreement varies depending on our choice of interest rate and currency options, plus an applicable margin. All intercompany notes and the capital stock of all of our domestic subsidiaries are pledged to secure the Amended and Restated Credit Agreement. As of December 31, 2002, we had $75,360 of borrowings under our revolving credit facility, all of which was denominated in Canadian dollars in the amount of CAD 118,790. We also had various outstanding letters of credit totaling $35,931. The remaining availability under the revolving credit facility was $288,709 as of December 31, 2002, and the interest rates in effect ranged from 3.69% to 5.03% as of December 31, 2002.
73
In December 2000, we entered into an interest rate swap contract to hedge the risk of changes in market interest rates on our Tranche B term loan. The instrument is a variable-for-fixed swap of quarterly interest payments payable on certain amounts of the Tranche B term loan through 2006. The notional value of the swap equals $99,500 and has a fixed rate of 5.9% and a variable rate based on periodic three-month London Inter-Bank Offered Rate (LIBOR). In January 2001, we entered into a second interest rate swap contract on the Tranche B term loan. The notional value of the second swap equals $96,000 and has a fixed rate of 5.5% and a variable rate based on periodic three-month LIBOR. In conjunction with the Amended and Restated Credit Agreement on March 15, 2002, these interest rate swap contracts hedge the risk of changes in market interest rates on our term loan due 2008 rather than the previous Tranche B term loan due 2006.
The Amended and Restated Credit Agreement contains certain restrictive financial and operating covenants including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the Amended and Restated Credit Agreement. We were in compliance with all debt covenants as of December 31, 2002.
b. Publicly Issued Notes
As of December 31, 2002, we have five series of senior subordinated notes issued to the public, that are obligations of the parent company, Iron Mountain Incorporated (the "Parent notes"):
The Parent notes are fully and unconditionally guaranteed, on a senior subordinated basis, by substantially all of our direct and indirect wholly owned domestic subsidiaries (the "Guarantors"). These guarantees are joint and several obligations of the Guarantors. In addition, the 9 1 / 8 % notes were secured by a second lien on 65% of the stock of Iron Mountain Canada Corporation ("Canada Company"). The remainder of our subsidiaries do not guarantee the Parent notes.
In addition, Canada Company, our principal Canadian subsidiary, has publicly issued $135,000 principal amount of senior notes that mature on May 15, 2008 and bear interest at a rate of 8 1 / 8 % per annum, payable semi-annually in arrears on May 15 and November 15. The Subsidiary notes are
74
general unsecured obligations of Canada Company, ranking pari passu in right of payment to all of Canada Company's existing and future senior indebtedness. The Subsidiary notes are fully and unconditionally guaranteed, on a senior subordinated basis, by Iron Mountain Incorporated and the Guarantors. In addition, several of the non-guarantors that are organized under the laws of Canadian provinces fully and unconditionally guarantee the Subsidiary notes on a senior basis. As with the Parent notes, these guarantees are joint and several.
The 9 1 / 8 % notes and the Subsidiary notes were assumed in the Pierce Leahy merger and were recorded at their fair market value on the date of merger. The resulting net discount is being amortized over the remaining period to maturity using the effective interest rate method.
In November 2002, we completed an exchange of 8 5 / 8 % notes for 9 1 / 8 % notes at an exchange ratio of 1.0237. This resulted in the issuance of $45,874 in face value of our 8 5 / 8 % notes and the retirement of $44,810 of our 9 1 / 8 % notes. This non-cash debt exchange resulted in carryover basis and, therefore, no gain (loss) on extinguishment of debt in accordance with EITF No. 96-19, "Debtor's Accounting for Modification or Exchange of Debt Instruments."
In December 2002, we completed an underwritten public offering of $100,000 in aggregate principal amount of 7 3 / 4 % notes. The 7 3 / 4 % notes were issued at a price to investors of 100% of par. Our net proceeds of $99,000, after paying the underwriters' discounts and commissions, were used to fund our offer to purchase and consent solicitation relating to our outstanding 9 1 / 8 % notes, to repay outstanding borrowings under our revolving credit facility and for general corporate purposes.
In December 2002, we received and accepted tenders for $52,007 of the $75,190 aggregate principal amount outstanding of our 9 1 / 8 % notes. We recorded an extraordinary charge of $2,677 (net of tax benefit of $1,532) in the fourth quarter of 2002 related to the early retirement of the 9 1 / 8 % notes. In January 2003, we redeemed the remaining $23,183 of outstanding principal amount of our 9 1 / 8 % notes, at a redemption price (expressed as a percentage of principal amount) of 104.563%, plus accrued and unpaid interest, totaling $25,299. We will record a charge to other (income) expense, net of $1,160 (net of $664 tax benefit) in the first quarter of 2003 related to the early retirement of these remaining 9 1 / 8 % notes.
Each of the indentures for the notes provides that we may redeem the outstanding notes, in whole or in part, upon satisfaction of certain terms and conditions. In any redemption, we are also required to pay all accrued but unpaid interest on the outstanding notes.
75
The following table presents the various redemption dates and prices of the public notes. The redemption dates reflect the date at or after which the notes may be redeemed at our option at a premium redemption price. After these dates, the notes may be redeemed at 100% of face value:
|
|
9
1
/
8
%
notes |
8
3
/
4
%
notes |
8
1
/
4
%
notes |
8
5
/
8
%
notes |
7
3
/
4
%
notes |
Subsidiary
notes |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Redemption
Date |
July 15,
|
September 30,
|
July 1,
|
April 1,
|
January 15,
|
May 15,
|
|||||||
| 2003 | 103.042 | % | 102.916 | % | — | — | — | 104.063 | % | ||||
| 2004 | 101.521 | % | 101.458 | % | 104.125 | % | — | — | 102.708 | % | |||
| 2005 | — | — | 102.750 | % | — | — | 101.354 | % | |||||
| 2006 | — | — | 101.375 | % | 104.313 | % | — | — | |||||
| 2007 | — | — | — | 102.875 | % | — | — | ||||||
| 2008 | — | — | — | 101.438 | % | 103.875 | % | — | |||||
| 2009 | — | — | — | — | 102.583 | % | — | ||||||
| 2010 | — | — | — | — | 101.292 | % | — |
Prior to January 15, 2008, the 7 3 / 4 % notes are redeemable at our option, in whole or in part, at a specified make-whole price. Prior to January 15, 2006, we may under certain conditions redeem up to 35% of the 7 3 / 4 % notes with the net proceeds of one or more public equity offerings, at a redemption price of 107.750% of the principal amount.
Prior to July 1, 2004, the 8 1 / 4 % notes are redeemable at our option, in whole or in part, at a specified make-whole price.
In addition, until April 1, 2004, we may under certain conditions redeem up to 35% of the 8 5 / 8 % notes with the net proceeds of one or more public equity offerings, at a redemption price of 108.625% of the principal amount.
Each of the indentures for the notes provides that we or, in the case of the Subsidiary notes, Canada Company must repurchase, at the option of the holders, the notes at 101% of their principal amount, plus accrued and unpaid interest, upon the occurrence of a "Change of Control," which is defined in each respective indenture. Except for required repurchases upon the occurrence of a Change of Control or in the event of certain asset sales, each as described in the respective indenture, we are not required to make sinking fund or redemption payments with respect to any of the notes.
The indentures for the notes contain restrictive covenants similar to those contained in the Amended and Restated Credit Agreement. We were in compliance with all debt covenants in the indentures as of December 31, 2002.
c. Real Estate Term Loans
Our Variable Interest Entities were financed with real estate term loans. See Note 3. As of December 31, 2002, these real estate term loans amounted to $202,647. No further financing is
76
currently available to our Variable Interest Entities to fund further property acquisitions. The details of each real estate term loan is a follows:
The real estate term loans held by our Variable Interest Entities have always been and continue to be treated as indebtedness for purposes of our financial covenants under our Amended and Restated Credit Agreement. As of the date they were consolidated into our financial statements, they were considered indebtedness under our Indentures for our Senior Subordinated Notes and our Subsidiary notes. We were in compliance with all debt covenants under these real estate term loans as of December 31, 2002.
d. Real Estate Mortgages
In connection with the purchase of real estate and acquisitions, we assumed several mortgages on real property. The mortgages bear interest at rates ranging from 5.25% to 8.5% and are payable in various installments through 2025.
e. Seller Notes
In connection with the merger with Pierce Leahy in 2000, we assumed debt related to certain existing notes as a result of acquisitions which Pierce Leahy completed in 1999. The notes bear interest at a rate of 4.75% per year. The outstanding balance of $12,864 on these notes at December 31, 2002 is due on demand through 2009 and is classified as a current portion of long-term debt. The notes are supported by a letter of credit under our revolving credit facility.
f. Other
Other long-term debt includes various notes and obligations assumed by us as a result of certain acquisitions. Additionally, our 50.1% owned subsidiary, Iron Mountain Europe Limited ("IM Europe"), has working capital/revolving credit facilities with its local banks that provide for approximately $31,941
77
of credit, of which $12,811 was available as of December 31, 2002. IM Europe is in the process of finalizing a new agreement relative to its working capital/revolving credit facility which expired on January 31, 2003. As of December 31, 2001, the amounts outstanding under IM Europe's term loan and working capital/revolving credit facilities amounted to $9,438 and $11,776, respectively. As of December 31, 2002, the amounts outstanding under IM Europe's bank overdraft (due on demand), term loan and working capital/revolving credit facilities amounted to $11,175, $11,050 and $12,811, respectively. Principal and interest payments on the term loan are payable twice a year through March 31, 2006 and interest is due on the term loan at 1.25% over LIBOR. The average effective interest rate of IM Europe's debt was 6.53%, 6.05% and 5.80% for the years ending December 31, 2000, 2001 and 2002, respectively. IM Europe's various debt and credit facilities are secured by the assets of IM Europe and each of its subsidiaries and includes various financial and non-financial covenants and restrictions based on net income and net worth. IM Europe was in compliance with all debt covenants as of December 31, 2002.
Maturities of long-term debt, excluding (premiums) discounts, net, are as follows:
|
Year
|
Amount
|
||
|---|---|---|---|
| 2003 | $ | 70,507 | |
| 2004 | 34,951 | ||
| 2005 | 156,621 | ||
| 2006 | 6,651 | ||
| 2007 | 101,835 | ||
| Thereafter | 1,370,733 | ||
|
|
|||
| $ | 1,741,298 | ||
|
|
|||
78
We have estimated the following fair values for our long-term debt as of December 31:
|
|
2001
|
2002
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Carrying
Amount |
Fair
Value |
Carrying
Amount |
Fair
Value |
||||||||
| Revolving Credit Facility (1) | $ | — | $ | — | $ | 75,360 | $ | 75,360 | ||||
| Tranche A Term Loan (1) | 150,000 | 150,000 | — | — | ||||||||
| Tranche B Term Loan (1) | 198,750 | 198,750 | — | — | ||||||||
| Term Loan (1) | — | — | 249,750 | 249,750 | ||||||||
| 9 1 / 8 % notes (2) | 115,106 | 126,000 | 22,409 | 24,241 | ||||||||
| 8 3 / 4 % notes (2) | 249,687 | 257,500 | 249,727 | 257,825 | ||||||||
| 8 1 / 4 % notes (2) | 149,580 | 151,875 | 149,625 | 154,500 | ||||||||
| 8 5 / 8 % notes (2) | 438,059 | 448,050 | 481,097 | 502,513 | ||||||||
| 7 3 / 4 % notes (2) | — | — | 100,000 | 100,000 | ||||||||
| Subsidiary notes (2) | 122,758 | 136,350 | 124,666 | 138,038 | ||||||||
| Real Estate Term Loans (1) | — | — | 202,647 | 202,647 | ||||||||
| Real Estate Mortgages (1) | 19,337 | 19,337 | 16,262 | 16,262 | ||||||||
| Seller Notes (1) | 12,383 | 12,383 | 12,864 | 12,864 | ||||||||
| Other (1) | 40,439 | 40,439 | 47,690 | 47,690 | ||||||||
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6. Selected Consolidated Financial Statements of Parent, Guarantors and Non-Guarantors
The following financial data summarizes the consolidating Company on the equity method of accounting as of December 31, 2002 and 2001 and for the years ended December 31, 2002 and 2001. The Guarantor column includes all subsidiaries that guarantee the Parent notes and the Subsidiary notes. The Canada Company column includes Canada Company and our other Canadian subsidiaries that guarantee the Subsidiary notes, but do not guarantee the Parent notes. The Parent and the Guarantors also guarantee the Subsidiary notes. The subsidiaries that do not guarantee either the Parent notes or the Subsidiary notes are referred to in the table as the "non-guarantors."
|
|
December 31, 2002
|
|||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Parent
|
Guarantors
|
Canada
Company |
Non-
Guarantors |
Eliminations
|
Consolidated
|
||||||||||||||
| Assets | ||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||
| Cash and Cash Equivalents | $ | — | $ | 52,025 | $ | 1,759 | $ | 2,508 | $ | — | $ | 56,292 | ||||||||
| Accounts Receivable | — | 183,610 | 13,898 | 27,908 | — | 225,416 | ||||||||||||||
| Intercompany Receivable | 782,547 | — | — | 13,785 | (796,332 | ) | — | |||||||||||||
| Other Current Assets | 3,400 | 72,140 | 2,299 | 7,665 | (172 | ) | 85,332 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total Current Assets | 785,947 | 307,775 | 17,956 | 51,866 | (796,504 | ) | 367,040 | |||||||||||||
| Property, Plant and Equipment, Net | — | 926,147 | 77,003 | 236,038 | — | 1,239,188 | ||||||||||||||
| Other Assets, Net: | ||||||||||||||||||||
| Long-term Intercompany Receivable | 36,875 | — | — | 98,715 | (135,590 | ) | — | |||||||||||||
| Long-term Notes Receivable from Affiliates | 1,113,752 | — | — | — | (1,113,752 | ) | — | |||||||||||||
| Investment in Subsidiaries | 367,355 | 76,011 | — | — | (443,366 | ) | — | |||||||||||||
| Goodwill, Net | — | 1,273,774 | 114,131 | 147,328 | 9,741 | 1,544,974 | ||||||||||||||
| Other | 21,191 | 52,292 | 9,327 | 4,785 | (8,142 | ) | 79,453 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total Other Assets, Net | 1,539,173 | 1,402,077 | 123,458 | 250,828 | (1,691,109 | ) | 1,624,427 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total Assets | $ | 2,325,120 | $ | 2,635,999 | $ | 218,417 | $ | 538,732 | $ | (2,487,613 | ) | $ | 3,230,655 | |||||||
|
|
|
|
|
|
|
|||||||||||||||
| Liabilities and Shareholders' Equity | ||||||||||||||||||||
| Intercompany Payable | $ | — | $ | 637,941 | $ | 92,259 | $ | 66,132 | $ | (796,332 | ) | $ | — | |||||||
| Total Current Liabilities | 62,025 | 255,016 | 15,249 | 95,844 | (172 | ) | 427,962 | |||||||||||||
| Long-term Debt, Net of Current Portion | 1,306,027 | 1,232 | 126,408 | 228,698 | — | 1,662,365 | ||||||||||||||
| Long-term Intercompany Payable | — | 135,590 | — | — | (135,590 | ) | — | |||||||||||||
| Long-term Notes Payable to Affiliates | — | 1,113,752 | — | — | (1,113,752 | ) | — | |||||||||||||
| Other Long-term Liabilities | 12,207 | 111,415 | 997 | 16,858 | (8,142 | ) | 133,335 | |||||||||||||
| Commitments and Contingencies | ||||||||||||||||||||
| Minority Interests | — | — | — | 4,182 | 57,950 | 62,132 | ||||||||||||||
| Shareholders' Equity (Deficit) | 944,861 | 381,053 | (16,496 | ) | 127,018 | (491,575 | ) | 944,861 | ||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 2,325,120 | $ | 2,635,999 | $ | 218,417 | $ | 538,732 | $ | (2,487,613 | ) | $ | 3,230,655 | |||||||
|
|
|
|
|
|
|
|||||||||||||||
80
|
|
December 31, 2001
|
|||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Parent
|
Guarantors
|
Canada
Company |
Non-
Guarantors |
Eliminations
|
Consolidated
|
||||||||||||||
| Assets | ||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||
| Cash and Cash Equivalents | $ | — | $ | 11,395 | $ | 1,696 | $ | 8,268 | $ | — | $ | 21,359 | ||||||||
| Accounts Receivable | — | 181,640 | 14,415 | 22,995 | — | 219,050 | ||||||||||||||
| Intercompany Receivable | 685,601 | — | — | 24,404 | (710,005 | ) | — | |||||||||||||
| Other Current Assets | — | 64,378 | 460 | 4,094 | (24 | ) | 68,908 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total Current Assets | 685,601 | 257,413 | 16,571 | 59,761 | (710,029 | ) | 309,317 | |||||||||||||
| Property, Plant and Equipment, Net | — | 778,804 | 72,839 | 100,588 | — | 952,231 | ||||||||||||||
| Other Assets, Net: | ||||||||||||||||||||
| Long-term Intercompany Receivable | 45,193 | — | — | — | (45,193 | ) | — | |||||||||||||
| Long-term Notes Receivable from Affiliates | 1,086,823 | — | — | — | (1,086,823 | ) | — | |||||||||||||
| Investment in Subsidiaries | 379,816 | 82,434 | — | — | (462,250 | ) | — | |||||||||||||
| Goodwill, Net | — | 1,261,598 | 115,832 | 141,463 | 10,654 | 1,529,547 | ||||||||||||||
| Other | 31,419 | 40,660 | 11,754 | 1,085 | (16,107 | ) | 68,811 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total Other Assets, Net | 1,543,251 | 1,384,692 | 127,586 | 142,548 | (1,599,719 | ) | 1,598,358 | |||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total Assets | $ | 2,228,852 | $ | 2,420,909 | $ | 216,996 | $ | 302,897 | $ | (2,309,748 | ) | $ | 2,859,906 | |||||||
|
|
|
|
|
|
|
|||||||||||||||
| Liabilities and Shareholders' Equity | ||||||||||||||||||||
| Intercompany Payable | $ | — | $ | 560,699 | $ | 92,555 | $ | 56,751 | $ | (710,005 | ) | $ | — | |||||||
| Total Current Liabilities | 34,526 | 233,111 | 16,786 | 74,610 | (24 | ) | 359,009 | |||||||||||||
| Long-term Debt, Net of Current Portion | 1,308,367 | 1,289 | 125,075 | 26,112 | — | 1,460,843 | ||||||||||||||
| Long-term Intercompany Payable | — | 45,193 | — | — | (45,193 | ) | — | |||||||||||||
| Long-term Notes Payable to Affiliates | — | 1,086,823 | — | — | (1,086,823 | ) | — | |||||||||||||
| Other Long-term Liabilities | — | 98,481 | 887 | 5,541 | (16,107 | ) | 88,802 | |||||||||||||
| Commitments and Contingencies | ||||||||||||||||||||
| Minority Interests | — | — | — | (1,352 | ) | 66,645 | 65,293 | |||||||||||||
| Shareholders' Equity (Deficit) | 885,959 | 395,313 | (18,307 | ) | 141,235 | (518,241 | ) | 885,959 | ||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 2,228,852 | $ | 2,420,909 | $ | 216,996 | $ | 302,897 | $ | (2,309,748 | ) | $ | 2,859,906 | |||||||
|
|
|
|
|
|
|
|||||||||||||||
81
|
|
Year Ended December 31, 2002
|
||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Parent
|
Guarantors
|
Canada
Company |
Non-
Guarantors |
Eliminations
|
Consolidated
|
|||||||||||||||
| Revenues: | |||||||||||||||||||||
| Storage | $ | — | $ | 658,613 | $ | 36,169 | $ | 64,754 | $ | — | $ | 759,536 | |||||||||
| Service and Storage Material Sales | — | 473,077 | 38,947 | 46,937 | — | 558,961 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Total Revenues | — | 1,131,690 | 75,116 | 111,691 | — | 1,318,497 | |||||||||||||||
| Operating Expenses: | |||||||||||||||||||||
| Cost of Sales (Excluding Depreciation) | — | 527,215 | 37,464 | 57,620 | — | 622,299 | |||||||||||||||
| Selling, General and Administrative | 57 | 295,435 | 13,038 | 23,802 | — | 332,332 | |||||||||||||||
| Depreciation and Amortization | — | 96,435 | 5,706 | 7,699 | — | 109,840 | |||||||||||||||
| Merger-related Expenses | — | 796 | — | — | — | 796 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Total Operating Expenses | 57 | 919,881 | 56,208 | 89,121 | — | 1,065,267 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Operating (Loss) Income | (57 | ) | 211,809 | 18,908 | 22,570 | — | 253,230 | ||||||||||||||
| Interest Expense, Net | 7,077 | 101,660 | 14,708 | 13,187 | — | 136,632 | |||||||||||||||
| Equity in the (Earnings) Losses of Subsidiaries | (70,127 | ) | 3,320 | — | — | 66,807 | — | ||||||||||||||
| Other Expense (Income), Net | 1,248 | (2,296 | ) | (772 | ) | (1,531 | ) | — | (3,351 | ) | |||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Income from Continuing Operations Before Provision for Income Taxes and Minority Interest | 61,745 | 109,125 | 4,972 | 10,914 | (66,807 | ) | 119,949 | ||||||||||||||
| Provision for Income Taxes | — | 43,109 | 2,064 | 4,122 | — | 49,295 | |||||||||||||||
| Minority Interest in Earnings of Subsidiaries | — | — | — | 3,629 | — | 3,629 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle | 61,745 | 66,016 | 2,908 | 3,163 | (66,807 | ) | 67,025 | ||||||||||||||
| Income from Discontinued Operations (Net of Tax of $768) | — | 1,116 | — | — | — | 1,116 | |||||||||||||||
| Extraordinary Charges from Early Extinguishment of Debt (Net of Tax Benefit of $1,977) | (3,453 | ) | — | — | — | — | (3,453 | ) | |||||||||||||
| Cumulative Effect of Change in Accounting Principle (net of Minority Interest) | — | — | — | (6,396 | ) | — | (6,396 | ) | |||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Net Income (Loss) | $ | 58,292 | $ | 67,132 | $ | 2,908 | $ | (3,233 | ) | $ | (66,807 | ) | $ | 58,292 | |||||||
|
|
|
|
|
|
|
||||||||||||||||
82
|
|
Year Ended December 31, 2001
|
||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Parent
|
Guarantors
|
Canada
Company |
Non-
Guarantors |
Eliminations
|
Consolidated
|
|||||||||||||||
| Revenues: | |||||||||||||||||||||
| Storage | $ | — | $ | 604,546 | $ | 33,475 | $ | 56,453 | $ | — | $ | 694,474 | |||||||||
| Service and Storage Material Sales | — | 421,735 | 34,549 | 34,960 | — | 491,244 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Total Revenues | — | 1,026,281 | 68,024 | 91,413 | — | 1,185,718 | |||||||||||||||
| Operating Expenses: | |||||||||||||||||||||
| Cost of Sales (Excluding Depreciation) | — | 493,048 | 35,093 | 48,397 | — | 576,538 | |||||||||||||||
| Selling, General and Administrative | 83 | 270,201 | 11,867 | 24,783 | — | 306,934 | |||||||||||||||
| Depreciation and Amortization | — | 131,342 | 10,136 | 12,113 | — | 153,591 | |||||||||||||||
| Merger-related Expenses | — | 3,644 | — | 29 | — | 3,673 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Total Operating Expenses | 83 | 898,235 | 57,096 | 85,322 | — | 1,040,736 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Operating (Loss) Income | (83 | ) | 128,046 | 10,928 | 6,091 | — | 144,982 | ||||||||||||||
| Interest Expense, Net | 17,755 | 92,823 | 16,244 | 7,920 | — | 134,742 | |||||||||||||||
| Equity in the Losses of Subsidiaries | 7,489 | 2,117 | — | — | (9,606 | ) | — | ||||||||||||||
| Other Expense, Net | 6,911 | 2,887 | 8,204 | 369 | — | 18,371 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| (Loss) Income from Continuing Operations Before Provision (Benefit) for Income Taxes and Minority Interest | (32,238 | ) | 30,219 | (13,520 | ) | (2,198 | ) | 9,606 | (8,131 | ) | |||||||||||
| Provision (Benefit) for Income Taxes | — | 24,238 | (111 | ) | 1,909 | — | 26,036 | ||||||||||||||
| Minority Interest in Losses of Subsidiaries | — | — | — | (1,929 | ) | — | (1,929 | ) | |||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| (Loss) Income before Extraordinary Charges | (32,238 | ) | 5,981 | (13,409 | ) | (2,178 | ) | 9,606 | (32,238 | ) | |||||||||||
| Extraordinary Charges from Early Extinguishment of Debt (Net of Tax Benefit of $8,161) | (11,819 | ) | — | — | — | — | (11,819 | ) | |||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Net (Loss) Income | $ | (44,057 | ) | $ | 5,981 | $ | (13,409 | ) | $ | (2,178 | ) | $ | 9,606 | $ | (44,057 | ) | |||||
|
|
|
|
|
|
|
||||||||||||||||
83
|
|
Year Ended December 31, 2002
|
||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Parent
|
Guarantors
|
Canada
Company |
Non-
Guarantors |
Eliminations
|
Consolidated
|
|||||||||||||||
| Cash Flows from Operating Activities: | |||||||||||||||||||||
| Cash Flows (Used in) Provided by Operating Activities | $ | (25,748 | ) | $ | 251,453 | $ | 11,174 | $ | 18,069 | $ | — | $ | 254,948 | ||||||||
| Cash Flows from Investing Activities: | |||||||||||||||||||||
| Capital expenditures | — | (152,501 | ) | (8,125 | ) | (36,371 | ) | — | (196,997 | ) | |||||||||||
| Cash paid for acquisitions, net of cash acquired | — | (28,041 | ) | (21 | ) | (21,299 | ) | — | (49,361 | ) | |||||||||||
| Intercompany loans to subsidiaries | 8,642 | (17,928 | ) | — | — | 9,286 | — | ||||||||||||||
| Investment in subsidiaries | (1,940 | ) | (1,940 | ) | — | — | 3,880 | — | |||||||||||||
| Additions to customer relationship and acquisition costs | — | (7,137 | ) | (613 | ) | (669 | ) | — | (8,419 | ) | |||||||||||
| Proceeds from sales of property and equipment | — | 1,460 | 8 | 5,552 | — | 7,020 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Cash Flows Provided by (Used in) Investing Activities | 6,702 | (206,087 | ) | (8,751 | ) | (52,787 | ) | 13,166 | (247,757 | ) | |||||||||||
| Cash Flows from Financing Activities: | |||||||||||||||||||||
| Net repayment of term loans | (99,000 | ) | — | — | — | — | (99,000 | ) | |||||||||||||
| Repayment of debt | (109,929 | ) | (606 | ) | (535 | ) | (2,173 | ) | — | (113,243 | ) | ||||||||||
| Proceeds from borrowings | 176,235 | — | — | 12,607 | — | 188,842 | |||||||||||||||
| Early retirement of senior subordinated notes | (54,380 | ) | — | — | — | — | (54,380 | ) | |||||||||||||
| Net proceeds from sale of senior subordinated notes | 99,000 | — | — | — | — | 99,000 | |||||||||||||||
| Debt financing and equity contribution from minority shareholders | — | — | — | (1,241 | ) | — | (1,241 | ) | |||||||||||||
| Intercompany loans from parent | — | (6,070 | ) | (2,469 | ) | 17,825 | (9,286 | ) | — | ||||||||||||
| Equity contribution from parent | — | 1,940 | — | 1,940 | (3,880 | ) | — | ||||||||||||||
| Proceeds from exercise of stock options and employee stock purchase plan | 9,522 | — | — | — | — | 9,522 | |||||||||||||||
| Financing and stock issuance costs | (2,402 | ) | — | — | — | — | (2,402 | ) | |||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Cash Flows Provided by (Used in) Financing Activities | 19,046 | (4,736 | ) | (3,004 | ) | 28,958 | (13,166 | ) | 27,098 | ||||||||||||
| Effect of exchange rates on cash and cash equivalents | — | — | 644 | — | — | 644 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Increase (Decrease) in cash and cash equivalents | — | 40,630 | 63 | (5,760 | ) | — | 34,933 | ||||||||||||||
| Cash and cash equivalents, beginning of year | — | 11,395 | 1,696 | 8,268 | — | 21,359 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Cash and cash equivalents, end of year | $ | — | $ | 52,025 | $ | 1,759 | $ | 2,508 | $ | — | $ | 56,292 | |||||||||
|
|
|
|
|
|
|
||||||||||||||||
84
|
|
Year Ended December 31, 2001
|
||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Parent
|
Guarantors
|
Canada
Company |
Non-
Guarantors |
Eliminations
|
Consolidated
|
|||||||||||||||
| Cash Flows from Operating Activities: | |||||||||||||||||||||
| Cash Flows (Used in) Provided by Operating Activities | $ | (92,031 | ) | $ | 235,765 | $ | 8,867 | $ | 8,308 | $ | — | $ | 160,909 | ||||||||
| Cash Flows from Investing Activities: | |||||||||||||||||||||
| Capital expenditures | — | (164,335 | ) | (10,330 | ) | (22,374 | ) | — | (197,039 | ) | |||||||||||
| Cash paid for acquisitions, net of cash acquired | — | (50,467 | ) | (177 | ) | (20,753 | ) | — | (71,397 | ) | |||||||||||
| Investment in convertible preferred stock | — | (2,000 | ) | — | — | — | (2,000 | ) | |||||||||||||
| Intercompany loans to subsidiaries | (20,204 | ) | (15,836 | ) | — | — | 36,040 | — | |||||||||||||
| Investment in subsidiaries | (6,866 | ) | (6,866 | ) | — | — | 13,732 | — | |||||||||||||
| Additions to customer relationship and acquisition costs | — | (7,292 | ) | (319 | ) | (809 | ) | — | (8,420 | ) | |||||||||||
| Proceeds from sales of property and equipment | — | 87 | 21 | 612 | — | 720 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Cash Flows Used in Investing Activities | (27,070 | ) | (246,709 | ) | (10,805 | ) | (43,324 | ) | 49,772 | (278,136 | ) | ||||||||||
| Cash Flows from Financing Activities: | |||||||||||||||||||||
| Net repayment of term loans | (1,000 | ) | — | — | — | — | (1,000 | ) | |||||||||||||
| Repayment of debt | (109,869 | ) | (1,066 | ) | (2,590 | ) | (3,753 | ) | — | (117,278 | ) | ||||||||||
| Proceeds from borrowings | 103,411 | 73 | — | 2,111 | — | 105,595 | |||||||||||||||
| Early retirement of senior subordinated notes | (312,701 | ) | — | — | — | — | (312,701 | ) | |||||||||||||
| Net Proceeds from sale of senior subordinated notes | 427,924 | — | — | — | — | 427,924 | |||||||||||||||
| Debt financing and equity contribution from minority shareholders | — | — | — | 21,216 | — | 21,216 | |||||||||||||||
| Intercompany loans from parent | — | 13,130 | 7,016 | 15,894 | (36,040 | ) | — | ||||||||||||||
| Equity contribution from parent | — | 6,866 | — | 6,866 | (13,732 | ) | — | ||||||||||||||
| Proceeds from exercise of stock options and employee stock purchase plan | 12,079 | — | — | — | — | 12,079 | |||||||||||||||
| Financing and stock issuance costs | (934 | ) | — | — | — | — | (934 | ) | |||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Cash Flows Provided by Financing Activities | 118,910 | 19,003 | 4,426 | 42,334 | (49,772 | ) | 134,901 | ||||||||||||||
| Effect of exchange rates on cash and cash equivalents | — | — | (1,094 | ) | (1,421 | ) | — | (2,515 | ) | ||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| (Decrease) Increase in cash and cash equivalents | (191 | ) | 8,059 | 1,394 | 5,897 | — | 15,159 | ||||||||||||||
| Cash and cash equivalents, beginning of year | 191 | 3,336 | 302 | 2,371 | — | 6,200 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
| Cash and cash equivalents, end of year | $ | — | $ | 11,395 | $ | 1,696 | $ | 8,268 | $ | — | $ | 21,359 | |||||||||
|
|
|
|
|
|
|
||||||||||||||||
7. Acquisitions
On February 1, 2000, we completed the acquisition of Pierce Leahy in a stock-for-stock merger valued at $1,035,747. The total consideration for this transaction was comprised of: (i) 18,784 shares of our common stock with a fair value of $421,220; (ii) 1,645 options to acquire our common stock with a
85
fair value of $25,291; (iii) assumed debt with a fair value of $584,906; and (iv) $4,330 of capitalized transaction costs.
We purchased substantially all of the assets and assumed certain liabilities of 12, 16 and 10 records management businesses during 2000, 2001 and 2002, respectively. 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 our consolidated results from their respective acquisition dates. Consideration for the various acquisitions included: (i) cash, which was provided through our credit facilities, our 1999 equity offering and the issuance of certain of our senior subordinated notes; (ii) issuances of our common stock and options to purchase our common stock; and (iii) certain net assets of businesses previously acquired.
A summary of the consideration paid and the allocation of the purchase price of the acquisitions is as follows:
|
|
2000
|
2001
|
2002
|
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash Paid | $ | 146,243 | $ | 72,222 | $ | 41,356 | (1) | ||||
| Fair Value of Common Stock Issued | 421,220 | — | — | ||||||||
| Fair Value of Options Issued | 25,291 | — | — | ||||||||
| Fair Value of Debt Assumed/Issued | 584,906 | 10,352 | — | ||||||||
| Fair Value of Certain Net Assets of Businesses Previously Acquired | 1,063 | — | — | ||||||||
|
|
|
|
|||||||||
| Total Consideration | 1,178,723 | 82,574 | 41,356 | ||||||||
| Fair Value of Identifiable Assets Acquired | 436,206 | 19,504 | 10,440 | ||||||||
| Liabilities Assumed | (125,650 | ) | (10,019 | ) | (4,868 | ) | |||||
|
|
|
|
|||||||||
| Fair Value of Identifiable Net Assets Acquired | 310,556 | 9,485 | 5,572 | ||||||||
|
|
|
|
|||||||||
| Recorded Goodwill | $ | 868,167 | $ | 73,089 | $ | 35,784 | |||||
|
|
|
|
|||||||||
Allocation of the purchase price for the 2002 acquisitions was based on estimates of the fair value of net assets acquired, and is subject to adjustment. The purchase price allocations of certain 2002 transactions are subject to finalization of the assessment of the fair value of property, plant and equipment, intangible assets, operating leases and deferred income taxes. We are not aware of any information that would indicate that the final purchase price allocations will differ meaningfully from preliminary estimates.
In connection with each of our acquisitions, we have undertaken certain restructurings of the acquired businesses. The restructuring activities include certain reductions in staffing levels, elimination of duplicate facilities and other costs associated with exiting certain activities of the acquired businesses. The estimated cost of these restructuring activities were recorded as costs of the acquisitions and were provided in accordance with EITF No. 95-3, "Recognition of Liabilities in Connection with a Purchase
86
Business Combination." We finalize restructuring plans for each business no later than one year from the date of acquisition. Unresolved matters at December 31, 2002 primarily include completion of planned abandonments of facilities and severances for certain acquisitions.
The following is a summary of reserves related to such restructuring activities:
|
|
2000
|
2001
|
2002
|
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Reserves, beginning of the year | $ | 9,340 | $ | 28,514 | $ | 16,225 | ||||
| Reserves established | 31,409 | 3,751 | 4,963 | |||||||
| Expenditures | (7,539 | ) | (7,805 | ) | (6,745 | ) | ||||
| Adjustments to goodwill, including currency effect(1) | (4,696 | ) | (8,235 | ) | (4,537 | ) | ||||
|
|
|
|
||||||||
| Reserves, end of the year | $ | 28,514 | $ | 16,225 | $ | 9,906 | ||||
|
|
|
|
||||||||
At December 31, 2001, the restructuring reserves related to acquisitions consisted of lease losses on abandoned facilities ($10,129), severance costs for approximately 31 people ($980) and move and other exit costs ($5,116).
At December 31, 2002, the restructuring reserves related to acquisitions consisted of lease losses on abandoned facilities ($5,146), severance costs for approximately 2 people ($578) and move and other exit costs ($4,182). These accruals are expected to be used prior to December 31, 2003 except for lease losses of $3,446 and severance contracts of $429, both of which are based on contracts that extend beyond one year.
In connection with some of our acquisitions, we have potential earn-out obligations that would be payable in the event the businesses we acquired meet certain operational objectives. These payments are based on the future results of these operations and our estimate of the maximum contingent earn-out payments we would be required to make under all such agreements as of December 31, 2002 is approximately $3,000.
8. Capital Stock and Stock Options
a. Capital Stock
On December 5, 2001, our Board of Directors authorized and approved a three-for-two stock split effected in the form of a dividend on our common stock. Such additional shares of common stock were issued on December 31, 2001 to all shareholders of record as of the close of business on December 17, 2001. All share and per share amounts have been restated to reflect the stock split.
87
The following table summarizes the number of shares authorized, issued and outstanding for each issue of our capital stock as of December 31:
|
|
|
Number of Shares
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Authorized
|
Issued and Outstanding
|
||||||||
|
Equity Type
|
Par
Value |
||||||||||
|
2001
|
2002
|
2001
|
2002
|
||||||||
| Preferred stock | $ | .01 | 10,000,000 | 10,000,000 | — | — | |||||
| Common stock | .01 | 150,000,000 | 150,000,000 | 84,294,315 | 85,049,624 | ||||||
b. Stock Options
A total of 8,703,771 shares of common stock have been reserved for grants of options and other rights under our various stock incentive plans.
During 2000, we assumed the two existing stock option plans of Pierce Leahy, resulting in approximately 2,467,000 additional stock options outstanding. The options were accounted for as additional purchase price at their fair value.
The following is a summary of stock option transactions, including those issued to employees of acquired companies, during the applicable periods, excluding transactions under the employee stock purchase plan:
|
|
Options
|
Weighted Average
Exercise Price |
|||
|---|---|---|---|---|---|
| Options outstanding, December 31, 1999 | 3,382,208 | $ | 11.27 | ||
| Granted | 840,737 | 22.27 | |||
| Issued in Connection With Acquisitions | 2,467,140 | 7.33 | |||
| Exercised | (1,354,976 | ) | 4.71 | ||
| Canceled | (286,566 | ) | 17.8 | ||
|
|
|||||
| Options outstanding, December 31, 2000 | 5,048,543 | 12.55 | |||
| Granted | 497,757 | 26.38 | |||
| Exercised | (1,188,316 | ) | 6.94 | ||
| Canceled | (73,592 | ) | 19.28 | ||
|
|
|||||
| Options outstanding, December 31, 2001 | 4,284,392 | 15.63 | |||
| Granted | 432,560 | 29.96 | |||
| Exercised | (594,049 | ) | 9.26 | ||
| Canceled | (226,087 | ) | 17.01 | ||
|
|
|||||
| Options outstanding, December 31, 2002 | 3,896,816 | 18.08 | |||
|
|
|||||
Except for the options granted in connection with acquisitions, these options were granted with exercise prices equal to the market price of the stock at the date of grant. The majority of these options become exercisable ratably over a period of five years unless the holder terminates employment. The number of shares available for grant at December 31, 2002 was 1,383,167.
88
The following table summarizes additional information regarding options outstanding and exercisable at December 31, 2002:
|
|
|
Outstanding
|
|
|
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Exercisable
|
||||||||||
|
|
|
Weighted
Average Remaining Contractual Life (in Years) |
|
|||||||||
|
Range of
Exercise Prices |
Number
|
Weighted
Average Exercise Price |
Number
|
Weighted
Average Exercise Price |
||||||||
| $0.50 to $0.58 | 5,239 | 4.2 | $ | 0.57 | 5,239 | $ | 0.57 | |||||
| $2.88 to $3.84 | 293,400 | 3.2 | 3.08 | 293,400 | 3.08 | |||||||
| $4.42 to $6.07 | 106,633 | 5.7 | 5.52 | 106,633 | 5.52 | |||||||
| $6.83 to $7.29 | 534,534 | 3.5 | 6.94 | 534,534 | 6.94 | |||||||
| $11.44 to $16.69 | 656,682 | 4.9 | 14.48 | 579,383 | 14.41 | |||||||
| $18.11 to $26.30 | 1,742,312 | 7.4 | 22.42 | 762,735 | 21.92 | |||||||
| $27.41 to $32.06 | 558,016 | 9.0 | 29.91 | 62,899 | 28.16 | |||||||
|
|
|
|||||||||||
| 3,896,816 | 6.3 | 18.08 | 2,344,823 | 13.66 | ||||||||
|
|
|
|||||||||||
9. Discontinued Operations
In June 1999, in order to focus on our records and information management services business, we decided to sell our information technology staffing business, Arcus Staffing Resources, Inc., which was acquired in January 1998 as part of the acquisition of Arcus Group, Inc. Effective November 1, 1999, we completed the sale of substantially all of the assets of Arcus Staffing. The terms of the sale included contingent payments for a period of 18 months. In accordance with the provisions of APB No. 30, the sale of Arcus Staffing was accounted for as a discontinued operation. Accordingly, the Arcus Staffing operations were segregated from our continuing operations and reported as a separate line item on our consolidated statement of operations.
In 1999, we recorded an estimated loss on the sale of Arcus Staffing of $13,400, comprised of a write-off of goodwill, a deferred tax benefit and estimated expenses directly related to the transaction partially offset by the estimated income from operations of Arcus Staffing through the date of disposition. In 2002, we recorded income from discontinued operations of $1,116 (net of tax of $768) related to the reversal of remaining liabilities associated with certain contingencies which have been resolved.
89
10. Income Taxes
The components of income (loss) from continuing operations before provision for income taxes and minority interest are:
|
|
2000
|
2001
|
2002
|
||||||
|---|---|---|---|---|---|---|---|---|---|
| Domestic | $ | (13,121 | ) | $ | (5,176 | ) | $ | 108,991 | |
| Foreign | (4,911 | ) | (2,955 | ) | 10,958 | ||||
|
|
|
|
|||||||
| $ | (18,032 | ) | $ | (8,131 | ) | $ | 119,949 | ||
|
|
|
|
|||||||
We have estimated federal net operating loss carryforwards which begin to expire in 2005 through 2021 of $162,001 at December 31, 2002 to reduce future federal taxable income, if any. These net operating loss carryforwards do not include approximately $79,000 of potential preacquisition net operating loss carryforwards of Arcus Group, Inc. and certain foreign acquisitions. Any tax benefit realized related to preacquisition net operating loss carryforwards will be recorded as a reduction of goodwill when, and if, realized. The Arcus Group carryforwards expire in six years. We also have estimated state net operating loss carryforwards of $155,826. The state net operating loss carryforwards are subject to a valuation allowance of approximately 38%. Additionally, we have alternative minimum tax credit carryforwards of $587, which have no expiration date and are available to reduce future income taxes, if any.
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,
|
|||||||
|---|---|---|---|---|---|---|---|---|
|
|
2001
|
2002
|
||||||
| Deferred Tax Assets: | ||||||||
| Accrued liabilities | $ | 16,372 | $ | 11,809 | ||||
| Deferred rent | 7,306 | 7,941 | ||||||
| Net operating loss carryforwards | 72,012 | 63,445 | ||||||
| AMT credit | 587 | 587 | ||||||
| Valuation Allowance | (5,594 | ) | (5,804 | ) | ||||
| Unrealized loss on hedging contracts | 4,000 | 12,858 | ||||||
| Other | 21,646 | 31,567 | ||||||
|
|
|
|||||||
| 116,329 | 122,403 | |||||||
| Deferred Tax Liabilities: | ||||||||
| Other assets, principally due to differences in amortization | (31,967 | ) | (47,274 | ) | ||||
| Plant and equipment, principally due to differences in depreciation | (87,375 | ) | (103,606 | ) | ||||
| Customer acquisition costs | (13,060 | ) | (15,795 | ) | ||||
|
|
|
|||||||
| (132,402 | ) | (166,675 | ) | |||||
|
|
|
|||||||
| Net deferred tax liability | $ | (16,073 | ) | $ | (44,272 | ) | ||
|
|
|
|||||||
90
We receive a tax deduction upon exercise of non-qualified stock options by employees for the difference between the exercise price and the market price of the underlying common stock on the date of exercise, which is included in the net operating loss carryforwards above. During 2002, we recognized $4,476 of tax benefit related to the exercise of non-qualified stock options, which was credited to equity during the year.
We file a consolidated federal income tax return with our U.S. subsidiaries. The provision for income taxes consists of the following components:
|
|
Year Ended December 31,
|
||||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
2000
|
2001
|
2002
|
||||||
| Federal—deferred | $ | 5,404 | $ | 14,695 | $ | 35,487 | |||
| State—current | 1,301 | 1,072 | 1,566 | ||||||
| State—deferred | 2,018 | 8,359 | 8,121 | ||||||
| Foreign—current and deferred | 402 | 1,910 | 4,121 | ||||||
|
|
|
|
|||||||
| $ | 9,125 | $ | 26,036 | $ | 49,295 | ||||
|
|
|
|
|||||||
A reconciliation of total income tax expense and the amount computed by applying the federal income tax rate of 35% to income (loss) from continuing operations before provision for income taxes and minority interests for the years ended December 31, 2000, 2001 and 2002, respectively, is as follows:
|
|
Year Ended December 31,
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2000
|
2001
|
2002
|
||||||||
| Computed "expected" tax (benefit) provision | $ | (6,311 | ) | $ | (2,846 | ) | $ | 41,982 | |||
| Changes in income taxes resulting from: | |||||||||||
| State taxes (net of federal tax benefit) | 2,157 | 3,601 | 6,297 | ||||||||
| Nondeductible expenses | 12,623 | 18,066 | — | ||||||||
| Increase in valuation allowance | — | 4,832 | 210 | ||||||||
| Foreign tax rate and tax law differential | 586 | 598 | (209 | ) | |||||||
| Other, net | 70 | 1,785 | 1,015 | ||||||||
|
|
|
|
|||||||||
| $ | 9,125 | $ | 26,036 | $ | 49,295 | ||||||
|
|
|
|
|||||||||
91
11. Quarterly Results of Operations (Unaudited)
|
Quarter Ended
|
March 31
|
June 30
|
Sept. 30
|
Dec. 31
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | |||||||||||||
| Total revenues | $ | 287,815 | $ | 296,947 | $ | 295,059 | $ | 305,897 | |||||
| Gross profit | 144,102 | 154,304 | 151,755 | 159,019 | |||||||||
| Income (Loss) from continued operations before extraordinary charges | 3,199 | (4,966 | ) | (15,770 | ) | (14,701 | ) | ||||||
| Net income (loss) | 3,199 | (9,746 | ) | (22,809 | ) | (14,701 | ) | ||||||
| Income (Loss) per share from continued operations before extraordinary charges—basic and diluted | 0.04 | (0.06 | ) | (0.19 | ) | (0.17 | ) | ||||||
| Net income (loss) per share—basic and diluted | 0.04 | (0.12 | ) | (0.27 | ) | (0.17 | ) | ||||||
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total revenues | $ | 317,198 | $ | 327,720 | $ | 333,113 | $ | 340,466 | |||||
| Gross profit | 164,752 | 172,313 | 179,255 | 179,878 | |||||||||
| Income from continuing operations before discontinued operations, extraordinary charges and cumulative effect of change in accounting principle | 13,295 | 19,989 | 15,697 | 18,044 | |||||||||
| Net income | 6,122 | 19,989 | 15,697 | 16,484 | |||||||||
| Income from continuing operations per share before discontinued operations, extraordinary charges and cumulative effect of change in accounting principle—basic | 0.16 | 0.24 | 0.19 | 0.21 | |||||||||
| Income from continuing operations per share before discontinued operations, extraordinary charges and cumulative effect of change in accounting principle—diluted | 0.15 | 0.23 | 0.18 | 0.21 | |||||||||
| Net income per share—basic | 0.07 | 0.24 | 0.19 | 0.19 | |||||||||
| Net income per share—diluted | 0.07 | 0.23 | 0.18 | 0.19 | |||||||||
12. Segment Information
We operate in eight operating segments, based on their economic environment, geographic area, the nature of their services and the nature of their processes:
92
The Europe, South America and Mexico operating segments do not individually meet the quantitative thresholds for a reporting segment, but have been aggregated and reported as one reporting segment, "International," given their similar economic characteristics, products, customers and processes. The Secure Shredding, Fulfillment and Digital Archiving Services operating segments do not meet the quantitative thresholds for a reportable segment and thus are included in the "Corporate and Other" category. Adjusted EBITDA has been regularly evaluated by the chief operating decision maker in deciding resource allocation and performance assessment. Adjusted EBITDA is defined as EBITDA (earnings from continuing operations before interest, taxes, depreciation and amortization) adjusted for extraordinary items, other (income) expense, merger-related expenses, stock option compensation expense and minority interest. Corporate items include non-operating overhead, corporate general and administrative expenses, non-allocated operating expenses and inter-segment eliminations. Corporate assets are principally cash and cash equivalents, prepaid items, certain non-operating fixed assets, deferred income taxes, certain non-trade receivables, certain inter-segment receivables, and deferred financing costs. The accounting policies of the reportable segments are the same as those described in Note 2 with the exception of: (i) certain costs allocated by Corporate to the other segments, primarily domestic and Canadian operations, are based on allocation rates set at the beginning of each year (such as rent, worker's compensation, property, general liability, auto and other insurance, pension/medical costs, sick and vacation costs, incentive compensation, real estate property taxes and provision for bad debts), and (ii) certain non-cash charges (such as deferred lease amortization) maintained at Corporate.
93
An analysis of our business segment information to the respective information in the consolidated financial statements is as follows:
|
|
Business
Records Management |
Off-Site
Data Protection |
International
|
Corporate
& Other(1) |
Total
Consolidated |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2000 | |||||||||||||||
| Total Revenues | $ | 719,571 | $ | 185,401 | $ | 67,109 | $ | 32,084 | $ | 1,004,165 | |||||
| Adjusted EBITDA | 196,683 | 42,162 | 11,066 | 7,130 | 257,041 | ||||||||||
| Total Assets | 1,875,679 | 329,867 | 239,502 | 214,048 | 2,659,096 | ||||||||||
| 2001 | |||||||||||||||
| Total Revenues | 837,994 | 205,134 | 89,475 | 53,115 | 1,185,718 | ||||||||||
| Adjusted EBITDA | 227,769 | 49,804 | 16,250 | 8,423 | 302,246 | ||||||||||
| Total Assets | 2,351,516 | 347,720 | 265,968 | (105,298 | ) | 2,859,906 | |||||||||
| 2002 | |||||||||||||||
| Total Revenues | 908,189 | 233,834 | 109,381 | 67,093 | 1,318,497 | ||||||||||
| Adjusted EBITDA | 258,229 | 61,542 | 21,988 | 22,107 | 363,866 | ||||||||||
| Total Assets | 2,378,388 | 357,233 | 317,073 | 177,961 | 3,230,655 | ||||||||||
Our consulting business, previously analyzed as part of Business Records Management, is now analyzed within the Corporate & Other category. Our Canada operating segment, previously analyzed as part of our International segment, is now analyzed within the Business Records Management segment. In addition, certain allocations from Corporate & Other to Business Records Management and Off-Site Data Protection have been changed. To the extent practicable, the prior period numbers shown above have been adjusted to reflect all three of these changes.
94
A reconciliation of (loss) income from continuing operations before discontinued operations, extraordinary charges and cumulative effect of change in accounting principle to EBITDA to Adjusted EBITDA on a consolidated basis is as follows:
|
|
Year Ended December 31,
|
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2000
|
2001
|
2002
|
|||||||||
| (Loss) Income from Continuing Operations before Discontinued Operations, Extraordinary Charges and Cumulative Effect of Change in Accounting Principle | $ | (24,933 | ) | $ | (32,238 | ) | $ | 67,025 | ||||
| Add: Depreciation and Amortization | 126,810 | 153,591 | 109,840 | |||||||||
| Interest Expense, Net. | 117,975 | 134,742 | 136,632 | |||||||||
| Provision for Income Taxes | 9,125 | 26,036 | 49,295 | |||||||||
|
|
|
|
||||||||||
| EBITDA | 228,977 | 282,131 | 362,792 | |||||||||
| Add: Other (Income) Expense, Net | 6,045 | 18,371 | (3,351 | ) | ||||||||
| Stock Option Compensation Expense | 15,110 | — | — | |||||||||
| Merger-Related Expenses | 9,133 | 3,673 | 796 | |||||||||
| Minority Interests in Earnings (Losses) of Subsidiaries | (2,224 | ) | (1,929 | ) | 3,629 | |||||||
|
|
|
|
||||||||||
| Adjusted EBITDA | $ | 257,041 | $ | 302,246 | $ | 363,866 | ||||||
|
|
|
|
||||||||||
Information as to our operations in different geographical areas is as follows:
|
|
2000
|
2001
|
2002
|
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Revenues: | ||||||||||
| United States | $ | 887,478 | $ | 1,028,219 | $ | 1,134,000 | ||||
| International | 116,687 | 157,499 | 184,497 | |||||||
|
|
|
|
||||||||
| Total Revenues | $ | 1,004,165 | $ | 1,185,718 | $ | 1,318,497 | ||||
|
|
|
|
||||||||
| Long-lived Assets: | ||||||||||
| United States | $ | 1,989,839 | $ | 2,118,828 | $ | 2,395,018 | ||||
| International | 432,589 | 431,761 | 468,597 | |||||||
|
|
|
|
||||||||
| Total Long-lived Assets | $ | 2,422,428 | $ | 2,550,589 | $ | 2,863,615 | ||||
|
|
|
|
||||||||
13. Commitments and Contingencies
a. Leases
We lease most of our facilities under various operating leases. A majority of these leases have renewal options of five to ten years and have either fixed or Consumer Price Index escalation clauses. We also lease equipment under operating 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 seven years. Rent expense was $111,001, $126,871 and $125,866 for the years ended
95
December 31, 2000, 2001 and 2002, respectively. There was $4,823, $6,733 and $5,915 related to synthetic lease facilities included in rent expense for the years ended December 31, 2000, 2001 and 2002, respectively. See Note 3.
Minimum future lease payments, net of sublease income of $3,575, $1,403, $828, $557, $303 and $970 for 2003, 2004, 2005, 2006, 2007 and thereafter, respectively, are as follows:
|
Year
|
Operating
|
||
|---|---|---|---|
| 2003 | $ | 125,136 | |
| 2004 | 116,183 | ||
| 2005 | 101,165 | ||
| 2006 | 82,548 | ||
| 2007 | 69,857 | ||
| Thereafter | 280,172 | ||
|
|
|||
| Total minimum lease payments | $ | 775,061 | |
|
|
|||
We have guaranteed the residual value of certain vehicle operating leases to which we are a party. The maximum net residual value guarantee obligation for these vehicles as of December 31, 2002 was $441. We believe that it is not reasonably likely that we will be required to perform under these guarantee agreements or that any performance requirement would have a material impact on our consolidated financial statements.
b. South Brunswick Fires Litigation
In March 1997, we experienced three fires, all of which authorities have determined were caused by arson. The fires resulted in damage to one and destruction of another records management facility in South Brunswick Township, New Jersey.
Certain of our customers or their insurance carriers have asserted claims as a consequence of the destruction of, or damage to, their records as a result of the fires, including claims with specific requests for compensation and allegations of negligence or other culpability on our part. We and our insurers have denied any liability on our part as to all of these claims.
We are presently aware of five pending lawsuits that have been filed against us by certain of our customers and/or their insurers, one pending lawsuit filed by the insurers of an abutter of one of the South Brunswick facilities, and one lawsuit filed by a fire official who claims that he was injured in the course of responding to the first fire. Six of these seven lawsuits have been consolidated for pre-trial purposes in the Middlesex County, New Jersey, Superior Court. The seventh lawsuit, brought by a single customer, is pending in the Supreme Court for New York County, New York. An eighth lawsuit, also brought by a single customer, was tried before a federal judge in New Jersey in February 2000. After trial, judgment was entered in favor of us; no appeal was filed in this matter. Several other claims that were originally filed in relation to these lawsuits have been voluntarily dismissed without prejudice by the customers and/or their insurance carriers. One lawsuit filed by an abutter to one of the facilities was similarly voluntarily dismissed without prejudice.
96
We have denied liability and asserted affirmative defenses in all of the remaining cases arising out of the fires and, in certain of the cases, have asserted counterclaims for indemnification against the plaintiffs. Discovery is ongoing. We deny any liability as a result of the destruction of, or damage to, customer records or property of abutters as a result of the fires, which were beyond our control. We also deny any liability for the injuries allegedly sustained by the fire official. We intend to vigorously defend ourselves against these and any other lawsuits that may arise.
We were paid by our general liability and property insurance carrier for costs incurred as a result of business interruption and property damage due to the fires, and/or the related defense cost of third party claims. However, our errors and omissions carrier made an initial determination denying coverage as to these third party claims. In November 1998, we filed an action in the United States District Court for the District of Massachusetts seeking a declaration of coverage and other relief. The parties, together with the general liability and property carrier, have entered into a settlement agreement regarding reimbursement of defense costs and agreed to ongoing discussions regarding any remaining coverage issues.
c. Sequedex and Pierce Proceedings
On March 28, 2002, we and Iron Mountain Information Management, Inc. ("IMIM"), one of our wholly owned subsidiaries, commenced an action in the Middlesex County, New Jersey, Superior Court, Chancery Division, captioned Iron Mountain Incorporated and Iron Mountain Information Management, Inc. v. J. Peter Pierce, Sr., Douglas B. Huntley, J. Michael Gold, Fred A. Mathewson, Jr., Michael DiIanni, J. Anthony Hayden, Pioneer Capital, LLC, and Sequedex, LLC. In the complaint, we allege that defendant J. Peter Pierce, Sr., a former member of our Board of Directors and the former President of IMIM until his termination without cause effective June 30, 2000, violated his fiduciary obligations, as well as various noncompetition and other provisions of an employment agreement with us dated February 1, 2000, by providing direct and/or indirect financial, management and other support to defendant Sequedex. Sequedex was established in October 2000, and competed directly with us in the records and information management services industry. The complaint also alleges that Mr. Pierce and certain of the other defendants, who were employed by or affiliated with Pierce Leahy prior to the merger of Pierce Leahy with us in February 2000, have misappropriated and used our trade secrets and other confidential information. Finally, the complaint asserts claims against Sequedex and others for tortious interference with contractual relations, against all of the defendants for civil conspiracy in respect of the matters described above, and against defendant Michael DiIanni for breach of his employment agreement with IMIM dated September 6, 2000. The litigation seeks injunctions in respect of certain matters and recovery of damages against the defendants. On April 12, 2002, we also initiated a related arbitration proceeding against Mr. Pierce before the Philadelphia, Pennsylvania, Office of the American Arbitration Association (the "AAA") on account of an arbitration clause in the employment agreement between us and Mr. Pierce. In the arbitration, Mr. Pierce has counterclaimed for indemnification of his expenses, including attorneys' fees. We have disputed Mr. Pierce's claim. On July 19, 2002, the litigation was stayed pending the outcome of the arbitration proceeding, which is currently scheduled for a hearing in April 2003. On February 25, 2003, in response to our request, the
97
AAA removed the arbitrator; the AAA has not yet appointed a replacement arbitrator. We intend to prosecute the arbitration proceeding and the litigation vigorously.
On December 16, 2002, Hartford Windsor Associates, L.P. ("H-W Associates"), Hartford General, LLC, J. Anthony Hayden, Mr. Pierce, Frank Seidman and John H. Greenwald, Jr. commenced an action in the Court of Common Pleas, Montgomery County, Pennsylvania, against us. In the complaint, the plaintiffs allege that H-W Associates purchased a warehouse property in Connecticut to serve as a records storage facility, and entered into a lease for the facility with Sequedex, then a competitor of ours, and that the remaining plaintiffs were limited or general partners of H-W Associates. The plaintiffs also allege that we tortiously interfered with Sequedex's contractual relations with an actual or prospective customer of Sequedex and, as a result, caused Sequedex to default on its lease to H-W Associates. The complaint seeks damages in excess of $100,000.
Also on December 16, 2002, Pioneer Capital L.P. ("Pioneer"), Pioneer Capital Genpar, Inc. ("PCG"), the general partner of Pioneer, and Mr. Pierce, the President of PCG, commenced an action in the Court of Common Pleas, Montgomery County, Pennsylvania, against us, C. Richard Reese, John F. Kenny, Jr., Garry Watzke, Schooner Capital LLC ("Schooner") and Vincent J. Ryan. The named individuals are Directors and/or officers of us and Schooner is a shareholder of us. In the complaint, the plaintiffs allege that the defendants had numerous conversations and arrangements with Mr. Carr, one of Mr. Pierce's and Pioneer's business partners in a company named Logisteq LLC. The plaintiffs further allege that, as a result of such conversations and arrangements, defendants conspired to, and did intentionally, interfere with Pioneer's relationship with its partner and Logisteq. The plaintiffs also allege that defendants damaged Mr. Pierce's reputation in the community by telling our employees and other third parties that Mr. Pierce breached his employment agreement with us, misappropriated and used our confidential information, breached his fiduciary duties to our shareholders and assisted Sequedex, then a competitor of ours, in unfairly competing with us. Finally, the complaint alleges that the business partner in Logisteq taped conversations with Mr. Pierce and others which allegedly violated privacy laws, that the defendants knew, or should have known, that the tapes were being made without the consent of the individuals and, as a result, Mr. Pierce was harmed. The complaint seeks damages in excess of $5,000,000. We and the other defendants have challenged the legal sufficiency of the plaintiffs' pleadings in each of these cases, and intend to vigorously defend ourselves against these lawsuits.
Prior to the litigation directly pertaining to Mr. Pierce having been filed, in approximately October 2000, three former management employees of IMIM became employed by or otherwise associated with Sequedex. IMIM commenced actions against these three former employees to enforce its rights under their confidentiality and non-competition agreements. IMIM has also asserted claims against Sequedex for tortious interference with these agreements, and against both Sequedex and the former employees for misappropriation and use of IMIM's trade secrets and confidential information.
The defendants in all three cases have denied the material allegations in IMIM's complaints and asserted various affirmative defenses. In addition, Sequedex and the individual defendants filed counterclaims against IMIM and third party complaints against us. The counterclaims and third party complaints assert claims for tortious interference with certain contracts and prospective business
98
relations between Sequedex and its current and potential customers as well as a claim for trade disparagement and defamation. The defendant in one of these actions sought a declaratory judgment regarding the enforceability of the confidentiality and non-competition agreements at issue in that case and filed a motion for summary judgment seeking to have the non-competition agreement declared void, or to limit its scope. We and IMIM filed motions in all three cases to dismiss the various counterclaims and third-party complaints. All of these motions, i.e., the defendants' motion for summary judgment and IMIM's and our motions to dismiss, were denied by the Court following a hearing on May 7, 2002.
Discovery is proceeding in each of these cases. IMIM intends to prosecute these actions vigorously, as well as to defend vigorously against the counterclaims, and we intend to defend vigorously against the third party complaints.
d. Other Litigation
In addition to the matters discussed above, we are involved in litigation from time to time in the ordinary course of business with a portion of the defense and/or settlement costs being covered by various commercial liability insurance policies purchased by us. In the opinion of management, no other material legal proceedings are pending to which we, or any of our properties, are subject.
The outcome of the South Brunswick fires, Sequedex and Pierce proceedings cannot be predicted with certainty. Based on our present assessment of the situation, after consultation with legal counsel, management does not believe that the outcome of these proceedings will have a material adverse effect on our financial condition or results of operations, although there can be no assurance in this regard.
14. Related Party Transactions
We lease space to an affiliated company, Schooner, for its corporate headquarters located in Boston, Massachusetts. For the years ended December 31, 2000, 2001 and 2002, Schooner paid rent to us totaling $96, $101 and $128, respectively. We lease facilities from an officer and three separate limited partnerships, whose general partner was a related party. Our aggregate rental payment for such facilities during 2000, 2001 and 2002 was $2,447, $1,381 and $1,372, respectively. In the opinion of management, all of these leases were entered into at market prices and terms.
We have an agreement with Leo W. Pierce, Sr., our former Chairman Emeritus and the father of J. Peter Pierce, our former director, that requires pension payments of $8 per month until his death. The total benefit is recorded in accrued expenses in the accompanying consolidated balance sheets in the amount of $1,016 as of December 31, 2002.
At December 31, 2002, we have outstanding loans to an officer with an aggregate principal amount of $331. These notes bear interest at a variable rate. This liability was assumed in connection with our merger with Pierce Leahy.
Effective December 1, 2000, we sold our wholly owned UK subsidiary Datavault Limited (acquired in the Pierce Leahy merger) to our 50.1% owned subsidiary, IM Europe, in exchange for approximately $17,655 of IM Europe stock and debt of approximately $13,348. In connection with this transaction, our
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49.9% partner in IM Europe contributed approximately $17,585 to IM Europe in exchange for additional shares. The transaction was accounted for as a transfer between entities under common control and no gain or loss was recorded on the sale.
15. Employee Benefit Plans
a. Iron Mountain Companies 401(k) Plan
We have a defined contribution plan, which generally covers all non-union U.S. employees meeting certain service requirements. Eligible employees may elect to defer from 1% to 25% of compensation per pay period up to the amount allowed by the Internal Revenue Code. We make matching contributions based on the amount of an employee's contribution in accordance with the plan document. We have expensed $2,646, $2,280 and $2,583 for the years ended December 31, 2000, 2001 and 2002, respectively.
b. Employee Stock Purchase Plan
On March 23, 1998, we introduced an employee stock purchase plan (the "Plan"), participation in which is available to substantially all employees who meet certain service eligibility requirements. The Plan was approved by our shareholders on May 28, 1998 and commenced operations on October 1, 1998. The Plan provides a way for our eligible employees to become shareholders on favorable terms. The Plan provides for the purchase of up to 562,500 shares of our common stock by eligible employees through successive offering periods. At the start of each offering period, participating employees are granted options to acquire our common stock. During each offering period, participating employees accumulate after-tax payroll contributions, up to a maximum of 15% of their compensation, to pay the exercise price of their options. At the end of the offering period, outstanding options are exercised, and each employee's accumulated contributions are used to purchase our common stock. The price for shares purchased under the Plan is 85% of their market price at either the beginning or the end of the offering period, whichever is lower. There were 139,869, 186,152 and 160,119 shares purchased under the Plan for the years ended December 31, 2000, 2001 and 2002, respectively. On December 31, 2002, there were no shares remaining in the Plan. We contemplate submitting a new employee stock purchase plan for approval by our shareholders at our Annual Meeting of Shareholders in May 2003.
16. Subsequent Events
In March 2003, we completed two exchanges of our 7 3 / 4 % notes for 8 3 / 4 % notes. The exchanges resulted in the issuance of $31,255 in face value of our 7 3 / 4 % notes and the retirement of $30,000 of our 8 3 / 4 % notes. These non-cash debt exchanges resulted in carryover basis and, therefore, no gain (loss) on extinguishment of debt in accordance with EITF No. 96-19. These exchanges result in a lower interest rate and, therefore, lower interest expense in future periods, as well as, extend the maturity of our debt obligations. From time to time, we may enter into similar exchange transactions that we deem appropriate.
In March 2003, we made an additional $1,357 investment in Live Vaults's convertible preferred stock along with existing holders and a new investor. See Note 2k.
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REPORT OF THE INDEPENDENT AUDITORS
To
the Board of Directors of
Iron Mountain Europe Limited:
We have audited the consolidated balance sheets of Iron Mountain Europe Limited as of October 31, 2001 and 2002, and the related consolidated statements of operations, stockholders' equity and comprehensive (loss)/income and cash flows for the three years ended October 31, 2002. These consolidated financial statements are the responsibility of the management of Iron Mountain Europe Limited. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Iron Mountain Europe Limited at October 31, 2001 and 2002 and the consolidated results of their operations and their consolidated cash flows for the three years ended October 31, 2002, in conformity with generally accepted accounting principles in the United States of America.
/s/ RSM ROBSON RHODES
Chartered
Accountants
Birmingham, England
February 21, 2003
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This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Iron Mountain Incorporated's filing of an Annual Report on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this Annual Report on Form 10-K for the year ended December 31, 2002. See Exhibit 23.3 to this Annual Report on Form 10-K filed with the SEC for further discussion.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To
the Board of Directors of
Iron Mountain Incorporated:
We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of Iron Mountain Incorporated (a Pennsylvania corporation) for each of the three years in the period ended December 31, 2001 and have issued our report thereon dated February 22, 2002 (except with respect to Note 17, as to which the date is March 15, 2002). Our audits were made for the purpose of forming an opinion on those basic financial statements taken as a whole. The supplemental schedule listed in the accompanying index is the responsibility of Iron Mountain Incorporated's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and regulations under the Securities 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.
/s/ ARTHUR ANDERSEN LLP
Boston,
Massachusetts
February 22, 2002
(Except with respect to Note 17,
as to which the date is March 15, 2002)
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Schedule II
IRON MOUNTAIN INCORPORATED
Valuation and Qualifying Accounts
(In thousands)
|
Year Ended December 31,
|
Balance at
Beginning of the Year |
Charged to
Expense |
Other
Additions(1) |
Deductions
|
Balance at
End of the Year |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Allowance for doubtful accounts: | |||||||||||||||
| 2000 | $ | 5,740 | $ | 9,714 | $ | 4,051 | $ | (3,516 | ) | $ | 15,989 | ||||
| 2001 | 15,989 | 8,499 | 846 | (8,248 | ) | 17,086 | |||||||||
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| IRON MOUNTAIN INCORPORATED | |||
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By: |
/s/ C. RICHARD REESE C. Richard Reese Chairman of the Board, Chief Executive Officer and President |
Dated: March 21, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Name
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Title
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Date
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|---|---|---|---|---|
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/s/
C. RICHARD REESE
C. Richard Reese |
Chairman of the Board of Directors, Chief Executive Officer and President | March 21, 2003 | ||
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/s/ JOHN F. KENNY, JR. John F. Kenny, Jr. |
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Executive Vice President, Chief Financial Officer and Director |
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March 21, 2003 |
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/s/ JEAN A. BUA Jean A. Bua |
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Vice President and Corporate Controller |
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March 21, 2003 |
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/s/ CLARKE H. BAILEY |
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Clarke H. Bailey |
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Director |
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March 21, 2003 |
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/s/ CONSTANTIN R. BODEN |
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Constantin R. Boden |
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Director |
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March 21, 2003 |
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/s/ KENT P. DAUTEN |
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Kent P. Dauten |
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Director |
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March 21, 2003 |
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/s/ EUGENE B. DOGGETT |
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Eugene B. Doggett |
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Director |
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March 21, 2003 |
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/s/ B. THOMAS GOLISANO |
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B. Thomas Golisano |
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Director |
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March 21, 2003 |
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/s/ ARTHUR D. LITTLE |
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Arthur D. Little |
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Director |
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March 21, 2003 |
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/s/ VINCENT J. RYAN |
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Vincent J. Ryan |
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Director |
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March 21, 2003 |
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Certain exhibits indicated below are incorporated by reference to documents we have filed with the Securities and Exchange Commission (the "Commission"). Exhibit numbers in parentheses refer to the exhibit numbers in the applicable filing (which are identified in the footnotes appearing at the end of this index). Each exhibit marked by a pound sign (#) is a management contract or compensatory plan.
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Exhibit
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Item
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Exhibit
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|---|---|---|---|---|
| 2.1 | Purchase Agreement, dated November 13, 2000, by and among Iron Mountain Canada Corporation, Iron Mountain Records Management, Inc. ("IMRM"), FACS Records Storage Income Fund, FACS Records Centre Inc. and 3796281 Canada Inc. | (2.1) (19) | ||
| 2.2 | Asset Purchase and Sale Agreement, dated February 18, 2000, by and among IMRM, Data Storage Center, Inc., DSC of Florida, Inc., DSC of Massachusetts, Inc., and Suddath Van Lines, Inc. | (2.1) (16) | ||
| 2.3 | Amendment No. 1 to Asset Purchase and Sale Agreement, dated May 1, 2000, by and among IMRM, Data Storage Center, Inc., DSC of Florida, Inc., DSC of Massachusetts, Inc., Suddath Van Lines, Inc. and Suddath Family Trust U/A 11/8/79. | (2.1) (17) | ||
| 2.4 | Agreement and Plan of Merger, dated as of October 20, 1999, by and between the Company and Pierce Leahy. | (2) (10) | ||
| 3.1 | Amended and Restated Articles of Incorporation of the Company. | (Annex D) (14) | ||
| 3.2 | Amended and Restated Bylaws of the Company. | (Annex E) (14) | ||
| 3.3 | Declaration of Trust of IM Capital Trust I, dated as of December 10, 2001 among the Company, The Bank of New York, The Bank of New York (Delaware) and John P. Lawrence, as trustees. | (4.15) (22) | ||
| 3.4 | Certificate of Trust of IM Capital Trust I. | (4.17) (22) | ||
| 4.1 | Indenture for 8 1 / 4 % Senior Subordinated Notes due 2011, dated April 26, 1999, by and among the Company, certain of its subsidiaries and The Bank of New York, as trustee. | (10.1) (7) | ||
| 4.2 | Indenture for 8 3 / 4 % Senior Subordinated Notes due 2009, dated October 24, 1997, by and among the Company, certain of its subsidiaries and The Bank of New York, as trustee. | (4.1) (2) | ||
| 4.3 | Indenture for 8 1 / 8 % Senior Notes due 2008, dated as of April 7, 1998, by and among Iron Mountain Canada Corporation, as issuer, the Company and The Bank of New York, as trustee. | (4.1(c)) (13) | ||
| 4.4 | Indenture for 8 5 / 8 % Senior Subordinated Notes due 2008, dated as of April 3, 2001, among the Company, the Guarantors named therein and The Bank of New York, as trustee. | (4.1) (20) | ||
| 4.5 | First Supplemental Indenture, dated as of April 3, 2001, among the Company, the Guarantors named therein and The Bank of New York, as trustee. | (4.2) (20) | ||
| 4.6 | Second Supplemental Indenture, dated as of September 14, 2001, among the Company, the Guarantors named therein and The Bank of New York, as trustee. | (4.7) (23) | ||
| 4.7 | Senior Subordinated Indenture for 7 3 / 4 Senior Subordinated Notes due 2015, dated as of December 30, 2002, among the Company, the Guarantors named therein and The Bank of New York, as trustee. | Filed herewith as Exhibit 4.7 | ||
| 4.8 | First Supplemental Indenture, dated as of December 30, 2002, among the Company, the Guarantors named therein and the Trustee. | Filed herewith as Exhibit 4.8 |
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| 4.9 | Form of stock certificate representing shares of Common Stock, $.01 par value per share, of the Company. | (4.1) (15) | ||
| 9 | Amended and Restated Voting Trust Agreement, dated as of February 28, 1998, by and among the Company, certain shareholders of the Company and Leo W. Pierce, Sr. and J. Peter Pierce, as trustees. (#) | (9.0) (12) | ||
| 10.1 | Employment Agreement, dated as of February 1, 2000, by and between the Company and J. Peter Pierce. (#) | (10.5) (16) | ||
| 10.2 | Letter Agreement, dated as of June 27, 2000, by and between the Company and J. Peter Pierce. (#) | (10.6) (19) | ||
| 10.3 | Iron Mountain Incorporated Executive Deferred Compensation Plan, as amended. (#) | (10.7) (19) | ||
| 10.4 | Nonqualified Stock Option Plan of Pierce Leahy Corp. (#) | (10.3) (11) | ||
| 10.5 | Iron Mountain Incorporated 1997 Stock Option Plan, as amended. (#) | (10.9) (19) | ||
| 10.6 | Iron Mountain/ATSI 1995 Stock Option Plan. (#) | (10.2) (3) | ||
| 10.7 | Iron Mountain Incorporated 1995 Stock Incentive Plan, as amended. (#) | (10.3) (6) | ||
| 10.8 | Iron Mountain Incorporated 2002 Stock Incentive Plan | Filed herewith as Exhibit 10.8 | ||
| 10.9 | Fifth Amended and Restated Credit Agreement dated as of March 15, 2002 among the Company, certain lenders party thereto and JPMorgan Chase Bank, as Administrative Agent. | (10.10) (23) | ||
| 10.10 | Amended and Restated Registration Rights Agreement, dated as of June 12, 1997, by and among the Company and certain shareholders of the Company. (#) | (10.1) (1) | ||
| 10.11 | Strategic Alliance Agreement, dated as of January 4, 1999, by and among the Company, Iron Mountain (U.K.) Limited, Britannia Data Management Limited and Mentmore Abbey plc. | (10.2) (5) | ||
| 10.12 | Lease Agreement, dated as of October 1, 1998, between Iron Mountain Statutory Trust—1998 and IMRM. | (10.20) (4) | ||
| 10.13 | Amendment No. 1 and Consent to Lease Agreement, dated March 15, 2002, between Iron Mountain Statutory Trust—1998 and IMIM | (10.1) (24) | ||
| 10.14 | Unconditional Guaranty, dated as of October 1, 1998, from the Company to Iron Mountain Statutory Trust—1998. | (10.21) (4) | ||
| 10.15 | Amendment and Consent to Unconditional Guaranty, dated as of July 1, 1999, between the Company and Iron Mountain Statutory Trust—1998 and consented to by the lenders listed therein and the Bank of Nova Scotia, as Agent Bank for such lenders. | (10.1) (8) | ||
| 10.16 | Amendment No. 2 and Consent to Unconditional Guaranty, dated as of October 22, 1999, between the Company and Iron Mountain Statutory Trust—1998, and consented to by the lenders listed therein and the Bank of Nova Scotia, as Agent Bank for such lenders. | (10.17) (23) | ||
| 10.17 | Amendment No. 3 and Consent to Unconditional Guaranty, dated as of January 31, 2000, between the Company and Iron Mountain Statutory Trust—1998, and consented to by the lenders listed therein and the Bank of Nova Scotia, as Agent Bank for such lenders. | (10.18) (23) | ||
| 10.18 | Amendment No. 4 and Consent to Unconditional Guaranty, dated as of August 15, 2000, between the Company and Iron Mountain Statutory Trust—1998, and consented to by the lenders listed therein and the Bank of Nova Scotia, as Agent Bank for such lenders. | (10.3) (18) |
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| 10.19 | Amendment No. 5 and Consent to Unconditional Guaranty, dated as of March 15, 2002 between the Company and Iron Mountain Statutory Trust—1998, and consented to by the lenders listed therein and the Bank of Nova Scotia, as Agent Bank for such lenders. | (10.2) (24) | ||
| 10.20 | Guaranty Letter, dated December 31, 2002, to Scotiabanc, Inc. from Iron Mountain Information Services, Inc., as Lessee and the Company as Guarantor. | Filed herewith as Exhibit 10.20 | ||
| 10.21 | Amended and Restated Agency Agreement, dated October 1, 1998, by and between Iron Mountain Statutory Trust—1998 and IMRM. | (10.22) (4) | ||
| 10.22 | Lease Agreement, dated as of July 1, 1999, by and between Iron Mountain Statutory Trust—1999 and IMRM. | (10.2) (9) | ||
| 10.23 | Amendment No. 1 and Consent to Lease Agreement, dated March 15, 2002, between Iron Mountain Statutory Trust—1999 and IMIM. | (10.3) (24) | ||
| 10.24 | Agency Agreement, dated as of July 1, 1999, by and between Iron Mountain Statutory Trust—1999 and IMRM. | (10.1) (9) | ||
| 10.25 | Unconditional Guaranty, dated as of July 1, 1999, from the Company to Iron Mountain Statutory Trust—1999. | (10.3) (9) | ||
| 10.26 | Amendment No. 1 and Consent to Unconditional Guaranty, dated as of October 22, 1999, between the Company and Iron Mountain Statutory Trust—1999, and consented to by the lenders listed therein and Wachovia Capital Investments, Inc., as Agent Bank for such lenders. | (10.24) (23) | ||
| 10.27 | Amendment No. 2 and Consent to Unconditional Guaranty, dated as of January 31, 2000, between the Company and Iron Mountain Statutory Trust—1999, and consented to by the lenders listed therein and Wachovia Capital Investments, Inc., as Agent Bank for such lenders. | (10.25) (23) | ||
| 10.28 | Amendment No. 3 and Consent to Unconditional Guaranty, dated as of August 16, 2000, between the Company and Iron Mountain Statutory Trust—1999, and consented to by the lenders listed therein and Wachovia Capital Investments, Inc., as Agent Bank for such lenders. | (10.2) (18) | ||
| 10.29 | Amendment No. 4 to Unconditional Guaranty, dated as of March 20, 2001 between the Company and Iron Mountain Statutory Trust—1999, and consented to by the lenders listed therein and Wachovia Capital Investments, Inc., as Agent Bank for such lenders. | (10.4) (24) | ||
| 10.30 | Amendment No. 5 and Unconditional Consent to Guaranty, dated as of March 15, 2002 between the Company and Iron Mountain Statutory Trust—1999, and consented to by the lenders listed therein and Wachovia Capital Investments, Inc., as Agent Bank for such lenders. | (10.5) (24) | ||
| 10.31 | Guaranty Letter, dated December 31, 2002, to BTM Capital and JH Equity Realty Investors, Inc., from Iron Mountain Information Services, Inc., as Lessee and the Company as Guarantor. | Filed herewith as Exhibit 10.31 | ||
| 10.32 | Master Lease and Security Agreement, dated as of May 22, 2001, between Iron Mountain Statutory Trust—2001, as Lessor, and IMRM, as Lessee. | (10.1) (21) | ||
| 10.33 | Amendment No. 1 to Master Lease and Security Agreement, dated as of November 1, 2001 between Iron Mountain Statutory Trust—2001, as Lessor, and IMRM, as Lessee. | (10.28) (23) | ||
| 10.34 | Amendment to Master Lease and Security Agreement and Unconditional Guaranty, dated March 15, 2002, between Iron Mountain Statutory Trust—2001, IMIM and the Company. | (10.6) (24) | ||
| 10.35 | Unconditional Guaranty, dated as of May 22, 2001, from the Company, as Guarantor, to Iron Mountain Statutory Trust—2001, as Lessor. | (10.2) (21) |
107
| 10.36 | Subsidiary Guaranty, dated as of May 22, 2001, from certain subsidiaries of the Company as guarantors, for the benefit of Iron Mountain Statutory Trust—2001 and consented to by Bank of Nova Scotia. | Filed herewith as Exhibit 10.36 | ||
| 10.37 | Guaranty Letter, dated December 31, 2002, to Scotiabanc, Inc. from Iron Mountain Information Services, Inc., as Lessee and the Company as Guarantor. | Filed herewith as Exhibit 10.37 | ||
| 10.38 | Master Construction Agency Agreement, dated as of May 22, 2001, between Iron Mountain Statutory Trust—2001, as Lessor, and IMRM, as Construction Agent. | (10.3) (21) | ||
| 12 | Statement re: Computation of Ratios. | Filed herewith as Exhibit 12 | ||
| 16 | Letter from Arthur Andersen LLP to the Securities and Exchange Commission, dated June 19, 2002, regarding the change in the Company's certifying accountant. | (16.1) (25) | ||
| 21 | Subsidiaries of the Company. | Filed herewith as Exhibit 21 | ||
| 23.1 | Consent of Deloitte & Touche LLP (Iron Mountain Incorporated, Pennsylvania). | Filed herewith as Exhibit 23.1 | ||
| 23.2 | Consent of RSM Robson Rhodes (Iron Mountain Europe Limited). | Filed herewith as Exhibit 23.2 | ||
| 23.3 | Notice Regarding Consent of Arthur Andersen LLP. | Filed herewith as Exhibit 23.3 | ||
| 99.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Filed herewith as Exhibit 99.1 | ||
| 99.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Filed herewith as Exhibit 99.2 |
108
109
IRON MOUNTAIN INCORPORATED
I, C. Richard Reese, certify that:
| Date: March 21, 2003 | |||
|
|
|
|
/s/ C. RICHARD REESE C. Richard Reese Chief Executive Officer |
110
IRON MOUNTAIN INCORPORATED
I, John F. Kenny, Jr., certify that:
| Date: March 21, 2003 | |||
|
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|
|
/s/ JOHN F. KENNY, JR. John F. Kenny, Jr. Chief Financial Officer |
111
EXHIBIT 4.7
IRON MOUNTAIN INCORPORATED
SENIOR SUBORDINATED INDENTURE
Dated as of December 30, 2002
THE BANK OF NEW YORK,
as Trustee
IRON MOUNTAIN INCORPORATED
Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of December 30, 2002
Section 310(a)(1) ...................................................................... 7.10 (a)(2) ...................................................................... 7.10 (a)(3) ...................................................................... Not Applicable (a)(4) ...................................................................... Not Applicable (a)(5) ...................................................................... 7.10 (b) ...................................................................... 7.10 Section 310(c) ...................................................................... Not Applicable Section 311(a) ...................................................................... 7.11 (b) ...................................................................... 7.11 (c) ...................................................................... Not Applicable Section 312(a) ...................................................................... 2.6 (b) ...................................................................... 10.3 (c) ...................................................................... 10.3 Section 313(a) ...................................................................... 7.6 (b)(1) ...................................................................... 7.6 (b)(2) ...................................................................... 7.6 (c) ...................................................................... 10.2 (c)(1) ...................................................................... 7.6 (c)(2) ...................................................................... 7.6 (c)(3) ...................................................................... 7.6 (d) ...................................................................... 7.6 Section 314(a) ...................................................................... 4.2, 4.3, 10.5 (b) ...................................................................... Not Applicable (c)(1) ...................................................................... 10.4 (c)(2) ...................................................................... 10.4 (c)(3) ...................................................................... Not Applicable (d) ...................................................................... Not Applicable (e) ...................................................................... 10.5 (f) ...................................................................... Not Applicable Section 315(a) ...................................................................... 7.1(b) (b) ...................................................................... 7.5 (c) ...................................................................... 7.1 (d) ...................................................................... 7.1 (e) ...................................................................... 6.14 Section 316(a) ...................................................................... 2.10 (a)(1)(A) ...................................................................... 6.12 (a)(1)(B) ...................................................................... 6.13 (b) ...................................................................... 6.8 Section 316(c) ...................................................................... 2.14 Section 317(a)(1) ...................................................................... 6.3 |
(a)(2) ...................................................................... 6.4 (b) ...................................................................... 2.5 Section 318(a) ...................................................................... 10.1 (b) ...................................................................... Not Applicable (c) ...................................................................... Not Applicable |
Senior Subordinated Indenture dated as of December 30, 2002 among Iron Mountain Incorporated, a Pennsylvania corporation ("Company"), the guarantors party hereto and The Bank of New York, a New York banking corporation, as Trustee ("Trustee").
Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Securities issued under this Indenture.
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. DEFINITIONS
"Additional Amounts" means any additional amounts which are required hereby or by any Security, under circumstances specified herein or therein, to be paid by the Company in respect of certain taxes imposed on Holders specified therein and which are owing to such Holders.
"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.
"Agent" means any Registrar, Paying Agent or Service Agent.
"Authorized Newspaper" means a newspaper in an official language of the country of publication customarily published at least once a day for at least five days in each calendar week and of general circulation in the place in connection with which the term is used. If it shall be impractical in the opinion of the Trustee to make any publication of any notice required hereby in an Authorized Newspaper, any publication or other notice in lieu thereof that is made or given by the Trustee shall constitute a sufficient publication of such notice.
"Bearer Security" means any Security, including any interest coupon appertaining thereto, that does not provide for the identification of the Holder thereof.
"Board of Directors" means the Board of Directors of the Company or any duly authorized committee thereof.
"Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been adopted by the Board of Directors or pursuant to authorization by the Board of Directors and to be in full force and effect on the date of the certificate and delivered to the Trustee.
"Business Day" means, unless otherwise provided by Board Resolution, Officers' Certificate or supplemental indenture hereto for a particular Series, any day except a Saturday,
Sunday or a legal holiday in The City of New York or at a place of payment on which banking institutions are authorized or required by law, regulation or executive order to close.
"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.
"Company" means the party named as such above until a successor replaces it and thereafter means the successor.
"Company Order" means a written order signed in the name of the Company by two Officers.
"Corporate Trust Office" means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof is located at 101 Barclay Street, Floor 8 West, New York, New York 10286, Attention: Corporate Trust Administration, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Trustee (or such other address as a successor Trustee may designate from time to time by notice to the Holders and the Company).
"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.
"Depository" means, with respect to the Securities of any Series issuable or issued in whole or in part in the form of one or more Global Securities, the Person designated as Depository for such Series by the Company, which Depository shall be a clearing agency registered under the Exchange Act; and if at any time there is more than one such Person, "Depository" as used with respect to the Securities of any Series shall mean the Depository with respect to the Securities of such Series.
"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 $10.0 million or less.
"Discount Security" means any Security that provides for an amount less than the stated principal amount thereof to be due and payable upon declaration of acceleration of the maturity thereof pursuant to Section 6.2.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, for cash or other property (other than Capital Stock that is not Disqualified Stock) pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the Securityholder thereof, in whole or in part, in each case on or prior to the stated maturity of the Securities.
"Dollars" and "$" mean lawful money of the United States of America.
"ECU" means the European Currency Unit as determined by the Commission of the European Union.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Senior Subordinated Securities" means the 8 1/8% Notes, the 8 1/4% Notes, the 8 3/4% Notes, the 8 5/8% Notes and the 9 1/8% Notes.
"Foreign Currency" means any currency or currency unit issued by a government other than the government of the United States of America.
"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of this Indenture.
"Global Security" or "Global Securities" means a Security or Securities, as the case may be, in the form established pursuant to Section 2.2 evidencing all or part of a Series of Securities, issued to the Depository for such Series or its nominee, and registered in the name of such Depository or nominee.
"Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States of America is pledged.
"Guarantee" means, as applied to any obligation, (a) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (b) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the obligation to reimburse amounts drawn down under letters of credit securing such obligations.
"Hedging Obligations" means, with respect to any Person, the obligations of such Person under (a) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (b) other agreements or arrangements designed to protect such Person against fluctuations in interest rates.
"Holder" or "Securityholder" means a Person in whose name a Security is registered or the holder of a Bearer Security.
"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 this 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 will 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.
"Indenture" means this Indenture as amended and supplemented from time to time and shall include the form and terms of particular Series of Securities established as contemplated hereunder and any related supplemental indenture.
"interest" with respect to any Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.
"Maturity," when used with respect to any Security or installment of principal thereof, means the date on which the principal of such Security or such installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, notice of option to elect repayment or otherwise.
"Obligations" means any principal, interest (including post-petition interest, whether or not allowed as a claim in any proceeding), penalties, fees, costs, expenses,
indemnifications, reimbursements, damages and other liabilities payable under or in connection with any Indebtedness.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, any Vice-President, the Treasurer, the Controller, the Secretary, any Assistant Treasurer or any Assistant Secretary of any Person.
"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.
"Opinion of Counsel" means a written opinion of legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company.
"Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or any government or any agency or political subdivision thereof.
"principal" of a Security means the principal of the Security plus, when appropriate, the premium, if any, on, and any Additional Amounts in respect of, the Security.
"Representative" means, for purposes of Article 13, the Credit Agent or other agent, trustee or representative for any Senior Debt of the Company or a Guarantor, as the case may be.
"Responsible Officer" means, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.
"Restricted Subsidiary" shall have the meaning set forth in the applicable supplemental indenture as to each Series of Securities. If not defined in the applicable supplemental indenture, then there shall be no Restricted Subsidiaries as to such Series.
"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.
"SEC" means the United States Securities and Exchange Commission.
"Securities" means the debentures, notes or other instruments of Indebtedness of the Company of any Series authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Bank Debt" means all Obligations outstanding under or in connection with the Credit Agreement (including Guarantees of such Obligations by Subsidiaries of the Company).
"Senior Debt" means (a) the Senior Bank Debt and (b) any other Indebtedness permitted to be incurred by the Company or any Restricted Subsidiary, as the case may be, under the terms of this 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 Securities or subordinated to Senior Debt on terms substantially similar to those of the Securities. 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 this Indenture provided that such Indebtedness shall be deemed not to have been incurred in violation of the Indenture for purposes of this clause (iv) if, in the case of any obligations under the Credit Agreement, the holders of such obligations or their agent or representative shall have received a representation from the Company to the effect that the incurrence of such Indebtedness does not violate the provisions of this Indenture.
"Series" or "Series of Securities" means each series of debentures, notes or other debt instruments of the Company created pursuant to Sections 2.1 and 2.2 hereof.
"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 Securities Act, as such regulation is in effect on the date hereof.
"Stated Maturity" when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.
"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.
"Subsidiary Guarantee" means a Guarantee of a Guarantor pursuant to Article XII hereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of this Indenture; PROVIDED, HOWEVER, that in the event the Trust Indenture Act of 1939 is amended after such date, "TIA" means, to the extent required by any such amendment, the Trust Indenture Act as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any Series shall mean the Trustee with respect to Securities of that Series.
"8 1/8% NOTES" means Canada Company's 8 1/8% Senior Notes due 2008 issued pursuant to the Indenture dated as of April 7, 1998, by and among Iron Mountain Canada Corporation, as issuer, the Company and The Bank of New York, as trustee.
"8 1/4% NOTES" means the Company's 8 1/4% Senior Subordinated Notes due 2011 issued pursuant to the Indenture dated April 26, 1999, by and among the Company, certain of its subsidiaries and The Bank of New York, as trustee.
"8 3/4% NOTES" means the Company's Senior Subordinated Notes due 2009 issued pursuant to the Indenture dated October 24, 1997, by and among the Company, certain of its subsidiaries and The Bank of New York, as trustee.
"8 5/8% NOTES" means the Company's Senior Subordinated Notes due 2013 issued pursuant to the Indenture dated April 3, 2001, by and among the Company, certain of its subsidiaries and The Bank of New York, as trustee.
"9 1/8% NOTES" means the Company's 9 1/8% Senior Subordinated Notes due 2007, issued pursuant to the Indenture dated as of July 7, 1997, by and between the Company, as issuer, and The Bank of New York, as trustee.
Section 1.2. OTHER DEFINITIONS.
DEFINED IN
TERM SECTION
---- ----------
"Bankruptcy Law" 6.1
"Benefited Party" 12.1
"Covenant Defeasance" 8.3
"Custodian" 6.1
"Event of Default" 6.1
"Guarantor" 12.1
"Journal" 10.15
"Judgment Currency" 10.16
"Legal Defeasance" 8.2
"Legal Holiday" 10.7
"mandatory sinking fund payment" 11.1
"Market Exchange Rate" 10.15
"New York Banking Day" 10.16
"Non-Monetary Default" 13.3
"optional sinking fund payment" 11.1
"Paying Agent" 2.4
|
"Payment Blockage Notice" 13.3 "Payment Default" 13.3 "Registrar" 2.4 "Required Currency" 10.16 "Service Agent" 2.4 "Successor Person" 5.1 |
Section 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities and the Subsidiary Guarantees, if any.
"indenture security holder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, the Guarantors, if any, and any successor obligor upon the Securities or any Subsidiary Guarantee, as the case may be.
All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA and not otherwise defined herein are used herein as so defined.
Section 1.4. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural include the singular;
(e) provisions apply to successive events and transactions; and
(f) references to sections of or rules under the Securities Act or the Exchange Act shall be deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time.
ARTICLE II.
THE SECURITIES
Section 2.1. ISSUABLE IN SERIES.
The aggregate principal amount of Securities that may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more Series. All Securities of a Series shall be identical except as may be set forth in a Board Resolution, a supplemental indenture or an Officers' Certificate detailing the adoption of the terms thereof pursuant to the authority granted under a Board Resolution. In the case of Securities of a Series to be issued from time to time, the Board Resolution, Officers' Certificate or supplemental indenture may provide for the method by which specified terms (such as interest rate, maturity date, record date or date from which interest shall accrue) are to be determined. Securities may differ between Series in respect of any matters, provided that all Series of Securities shall be equally and ratably entitled to the benefits of the Indenture.
Section 2.2. ESTABLISHMENT OF TERMS OF SERIES OF SECURITIES.
At or prior to the issuance of any Securities within a Series, the following shall be established (as to the Series generally, in the case of Subsection 2.2.1 and either as to such Securities within the Series or as to the Series generally in the case of Subsections 2.2.2 through 2.2.21) by a Board Resolution, a supplemental indenture or an Officers' Certificate pursuant to authority granted under a Board Resolution:
2.2.1. the title of the Series (which shall distinguish the Securities of that particular Series from the Securities of any other Series);
2.2.2. the price or prices (expressed as a percentage of the principal amount thereof) at which the Securities of the Series will be issued;
2.2.3. any limit upon the aggregate principal amount of the Securities of the Series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the Series pursuant to Section 2.7, 2.8, 2.11, 3.6 or 9.6, or any applicable provision of a supplemental indenture);
2.2.4. the date or dates on which the principal of the Securities of the Series is payable;
2.2.5. the rate or rates (which may be fixed or variable) per annum or, if applicable, the method used to determine such rate or rates (including, but not limited to, any commodity, commodity index, stock exchange index or financial index) at which the Securities of the Series shall bear interest, if any, the date or dates from which such interest, if any, shall accrue, the date or dates on which such interest, if any, shall commence and be payable and any regular record date for the interest payable on any interest payment date;
2.2.6. the place or places where the principal of and interest, if any, on the Securities of the Series shall be payable, or the method of such payment, if by wire transfer, mail or other means;
2.2.7. if applicable, the period or periods within which, the price or prices at which and the terms and conditions upon which the Securities of the Series may be redeemed, in whole or in part, at the option of the Company;
2.2.8. the obligation, if any, of the Company to redeem or purchase the Securities of the Series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the Series shall be redeemed or purchased, in whole or in part, pursuant to such obligation;
2.2.9. the dates, if any, on which and the price or prices at which the Securities of the Series will be repurchased by the Company at the option of the Holders thereof and other detailed terms and provisions of such repurchase obligations;
2.2.10. if other than denominations of $1,000 and any integral multiple thereof, the denominations in which the Securities of the Series shall be issuable;
2.2.11. the forms of the Securities of the Series in bearer or fully registered form (and, if in fully registered form, whether the Securities will be issuable as Global Securities);
2.2.12. if other than the principal amount thereof, the portion of the principal amount of the Securities of the Series that shall be payable upon declaration of acceleration of the maturity thereof pursuant to Section 6.2;
2.2.13. the currency of denomination of the Securities of the Series, which may be Dollars or any Foreign Currency, including, but not limited to, the ECU, and if such currency of denomination is a composite currency other than the ECU, the agency or organization, if any, responsible for overseeing such composite currency;
2.2.14. the designation of the currency, currencies or currency units in which payment of the principal of and interest, if any, on the Securities of the Series will be made;
2.2.15. if payments of principal of or interest, if any, on the Securities of the Series are to be made in one or more currencies or currency units other than that or those in which such Securities are denominated, the manner in which the exchange rate with respect to such payments will be determined;
2.2.16. the manner in which the amounts of payment of principal of or interest, if any, on the Securities of the Series will be determined, if such amounts may be determined by reference to an index based on a currency or currencies or by reference to a commodity, commodity index, stock exchange index or financial index;
2.2.17. the provisions, if any, relating to any security provided for the Securities of the Series;
2.2.18. any addition to or change in the Events of Default which applies to any Securities of the Series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 6.2;
2.2.19. any addition to or change in the covenants set forth in Articles IV or V which applies to Securities of the Series;
2.2.20. any other terms of the Securities of the Series (which may modify or delete any provision of this Indenture insofar as it applies to such Series); and
2.2.21. any depositories, interest rate calculation agents, exchange rate calculation agents or other agents with respect to Securities of such Series if other than those appointed herein.
All Securities of any one Series need not be issued at the same time and may be issued from time to time, consistent with the terms of this Indenture, if so provided by or pursuant to the Board Resolution, supplemental indenture or Officers' Certificate referred to above, and the authorized principal amount of any Series may not be increased to provide for issuances of additional Securities of such Series, unless otherwise provided in such Board Resolution, supplemental indenture or Officers' Certificate.
Section 2.3. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Securities for the Company by manual or facsimile signature. An Officer of each Guarantor shall sign the Subsidiary Guarantee for the Guarantor by manual or facsimile signature.
If an Officer whose signature is on a Security or Subsidiary Guarantee no longer holds that office at the time the Security is authenticated, the Security or Subsidiary Guarantee shall nevertheless be valid.
A Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. Such signature shall be conclusive evidence that the Security has been authenticated under this Indenture.
The Trustee shall at any time, and from time to time, authenticate Securities for original issue in the principal amount provided in the Board Resolution, supplemental indenture hereto or Officers' Certificate, upon receipt by the Trustee of a Company Order. Such Company Order may authorize authentication and delivery pursuant to oral or electronic instructions from the Company or its duly authorized agent or agents, which oral instructions shall be promptly confirmed in writing. Each Security shall be dated the date of its authentication unless otherwise provided by a Board Resolution, a supplemental indenture hereto or an Officers' Certificate.
The aggregate principal amount of Securities of any Series outstanding at any time may not exceed any limit upon the maximum principal amount for such Series set forth in the Board Resolution, supplemental indenture hereto or Officers' Certificate delivered pursuant to Section 2.2, except as provided in Section 2.8.
Prior to the issuance of Securities of any Series, the Trustee
shall have received and (subject to Section 7.2) shall be fully protected in
relying on: (a) the Board Resolution, supplemental indenture hereto or Officers'
Certificate establishing the form of the Securities of that Series or of
Securities within that Series and the terms of the Securities of that Series or
of Securities within that Series, (b) an Officers' Certificate complying with
Section 10.4, and (c) an Opinion of Counsel complying with Section 10.4.
The Trustee shall have the right to decline to authenticate and deliver any Securities of such Series: (a) if the Trustee, being advised by counsel, determines that such action may not lawfully be taken; or (b) if the Trustee in good faith by its board of directors or trustees, executive committee or a trust committee of directors and/or vice-presidents shall determine that such action would expose the Trustee to personal liability to Holders of any then outstanding Series of Securities.
The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate.
Section 2.4. REGISTRAR AND PAYING AGENT.
The Company shall maintain, with respect to each Series of Securities, at the place or places specified with respect to such Series pursuant to Section 2.2, an office or agency where Securities of such Series may be presented or surrendered for payment ("Paying Agent"), where Securities of such Series may be surrendered for registration of transfer or exchange ("Registrar") and where notices and demands to or upon the Company in respect of the Securities of such Series and this Indenture may be served ("Service Agent"). The Registrar shall keep a register with respect to each Series of Securities and to their transfer and exchange. The Company will give prompt written notice to the Trustee of the name and address, and any change in the name or address, of each Registrar, Paying Agent or Service Agent. If at any time the Company shall fail to maintain any such required Registrar, Paying Agent or Service Agent or shall fail to furnish the Trustee with the name and address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more co-registrars, additional paying agents or additional service agents and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligations to maintain a Registrar, Paying Agent and Service Agent in each place so specified pursuant to Section 2.2 for Securities of any Series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the name or address of any such co-registrar, additional paying agent or additional service agent. The term "Registrar" includes any co-registrar; the term "Paying Agent" includes any additional paying agent; and the term "Service Agent" includes any additional service agent. The Company or any Guarantor may act as Paying Agent, Registrar or
Service Agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall be subject to any obligations imposed by the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent.
The Company hereby appoints the Trustee the initial Registrar, Paying Agent and Service Agent for each Series unless another Registrar, Paying Agent or Service Agent, as the case may be, is appointed prior to the time Securities of that Series are first issued.
Section 2.5. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust, for the benefit of Securityholders of any Series of Securities, or the Trustee, all money held by the Paying Agent for the payment of principal of or premium, if any, or interest on the Series of Securities, and will notify the Trustee of any default by the Company or the Guarantors in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money delivered to the Trustee. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of Securityholders of any Series of Securities, subject to Article XIII hereof, all money held by it as Paying Agent.
Section 2.6. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders of each Series of Securities and shall otherwise comply with TIA
Section 312(a). If the Trustee is not the Registrar, the Company shall furnish
to the Trustee at least ten days before each interest payment date and at such
other times as the Trustee may request in writing a list, in such form and as of
such date as the Trustee may reasonably require, of the names and addresses of
Securityholders of each Series of Securities.
Section 2.7. TRANSFER AND EXCHANGE.
Where Securities of a Series are presented to the Registrar or a co-registrar with a request to register a transfer or to exchange them for an equal principal amount of Securities of the same Series, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met. To permit registrations of transfers and exchanges, the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.11, 3.6 or 9.6).
Neither the Company nor the Registrar shall be required (a) to issue, register the transfer of, or exchange Securities of any Series for the period beginning at the opening of
business fifteen days immediately preceding the mailing of a notice of redemption of Securities of that Series selected for redemption and ending at the close of business on the day of such mailing, or (b) to register the transfer of or exchange Securities of any Series selected, called or being called for redemption as a whole or the portion being redeemed of any such Securities selected, called or being called for redemption in part.
Section 2.8. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same Series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and make available for delivery, in lieu of any such destroyed, lost or stolen Security, a new Security of the same Series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any Series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that Series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 2.9. OUTSTANDING SECURITIES.
The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest on a Global Security effected by the Trustee in accordance with the provisions hereof and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.8, it ceases to be outstanding until the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds on the Maturity of Securities of a Series money sufficient to pay such Securities payable on that date, then on and after that date such Securities of the Series cease to be outstanding and interest on them ceases to accrue.
A Security does not cease to be outstanding because the Company, a Guarantor or an Affiliate of the Company or a Guarantor holds the Security.
In determining whether the Holders of the requisite principal amount of outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, the principal amount of a Discount Security that shall be deemed to be outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the Maturity thereof pursuant to Section 6.2.
Section 2.10. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount of Securities of a Series have concurred in any request, demand, authorization, direction, notice, consent or waiver, Securities of a Series owned by the Company or an Affiliate shall be disregarded, except that for the purposes of determining whether the Trustee shall be protected in relying on any such request, demand, authorization, direction, notice, consent or waiver, only Securities of a Series that a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. Notwithstanding the foregoing, Securities of a Series that are to be acquired by the Company, any Guarantor, any Subsidiary of the Company or any Guarantor or an Affiliate of the Company or any Guarantor pursuant to an exchange offer, tender offer or other agreement shall not be deemed to be owned by the Company, such Guarantor, a Subsidiary of the Company or such Guarantor or an Affiliate of the Company or such Guarantor until legal title to such Securities passes to the Company, such Guarantor, such Subsidiary or such Affiliate, as the case may be.
Section 2.11. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities upon a Company Order. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee upon request shall authenticate definitive Securities of the same Series and date of maturity in exchange for temporary Securities. Until so exchanged, temporary securities shall have the same rights under this Indenture as the definitive Securities.
Section 2.12. CANCELLATION.
The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to
them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for transfer, exchange, payment, replacement or cancellation and shall dispose of such canceled Securities (subject to the record retention requirement of the Exchange Act) in accordance with the Trustee's customary practice. The Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation.
Section 2.13. DEFAULTED INTEREST.
If the Company and the Guarantors default in a payment of interest on Series of Securities, the Company or any such Guarantor (to the extent of its obligations under its Subsidiary Guarantee) shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Securityholders of the Series on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five Business Days prior to the payment date, in each case at the rate provided for with respect to the applicable Securities. The Company shall fix or cause to be fixed each such special record date and payment date, and shall, promptly thereafter, notify the Trustee of any such date. At least 15 days before the special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to Securityholders of the Series a notice that states the special record date, the related payment date and the amount of such interest to be paid. The Company and the Guarantors may pay defaulted interest in any other lawful manner.
Section 2.14. RECORD DATE.
The record date for purposes of determining the identity of Securityholders of the Series entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided for in TIA Section 316(c).
Section 2.15. GLOBAL SECURITIES.
2.15.1. TERMS OF SECURITIES. A Board Resolution, a supplemental indenture hereto or an Officers' Certificate shall establish whether the Securities of a Series shall be issued in whole or in part in the form of one or more Global Securities and the Depository for such Global Security or Securities.
2.15.2. TRANSFER AND EXCHANGE. Notwithstanding any provisions to the contrary contained in Section 2.7 of the Indenture and in addition thereto, any Global Security shall be exchangeable pursuant to Section 2.7 of the Indenture for Securities registered in the names of Holders other than the Depository for such Security or its nominee only if (i) such Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time such Depository ceases to be a clearing agency registered under the Exchange Act, and, in either case, the Company fails to appoint a successor Depository within 90 days of such event, (ii) the Company executes and delivers to the Trustee an Officers' Certificate to the effect that such Global Security shall be so exchangeable or (iii) an Event of Default with respect to the Securities represented by such Global Security shall have happened and be continuing. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Securities registered in such names as the Depository shall direct in writing
in an aggregate principal amount equal to the principal amount of the Global Security with like tenor and terms.
Except as provided in this Section 2.15.2, a Global Security may not be transferred except as a whole by the Depository with respect to such Global Security to a nominee of such Depository, by a nominee of such Depository to such Depository or another nominee of such Depository or by the Depository or any such nominee to a successor Depository or a nominee of such a successor Depository.
2.15.3. LEGEND. Any Global Security issued hereunder shall bear a legend in substantially the following form:
"This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of the Depository or a nominee of the Depository. This Security is exchangeable for Securities registered in the name of a Person other than the Depository or its nominee only in the limited circumstances described in the Indenture, and may not be transferred except as a whole by the Depository to a nominee of the Depository, by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such a successor Depository."
2.15.4. ACTS OF HOLDERS. The Depository, as a Holder, may appoint agents and otherwise authorize participants to give or take any request, demand, authorization, direction, notice, consent, waiver or other action which a Holder is entitled to give or take under the Indenture.
2.15.5. PAYMENTS. Notwithstanding the other provisions of this Indenture, unless otherwise specified as contemplated by Section 2.2, payment of the principal of and interest, if any, on any Global Security shall be made to the Holder thereof.
2.15.6. CONSENTS, DECLARATION AND DIRECTIONS. Except as provided in Section 2.15.5, the Company, the Trustee and any Agent shall treat a Person as the Holder of such principal amount of outstanding Securities of such Series represented by a Global Security as shall be specified in a written statement of the Depository with respect to such Global Security, for purposes of obtaining any consents, declarations, waivers or directions required to be given by the Holders pursuant to this Indenture.
Section 2.16. CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; PROVIDED that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP number.
ARTICLE III.
REDEMPTION
Section 3.1. NOTICE TO TRUSTEE.
The Company may, with respect to any Series of Securities, reserve the right to redeem and pay the Series of Securities or may covenant to redeem and pay the Series of Securities or any part thereof prior to the Stated Maturity thereof at such time and on such terms as provided for in such Securities. If a Series of Securities is redeemable and the Company wants or is obligated to redeem prior to the Stated Maturity thereof all or part of the Series of Securities pursuant to the terms of such Securities, it shall notify the Trustee of the redemption date and the principal amount of Series of Securities to be redeemed. The Company shall give the notice at least 45 days before the redemption date (or such shorter notice as may be acceptable to the Trustee), which notice shall be in the form of an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Securities of a Series to be redeemed and (iv) the redemption price.
Section 3.2. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of any Series of Securities are to be redeemed at any time, the Trustee shall select the Securities of the Series to be redeemed among the applicable Holders of such Series in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed or, if the Securities are not so listed, on a PRO RATA basis, by lot or in accordance with any other method the Trustee considers fair and appropriate, PROVIDED that no Securities of $1,000 or less shall be redeemed in part. In the event of partial redemption by lot, the particular Securities to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Securities not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Securities of the Series selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities and portions of Securities selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Securities of a Holder are to be redeemed, the entire outstanding amount of Securities held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Securities of a Series called for redemption also apply to portions of Securities of that Series called for redemption.
Section 3.3. NOTICE OF REDEMPTION.
Unless otherwise indicated for a particular Series by Board Resolution, a supplemental indenture hereto or an Officers' Certificate, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed a notice of redemption by first-class mail to each Holder whose Securities are to be redeemed and if any Bearer Securities are outstanding, publish on one occasion a notice in an Authorized Newspaper.
The notice shall identify the Securities of the Series to be redeemed (including the CUSIP numbers, if any) and shall state:
(a) the redemption date;
(b) the redemption price (including accrued interest to, but excluding, the redemption date);
(c) if any Security of the Series called for redemption is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the redemption date upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Security;
(d) the name and address of the Paying Agent;
(e) that Securities of the Series called for redemption must be surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in the making of such redemption payment, interest on Securities of the Series called for redemption ceases to accrue on and after the redemption date; and
(g) any other information as may be required by the terms of the particular Series or the Securities of a Series being redeemed.
At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense.
Section 3.4. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed or published as provided in
Section 3.3, Securities of a Series called for redemption become due and payable
on the redemption date and at the redemption price. A notice of redemption may
not be conditional. On and after the redemption date, unless the Company
defaults in the payment of the redemption price, interest will cease to accrue
on the Securities of a Series called for called for redemption and all rights of
Holders with respect to such Securities will terminate except for the right to
receive payment of the redemption price upon surrender for redemption. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price plus accrued interest to but excluding the redemption date.
Section 3.5. DEPOSIT OF REDEMPTION PRICE.
Prior to 12:00 noon on the redemption date, the Company shall deposit with the Paying Agent money sufficient to pay the redemption price of and accrued interest, if any, on all Securities to be redeemed on that date. If the Company complies with the provisions of the preceding sentence, on and after the redemption date, interest shall cease to accrue on the Securities or the portions of Securities called for redemption, whether or not such Securities are
presented for payment. If any Security called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the first sentence of this paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided with respect to such Security.
Section 3.6. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the Trustee shall authenticate for the Holder a new Security of the same Series and the same maturity equal in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE IV.
COVENANTS
Section 4.1. PAYMENT OF PRINCIPAL AND INTEREST.
The Company covenants and agrees for the benefit of the Holders of each Series of Securities that it will duly and punctually pay the principal of and interest, if any, on the Securities of that Series in accordance with the terms of such Securities and this Indenture.
Section 4.2. SEC REPORTS.
Whether or not required by the rules and regulations of the SEC, so long as any Securities are outstanding, the Company will furnish to the Holders of Securities (1) all quarterly and annual financial information that would be required to be contained in a filing with the SEC 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 (2) all financial information that would be required to be included in a Form 8-K filed with the SEC if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the SEC, the Company will file a copy of all such information and reports with the SEC for public availability (unless the SEC will not accept such a filing) and make such information available to investors who request it in writing. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to conclusively rely exclusively on Officers' Certificates).
Section 4.3. COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year of the Company, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his knowledge the Company has
kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he may have knowledge).
The Company will, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto.
Section 4.4. STAY, EXTENSION AND USURY LAWS.
Each of the Company and the Guarantors covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture or the Securities; and each of the Company and the Guarantors (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted.
Section 4.5. CORPORATE EXISTENCE.
Subject to Article V of the Indenture and any covenant included in a supplemental indenture relating to the release of Guarantors, the Company and each of the Restricted Subsidiaries shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of their Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company, any such Restricted Subsidiary or any such Subsidiary, as the case may be, and (ii) the rights (charter and statutory), licenses and franchises of the Company, the Restricted Subsidiaries and their respective Subsidiaries; PROVIDED, HOWEVER, that the Company and the Restricted Subsidiaries shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of their respective Subsidiaries, if an officer of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company, the Restricted Subsidiaries and their Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Securities.
Section 4.6. TAXES.
The Company shall, and shall cause each of its Subsidiaries to,
pay prior to delinquency all material taxes, assessments and governmental
levies, except (i) as contested in good faith and by appropriate proceedings or
(ii) the nonpayment of which would not materially adversely affect the business,
condition (financial or otherwise), operations, performance or properties of the
Company and its Subsidiaries, taken as a whole.
Section 4.7. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where the Securities of any Series may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of such Securities and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices or agencies where the Securities of any Series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.4 hereof.
ARTICLE V.
SUCCESSORS
Section 5.1. MERGERS, CONSOLIDATIONS OR SALE OF ASSETS.
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 Securities of a Series, the supplemental indentures applicable to such Series and the Indenture (pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee);
(c) immediately after such transaction no Default or Event of Default exists;
(d) the Company or any Person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made, will, at the time of such transaction and after giving pro forma effect thereto, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the test set forth in the applicable supplemental indenture, if any, without regard to any enumerated exceptions; and
(e) The Company (or the 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) shall have delivered an Officers' Certificate and an Opinion of Counsel, both stating that such consolidation, merger or transfer and such supplemental indenture complies with the Indenture.
Section 5.2. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "COMPANY" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of, the Company under this Indenture with the same effect as if such Successor Person has been named as the Company herein; PROVIDED, HOWEVER, that the predecessor Company in the case of a sale, lease, conveyance or other disposition shall not be released from the obligation to pay the principal of and interest, if any, on the Securities, except in the case of a sale of all the Company's assets that meets the requirements of Section 5.1 hereof.
ARTICLE VI.
DEFAULTS AND REMEDIES
Section 6.1. EVENTS OF DEFAULT.
"Event of Default," wherever used herein with respect to Securities of any Series, means any one of the following events, unless in the establishing Board Resolution, supplemental indenture or Officers' Certificate, it is provided that such Series shall not have the benefit of said Event of Default:
(a) default for 30 days in the payment when due of interest on any Security of that Series (whether or not prohibited by the subordination provisions of Article XIII of the Indenture);
(b) default in payment when due of the principal of or premium, if any, on any Security of that Series (whether or not prohibited by the subordination provisions in Article XIII of the Indenture);
(c) failure by the Company to comply with any "Change of Control" covenant included in a supplemental indenture with respect to any Security of that Series;
(d) failure by the Company or any Guarantor for 60 days after written notice from the Trustee or Holders of not less than 25% of the aggregate principal amount of the Securities of that Series then outstanding to comply with any of its other agreements in the Indenture, any supplemental indenture relating to such Series, the Securities or the Subsidiary Guarantees (in order to be effective, such notice must be in writing, specify the Default, demand that it be remedied and state that the notice is a "Notice of Default");
(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 supplemental indenture relating to such Series 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 $10.0 million;
(f) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Restricted Subsidiaries and such judgments remain unpaid, undischarged or unstayed for a period of 60 days, provided that the aggregate of all such unpaid, undischarged or unstayed judgments exceeds $10.0 million;
(g) the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an involuntary case,
(iii) consents to the appointment of a Custodian of it or for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors, or
(v) admits in writing that it generally is unable to pay its debts as the same become due;
in each case, pursuant to or within the meaning of any Bankruptcy Law; or
(h) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief against the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary in an involuntary case,
(ii) appoints a Custodian of the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or for all or substantially all of its property, or
(iii) orders the liquidation of the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary,
and such order or decree remains unstayed and in effect for 60 days;
(i) except as permitted by the Indenture, any supplemental indenture relating to such Series or the Subsidiary Guarantees, any Subsidiary Guarantee issued by a Restricted Subsidiary shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect, or any Restricted Subsidiary or any Person acting on behalf of any Restricted Subsidiary shall deny or disaffirm in writing its obligations under its Subsidiary Guarantee; or
(j) any other Event of Default provided with respect to Securities of that Series, which is specified in a Board Resolution, a supplemental indenture hereto or an Officers' Certificate, in accordance with Section 2.2.18.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or State law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.
Section 6.2. ACCELERATION OF MATURITY.
If any Event of Default (other than an Event of Default specified in clauses (g) and (h) of Section 6.1 of the Indenture relating to the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary) occurs and is continuing, the Trustee by notice to the Company or the Holders of at least 25% in principal amount of the then outstanding Securities of a Series by notice to the Company and the Trustee may declare the unpaid principal of and any interest on all the Securities of that Series (or, if any Securities of that Series are Discount Securities, such portion of the principal amount as may be specified in the terms of such Securities) 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 Securities of a Series, the principal, premium, if any, and interest on such Securities will not be payable until the earlier of:
(a) the day which is five Business Days after written notice of acceleration is received by the Company and the Credit Agent or
(b) the date of acceleration of the Indebtedness under the
Credit Agreement. If an Event of Default specified in clauses (g) and
(h) of Section 6.1 of the Indenture with respect to the Company or any
Restricted Subsidiary that is a Significant Subsidiary occurs, the
principal of, and premium, if any, and any accrued and unpaid interest
on all outstanding Securities of that Series will become immediately
due and payable without further action or notice.
In the event of a declaration of acceleration of the Securities
of that Series because an Event of Default has occurred and is continuing as a
result of the acceleration of any Indebtedness described in clause (e) of
Section 6.1 of the Indenture, the declaration of acceleration of the Securities
of that Series shall be automatically annulled if the holders of any
Indebtedness described in such clause have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days from the date of
such declaration and if:
(a) the annulment of the acceleration of the Securities of that Series would not conflict with any judgment or decree of a competent jurisdiction and
(b) all existing Events of Default, except non-payment of principal or interest on the Securities of that Series that became due solely because of the acceleration of such Securities, 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 any make whole price or premium, as applicable, that the Company would have had to pay if the Company then had elected to redeem the Securities of a Series pursuant to the optional redemption provisions of the Indenture, if any, the applicable make whole price, or an equivalent premium, as the case may be, shall become and be immediately due and payable to the extent permitted by law upon the acceleration of the Securities of that Series.
Section 6.3. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(a) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or
(b) default is made in the payment of principal of any Security at the Maturity thereof, or
(c) default is made in the deposit of any sinking fund payment when and as due by the terms of a Security,
THEN, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal or any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or deemed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.
If an Event of Default with respect to any Securities of any Series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such Series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
Section 6.4. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same,
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.5. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.
Section 6.6. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee under
Section 7.7;
Second: to the holders of Senior Debt of the Company or a Guarantor, as the case may be, to the extent required by Article XIII hereof;
Third: To the payment of the amounts then due and unpaid for principal of and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and interest, respectively; and
Fourth: To the Company.
Section 6.7. LIMITATION ON SUITS.
No Holder of any Security of any Series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that Series;
(b) the Holders of not less than 25% in principal amount of the outstanding Securities of that Series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the outstanding Securities of that Series;
it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders.
Section 6.8. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND INTEREST.
Subject to Articles XII and XIII hereof, notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and premium and interest, if any, on such Security on the Stated Maturity or Stated Maturities expressed in such Security (or, in the case of redemption, on the redemption date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.
Section 6.9. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.
Section 6.10. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in Section 2.8, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
Section 6.11. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
Section 6.12. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the outstanding Securities of any Series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such Series, provided that
(a) such direction shall not be in conflict with any rule of law or with this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and
(c) subject to the provisions of Section 6.1, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability.
Section 6.13. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the outstanding Securities of any Series may on behalf of the Holders of all the Securities of such Series waive any past Default hereunder with respect to such Series and its consequences, except a continuing Default or Event of Default in the payment of the principal of or interest on any Security of such Series (provided, however, that the Holders of a majority in principal amount of the outstanding Securities of any Series may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.
Section 6.14. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the outstanding Securities of any Series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or interest on any Security
on or after the Stated Maturity or Stated Maturities expressed in such Security (or, in the case of redemption, on the redemption date).
ARTICLE VII.
TRUSTEE
Section 7.1. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that are specifically set forth in this Indenture and no others.
(ii) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon Officers' Certificates or Opinions of Counsel furnished to the Trustee and conforming to the requirements of this Indenture; HOWEVER, in the case of any such Officers' Certificates or Opinions of Counsel which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such Officers' Certificates and Opinions of Counsel to determine whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (b) of this Section.
(ii) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it with respect to Securities of any Series in good faith in accordance with the direction of the Holders of a majority in principal amount of the outstanding Securities of such Series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such Series.
(d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraph (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to risk its own funds or otherwise incur any financial liability in the performance of any of its duties, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk is not reasonably assured to it.
(h) The Paying Agent, the Registrar and any authenticating agent shall be entitled to the protections, immunities and standard of care as are set forth in paragraphs (a), (b) and (c) of this Section with respect to the Trustee.
Section 7.2. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely on and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. No Depository shall be deemed an agent of the Trustee and the Trustee shall not be responsible for any act or omission by any Depository.
(d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers.
(e) The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.
(g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.
(h) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is given to the Trustee in accordance with Section 10.2.
(i) The Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any Person authorized to sign an Officers' Certificate, including any Person specified as so authorized in any such certificate previously delivered and not superseded.
Section 7.3. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights. The Trustee is also subject to Sections 7.10 and 7.11.
Section 7.4. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than its authentication.
Section 7.5. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing with respect to the Securities of any Series and if it is actually known to a Responsible Officer of the Trustee, the Trustee shall mail to each Securityholder of the Securities of that Series and, if any Bearer Securities are outstanding, publish on one occasion in an Authorized Newspaper, notice of a Default or Event of Default within 90 days after it occurs or, if later, after a Responsible Officer of the Trustee has actual knowledge of such Default or Event of Default. Except in the case of a Default or Event of Default in payment of principal of or interest on any Security of any Series, the Trustee may withhold the notice if and so long as its corporate trust committee or a
committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Securityholders of that Series.
Section 7.6. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after May 15 in each year, the Trustee shall transmit by mail to all Securityholders, as their names and addresses appear on the register kept by the Registrar and, if any Bearer Securities are outstanding, publish in an Authorized Newspaper, a brief report dated as of such May 15, in accordance with, and to the extent required under, TIA Section 313.
A copy of each report at the time of its mailing to Securityholders of any Series shall be filed with the SEC and each stock exchange on which the Securities of that Series are listed. The Company shall promptly notify the Trustee when Securities of any Series are listed on any stock exchange or any delisting thereof.
Section 7.7. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such compensation for its services as the Company and the Trustee shall agree in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred by it. Such expenses shall include the reasonable compensation and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee or any predecessor Trustee and their agents (including the cost of defending itself against any claim (whether asserted by the Company, or any Holder or any other Person)) against any and all loss, damages, claims, liability or expense, including taxes (other than taxes based upon, measured by or determined by the income of the Trustee) incurred by it except as set forth in the next paragraph in the performance of their duties under this Indenture as Trustee or Agent. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. This indemnification shall apply to officers, directors, employees, shareholders and agents of the Trustee.
The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee or by any officer, director, employee, shareholder or agent of the Trustee due to its own negligence or bad faith.
To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities of any Series on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Securities of that Series.
When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(g) or (h) (or any comparable provisions set forth in a supplemental
indenture) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable.
The provisions of this Section shall survive the termination of this Indenture and the resignation or removal of the Trustee.
Section 7.8. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section.
The Trustee may resign with respect to the Securities of one or more Series by so notifying the Company in writing. The Holders of a majority in principal amount of the Securities of any Series may remove the Trustee with respect to that Series by so notifying the Trustee and the Company in writing. The Company may remove the Trustee with respect to Securities of one or more Series if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee with respect to the Securities of any one or more Series does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the Securities of the applicable Series may petition any court of competent jurisdiction at the expense of the Company for the appointment of a successor Trustee.
If the Trustee with respect to the Securities of any one or more Series fails to comply with Section 7.10, any Securityholder of the applicable Series, who has been a Securityholder for at least six months, may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee subject to the lien provided for in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee with respect to each Series of Securities for which it is acting as Trustee under this Indenture. A successor Trustee shall mail a notice of its succession to each Securityholder of each such Series and, if any Bearer Securities are outstanding, publish such notice on one occasion in an Authorized Newspaper. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring trustee with respect to expenses and liabilities incurred by it prior to such replacement.
Section 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee.
Section 7.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee shall always have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b).
Section 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VIII.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding Securities of a Series upon compliance with the conditions set forth below in this Article VIII.
Section 8.2. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.2, each of the Company and the Guarantors,
if any, shall, subject to the satisfaction of the conditions set forth in
Section 8.4 hereof, be deemed to have been discharged from its obligations with
respect to all outstanding Securities of such Series and related Subsidiary
Guarantees on the date the conditions set forth below are satisfied
(hereinafter, "LEGAL
DEFEASANCE"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Securities of such Series, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Securities and this Indenture as it relates to such Securities (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Securities of such Series to receive solely from the trust fund described in Section 8.4 hereof, and as more fully set forth in such section, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (b) the Company's and Guarantors' obligations with respect to such Securities under Article II hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's and the Guarantors' obligations in connection therewith and (d) this Article VIII. Subject to compliance with this Article VIII, the Company may exercise its option under this Section 8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof.
Section 8.3. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.3, each of the Company and the Guarantors,
if any, shall, subject to the satisfaction of the conditions set forth in
Section 8.4 hereof, be released from its obligations under the covenants
specified pursuant to Section 2.2 hereof and Article V hereof with respect to
the outstanding Securities of such Series and related Subsidiary Guarantees on
and after the date the conditions set forth below are satisfied (hereinafter,
"COVENANT DEFEASANCE"), and such Securities shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Securities shall not be deemed
outstanding for accounting purposes). For this purpose, Covenant Defeasance
means that, with respect to the outstanding Securities of such Series, the
Company may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such covenant
or by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 6.1 hereof, but, except as
specified above, the remainder of this Indenture, such Securities and the
related Subsidiary Guarantees, if any, shall be unaffected thereby. In addition,
upon the Company's exercise under Section 8.1 hereof of the option applicable to
this Section 8.3 hereof, subject to the satisfaction of the conditions set forth
in Section 8.4 hereof, Sections 6.1(c) through 6.1(f) and 6.1(i) hereof (or any
comparable provisions set forth in a supplemental indenture) shall not
constitute Events of Default.
Section 8.4. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either Section 8.2 or 8.3 hereof to the outstanding Securities of such Series:
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, cash in United States 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 Securities of such Series 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 Securities of such Series;
(b) in the case of an election under Section 8.2 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States (which counsel may be an employee of the Company or any Subsidiary of the Company) reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date hereof, 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 Securities of such Series 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 an election under Section 8.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States (which counsel may be an employee of the Company or any Subsidiary of the Company) reasonably acceptable to the Trustee confirming that the Holders of the outstanding Securities of such Series 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 Sections 6.1(g) and 6.1(h) hereof (or any comparable provisions set forth in a supplemental indenture) are concerned, at any time in the period ending on the 91st day after the date of deposit (or greater period of time in which any such deposit of trust funds may remain subject to Bankruptcy Law insofar as those apply to the deposit by the Company);
(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 (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of such Securities over any 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 or relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Section 8.5. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.6 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.5, the "Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Securities of a Series subject to a Legal Defeasance or a Covenant Defeasance shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law.
The Company and the Guarantors shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities of a Series subject to a Legal Defeasance or a Covenant Defeasance.
Anything in this Article VIII to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.6. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest, if any, on any Securities of a Series subject to a Legal Defeasance or a Covenant Defeasance and remaining unclaimed for two years after such principal, and premium, if any, or interest, if any, have become due and payable shall be paid to the Company on its request or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in THE NEW YORK TIMES and THE WALL STREET JOURNAL (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company.
Section 8.7. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture, the Securities of such Series and the related Subsidiary Guarantees, if any, shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company make any payment of principal of, premium, if any, or interest, if any, on any such Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE IX.
AMENDMENTS AND WAIVERS
Section 9.1. WITHOUT CONSENT OF HOLDERS.
Notwithstanding Section 9.2 of the Indenture, without the consent of any Securityholder, the Company, the Guarantors and the Trustee may amend or supplement the Indenture or the Securities:
(a) to cure any ambiguity, defect or inconsistency,
(b) to provide for uncertificated Securities in addition to or in place of certificated Securities,
(c) to provide for the assumption of the Company's or any Guarantor's obligations to Holders of a Security in the case of a merger or consolidation,
(d) to make any change that would provide any additional rights or benefits to the Holders of a Security (including providing for additional Subsidiary Guarantees) or that does not materially adversely affect the legal rights under the Indenture of any such Securityholder, or
(e) to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.2 of the Indenture, the Trustee shall join with the Company and the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise.
Section 9.2. WITH CONSENT OF HOLDERS.
Except as provided Section 9.1 and Section 9.3 of the Indenture, the Indenture or the Securities of a Series may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities of each Series then outstanding affected by the supplemental indenture implementing such amendment or supplement (including consents obtained in connection with a tender offer or exchange offer for Securities), and, subject to Sections 6.8 and 6.12 of the Indenture) any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Securities of such Series, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture or the Securities of such Series may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities of each Series affected by such supplemental indenture implementing such amendment or supplement (including consents obtained in connection with a tender offer or exchange offer for Securities).
It shall not be necessary for the consent of the Holders of Securities under this Section 9.2 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After a supplemental indenture or waiver under this Section 9.2 becomes effective, the Company shall mail to the Holders of Securities affected thereby and, and if any Bearer Securities affected thereby are outstanding, publish on one occasion in an Authorized Newspaper, a notice briefly describing the supplemental indenture or waiver. Any failure by the Company to mail or publish such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver.
Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence reasonably satisfactory to the Trustee of the consent of the Holders of Securities as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.2 hereof, the Trustee shall join with the Company and the Guarantors in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture.
Section 9.3. LIMITATIONS.
Without the consent of each Securityholder affected, an amendment or waiver may not (with respect to any Securities held by a non-consenting Holder of Securities):
(a) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Security or alter any of the provisions with respect to the redemption of any Security in a manner adverse to the Holders of such Security;
(c) reduce the rate of or change the time for payment of interest on any Security;
(d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on any Security (except a rescission of acceleration of the Securities of any Series by the Holders of at least a majority in aggregate principal amount of the then outstanding Securities of such Series and a waiver of the payment default that resulted from such acceleration);
(e) make any Security payable in money other than that stated in such Security;
(f) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Securities of any Series to receive payments of principal of or premium, if any, or interest on the Securities;
(g) waive a redemption payment with respect to any Security (other than a payment required by any "Change of Control" or "Asset Sale" covenant set forth in a supplemental indenture relating to Securities of a Series);
(h) except pursuant to the Indenture, release any Guarantor from its obligations under its Subsidiary Guarantee, or change any Subsidiary Guarantee in any manner that would materially adversely affect the Securityholders; or
(i) make any change in the foregoing amendment and waiver provisions.
It shall not be necessary for the consent of the Holders of Securities under this Section 9.3 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof.
Section 9.4. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to this Indenture or the Securities of one or more Series shall be set forth in a supplemental indenture hereto that complies with the TIA as then in effect.
Section 9.5. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment or waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective.
Any amendment or waiver once effective shall bind every Securityholder of each Series affected by such amendment or waiver unless it is of the type described in any of clauses (a) through (h) of Section 9.3. In that case, the amendment or waiver shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security.
Section 9.6. NOTATION ON OR EXCHANGE OF SECURITIES.
The Trustee may place an appropriate notation about an amendment or waiver on any Security of any Series thereafter authenticated. The Company in exchange for Securities of that Series may issue and the Trustee shall authenticate upon request new Securities of that Series that reflect the amendment or waiver.
Section 9.7. TRUSTEE TO SIGN AMENDMENTS; TRUSTEE PROTECTED.
The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article IX if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 7.1) shall be fully protected in relying upon, an Opinion of Counsel and Officers' Certificate stating that the execution of such supplemental indenture is authorized or permitted by this Indenture.
ARTICLE X.
MISCELLANEOUS
Section 10.1. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required or deemed to be included in this Indenture by the TIA, such required or deemed provision shall control.
Section 10.2. NOTICES.
Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company or any Guarantor:
Iron Mountain Incorporated
745 Atlantic Avenue
Boston, MA 02111
Attention: Chief Financial Officer
Telecopier No.: (617) 350-7881
With a copy to:
Sullivan & Worcester LLP One Post Office Square Boston, MA 02109 Telecopier No.: (617) 338-2880 Attention: William J. Curry, Esq.
If to the Trustee:
The Bank of New York
101 Barclay Street, Floor 8 West
New York, New York 10289
Telecopier No.: (212) 815-5707
Attention: Corporate Trust Administration
The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Securityholders) must reference the Securities and this Indenture and shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Securityholder shall be mailed
by first class mail, or by overnight air courier guaranteeing next day delivery
to its address shown on the register kept by the Registrar. Any notice or
communication shall also be so mailed to any Person described in TIA Section
313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company or any Guarantor mails a notice or communication to Securityholders, it shall mail a copy to the Trustee and each Agent at the same time.
Section 10.3. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders of any Series may communicate pursuant to TIA
Section 312(b) with other Securityholders of that Series or any other Series
with respect to their rights under this Indenture or the Securities of that
Series or all Series. The Company, the Guarantors, the Trustee, the Registrar
and anyone else shall have the protection of TIA Section 312(c).
Section 10.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or any Guarantor to the Trustee to take any action under this Indenture, the Company or such Guarantor shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with.
Section 10.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with.
Section 10.6. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or a meeting of Securityholders of one or more Series. Any Agent may make reasonable rules and set reasonable requirements for its functions.
Section 10.7. LEGAL HOLIDAYS.
Unless otherwise provided by Board Resolution, Officers' Certificate or supplemental indenture for a particular Series, a "Legal Holiday" is any day that is not a Business Day. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period.
Section 10.8. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS.
No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Securities of any Series, the Subsidiary Guarantees, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Securities of any Series, by accepting a Security and the related Subsidiary Guarantees waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Series of Securities and the Subsidiary Guarantees.
Section 10.9. COUNTERPARTS.
This Indenture may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
Section 10.10. GOVERNING LAWS.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
Section 10.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
Section 10.12. SUCCESSORS.
All agreements of the Company and the Guarantors in this Indenture and the Securities and the Subsidiary Guarantees shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors.
Section 10.13. SEVERABILITY.
In case any provision in this Indenture, the Securities or the Subsidiary Guarantees, if any, shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 10.14. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross Reference Table, and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof.
Section 10.15. SECURITIES IN A FOREIGN CURRENCY OR IN ECU.
Unless otherwise specified in a Board Resolution, a supplemental indenture hereto or an Officers' Certificate delivered pursuant to Section 2.2 of this Indenture with respect to a particular Series of Securities, whenever for purposes of this Indenture any action may be taken by the Holders of a specified percentage in aggregate principal amount of Securities of all Series or all Series affected by a particular action at the time outstanding and, at such time, there are outstanding Securities of any Series which are denominated in a coin or currency other than Dollars (including ECUs), then the principal amount of Securities of such Series which shall be deemed to be outstanding for the purpose of taking such action shall be that amount of Dollars that could be obtained for such amount at the Market Exchange Rate at such time. For purposes of this Section 10.15, "Market Exchange Rate" shall mean the noon Dollar buying rate in New York City for cable transfers of that currency as published by the Federal Reserve Bank of New York; PROVIDED, HOWEVER, in the case of ECUs, Market Exchange Rate shall mean the rate of exchange determined by the Commission of the European Union (or any successor thereto) as published in the Official Journal of the European Union (such publication or any successor publication, the "Journal"). If such Market Exchange Rate is not available for any reason with respect to such currency, the Trustee shall use, in its sole discretion and without liability on its part, such quotation of the Federal Reserve Bank of New York or, in the case of ECUs, the rate of exchange as published in the Journal, as of the most recent available date, or quotations or, in the case of ECUs, rates of exchange from one or more major banks in The City of New York or in the country of issue of the currency in question or, in the case of ECUs, in Luxembourg or such other quotations or, in the case of ECUs, rates of exchange as the Trustee, upon consultation with the Company, shall deem appropriate. The provisions of this paragraph shall apply in determining the equivalent principal amount in respect of Securities of a Series denominated in currency other than Dollars in connection with any action taken by Holders of Securities pursuant to the terms of this Indenture.
All decisions and determinations of the Trustee regarding the Market Exchange Rate or any alternative determination provided for in the preceding paragraph shall be in its sole discretion and shall, in the absence of manifest error, be conclusive to the extent permitted by law for all purposes and irrevocably binding upon the Company and all Holders.
Section 10.16. Judgment Currency.
The Company agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of or interest or other amount on the Securities of any Series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with
normal banking procedures the Trustee could purchase in The City of New
York the Required Currency with the Judgment Currency on the day on which final
unappealable judgment is entered, unless such day is not a New York Banking Day,
then, the rate of exchange used shall be the rate at which in accordance with
normal banking procedures the Trustee could purchase in The City of New York the
Required Currency with the Judgment Currency on the New York Banking Day
preceding the day on which final unappealable judgment is entered and (b) its
obligations under this Indenture to make payments in the Required Currency (i)
shall not be discharged or satisfied by any tender, any recovery pursuant to any
judgment (whether or not entered in accordance with subsection (a)), in any
currency other than the Required Currency, except to the extent that such tender
or recovery shall result in the actual receipt, by the payee, of the full amount
of the Required Currency expressed to be payable in respect of such payments,
(ii) shall be enforceable as an alternative or additional cause of action for
the purpose of recovering in the Required Currency the amount, if any, by which
such actual receipt shall fall short of the full amount of the Required Currency
so expressed to be payable, and (iii) shall not be affected by judgment being
obtained for any other sum due under this Indenture. For purposes of the
foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a
legal holiday in The City of New York on which banking institutions are
authorized or required by law, regulation or executive order to close.
ARTICLE XI.
SINKING FUNDS
Section 11.1. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any sinking fund for the retirement of the Securities of a Series, except as otherwise permitted or required by any form of Security of such Series issued pursuant to this Indenture.
The minimum amount of any sinking fund payment provided for by
the terms of the Securities of any Series is herein referred to as a "mandatory
sinking fund payment" and any other amount provided for by the terms of
Securities of such Series is herein referred to as an "optional sinking fund
payment." If provided for by the terms of Securities of any Series, the cash
amount of any sinking fund payment may be subject to reduction as provided in
Section 11.2. Each sinking fund payment shall be applied to the redemption of
Securities of any Series as provided for by the terms of the Securities of such
Series.
Section 11.2. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Securities of any Series to be made pursuant to the terms of such Securities (1) deliver outstanding Securities of such Series to which such sinking fund payment is applicable (other than any of such Securities previously called for mandatory sinking fund redemption) and (2) apply as credit Securities of such Series to which such sinking fund payment is applicable and which have been redeemed either at the election of the Company pursuant to the terms of such Series of Securities (except pursuant to any mandatory sinking fund) or through the application of permitted optional sinking fund payments or other optional redemptions pursuant to the terms of such Securities, provided that such Securities have not been
previously so credited. Such Securities shall be received by the Trustee, together with an Officers' Certificate with respect thereto, not later than 15 days prior to the date on which the Trustee begins the process of selecting Securities for redemption, and shall be credited for such purpose by the Trustee at the price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If as a result of the delivery or credit of Securities in lieu of cash payments pursuant to this Section 11.2, the principal amount of Securities of such Series to be redeemed in order to exhaust the aforesaid cash payment shall be less than $100,000, the Trustee need not call Securities of such Series for redemption, except upon receipt of a Company Order that such action be taken, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment, PROVIDED, HOWEVER, that the Trustee or such Paying Agent shall from time to time upon receipt of a Company Order pay over and deliver to the Company any cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company to the Trustee of Securities of that Series purchased by the Company having an unpaid principal amount equal to the cash payment required to be released to the Company.
Section 11.3. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 45 days (unless otherwise indicated in the Board Resolution, supplemental indenture hereto or Officers' Certificate in respect of a particular Series of Securities) prior to each sinking fund payment date for any Series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that Series pursuant to the terms of that Series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting of Securities of that Series pursuant to Section 11.2, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days (unless otherwise indicated in the Board Resolution, Officers' Certificate or supplemental indenture in respect of a particular Series of Securities) before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 3.2 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 3.3. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 3.4, 3.5 and 3.6.
ARTICLE XII.
SUBSIDIARY GUARANTEES
Section 12.1. SUBSIDIARY GUARANTEE.
Each Subsidiary that is a signatory hereto and each Subsidiary of the Company that in accordance with the terms of any Securities of a Series issued hereunder pursuant to any supplement indenture relating to such Securities is required to become party to this Indenture as a guarantor (each, a "GUARANTOR"), upon execution of a supplemental indenture, hereby jointly and severally unconditionally guarantees to each Securityholder of a Security of a Series that is to be guaranteed and that has been authenticated and delivered by the Trustee irrespective of the validity or enforceability of this Indenture, the Securities or the obligations of the Company
under this Indenture or the Securities, that: (i) the principal of and interest on the Securities will be paid in full when due, whether at the maturity or interest payment or mandatory redemption date, by acceleration, call for redemption or otherwise, and interest on the overdue principal of and interest, if any, on the Securities and all other obligations of the Company to the Securityholders or the Trustee under this Indenture or the Securities will be promptly paid in full or performed, all in accordance with the terms of this Indenture and the Securities; and (ii) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, they will be paid in full when due or performed in accordance with the terms of the extension or renewal, whether at maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed for whatever reason, each Guarantor will be obligated to pay the same whether or not such failure to pay has become an Event of Default which could cause acceleration pursuant to Section 6.2 hereof. Each Guarantor agrees that this is a guarantee of payment not a guarantee of collection.
Each Guarantor hereby agrees that its obligations with regard to
this Subsidiary Guarantee shall be joint and several and unconditional,
irrespective of the validity or enforceability of the Securities or the
obligations of the Company under this Indenture, the absence of any action to
enforce the same, the recovery of any judgment against the Company or any other
obligor with respect to this Indenture, the Securities or the obligations of the
Company under this Indenture or the Securities, any action to enforce the same
or any other circumstances (other than complete performance) which might
otherwise constitute a legal or equitable discharge or defense of a Guarantor.
Each Guarantor further, to the extent permitted by law, waives and relinquishes
all claims, rights and remedies accorded by applicable law to guarantors and
agrees not to assert or take advantage of any such claims, rights or remedies,
including but not limited to: (a) any right to require the Trustee, the
Securityholders or the Company (each, a "BENEFITED PARTY") to proceed against
the Company or any other Person or to proceed against or exhaust any security
held by a Benefited Party at any time or to pursue any other remedy in any
Benefited Party's power before proceeding against such Guarantor; (b) the
defense of the statute of limitations in any action hereunder or in any action
for the collection of any Indebtedness or the performance of any obligation
hereby guaranteed; (c) any defense that may arise by reason of the incapacity,
lack of authority, death or disability of any other Person or the failure of a
Benefited Party to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of any other Person; (d)
demand, protest and notice of any kind including but not limited to notice of
the existence, creation or incurring of any new or additional Indebtedness or
obligation or of any action or non-action on the part of such Guarantor, the
Company, any Benefited Party, any creditor of such Guarantor, the Company or on
the part of any other Person whomsoever in connection with any Indebtedness or
obligations hereby guaranteed; (e) any defense based upon an election of
remedies by a Benefited Party, including but not limited to an election to
proceed against such Guarantor for reimbursement; (f) any defense based upon any
statute or rule of law which provides that the obligation of a surety must be
neither larger in amount nor in other respects more burdensome than that of the
principal; (g) any defense arising because of a Benefited Party's election, in
any proceeding instituted under Bankruptcy Law, of the application of 11 U.S.C.
Section 1111(b)(2); or (h) any defense based on any borrowing or grant of a
security interest under 11 U.S.C. Section 364. Each Guarantor hereby covenants
that its Subsidiary Guarantee will not be discharged except by complete
performance of the obligations contained in its Subsidiary Guarantee and this
Indenture.
If any Securityholder or the Trustee is required by any court or otherwise to return to either the Company or any Guarantor, or any Custodian acting in relation to either the Company or such Guarantor, any amount paid by the Company or such Guarantor to the Trustee or such Securityholder, the applicable Subsidiary Guarantees, to the extent theretofore discharged, shall be reinstated and be in full force and effect. Each Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Securityholders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby.
Each Guarantor further agrees that, as between such Guarantor, on the one hand, and the Securityholders and the Trustee, on the other hand, (i) the maturity of the obligations guaranteed hereby may be accelerated as provided in Section 6.2 hereof for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration as to the Company or any other obligor on the Securities of the obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of those obligations as provided in Section 6.2 hereof, those obligations (whether or not due and payable) will forthwith become due and payable by such Guarantor for the purpose of this Subsidiary Guarantee.
Section 12.2. LIMITATION OF GUARANTOR'S LIABILITY.
Each Guarantor and, by its acceptance hereof, the Trustee and each Securityholder hereby confirm that it is its intention that the Subsidiary Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee. To effectuate the foregoing intention, each such Person hereby irrevocably agrees that the obligation of such Guarantor under its Subsidiary Guarantee under this Article 12 shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other (contingent or other) liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article XII, result in the obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent transfer or conveyance under said laws. The Trustee and each Securityholder by accepting the benefits hereof, confirms its intention that, in the event of a bankruptcy, reorganization or other similar proceeding of the Company or any Guarantor in which concurrent claims are made upon such Guarantor hereunder, to the extent such claims will not be fully satisfied, each such claimant with a valid claim against the Company shall be entitled to a ratable share of all payments by such Guarantor in respect of such concurrent claims. For all purposes of this Section 12.2, Senior Debt shall be deemed to have been incurred prior to the incurrence of the obligations in respect of the Subsidiary Guarantees.
ARTICLE XIII.
Subordination
Section 13.1. AGREEMENT TO SUBORDINATE.
The Company, the Trustee and each Securityholder by accepting a
Security agrees, that the indebtedness and obligations evidenced by the Security
(a) rank PARI PASSU with
the Company's Obligations relating to the Existing Senior Subordinated Securities and (b) are subordinated in right of payment, to the extent and in the manner provided in this Article, to the prior payment in full, in cash, of all Obligations with respect to Senior Debt of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt of the Company.
Section 13.2. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment or distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshaling of the Company's assets and liabilities:
(1) holders of Senior Debt of the Company shall be entitled to receive payment in full in cash of all Obligations due in respect of such Senior Debt of the Company (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt of the Company, whether or not allowed as a claim in such proceeding) before Securityholders shall be entitled to receive any payment or distribution from the Company with respect to the Securities; and
(2) until all Obligations with respect to Senior Debt of the Company (as provided in subsection (1) above) are paid in full in cash, any payment or distribution to which the Trustee or any Securityholder would be entitled but for this Article shall be made to holders of Senior Debt of the Company, as their interests may appear.
Section 13.3. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company may not make any payment or distribution upon or in respect of the Securities, 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 Securities, for cash, properties or securities if:
(i) a default in the payment of any principal, premium, if any, or interest or other Obligations (a "PAYMENT DEFAULT") with respect to Senior Debt of the Company occurs and is continuing; or
(ii) a default (other than a Payment Default) or any event that, after notice or passage of time would become a default (a "NON-MONETARY DEFAULT"), on Senior Debt of the Company occurs and is continuing that then permits holders of the Senior Debt of the Company to accelerate its maturity and the Trustee receives a notice of the default (a "PAYMENT BLOCKAGE NOTICE") from a Person who may give it pursuant to Section 13.11 hereof. Any number of such Payment Blockage Notices may be given, PROVIDED, HOWEVER, that (i) not more than one Payment Blockage Notice may be commenced during any period of 360 consecutive days and (ii) any Non-Monetary Default that existed or was continuing on the date of delivery of any such notice to the Trustee (to the extent
the holder of Designated Senior Debt, or such trustee or agent, giving such Payment Blockage Notice had knowledge of the same) shall not be the basis for a subsequent Payment Blockage Notice, unless such default has been cured or waived for a period of not less than 90 days.
The Company may and shall resume payments on and distributions in respect of the Securities and all Obligations with respect thereto, and may acquire such Securities or Obligations upon the earlier of:
(1) in the case of a payment default, the date upon which such default is cured or waived, or
(2) 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, if the maturity of such Senior Debt of the Company has not been accelerated,
if this Article 13 otherwise permits the payment, distribution or acquisition at the time thereof.
Section 13.4. ACCELERATION OF SECURITIES.
If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify Representatives of the holders of Senior Debt of the Company of the acceleration.
Section 13.5. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Securityholder receives from the Company any payment of any Obligations with respect to the Securities at a time when the Trustee or such Securityholder, as applicable, has actual knowledge that such payment is prohibited by Section 13.2 or 13.3 hereof, such payment shall be held by the Trustee or such Securityholder in trust for the benefit of, and shall be paid forthwith over and delivered upon written request to, the holders of Senior Debt of the Company, as their interests may appear, or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt of the Company may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt of the Company remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt of the Company.
With respect to the holders of Senior Debt of the Company, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 13, and no implied covenants or obligations with respect to the holders of Senior Debt of the Company shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt of the Company, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Securityholders or the Company or any other Person money or assets to which any holders of Senior Debt of the Company shall be entitled by virtue of this Article 13, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee.
Section 13.6. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Securities to violate this Article, but failure to give such notice shall not affect the subordination of the Securities to the Senior Debt of the Company as provided in this Article.
Section 13.7. SUBROGATION.
After all Obligations with respect to Senior Debt of the Company are paid in full, in cash, and until the Securities are paid in full, Securityholders shall be subrogated (equally and ratably with all other Indebtedness PARI PASSU with the Securities) to the rights of holders of Senior Debt of the Company to receive distributions applicable to Senior Debt of the Company to the extent that distributions otherwise payable to the Securityholders have been applied to the payment of Senior Debt of the Company. A distribution made under this Article to holders of Senior Debt of the Company that otherwise would have been made to Securityholders is not, as between the Company and Securityholders, a payment by the Company on the Securities.
Section 13.8. RELATIVE RIGHTS.
This Article defines the relative rights of Securityholders and holders of Senior Debt of the Company. Nothing in this Indenture shall:
(1) impair, as between the Company and Securityholders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms;
(2) affect the relative rights of Securityholders and creditors of the Company other than their rights in relation to holders of Senior Debt of the Company; or
(3) prevent the Trustee or any Securityholder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt of the Company to receive distributions and payments otherwise payable to Securityholders.
If the Company fails because of this Article 13 to pay principal of, premium or interest on a Security on the due date, the failure is still a Default or Event of Default.
Section 13.9. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt of the Company to enforce the subordination of the Indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or any Securityholder or by the failure of the Company or any Securityholder to comply with this Indenture.
Section 13.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of Senior Debt of the Company, the distribution may be made and the notice given to their Representative.
Upon any payment or distribution of assets of the Company referred to in this Article 13, the Trustee and the Securityholders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Securityholders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt of the Company and other Indebtedness of the Company, the amount or amounts thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 13.
Section 13.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 13 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Securities, unless the Trustee shall have received at its Corporate Trust Office at least one Business Day prior to the date of such payment a Payment Blockage Notice. Only the holders or the Representative of holders of Designated Senior Debt of the Company may give a Payment Blockage Notice. Nothing in this Article 13 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights.
Section 13.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Securityholder of a Security by the Securityholder's acceptance thereof authorizes and directs the Trustee on the Securityholder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 13, and appoints the Trustee to act as the Securityholder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.4 hereof at least 30 days before the expiration of the time to file such claim, the Representatives of the Senior Debt of the Company are hereby authorized to file an appropriate claim for and on behalf of the Securityholders of the Securities.
Section 13.13. AMENDMENTS.
The provisions of this Article 13 shall not be amended or modified without the written consent of the holders of all Senior Debt of the Company.
Section 13.14. SUBORDINATION OF SUBSIDIARY GUARANTEES.
Each Guarantor, the Trustee, and each Securityholder by accepting a Security agrees, that the indebtedness and obligations under the Subsidiary Guarantees (a) rank PARI PASSU with the Guarantor's guarantees of the Existing Senior Subordinated Securities and (b) are subordinated in right of payment, to the extent and in the manner provided in this Article 13, to the prior payment in full, in cash, of all Obligations with respect to Senior Debt of such Guarantor (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt of such Guarantor.
Section 13.15. LIQUIDATION; DISSOLUTION; BANKRUPTCY OF A GUARANTOR.
Upon any payment or distribution to creditors of any Guarantor in a liquidation or dissolution of such Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Guarantor or its property, in an assignment for the benefit of creditors or any marshaling of such Guarantor's assets and liabilities:
(1) holders of Senior Debt of such Guarantor shall be entitled to receive payment in full in cash of all Obligations due in respect of such Senior Debt of such Guarantor (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt of such Guarantor, whether or not allowed as a claim in such proceeding) before the Securityholders shall be entitled to receive any payment or distribution from the Guarantor with respect to such Guarantor's Subsidiary Guarantee; and
(2) until all Obligations with respect to Senior Debt of such Guarantor (as provided in subsection (1) above) are paid in full in cash, any payment or distribution to which the Trustee or any Securityholder would be entitled but for this Trustee shall be made to holders of Senior Debt of such Guarantor, as their interests may appear.
Section 13.16. DEFAULT ON SENIOR DEBT OF THE GUARANTOR.
No Guarantor shall make any payment or distribution upon or in respect of the Securities or its Subsidiary Guarantee, 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 Securities, for cash, properties or securities if:
(i) a Payment Default with respect to Senior Debt of such Guarantor occurs and is continuing; or
(ii) a Non-Monetary Default on Senior Debt of such
Guarantor occurs and is continuing that then permits holders of
the Senior Debt of such Guarantor to accelerate its maturity and
the Trustee receives a Payment Blockage Notice from a Person who
may give it pursuant to Section 13.24 hereof. Any number of such
Payment Blockage Notices may be given, PROVIDED, HOWEVER, that
(i) not more than one Payment Blockage Notice may be commenced
during any period
of 360 consecutive days and (ii) any default or event of default
that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee (to the extent the holder
of Designated Senior Debt, or such trustee or agent, giving such
Payment Blockage Notice had knowledge of the same) shall not be
the basis for a subsequent Payment Blockage Notice pursuant to
Section 13.24 herein, unless such default has been cured or
waived for a period of not less than 90 consecutive days.
Each Guarantor may and shall resume payments on and distributions in respect of its Subsidiary Guarantee, the Securities and all Obligations with respect thereto, and may acquire such Securities or Obligations upon the earlier of:
(1) in the case of a payment default, the date upon which such default is cured or waived, or
(2) 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, if the maturity of such Senior Debt of such Guarantor has not been accelerated,
if this Article 13 otherwise permits the payment, distribution or acquisition at the time thereof.
Section 13.17. ACCELERATION OF SECURITIES; DUTIES OF GUARANTORS.
If payment of the Securities is accelerated because of an Event of Default, each Guarantor shall promptly notify the Representative of the holders of Senior Debt of such Guarantor of the acceleration.
Section 13.18. WHEN DISTRIBUTION FROM GUARANTOR MUST BE PAID OVER.
In the event that the Trustee or any Securityholder receives from a Guarantor any payment of any Obligations with respect to the Securities or the Subsidiary Guarantees at a time when the Trustee or such Securityholder, as applicable, has actual knowledge that such payment is prohibited by Section 13.15 or 13.16 hereof, such payment shall be held by the Trustee or such Securityholder, in trust for the benefit of, and shall be paid forthwith over and delivered upon written request to, the holders of Senior Debt of such Guarantor, as their interests may appear, or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt of such Guarantor may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt of such Guarantor remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt of such Guarantor.
With respect to the holders of Senior Debt of any Guarantor, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 13, and no implied covenants or obligations with respect to the holders of Senior Debt of such Guarantor shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt of such Guarantor, and
shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Securityholders or the Company or any other Person money or assets to which any holders of Senior Debt of such Guarantor shall be entitled by virtue of this Article 13, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee.
Section 13.19. NOTICE BY A GUARANTOR.
Each Guarantor shall promptly notify the Trustee and the Paying Agent of any facts known to such Guarantor that would cause a payment of any Obligations with respect to the Securities or its Subsidiary Guarantee to violate this Article, but failure to give such notice shall not affect the subordination of its Subsidiary Guarantee or of the Securities to the Senior Debt of such Guarantor as provided in this Article 13.
Section 13.20. SUBROGATION WITH RESPECT TO ANY GUARANTOR.
With respect to any Guarantor, after all Obligations with respect to Senior Debt of such Guarantor is paid in full, in cash, and until the Securities are paid in full, Securityholders shall be subrogated (equally and ratably with all other Indebtedness PARI PASSU with such Guarantor's Subsidiary Guarantee) to the rights of holders of Senior Debt of such Guarantor to receive distributions applicable to Senior Debt of such Guarantor to the extent that distributions otherwise payable to the Securityholders have been applied to the payment of Senior Debt of such Guarantor. A distribution made under this Article to holders of Senior Debt of such Guarantor that otherwise would have been made to Securityholders is not, as between such Guarantor and Securityholders, a payment by such Guarantor on the Securities or the Subsidiary Guarantee.
Section 13.21. RELATIVE RIGHTS WITH RESPECT TO ANY GUARANTOR.
This Article defines the relative rights of Securityholders and holders of Senior Debt of each Guarantor. Nothing in this Indenture shall:
(1) impair, as between such Guarantor and the Securityholders, the obligation of such Guarantor, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with the terms of its Subsidiary Guarantee;
(2) affect the relative rights of Securityholders and creditors of such Guarantor other than their rights in relation to holders of Senior Debt of such Guarantor; or
(3) prevent the Trustee or any Securityholder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders of Senior Debt of such Guarantor set forth herein to receive distributions and payments otherwise payable to Securityholders.
If any Guarantor fails because of this Article 13 to pay principal of, premium or interest on a Security on the due date, the failure is still a Default or Event of Default.
Section 13.22. SUBORDINATION MAY NOT BE IMPAIRED BY ANY GUARANTOR.
With respect to any Guarantor, no right of any holder of Senior Debt of such Guarantor to enforce the subordination of the Indebtedness evidenced by the Subsidiary Guarantee shall be impaired by any act or failure to act by such Guarantor or any Securityholder or by failure of such Guarantor or any Securityholder to comply with this Indenture.
Section 13.23. DISTRIBUTION OR NOTICE TO REPRESENTATIVE WITH RESPECT TO ANY GUARANTOR.
With respect to any Guarantor, whenever a distribution is to be made or a notice given to holders of Senior Debt of such Guarantor, the distribution may be made and the notice given to their Representative.
Upon any payment or distribution of assets of any Guarantor referred to in this Article 13, the Trustee and the Securityholders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Securityholders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt of such Guarantor and other Indebtedness of such Guarantor, the amount or amounts thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 13.
Section 13.24. RIGHTS OF TRUSTEE AND PAYING AGENT WITH RESPECT TO ANY GUARANTOR.
Notwithstanding the provisions of this Article 13 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Securities, unless the Trustee shall have received at its Corporate Trust Office at least one Business Day prior to the date of such payment a Payment Blockage Notice. Only the Representative of holders of Designated Senior Debt may give a Payment Blockage Notice. Nothing in this Article 13 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof.
With respect to any Guarantor, the Trustee in its individual or any other capacity may hold Senior Debt of such Guarantor with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights.
Section 13.25. AUTHORIZATION TO EFFECT SUBORDINATION WITH RESPECT TO ANY GUARANTOR.
Each Securityholder of a Security by the Securityholder's acceptance thereof authorizes and directs the Trustee on the Securityholder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 13, and appoints the Trustee to act as the Securityholder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding relative to any Guarantor referred to in Section 6.4 hereof at least 30 days before the expiration of the time to file such claim, the Representatives of Senior Debt of such Guarantor are hereby authorized to file an appropriate claim for and on behalf of the Securityholders of the Securities.
Section 13.26. AMENDMENTS WITH RESPECT TO ANY GUARANTOR.
With respect to any Guarantor, the provisions of Section 13.14 through 13.26 hereof shall not be amended or modified without the written consent of the holders of all Senior Debt of such Guarantor.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date and year first written above.
IRON MOUNTAIN INCORPORATED
By: /s/ C. Richard Reese
--------------------------------------------
C. Richard Reese
Chairman and Chief Executive Officer
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GUARANTORS
IRON MOUNTAIN INFORMATION
MANAGEMENT, INC.
COMAC, INC.,
DSI TECHNOLOGY ESCROW SERVICES, INC.,
IRON MOUNTAIN GLOBAL, INC. and
MOUNTAIN REAL ESTATE ASSETS, INC.
By: /s/ C. Richard Reese
--------------------------------------------
Name: C. Richard Reese
Title: Sole Director
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ARCUS DATA SECURITY LLC and
IRON MOUNTAIN SECURE SHREDDING LLC
By: IRON MOUNTAIN INFORMATION
MANAGEMENT, INC., its sole Member
By: /s/ C. Richard Reese
------------------------------------
Name: C. Richard Reese
Title: Sole Director
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IRON MOUNTAIN GLOBAL, LLC
By: IRON MOUNTAIN GLOBAL, INC., its sole member
By: /s/ C. Richard Reese
--------------------------------------------
Name: C. Richard Reese
Title: Sole Director
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IRON MOUNTAIN BUSINESS TRUST #1
By: /s/ C. Richard Reese
--------------------------------------------
Name: C. Richard Reese
Title: Trustee
By: /s/ John F. Kenny, Jr.
--------------------------------------------
Name: John F. Kenny, Jr.
Title: Trustee
By: /s/ Garry B. Watzke
--------------------------------------------
Name: Garry B. Watzke
Title: Trustee
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TRUSTEE
THE BANK OF NEW YORK, as Trustee
By: /s/ Kisha Holder
--------------------------------------------
Name: Kisha A. Holder
Title: Assistant Treasurer
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TABLE OF CONTENTS
Page
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ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE...................................................... 1
Section 1.1. Definitions.............................................................................. 1
Section 1.2. Other Definitions........................................................................ 7
Section 1.3. Incorporation by Reference of Trust Indenture Act........................................ 8
Section 1.4. Rules of Construction.................................................................... 8
ARTICLE II. THE SECURITIES.................................................................................. 9
Section 2.1. Issuable in Series....................................................................... 9
Section 2.2. Establishment of Terms of Series of Securities........................................... 9
Section 2.3. Execution and Authentication.............................................................11
Section 2.4. Registrar and Paying Agent...............................................................12
Section 2.5. Paying Agent to Hold Money in Trust......................................................13
Section 2.6. Securityholder Lists.....................................................................13
Section 2.7. Transfer and Exchange....................................................................13
Section 2.8. Mutilated, Destroyed, Lost and Stolen Securities.........................................14
Section 2.9. Outstanding Securities...................................................................14
Section 2.10. Treasury Securities......................................................................15
Section 2.11. Temporary Securities.....................................................................15
Section 2.12. Cancellation.............................................................................15
Section 2.13. Defaulted Interest.......................................................................16
Section 2.14. Record Date..............................................................................16
Section 2.15. Global Securities........................................................................16
Section 2.16. CUSIP Numbers............................................................................17
ARTICLE III. REDEMPTION......................................................................................18
Section 3.1. Notice to Trustee........................................................................18
Section 3.2. Selection of Securities to be Redeemed...................................................18
Section 3.3. Notice of Redemption.....................................................................18
Section 3.4. Effect of Notice of Redemption...........................................................19
Section 3.5. Deposit of Redemption Price..............................................................19
Section 3.6. Securities Redeemed in Part..............................................................20
ARTICLE IV. COVENANTS.......................................................................................20
Section 4.1. Payment of Principal and Interest........................................................20
Section 4.2. SEC Reports..............................................................................20
Section 4.3. Compliance Certificate...................................................................20
Section 4.4. Stay, Extension and Usury Laws...........................................................21
Section 4.5. Corporate Existence......................................................................21
Section 4.6. Taxes....................................................................................21
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TABLE OF CONTENTS
(continued)
Page
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Section 4.7. Maintenance of Office or Agency..........................................................22
ARTICLE V. SUCCESSORS......................................................................................22
Section 5.1. Mergers, Consolidations or Sale of Assets................................................22
Section 5.2. Successor Corporation Substituted........................................................23
ARTICLE VI. DEFAULTS AND REMEDIES...........................................................................23
Section 6.1. Events of Default........................................................................23
Section 6.2. Acceleration of Maturity.................................................................25
Section 6.3. Collection of Indebtedness and Suits for Enforcement by Trustee..........................26
Section 6.4. Trustee May File Proofs of Claim.........................................................27
Section 6.5. Trustee May Enforce Claims Without Possession of Securities..............................28
Section 6.6. Application of Money Collected...........................................................28
Section 6.7. Limitation on Suits......................................................................28
Section 6.8. Unconditional Right of Holders to Receive Principal and Interest.........................29
Section 6.9. Restoration of Rights and Remedies.......................................................29
Section 6.10. Rights and Remedies Cumulative...........................................................29
Section 6.11. Delay or Omission Not Waiver.............................................................29
Section 6.12. Control by Holders.......................................................................30
Section 6.13. Waiver of Past Defaults..................................................................30
Section 6.14. Undertaking for Costs....................................................................30
ARTICLE VII. TRUSTEE.........................................................................................31
Section 7.1. Duties of Trustee........................................................................31
Section 7.2. Rights of Trustee........................................................................32
Section 7.3. Individual Rights of Trustee.............................................................33
Section 7.4. Trustee's Disclaimer.....................................................................33
Section 7.5. Notice of Defaults.......................................................................33
Section 7.6. Reports by Trustee to Holders............................................................34
Section 7.7. Compensation and Indemnity...............................................................34
Section 7.8. Replacement of Trustee...................................................................35
Section 7.9. Successor Trustee by Merger, etc.........................................................36
Section 7.10. Eligibility; Disqualification............................................................36
Section 7.11. Preferential Collection of Claims Against Company........................................36
ARTICLE VIII. LEGAL DEFEASANCE AND COVENANT DEFEASANCE........................................................36
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance..... ...........................36
Section 8.2. Legal Defeasance and Discharge...........................................................36
Section 8.3. Covenant Defeasance......................................................................37
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TABLE OF CONTENTS
(continued)
Page
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Section 8.4. Conditions to Legal or Covenant Defeasance...............................................37
Section 8.5. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions...........................................................39
Section 8.6. Repayment to Company.....................................................................39
Section 8.7. Reinstatement............................................................................40
ARTICLE IX. AMENDMENTS AND WAIVERS..........................................................................40
Section 9.1. Without Consent of Holders...............................................................40
Section 9.2. With Consent of Holders..................................................................41
Section 9.3. Limitations..............................................................................42
Section 9.4. Compliance with Trust Indenture Act......................................................42
Section 9.5. Revocation and Effect of Consents........................................................43
Section 9.6. Notation on or Exchange of Securities....................................................43
Section 9.7. Trustee to Sign Amendments; Trustee Protected............................................43
ARTICLE X. MISCELLANEOUS...................................................................................43
Section 10.1. Trust Indenture Act Controls.............................................................43
Section 10.2. Notices..................................................................................43
Section 10.3. Communication by Holders with Other Holders..............................................45
Section 10.4. Certificate and Opinion as to Conditions Precedent.......................................45
Section 10.5. Statements Required in Certificate or Opinion............................................45
Section 10.6. Rules by Trustee and Agents..............................................................45
Section 10.7. Legal Holidays...........................................................................46
Section 10.8. No Personal Liability of Directors, Officers, Employees and
Stockholders.............................................................................46
Section 10.9. Counterparts.............................................................................46
Section 10.10. Governing Laws...........................................................................46
Section 10.11. No Adverse Interpretation of Other Agreements............................................46
Section 10.12. Successors...............................................................................46
Section 10.13. Severability.............................................................................46
Section 10.14. Table of Contents, Headings, Etc.........................................................47
Section 10.15. Securities in a Foreign Currency or in ECU...............................................47
Section 10.16. Judgment Currency........................................................................47
ARTICLE XI. SINKING FUNDS...................................................................................48
Section 11.1. Applicability of Article.................................................................48
Section 11.2. Satisfaction of Sinking Fund Payments with Securities....................................48
Section 11.3. Redemption of Securities for Sinking Fund................................................49
ARTICLE XII. SUBSIDIARY GUARANTEES...........................................................................49
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TABLE OF CONTENTS
(continued)
Page
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Section 12.1. Subsidiary Guarantee.....................................................................49
Section 12.2. Limitation of Guarantor's Liability......................................................51
ARTICLE XIII. Subordination...................................................................................51
Section 13.1. Agreement to Subordinate.................................................................51
Section 13.2. Liquidation; Dissolution; Bankruptcy.....................................................52
Section 13.3. Default on Designated Senior Debt........................................................52
Section 13.4. Acceleration of Securities...............................................................53
Section 13.5. When Distribution Must be Paid Over......................................................53
Section 13.6. Notice By Company........................................................................54
Section 13.7. Subrogation..............................................................................54
Section 13.8. Relative Rights..........................................................................54
Section 13.9. Subordination May Not Be Impaired by Company.............................................54
Section 13.10. Distribution or Notice to Representative.................................................55
Section 13.11. Rights of Trustee and Paying Agent.......................................................55
Section 13.12. Authorization to Effect Subordination....................................................55
Section 13.13. Amendments...............................................................................55
Section 13.14. Subordination of Subsidiary Guarantees...................................................56
Section 13.15. Liquidation; Dissolution; Bankruptcy of a Guarantor......................................56
Section 13.16. Default on Senior Debt of the Guarantor..................................................56
Section 13.17. Acceleration of Securities; Duties of Guarantors.........................................57
Section 13.18. When Distribution from Guarantor Must Be Paid Over.......................................57
Section 13.19. Notice by a Guarantor....................................................................58
Section 13.20. Subrogation with Respect to Any Guarantor................................................58
Section 13.21. Relative Rights with Respect to Any Guarantor............................................58
Section 13.22. Subordination May Not Be Impaired By Any Guarantor.......................................59
Section 13.23. Distribution or Notice to Representative with Respect to
Any Guarantor............................................................................59
Section 13.24. Rights of Trustee and Paying Agent with Respect to Any Guarantor.........................59
Section 13.25. Authorization to Effect Subordination with Respect to Any
Guarantor................................................................................59
Section 13.26. Amendments with Respect to Any Guarantor.................................................60
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EXHIBIT 4.8
EXECUTION COPY
IRON MOUNTAIN INCORPORATED
THE GUARANTORS NAMED HEREIN
AND
THE BANK OF NEW YORK,
as Trustee
7 3/4% Senior Subordinated Notes due 2015
FIRST SUPPLEMENTAL INDENTURE
Dated as of December 30, 2002
TO
SUBORDINATED DEBT INDENTURE
Dated as of December 30, 2002
TABLE OF CONTENTS
Page
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ARTICLE 1. DEFINITIONS............................................................................................1
Section 1.1. DEFINITIONS....................................................................................1
ARTICLE 2. FORM AND TERMS OF THE NOTES...........................................................................15
Section 2.1. FORM AND DATING...............................................................................15
Section 2.2. EXECUTION AND AUTHENTICATION..................................................................16
Section 2.3. DEPOSITORY AND PAYING AGENT FOR NOTES.........................................................17
Section 2.4. TRANSFER AND EXCHANGE OF NOTES................................................................17
Section 2.5. REDEMPTION....................................................................................19
Section 2.6. COVENANTS.....................................................................................21
(a) Restricted Payments................................................................................21
(b) Incurrence of Indebtedness and Issuance of Preferred Stock.........................................24
(c) Liens..............................................................................................25
(d) Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries..........................25
(e) Transactions with Affiliates.......................................................................27
(f) Certain Senior Subordinated Debt...................................................................28
(g) Additional Subsidiary Guarantees...................................................................28
(h) Designation of Unrestricted Subsidiaries...........................................................29
(i) Limitation on Sale and Leaseback Transactions......................................................30
(j) Asset Sales........................................................................................30
(k) Change of Control Offer............................................................................32
Section 2.7. SUBSIDIARY GUARANTEES.........................................................................34
Section 2.8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE......................................................34
Section 2.9. SUBORDINATION.................................................................................34
ARTICLE 3. MISCELLANEOUS.........................................................................................34
Section 3.1. EFFECT OF HEADINGS............................................................................34
Section 3.2. SUCCESSORS AND ASSIGNS........................................................................34
Section 3.3. SEPARABILITY CLAUSE...........................................................................34
Section 3.4. GOVERNING LAW.................................................................................34
Section 3.5. FIRST SUPPLEMENT TO SUPERSEDE INDENTURE.......................................................34
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EXHIBITS
Exhibit A FORM OF NOTES
Exhibit B FORM OF SUPPLEMENTAL INDENTURE
i
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THIS FIRST SUPPLEMENTAL INDENTURE, dated as of December 30, 2002
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("FIRST SUPPLEMENTAL INDENTURE"), is by and between IRON MOUNTAIN INCORPORATED, a Pennsylvania corporation (the "COMPANY"), having its principal office at 745 Atlantic Avenue, Boston, Massachusetts 02111, the Guarantors signatory hereto, and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the "TRUSTEE"), having its principal corporate trust office at 101 Barclay Street, 8 Floor West, New York, NY 10286.
WITNESSETH:
WHEREAS, the Company and The Bank of New York, acting as trustee, executed and delivered a Subordinated Indenture, dated as of December 30, 2002 (the "INDENTURE"), to provide for the issuance by the Company from time to time of Securities to be issued in one or more series as provided in the Indenture;
WHEREAS, the issuance and sale of up to $160,000,000, aggregate principal amount of a series of the Company's Securities (the "NOTES") have been authorized by resolutions adopted by the Board of Directors of the Company on November 27, 2002;
WHEREAS, the Company desires to issue and sell $100,000,000 aggregate principal amount of the Notes on the date hereof;
WHEREAS, the Company desires to enter into this First Supplemental Indenture pursuant to Section 9.1(e) of the Indenture to supplement the Indenture to establish the form and terms of the Notes; and
NOW, THEREFORE, for and in consideration of the premises stated herein and the purchase of the Notes by the Holders thereof, the parties hereto hereby enter into this First Supplemental Indenture, for the equal and proportionate benefit of all Holders of Notes, as follows:
ARTICLE 1.
DEFINITIONS
Section 1.1. DEFINITIONS.
(a) All of the terms used in this First Supplemental Indenture which are defined in the Indenture shall have the meanings specified in the Indenture, unless otherwise defined herein (in which case they shall have the meanings defined herein for the purposes of the Indenture as well as for the First Supplemental Indenture) or unless the context otherwise requires, and for the purposes of this First Supplemental Indenture, the following terms have the meanings set forth in this Section:
"ACQUIRED DEBT" means, with respect to any specified Person:
(1) 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
(2) 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:
(1) EBITDA of such Acquisition EBITDA Entity for its last fiscal quarter for which financial statements are available at such date of determination (adjusted to give pro forma effect to any acquisition or disposition of a business or Person by such Acquisition EBITDA Entity consummated during the period covered by, or after the date of, such quarterly financial statements), 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
(2) 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:
(1) 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
(2) 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 Section 2.6(b) of this First Supplemental Indenture (Section 4.9 of the Indenture).
"ADDITIONAL NOTES" means such amount of the Company's 7 3/4% Senior Subordinated Notes due 2015 (other than the Initial Notes) as the Company may issue from time to time under this First Supplemental Indenture in accordance with Section 2.2 hereof as part of the same series as the Initial Notes.
"ADJUSTED EBITDA" means, as of any date of determination and without duplication, the sum of:
(1) 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
(2) Acquisition EBITDA of each business or Person that is an Acquisition EBITDA Entity as of such date of determination, multiplied by a fraction, (i) 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 (1) above, and (ii) the denominator of which is three. The effects of unusual items, including merger-related expenses permitted to be shown as a separate line item on a statement of operations in accordance with GAAP, 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.
"AGENT MEMBERS" means members of, or participants in, the Depository.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a Sale and Leaseback Transaction means, as of the time of determination, the greater of:
(1) the fair market value of the property subject to such arrangement (as determined by the Board of Directors of the Company) and
(2) the present value (discounted at the rate of interest implicit in such transaction) of the total obligations of the lessee for rental payments during the remaining terms of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended).
"CANADA COMPANY" means Iron Mountain Canada Corporation, a Wholly Owned Subsidiary of the Company, formerly known as Pierce Leahy Canada Company.
"CASH EQUIVALENTS" means:
(1) 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;
(2) 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;
(3) 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;
(4) money market accounts or funds with or issued by Qualified Issuers; and
(5) 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 (1) through
(3) above.
"CHANGE OF CONTROL" means the occurrence of any of the following events:
(1) 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;
(2) 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 pursuant to Section 2.6(a) of the First Supplemental Indenture (Section 4.8 of the Indenture) 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;
(3) 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
(4) the Company is liquidated or dissolved or adopts a plan of liquidation or dissolution other than in a transaction which complies with Section 5.1 of the Indenture.
"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:
(1) any net after-tax extraordinary gains or losses (less all fees and expenses relating thereto);
(2) any net after-tax gains or losses (less all fees and expenses relating thereto) attributable to Asset Sales;
(3) 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
(4) 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:
(1) the amount which, in conformity with GAAP, would be set forth opposite the caption "interest expense" (or any like caption) on a consolidated statement of operations of the Company and its Restricted Subsidiaries for such period, including, without limitation:
(i) amortization of debt discount;
(ii) the net cost of interest rate contracts (including amortization of discounts);
(iii) the interest portion of any deferred payment obligation;
(iv) amortization of debt issuance costs; and
(v) the interest component of Capital Lease Obligations of the Company and its Restricted Subsidiaries; plus
(2) 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 (including without limitation any minority interest) reducing Consolidated Adjusted Net Income for such period, determined on a consolidated basis in accordance with GAAP (excluding any such non-cash charge to the extent that it requires an accrual of or reserve for cash charges for any future period).
"CREDIT AGENT" means JPMorgan Chase Bank, in its capacity as administrative agent for the lenders party to the Credit Agreement, or any successor or successors party thereto.
"CREDIT AGREEMENT" means that certain Fifth Amended and Restated Credit Agreement, dated as of March 15, 2002, as amended, among the Company, Canada Company, the lenders party thereto and the Credit Agent, as amended, restated, supplemented, modified, renewed, refunded, increased, extended, replaced or refinanced from time to time.
"DEFINITIVE NOTES" means Notes that are in the form of the Notes
attached hereto as Exhibit A, that do not include the information called for by
Section 2.15 of the Indenture.
"EBITDA" means for any period Consolidated Adjusted Net Income for such period increased by:
(1) Consolidated Interest Expense for such period; plus
(2) Consolidated Income Tax Expense for such period; plus
(3) 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:
(1) 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
(2) 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 Restricted Subsidiary organized under the laws of a jurisdiction other than the United States (as defined in Regulation S under the Securities Act) and that has not delivered a Subsidiary Guarantee.
"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.
"GLOBAL NOTE" means a permanent global Note that contains the paragraph referred to in Section 2.15 of the Indenture and the additional Schedule of Exchanges of Notes to the form of the Note attached hereto as Exhibit A, and that is deposited with and registered in the name of the Depository.
"INITIAL NOTES" means the first $100,000,000 aggregate principal amount of 7 3/4% Senior Subordinated Notes due 2015 that are issued under this First Supplemental Indenture, as amended or supplemented from time to time pursuant to the Indenture.
"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:
(1) 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
(2) Adjusted EBITDA, after giving pro forma effect, without duplication, to
(i) the incurrence, repayment or retirement of any Indebtedness by the Company or its Restricted Subsidiaries since the last day of the most recent full fiscal quarter of the Company;
(ii) if the Leverage Ratio is being determined in connection with the incurrence of Indebtedness by the Company or a Restricted Subsidiary, such Indebtedness; and
(iii) the Indebtedness to be incurred in connection with the acquisition of any Acquisition EBITDA Entity.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other 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).
"MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount equal to the excess, if any, of:
(1) the present value of the remaining principal, premium and interest payments that would be payable with respect to such Note if such Note were redeemed on January 15, 2008, computed using a discount rate equal to the Treasury Rate plus 75 basis points, over
(2) the outstanding principal amount of such Note.
"MAKE-WHOLE AVERAGE LIFE" means, with respect to any date of redemption of Notes, the number of years (calculated to the nearest one-twelfth) from such redemption date to January 15, 2008.
"MAKE-WHOLE PRICE" means, with respect to any Note, the greater of:
(1) the sum of the principal amount of and Make-Whole Amount with respect to such Note; and
(2) the redemption price of such Note on January 15, 2008.
"MARKET PRICE" means:
(1) with respect to the calculation of Equity Proceeds from the issuance or sale of debt securities which have been converted into Equity Interests, the value received upon the original issuance or sale of such converted debt securities, as determined reasonably and in good faith by the Board of Directors; and
(2) with respect to the calculation of Equity Proceeds from the issuance or sale of Equity Interests, the average of the daily closing prices for such Equity Interests for the 20 consecutive trading days preceding the date of such computation.
The closing price for each day shall be:
(1) 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
(2) 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:
(1) 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
(2) 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).
"NOTES" has the meaning assigned to it in the preamble to this First Supplemental Indenture. The Initial Notes and any Additional Notes shall be treated as a single class for all purposes under this First Supplemental Indenture and the Indenture.
"PERMITTED INVESTMENTS" means:
(1) any Investments in the Company or in a Restricted Subsidiary (other than an Excluded Restricted Subsidiary) of the Company, including without limitation the Guarantee of Indebtedness permitted under Section 2.6(b) of the First Supplemental Indenture (Section 4.9 of the Indenture);
(2) any Investments in Cash Equivalents;
(3) 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;
(4) Investments in assets (including accounts and notes receivable) owned or used in the ordinary course of business;
(5) Investments for any purpose related to the Company's records and information management business (including, without limitation, the Company's confidential destruction and fulfillment businesses) in an aggregate outstanding amount not to exceed $10.0 million; and
(6) Investments by the Company or a Restricted Subsidiary (other than an Excluded Restricted Subsidiary) in one or more Excluded Restricted Subsidiaries, the aggregate outstanding amount of which does not exceed 10% of the consolidated assets of the Company and its Restricted Subsidiaries.
"PERMITTED LIENS" means:
(1) Liens existing as of the date of issuance of the Notes;
(2) Liens on property or assets of the Company or any Restricted Subsidiary securing Senior Debt;
(3) Liens on any property or assets of a Restricted Subsidiary granted in favor of the Company or any Wholly Owned Restricted Subsidiary;
(4) Liens securing the Notes or the Guarantees;
(5) 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 Section 2.6(b) of the First Supplemental Indenture (Section 4.9 of the Indenture);
(6) 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;
(7) Liens securing Hedging Obligations permitted to be incurred pursuant to clause (7) of Section 2.6(b) of the First Supplemental Indenture (clause (7) of Section 4.9 of the Indenture);
(8) 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;
(9) 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;
(10) 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;
(11) 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);
(12) 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;
(13) 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;
(14) Liens arising under options or agreements to sell assets;
(15) other Liens securing obligations incurred in the ordinary course of business, which obligations do not exceed $10.0 million in the aggregate at any one time outstanding; and
(16) any extension, renewal or replacement, in whole or in part,
of any Lien described in the foregoing clauses (1) through
(15); provided that any such extension, renewal or
replacement shall not extend to any additional property or
assets.
"PRINCIPAL STOCKHOLDERS" means each of Vincent J. Ryan, Schooner Capital LLC, C. Richard Reese, Kent P. Dauten, B. Thomas Golisano and their respective Affiliates.
"QUALIFIED EQUITY OFFERING" means an offering of Capital Stock, other than Disqualified Stock, of the Company for Dollars, whether registered or exempt from registration under the Securities Act.
"QUALIFIED ISSUER" means:
(1) any lender party to the Credit Agreement or
(2) 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 First Supplemental 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:
(1) 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);
(2) 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 the maturity date of the Notes;
(3) to the extent such Refinancing Indebtedness refinances Indebtedness that has a final maturity date occurring after the initial scheduled maturity date of the Notes, 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;
(4) 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
(5) 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:
(1) each direct or indirect Subsidiary of the Company existing on the date of the First Supplemental Indenture (other than Iron Mountain (Netherlands) B.V. and its subsidiaries (including Iron Mountain Europe Limited), Iron Mountain Cayman Ltd. and its subsidiaries, Iron Mountain Mexico, S.A. de R.L. de C.V. and its subsidiaries, Iron Mountain Assurance Corporation and Upper Providence Venture I, L.P.) and
(2) any other direct or indirect Subsidiary of the Company formed, acquired or existing after the date of the First Supplemental Indenture (including an Excluded Restricted Subsidiary),
which, in the case of (1) or (2), is not designated by the Board of Directors as an "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 (including Guarantees of such Obligations by Subsidiaries of the Company).
"SENIOR DEBT" means:
(1) the Senior Bank Debt and
(2) any other Indebtedness permitted to be incurred by the Company or any Restricted Subsidiary, as the case may be, under the terms of the First Supplemental Indenture or the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is:
(i) on a parity with or subordinated in right of payment to the Notes or
(ii) subordinated to Senior Debt on terms substantially similar to those of the Notes.
Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not include:
(1) any liability for federal, state, local or other taxes owed or owing by the Company;
(2) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates;
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the First Supplemental Indenture or the Indenture, provided that such Indebtedness shall be deemed not to have been incurred in violation of the First Supplemental Indenture or the Indenture for purposes of this clause (4) if, in the case of any obligations under the Credit Agreement, the holders of such obligations or their agent or representative shall have received a representation from the Company to the effect that the incurrence of such Indebtedness does not violate the provisions of the First Supplemental Indenture or the Indenture.
"TREASURY RATE" means, at any time of computation, the yield to maturity at such time (as compiled by and published in the most recent Federal Reserve Statistical Release 11.15(519), which has become publicly available at least two business days prior to the date of the redemption notice or, if such Statistical Release is no longer published, any publicly available source of similar market data) of United States Treasury securities with a constant maturity most nearly equal to the Make-Whole Average Life;
provided, however, that if the Make-Whole Average Life is not equal to the constant maturity of the United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the Make-Whole Average Life is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.
"UNRESTRICTED SUBSIDIARY" means:
(1) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary in accordance with Section 2.6(h) of the First Supplemental Indenture (Section 4.15 of the Indenture); and
(2) any Subsidiary of an Unrestricted Subsidiary.
As of the date hereof, the following Subsidiaries of the Company have been designated as Unrestricted Subsidiaries: Iron Mountain (Netherlands) B.V. and its subsidiaries (including Iron Mountain Europe Limited), Iron Mountain Cayman Ltd. and its subsidiaries, Iron Mountain Mexico, S.A. de R.L. de C.V. and its subsidiaries, Iron Mountain Assurance Corporation and Upper Providence Venture I, L.P.
"VOTING STOCK" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any Person (irrespective of whether or not, at the time, stock of any other class or classes has, or might have, voting power by reason of the happening of any contingency).
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (x) the
amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal,
including payment at final maturity, in respect thereof, by
(y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the
making of such payment, by
(2) 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.
"1996 INDENTURE DATE" means October 1, 1996.
"1999 INDENTURE DATE" means April 26, 1999.
"2001 INDENTURE DATE" means April 3, 2001.
"8 1/8% NOTES" means Canada Company's 8 1/8% Senior Notes due 2008 issued pursuant to the Indenture dated as of April 7, 1998, by and among Canada Company, as issuer, the Company and The Bank of New York, as trustee.
"8 1/4% NOTES" means the Company's 8 1/4% Senior Subordinated Notes due 2011 issued pursuant to the Indenture dated April 26, 1999, by and among the Company, certain of its subsidiaries and The Bank of New York, as trustee.
"8 3/4% NOTES" means the Company's Senior Subordinated Notes due 2009 issued pursuant to the Indenture dated October 24, 1997, by and among the Company, certain of its subsidiaries and The Bank of New York, as trustee.
"8 5/8% NOTES" means the Company's Senior Subordinated Notes due 2013 issued pursuant to the Indenture dated April 3, 2001, by and among the Company, certain of its subsidiaries and The Bank of New York, as trustee.
"9 1/8% NOTES" means the Company's 9 1/8% Senior Subordinated Notes due 2007, issued pursuant to the Indenture dated as of July 7, 1997, by and between the Company, as issuer, and The Bank of New York, as trustee.
(b) Other Definitions.
The definitions of the following terms may be found in the Sections indicated as follows:
Term Defined in Section "Affiliate Transaction" 2.6(e) "Asset Sale" 2.6(j) "Asset Sale Offer" 2.6(j) "Change of Control Offer" 2.6(k) "Change of Control Payment" 2.6(k) "Change of Control Payment Date" 2.6(k) "Commencement Date" 2.6(j) "Company" Preamble "DTC" 2.3 "Excess Proceeds" 2.6(j) "First Supplemental Indenture" Preamble "Indenture" Preamble "Restricted Payments" 2.6(a) "Trustee" Preamble |
ARTICLE 2.
FORM AND TERMS OF THE NOTES
Section 2.1. FORM AND DATING. GENERAL. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A attached hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of the First Supplemental Indenture and the Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of the First Supplemental Indenture and the Indenture (or in the case of any Guarantor that becomes such after the date hereof, a supplemental indenture pursuant to Section 2.6(g) of this First Supplemental Indenture (Section 4.14 of the Indenture)), expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of the Indenture (as supplemented by this First Supplemental Indenture), the provisions of the Indenture shall govern and be controlling.
(b) GLOBAL NOTES. Notes shall be issued initially in the form of the Global Notes, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Depository at its New York office, and registered in the name of the Depository or a nominee of the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee as hereinafter provided.
Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Service Agent, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.4 hereof.
(c) BOOK-ENTRY PROVISIONS. This Section 2.1(c) shall apply only to the Global Notes deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with this Section 2.1(c), authenticate and deliver the Global Notes that (i) shall be registered in the name of the Depository or the nominee of the Depository and (ii) shall be delivered by the Trustee to the Depository or pursuant to the Depository's instructions or held by the Service Agent.
Agent Members shall have no rights either under the First Supplemental Indenture or the Indenture with respect to any Global Notes held on their behalf by the Depository or by the Service Agent or under such Global Notes, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Notes for all purposes whatsoever.
(d) DEFINITIVE NOTES. Notes issued in certificated form shall be
substantially in the form of Exhibit A attached hereto (but without including
the text referred to in Section 2.15.3 of the Indenture). Except as provided in
Section 2.4, owners of beneficial interests in the Global Notes will not be
entitled to receive physical delivery of certificated Securities.
Section 2.2. EXECUTION AND AUTHENTICATION.
The Trustee shall, upon a written order of the Company signed by an Officer, authenticate up to $100,000,000 aggregate principal amount of Initial Notes and such amount of Additional Notes as the Company may issue from time to time.
Section 2.3. DEPOSITORY AND PAYING AGENT FOR NOTES.
The Company initially appoints The Depository Trust Company ("DTC") to act as Depository with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar, Paying Agent and Service Agent with respect to the Global Notes.
Section 2.4. TRANSFER AND EXCHANGE OF NOTES.
(a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depository, in accordance with the First Supplemental Indenture and the Indenture and the procedures of the Depository therefor. Beneficial interests in the Global Notes may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the Global Notes.
(b) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES. When Definitive Notes are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Definitive Notes; or
(y) to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met; PROVIDED, HOWEVER, that the Definitive Notes presented or surrendered for register of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing.
(c) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL NOTES. Notwithstanding any other provision of the First Supplemental Indenture or the Indenture (other than the provisions set forth in subsection (d) of this Section 2.4), the Global Notes may not be transferred as a whole except by the Depository to a nominee of the Depository, by a nominee of the Depository to the Depository or to another nominee of the Depository, or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository.
(d) AUTHENTICATION OF DEFINITIVE NOTES IN ABSENCE OF DEPOSITORY. If at any time:
(i) the Depository for the Notes notifies the Company that the Depository is unwilling or unable to continue as Depository for the Global Notes and a successor Depository for the Global Notes is not appointed by the Company within 90 days after delivery of such notice; or
(ii) the Company at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Notes under the First Supplemental Indenture and the Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an authentication order in accordance with Section 2.2 hereof, authenticate and deliver, Definitive Notes in an aggregate principal amount equal to the principal amount of the Global Notes in exchange for such Global Notes.
(e) CANCELLATION AND/OR ADJUSTMENT OF THE GLOBAL NOTES. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.12 of the Indenture. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by the Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depository at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depository at the direction of the Trustee to reflect such increase.
(f) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES.
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall
authenticate Global Notes and Definitive Notes upon
receipt of an Authentication Order in accordance with
Section 2.2 hereof or at the Registrar's request.
(ii) No service charge shall be made to a Holder of a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Section 2.4 hereof).
(iii) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under the First Supplemental Indenture and the Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.
(iv) The Company shall not be required to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date.
(iv) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent, the Company and any Guarantor may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for all purposes, including receiving payment of principal of and interest on such Notes, and neither the Trustee, any Agent, the Company nor any Guarantor shall be affected by notice to the contrary.
(v) The Trustee shall authenticate Definitive Notes and
the Global Notes in accordance with the provisions of
Section 2.2 hereof and Section 2.3 of the Indenture.
(vi) All certifications, certificates and opinions of counsel required to be submitted to the Registrar pursuant to this Section 2.4 to effect a registration of transfer or exchange may be submitted by facsimile.
Section 2.5. REDEMPTION.
With respect to the Notes issued under this First Supplemental Indenture, the following Sections supplement Article III of the Indenture:
Section 3.7. OPTIONAL REDEMPTION.
Prior to January 15, 2008, the Notes shall be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the Make-Whole Price, plus accrued and unpaid interest, to but excluding the applicable redemption date. On and after January 15, 2008, the Notes will be subject to redemption at any time 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 price (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, to but excluding the applicable redemption date, if redeemed during the twelve-month period beginning on January 15 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2008...................................... 103.875% 2009...................................... 102.583% 2010...................................... 101.292% 2011 and thereafter....................... 100.000% |
Notwithstanding the foregoing, at any time prior to January 15, 2006, the Company may redeem up to 35% of the initial principal amount of the Notes originally issued with the net proceeds of one or more Qualified Equity Offerings at a redemption price equal to 107.750% of the principal amount of such Notes, plus accrued and unpaid interest to but excluding the redemption date; 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.
Section 3.8. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption payments or sinking fund payments with respect to the Notes.
Section 3.9. ASSET SALE OFFERS.
In the event that the Company shall commence an Asset Sale Offer pursuant to Section 4.17 hereof, it shall follow the procedures specified below:
The Asset Sale Offer shall remain open for 20 Business Days after the Commencement Date relating to such Asset Sale Offer, except to the extent required to be extended by applicable law (as so extended, the "OFFER PERIOD"). No later than one Business Day after the termination of the Offer Period (the "PURCHASE DATE"), the Company shall purchase the principal amount (the "OFFER AMOUNT") of Notes required to be purchased in such Asset Sale Offer pursuant to Sections 3.2 and 4.17 hereof or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer.
If the Purchase Date is on or after an interest payment record date and on or before the related interest payment date, any interest accrued to such Purchase Date shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer.
On the Commencement Date of any Asset Sale Offer, the Company shall send or cause to be sent, by first class mail, a notice to each of the Holders, with a copy to the Trustee. Such notice, which shall govern the terms of the Asset Sale Offer, shall contain all instructions and materials necessary to enable the Holders to tender Notes pursuant to the Asset Sale Offer and shall state:
(1) that the Asset Sale Offer is being made pursuant to this
Section 3.9 and Section 4.17 hereof and the length of time
the Asset Sale Offer shall remain open;
(2) the Offer Amount, the purchase price and the Purchase Date;
(3) that any Note not tendered or accepted for payment shall continue to accrue interest;
(4) that, unless the Company defaults in the payment of the purchase price, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date;
(5) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Purchase Date;
(6) that Holders shall be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, receives, not later than the close of business on the Business Day preceding the termination of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing such Holder's election to have the Note purchased;
(7) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Trustee shall select the Notes to be purchased on a PRO RATA basis (with such adjustments as may be deemed to be appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and
(8) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered.
On or before 12:00 noon on each Purchase Date, the Company shall irrevocably deposit with the Trustee or Paying Agent in immediately available funds the aggregate purchase price with respect to a principal amount of Notes equal to the Offer Amount, together with accrued interest thereon, to be held for payment in accordance with the terms of this Section 3.9. On the Purchase Date, the Company shall, to the extent lawful, (i) accept for payment, on a PRO RATA basis to the extent necessary, an aggregate principal amount equal to the Offer Amount of Notes and other notes (in accordance with the terms of Section 4.17 of the Indenture) tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes and such other notes or portions thereof tendered, (ii) deliver or cause the Paying Agent or depositary, as the case may be, to deliver to the Trustee Notes so accepted and (iii) deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.9. The Company, depositary or Paying Agent, as the case may be, shall promptly (but in any case not later than three Business Days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price with respect to the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee shall authenticate and mail or deliver such new Note, to such Holder, equal in principal amount to any unpurchased portion of such Holder's Notes surrendered. Any Note not accepted in the Asset Sale Offer shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce in a newspaper of general circulation the results of the Asset Sale Offer on the Purchase Date.
The Asset Sale Offer shall be made by the Company in compliance with all applicable laws, including, without limitation, Regulation 14E of the Exchange Act and the rules thereunder, to the extent applicable, and all other applicable federal and state securities laws.
Each purchase pursuant to this Section 3.9 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof to the extent applicable.
In the event the amount of Excess Proceeds to be applied to an Asset Sale Offer would result in the purchase of a principal amount of Notes which is not evenly divisible by $1,000, the Trustee shall promptly refund to the Company the portion of such Excess Proceeds that is not necessary to purchase the immediately lesser principal amount of Notes that is so divisible.
Section 2.6. COVENANTS.
With respect to the Notes issued under this First Supplemental Indenture, Sections 2.6(a) through 2.6(k) are added to Article IV of the Indenture.
(a) RESTRICTED PAYMENTS.
Section 4.8. RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) 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);
(2) purchase, redeem or otherwise acquire 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);
(3) purchase, redeem or otherwise acquire or retire prior to scheduled maturity for value any Indebtedness that is subordinated in right of payment to the Notes; or
(4) make any Investment other than a Permitted Investment (all such payments and other actions set forth in clauses (1) through (4) 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 Section 4.9 of the Indenture; and
(iii) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the 1996 Indenture Date 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 1996 Indenture Date 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:
(1) 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;
(2) 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);
(3) the defeasance, redemption, repurchase, retirement or other acquisition or retirement for value of Indebtedness that is subordinated 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);
(4) the defeasance, redemption, repurchase, retirement or other acquisition or retirement for value of Indebtedness that is subordinated 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;
(5) the repurchase of any Indebtedness subordinated 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 covenant set forth in Section 4.18 of the Indenture, 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; and
(6) additional payments to current or former employees or directors of the Company for repurchases of stock, stock options or other equity interests, provided that the aggregate amount of all such payments under this clause (6) does not exceed $0.5 million in any year and $2.0 million in the aggregate.
The Restricted Payments described in clauses (2), (3), (5) and
(6) of the immediately preceding paragraph shall be Restricted Payments that
shall be permitted to be taken in accordance with such paragraph but shall
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 (1) and (4) of the immediately preceding paragraph
shall be Restricted Payments that shall be permitted to be taken in accordance
with such paragraph and shall not reduce the amount that would otherwise be
available for Restricted Payments under clause (iii) of the first paragraph of
this Section.
If an Investment results in the making of a Restricted Payment, the aggregate amount of all Restricted Payments deemed to have been made as calculated under the foregoing provision shall 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:
(1) an Investment shall 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 shall exclude the fair market value of the net assets of any Unrestricted Subsidiary that is designated as a Restricted Subsidiary;
(2) any property transferred to or from an Unrestricted Subsidiary shall 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
(3) subject to the foregoing, the amount of any Restricted Payment, if other than cash, shall be determined by the Board of Directors, whose good faith determination shall be conclusive.
The Board of Directors may designate a Restricted Subsidiary to be an Unrestricted Subsidiary in compliance with the Section 4.15 of the Indenture. 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.
(b) INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
Section 4.9. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The Company shall not, and shall 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 the Company shall 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 6.5 to 1.0.
The foregoing limitations shall not apply to:
(1) the incurrence by the Company or any Restricted Subsidiary of Senior Bank Debt in an aggregate amount not to exceed $100.0 million at any one time outstanding;
(2) the issuance by the Restricted Subsidiaries of Subsidiary Guarantees;
(3) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness;
(4) the issuance by the Company of the Notes;
(5) 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 $5.0 million at any one time outstanding, provided that the Liens securing such Indebtedness constitute Permitted Liens;
(6) the incurrence of Indebtedness between (i) the Company and its Restricted Subsidiaries and (ii) the Restricted Subsidiaries;
(7) 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;
(8) 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 $5.0 million at any one time outstanding;
(9) 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
(10) 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 (2) through (5) above, and this clause (10) or that was otherwise permitted to be incurred pursuant to the test set forth in the first paragraph of this Section 4.9.
(c) LIENS.
Section 4.10. LIENS. 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.
(d) DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES.
Section 4.11. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The Company shall not, and shall 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:
(1) (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;
(2) make loans or advances to the Company or any of its Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:
(1) Existing Indebtedness;
(2) the Credit Agreement as in effect as of the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancing thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive in the aggregate with respect to such dividend and other payment restrictions than those contained in the Credit Agreement as in effect on the date of the Indenture;
(3) the Indenture and the Notes;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that the EBITDA of such Person is not taken into account in determining whether such acquisition was permitted by the terms of the Indenture;
(6) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices;
(7) restrictions on the transfer of property subject to purchase money obligations or Capital Lease Obligations otherwise permitted by clause (5) of Section 4.9 of the Indenture;
(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; or
(9) any agreement or instrument governing Indebtedness of an Excluded Restricted Subsidiary provided that (i) at the time such agreement or instrument is entered into, such Excluded Restricted Subsidiary and its Restricted Subsidiaries have a Leverage Ratio of less than 6.5 to 1.0 and (ii) neither such Excluded Restricted Subsidiary nor any of its Restricted Subsidiaries shall, directly or indirectly, incur any Indebtedness (including Acquired Debt) unless at the time of such incurrence and after giving effect thereto, the Leverage Ratio for such Excluded Restricted Subsidiary and its Restricted Subsidiaries would be less than 6.5 to 1.0. For purposes of determining the Leverage Ratio under this clause (9) only, all references to the "Company" and its "Restricted Subsidiaries" or similar references in the definition of "Leverage Ratio" and other defined terms
necessary to determine the Leverage Ratio shall be deemed to refer to such Excluded Restricted Subsidiary and its Restricted Subsidiaries, respectively.
(e) TRANSACTIONS WITH AFFILIATES.
Section 4.12. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall 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 $5.0 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 $10.0 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.
The following items shall not be deemed Affiliate Transactions and therefore, will not be subject to the provisions of the prior paragraph:
(1) 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;
(2) transactions between or among the Company and/or its Restricted Subsidiaries;
(3) transactions permitted by the provisions of Section 4.8 of the Indenture; and
(4) the grant of stock, stock options or other equity interests to employees and directors of the Company and any Restricted Subsidiary in accordance with duly adopted Company stock grant, stock option and similar plans.
The provisions set forth in clause (b) above shall not apply to sales of inventory by the Company or any Restricted Subsidiary to any Affiliate in the ordinary course of business. The provisions of clause (b) (ii) above 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 Section 4.9 of the Indenture.
(f) CERTAIN SENIOR SUBORDINATED DEBT.
Section 4.13. CERTAIN SENIOR SUBORDINATED DEBT. The Company shall 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. The Company shall 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.
(g) ADDITIONAL SUBSIDIARY GUARANTEES.
Section 4.14. ADDITIONAL SUBSIDIARY GUARANTEES. If any entity (other than an Excluded Restricted Subsidiary) shall become a Restricted Subsidiary after the date of the First Supplemental Indenture, then such Restricted Subsidiary shall execute a supplemental indenture in the form of Exhibit B attached hereto, pursuant to which it shall provide a Subsidiary Guarantee and deliver an Opinion of Counsel with respect thereto, in accordance with the terms of the Indenture.
No Restricted Subsidiary (including any Excluded Restricted Subsidiary) shall 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:
(1) 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 Guarantee (except in the case of an Excluded Restricted Subsidiary) pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee;
(2) immediately after giving effect to such transaction, no Default or Event of Default exists; and
(3) 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
Section 4.9 of the Indenture.
In the event of:
(1) a sale or other disposition of all of the assets of any Restricted Subsidiary, by way of merger, consolidation or otherwise;
(2) a sale or other disposition of all of the capital stock of any Restricted Subsidiary; or
(3) the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary in accordance with the terms of
Section 4.15 of the Indenture,
then such Restricted Subsidiary (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Restricted Subsidiary or in the event of the designation of such Restricted Subsidiary as an Unrestricted Subsidiary) or the Person 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 Section 4.17 of the Indenture.
(h) DESIGNATION OF UNRESTRICTED SUBSIDIARIES.
Section 4.15. DESIGNATION OF 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:
(1) neither the Company nor any Restricted Subsidiary is directly or indirectly liable for any Indebtedness of such Subsidiary;
(2) 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;
(3) 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 Section 4.8 of the Indenture;
(4) 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
(5) 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 Section 4.8 of the Indenture.
Notwithstanding the foregoing, the Company may not designate as an Unrestricted Subsidiary any Subsidiary which, on the 1999 Indenture Date, was 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, in each case other than Iron Mountain Global, Inc. and its Subsidiaries (including without limitation Iron Mountain Europe Limited and its Subsidiaries).
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:
(1) such Indebtedness is permitted under Section 4.9 of the Indenture and
(2) no Default or Event of Default would occur as a result of such designation.
(i) LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
Section 4.16. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction unless:
(1) the consideration received in such Sale and Leaseback Transaction is at least equal to the fair market value of the property sold, as determined by a resolution of the Board of Directors; and
(2) the Company or such Restricted Subsidiary could incur the Attributable Indebtedness in respect of such Sale and Leaseback Transaction in compliance with Section 4.9 of the Indenture.
(j) ASSET SALES.
Section 4.17. ASSET SALES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to:
(1) 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 Section 4.18 of the Indenture and/or the provisions of Section 5.1 of the Indenture and not by the provisions of this Section 4.17); or
(2) issue or sell Equity Interests of any of its Restricted Subsidiaries
that in the case of either clause (1) or (2) above, whether in a single transaction or a series of related transactions:
(i) have a fair market value in excess of $2.0 million; or
(ii) result in Net Proceeds in excess of $2.0 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 $10.0 million, evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate 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 delivered to 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 (ii) (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:
(1) to permanently reduce Senior Debt; or
(2) 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 First Supplemental 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 $10.0 million, the Company shall make an offer to all Holders of the Notes, all holders of the 9 1/8% Notes, the 8 1/4% Notes, the 8 1/8% Notes, the 8 3/4% Notes and the 8 5/8% Notes and the holders of any future Indebtedness ranking PARI PASSU with the Notes, which Indebtedness contains similar provisions requiring the Company to repurchase such Indebtedness (an "ASSET SALE OFFER"), to purchase the maximum principal amount of Notes and such other Indebtedness 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 and other PARI PASSU Indebtedness (including the 9 1/8% Notes, the 8 1/4% Notes, the 8 1/8% Notes, the 8 3/4% Notes and the 8 5/8% 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 and such other Indebtedness surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and such other Indebtedness 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.
The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.17, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Asset Sale provisions of the Indenture by virtue of such conflict.
An Asset Sale Offer shall be made pursuant to the provisions of
Section 3.9 hereof. No later than the date which is five Business Days after the
date on which the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company shall notify the Trustee of such Asset Sale Offer and provide the
Trustee with an Officers' Certificate setting forth the calculations used in
determining the amount of Net Proceeds to be applied to the purchase of Notes.
The Company shall commence or cause to be commenced the Asset Sale Offer on a
date no later than 15 Business Days after such notice (the "COMMENCEMENT DATE").
(k) CHANGE OF CONTROL OFFER.
Section 4.18. CHANGE OF CONTROL OFFER.
(a) Upon the occurrence of a Change of Control, each Holder of Notes shall 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 to but excluding the date of repurchase (the "CHANGE OF CONTROL PAYMENT").
Within 30 calendar days following any Change of Control, the Company shall mail a notice to each Holder, with a copy to the Trustee, stating:
(1) that the Change of Control Offer is being made pursuant to this Section 4.18 and that all Notes tendered shall be accepted for payment;
(2) the purchase price and the purchase date, which shall 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");
(3) that any Note not tendered shall continue to accrue interest;
(4) 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 shall cease to accrue interest on and after the Change of Control Payment Date;
(5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer shall 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;
(6) 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, 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 its election to have such Notes purchased; and
(7) 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 shall 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. To the extent that the provisions of any securities laws or regulations conflict with this Section 4.18, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Change of Control provisions of the Indenture or the First Supplemental Indenture by virtue of such conflict.
(b) On the Change of Control Payment Date, the Company shall, to the extent lawful:
(1) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer;
(2) 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
(3) 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 shall promptly mail to each Holder of Notes so accepted the Change of Control Payment for such Notes, and the Trustee shall 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 shall be in a principal amount of $1,000 or an integral multiple thereof. Prior to complying with the provisions of this Section 4.18, but in any event within 90 calendar days following a Change of Control, the Company shall either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this Section 4.18. The Company shall publicly announce in The Wall Street Journal, or if no longer published, a national newspaper of general circulation, the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.
The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.18 applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer.
Section 2.7. SUBSIDIARY GUARANTEES.
With respect to the Notes issued under this Supplemental Indenture, Article XII of the Indenture shall apply, and the Notes shall constitute a Series to be guaranteed by the Guarantors pursuant to Article XII of the Indenture.
Section 2.8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
With respect to the Notes issued under this Supplemental Indenture, Article VIII of the Indenture shall apply, and the Company shall have the option to effect Legal Defeasance or Covenant Defeasance pursuant to Article VIII of the Indenture. In connection with any Covenant Defeasance, the Company shall be released from its obligations under the covenants specified in Section 5.1 of the Indenture and Section 2.6 of this First Supplemental Indenture.
Section 2.9. SUBORDINATION
With respect to the Notes issued under this Supplemental Indenture, Article XIII of the Indenture shall apply, and the Notes shall be subject to subordination pursuant to Article XIII of the Indenture.
ARTICLE 3.
MISCELLANEOUS
Section 3.1. EFFECT OF HEADINGS.
The Article and Section headings herein are for convenience only and shall not affect the construction hereof.
Section 3.2. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this First Supplemental Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
Section 3.3. SEPARABILITY CLAUSE.
In case any provision in this First Supplemental Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 3.4. GOVERNING LAW.
This First Supplemental Indenture and the Notes created hereby
shall be governed by and construed in accordance with the laws of the State of
New York without giving effect to any conflicts of law provisions (other than
Section 5-1401 of the New York General Obligations Law) that might cause this
First Supplemental Indenture and the Notes to be governed by or construed or
enforced in accordance with the laws of any other jurisdiction.
Section 3.5. FIRST SUPPLEMENT TO SUPERSEDE INDENTURE.
The Indenture, as supplemented by the First Supplemental
Indenture, remains in full force and effect as of the date hereof.
Notwithstanding the foregoing, to the extent that any provision of the Indenture
shall conflict with any provision of this First Supplemental Indenture, the
terms of this First Supplemental Indenture shall be deemed controlling and the
conflicting provision of the Indenture shall be null and void to the extent of
such conflict.
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IN WITNESS WHEREOF, the parties have caused this First Supplemental Indenture to be duly executed, and attested, all as of the date and year first written above.
IRON MOUNTAIN INCORPORATED
By: /s/ C. Richard Reese
--------------------------------
Name: C. Richard Reese
Title: Chairman and Chief Executive Officer
|
GUARANTORS
IRON MOUNTAIN INFORMATION
MANAGEMENT, INC.
COMAC, INC.,
DSI TECHNOLOGY ESCROW SERVICES, INC.,
IRON MOUNTAIN GLOBAL, INC., and
MOUNTAIN REAL ESTATE ASSETS, INC.
By: /s/ C. Richard Reese --------------------------------- Name: C. Richard Reese Title: Sole Director |
ARCUS DATA SECURITY LLC and
IRON MOUNTAIN SECURE SHREDDING LLC
By: IRON MOUNTAIN INFORMATION
MANAGEMENT, INC., its Sole Member
By:/s/ C. Richard Reese --------------------------------- Name: C. Richard Reese Title: Sole Director |
[First Supplemental Indenture Signature Page]
IRON MOUNTAIN GLOBAL, LLC
By: IRON MOUNTAIN GLOBAL, INC., its Sole
Member
By: /s/ C. Richard Reese
-------------------------
Name: C. Richard Reese
Title: Sole Director
|
IRON MOUNTAIN BUSINESS TRUST #1
By: /s/ Richard Reese
--------------------------
Name: C. Richard Reese
Title: Trustee
By: /s/ John F. Kenny, Jr.
-------------------------
Name: John F. Kenny, Jr.
Title: Trustee
By: /s/ Garry B. Watze
-------------------------
Name: Garry B. Watze
Title: Trustee
|
[First Supplemental Indenture Signature Page]
TRUSTEE
THE BANK OF NEW YORK, as Trustee
By: /s/ Kisha Holder
--------------------------------
Name: Kisha A. Holder
Title: Assistant Treasurer
|
[First Supplemental Indenture Signature Page]
EXHIBIT F
Exhibit A
[Face of Note] 7 3/4% Senior Subordinated Notes due 2015
CUSIP No. ___________________ $ _______________
IRON MOUNTAIN INCORPORATED
promises to pay to _______________ or registered assigns, the principal sum of ___________________ Dollars on January 15, 2015.
Interest Payment Dates: January 15 and July 15
Record Dates: January 2 and July 1
Dated: December 30, 2002
IRON MOUNTAIN INCORPORATED
Title:
Title
(SEAL)
This is one of the Notes
referred to in the within-
mentioned Indenture:
THE BANK OF NEW YORK,
as Trustee
[Back of Note] 7 3/4% Senior Subordinated Notes due 2015
[INSERT IN GLOBAL NOTES] [This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of the Depository or a nominee of the Depository. This Security is exchangeable for Securities registered in the name of a Person other than the Depository or its nominee only in the limited circumstances described in the Indenture, and may not be transferred except as a whole by the Depository to a nominee of the Depository, by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such a successor Depository.]
Unless and until it is exchanged in whole or in part for Notes in definitive form, this Note may not be transferred except as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as may be requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as may be requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Iron Mountain Incorporated, a Pennsylvania corporation (the "COMPANY") promises to pay interest on the principal amount of this Note at 7 3/4% per annum from December 30, 2002 until January 15, 2015. The Company shall pay interest, semi-annually in arrears on January 15 and July 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "INTEREST PAYMENT DATE"). 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 issuance; PROVIDED that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; PROVIDED, FURTHER, that the first Interest Payment Date shall be July 15, 2003. The Company shall pay interest (including post-petition interest to the extent allowed in any proceeding under any Bankruptcy Law) on overdue principal from time to time on demand at a rate equal to the per annum rate on the Notes then in effect; it shall pay interest (including post-petition interest to the extent allowed in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay principal, premium, if any, and interest on the Notes in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company, however, may pay principal, premium, if any, and interest by check payable in such money. It may mail an interest check to a Holder's registered address.
3. PAYING AGENT, REGISTRAR AND SERVICE AGENT. Initially, The
Bank of New York, the Trustee under the Indenture, will act as Paying Agent,
Registrar and Service Agent. The Notes
may be presented for registration of transfer and exchange at the offices of the Registrar. The Company may change any Paying Agent, Service Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as of December 30, 2002 (the "BASE INDENTURE") as supplemented by a First Supplemental Indenture dated as of December 30, 2002 (the "SUPPLEMENTAL INDENTURE" and, together with the Base Indenture, the "INDENTURE") among the Company, the Guarantors and 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, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes issued under the Indenture are subordinated unsecured obligations of the Company limited to $100,000,000 in aggregate principal amount.
5. OPTIONAL REDEMPTION.
Prior to January 15, 2008, the Notes shall be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the Make-Whole Price, plus accrued and unpaid interest, to but excluding the applicable redemption date. On and after January 15, 2008, the Notes will be subject to redemption at any time 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 price (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, to but excluding the applicable redemption date, if redeemed during the twelve-month period beginning on January 15 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2008...................................... 103.875% 2009...................................... 102.583% 2010...................................... 101.292% 2011 and thereafter....................... 100.000% |
Notwithstanding the foregoing, at any time prior to January 15, 2006, the Company may redeem up to 35% of the initial principal amount of the Notes originally issued with the net proceeds of one or more Qualified Equity Offerings at a redemption price equal to 107.750% of the principal amount of such Notes, plus accrued and unpaid interest to but excluding the redemption date; 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.
6. NOTICE OF REDEMPTION.
Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of the Notes to be redeemed at such Holder's address of record. The Notes in denominations larger than $1,000 may be redeemed in part but only in integral multiples of $1,000, unless all the Notes held by a Holder are to be redeemed. In the event of a redemption of less than all of the Notes, the Notes will be chosen for redemption by the Trustee in accordance with the Indenture. On and after the redemption date, interest ceases to accrue on the Notes or portions of them called for redemption.
If this Note is redeemed subsequent to a Record Date with respect to any Interest Payment Date specified above and on or prior to such Interest Payment Date, then any accrued interest will be paid to the Person in whose name this Note is registered at the close of business on such Record Date.
7. MANDATORY REDEMPTION. Except as set forth in paragraph 8 below, the Company shall not be required to repurchase or to make mandatory redemption payments with respect to the Notes. There are no sinking fund payments with respect to the Notes.
8. REPURCHASE AT OPTION OF HOLDER. This Note is subject to purchase at the option of the Holder upon the circumstances set forth in Sections 3.9, 4.17 and 4.18 of the Indenture.
9. SUBORDINATION. The payment of the principal of, interest on or any other amounts due on the Notes is subordinated in right of payment to all existing and future Senior Debt of the Company, as described in the Indenture. Each Holder, by accepting a Note, agrees to such subordination and authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee as its attorney-in-fact for such purpose.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in 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 need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture with respect to the Notes or the Notes may be amended or supplemented with the written consent of the Holders of a majority in principal amount of the Notes and any existing default or compliance with any provision of the Indenture with respect to the Notes or the Notes may be waived with the consent of the Holders of a majority in principal amount of the Notes (including, in each case, Additional Notes, if any). Without the consent of any Holder of the Notes, the Indenture with respect to the Notes or the Notes may be amended or supplemented to, in addition to other events more fully described in the Indenture, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, provide for the assumption of the Company's obligations to Holders of the Notes in the case of a merger or consolidation, 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 comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA.
13. DEFAULTS AND REMEDIES. An Event of Default with respect to the Notes occurs upon the occurrence of any of the following events: the 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); the 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); the failure by the Company to comply with Section 4.18 of the Indenture; the failure by the Company or any Guarantor for 60 days after written notice from the Trustee or Holders of not less than 25% of the aggregate principal amount of the Notes (including Additional Notes, if any) outstanding to comply with any of its other agreements in the Indenture, Notes or the Subsidiary Guarantees; the 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 $10.0 million; the failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $10.0 million, which judgments remain unpaid, undischarged or unstayed for a period of 60 days; certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary; or except as permitted by the Indenture or the Subsidiary Guarantees, any Subsidiary Guarantee issued by a Restricted Subsidiary shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect, or any Restricted Subsidiary or any Person acting on behalf of any Restricted Subsidiary shall deny or disaffirm in writing its obligations under its Subsidiary Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes (including Additional Notes, if any) 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: (1)the day which is five business days after written notice of acceleration is received by the Company and the Credit Agent or (2) 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. 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 Section 6.1(e) of the Indenture, the declaration of acceleration of the Notes shall be automatically annulled if the holders of any Indebtedness described in such section have rescinded the declaration of acceleration in respect of such Indebtedness within 30 days from the date of such declaration and if: (1) the annulment of the acceleration of the Notes would not conflict with any judgment or decree of a competent jurisdiction and (2) 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.
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. 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 and what action the Company is taking or proposes to take thereto.
14. SUBSIDIARY GUARANTEES. Payment of principal of, premium, if any, and interest (including interest on overdue principal, if any, and interest, if lawful) on the Notes is guaranteed on an unsecured, senior subordinated basis by the Guarantors pursuant to Article XII of the Indenture.
15. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee.
16. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator or stockholder, as such, of the Company or any Guarantor shall have any liability for any obligations of the Company or any Guarantor 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 by accepting a Note and the related Subsidiary Guarantees waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes.
17. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to:
Iron Mountain Incorporated
745 Atlantic Avenue
Boston, Massachusetts 02111
Attention: Chief Financial Officer
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to
and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to Section 4.17 or 4.18 of the Indenture, check the box below:
/ / Section 4.17
/ / Section 4.18
If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.17 of the Supplemental Indenture, state the amount you elect to have purchased: $________
Date: Your Signature:
------------------ ---------------------------------
(Sign exactly as your name appears on the Note)
|
Tax Identification No.: ________________________
SCHEDULE OF EXCHANGES OF NOTES*
The following exchanges of a part of this Global Note for other Notes have been made:
Principal Amount of Signature of
Amount of Amount of this Global Note authorized office
decrease in decrease in following such of Trustee or
Principal Amount Principal Amount decrease (or Service Agent
Date of Exchange of this Global Note of this Global Note increase
---------------- ------------------- ------------------- ------------------- -----------------
|
EXHIBIT B
FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY FUTURE GUARANTORS
SUPPLEMENTAL INDENTURE (this "SUPPLEMENTAL INDENTURE"), dated as of ________________, _____, among _______________ (the "GUARANTEEING SUBSIDIARY"), a subsidiary of Iron Mountain Incorporated (or its successor), a Pennsylvania corporation (the "COMPANY"), the Company, and The Bank of New York, a New York banking corporation, as trustee under the Indenture referred to below (the "TRUSTEE").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture, dated as of December 30, 2002, as supplemented by the First Supplemental Indenture, dated as of December 30, 2002 (the indenture, as so supplemented, the "INDENTURE") providing for the issuance of an aggregate principal amount of up to $100,000,000 of 7 3/4% Senior Subordinated Notes due 2015 (the "NOTES");
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "NOTE GUARANTEE"); and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees that its obligations to the Holder and the Trustee pursuant to this Subsidiary Guarantee shall be as expressly set forth in Article XII of the Indenture and in such other provisions of the Indenture as are applicable to the Guarantors (including, without limitation, Article XIII of the Indenture), and reference is made to the Indenture for the precise terms of this Supplemental Indenture. The terms of Article XII of the Indenture and such other provisions of the Indenture (including, without limitation, Article XIII of the Indenture) as are applicable to the Guarantors are incorporated herein by reference.
3. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.
(a) If an Officer whose signature is on this Supplemental Indenture no longer holds that office at the time the Trustee authenticates the Note, the Subsidiary Guarantee shall be valid nevertheless.
(b) The delivery of any Note by the Trustee, after the authentication thereof under the Indenture, shall constitute due delivery of the Subsidiary Guarantee set forth in this Supplemental Indenture on behalf of the Guaranteeing Subsidiary.
4. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator or stockholder of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guarantor (including the Guaranteeing Subsidiary) under the Notes, any Subsidiary Guarantee, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
5. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
6. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
7. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.
8. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
Dated: _______________, 20___
[GUARANTEEING SUBSIDIARY]
Title:
[COMPANY]
Title:
[TRUSTEE],
as Trustee
EXHIBIT 10.8
IRON MOUNTAIN INCORPORATED
2002 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this 2002 Stock Incentive Plan (the "Plan") is to encourage key employees, directors, and consultants of Iron Mountain Incorporated (the "Company") and its Subsidiaries (as hereinafter defined) to continue their association with the Company by providing favorable opportunities for them to participate in the ownership of the Company and its Subsidiaries and in its future growth through the granting of awards ("Awards") of Common Stock (as hereinafter defined), whether or not subject to restrictions ("Stock Grants"), stock options ("Options"), and other rights to compensation in amounts determined by the value of the Company's Common Stock (together with Stock Grants, "Other Rights"). The term "Subsidiary" as used in the Plan means a corporation, company, partnership or other form of business organization of which the Company owns, directly or indirectly through an unbroken chain of ownership, fifty percent (50%) or more of the total combined voting power of all classes of stock or other form of equity ownership or has a significant financial interest, as determined by the Committee (as hereinafter defined).
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors of the Company
(the "Board") or, in the discretion of the Board, a committee or subcommittee of
the Board (the "Committee"), appointed by the Board and composed of at least two
(2) members of the Board. In the event that a vacancy on the Committee occurs on
account of the resignation of a member or the removal of a member by vote of the
Board, a successor member shall be appointed by vote of the Board. All
references in the Plan to the "Committee" shall be understood to refer to the
Committee or the Board, whoever shall administer the Plan.
For so long as Section 16 of the Securities Exchange Act of 1934, as amended from time to time (the "Exchange Act"), is applicable to the Company, each member of the Committee shall be a "non-employee director" or the equivalent within the meaning of Rule 16b-3 under the Exchange Act and, for so long as Section 162(m) of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), is applicable to the Company, an "outside director" within the meaning of Section 162 of the Code and the regulations thereunder. The Committee shall select those persons to receive Awards under the Plan ("Optionees") and determine the terms and conditions of all Awards.
The Committee shall select one of its members as Chairman and shall hold meetings at such times and places as it may determine. A majority of the Committee shall constitute a quorum, and acts of the Committee at which a quorum is present, or acts reduced to or approved in writing by all the members of the Committee, shall be the valid acts of the Committee. The
Committee shall have the authority to adopt, amend, and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan. All questions of interpretation and application of such rules and regulations of the Plan and of Awards granted hereunder shall be subject to the determination of the Committee, which shall be final and binding.
With respect to persons subject to Section 16 of the Exchange Act ("Insiders"), transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed to be modified so as to be in compliance with such Rule or, if such modification is not possible, it shall be deemed to be null and void, to the extent permitted by law and deemed advisable by the Committee.
The Plan shall be administered in such a manner as to permit those Options granted hereunder and specially designated under Section 5 as incentive stock options as described in Section 422 of the Code ("ISOs") to qualify as such.
3. STOCK SUBJECT TO THE PLAN
The total number of shares of the Company's outstanding Common Stock, $0.01 par value per share ("Common Stock"), that may be subject to Award under the Plan shall be 1,352,543, from either authorized but unissued shares or treasury shares. Other Rights that fail to vest, and shares of Common Stock subject to an Option or similar Other Right that is neither fully exercised prior to its expiration or other termination nor terminated by reason of the exercise of an SAR (as hereinafter defined) related to the Option, shall again become available for grant under the terms of the Plan.
The total amount of the Common Stock with respect to which Awards may be granted to any single person under the Plan shall not exceed in any year in the aggregate 500,000 shares.
Each reference to a number of shares of Common Stock in this Section 3 shall be subject to adjustment in accordance with the provisions of Section 11.
4. ELIGIBILITY
The persons who shall be eligible for Awards under the Plan shall be key employees, directors, and other persons who render services of special importance to the management, operation or development of the Company or a Subsidiary, and who have contributed or may be expected to contribute materially to the success of the Company or a Subsidiary. ISOs shall not be granted to any person who is not an employee of the Company or an ISO Subsidiary. The term "ISO Subsidiary" shall mean those Subsidiaries described in Section 424(e) or Section 424(f) of the Code.
5. TERMS AND CONDITIONS OF OPTIONS
Every Option shall be evidenced by a written Stock Option Agreement in such form as the Committee shall approve from time to time, specifying the number of shares of Common Stock that may be purchased pursuant to the Option, the time or times at which the Option shall become exercisable in whole or in part, whether the Option is intended to be an ISO or a non-qualified stock option ("NSO"), and such other terms and conditions as the Committee shall approve, and containing or incorporating by reference the following terms and conditions.
(a) DURATION. The duration of each Option shall be as specified by the Committee in its discretion; provided, however, that no ISO shall expire later than ten (10) years from its date of grant, and no ISO granted to an employee who owns (directly or under the attribution rules of Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any ISO Subsidiary shall expire later than five (5) years from its date of grant.
(b) EXERCISE PRICE. The exercise price of each Option shall be
any lawful consideration, as specified by the Committee in its
discretion; provided, however, that the exercise price with respect to
an ISO shall be at least one hundred percent (100%) of the Fair Market
Value of the Common Stock on the date on which the Committee awards the
Option, which shall be considered the date of grant of the Option for
purposes of fixing the price; and provided, further, that the exercise
price with respect to an ISO granted to an employee who at the time of
grant owns (directly or under the attribution rules of Section 424(d) of
the Code) stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or of any ISO Subsidiary
shall be at least one hundred ten percent (110%) of the Fair Market
Value of the Common Stock on the date of grant of the ISO. For purposes
of the Plan, except as may be otherwise explicitly provided in the Plan
or in any Stock Option Agreement, Restricted Stock Agreement, SAR
Agreement or similar document, the Fair Market Value of a share of
Common Stock at any particular date shall be determined according to the
following rules: (i) if the Common Stock is not at the time listed or
admitted to trading on a stock exchange or the Nasdaq National Market,
Fair Market Value shall be the closing price of the Common Stock on the
date in question in the over-the-counter market, as such price is
reported in a publication of general circulation selected by the Board
and regularly reporting the price of the Common Stock in such market;
provided, however, that if the price of the Common Stock is not so
reported, Fair Market Value shall be determined in good faith by the
Board, which may take into consideration (1) the price paid for the
Common Stock in the most recent trade of a substantial number of shares
known to the Board to have occurred at arm's length between willing and
knowledgeable investors, (2) an appraisal by an independent party or (3)
any other method of valuation undertaken in good faith by the Board, or
some or all of the above as the Board shall in its discretion elect; or
(ii) if the Common Stock is at the time listed or admitted to trading on
any stock exchange or the Nasdaq National Market, then Fair Market Value
shall be the mean between the lowest and highest reported sale prices
(or the lowest reported bid price and the highest reported asked price)
of the Common Stock on the date in question on the principal exchange on
which the Common Stock is then listed or admitted to trading. If no
reported sale of Common Stock takes place on the date in question on the
principal exchange or the Nasdaq National Market, as the case may be,
then the reported closing
sale price (or the reported closing asked price) of the Common Stock on such date on the principal exchange or the Nasdaq National Market, as the case may be, shall be determinative of Fair Market Value.
(c) METHOD OF EXERCISE. To the extent that it has become exercisable under the terms of the Stock Option Agreement, an Option may be exercised from time to time by written notice to the Chief Financial Officer of the Company or his designee stating the number of shares with respect to which the Option is being exercised and accompanied by payment of the exercise price in cash or check payable to the Company, or, if the Stock Option Agreement so provides, other payment or deemed payment described in this Section 5(c). Such notice shall be delivered in person or by facsimile transmission to the Chief Financial Officer of the Company or his designee or shall be sent by registered mail, return receipt requested, to the Chief Financial Officer of the Company or his designee, in which case delivery shall be deemed made on the date such notice is deposited in the mail.
Alternatively, payment of the exercise price may be made:
(1) In whole or in part, in shares of Common Stock already
owned by the Optionee or to be received upon exercise of the
Option; provided, however, that such shares are fully vested and
free of all liens, claims, and encumbrances of any kind. If
payment is made in whole or in part in shares of Common Stock,
then the Optionee shall deliver to the Company certificates
registered in his name representing a number of shares of Common
Stock legally and beneficially owned by him, fully vested and
free of all liens, claims, and encumbrances of every kind and
having a Fair Market Value on the date of delivery that is not
greater than the exercise price, such certificates to be duly
endorsed, or accompanied by stock powers duly endorsed, by the
record holder of the shares represented by such certificates. If
the exercise price exceeds the Fair Market Value of the shares
for which certificates are delivered, the Optionee shall also
deliver cash or a check payable to the order of the Company in an
amount equal to the amount of that excess, or, if the Stock
Option Agreement so provides, his promissory note as described in
Section 5(c)(2); or
(2) By payment in cash of the par value of the Common Stock to be acquired and by payment of the balance of the exercise price in whole or in part by delivery of the Optionee's recourse promissory note, in a form specified by the Company, secured by the Common Stock acquired upon exercise of the Option and such other security as the Committee may require.
Alternatively, Options may be exercised by means of a "cashless exercise" procedure in which a broker: (i) transmits the exercise price to the Company in cash or acceptable cash equivalents either (1) against the Optionee's notice of exercise and the Company's confirmation that it will deliver to the broker stock certificates issued in the name of the broker for at least that number of shares having a Fair Market Value equal to the exercise price or (2) as the proceeds of a margin loan to the Optionee; or (ii) agrees to pay the exercise price to the Company in cash or acceptable cash equivalents upon the broker's receipt from the Company of stock certificates issued in the name of the broker
for at least that number of shares having a Fair Market Value equal to the exercise price. The Optionee's notice of exercise of an Option pursuant to a "cashless exercise" procedure must include the name and address of the broker involved, a clear description of the procedure and such other information or undertaking by the broker as the Committee shall reasonably require.
At the time specified in an Optionee's notice of exercise, the Company shall, without issue or transfer tax to the Optionee, deliver to him at the main office of the Company, or such other place as shall be mutually acceptable, a certificate for the shares as to which his Option is exercised. If the Optionee fails to pay for or to accept delivery of all or any part of the number of shares specified in his notice upon tender of delivery thereof, his right to exercise the Option with respect to those shares shall be terminated, unless the Company otherwise agrees.
(d) RELOAD OPTIONS. The Committee may, in its discretion, provide in the terms of any Stock Option Agreement that if the Optionee delivers shares of Common Stock already owned or to be received upon exercise of the Option in full or partial payment of the exercise price, or in full or partial payment of the tax withholding obligations incurred on account of the exercise of the Option, the Optionee shall, either automatically and immediately upon such exercise, or in the discretion of the Committee upon such exercise, be granted a new option (a "Reload Option") to purchase that number of shares of Common Stock delivered by the Optionee to the Company, on such terms and conditions as the Committee may determine under the terms of the Plan. The exercise price for Common Stock subject to a Reload Option shall be not less than one hundred percent (100%) of the Fair Market Value of the shares on the date of grant of the Reload Option, and the duration of a Reload Option shall be equal to the unexpired term of the exercised Option on the date of exercise.
(e) VESTING. An Option may be exercised so long as it is vested and outstanding from time to time, in whole or in part, in the manner and subject to the conditions that the Committee in its discretion may provide in the Stock Option Agreement.
(f) NOTICE OF ISO STOCK DISPOSITION. The Optionee must notify the Company promptly in the event that he sells, transfers, exchanges or otherwise disposes of any shares of Common Stock issued upon exercise of an ISO before the later of (i) the second anniversary of the date of grant of the ISO and (ii) the first anniversary of the date the shares were issued upon his exercise of the ISO.
(g) EFFECT OF CESSATION OF EMPLOYMENT OR SERVICE RELATIONSHIP. The Committee shall determine in its discretion and specify in each Stock Option Agreement the effect, if any, of the termination of the Optionee's employment or other service relationship upon the exercisability of the Option.
(h) TRANSFERABILITY OF OPTIONS. An Option shall not be assignable or transferable by the Optionee except by will or by the laws of descent and distribution. During the life of the Optionee, an Option shall be exercisable only by him, by a conservator or guardian duly appointed for him by reason of his incapacity or by the person appointed by the Optionee in a durable power of attorney acceptable to the Company's counsel. Notwithstanding the preceding sentences of this Section 5(h), the Committee may in its
discretion permit the Optionee of an NSO to transfer the NSO to a member of the Immediate Family (as hereinafter defined) of the Optionee, to a trust solely for the benefit of the Optionee and the Optionee's Immediate Family or to a partnership or limited liability company whose only partners or members are the Optionee and members of the Optionee's Immediate Family. "Immediate Family" shall mean, with respect to any Optionee, the Optionee's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and shall include adoptive relationships.
(i) NO RIGHTS AS SHAREHOLDER. An Optionee shall have no rights as a shareholder with respect to any shares covered by an Option until the date of issuance of a certificate to him for the shares. No adjustment shall be made for dividends or other rights for which the record date is earlier than the date the certificate is issued, other than as required or permitted pursuant to Section 11.
6. STOCK APPRECIATION RIGHTS
Among the "Other Rights" available under the Plan are stock appreciation rights ("SARs"), which may be granted by the Committee in respect of such number of shares of Common Stock subject to the Plan as it shall determine, in its discretion, and may grant SARs either separately or in connection with Options, as described in the following sentence. An SAR granted in connection with an Option may be exercised only to the extent of the surrender of the related Option, and to the extent of the exercise of the related Option the SAR shall terminate. Shares of Common Stock covered by an Option that terminates upon the exercise of a related SAR shall cease to be available under the Plan. The terms and conditions of an SAR related to an Option shall be contained in the Stock Option Agreement, and the terms of an SAR not related to any Option shall be contained in an SAR Agreement.
Upon exercise of an SAR, the Optionee shall be entitled to receive from the Company an amount equal to the excess of the Fair Market Value, on the exercise date, of the number of shares of Common Stock as to which the SAR is exercised over the exercise price for those shares under a related Option, or if there is no related Option, over the base value stated in the SAR Agreement. The amount payable by the Company upon exercise of an SAR shall be paid in the form of cash or other property (including Common Stock of the Company), as provided in the Stock Option Agreement or SAR Agreement governing the SAR.
All grants of SARs to Insiders shall be capable of being settled only for cash and may not be granted in connection with an Option. If an SAR is awarded to a person who is not an Insider at the time of award but subsequently becomes an Insider, it shall be deemed to be amended to provide that it may be settled only in cash while such person is an Insider.
7. STOCK GRANTS
The Committee may grant or award shares of Common Stock, with or without restrictions. In the event restrictions are imposed on a Stock Grant, such restrictions shall be set forth by the Committee in a Restricted Stock Agreement.
A holder of a Stock Grant, including a Stock Grant subject to restrictions, shall have all of the rights of a shareholder of the Company, including the right to vote the shares and the right
to receive any cash dividends, unless the Committee shall otherwise determine. Certificates representing Common Stock subject to restrictions shall be imprinted with a legend to the effect that the shares represented may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of except in accordance with the terms of the Restricted Stock Agreement, and, if the Committee so determines, the Optionee may be required to deposit the certificates with an escrow agent designated by the Committee, together with a stock power or other instrument of transfer appropriately endorsed in blank.
8. SPECIAL BONUS GRANTS AND LOANS
In its discretion, the Committee may grant in connection with any NSO or Stock Grant a special cash bonus in an amount not to exceed the lesser of (a) the combined federal, state, and local income and employment tax liability incurred by the Optionee as a consequence of his acquisition of stock pursuant to the exercise of the NSO or the grant or vesting of Stock Grant and the related special bonuses, or (ii) thirty percent (30%) of the imputed income realized by the Optionee on account of such exercise or vesting and the related special bonus. The Committee may in its discretion estimate the amount of the tax liability described in clause (a) of the immediately preceding sentence, using formulae or methods uniformly applied to Optionees in similar circumstances, without regard to the particular circumstances of an individual Optionee. A special bonus shall be payable solely to federal, state, and local taxing authorities for the benefit of the Optionee at such time or times as withholding payments of income tax may be required. A special bonus may be granted simultaneously with a related NSO Stock Grant or separately with respect to an outstanding NSO or Stock Grant at an earlier date. In the event that an NSO with respect to which a special bonus has been granted becomes exercisable by the personal representative of the estate of the Optionee, or that a Stock Grant with respect to which a special bonus has been granted shall vest after the death of an Optionee, the bonus shall be payable to or for the benefit of the estate in the same manner and to the same extent as it would have been payable for the benefit of the Optionee had he survived to the date of exercise or vesting.
In the Committee's discretion, a Stock Option Agreement or Restricted Stock Agreement may provide that to the extent that an Optionee does not receive a special bonus of the maximum amount permissible under this Section 8, the Company shall lend the Optionee an amount no greater than the excess of such maximum over the special bonus (if any) paid to the Optionee, for such term and at such rate of interest (or no interest) and on such further terms and conditions as the Committee determines.
9. OPTIONS AND OTHER RIGHTS VOIDABLE
If a person to whom a grant has been made fails to execute and deliver to the Committee a Stock Option Agreement, Restricted Stock Agreement, SAR Agreement or similar document within thirty (30) days after it is submitted to him, the Award granted under the agreement shall be voidable by the Company at its election, without further notice to the Optionee.
10. REQUIREMENTS OF LAW
The Company shall not be required to transfer any Common Stock or to sell or issue any shares upon the exercise of any Option or Other Right if the issuance of the shares will result in a violation by the Optionee or the Company of any provisions of any law, statute or regulation of
any governmental authority. Specifically, in connection with the Securities Act, upon the transfer of Common Stock or the exercise of any Option or Other Right the Company shall not be required to issue shares unless the Board has received evidence satisfactory to it to the effect that the holder of the Option or Other Right will not transfer the shares except pursuant to a registration statement in effect under the Securities Act or unless an opinion of counsel satisfactory to the Company has been received by the Company to the effect that such registration is not required. Any determination in this connection by the Board shall be conclusive. The Company shall not be obligated to take any other affirmative action in order to cause the transfer of Common Stock or the exercise of an Option or Other Right to comply with any law or regulations of any governmental authority, including, without limitation, the Securities Act or applicable state securities laws.
11. CHANGES IN CAPITAL STRUCTURE
In the event that the outstanding shares of Common Stock are hereafter
changed for a different number or kind of shares or other securities of the
Company, by reason of a reorganization, recapitalization, exchange of shares,
stock split, combination of shares or dividend payable in shares or other
securities, a corresponding adjustment shall be made by the Committee in the
number and kind of shares or other securities covered by outstanding Options and
Other Rights, and for which Options or Other Rights may be granted under the
Plan. Any such adjustment in outstanding Options or Other Rights shall be made
without change in the total price applicable to the unexercised portion of the
Option, but the price per share specified in each Stock Option Agreement,
Restricted Stock Agreement, SAR Agreement or similar agreement shall be
correspondingly adjusted; provided, however, that no adjustment shall be made
with respect to an ISO that would constitute a modification as defined in
Section 424 of the Code without the consent of the Optionee. Any such adjustment
made by the Committee shall be conclusive and binding upon all affected persons,
including the Company and all Optionees.
If while unexercised Options or Other Rights remain outstanding under the Plan the Company merges or consolidates with a wholly-owned subsidiary for the purpose of reincorporating itself under the laws of another jurisdiction, the Optionees will be entitled to acquire shares of Common Stock of the reincorporated Company upon the same terms and conditions as were in effect immediately prior to such reincorporation (unless such reincorporation involves a change in the number of shares or the capitalization of the Company, in which case proportional adjustments shall be made as provided above) and the Plan, unless otherwise rescinded by the Board, will remain the Plan of the reincorporated Company.
Except as otherwise provided in the preceding paragraph, if while unexercised Options or Other Rights remain outstanding under the Plan the Company merges or consolidates with one or more corporations (whether or not the Company is the surviving corporation) or is liquidated or sells or otherwise disposes of substantially all of its assets to another entity, or upon a Change of Control (as defined herein), then, except as otherwise specifically provided to the contrary in an Optionee's Stock Option Agreement, Restricted Stock Agreement, SAR Agreement or similar agreement, the Committee may in its discretion amend the terms of all outstanding Options and Other Rights so that either:
(a) After the effective date of such merger, consolidation, sale or Change of Control, as the case may be, each Optionee shall be entitled upon exercise of an
Option or Other Right to receive in lieu of shares of Common Stock the number and class of shares of such stock or other securities to which he would have been entitled pursuant to the terms of the merger, consolidation, sale or Change of Control if he had been the holder of record of the number of shares of Common Stock as to which the Option or Other Right is being exercised, or shall be entitled to receive from the successor entity a new stock grant, stock option or stock appreciation right of comparable value; or
(b) All outstanding Options and Other Rights shall be cancelled as of the effective date of any such merger, consolidation, liquidation, sale or Change of Control, as the case may be, provided that each Optionee shall have the right to exercise his Option or Other Right according to its terms during the period of twenty (20) days ending on the day preceding the effective date of such merger, consolidation, liquidation, sale or Change of Control; or
(c) All outstanding Options and Other Rights shall be cancelled as of the effective date of any such merger, consolidation, liquidation, sale or Change of Control, as the case may be, in exchange for consideration in cash or in kind, which consideration in both cases shall be equal in value to the value of those shares of stock or other securities the Optionee would have received had the Option or Other Right been exercised (to the extent then exercisable) and no disposition of the shares acquired upon such exercise had been made prior to such merger, consolidation, liquidation, sale or Change in Control, less the exercise price therefor. Upon receipt of such consideration by the Optionee, his Option or Other Right shall immediately terminate and be of no further force and effect. The value of the stock or other securities the Optionee would have received if the Option had been exercised shall be determined in good faith by the Committee, and in the case of shares of the Common Stock of the Company, in accordance with the provisions of Section 5(b).
In addition to the foregoing, the Committee may in its discretion amend the terms of an Option or Other Right by cancelling some or all of the restrictions on its exercise to permit its exercise to a greater extent than that permitted under its existing terms.
A "Change of Control" of the Company shall be deemed to have occurred if any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) other than a trust related to an employee benefit plan maintained by the Company becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of fifty percent (50%) or more of the Company's outstanding Common Stock, and within the period of twenty-four (24) consecutive months immediately thereafter, individuals other than (a) individuals who at the beginning of such period constitute the entire Board of Directors or (b) individuals whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period, become a majority of the Board of Directors.
Except as expressly provided to the contrary in this Section 11, the issuance by the Company of shares of stock of any class for cash or property or for services, either upon direct sale or upon the exercise of rights or warrants, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, shall not affect the number, class or price of shares of Common Stock then subject to outstanding Options or Other Rights.
12. FORFEITURE FOR DISHONESTY
Notwithstanding anything to the contrary in the Plan, if the Board determines, after full consideration of the facts presented on behalf of both the Company and an Optionee, that the Optionee has been engaged in fraud, embezzlement, theft, commission of a felony or proven dishonesty in the course of his employment or other service relationship with the Company or a Subsidiary, which damaged the Company or Subsidiary, or has disclosed trade secrets or other proprietary information of the Company or a Subsidiary:
(a) The Optionee shall forfeit all unexercised Options and Other Rights and all exercised Options and Other Rights under which the Company has not yet delivered the certificates; and
(b) The Company shall have the right to repurchase all or any part of the shares of Common Stock acquired by the Optionee upon the earlier exercise of any Option or Other Rights at a price equal to the amount paid to the Company upon such exercise, increased by an amount equal to the interest that would have accrued in the period between the date of exercise and the date of such repurchase upon a debt in the amount of the exercise price, at the prime rate(s) announced from time to time during such period in the Federal Reserve Statistical Release Selected Interest Rates.
The decision of the Board as to the cause of an Optionee's discharge and the damage done to the Company or a Subsidiary shall be final, binding, and conclusive. No decision of the Board, however, shall affect in any manner the finality of the discharge of an Optionee by the Company or a Subsidiary.
13. MISCELLANEOUS
(a) NONASSIGNABILITY OF OTHER RIGHTS. No Other Rights shall be assignable or transferable by the Optionee except by will or the laws of descent and distribution. During the life of the Optionee, Other Rights shall be exercisable only by the Optionee.
(b) NO GUARANTEE OF EMPLOYMENT OR CONTINUATION OF SERVICE RELATIONSHIP.
Neither the Plan nor any Stock Option Agreement, Restricted Stock Agreement, SAR
Agreement or similar agreement shall give an employee or other service provider
the right to continue in the employment of or to continue to provide services to
the Company or a Subsidiary, or give the Company or a Subsidiary the right to
require continued employment or services.
(c) TAX WITHHOLDING. To the extent required by law, the Company (or a Subsidiary) shall withhold or cause to be withheld income and other taxes with respect to any income recognized by an Optionee by reason of the exercise or vesting of an Option or Other Right, or a cash bonus paid in connection with such exercise or vesting, and as a condition to the receipt of any Option or Other Right or related cash bonus the Optionee shall agree that if the amount payable to him by the Company and any Subsidiary in the ordinary course is insufficient to pay such taxes, then he shall upon the request of the Company pay to the Company an amount sufficient to satisfy its tax withholding obligations.
Without limiting the foregoing, the Committee may in its discretion permit any Optionee's withholding obligation to be paid in whole or in part in the form of shares of Common Stock by withholding from the shares to be issued or by accepting delivery from the Optionee of shares already owned by him; provided, however, that payment of withholding obligation in the form of shares shall not be made with respect to an amount in excess of the minimum required withholding. The Fair Market Value of the shares for such purposes shall be determined as set forth in Section 5(b). If payment of withholding taxes is made in whole or in part in shares of Common Stock, the Optionee shall deliver to the Company certificates registered in his name representing shares of Common Stock legally and beneficially owned by him, fully vested and free of all liens, claims, and encumbrances of every kind, duly endorsed or accompanied by stock powers duly endorsed by the record holder of the shares represented by such certificates. If the Optionee is subject to Section 16(a) of the Exchange Act, his ability to pay his withholding obligation in the form of shares of Common Stock shall be subject to such additional restrictions as may be necessary to avoid any transaction that might give rise to liability under Section 16(b) of the Exchange Act.
(d) USE OF PROCEEDS. The proceeds from the sale of Common Stock pursuant to Options or Other Rights shall constitute general funds of the Company.
(e) AWARDS TO NON-UNITED STATES PERSONS. Awards may be made to Optionees
who are foreign nationals or employed outside the United States on such terms
and conditions different from those specified in the Plan as the Committee
considers necessary or advisable to achieve the purposes of the Plan or to
comply with applicable laws. The Board of Directors shall have the right to
amend the Plan, consistent with its authority to amend the Plan as set forth in
Section 14, to obtain favorable tax treatment for Optionees, and any such
amendments shall be evidenced by an Appendix to the Plan. The Board of Directors
may delegate this authority to the Committee.
(f) GOVERNING LAW. The granting of Awards and the issuance of Common Stock under the Plan shall be subject to all applicable laws and regulations and to such approvals by any governmental agency or national securities exchanges as may be required. To the extent not preempted by Federal law, the Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts, without regard to the principles of conflicts of law.
14. EFFECTIVE DATE, DURATION, AMENDMENT AND TERMINATION OF PLAN
The Plan shall be effective as of April 1, 2002 if, and only if, the
holders of a majority of the outstanding shares of capital stock present, or
represented, and entitled to vote thereon (voting as a single class) at a duly
held meeting of the shareholders of the Company approve the Plan within twelve
(12) months after such date. If so approved by the shareholders, the Committee
may grant Options and Other Rights under the Plan from time to time until the
close of business on March 31, 2012. The Board may at any time amend the Plan;
provided, however, that without approval of the Company's shareholders there
shall be no: (a) increase in the total number of shares covered by the Plan,
except by operation of the provisions of Section 11, or the aggregate number of
shares of Common Stock that may be issued to any single person; (b) change in
the class of persons eligible to receive Awards under the Plan; or (c) other
change in
the Plan that requires shareholder approval under applicable law. No amendment shall adversely affect outstanding Options or Other Rights without the consent of the Optionee. The Plan may be terminated at any time by action of the Board, but any such termination will not terminate Options and Other Rights then outstanding, without the consent of the Optionee.
EXHIBIT 10.20
December 31, 2002
To the Beneficiary party to the Owner
Trust Agreement referred to below
Ladies and Gentlemen:
Reference is hereby made to (i) the Owner Trust Agreement dated as of October 1, 1998, as heretofore amended and supplemented (the "Owner Trust Agreement"), between Scotiabanc Inc., as beneficiary (the "Beneficiary") and First Union National Bank, as Trustee and (ii) the Lease Agreement dated as of October 1, 1998, as heretofore amended and supplemented (the "Lease"), between the Iron Mountain Statutory Trust - 1998, a Connecticut statutory trust, as lessor (the "Lessor"), and Iron Mountain Information Services, Inc. (f/k/a Iron Mountain Records Management, Inc.), as lessee (the "Lessee"). Capitalized terms used herein without definition that are defined in the Lease are used herein with the same meaning as in the Lease.
The undersigned hereby guarantees to the Beneficiary the prompt and complete payment in cash of its Equity Investment, and the accrued and unpaid Equity Return thereon, on the Term Termination Date.
IRON MOUNTAIN INFORMATION SERVICES,
INC., as Lessee
By: /s/ John P. Lawrence
-----------------------------------
Name: John P. Lawrence
Title: Vice President and Treasurer
|
IRON MOUNTAIN INCORPORATED, as Guarantor
By: /s/ John P. Lawrence
------------------------------------
Name: John P. Lawrence
Title: Vice President and Treasurer
|
EXHIBIT 10.31
December 31, 2002
To the Beneficiaries parties to the Owner Trust Agreement referred to below
Ladies and Gentlemen:
Reference is hereby made to (i) the Owner Trust Agreement dated as of July 1, 1999, as heretofore amended and supplemented (the "Owner Trust Agreement"), between BTM Capital and JH Equity Realty Investors, Inc., as beneficiaries (the "Beneficiaries") and First Union National Bank, as Trustee and W. Jeffrey Kramer, as Individual Trustee and (ii) the Lease Agreement dated as of July 1, 1999, as heretofore amended and supplemented (the "Lease"), between the Iron Mountain Statutory Trust - 1999, a Connecticut statutory trust, as lessor (the "Lessor"), and Iron Mountain Information Services, Inc. (f/k/a Iron Mountain Records Management, Inc.), as lessee (the "Lessee"). Capitalized terms used herein without definition that are defined in the Lease are used herein with the same meaning as in the Lease.
The undersigned hereby guarantees to each Beneficiary the prompt and complete payment in cash of its Equity Investment, and the accrued and unpaid Equity Return thereon, on the Term Termination Date.
IRON MOUNTAIN INFORMATION SERVICES,
INC., as Lessee
By: /s/ John P. Lawrence
-----------------------------------
Name: John P. Lawrence
Title: Vice President and Treasurer
|
IRON MOUNTAIN INCORPORATED, as Guarantor
By: /s/ John P. Lawrence
------------------------------------
Name: John P. Lawrence
Title: Vice President and Treasurer
|
EXHIBIT 10.36
SUBSIDIARY GUARANTY
SUBSIDIARY GUARANTY (as amended, modified or supplemented from time to time, this "SUBSIDIARY GUARANTY"), dated as of May 22, 2001, by each of the corporations identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (each individually, together with their respective successors, a "SUBSIDIARY GUARANTOR" and, collectively, the "SUBSIDIARY GUARANTORS") for the benefit of IRON MOUNTAIN STATUTORY TRUST - 2001, a Connecticut statutory trust, as lessor under the Master Lease (as defined below) (in such capacity, together with its successors in such capacity, the "LESSOR").
W I T N E S S E T H :
WHEREAS, in connection with that certain Master Lease and Security Agreement (as amended, modified or supplemented from time to time, the "MASTER LEASE") dated as of the date hereof between the Lessor and Iron Mountain Records Management, Inc., a Delaware corporation (together with its successors, the "LESSEE"), the Subsidiary Guarantors entered into a Subsidiary Guaranty (the "PRIOR DOCUMENT") dated as of the date hereof in favor of The Bank of Nova Scotia, as swap counterparty under that certain ISDA Master Agreement (as amended, modified or supplemented from time to time, the "LESSOR INTEREST RATE HEDGE AGREEMENT") dated as of the date hereof; and
WHEREAS, the Prior Document does not reflect the original intention of the parties thereto or hereto and was entered into by mistake; and
WHEREAS, the Subsidiary Guarantors are entering into this Subsidiary Guaranty as of the date of the Prior Document in order to reflect the correct intention of the parties to the Prior Document, which is for the Subsidiary Guarantors to guarantee certain obligations of the Lessee to the Lessor in respect of the Lessor Interest Rate Hedge Agreement in a manner which is consistent with the treatment of the Master Lease as an operating lease for financial accounting and reporting purposes;
NOW THEREFORE, each Subsidiary Guarantor agrees as follows:
Section 1. THE GUARANTEE.
1.1. THE GUARANTEE. The Subsidiary Guarantors hereby jointly and severally guarantee to the Lessor the prompt payment and performance of all obligations of the Lessee under SECTION 7.3(b) of the Master Lease when due (whether at stated maturity, by acceleration or otherwise) (collectively, the "GUARANTEED OBLIGATIONS). The Subsidiary Guarantors hereby further jointly and severally agree that if any Subsidiary Guarantor shall fail to pay or perform when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the other Subsidiary Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. This Subsidiary Guaranty shall replace the Prior Document in all respects and shall govern the obligations of the Subsidiary Guarantors with respect to the Lessor Interest Rate Hedge Agreement from and after the date of the Prior Document. The Prior Document is hereby rescinded and declared to be void AB INITIO.
1.2. OBLIGATIONS UNCONDITIONAL. The obligations of the Subsidiary Guarantors under SECTION 1.1 are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the Master Lease or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this SECTION 1.2 that the obligations of the Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Subsidiary Guarantors hereunder, which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the Subsidiary Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of the Master Lease or any other agreement or instrument referred to herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under the Master Lease or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or
(iv) any lien or security interest granted to, or in favor of, the Lessor as security for any of the Guaranteed Obligations shall fail to be perfected.
The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Lessor exhaust any right, power or remedy or proceed against the Lessee under the Master Lease or any other agreement or instrument referred to herein or therein, or against any other person under any other guarantee of, or security for, any of the Guaranteed Obligations.
1.3. REINSTATEMENT. The obligations of the Subsidiary Guarantors under this SECTION 1 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Lessee in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and the Subsidiary Guarantors jointly and severally agree that they will indemnify the Lessor on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by the Lessor in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.
1.4. SUBROGATION. The Subsidiary Guarantors hereby jointly and severally agree that until the payment and satisfaction in full of all Guaranteed Obligations and the expiration or termination of the obligations of the Lessor under the Master Lease they shall not exercise any right or remedy arising by reason of any performance by them of their guarantee in SECTION 1.1, whether by subrogation or otherwise, against the Lessee or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations.
1.5. REMEDIES. The Subsidiary Guarantors jointly and severally agree that, as between the Subsidiary Guarantors and the Lessor, the obligations of the Lessee under the Master Lease may be declared to be forthwith due and payable as provided in the Master Lease (and shall be deemed to have become automatically due and payable in the circumstances provided therein) for purposes of SECTION 1.1 notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Lessee and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Lessee) shall forthwith become due and payable by the Subsidiary Guarantors for purposes of said SECTION 1.1.
1.6. INSTRUMENT FOR THE PAYMENT OF MONEY. Each Subsidiary Guarantor hereby acknowledges that the guarantee in this SECTION 1 constitutes an instrument for the payment of money, and consents and agrees that the Lessor, at its sole option, in the event of a dispute by such Subsidiary Guarantor in the payment of any moneys due hereunder, shall have the right to bring motion-action under New York CPLR Section 3213.
1.7. CONTINUING GUARANTEE. The guarantee in this SECTION 1 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising.
1.8. RIGHTS OF CONTRIBUTION. The Subsidiary Guarantors hereby agree, as between themselves, that if any Subsidiary Guarantor shall become an Excess Funding Subsidiary Guarantor (as defined below) by reason of the payment by such Subsidiary Guarantor of any Guaranteed Obligations, each other Subsidiary Guarantor shall, on demand of such Excess Funding Subsidiary Guarantor (but subject to the next sentence), pay to such Excess Funding Subsidiary Guarantor an amount equal to such Subsidiary Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the properties, debts and liabilities of such Excess Funding Subsidiary Guarantor) of the Excess Payment (as defined below) in respect of such Guaranteed Obligations. The payment obligation of a Subsidiary Guarantor to any Excess Funding Subsidiary Guarantor under this SECTION 1.8 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Subsidiary Guarantor under the other provisions of this SECTION 1 and such Excess Funding Subsidiary Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations.
For purposes of this SECTION 1.8, (i) "EXCESS FUNDING SUBSIDIARY
GUARANTOR" shall mean, in respect of any Guaranteed Obligations, a Subsidiary
Guarantor that has paid an amount in excess of its Pro Rata Share of such
Guaranteed Obligations, (ii) "EXCESS PAYMENT" shall mean, in respect of any
Guaranteed Obligations, the amount paid by an Excess Funding Subsidiary
Guarantor in excess of its Pro Rata Share of such Guaranteed Obligations and
(iii) "PRO RATA SHARE" shall mean, for any Subsidiary Guarantor, the ratio
(expressed as a percentage) of (x) the amount by which the aggregate fair
saleable value of all properties of such Subsidiary Guarantor (excluding any
shares of stock of any other Subsidiary Guarantor) exceeds the amount of all the
debts and liabilities of such Subsidiary Guarantor (including contingent,
subordinated, unmatured and unliquidated liabilities, but excluding the
obligations of such Subsidiary Guarantor hereunder and any obligations of any
other Subsidiary Guarantor may have been guaranteed by such Subsidiary
Guarantor) to (y) the amount by which the aggregate fair saleable value of all
properties of all of the Subsidiary Guarantors exceeds the amount of all the
debts and liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of the Subsidiary
Guarantors hereunder) of all of the Subsidiary Guarantors, determined (A) with
respect to any Subsidiary Guarantor that is a party hereto on the date hereof,
as of the date hereof, and (B) with respect to any other Subsidiary Guarantor,
as of the date such Subsidiary Guarantor becomes a Subsidiary Guarantor
hereunder.
1.9. GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In any action or
proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of any Subsidiary Guarantor under
SECTION 1.1 would otherwise, taking into account the provisions of SECTION 1.8,
be held or determined to be void, invalid or unenforceable, or subordinated to
the claims of any other creditors, on account of the amount of its liability
under said SECTION 1.1, then, notwithstanding any other provision hereof to the
contrary, the amount of such liability shall, without any further action by such
Subsidiary Guarantor, the Lessor or any other person, be automatically limited
and reduced to the highest amount that is valid and enforceable and not
subordinated to the claims of other creditors as determined in such action or
proceeding.
Section 2. REPRESENTATIONS AND WARRANTIES. Each of the Subsidiary Guarantors represents and warrants to the Lessor that:
(a) CORPORATE STATUS. It (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and (ii) has duly qualified and is authorized to do business and is in good standing in each jurisdiction where the failure to do so might have a material adverse effect on it or its assets.
(b) CORPORATE POWER AND AUTHORITY. It has the power and authority to execute, deliver and perform this Subsidiary Guaranty, has taken all necessary action to authorize the execution, delivery and performance of this Subsidiary Guaranty, has duly executed and delivered this Subsidiary Guaranty and this Subsidiary Guaranty constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by insolvency, bankruptcy, reorganization or other similar laws relating to or affecting the enforcement of creditors' rights or by general equitable principles.
(c) NO VIOLATION. Neither the execution, delivery and performance of this Subsidiary Guaranty nor compliance with the terms and provisions hereof, nor the consummation of the transactions contemplated herein (i) will result in a violation of any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality having jurisdiction over it, (ii) will result in any breach which would constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any lien upon any of its assets pursuant to the terms of, any indenture, loan agreement, lease or other agreement to which it is a party or by which it or any of its assets is bound or to which it may be subject, or (iii) will violate any provision of its certificate of incorporation, by-laws or other charter documents.
(d) LITIGATION. There are no actions, suits or proceedings pending or, to its knowledge, threatened (i) that, if adversely determined, could reasonably be expected to have a material adverse effect on its business, financial condition, results of operations or prospects or (ii) that question the validity of this Subsidiary Guaranty or the rights or remedies of the Lessor with respect to it.
(e) GOVERNMENTAL APPROVALS. No permits, authorizations, registrations, consents, approvals, waivers, orders, judgments, decrees, licenses, exemptions or filings by any governmental authority having jurisdiction over it is required to authorize or is required in connection with the execution, delivery and performance by it of this Subsidiary Guaranty.
Section 3. MISCELLANEOUS.
3.1. NO WAIVER. No failure on the part of the Lessor to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise by the Lessor of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law.
3.2. NOTICES. All notices, requests, consents and demands hereunder shall be in writing and telecopied or delivered to the intended recipient (in the case of the Subsidiary Guarantors) at the "Address for Notices" specified on the signature pages hereof and (in the case of the Lessor) at the address specified in the Master Lease or, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Subsidiary Guaranty, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid.
3.3. EXPENSES. The Subsidiary Guarantors jointly and severally agree to reimburse the Lessor for all reasonable costs and expenses of the Lessor (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (i) any default and any enforcement or collection proceeding resulting therefrom, including all manner of participation in or other involvement with (x) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory proceedings and (z) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or traction contemplate thereby is consummated) and (ii) the enforcement of this SECTION 3.3.
3.4. AMENDMENTS, ETC. The terms of this Subsidiary Guaranty may be waived, altered or amended only by an instrument in writing duly executed by each Subsidiary Guarantor and the Lessor. Any such amendment or waiver shall be binding upon the Lessor, each holder of any of the Guaranteed Obligations and each Subsidiary Guarantor.
3.5. SUCCESSORS AND ASSIGNS. This Subsidiary Guaranty shall be binding upon and inure to the benefit of the respective successors and assigns of each Subsidiary Guarantor, the Lessor and each holder of any of the Guaranteed Obligations.
3.6. CAPTIONS. The captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Subsidiary Guaranty.
3.7. COUNTERPARTS. This Subsidiary Guaranty may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Subsidiary Guaranty by signing any such counterpart.
3.8. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Subsidiary Guaranty shall be governed by, and construed in accordance with, the law of the State of New York. Each Subsidiary Guarantor hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of the Supreme Court of the State of New York sitting in New York County (including its Appellate Division), and of any other appellate court in the State of New York, for the purposes of all legal proceedings arising out of or relating to this Subsidiary Guaranty or the transactions contemplated hereby. Each Subsidiary Guarantor hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceedings brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.
3.9. WAIVER OF JURY TRIAL. EACH OF THE SUBSIDIARY GUARANTORS AND THE LESSOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS SUBSIDIARY GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.
3.10. SEVERABILITY. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of this Subsidiary
Guaranty in order to carry out the intentions of the parties hereto as nearly as
may be possible and (ii) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction.
3.11. SET-OFF. Each Subsidiary Guarantor hereby irrevocably authorizes the Lessor at any time and from time to time while a default under the Master Lease shall have occurred and be continuing, without notice to such Subsidiary Guarantor or any other Subsidiary Guarantor, any such notice being expressly waived by each Subsidiary Guarantor, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Lessor to or for the credit or the account of such Subsidiary Guarantor, or any part thereof in such amounts as the Lessor may elect, against and on account of the obligations and liabilities of such Subsidiary Guarantor to the Lessor hereunder and claims of every nature and description of the Lessor against such Subsidiary Guarantor, in any currency, whether arising hereunder, under the Master Lease or otherwise, as the Lessor may elect, whether or not the Lessor has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Lessor shall notify such Subsidiary Guarantor promptly of any such set-off and the application made by the Lessor of the proceeds thereof, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lessor under this SECTION 3.11 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Lessor may have.
IN WITNESS WHEREOF, the parties hereto have caused this Subsidiary Guaranty to be duly executed and delivered as of the day and year first above written.
SUBSIDIARY GUARANTORS
ARCUS DATA SECURITY, INC.
COMAC, INC.
DSI TECHNOLOGY ESCROW SERVICES, INC.
IM BILLERICA, INC.
IRON MOUNTAIN GLOBAL, INC.
IRON MOUNTAIN RECORDS MANAGEMENT OF
MICHIGAN, INC.
PLRH, INC.
By: /s/ John P. Lawrence
-----------------------------------
Name: John P. Lawrence
Title: Vice President and Treasurer
|
IRON MOUNTAIN / NATIONAL UNDERGROUND
STORAGE, LLC
IRON MOUNTAIN CONSULTING SERVICES, LLC
By: IRON MOUNTAIN RECORDS
MANAGEMENT, INC., its Sole Member
By: /s/ John P. Lawrence
-----------------------------------
Name: John P. Lawrence
Title: Vice President and Treasurer
|
ARCUS DATA SECURITY, LLC
By: ARCUS DATA SECURITY, INC., its
Sole Member
By: /s/ John P. Lawrence
-----------------------------------
Name: John P. Lawrence
Title: Vice President and Treasurer
|
IRON MOUNTAIN GLOBAL LLC
By: IRON MOUNTAIN GLOBAL, INC., its
Sole Member
By: /s/ John P. Lawrence
-----------------------------------
Name: John P. Lawrence
Title: Vice President and Treasurer
|
Address for Notices for all Subsidiary Guarantors:
c/o Iron Mountain Incorporated
745 Atlantic Avenue
Boston, Massachusetts 02111
Attention: Treasurer
Telecopy Number: (617) 350-7881
Copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Harry E. Ekblom, Jr
Telecopy Number: (617) 338-2880
Agreed:
THE BANK OF NOVA SCOTIA
By: /s/ Gary Fabris
----------------------------
Name: Gary Fabris
Title: Managing Director
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EXHIBIT 10.37
December 31, 2002
To the Equity Participant party to the
Amended and Restated Declaration of Trust
referred to below
Ladies and Gentlemen:
Reference is hereby made to (i) the Amended and Restated Declaration of Trust dated as of May 22, 2001 (the "Declaration of Trust"), between Scotiabanc, Inc., as equity participant (the "Equity Participant") and First Union National Bank, as Trustee and (ii) the Master Lease and Security Agreement dated as of May 22, 2001, as heretofore amended and supplemented (the "Lease"), between Iron Mountain Statutory Trust-2001, a Connecticut statutory trust, as lessor (the "Lessor"), and Iron Mountain Information Services, Inc. (f/k/a Iron Mountain Records Management, Inc.), as lessee (the "Lessee"). Capitalized terms used herein without definition that are defined in the Lease are used herein with the same meaning as in the Lease.
The undersigned hereby guarantees to the Equity Participant the prompt and complete payment in cash of its Equity Contribution, and the accrued and unpaid yield thereon determined as provided in the Declaration of Trust, on last day of the Lease Term.
IRON MOUNTAIN INFORMATION SERVICES,
INC., as Lessee
By: /s/ John P. Lawrence
-----------------------------------
Name: John P. Lawrence
Title: Vice President and Treasurer
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IRON MOUNTAIN INCORPORATED, as Guarantor
By: /s/ John P. Lawrence
------------------------------------
Name: John P. Lawrence
Title: Vice President and Treasurer
|
Exhibit 12
IRON MOUNTAIN INCORPORATED
STATEMENT OF THE CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
Year Ended December 31,
----------------------------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Earnings:
Income (Loss) from Continuing
Operations before Provision
(Benefit) for Income Taxes &
Minority Interest $ 3,391 $ 9,841 $ (18,032)$ (8,131) $ 119,949
Add: Fixed Charges 61,169 73,957 154,975 177,032 178,587
-------------- ------------ -------------- ------------ --------------
$ 64,560 $ 83,798 $ 136,943 $ 168,901 $ 298,536
============== ============ ============== ============ ==============
Fixed Charges:
Interest Expense $ 45,673 $ 54,425 $ 117,975 $ 134,742 $ 136,632
Interest Portion of
Rent Expense 15,496 19,532 37,000 42,290 41,955
-------------- ------------ -------------- ------------ --------------
$ 61,169 $ 73,957 $ 154,975 $ 177,032 $ 178,587
============== ============ ============== ============ ==============
Ratio of Earnings to Fixed Charges 1.1x 1.1x 0.9x 1.0x 1.7x
(1) (1)
|
(1) We reported a loss from continuing operations before provision (benefit) for income taxes and minority interest, for the years ended December 31, 2000, and December 31, 2001. We would have needed to generate additional income from operations before provision for income taxes and minority interest of $18,032, and $8,131 to cover its fixed charges of $154,975 and $177,032, respectively.
EXHIBIT 21
JURISDICTION OF INCORPORATION NAMES UNDER WHICH THE
ENTITY NAME OR ORGANIZATION ENTITY DOES BUSINESS
Archivage Actif Groupe Iron Mountain SAS France
Archive Services Limited United Kingdom
Archivex Box Company Limited Alberta
Archivex Limited Nova Scotia
Arcus Data Security Limited United Kingdom
Box Security Argentina
Britannia Data Management Limited United Kingdom
COMAC, Inc. Delaware
Custodia De Documentos LTDA De Archivos LTDA Chile
Data Security and Storage, Inc. Louisiana
Datavault Holdings Limited United Kingdom
Datavault Limited Scotland
Datavault, S.A. Spain
Datavault Northwest Limited United Kingdom
Datavault Southwest Limited United Kingdom
Document and Information Management Services, Ltd. United Kingdom
DSI Technology Escrow Services, Inc. Delaware
FIME S.A. France
H. Investments Ltd. Cayman Islands
IMSA Peru SRL Peru
Innovator Projects, S.A. Spain
Iron Mountain Argentina Argentina
|
Iron Mountain Assurance Corporation Vermont
Iron Mountain Box Company Nova Scotia
Iron Mountain Business Trust #1 Massachusetts
Iron Mountain Canada Corporation Nova Scotia Iron Mountain
Iron Mountain Cayman Ltd. Cayman Islands
Iron Mountain Chile S.A. Chile
Iron Mountain Deutschland GmbH Germany
Iron Mountain do Brazil Empreendimentos Ltda. Brazil Iron Mountain
Brazil
Iron Mountain do Brazil S.A. Brazil
Iron Mountain Espana, S.A. Spain
Iron Mountain Europe Limited United Kingdom Iron Mountain
Iron Mountain (France), S.A. France
Iron Mountain Global, Inc. Delaware
Iron Mountain Global, LLC Delaware
Iron Mountain Group (Europe) Limited United Kingdom
Iron Mountain Holdings (Europe) Limited United Kingdom
Iron Mountain Holdings (France), SNC France
Iron Mountain Iberica, SL Spain
Iron Mountain Information Management, Inc. Delaware Iron Mountain Off-Site Data Protection
Iron Mountain Records Management
Iron Mountain National Underground
Iron Mountain Digital Archives
Iron Mountain Ireland Ireland
Iron Mountain Ireland (Holdings) Ireland
Iron Mountain Mexico, S.A. de R.L. de C.V. Mexico
Iron Mountain (Netherlands) B.V. Netherlands
Iron Mountain Peru S.A. Peru
|
Iron Mountain Records Management (Puerto Rico), Inc. Puerto Rico Iron Mountain Records Management Iron Mountain Scotland (Holdings) Limited United Kingdom Iron Mountain Scotland Limited United Kingdom Iron Mountain South America Ltd. Cayman Islands Iron Mountain (UK) Limited United Kingdom Iron Mountain JAD 93 Limited United Kingdom Jones & Crossland Limited United Kingdom Kestrel Data Services Limited United Kingdom Kestrel Data UK Limited United Kingdom Kestrel Reprographics Limited United Kingdom Memogarde, S.A. France Miller Data Management Limited United Kingdom Mountain Real Estate Assets, Inc. Delaware Mountain West Palm Real Estate, Inc. Delaware Movers & Files, S.A. Peru Pierce Leahy Europe, Limited United Kingdom Silver Sky Jersey Channel Islands Sistemas de Archivo Corporativo, S.A. de R.L. de C.V. Mexico Sistemas de Archivo de Mexico, S.A. de R.L. de C.V. Mexico Sistemas de Archivo, S.A. de R.L. de C.V. Mexico Societe Civile Immobiliere du Chemin Cornillon France The Document Storage Company Limited United Kingdom 397499 British Columbia Ltd. British Columbia TM 1177 Ltd. United Kingdom Upper Providence Venture I, L.P. Pennsylvania |
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements on Forms S-3 (File No. 333-75068), S-4 (File No. 333-91577) and S-8 (File Nos. 333-43787, 333-89008, and 333-95901) of Iron Mountain Incorporated of our report dated February 21, 2003 (except with respect to Note 16, as to which the date is March 18, 2003) relating to the consolidated financial statements of Iron Mountain Incorporated as of and for the year ended December 31, 2002 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to (1) the application of procedures relating to certain disclosures and reclassifications of financial statement amounts related to the 2001 and 2000 financial statements that were audited by other auditors who have ceased operations and (2) the adoption of Statement of Financial Accounting Standard No. 142) appearing in this Annual Report on Form 10-K of Iron Mountain Incorporated for the year ended December 31, 2002.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 20, 2003
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our reports, included in this Form 10-K, into Iron Mountain Incorporated's previously filed registration statements on Forms S-3 (File No. 333-75068), S-4 (File No. 333-91577) and S-8 (File Nos. 333-43787, 333-89008 and 333-95901).
RSM ROBSON RHODES
Chartered Accountants
Birmingham, England
March 20, 2003
EXHIBIT 23.3
NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP
On June 19, 2002, Iron Mountain Incorporated (the "Company") dismissed
Arthur Andersen LLP ("Arthur Andersen") as its independent public accountants
and engaged Deloitte & Touche LLP as its new independent public accountants for
the fiscal year ending December 31, 2002. For additional information, see "Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure" in this Annual Report on Form 10-K for the year ended December 31,
2002 (the "2002 Form 10-K").
The 2002 Form 10-K is incorporated by reference in the Company's
previously filed registration statements on Forms S-3 (File No. 333-75068), S-4
(File No. 333-91577) and S-8 (File Nos. 333-43787, 333-89008 and 333-95901)
(collectively, the "Registration Statements"). The Company was unable to obtain
the consent of Arthur Andersen to the incorporation by reference into the
Registration Statements of the audit report of Arthur Andersen with respect to
the Company's consolidated financial statements for the fiscal years ended
December 31, 2001 and 2000. Pursuant to Rule 437a under the Securities Act of
1933, as amended, the Company elected to omit the consent of Arthur Andersen
from the Registration Statements. Because Arthur Andersen has not consented to
the incorporation by reference of their report in the Registration Statements,
purchasers of securities offered pursuant to the Registration Statements on or
after the filing of the 2002 Form 10-K will not be able to recover against
Arthur Andersen under Section 11 of the Securities Act for any untrue statements
of a material fact contained in the consolidated financial statements audited by
Arthur Andersen and incorporated by reference in those consolidated financial
statements, or, any omissions to state a material fact required to be stated in
those consolidated financial statements.
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Report") by Iron Mountain Incorporated (the "Company"), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
Date: March 21, 2003
|
/s/
C. RICHARD REESE
C. Richard Reese Chief Executive Officer |
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Report") by Iron Mountain Incorporated (the "Company"), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
Date: March 21, 2003
|
/s/
JOHN F. KENNY, JR.
John F. Kenny, Jr. Chief Financial Officer |