<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 2, 1998
------------
PIERCE LEAHY CORP.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 333-9963 23-2588479
- ------------------------------ ----------- ------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
631 Park Avenue
King of Prussia, Pennsylvania 19406
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 992-8200
--------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
------------------------------------
On July 2, 1998, Pierce Leahy Corp. (the "Company") purchased all of
the capital stock of Kestrel Holdings, Inc., ("Kestrel") a records storage
company which, through its subsidiaries, operates records storage facilities in
Dallas and Houston, Texas. Included as part of the acquisition are four owned
records storage facilities with an aggregate of approximately 264,000 square
feet of space and four leased records storage facilities with an aggregate of
approximately 350,000 square feet of space. The Kestrel acquisition added
approximately 2.5 million cubic feet of records under management.
The acquisition was consummated pursuant to a Stock Purchase Agreement
dated as of May 21, 1998 among the Company and the shareholders of Kestrel (the
"Agreement"). The terms of the Agreement were negotiated on an arms-length
basis.
The aggregate cash consideration for the Kestrel acquisition was
approximately $52 million and was financed through borrowings under the
Company's credit facility.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
------------------------------------------------------------------
(a) Financial Statements of Business Acquired.
(i) Consolidated Financial Statements of Kestrel Holdings, Inc.:
Auditor's Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Summary of Accounting Policies
Notes to Consolidated Financial Statements
(ii) Consolidated Financial Statements of Archivex Limited:
Auditor's Report
Consolidated Balance Sheets
Consolidated Statements of Earnings
Consolidated Statements of Retained Earnings
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information.
Pro Forma Condensed Consolidated Financial Statements (unaudited):
Basis of Presentation
Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Condensed Consolidated Statements of Operations
Notes to Pro Forma Combined Consolidated Financial
Statements
-2-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Kestrel Holdings, Inc.
Houston, Texas
We have audited the accompanying balance sheet of Kestrel Holdings, Inc. and
Subsidiaries, as of September 30, 1997, and the related statements of income,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kestrel Holdings, Inc. and
Subsidiaries, at September 30, 1997, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ James N. Howard & Associates, P.C.
Dallas, Texas
December 5, 1997
<PAGE>
KESTREL HOLDINGS, INC. AND SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
SEPTEMBER 30, MARCH 31,
1997 1998
- -----------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 215,119 $ 161,749
Accounts receivable
Trade, less allowance for doubtful
accounts of $9,500 and $40,682 1,687,308 1,903,791
Prepaid expenses 639,320 526,558
- -----------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,541,747 2,592,098
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization 15,713,697 16,676,576
OTHER ASSETS, net of amortization 624,786 962,775
- -----------------------------------------------------------------------------------
$18,880,230 $20,231,449
- -----------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable - trade $ 542,396 $ 995,513
Accrued expenses 602,583 287,832
Advance rentals billed 897,182 969,601
Current maturities of long-term debt 1,564,712 1,710,220
- -----------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,606,873 3,963,166
Deferred income taxes 1,441,943 1,580,596
Long-term accrued rent 659,926 605,689
Long-term payable to stockholder 89,013 87,633
Long-term debt, less current maturities 8,020,090 8,724,236
- -----------------------------------------------------------------------------------
TOTAL LIABILITIES 13,817,845 14,961,320
- -----------------------------------------------------------------------------------
Stockholders' equity
Common stock, no par value; 1,000,000
shares authorized; 10,000 shares issued in 1997;
10,101 shares issued in 1998 10,000 82,500
Retained earnings 5,052,385 5,187,629
- -----------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 5,062,385 5,270,129
- -----------------------------------------------------------------------------------
$18,880,230 $20,231,449
- -----------------------------------------------------------------------------------
</TABLE>
The accompanying accounting policies and notes are an integral part of these
financial statements.
-4-
<PAGE>
KESTREL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Year Ended Six Months Ended
September 30, March 31,
-------------------
1997 1997 1998
- -----------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenue
Storage $ 6,967,126 $3,375,906 $3,855,338
Services 4,519,992 1,716,280 2,357,372
Other 2,124,511 1,905,338 468,018
- -----------------------------------------------------------------------------------
Total Revenue 13,611,629 6,997,524 6,680,728
- -----------------------------------------------------------------------------------
OPERATING EXPENSES
General and administrative 5,635,045 2,734,810 2,511,316
Salaries 4,061,235 1,841,462 2,286,399
Rent - data center space 1,091,201 505,845 624,632
Depreciation and amortization 931,021 467,992 538,099
Other 254,833 36,349 (40,174)
- -----------------------------------------------------------------------------------
Total Operating Expenses 11,973,335 5,586,458 5,920,272
- -----------------------------------------------------------------------------------
Income From Operations 1,638,294 1,411,606 760,456
- -----------------------------------------------------------------------------------
INTEREST EXPENSE 847,917 426,369 431,579
- -----------------------------------------------------------------------------------
Income From Continuing Operations
Before Income Taxes 790,377 984,697 328,877
- -----------------------------------------------------------------------------------
Income taxes
Current 291,631 182,576 54,980
Deferred 76,080 165,432 138,653
- -----------------------------------------------------------------------------------
Total income taxes 367,711 348,008 193,633
- -----------------------------------------------------------------------------------
Income from continuing operations 422,666 636,689 135,244
DISCONTINUED OPERATIONS
Loss from document imaging segment (net
of income tax benefit of $122,631
and $43,576) (238,048) (86,760) -
- -----------------------------------------------------------------------------------
NET INCOME $ 184,618 $ 549,929 $ 135,244
- -----------------------------------------------------------------------------------
</TABLE>
The accompanying accounting policies and notes are an integral part of these
financial statements.
-5-
<PAGE>
KESTREL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Common Retained
Stock Earnings Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996 $10,000 $4,867,767 $4,877,767
Net Income - 184,618 184,618
- -----------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997 10,000 5,052,385 5,062,385
Net Income (unaudited) - 135,244 135,244
Sale of 101 Shares of Common Stock (unaudited) 72,500 - 72,500
- -----------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 (unaudited) $82,500 $5,187,629 $5,270,129
- -----------------------------------------------------------------------------------
</TABLE>
The accompanying accounting policies and notes are an integral part of these
financial statements.
-6-
<PAGE>
KESTREL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year Ended Six Months Ended
September 30, March 31,
--------------------------
1997 1997 1998
- -------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 184,618 $ 549,929 $ 135,244
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization
Continuing operation 935,611 467,992 513,792
Discontinued operation 152,349 61,675 -
Provision for bad debts 3,200 - -
(Increase) decrease in accounts receivable 270,339 (165,225) (216,483)
(Increase) decrease in prepaid expenses (108,050) (78,496) 112,762
(Increase) decrease in other assets 146,199 223,080 (337,989)
Increase (decrease) in accounts payable
and accrued expenses 205,585 (30,965) 84,130
Decrease in amounts payable
to stockholders (2,760) (1,380) (1,380)
Increase (decrease) in advance rentals billed (8,617) (33,855) 72,419
Increase in deferred income taxes 76,080 165,432 138,653
- -------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 1,854,554 1,158,187 501,148
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property additions (1,728,468) (1,233,180) (1,476,672)
Payment for purchase of SDA (490,000) (490,000) -
Other 9,613 9,613 -
- -------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (2,208,855) (1,713,567) (1,476,672)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 6,746,518 1,650,660 1,655,369
Payment of notes payable (6,421,550) (923,877) (805,715)
Proceeds from sale of common stock - - 72,500
- -------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 324,968 726,783 922,154
- -------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (29,333) 171,403 (53,370)
CASH, BEGINNING OF PERIOD 244,452 244,452 215,119
- -------------------------------------------------------------------------------------------------
CASH, END OF PERIOD $ 215,119 $ 415,855 $ 161,749
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying accounting policies and notes are an integral part of these
financial statements.
-7-
<PAGE>
KESTREL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - YEAR ENDED SEPTEMBER 30,
1997:
The Company paid approximately $817,000 for interest. Cash payments for income
taxes totaled $120,000.
As described in Note 1 to the financial statements, 61.25 percent of the capital
stock of Servicio De Archivos, S.A. was acquired during the year ended September
30, 1997 as follows:
Fair value of assets acquired $ 605,879
Cash paid for common stock (490,000)
----------------------------------------
Liabilities assumed $ 115,879
----------------------------------------
The accompanying accounting policies and notes are an integral part of these
financial statements.
-8-
<PAGE>
KESTREL HOLDINGS, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C>
NATURE OF BUSINESS Kestrel Holdings, Inc. (KHI), through its subsidiaries, provides
management, storage, and servicing of client's business records,
magnetic media, and technical data, as well as providing
consulting services, database development, document imaging and
CD-ROM production.
PRINCIPLES OF The consolidated financial statements include the accounts of KHI
CONSOLIDATION and its wholly-owned subsidiaries, Alpha Welch Properties, Inc.,
Kestrel Data Management and Storage, Inc. (KDM&S), Kestrel
Servicio De Archivos, Inc. (KSAI) and KSAI's 61.25 percent owned
subsidiary, Servicio De Archivos, S.A. (SDA). All significant
intercompany transactions, profits, and balances have been
eliminated.
INTERIM FINANCIAL The consolidated balance sheet as of March 31, 1998 and the
STATEMENTS consolidated statements of income for the six months ended March
31, 1998 and 1997 are unaudited and, in the opinion of management
of KHI, include all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation of the
results for those interim periods. The results of operations for
the six months ended March 31, 1998 and 1997 are not necessarily
indicative of the results to be expected for the full year.
PROPERTY, EQUIPMENT, Assets are stated at cost. Depreciation and amortization are
DEPRECIATION,AND computed using the straight-line method over the estimated useful
AMORTIZATION lives of the assets.
OTHER ASSETS Costs in excess of the fair value of the assets of acquired
businesses totaled $336,029, and are being amortized over 15 and
27 years using the straight-line method. Accumulated amortization
at September 30, 1997 totaled $103,612.
Costs associated with refinancing debt during 1994 totaled
$218,626, and are being amortized over the life of the associated
loans of five and 15 years. Accumulated amortization at September
30, 1997 totaled $77,304.
ADVANCE RENTALS Advance rentals billed consists primarily of billings to
BILLED customers, net of amounts amortized into income, at the beginning
of their contractual billing periods; monthly, quarterly,
semiannually, or annually, which are not refundable.
INCOME TAXES Deferred income taxes are provided for temporary differences
arising from differences between financial statement and income
tax bases of assets and liabilities.
</TABLE>
-9-
<PAGE>
KESTREL HOLDINGS, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES (Continued)
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C>
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
</TABLE>
-10-
<PAGE>
KESTREL HOLDINGS, INC. AND SUSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ACQUISITION
In November 1996, KHI organized Kestrel Servicio De Archivos, Inc. for the
purpose of purchasing an interest in a records storage and management company
in Buenos Aires, Argentina. In December 1996, KSAI acquired a 61.25 percent
interest in Servicio De Archivos S.A. The purchase price, $490,000, exceeded
the fair value of the tangible assets acquired by $213,221, which is recorded
as goodwill. The goodwill is included in the consolidated balance sheets in
other assets and is being amortized over the estimated life of 15 years. The
entire net operating loss of SASA from the date of acquisition of $317,000 has
been recorded in the consolidated statements of income of KHI. None of the
loss has been allocated to the 38.75 percent minority interest owners because
they are not being required to fund their portion of the losses.
2. DISCONTINUED OPERATIONS
In 1996, two of KHI's subsidiaries, Houston Data Management, Inc. and Houston
Data Management, Ltd., were merged together and changed their name to Kestrel
Imaging and Information Management, Inc. (KIIM). KHI transferred its
ownership in KIIM to KDM&S.
Effective September 30, 1997, the decision was made to close down the
operations of KIIM. KIIM was marketing digital image management systems,
scanning services and CD-ROM conversions. Since the operations of KIIM
constituted a separate segment, the net losses incurred by KIIM for the year
are reflected in the financial statements as discontinued operations. The net
assets of KIIM, which are comprised primarily of computer related equipment,
have not been segregated in the financial statements because the majority of
the assets will be retained and used by KDM&S in other lines of business.
3. PROPERTY AND EQUIPMENT
Data processing equipment includes capitalized software costs with a net book
value of approximately $491,000 at September 30, 1997. The costs include
labor and overhead incurred in the development of the software. Amortization
of the costs using the straight-line method over five years totaled
approximately $92,350. Because computer software is subject to continuing
technological changes, it is possible that the software could become obsolete,
requiring the costs to be written off or amortized more rapidly.
-11-
<PAGE>
KESTREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT (CONTINUED)
Property and equipment at September 30, 1997 consisted of the following:
<TABLE>
<CAPTION>
Estimated
useful
lives
<S> <C> <C>
- -----------------------------------------------------------------------------------
Land - $ 1,915,871
Buildings and improvements 8 - 40 yrs. 11,443,907
Data center equipment 5 - 40 yrs. 5,465,990
Office furniture and data
processing equipment 4 - 5 yrs. 3,563,026
- -----------------------------------------------------------------------------------
22,388,794
Less accumulated depreciation
and amortization (6,675,097)
- -----------------------------------------------------------------------------------
Net property and equipment $15,713,697
- -----------------------------------------------------------------------------------
</TABLE>
4. Long-term debt
Long-term debt, including capital lease obligations, at September 30, 1997
consisted of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
<S> <C>
Bank note payable $9,260 monthly, plus
interest at 7.6%; collateralized by
land and buildings; remaining
balance due January, 1999 $1,810,584
Mortgage note payable $12,005 monthly,
including interest at 8.25% through
April, 2009; collateralized by land
and buildings 1,072,494
Bank note payable $38,000 quarterly,
plus interest at the bank's margin rate
plus 2.5%; guaranteed by a shareholder
of the Company 646,000
Bank note payable $30,100 monthly,
plus interest at $8.36% through May,
1999; collateralized by equipment 551,632
</TABLE>
-12-
<PAGE>
KESTREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. LONG-TERM DEBT (CONTINUED)
-------------------------------------------------------------------------
Mortgage note payable in monthly installments
of $16,735, including interest at 8.25%,
due April, 2009; collateralized by land
and building $1,494,991
Bank note payable $4,730 monthly,
plus interest at 8.75% through
January, 1999, when the remaining
balance is due; collateralized by
land and buildings 936,593
Revolving line of credit; interest payable
monthly at prime plus .5%, matures
January, 1999; collateralized by
accounts receivable 175,000
Bank note payable $16,667 monthly,
plus interest at 8.65% through January,
2002; collateralized by equipment 866,664
Bank note payable in 48 equal monthly
installments beginning November, 1997,
with interest at prime plus .5%;
collateralized by equipment 1,073,986
Bank note payable of $11,250 monthly,
plus interest at prime plus .5%,
remaining balance due October, 2000;
collateralized by equipment 416,250
Capitalized lease obligations (see Note 6) 540,608
------------------------------------------------------------------------
9,584,802
Less current maturates (1,564,712)
------------------------------------------------------------------------
$ 8,020,090
------------------------------------------------------------------------
Advances under the revolving line of credit are limited to a defined percentage
of eligible receivables. The line of credit had a maximum commitment of
$1,200,000 at September 30, 1997.
-13-
<PAGE>
KESTREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. LONG-TERM DEBT (CONTINUED)
Loan agreements of KDM&S contain covenants which provide for, among other
things, the maintenance of certain financial ratios and limitations on the
amounts of dividends and distributions made by KDM&S.
The required annual principal payments for the next five years and thereafter
are as follows:
FISCAL YEAR
ENDING IN
------------------------------
1998 $1,564,712
1999 4,028,903
2000 1,095,424
2001 829,332
2002 319,060
Thereafter 1,747,371
------------------------------
$9,584,802
------------------------------
5. RELATED PARTIES
Transactions with related parties are comprised of a long-term payable for
accrued expenses, which is not expected to be repaid during the next fiscal
year.
6. COMMITMENTS AND CONTINGENCIES
KDM&S leases data center space, automobiles, and equipment under noncancelable
operating and capital leases expiring 1998 through 2006, and other data center
space under cancelable or monthly rental agreements. Rent expense for all
operating leases totaled approximately $1,270,000 during the year ended
September 30, 1997. Capital leases are included with long-term debt and
amortization of capitalized costs are included in depreciation.
The following is an analysis of the leased property under capital leases by
major class:
Data center equipment $ 626,677
Office equipment 203,023
-----------------------------------------------------
829,700
Less accumulated amortization (135,449)
-----------------------------------------------------
$ 694,251
-----------------------------------------------------
-14-
<PAGE>
KESTREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The future minimum rental payments required under the leases for the next five
years are as follows:
<TABLE>
<CAPTION>
Fiscal year Capital Operating
ending in leases leases
----------------------------------------------------------------
<S> <C> <C>
1998 $ 203,256 $1,310,000
1999 203,256 1,330,000
2000 186,136 1,095,000
2001 20,946 1,040,000
2002 - 1,000,000
----------------------------------------------
Total minimum lease payments 613,594
Less amount representing interest (72,986)
----------------------------------------------
Present value of minimum lease
payments 540,608
Less current maturates (164,290)
----------------------------------------------
Long-term portion $ 376,318
----------------------------------------------
</TABLE>
Certain data center leases include periods of free or reduced rent payments
for a period of time and increasing rent payments over the remainder of the
leases. The Company expenses the total rental obligations using the straight-
line method over the lease term. At September 30, 1997, the amount of rent,
which had been expensed but not yet paid totaled $659,925. The future rental
payments for operating leases for the year ending September 30, 1998 of
$1,310,000 reflects the actual payments to be made during that fiscal year.
The actual expense, which will be recorded in the financial statements, will
be approximately $53,000 higher.
The Companies located in the United States maintain a 401(k) retirement plan
whereby eligible employees may contribute up to 15 percent of their salary.
The Companies contribute 50 cents for every dollar contributed by the
employees up to three percent of the employees' gross pay. The contributions
to the Plan by the Companies totaled approximately $35,000 for the year ended
September 30, 1997.
7. INCOME TAXES
The financial statements include a deferred income tax liability for the
differences between financial and tax bases of net assets. Deferred taxes
result primarily from using a faster rate of depreciation for income tax
purposes than is used for financial statement purposes.
-15-
<PAGE>
KESTREL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
7. Income taxes (Continued)
Income tax expense for the year ended September 30, 1997, is higher than the
statutory tax rate because a valuation allowance has been recorded for the tax
benefit, approximately $95,000, from the loss of the Company's Argentina
subsidiary, KSAI. The loss carryforward of KSAI, approximately $317,000,
expires in 2002.
A reconciliation of the income tax expense at the federal statutory rate to
income tax expense at the effective rate for the year ended September 30, 1997
is as follows:
<TABLE>
<CAPTION>
<S> <C>
Income tax expense at the federal statutory rate (34%) $268,728
Adjustment of valuation allowance 95,000
Other 3,983
------------------------------------------------------------------
Income tax expense at the effective rate (46.5%) $367,711
------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Archivex Inc.
We have audited the consolidated balance sheets of Archivex Inc. as at November
30, 1997 and 1996 and the statements of earnings, retained earnings and cash
flows for each of the years ended November 30, 1997, 1996 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at November 30, 1997 and 1996
and the results of its operations and the changes in its financial position for
the three year period ended November 30, 1997 in accordance with generally
accepted accounting principles.
/s/ Friedman and Friedman
Chartered Accountants
Montreal, Quebec
January 13, 1998
(Except as to note 11 which
is as of February 4, 1998)
-17-
<PAGE>
ARCHIVEX INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN CDN$) (IN CDN$)
NOVEMBER 30 FEBRUARY 28
1997 1996 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Accounts receivable (note 2) $ 4,696 $ 3,609 $ 5,225
Inventory 177 228 174
Prepaid expenses 298 326 353
Income taxes receivable - 123 -
- --------------------------------------------------------------------------------
5,171 4,286 5,752
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT (note 4) 16,761 15,208 17,116
Less-accumulated depreciation and
amortization (7,746) (5,814) (7,881)
- --------------------------------------------------------------------------------
Net property and equipment 9,015 9,394 9,235
- --------------------------------------------------------------------------------
OTHER ASSETS:
Intangible assets, net (note 5) 6,029 5,797 5,783
Loans receivable,
related parties (note 3) 668 886 851
- --------------------------------------------------------------------------------
Total other assets 6,697 6,683 6,634
- --------------------------------------------------------------------------------
$20,883 $20,363 $21,621
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,775 $ 2,275 $ 4,000
Bank advances 1,593 1,141 2,578
Accounts payable 283 364 883
Accrued expenses 1,164 915 947
Income taxes payable 352 - 161
Deferred revenues 2,282 2,054 2,243
- --------------------------------------------------------------------------------
Total current liabilities 9,449 6,749 10,812
LONG-TERM DEBT (note 6) 2,150 6,025 1,150
- --------------------------------------------------------------------------------
DEFERRED INCOME TAXES 1,696 1,196 1,696
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Capital stock (note 8) 4,000 4,000 4,000
Retained earnings 3,588 2,393 3,963
7,588 6,393 7,963
- --------------------------------------------------------------------------------
$20,883 $20,363 $21,621
- --------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE>
ARCHIVEX INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN CDN$)
(IN CDN$) FOR THE
FOR THE YEAR ENDED THREE MONTHS ENDED
NOVEMBER 30 FEBRUARY 28
1997 1996 1995 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Storage $ 9,230 $ 8,811 $ 8,229 $ 2,553 $ 2,340
Service and storage
material sales 11,080 10,252 9,607 2,864 2,461
- -------------------------------------------------------------------------------
Total revenues 20,310 19,063 17,836 5,417 4,801
- -------------------------------------------------------------------------------
OPERATING EXPENSES:
Cost of sales excluding
depreciation and
amortization 10,629 10,573 10,057 3,052 2,821
Selling, general and
administrative 3,705 3,326 3,105 1,329 963
Depreciation and
amortization 2,276 1,022 1,172 343 290
Consulting payments to
related parties 534 425 412 - -
- --------------------------------------------------------------------------------
Total operating
expenses 17,144 15,346 14,746 4,724 4,074
- --------------------------------------------------------------------------------
OPERATING INCOME 3,166 3,717 3,090 693 727
INTEREST EXPENSE 757 913 1,078 157 180
WRITE-DOWN OF PROPERTY
AND EQUIPMENT - 1,648 - - -
- --------------------------------------------------------------------------------
NET INCOME BEFORE TAXES 2,409 1,156 2,012 536 547
- --------------------------------------------------------------------------------
Income taxes - current 714 120 66 161 164
- deferred 500 434 762 - -
- --------------------------------------------------------------------------------
1,214 554 828 161 164
- -------------------------------------------------------------------------------
NET INCOME $ 1,195 $ 602 $ 1,184 $ 375 $ 383
- -------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
ARCHIVEX INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
EARNINGS (IN CDN$)
- --------------------------------------------------------------------------------
<S> <C>
BALANCE, DECEMBER 1, 1994 $ 839
Net income 1,184
Dividends (207)
- --------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1995 1,816
Net income 602
Dividends (25)
- --------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1996 2,393
Net income 1,195
- --------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1997 3,588
Net income (unaudited) 375
- --------------------------------------------------------------------------------
BALANCE, FEBRUARY 28, 1998 (unaudited) $ 3,963
- --------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE>
ARCHIVEX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(IN CDN$) (IN CDN$)
FOR THE YEAR ENDED FOR THE THREE MONTHS
NOVEMBER 30 ENDED FEBRUARY 28
1997 1996 1995 1998 1997
- -----------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,195 $ 602 $ 1,184 $ 375 $ 383
Adjustments to reconcile net income
to net cash provided by
operating activities-
Write-down of property and equipment - 1,648 - - -
Loss on disposal of property and equipment (6) - (1) - (5)
Depreciation and amortization 2,276 1,022 1,172 343 290
Deferred income taxes 500 434 762 - -
Change in assets and liabilities -
(Increase) decrease in-
Accounts receivable (1,087) (516) 65 (529) 51
Inventory 51 (28) (1) 3 19
Prepaid expenses 28 (21) 151 (55) 56
Income taxes receivable 123 1 (9) 161 -
Increase (decrease) in-
Accounts payable (81) 71 81 600 346
Accrued expenses 249 17 260 (217) (542)
Income taxes payable 352 - - (352) 287
Deferred revenues 228 75 165 (39) (42)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,828 3,305 3,829 290 843
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans receivable, related parties 217 446 (1,231) (183) 2
Capital expenditures (1,634) (2,443) (1,369) (355) (318)
Proceeds from disposal of capital assets 123 9 56 - -
Increase in intangible assets (613) (426) (244) 38 (111)
Proceeds from disposal of deferred charges 2 - - - -
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,905) (2,414) (2,788) (500) (427)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (2,375) (1,400) (905) (775) (450)
Dividends - (25) (207) - -
- -----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (2,375) (1,425) (1,112) (775) (450)
- -----------------------------------------------------------------------------------------------------------
NET DECREASE IN BANK ADVANCES (452) (534) (71) (985) (34)
BANK ADVANCES, BEGINNING OF PERIOD (1,141) (607) (536) (1,593) (1,141)
- -----------------------------------------------------------------------------------------------------------
BANK ADVANCES, END OF YEAR $(1,593) $(1,141) $ (607) $(2,578) $(1,175)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE>
ARCHIVEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
November 30, 1997
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Stacs International Inc. and Faxtrieval
Inc. All material intercompany transactions and balances have been
eliminated on consolidation.
INVENTORY
Inventory is valued at cost. Cost is determined on a first-in, first-out
basis.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated or amortized as
follows:
Declining-balance method
Shelving 20%
Machinery and equipment 30%
Furniture and fixtures 30%
Computer equipment 30%
Computer software 10% - 30%
Automotive equipment 30%
Straight-line method
Leasehold improvements - over the terms of the respective leases plus
the first renewal period, where applicable.
Lease rights - over the terms of the respective leases plus the first
renewal period, where applicable
Only the acquisitions in the first six months of the year are depreciated or
amortized in the year.
INTANGIBLE ASSETS
Goodwill is recorded at cost and amortized on a straight-line basis at an
annual rate of 2.5%.
(Continued)
-22-
<PAGE>
ARCHIVEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES...cont'd.
Moving costs are recorded at cost and amortized on a straight-line basis
over the terms of the respective leases plus the first renewal period, where
applicable. Only the costs incurred in the first six months of the year are
amortized in the year.
Client acquisition costs consist of the unreimbursed costs and inducements
associated with moving the records of new clients into the Company's
premises. All such costs are recorded at cost and amortized on a straight-
line basis over six years. Only the costs incurred in the first six months
of the year are amortized in the year.
DEFERRED STORAGE REVENUE
The unearned portion of revenue arises when storage is billed for a period
of time over-lapping the Company's fiscal year-end.
2. ACCOUNTS RECEIVABLE 1997 1996
Trade $ 4,415 $ 3,416
Allowance for doubtful accounts (29) (23)
------- -------
4,386 3,393
Sundry 310 216
-------- -------
$ 4,696 $ 3,609
-------- -------
3. LOANS RECEIVABLE, RELATED PARTIES
a) Loans receivable from 19-12 Holding Ltd./Gestion 19-12 Ltee have no
specific terms of repayment and bear interest at the rate of 10%. An
amount of $86 (1996 - $95) has been credited to earnings in the current
year.
b) The balance of the loans do not bear interest and have no specific terms
of repayment.
(Continued)
-23-
<PAGE>
ARCHIVEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT 1997 1996
<TABLE>
<S> <C> <C>
Shelving $ 5,258 $ 4,733
Machinery and equipment 379 330
Furniture and fixtures 596 462
Computer equipment 807 625
Computer software 1,975 1,733
Automotive equipment 38 71
Leasehold improvements 2,708 2,254
Lease rights 5,000 5,000
------- -------
16,761 15,208
Less: Accumulated depreciation 7,746 5,814
------- -------
$ 9,015 $ 9,394
======= =======
</TABLE>
The Company has recognized a change in accounting estimate with respect to
depreciation of certain capital assets, to that described in note 1. The
effect of this change in estimate increased the depreciation expense for
these capital assets and reduced net earnings and net book value by $1,028
for the year ended November 30, 1997. Deferred income taxes as at November
30, 1997 decreased by $417.
5. INTANGIBLE ASSETS 1997 1996
<TABLE>
<S> <C> <C>
Goodwill $5,898 $5,898
Client acquisition costs 115 -
Moving costs 1,709 1,213
------ ------
7,722 7,111
Less: Accumulated amortization 1,693 1,314
------ ------
$6,029 $5,797
====== ======
</TABLE>
(Continued)
-24-
<PAGE>
ARCHIVEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
6. LONG-TERM DEBT 1997 1996
Term loan, due on or before December 12, 1999,
repayable in annual variable capital instalments.
Interest is calculated daily and payable monthly
in arrears at the rate of 8.99% per annum. $ 5,825 $ 8,100
Term loan, due January 4, 1998. Interest is
calculated and payable monthly in arrears at the
rate of 10% per annum. 100 200
------- -------
5,925 8,300
Current portion 3,775 2,275
------- -------
$ 2,150 $ 6,025
======= =======
The term loan due December 12, 1999 is secured by:
1) Moveable hypothec covering the following universality of property,
present and future:
a) claims, accounts receivable and book debts, and
b) other moveable property;
2) $20,000 moveable hypothec covering all moveable property, corporeal or
incorporeal, present and future;
3) A demand debenture in the amount of $20,000 registered in the Province
of Alberta;
4) A registered general assignment of book debts, inventory and equipment
registered in the Provinces of Ontario and Alberta;
5) A General Security Agreement registered in the Province of Ontario;
6) Assignment of life insurance on two of the directors of the Company to
the extent of $1,000 each; and
7) Assignment of insurance policies.
(Continued)
-25-
<PAGE>
ARCHIVEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
6. LONG-TERM DEBT...cont'd.
Aggregate annual capital payments required are due approximately as follows:
<TABLE>
<S> <C>
1998 $3,775
1999 1,862
2000 288
------
$5,925
======
</TABLE>
The Company is in compliance with the covenants pursuant to the agreement
with its banker.
7. COMMITMENTS AND CONTINGENCIES
a) The minimum rentals payable under long-term operating leases, exclusive
of certain operating costs for which the Company is responsible, are
approximately as follows:
<TABLE>
<S> <C>
1998 $2,345
1999 2,221
2000 2,094
2001 2,094
2002 2,094
</TABLE>
b) The Company has guaranteed certain mortgage indebtedness and bank loan
of 19-12 Holding Ltd./Gestion 19-12 Ltee to the extent of $500 and $677
respectively.
8. CAPITAL STOCK
Authorized:
(Unlimited as to capital contribution and the number of shares without par
value)
Common shares.
Class "A" voting, participating to the extent of the redemption
value shares, redeemable at their paid-in value plus an
annual amount of 24% thereof less distributions,
compounded annually.
(Continued)
-26-
<PAGE>
ARCHIVEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
8. CAPITAL STOCK...cont'd. 1997 1996
Class "B" 8% non-cumulative, voting, non-
participating shares, redeemable
at their paid-in value.
Class "C" 10% non-cumulative, non-voting,
non-participating shares,
redeemable at their paid-in value.
Class "D" 12% non-cumulative, non-voting,
non-participating shares,
redeemable and retractable at
their paid-in value.
Class "E" 0.5% per month non-cumulative,
non-voting, non-participating
shares, redeemable and retractable
at their paid-in value.
Issued:
3,000 Common shares $ 100 $ 100
3,000 Class "A" shares 3,000,000 3,000,000
1,000 Class "C" shares 1,000,000 1,000,000
---------- ------------
$4,000,100 $ 4,000,100
========== ============
9. INCOME TAX LOSSES
The Company has utilized non-capital losses of prior years amounting to
approximately $854 (1996 - $1,791, 1995 - $1,236) to reduce taxable income
for Federal income tax purposes.
(Continued)
-27-
<PAGE>
ARCHIVEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
10. RELATED PARTY TRANSACTIONS
The Company leases premises from a related company, 19-12 Holding
Ltd./Gestion 19-12 Ltee, and from a corporate shareholder, Sagarmatha
Capital Inc. The rental charges under the lease agreements amounted to
$1,355 (1996 - $1,382, 1995 - $1,056) and $882 (1996 -$851, 1995 - $850),
respectively.
11. SUBSEQUENT EVENT
On February 4, 1998, the Company, along with certain related companies
executed an agreement to sell substantially all of the assets used in its
business.
-28-
<PAGE>
PIERCE LEAHY CORP.
------------------
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------
BASIS OF PRESENTATION
---------------------
(Unaudited)
----------
The accompanying pro forma condensed consolidated balance sheet as of March 31,
1998 and the related pro forma condensed consolidated statements of operations
for the year ended December 31, 1997 and for the three months ended March 31,
1998 give effect to the acquisition of certain net assets of Archivex Inc.
("Archivex") and real estate owned by affiliates of Archivex, as described in
Note 2, as well as the acquisition of all of the capital stock of Kestrel
Holdings, Inc. ("Kestrel"), as described in Note 3, as if these transactions had
occurred as of March 31, 1998, in the case of the pro forma condensed
consolidated balance sheet, and as of January 1, 1997, in the case of the pro
forma condensed consolidated statements of operations.
It should be noted that the year end of Pierce Leahy Corp. and subsidiaries (the
"Company") is December 31. Therefore, the Company's historical information
relates to the year ended December 31, 1997. The corresponding period for
Archivex and Kestrel are the fiscal years ended November 30, 1997 and September
30, 1997, respectively.
The pro forma condensed consolidated financial statements have been prepared by
management of the Company and should be read in conjunction with the
historical consolidated financial statements, which have been previously filed
in the Company's Annual Report on Form 10-K for the year ended December 31, 1997
and Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, and the
historical consolidated financial statements of Archivex and Kestrel, which are
included elsewhere in this Form 8-K. The pro forma consolidated financial
statements are based on certain assumptions and preliminary estimates which are
subject to change. These statements do not purport to be indicative of the
consolidated financial position or results of operations of the Company that
might have occurred, nor are they indicative of future results.
-29-
<PAGE>
PIERCE LEAHY CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma for the Pro Forma for the
Acquisition of Acquisition of
Archivex (Note 2) Kestrel (Note 3)
----------------------------- -------------------------
Actual Archivex Pro Forma Kestrel Pro Forma
ASSETS (Note 1) Actual Adjustments Actual Adjustments Pro Forma
-------- -------- ------------ ----------------- ------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 2,483 $ -- $ -- $ 249 $ -- $ 2,732
Accounts receivable 31,325 3,681 (3,681)(a) 1,633 -- 32,958
Inventories 872 123 (123)(a) -- -- 872
Prepaid expenses and other 1,112 249 (249)(a) 526 -- 1,638
Deferred income taxes 2,589 -- -- -- -- 2,589
-------- ------- ----------------- ------- ---------------- --------
Total current assets 38,381 4,053 (4,053)(a) 2,408 -- 40,789
PROPERTY AND EQUIPMENT, net 173,399 6,505 8,188 (b) 15,623 -- 203,715
OTHER ASSETS, primarily
goodwill 240,805 4,674 45,433 (c) 1,762 35,853 (aa) 328,527
-------- ------- ----------------- ------- ---------------- --------
$452,585 $15,232 $49,568 $19,793 $35,853 $573,031
======== ======= ================= ======= ================ ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt
and noncompete obligations $ 2,127 $ 2,818 $ (2,818)(a) $ 1,706 $ (1,706)(bb) $ 2,127
Accounts payable 6,873 2,438 (2,438)(a) 675 -- 7,548
Accrued expenses 24,716 781 617 (d) 573 -- 26,687
Deferred revenues 12,436 1,580 874 -- 14,890
-------- ------- ----------------- ------- ---------------- --------
Total current liabilities 46,152 7,617 4,639 (a) 3,828 (1,706) 51,252
LONG-TERM DEBT AND NONCOMPETE
OBLIGATIONS 334,801 810 (810)(a) 8,300 43,700 (bb) 448,623
61,822 (e)
DEFERRED RENT 4,358 -- -- 624 (624)(cc) 4,358
DEFERRED INCOME TAXES 8,594 1,195 (1,195)(a) 1,524 -- 10,118
SHAREHOLDERS' EQUITY 58,680 5,610 (5,610)(a) 5,517 (5,517)(dd) 58,680
-------- ------- ----------------- ------- ---------------- --------
$452,585 $15,232 $ 49,568 $19,793 $35,853 $573,031
======== ======= ================= ======= ================ ========
</TABLE>
The accompanying notes are an integral part of this statement.
-30-
<PAGE>
PIERCE LEAHY CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma for the Pro Forma for the
Acquisition of Acquisition of
Archivex (Note 2) Kestrel (Note 3)
----------------------------- ------------------------------
Actual Archivex Pro Forma Kestrel Pro Forma
(Note 1) Actual Adjustments Actual Adjustments
------------ -------- ------------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 183,517 $ 14,522 $ -- $ 12,873 $ --
------------ -------- ------------------- ------------- ---------------
OPERATING EXPENSES:
Cost of sales, excluding depreciation
and amortization 101,940 7,600 (1,598) (f) 5,330 --
Selling, general and administrative 30,070 3,031 (382) (g) 4,727 --
Depreciation and amortization 21,528 1,627 1,903 (h) 883 1,908 (ee)
Special compensation charge 1,752 -- -- -- --
Foreign currency exchange 702 -- -- -- --
------------ -------- ------------------- ---------- ---------------
Total operating expenses 155,992 12,258 (77) 10,940 1,908
------------ -------- ------------------- ---------- ---------------
Operating income 27,525 2,264 77 1,933 (1,908)
INTEREST EXPENSE 29,262 542 4,404 (i) 841 3,319 (ff)
------------ -------- ------------------- ---------- ---------------
Income (loss) before income taxes,
extraordinary charge and
discontinued operations (1,737) 1,722 (4,327) 1,092 (5,227)
INCOME TAXES 7,424 868 (1,729)(j) 359 (1,154)(gg)
------------ -------- ------------------- ---------- ---------------
INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE AND
DISCONTINUED OPERATIONS $ (9,161) $ 854 $ (2,598) $ 733 $(4,073)
============ ======== =================== ========== ===============
BASIC AND DILUTED LOSS BEFORE EXTRAORDINARY
CHARGE AND DISCONTINUED OPERATIONS PER SHARE $ (0.69)
============
SHARES USED IN COMPUTING BASIC AND DILUTED
LOSS PER SHARE 13,385,243
============
Pro Forma
-----------
<S> <C>
REVENUES $ 210,912
-----------
OPERATING EXPENSES:
Cost of sales, excluding depreciation
and amortization 113,272
Selling, general and administrative 37,446
Depreciation and amortization 27,849
Special compensation charge 1,752
Foreign currency exchange 702
-----------
Total operating expenses 181,021
-----------
Operating income 29,891
INTEREST EXPENSE 38,368
-----------
Loss before income taxes, extraordinary
charge and discontinued operations (8,477)
INCOME TAXES 5,768 (k)
-----------
INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE AND
DISCONTINUED OPERATIONS
(14,245)
===========
BASIC AND DILUTED LOSS BEFORE EXTRAORDINARY
CHARGE AND DISCONTINUED OPERATIONSPER SHARE $ (1.06)
===========
SHARES USED IN COMPUTING BASIC AND DILUTED 13,385,243
LOSS PER SHARE ===========
</TABLE>
The accompanying notes are an integral part of this statement
-31-
<PAGE>
PIERCE LEAHY CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma for the Pro Forma for the
Acquisition of Acquisition of
Archivex (Note 2) Kestrel (Note 3)
----------------------------- -----------------------------
Actual Archivex Pro Forma Kestrel Pro Forma
(Note 1) Actual Adjustments Actual Adjustments
------------ -------- ------------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 56,290 $ 3,816 $ -- $ 2,938 $ --
------------ -------- ------------------- ------------ ---------------
OPERATING EXPENSES:
Cost of sales, excluding depreciation
and amortization 32,915 2,150 (394)(f) 1,487 --
Selling, general and administrative 8,774 936 (94)(g) 786 --
Depreciation and amortization 7,219 242 640 (h) 255 443 (ee)
Foreign currency exchange (62) -- --
------------ -------- ------------------- ------------ ---------------
Total operating expenses 48,846 3,328 152 2,528 443
------------ -------- ------------------- ------------ ---------------
Operating income 7,444 488 (152) 410 (443)
INTEREST EXPENSE 8,300 111 1,125 (i) 178 862 (ff)
------------ -------- ------------------- ------------ ---------------
Income (loss) before income taxes (856) 377 (1,277) 232 (1,305)
INCOME TAXES 181 113 (440)(j) 72 (286)(gg)
------------ -------- ------------------- ------------ ---------------
INCOME (LOSS) $ (1,037) $ 264 $ (837) $ 160 $(1,019)
============ ======== =================== ============ ===============
BASIC AND DILUTED LOSS PER SHARE (0.06)
============
SHARES USED IN COMPUTING BASIC AND DILUTED
LOSS PER SHARE 16,477,728
============
Pro Forma
------------
<S> <C>
REVENUES $ 63,044
------------
OPERATING EXPENSES:
Cost of sales, excluding depreciation
and amortization 36,158
Selling, general and administrative 10,402
Depreciation and amortization 8,799
Foreign currency exchange (62)
-----------
Total operating expenses 55,297
-----------
Operating income 7,747
INTEREST EXPENSE 10,576
-----------
Income (loss) before income taxes (2,829)
INCOME TAXES (360)
-----------
INCOME (LOSS) $ (2,469)
-----------
BASIC AND DILUTED LOSS PER SHARE $ (0.15)
===========
SHARES USED IN COMPUTING BASIC AND DILUTED
LOSS PER SHARE
$16,477,728
===========
</TABLE>
The accompanying notes are an integral part of this statement
-32-
<PAGE>
PIERCE LEAHY CORP.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. HISTORICAL:
- -- -----------
The historical balances of Pierce Leahy Corp. and subsidiaries (the "Company")
represent the consolidated balance sheet as of March 31, 1998 and the
consolidated results of operations for the year ended December 31, 1997 and for
the three months ended March 31, 1998 as reported in the consolidated financial
statements which have been previously filed in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 and Quarterly Report on Form 10-Q
for the three months ended March 31, 1998, respectively.
2. ACQUISITION OF ARCHIVEX INC.:
- -- -----------------------------
On April 7, 1998, the Company acquired certain net assets of Archivex and real
estate owned by affiliates of Archivex for approximately $63,402, including
transaction costs and assumed liabilities of $1,580. In addition to the
purchase price, the Company has accrued $1,398 for estimated severance costs for
planned employee terminations. The acquisition has been accounted for using the
purchase method of accounting. Under this method, the purchase price is
allocated to the assets acquired and liabilities assumed based on the fair
values at the acquisition date. Such allocation has been based on estimates
that may be revised at a later date. The purchase price exceeded the fair value
of the net assets acquired by approximately $50,107, which has been allocated to
goodwill and non-compete agreements and will be amortized on a straight-line
basis over 30 years and 5 years, respectively.
The historical balances for Archivex were derived from the historical balance
sheet as of February 28, 1998 and the statement of operations for the year ended
November 30, 1997 and for the three months ended February 28, 1998. The
Archivex financial statements are prepared in Canadian dollars and are included
elsewhere in this Form 8-K. For purposes of the pro forma condensed
consolidated financial statements, the Archivex financial statements were
converted into US dollars by using the quarter-end exchange rate (.704) for the
balance sheet and the average exchange rate (.715) and (.705) for the statements
of operations for the year ended December 31, 1997 and the three months ended
February 28, 1998, respectively.
The following pro forma adjustments for the Archivex acquisition are reflected
in the pro forma condensed consolidated balance sheet as of March 31, 1998 and
the pro forma condensed consolidated statement of operations for the year ended
December 31, 1997 and for the three months ended March 31, 1998.
-33-
<PAGE>
Unaudited Pro Forma Adjustments to Condensed Consolidated Balance Sheet
- -----------------------------------------------------------------------
(a) Reflects the adjustment of certain assets and liabilities of Archivex not
acquired or assumed as part of the acquisition.
(b) Reflects the purchase of real estate owned by affiliates of Archivex, which
is not included in the financial statements of Archivex. The purchase
price for such real estate has been allocated $1,228 to land and $6,960 to
buildings.
(c) Intangible assets of goodwill ($42,967) and a noncompete agreement ($7,140)
result from the preliminary allocation of the purchase price. These
intangibles are subject to adjustment based on the final allocation of the
purchase price to the net assets acquired. Management believes that the
final allocation of the purchase price will not differ materially from the
preliminary estimated amounts.
(d) In addition to the purchase price, the Company has accrued $1,398 for
estimated severance costs for planned employee terminations.
(e) Reflects the Company's borrowing of $61,822 on its credit facility to fund
the acquisition of Archivex and real estate owned by affiliates of
Archivex.
Unaudited Pro Forma Adjustments to Condensed Consolidated Statement of
- ----------------------------------------------------------------------
Operations
- ----------
(f) Represents the elimination of rent expense on facilities leased to Archivex
from its affiliates. These facilities were purchased as part of the
acquisition.
(g) Represents the elimination of management fees paid to an affiliate of
Archivex, which were discontinued upon completion of the acquisition.
(h) Represents additional depreciation and amortization expense of $1,903 and
$640 for the year ended December 31, 1997 and for the three months ended
March 31, 1998, respectively, relating to goodwill and noncompete
agreement, based upon the estimated useful lives of 30 years for goodwill
and 5 years for noncompete agreement plus depreciation expense relating to
the estimated the fair value of the building purchased from affiliates of
Archivex depreciated over 30 years.
(i) Represents additional interest expense on the $61,822 of borrowings to fund
the acquisition using an effective annual interest rate of 8%.
(j) Represents an income tax benefit on the pro forma net loss generated by the
acquisition at the statutory Canadian tax rate of 45%, after the addback of
all nondeductible expenses of $692 and $193 for the year ended December 31,
1997 and for the three months ended March 31, 1998, respectively.
-34-
<PAGE>
(k) The Company operated as a Subchapter S corporation for income tax purposes
until July 1, 1997. The Company recorded a deferred income tax provision of
$6,600 in 1997 in connection with the termination of the Company's status
as a Subchapter S corporation. The pro forma income taxes represent taxes
on the pro forma loss before income taxes, extraordinary charge and
discontinued operations after addback of all pro forma non-deductible
expenses along with the $6,600 deferred income tax provision.
3. ACQUISITION OF KESTREL HOLDINGS, INC.
- -- -------------------------------------
On July 2, 1998 the Company acquired all of the capital stock of Kestrel
Holdings, Inc. and two subsidiaries for approximately $52,000, including
transaction costs. Prior to the acquisition by the Company, Kestrel distributed
the stock of one of its subsidiaries to its Stockholders. For the year ended
September 30, 1997, this subsidiary had revenues, operating expenses and net
loss of approximately $739, $984 and $310, respectively. Such amounts have been
eliminated from the historical Kestrel statement of operations in the Pro Forma
Presentation. The acquisition has been accounted for using the purchase method
of accounting. Under this method, the purchase price is allocated to the assets
acquired and liabilities assumed based on the fair values at the acquisition
date. Such allocation has been based on estimates that may be revised at a later
date. The purchase price exceeded the fair value of the net assets acquired by
approximately $35,853, which as been allocated to goodwill and non-compete
agreement and will be amortized on a straight line basis over 30 years and 5
years, respectively.
The historical balances of Kestrel were derived from the historical balance
sheet as of December 31, 1997 and the statements of operations for the year
ended September 30, 1997 and for the three months ended December 31, 1997.
The following pro forma adjustments for the Kestrel acquisition are reflected on
the condensed consolidated balance sheet as of March 31, 1998 and the pro forma
condensed consolidated statements of operations for the year ended December 31,
1997 and for the three months ended March 31, 1998.
Unaudited Pro Forma Adjustments to Condensed Consolidated Balance Sheet
- -----------------------------------------------------------------------
(aa) Intangible assets of goodwill ($30,853) and a non-compete agreement
($5,000) result from the preliminary allocation of the purchase price.
These intangibles are subject to adjustment based on the final allocation
of the purchase price to the net assets acquired. Management believes that
the final allocation of the purchase price will not differ materially from
the preliminary estimated amounts.
(bb) Reflects the Company's borrowing of $52,000 on its credit facility to fund
the acquisition of Kestrel and the repayment of existing indebtedness of
Kestrel.
(cc) Reflects the adjustment of deferred rent not assumed as part of the
acquisition.
(dd) Reflects the elimination of historical equity accounts of Kestrel.
-35-
<PAGE>
Unaudited Pro Forma Adjustments to Condensed Statements of Operations
- ---------------------------------------------------------------------
(ee) Represents additional depreciation and amortization expense of $1,908 and
$443 for the year ended December 31, 1997 and the three months ended March
31, 1998, respectively, relating to goodwill and noncompete agreements
based upon the estimated useful lives of 30 years for goodwill and 5 years
for the noncompete Agreement.
(ff) Represents additional interest expense on the $52,000 of borrowings to
fund the acquisition using an effective annual interest rate of 8%.
(gg) Represents an income tax benefit on the pro forma loss generated by the
acquisition at the Company's effective tax rate of approximately 38%,
after the addback of all non-deductible expenses of $2,049 and $512 for
the year ended December 31, 1997 and the three months ended March 31,
1998, respectively.
-36-
<PAGE>
(c) Exhibits.
The following exhibits are filed as part of this Report:
10.1 Stock Purchase Agreement dated as of May 21, 1998 among
Pierce Leahy Corp. and the shareholders of Kestrel
Holdings, Inc.
23.1 Consent of James N. Howard and Associates, P.C.
23.2 Consent of Friedman & Friedman, Chartered Accountants
-37-
<PAGE>
SIGNATURE
---------
Pursuant to the requirements 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.
Dated: July 2, 1998 PIERCE LEAHY CORP.
By: /s/ Douglas B. Huntley
--------------------------------------
Name: Douglas B. Huntley
Title: Vice President and
Chief Financial Officer
-38-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- --------
10.1 Stock Purchase Agreement dated as of
May 21, 1998 among Pierce Leahy Corp. and
the shareholders of Kestrel Holdings, Inc.
23.1 Consent of James N. Howard and Associates, P.C.
23.2 Consent of Friedman & Friedman, Chartered
Accountants
<PAGE>
EXHIBIT 10.1
________________________________________
STOCK PURCHASE AGREEMENT
________________________________________
FOR THE SALE OF
KESTREL HOLDINGS, INC.
TO
PIERCE LEAHY CORP.
Dated as of May 21, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of May 21, 1998,
---------
is made and entered into by and among each of the undersigned shareholders
(individually, "Seller" and collectively, "Sellers") and Pierce Leahy Corp., a
------ -------
Pennsylvania corporation ("Buyer").
-----
W I T N E S S E T H:
-------------------
WHEREAS, Sellers own all of the outstanding capital stock (the "Shares") of
------
Kestrel Holdings, Inc. ("Kestrel"); and
-------
WHEREAS, Sellers wish to sell, and Buyer wishes to buy, the Shares for the
consideration and on the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS
The terms set forth below in this Article 1 shall have the meanings
---------
ascribed to them below or in the part of this Agreement referred to below:
"Acquired Companies" means Kestrel and 100% of the outstanding ownership
------------------
interests in the following Persons: Kestrel Data Management and Storage, Inc.,
a Texas corporation, and Alpha Welch Properties, Inc., a Texas corporation.
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
------------
the rules and regulations of the SEC thereunder.
"Affected Employees" is defined in Section 4.16.
------------------ ------------
"Affiliate" means any other Person that directly or indirectly controlling,
---------
controlled by, or under common control with such Person. For purposes of this
Agreement, "control" over a Person other than an individual shall mean the power
to directly or indirectly vote at least 51% of the equity securities of such
Person.
<PAGE>
"Agreement" means this Agreement as amended or supplemented together with
---------
all Exhibits and Schedules attached or incorporated by reference herein.
"Applicable Contract" means any material Contract (a) to which any Acquired
-------------------
Company is a party and has any rights, (b) under which any Acquired Company is
subject to any obligation or liability, or (c) by which any Acquired Company or
any of the assets owned or used by it is bound.
"Balance Sheet" means the unaudited consolidated balance sheet of Kestrel
-------------
as of September 30, 1997.
"Benefit Plans" is defined in Section 4.16.
------------- ------------
"B, G & L" means the individual selling shareholders, Philip Burguieres,
--------
John Gourley and C. Berdon Lawrence.
"Breach" means any inaccuracy in or breach of, or any failure to perform or
------
comply with, any representation, warranty, covenant, obligation, or other
provision of this Agreement or any instrument delivered pursuant to this
Agreement, as the case may be.
"Buyer" is defined above in the preamble.
-----
"Buyer Indemnified Party" is defined in Section 10.2.
----------------------- ------------
"CERCLA" shall mean the United States Comprehensive Environmental Response,
------
Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended.
"Claim" is defined in Section 10.4.
----- ------------
"Closing" and "Closing Date" are defined in Article 3.
------- ------------ ---------
"Consent" means any approval, consent, ratification, waiver, or other
-------
authorization (including any Governmental Authorization).
"Contemplated Transactions" means: (a) the sale of the Shares by Sellers
-------------------------
to Buyer; (b) the performance by Buyer and Sellers of their respective covenants
and obligations under this Agreement; and (c) Buyer's acquisition of the Shares.
"Contract" means any agreement, contract, obligation, promise, arrangement,
--------
understanding or undertaking (whether written or oral and whether express or
implied) that is legally binding.
2
<PAGE>
"Debt" means all interest-bearing debt of the Acquired Companies, including
----
short- and long-term debt, capitalized lease obligations, purchase money
encumbrances and the Chase Bank of Texas revolving loan facility.
"Encumbrance" means any claim, lien, pledge, charge, security interest,
-----------
community property interest, condition, mortgage, easement, servitude, right of
way, equitable interest, option, right of first refusal or other restriction,
including, without limitation, any restriction on use, voting (in the case of
any security), transfer, receipt of income or exercise of any other attribute of
ownership.
"Enforceability Limitations" means the limitations upon enforcement of any
--------------------------
agreement by reason of (a) bankruptcy, insolvency or other similar laws relating
to or affecting the enforcement of creditors' rights generally and (b) equitable
principles of general applicability relating to the availability of specific
performance, injunctive relief or other legal or equitable remedies.
"Environmental Law" means any Legal Requirement relating to the environment
-----------------
in effect in any jurisdiction in which any Acquired Company is conducting
business or where any of the properties of any Acquired Company is located,
including, without limitation, the Clean Air Act, as amended, CERCLA, the
Federal Water Pollution Control Act, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Hazardous Materials Transportation Act, as
amended, the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), the Safe Drinking Water Act, as amended, the Toxic Substances Control
----
Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Texas Solid Waste Disposal Act, the Texas Water Code and other
comparable federal, state and local laws.
"Environmental Permit" shall mean any Permit required by or given or
--------------------
granted pursuant to any applicable Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974 or any
-----
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Escrow Agent" means the Escrow Agent (as defined in the Escrow Agreement).
------------
"Escrow Agreement" means an Escrow Agreement, substantially in the form
----------------
attached hereto as Exhibit B among Sellers, Buyer and Escrow Agent.
---------
"Escrow Amount" means the amount specified in Section 10.7 as the Escrow
------------- ------------
Amount.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
------------
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
3
<PAGE>
"Facilities" means any real property, leaseholds, or other interests
----------
currently owned or operated by any Acquired Company and any buildings, plants,
structures, or equipment currently owned or operated by any Acquired Company.
"Financial Statements" means the unaudited consolidated Balance Sheet,
--------------------
consolidated statement of income and expense and consolidated statement of cash
flow of Kestrel for the twelve (12) month period ended September 30, 1997. In
addition, the term "Financial Statements" shall include the unaudited
consolidated balance sheet, unaudited consolidated statement of income and
expense and unaudited consolidated statement of cash flow of Kestrel for the
six-month period ended March 31, 1998.
"GAAP" means generally accepted United States accounting principles.
----
"Governmental Authorization" means any approval, consent, license, permit,
--------------------------
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" means the government of the United States or any state
-----------------
or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Substance" shall mean any material, chemical, substance, waste
-------------------
or matter which (i) is petroleum or a petroleum product, (ii) constitutes a
Hazardous Substance, toxic substance or pollutant as such terms are defined by
or pursuant to any Environmental Law or (iii) is regulated or controlled as a
Hazardous Substance, toxic substance, pollutant or other regulated or controlled
material, chemical, substance, waste or matter pursuant to any Environmental
Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or
-------
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Indebtedness" means all obligations for borrowed money and accounts
------------
payable, however evidenced, including but not limited to purchase money and
seller financing and principal and interest.
"Indemnified Party" is defined in Section 10.4.
----------------- ------------
"Indemnifying Party" is defined in Section 10.4.
------------------ ------------
"Intellectual Property" is defined in Section 4.19.
--------------------- ------------
"IRC" means the Internal Revenue Code of 1986, as amended.
---
4
<PAGE>
"IRS" means the United States Internal Revenue Service or any successor
---
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Kestrel" is defined in the first recital of this Agreement.
-------
"KSA" means Kestrel Servicio de Archivos, Inc., a Texas corporation.
---
"Knowledge" means, with respect to a particular fact or other matter,
---------
actual knowledge and awareness of such fact or other matter. As used in this
Agreement, the phrase "Knowledge of Sellers", "Sellers' Knowledge," "Known to
Sellers" and similar phrases shall mean only the Knowledge of Donald Schad,
Lynda Grindrod and Hugh Van Cutsem. As used in this Agreement, the phrase
"Knowledge of Buyer," "Buyer's Knowledge," "Known to Buyer" and similar phrases
shall mean only the knowledge of J. Peter Pierce and Joseph P. Linaugh.
"Leased Personal Property" is defined in Section 4.13(b).
------------------------ ---------------
"Legal Requirement" means any applicable federal, state, local, municipal,
-----------------
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
"Loss" or "Losses" shall mean any and all liabilities, losses, costs,
---- ------
claims, damages (excluding consequential, punitive and exemplary damages),
penalties and expenses (including reasonable attorneys' fees and expenses and
reasonable costs of investigation and litigation). In the event any of the
foregoing are indemnifiable hereunder, the terms "Loss" and "Losses" shall
include any and all reasonable attorneys' fees and expenses and reasonable costs
of investigation and litigation incurred by the Indemnified Person in enforcing
such indemnity.
"Management Agreement" means any written agreement between any Acquired
--------------------
Company and any customer whose files and records are stored, held and maintained
by such Acquired Company in cartons, containers (including materials stored in
vaults) or otherwise.
"Material Adverse Change" means any change that could reasonably be
-----------------------
expected to result in an adverse effect on the Acquired Companies, in the
aggregate, of at least $100,000.
"Material Adverse Effect" means an effect on the condition (financial or
-----------------------
otherwise), results of operation, personal and real property, other assets or
liabilities of the Acquired Companies or any of their respective assets that
could reasonably be expected to involve an adverse effect on any of the Acquired
Companies, in the aggregate, of at least $100,000.
"Order" means any award, decision, injunction, judgment, order, ruling,
-----
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
5
<PAGE>
"Ordinary Course of Business" means an action taken by a Person that is (a)
---------------------------
consistent with the past practices of such Person and is taken in the ordinary
course of the normal operations of such Person and (b) not required to be
authorized by the board of directors of such Person based on the past practices
of such Person.
"Organizational Documents" means (a) the articles or certificate of
------------------------
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"Owned Personal Property" is defined in Section 4.13(a).
----------------------- ---------------
"Permitted Encumbrances" means Encumbrances which: (i) secure Taxes which
----------------------
are not, at the time of closing, due and payable, or are being contested in good
faith in the Ordinary Course of Business; (ii) secure the claims of materialmen,
carriers, landlords and like persons, all of which are not yet due and payable;
or (iii) arise under the Securities Laws.
"Person" means any individual, corporation, partnership, limited liability
------
company, joint venture, association or other entity or organization.
"Personal Property" means any personal property, including, without
-----------------
limitation, (1) all equipment; (2) storage racking; (3) inventory items, such as
folding cartons, containers and other storage materials; (4) vehicles; (5) lists
of all customers of the Acquired Companies and the books and records (whether
electronically maintained or otherwise) which will enable Buyer to generate such
lists; (6) all business addresses, post office boxes, telephone, telex and
telecopier numbers; (7) marketing and administrative data and (8) computerized
records management and billing system currently utilized by the Acquired
Companies to manage their businesses.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
----------
litigation, or suit commenced, brought, conducted, or heard by or before, or
otherwise involving, any Governmental Body or arbitrator.
"Purchase Price" is defined in Section 2.2.
-------------- -----------
"Reasonable Efforts" means the commercially reasonable efforts that a
------------------
prudent Person desirous of achieving a result would use in similar circumstances
to ensure that such result is achieved as expeditiously as possible but without
incurring unreasonable cost or expense.
"Release" means any spilling, leaking, emitting, discharging, depositing,
-------
escaping, leaching, dumping, or other releasing into the environment, whether
intentional or unintentional.
6
<PAGE>
"Representative" means with respect to a particular Person, any director,
--------------
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Securities Act" means the Securities Act of 1933 or any successor law, and
--------------
regulations and rules issued pursuant to that Act or any successor law.
"Securities Laws" means the Securities Act, the Exchange Act, the
---------------
Investment Company Act, the Advisers Act and state "blue sky" laws.
"Sellers Indemnified Party" is defined in Section 10.3.
------------------------- ------------
"Sellers" is defined above in the preamble.
-------
"Sellers' Representative" means Don Schad.
-----------------------
"Shares" is defined above in the preamble.
------
"Subsidiary" of a Person means an Affiliate of such Person of which fifty
----------
percent (50%) or more of the voting stock (or any other form of general
partnership or other voting or controlling interest in the case of a Person that
is not a corporation) is beneficially owned by the Person directly or indirectly
through one or more other Persons; when used without reference to a particular
Person, "Subsidiary" means a Subsidiary of the Company.
"Tax Return" means all reports, estimates, information statements and
----------
returns of any nature, including amended versions of any of the foregoing,
relating to or required to be filed in connection with any Taxes pursuant to the
statutes or regulations of any federal, state, local or foreign government
taxing authority.
"Tax Statute of Limitations Date" shall mean the close of business on the
-------------------------------
date of expiration of the applicable statute of limitations with respect to
Taxes, including any extensions thereof (or if such date is not a business day,
the next business Day).
"Tax Warranty" shall mean a representation or warranty in Section 4.15.
------------ ------------
"Taxes" means any federal, state (including the District of Columbia) or
-----
local, foreign (including possessions or territories of the United States of
America) or other taxes (whether income, excise, sales or use, ad valorem,
franchise, real or personal property, transfer, employment or any other kind of
tax no matter how denominated), any assessment, customs duty, levy, impost,
withholding or other governmental charge in the nature of a tax, and shall
include all additions to tax, interest, penalties and fines with respect
thereto.
"Threatened" means any demand, statement or notice made or given in
----------
writing, or orally to any Seller, of a claim, Proceeding, dispute, action, or
other matter.
7
<PAGE>
ARTICLE 2.
SALE AND TRANSFER OF SHARES
Section 2.1 The Sale. Upon the terms and subject to the conditions of
--------
this Agreement, at Closing, Sellers shall convey, assign, transfer and deliver
the Shares to Buyer, and Buyer shall acquire and accept from Sellers, all of
Sellers' right, title and interest in and to the Shares free and clear of all
Encumbrances.
Section 2.2 Purchase Price. The purchase price for the Shares will be
--------------
Fifty-Two Million Dollars ($52,000,000) less the Debt (the difference being the
"Purchase Price"), which Debt shall be determined by Sellers, in accordance with
--------------
GAAP applied on a basis consistent with the Financial Statements, on the day
preceding the Closing. The Purchase Price shall be subject to adjustments after
the Closing Date as set forth in Section 2.3.
-----------
Section 2.3 Adjustment to Purchase Price.
----------------------------
(a) Within fifteen (15) days after the Closing Date, Buyer may
independently determine the Debt as of the Closing Date in accordance with GAAP
applied on a basis consistent with the Financial Statements. In the event
Buyer's determination herein differs from Sellers' determination in Section 2.2,
-----------
Buyer shall promptly notify Sellers and deliver to Sellers a copy of Buyer's
calculations.
(b) If Sellers agree with Buyer's determination of the Debt in Section
-------
2.3(a), the Purchase Price shall be adjusted as follows: (1) if Buyer's
- ------
determination in Section 2.3(a) exceeds Sellers' determination in Section 2.2,
-------------- -----------
Sellers shall pay to Buyer such excess pursuant to Section 2.3(d); and (2) if
--------------
Buyer's determination in Section 2.3(a) is less than Sellers' determination in
--------------
Section 2.2, Buyer shall pay to Sellers such deficiency pursuant to Section
- ----------- -------
2.3(d).
- ------
(c) If Sellers disagree with Buyer's determination, Sellers and Buyer shall
appoint a mutually acceptable independent public accounting firm which shall
make a final and binding determination of the Debt in accordance with GAAP
applied on a basis consistent with the Financial Statements. The costs of the
independent public accounting firm shall be borne fifty percent (50%) by Buyer
and fifty percent (50%) by Sellers. In the event the Debt as determined by the
independent public accounting firm differs from Sellers' determination in
Section 2.2, the Purchase Price shall be adjusted in the manner set forth in
- -----------
Section 2.3(b) above.
- --------------
(d) Any amounts payable under Section 2.3(b) or 2.3(c) shall be made
-------------- ------
immediately by electronic transfer of immediately available funds to Sellers as
set forth in Exhibit D and to Buyer as Buyer shall specify.
Section 2.4 Payment of Purchase Price. At Closing, Buyer shall
-------------------------
8
<PAGE>
(a) pay to Sellers the Purchase Price less the Escrow Amount (as defined
below), by electronic transfer of immediately available funds as set forth in
Exhibit D; and
(b) deposit in an interest bearing account with Escrow Agent One Million
Dollars ($1,000,000) (the "Escrow Amount"), in immediately available funds,
-------------
pursuant to the Escrow Agreement, dated as of the Closing Date, by and among
Buyer, Sellers and Escrow Agent.
Section 2.5 Escrow. Escrow Agent shall hold, administer and disburse the
------
Escrow Amount pursuant to the Escrow Agreement.
ARTICLE 3.
CLOSING
Section 3.1 Closing. Upon the terms and subject to the conditions of this
-------
Agreement, the closing of the purchase and sale of the Shares contemplated
hereby (the "Closing") shall be held at the offices of Mayer, Brown & Platt, 700
-------
Louisiana, Suite 3600, Houston, Texas 77002 on July 2, 1998, at 10:00 A.M.,
Central Standard Time or at such other time and location designated by Buyer and
Sellers, but in no event shall the Closing occur after July 10, 1998; provided,
--------
however, such date may be extended pursuant to the proviso set forth in Section
- ------- -------
9.1(d). The date of the Closing is referred to herein as the "Closing Date."
- ------ ------------
Section 3.2 Closing Deliveries.
------------------
(a) At Closing, Sellers shall deliver to Buyer (i) stock certificates
representing all the Shares duly endorsed or accompanied by appropriate
instruments of transfer and shall deliver to Buyer or its nominee the original
stock books, stock ledgers, minute books and corporate seal of Kestrel; and (ii)
the documents required to be delivered pursuant to Section 8.1.
-----------
(b) At Closing, Buyer shall deliver to Sellers (i) the Purchase Price;
and (ii) the documents required to be delivered pursuant to Section 8.2.
-----------
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, severally in accordance with their proportionate ownership
interests in the Acquired Companies immediately prior to the Closing, represent
and warrant to Buyer, as of the date of this Agreement and as of the Closing
Date, as follows:
Section 4.1 Organization and Good Standing. Each of the Acquired
------------------------------
Companies is a corporation duly organized and validly existing under the laws of
the State of Texas and each
9
<PAGE>
has all requisite power and authority to carry on its business as the same is
now being conducted. Each Acquired Company is duly qualified to transact
business as a foreign corporation and is validly existing in all jurisdictions
where the failure to be so qualified would have a Material Adverse Effect on the
businesses or financial condition or results of operations of the Acquired
Companies taken as a whole. Sellers have delivered to Buyer copies of the
Organizational Documents of each Acquired Company, as currently in effect.
Section 4.2 Books and Records. True and correct copies of the books of
-----------------
account, minute books, stock record books, and other records of each Acquired
Company have been made available to Buyer and are complete in all material
respects. At Closing, all of those books and records will be in the possession
of the Acquired Companies.
Section 4.3 Capitalization. The authorized equity securities of Kestrel
--------------
consist solely of 1,000,000 shares of common stock, no par value, of which
10,101 shares are issued and outstanding, and constitute the Shares. Sellers
are, and will be on the Closing Date, the record and beneficial owners and
holders of the Shares, free and clear of all Encumbrances. Schedule 4.3 sets
------------
forth the number of Shares of each Seller. With the exception of the Shares,
which are owned by Sellers, all of the outstanding equity securities and other
securities of each Acquired Company are owned of record and beneficially by
Kestrel, free and clear of all Encumbrances. Except for certain Put Option
Agreements with B G & L, all of which shall be canceled at or prior to the
Closing, there are no outstanding subscriptions, options, warrants or other
rights to purchase any shares of capital stock of any of the Acquired Companies
or, other than this Agreement, any agreements or obligations of Sellers or
Kestrel with respect to the issue, voting, sale or transfer of shares of capital
stock of any of the Acquired Companies. The transfer of the Shares to Buyer
pursuant to this Agreement will pass good and valid title thereto to Buyer, free
and clear of all Encumbrances. All of the outstanding equity securities of each
Acquired Company have been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights.
Section 4.4 Authority. Each Seller has full capacity or authority to
---------
execute, deliver and perform this Agreement and to consummate the Contemplated
Transactions. This Agreement constitutes the legal, valid and binding
obligation of each Seller, enforceable in accordance with its terms.
Section 4.5 No Conflict; Consents.
---------------------
(a) Except as set forth in Schedule 4.5(a), neither the execution and
---------------
delivery of this Agreement nor the consummation or performance by each Seller of
such Seller's obligations thereunder will,
(1) contravene, conflict with, or result in a violation of (i) any
provision of the Organizational Documents of the Acquired Companies or (ii)
any resolution adopted by the board of directors or the stockholders of any
Acquired Company;
10
<PAGE>
(2) to the Knowledge of Sellers, contravene, conflict with, or result
in a violation of any Legal Requirement, in effect on the date of this
Agreement, or any Order, in effect on the date of this Agreement, to which
any Acquired Company or any Seller may be subject;
(3) to the Knowledge of Sellers, contravene, conflict with, or result
in a violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate, or modify, any Governmental Authorization that is held by any
Acquired Company in effect on the date of this Agreement;
(4) to the Knowledge of Sellers, contravene, conflict with, or result
in a violation or breach of any provision of, or give any Person the right
to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any
material Applicable Contract; or
(5) result in the imposition or creation of any Encumbrance upon or
with respect to any of the material assets owned or used by any Acquired
Company, other than (i) Permitted Encumbrances and (ii) Encumbrances which
could not reasonably be expected to have a Material Adverse Effect.
(b) Except as set forth in Schedule 4.5(b), no notice to, filing
---------------
with, authorization of, approval by or Consent of any Person is required for the
consummation of any of the Contemplated Transactions. The foregoing
representation, insofar as it applies to the HSR Act, is made in reliance upon
the truth and accuracy of Buyer's representation made in the last sentence of
Section 5.3.
- -----------
Section 4.6 Financial Statements; Accounts Receivables.
------------------------------------------
(a) The Financial Statements are (1) materially true and correct as of the
dates thereof, (2) have been prepared from the books and records of the
respective Acquired Companies in accordance with GAAP, and (3) make adequate
disclosure of, and provision for, all material obligations and liabilities of
the Acquired Companies as of the date thereof.
(b) Each of the accounts receivables of the Acquired Companies (1)
constitutes a valid claim in the full amount thereof against the debtor charged
therewith on the books of the Acquired Companies, (2) has been acquired in the
Ordinary Course of Business and (3) has not arisen from any transaction with the
United States of America or any department or agency thereof. Each such account
receivable is fully collectible to the extent of the face value thereof (less
the amount of the reserve for doubtful accounts, if any, reflected on the books
of the Acquired Companies with respect to such account). No account debtor has
any valid set off, deduction or defense with respect thereto and no account
debtor has asserted any such set off, deduction or defense.
11
<PAGE>
Section 4.7 Conduct of Business. Except as to the distribution of the
-------------------
stock of KSA and as disclosed to Buyer in Schedule 4.7, the Acquired Companies
------------
have conducted their businesses only in the Ordinary Course of Business and
there has not been since the date of the Balance Sheet any:
(a) Material Adverse Change in or affecting the Acquired Companies,
considered as a whole;
(b) physical damage or physical destruction incurred or suffered by any of
the Acquired Companies, individually or in the aggregate in excess of $50,000,
not covered by insurance;
(c) change by any of the Acquired Companies in accounting methods or
principles, except for changes required as a result of changes in GAAP;
(d) issuance by any Acquired Company of any shares of capital stock, or any
repurchase or redemption by any of the Acquired Companies of any shares of its
capital stock;
(e) merger or consolidation of any of the Acquired Companies with any other
corporation, person or entity or any acquisition by any Acquired Company of the
stock or business of another corporation, partnership or other entity, or any
liquidation, dissolution, or other winding up of the business or operation of
any Acquired Company;
(f) acquisition or disposition of any assets or properties in excess of
$50,000 individually or $50,000 in the aggregate, other than the acquisition or
disposition of any assets or properties in the Ordinary Course of Business;
(g) any material change in Indebtedness except in the Ordinary Course of
Business;
(h) making of any loan, advance or capital contribution to or investment in
any Person (other than a loan or advance in an amount not in excess of $20,000)
in any Person other than an Acquired Company;
(i) declaration or payment of any dividend on, or any other distribution
with respect to, the equity securities of any Acquired Company other than those
paid or distributed to an Acquired Company; and
(j) any Contract executed by an Acquired Company or commitment to do any of
the foregoing.
Section 4.8 Compliance with Law. Except as set forth in Schedule 4.8, to
------------------- ------------
the Knowledge of Sellers, the business of each Acquired Company has been
conducted in compliance, in all material respects, with all Legal Requirements
and Orders in effect as of the date of this Agreement relating to the operation
and conduct of the business of each Acquired
12
<PAGE>
Company. To the Knowledge of Sellers, none of Sellers nor any Acquired Company
has received any notice alleging any such violation relating to any of the
Acquired Companies.
Section 4.9 Environmental Matters.
---------------------
Except as set forth on Schedule 4.9, to the Knowledge of Sellers:
------------
(a) each Acquired Company is in material compliance with all applicable
Environmental Laws that could give rise to any material Liens and no condition
or event has occurred which, with or without notice or the passage of time or
both, is reasonably likely to give rise to any material Liens under any
applicable Environmental Laws;
(b) each Acquired Company has obtained and is in compliance in all material
respects with all Environmental Permits required for the ownership of such
Acquired Company's assets and the conduct and operation of such Acquired
Company's business except where such Acquired Company's failure to obtain or
comply is not reasonably likely to have a Material Adverse Effect;
(c) there has been no material release by any Acquired Company of a
Hazardous Substance on any Facilities except for releases which are not
reasonably likely to have a Material Adverse Effect; and
(d) none of the Acquired Companies is subject to any pending or, to the
Knowledge of Sellers, threatened Proceedings involving a demand for material
damages or other material potential liability with respect to any alleged
violations of any applicable Environmental Laws.
Section 4.10 Governmental Authorizations. Except as set forth in Schedule
--------------------------- --------
4.10, and except for matters, events and circumstances which are not be
- ----
reasonably expected to have a Material Adverse Effect, to the Knowledge of
Sellers:
(a) the Acquired Companies have maintained all Governmental Authorizations
necessary as of the date of this Agreement to permit the Acquired Companies to
lawfully conduct and operate their businesses in the manner they currently
conduct and operate such businesses and to permit the Acquired Companies to own
and use their assets in the manner in which they currently own and use such
assets, and each such Governmental Authorization is valid and in full force and
effect; and
(b) no Acquired Company has received, at any time since December 31, 1997,
any written notice or other written communication from any Governmental Body
regarding (1) any actual or alleged violation of or failure to comply with any
term or requirement of any Governmental Authorization or (2) any actual or
Threatened revocation, withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization.
Section 4.11 Contracts.
---------
13
<PAGE>
(a) Schedule 4.11 sets forth a list of:
-------------
(1) each Applicable Contract known to Sellers which by its terms
requires aggregate expenditures by any Acquired Company after Closing of
more than $10,000 per year, in each case excluding any Applicable Contract
terminable without penalty or cost to the Acquired Company on not more than
30 days' prior notice;
(2) any indenture, trust, loan agreement or note under which any
Acquired Company has outstanding Indebtedness, obligations or liabilities,
in each case, contingent or otherwise, for borrowed money;
(3) any lease or sublease for the use or occupancy of real property
which involves aggregate expenditures by any of the Acquired Companies of
more than $5,000 per year;
(4) any Applicable Contract that restricts the right of any of the
Acquired Companies to engage in any type of business;
(5) any written warranty, written guaranty, and or other similar
written Applicable Contract entered into by any of the Acquired Companies
and of which Sellers have Knowledge, other than in the Ordinary Course of
Business;
(6) any partnership, joint venture or other similar Applicable
Contract involving a sharing of profits and losses by any of the Acquired
Companies and any other Person; and
(7) all Management Agreements in effect as of the date hereof.
(b) Except as set forth in Schedule 4.11, to the Knowledge of Sellers, each
-------------
Contract identified or required to be identified in Schedule 4.11 is in full
-------------
force and effect and is valid and enforceable in accordance with its terms
subject to Enforceability Limitations.
(c) The rights and benefits of the Acquired Companies under and pursuant to
the Management Agreements set forth in Schedule 4.11 are presently and will be
-------------
property of the Acquired Companies at Closing, except for any Management
Agreements which may be terminated by customers according to the terms of such
Management Agreements or in the Ordinary Course of Business. No Management
Agreement has been pledged as collateral or is subject to any security
arrangement, lease, conditional sales contract or other title retention or
security arrangement. Copies of the current forms of the Management Agreements
used by the Acquired Companies are attached hereto as Schedule 4.11.
-------------
14
<PAGE>
Section 4.12 Real Property.
-------------
(a) Schedule 4.12(a) identifies and describes generally all real property
----------------
owned by any of the Acquired Companies. Except for Permitted Encumbrances and
as set forth in Schedule 4.12(a), the Acquired Companies hold good and
----------------
indefeasible title to such real property free and clear of all Encumbrances;
provided that for purposes of this Agreement, the representation that an
- --------
Acquired Company owns "good and indefeasible title" to real property means and
is limited to a representation and warranty against adverse claims by, through
or under the Acquired Company, but not otherwise, with respect to the period
ending on the Closing Date.
(b) True and accurate copies of all leases of real property by the Acquired
Companies are attached hereto as Schedule 4.12(b). The Acquired Companies are
----------------
in compliance with the terms of such leases and all lease payments are current.
Sellers have not received any notice of default, and to the Knowledge of
Sellers, there exists no dispute, claim or event of default, or event which with
the passage of time or delivery of notice would constitute an event of default,
by Sellers under any leases attached hereto as Schedule 4.12(b).
----------------
(c) Except as disclosed in Schedule 4.12(c), all fixtures, including
----------------
heating, ventilation and air conditioning systems and other similar building
systems, are in good operating condition and repair, normal wear and tear
excepted.
Section 4.13 Personal Property.
-----------------
(a) Schedule 4.13(a) sets forth a list of all Personal Property, which are
----------------
owned by any of the Acquired Companies (the "Owned Personal Property"). Except
-----------------------
as set forth in Schedule 4.13(a), the Acquired Companies have good and
----------------
marketable title to all of such Owned Personal Property, free and clear of all
Encumbrances except for (i) Encumbrances to secure Indebtedness incurred by the
Acquired Companies in connection with the acquisition of such item (such
Indebtedness not to exceed the purchase price of such item) and (ii) Permitted
Encumbrances. All of the Owned Personal Property is in good operating condition
and repair, normal wear and tear excepted.
(b) True and accurate copies of all leases of Personal Property of the
Acquired Companies (the "Leased Personal Property") are attached hereto as
------------------------
Schedule 4.13(b). The Acquired Companies are in compliance with the terms of
- ----------------
such leases and all lease payments are current. All of the Leased Personal
Property is in good operating condition and repair, normal wear and tear
excepted. Sellers have not received any notice of default, and to the Knowledge
of Sellers, there exists no dispute, claim or event of default, or event which
with the passage of time or delivery of notice would constitute an event of
default, by Sellers under any leases attached hereto as Schedule 4.13(b).
----------------
Section 4.14 Litigation. Except as set forth in Schedule 4.14, to the
---------- -------------
Knowledge of Sellers, there are (a) no Proceedings pending or Threatened by or
against any of the Acquired Companies and (b) no Orders entered against any of
the Acquired Companies.
15
<PAGE>
Section 4.15 Taxes.
-----
(a) The Acquired Companies have not within any applicable period of
limitations relating to Taxes been included in a consolidated federal income tax
return filed by any common parent of a consolidated group under Section 1501 et
seq. of the IRC.
(b) There have been, or will have been filed, all Tax Returns that are
required to be filed on or before the Closing Date (giving regard to valid
extensions) by the Acquired Companies, in each case in respect of the Acquired
Companies or their businesses. All of such Tax Returns are or will be true,
accurate and complete in all material respects. True and correct copies of all
such Tax Returns required to be filed since January 1, 1994 (including any
amended Tax Returns) will, upon request of Buyer, be provided to Buyer.
(c) All Taxes for which the Acquired Companies are or will be liable (or
that are imposed with respect to the Acquired Companies) and that are due on or
before the Closing Date (including without limitation Taxes shown to be due on
all Tax Returns filed on or before the Closing Date) have been paid or will be
paid in full on or before the Closing Date, and all Taxes which are required to
be withheld or collected by the Acquired Companies have been duly withheld and
collected and, to the extent required, have been paid to the appropriate
governmental authority or properly deposited as required by applicable law. The
Balance Sheet accurately reflects accruals or reserves for all liabilities for
Taxes accrued by the Acquired Companies on or prior to the date of the Balance
Sheet. Since the date of the Balance Sheet, the Acquired Companies have not
incurred or accrued any liability for Taxes other than in connection with
transactions in the Ordinary Course of Business, and no Acquired Company has
changed its method of accounting for Taxes or any method of accounting used in
calculating Taxes.
(d) As of the date of this Agreement, no taxing authority has asserted or,
to the knowledge of Sellers, Threatened to assert any deficiency or assessment,
or proposed (formally and informally) any adjustment, for any Taxes against the
Acquired Companies, except for the Taxes listed on Schedule 4.15(d), and to the
----------------
knowledge of Sellers, there are no audits or investigations by any taxing
authority with respect to any Tax liability of the Acquired Companies except as
set forth on Schedule 4.15(d). In the event any Acquired Company or any Seller
----------------
becomes aware of any such asserted or, to the knowledge of Sellers, Threatened
deficiency or assessment, or any investigation or audit, after the date of this
Agreement, Sellers will immediately notify Buyer of the same.
(e) Schedule 4.15(e) sets forth all foreign Tax Returns required to be
----------------
filed by the Acquired Companies since January 1, 1994 and all foreign Taxes for
which the Acquired Companies have been liable since January 1, 1994 or will be
liable as of the Closing Date.
(f) Except as set forth on Schedule 4.15(f), neither Sellers nor the
----------------
Acquired Companies have entered into, or will, at any time, enter into any
contract or arrangement with any "disqualified individual" within the meaning of
Section 280G(c) of the IRC with respect to
16
<PAGE>
the Acquired Companies which may result in the making of any "parachute payment"
within the meaning of Section 280G(b)(2) of the IRC to any such "disqualified
individual."
(g) Schedule 4.15(g) sets forth the amount, as of the date of the Balance
----------------
Sheet, of (1) all federal, state or local net operating loss, tax credit or
charitable contribution carryovers available to the Acquired Companies and (2)
the tax basis of the Acquired Companies' assets, by reasonable category,
reflected in the Balance Sheet, and includes an explanation of how such items
are reflected in the Balance Sheet. The Acquired Companies have provided to
Buyer complete and materially accurate workpapers supporting the "Deferred
Taxes" or similar account on the Balance Sheet.
(h) Schedule 4.15(h) sets forth all federal income tax elections that have
----------------
been made or will be made by Sellers and the Acquired Companies with respect to
the Acquired Companies with respect to any period ending on or prior to the
Closing Date that will apply to any subsequent period.
(i) Except as set forth in Schedule 4.15(i), none of the Acquired Companies
----------------
is a party to nor has assumed (i) any "safe harbor" lease described in Section
168(f)(8) of the Internal Revenue Code of 1954; (ii) any "corporate acquisition
indebtedness" as defined in Section 279(b) of the IRC or any obligations
described in Section 279(a) of the IRC; (iii) any agreement with respect to
industrial development bonds or similar tax-exempt obligations the tax
characteristics of which may be affected by the transactions contemplated by
this Agreement; (iv) any waiver or agreement extending the statute of
limitations with respect to any Tax; (v) any tax sharing or similar agreement;
or (vi) any power of attorney currently in force with respect to Taxes.
(j) Except as set forth in Schedule 4.15(j), none of the following has been
----------------
filed with respect to the Acquired Companies: (i) a consent described in Section
341(f) of the IRC or (ii) any deemed or actual elections under Section 338 of
the IRC.
(k) The Acquired Companies have provided to Buyer a true and correct copy
of any and all correspondence of the Acquired Companies with the Internal
Revenue Service (the "Service"), including, without limitation, all Revenue
Agent Response letters prepared by the Service with respect to the Taxes owed
and Tax Returns prepared by the Acquired Companies since January 1, 1994.
(l) The Acquired Companies are not, and have not been at any time during
the five-year period ending on the Closing Date, a "United States real property
holding corporation" as defined in Section 897(c) of the IRC and applicable
regulations thereunder."
Section 4.16 Employment and Labor Matters. Schedule 4.16 sets forth a
---------------------------- -------------
true and accurate list of all employees of the Acquired Companies, including
those employees who are on leave as of May 14, 1998 (the "Affected Employees")
------------------
and their positions, vacation benefits, dates of hire, full or part time status
and annual compensation for the current fiscal year. There
17
<PAGE>
is neither pending nor, to the Knowledge of Sellers, Threatened, by or against
any Acquired Company, any labor dispute, strike, work stoppage or organizational
effort or any charge or complaint of an unfair labor practice or similar charge
against any of the Acquired Companies. The Acquired Companies have not signed
any currently effective collective bargaining or union agreement. Sellers shall
have caused the Acquired Companies to deliver to Buyer true and accurate copies
of all employee policies and handbooks at or prior to the Closing Date.
Section 4.17 Employee Benefit Plans and Employment Agreements. (a) True
------------------------------------------------
and accurate copies or descriptions of (1) all "employee welfare benefit plans"
or "employee pension benefit plans" as those terms are respectively defined in
sections 3(1) and 3(2) of ERISA, (2) all retirement or deferred compensation
plans, incentive compensation plans, stock plans, unemployment compensation
plans, vacation pay, severance pay, bonus or benefit arrangements, insurance or
hospitalization programs or any other fringe benefit arrangements, whether
pursuant to any Contract, arrangement, custom or informal understanding, which
do not constitute "employee benefit plans" as defined in section 3(3) of ERISA
and (3) all employment agreements, covering any Affected Employee (collectively,
the "Benefit Plans") are attached as Schedule 4.17; and (b) to the Knowledge of
------------- -------------
Sellers, (1) all Benefit Plans comply and have been administered in form and in
operation in all respects with all material requirements of Law, (2) no event
has occurred which will or could cause any such Benefit Plan to fail to comply
with such requirements and (3) no notice has been issued by any Governmental
Body questioning or challenging such compliance. No material proceeding is
pending nor, to the Knowledge of the Sellers, Threatened against the Benefit
Plans. To the Knowledge of Sellers, there are no facts which may give rise to
any claims, other than routine claims, against any of the Benefit Plans. No
Affected Employee is entitled to any retirement benefits, other than as set
forth under the Benefit Plans.
Section 4.18 Intellectual Property.
---------------------
(a) Schedule 4.18(a) sets forth a list of all material United States
----------------
registered patents, registered trademarks, registered trade names, registered
service marks, registered copyrights (including registered architectural
copyrights) and applications therefor, (together, "Intellectual Property"),
---------------------
which are owned by any of the Acquired Companies. Except as set forth in
Schedule 4.18(a), to the Knowledge of Sellers, (1) the Acquired Companies own
- ----------------
all right, title and interest in and to the Intellectual Property free and clear
of all material Encumbrances except for Permitted Encumbrances, and (2) none of
the Intellectual Property is the subject of any material claim or challenge
asserted by any third party. To the Knowledge of Sellers, no Person is
misusing, or has misappropriated, in any material respect, any Intellectual
Property.
(b) Schedule 4.18(b) sets forth a list of all material unregistered
----------------
intellectual property which is owned by any of the Acquired Companies. Except
as set forth in Schedule 4.18(b), to the Knowledge of Sellers, (1) the use of
----------------
such unregistered intellectual property by the Acquired Companies does not
infringe on any Intellectual Property owned by any third party, (2) the Acquired
Companies have neither authorized nor licensed to any unrelated third parties
the use of such unregistered intellectual property, (3) no Person is using the
name "Kestrel" in
18
<PAGE>
the conduct of a business similar to the business of the Acquired Companies in
Dallas, Texas or Houston, Texas and (4) none of such unregistered intellectual
property is the subject of any claim by any third party.
Section 4.19 Insurance. Schedule 4.19 sets forth a list of all (a)
--------- -------------
policies of insurance (other than title insurance policies) to which any
Acquired Company is a party or under which any Acquired Company, or any director
of any Acquired Company, is covered as of the date of this Agreement and (b)
pending applications for policies of insurance. Except as set forth on Schedule
--------
4.19, to Sellers' Knowledge, the policies set forth in Section 4.19 are valid,
- ---- ------------
outstanding, and enforceable.
Section 4.20 Brokers. Sellers and their agents have incurred no
-------
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement for which Buyer or any of the Acquired Companies will be liable.
Section 4.21 Bank Accounts. Schedule 4.21 sets forth (a) the names and
------------- -------------
locations of each bank or other financial institution at which any of the
Acquired Companies has an account (giving the account numbers) or safe deposit
box and (b) the names of all directors, officers and Persons who are authorized
to sign or endorse checks on behalf of any of the Acquired Companies.
Section 4.22 Subsidiaries. Schedule 4.22 sets forth a list of all the
------------ -------------
Subsidiaries of Kestrel as of the Closing Date. Except as set forth in Schedule
--------
4.22, Kestrel does not own, directly or indirectly through its Subsidiaries, any
- ----
capital stock, security, partnership interest or other interest of any kind in
any other corporation, partnership, joint venture, association or other entity.
Section 4.23 Certain Disclaimers. EXCEPT AS EXPRESSLY PROVIDED IN THIS
-------------------
ARTICLE 4, SELLERS MAKE NO REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, AS
- ---------
TO (A) THE MAINTENANCE, REPAIR, CONDITION, DESIGN, WORKMANSHIP, SUITABILITY,
UTILITY OR MARKETABILITY OF ANY OF THE ASSETS OR PROPERTIES OF, OR FORMERLY
OWNED BY, THE ACQUIRED COMPANIES OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER
LATENT OR PATENT, OR (B) ANY MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE OR
THAT WILL BE MADE AVAILABLE OR COMMUNICATED TO BUYER OR ITS AGENTS, CONSULTANTS
OR REPRESENTATIVES IN CONNECTION WITH THIS AGREEMENT OR THE CONTEMPLATED
TRANSACTIONS OR ANY DISCUSSION OR PRESENTATION RELATING THERETO. SELLERS
EXPRESSLY DISCLAIM ANY (AND MAKES NO) IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IT IS THE EXPRESS
AGREEMENT OF THE PARTIES THAT EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE 4 OF
---------
THIS AGREEMENT, BUYER WILL ACQUIRE THE SHARES WITHOUT REPRESENTATION
19
<PAGE>
OR WARRANTY AND WITH THE PROPERTY, ASSETS AND BUSINESS OF THE ACQUIRED COMPANIES
ON AN "AS IS, WHERE IS AND WITH ALL FAULTS" BASIS.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES BY BUYER
Buyer represents and warrants to Sellers, as of the date of this Agreement
and as of the Closing Date, as follows:
Section 5.1 Organization and Good Standing. Buyer is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Pennsylvania, and has all requisite corporate power and authority to carry on
its business as the same is now being conducted.
Section 5.2 Authority. Buyer has full capacity to execute, deliver and
---------
perform this Agreement and to consummate the Contemplated Transactions. This
Agreement constitutes the legal, valid and binding obligation of Buyer,
enforceable in accordance with its terms.
Section 5.3 No Conflict; Consent.
--------------------
(a) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will:
(1) contravene, conflict with, or result in a violation of (i) any
provision of the Organizational Documents of Buyer, (ii) any resolution
adopted by the board of directors or the stockholders of Buyer, or (iii)
any Contract; or
(2) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions.
(b) Except as set forth in Schedule 5.3(b), no notice to, filing with,
---------------
authorization of, approval by, or Consent of any Person is required for the
consummation of any of the Contemplated Transactions. To the Knowledge of
Buyer, there is no basis to believe any of the Consents set forth in Schedule
--------
5.3(b) will not be given or obtained.
- ------
Section 5.4 Brokers. Buyer has incurred no obligation or liability,
-------
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
20
<PAGE>
Section 5.5 Sufficient Funds. Buyer has sufficient internal resources or
----------------
financing commitments from responsible financial institutions which are in an
aggregate amount sufficient to consummate the Contemplated Transactions.
Section 5.6 DTPA Waiver. Buyer is not a "consumer" as defined in the
-----------
Texas Deceptive Trade Practices-Consumer Protection Act, as amended (the
"DTPA"), and, after consulting with its counsel, hereby voluntarily waives (to
----
the extent applicable) all of its rights under the DTPA (a law that gives
consumers special rights and protections).
Section 5.7 Investment Representation. Buyer (i) understands that the
-------------------------
Shares have not been, and will not be, registered under the Securities Act or
under any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving a public offering;
(ii) is acquiring the Shares solely for its own account and for investment
purposes, and not with a view to the distribution thereof; (iii) is a
sophisticated investor with knowledge and experience in business and financial
matters; (iv) has had the opportunity to obtain such information concerning the
Acquired Companies as it desired, and to acquire such additional information
about the business and financial conditions of the Acquired Companies as Buyer
has requested, in order to evaluate the risks of purchasing and owning the
Shares; provided that Buyer acknowledges that Sellers make no representation or
--------
warranty regarding the foregoing information except to the extent expressly set
forth in Article 4; and (v) is able to bear the economic risk and lack of
---------
liquidity inherent in owning and holding the Shares. This representation shall
not restrict Buyer's right to rely on the representations and warranties
contained in this Agreement subject to the other limitations set forth in this
Agreement.
Section 5.8 Litigation. To Buyer's Knowledge there is no pending or
----------
Threatened Proceeding by or against Buyer that challenges, or that seeks to
prevent, delay or make illegal any of the Contemplated Transactions.
Section 5.9 Buyer's Due Diligence. The Buyer is a sophisticated legal
---------------------
entity that was advised by knowledgeable counsel and other representatives in
connection with this Agreement, and it and its representatives have been
permitted full and complete access to the books and records, facilities,
equipment, contracts and other documents, properties and assets of each of the
Acquired Companies, and the Buyer has had a full opportunity to meet with the
officers and employees of each of the Acquired Companies to discuss the business
of each of the Acquired Companies and such other matters relating thereto and
the consummation of the transactions contemplated by this Agreement as the Buyer
has elected to review.
21
<PAGE>
ARTICLE 6.
COVENANTS OF SELLERS
Section 6.1 Conduct of Business. Between the date of this Agreement
-------------------
and the Closing Date, Sellers will, and will cause each of the Acquired
Companies to conduct their respective businesses in substantially the same
manner as conducted and maintained prior to the date of this Agreement and to
use Reasonable Efforts to preserve the present goodwill and advantageous
business relationships of the businesses of the Acquired Companies.
Section 6.2 Access. From the date hereof until the Closing Date,
------
Sellers shall cause each Acquired Company to afford to Buyer and its legal
counsel, accountants and other authorized Representatives, at the Buyer's sole
expense, risk and cost, reasonable access during normal business hours, to their
respective personnel, properties, books and records (including, without
limitation, copies of title insurance policies, purchase contracts, warranty
records, insurance claims files and litigation files), Contracts, operating
instructions and procedures, Tax Returns and all other information with respect
to the business of the Acquired Companies, in each case as Buyer (or its
Representatives) may from time to time reasonably request in connection with
Buyer's proposed purchase of Shares pursuant to this Agreement, and to make
copies of such books, records and other documents. Buyer acknowledges that
Sellers make no representation or warranty with respect to the books and records
(including, without limitation, copies of title insurance policies, purchase
contracts, warranty records, insurance claims files and litigation files),
Contracts, operating instructions and procedures, Tax Returns and other
information described in this Section 6.2, except as expressly provided in
-----------
Article 4 of this Agreement
- ---------
Section 6.3 Restricted Activities. Except as set forth in Schedule
---------------------
6.3, none of the Acquired Companies shall:
(a) amend its Articles of Incorporation or Bylaws;
(b) issue, sell, pledge or dispose of any shares of its capital
stock, or grant or issue any options, warrants or other rights calling for the
issue thereof, split, combine or reclassify any Shares, declare, set aside or
pay any dividend with respect to the Shares or redeem, purchase or offer to
acquire any Shares;
(c) except in the ordinary course of business, sell, dispose of or
encumber (other than Permitted Liens) any of its material properties or assets;
(d) except for salary increases or other changes in employee benefits
in the ordinary course of business and except as required by law, increase or
otherwise change the rate or nature of compensation paid or payable to employees
or adopt or amend any profit sharing, compensation, bonus, deferred
compensation, pension, retirement or other similar employee
22
<PAGE>
benefit plan, or any employment, severance or other agreement, fund or trust for
the benefit or welfare of any employee of the Acquired Companies;
(e) make any material changes in its accounting principles or
practices;
(f) make any expenditures for fixed assets in excess of $500,000;
(g) loan or advance funds to, or forgive any debt of, any Person,
except in the ordinary course of business;
(h) merge into or with or consolidate with any other Person or
acquire all or substantially all of the business or assets of any other Person;
or
(i) enter into any agreement to do any of the foregoing.
Section 6.4 No Solicitation. Until such time, if any, as this
---------------
Agreement is terminated pursuant to Article 10, prior to Closing Sellers will
----------
not, and will cause each of the Acquired Companies and each of their
Representatives no to, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with or provide any non-
public information to any Person (other than Buyer) relating to any transaction
involving the sale of the business or assets (other than a sale of assets in the
Ordinary Course of Business) of any Acquired Company, or any of the capital
stock of any Acquired Company, or any merger, consolidate, business combination,
or similar transaction involving any Acquired Company.
Section 6.5 Governmental Authorizations. Between the date of this
---------------------------
Agreement and the Closing Date, at Buyer's request, Sellers will, and will cause
the Acquired Companies to, assist and cooperate with Buyer in Buyer's efforts to
obtain any Governmental Authorizations which may be required in order to
consummate the Contemplated Transactions; provided that Sellers shall not be
--------
required to incur any expense or liability in connection with such assistance
and cooperation.
Section 6.6 Insurance. Between the date of this Agreement and the
---------
Closing Date, Sellers will, and will cause the Acquired Companies to, use their
Reasonable Efforts to maintain insurance coverage substantially as described in
Schedule 4.19.
- -------------
Section 6.7 Real and Personal Property. Between the date of this
--------------------------
Agreement and the Closing Date, Sellers will, and will cause the Acquired
Companies to, use their Reasonable Efforts to maintain the real property and
Owned Personal Property described in Schedules 4.12(a) and 4.13(a),
----------------- -------
respectively, in good repair, normal wear and tear excepted.
Section 6.8 Taxes. Sellers will, and will cause the Acquired
-----
Companies to, cause their accountants to, cooperate with Buyer and its
independent public accounts for the purpose of providing Buyer with (i) the
procedures followed for filing state and local sales and use Tax Returns by or
on behalf of the Acquired Companies (ii) the procedures followed for filing
real,
23
<PAGE>
personal and intangible property Tax Returns by or on behalf of the Acquired
Companies; and (iii) the method used by or on behalf of the Acquired Companies
for determining whether a nexus exists in a particular jurisdiction for purposes
of income, franchise, sales and use Taxes, including the manner in which the
Acquired Companies solicit and maintain business in each jurisdiction in which
they have or do business.
Section 6.9 Noncompetition. For a period of five years following the
--------------
Closing Date, and except as to B, G & L, no Seller shall, directly or
indirectly, including through KSA, (a) engage in any business operation
substantially similar to the businesses of the Acquired Companies as the same is
conducted on the Closing Date, either as an owner, consultant, manager,
associate, employee, partner, agent, principal or otherwise, within 250 miles of
any location at which the Acquired Companies conduct any portion of such
businesses as of the Closing Date; provided, however, Sellers shall be permitted
-------- -------
to continue to operate KSA and to manage KSA's Latin American as well as any
other off-shore business operations through offices located in the state of
Texas or anywhere else in the United States of America, or (b) solicit, induce,
encourage or attempt to influence any client, customer, employee, consultant,
independent contractor or supplier of the Acquired Companies, Buyer or any of
its affiliates to cease to do business (or reduce the amount of business) or
terminate his or her employment with the Acquired Companies, Buyer or any of its
affiliates. B, G & L each represent that they are passive investors in the
Acquired Companies and have never engaged, and do not currently intend to
engage, in any records storage and data management business competing with the
Acquired Companies. The above representation notwithstanding, B, G & L each
covenant only that they will not, during the five-year period following the
Closing, solicit any records storage and data management business from any
Persons who are customers of the Acquired Companies on the date hereof and as of
the Closing Date. Each Seller acknowledges that the restrictions contained in
this Section 6.9 are reasonable and necessary to protect the legitimate
-----------
interests of Buyer, and that any violation of this Section 6.9 will result in
-----------
irreparable injury to Buyer and that money damages would not provide an adequate
remedy to Buyer, and, therefore, Buyer shall be entitled to preliminary and
permanent injunctive relief in any court of competent jurisdiction and to an
equitable accounting of all earnings, profits and other benefits arising from
such violation, which rights shall be cumulative and in addition to any other
rights or remedies to which Buyer may be entitled. If any portion of the
covenants or agreements contained in this Section 6.9 or the application thereof
-----------
is held to be invalid or unenforceable, then the other portions of such
covenants or agreements or the application thereof shall not be affected and
shall be given full force and effect without regard to the invalid or
unenforceable portions. If any covenant or agreement herein is held to be
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
Section 6.10 Required Approvals. As promptly as practicable after
------------------
the date of this Agreement, Sellers will make all filings required by Legal
Requirements to be made by it, including all filings required by the HSR Act, in
order to consummate the Contemplated Transactions. Between the date of this
Agreement and the Closing Date, Sellers will (a)
24
<PAGE>
cooperate with Buyer with respect to all filings that Buyer is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b)
cooperate with Buyer in obtaining all consents identified in Schedule 5.3(b).
---------------
Section 6.11 KSA. Prior to the Closing, Sellers will, and will
---
cause Kestrel to, take all actions necessary to divest Kestrel of its ownership
interests in KSA by means of a dividend distribution of the stock of KSA to
Sellers.
ARTICLE 7.
COVENANTS OF BUYER
Section 7.1 Required Approvals. As promptly as practicable after the
------------------
date of this Agreement, Buyer, at its expense, will make all filings required by
Legal Requirements to be made by it, including all filings required by the HSR
Act, in order to consummate the Contemplated Transactions. Between the date of
this Agreement and the Closing Date, Buyer will (a) cooperate with Sellers with
respect to all filings that Sellers are required by Legal Requirements to make
in connection with the Contemplated Transactions, and (b) cooperate with Sellers
in obtaining all consents identified in Schedule 4.5(b).
---------------
Section 7.2 Preservation of Books and Records. For a period of seven
----------------------------------
(7) years after the Closing Date, Buyer shall (a) preserve and retain the
corporate, accounting, Tax, legal auditing and other books and records of each
Acquired Company and (b) make such books and records available at the then
current administrative headquarters of each Acquired Company (or any successor
thereto) to Sellers (and Sellers' successors and assigns) and any partners,
shareholders, officers, employees, trustees, beneficiaries, representatives,
agents and Affiliates of Sellers (and their successors and assigns), upon
reasonable notice and at reasonable times, it being understood that any such
Person shall be entitled to make and retain copies of any such books and records
as it shall deem necessary; provided that any such Person agrees to keep such
--------
information confidential except as required in governmental filings or in any
Proceeding.
Section 7.3 Names. Sellers shall retain the right to the name
-----
"Kestrel" for use in KSA and in all activities conducted outside the United
States of America. Sellers will not oppose the use by Buyer of the name
"Kestrel" in the United States of America for that period of time necessary for
Buyer to exhaust supplies which currently carry the name "Kestrel"and to phase
in its own name, which period shall not exceed three (3) years from the Closing
Date.
Section 7.4 Certain Tax Matters. After Closing, Buyer shall be
-------------------
responsible for causing the Acquired Companies to file on a timely basis all Tax
Returns required to be filed by the Acquired Companies at any time after
Closing, including Tax Returns that relate in whole or in part to periods prior
to Closing, and to cause the Acquired Companies to pay all Taxes shown as due
therein. Prior to filing Tax Returns that relate in whole or in part to periods
prior to Closing, Buyer shall deliver copies thereof to Sellers and give Sellers
an opportunity to provide
25
<PAGE>
Buyer with comments with respect thereto. Buyer shall prepare such Tax Returns
on a basis consistent with the Tax Returns prepared for prior taxable periods.
In the event Buyer or any of the Acquired Companies receives any communication
regarding any pending or Threatened examination, claim, adjustment or other
Proceeding with respect to the liability of any Acquired Company for Taxes (a)
for any period prior to Closing and (b) for which Buyer seeks indemnification
under Article 10 hereof, in addition to the notice provision of Section 10.6,
---------- ------------
Buyer shall promptly notify Sellers in writing thereof. Buyer shall, and shall
cause the Acquired Companies to, keep Sellers apprised of the negotiations of
any settlement of any proceedings described in this Section 7.4, and, without
-----------
Sellers' prior written consent, Buyer shall not, and shall not permit the
Acquired Companies to, pay or settle any such proceeding which would give rise
to a claim of indemnification against Sellers under Article 10 of this
----------
Agreement. Buyer shall cause the Acquired Companies to preserve and retain all
Tax Returns, work papers and other documents relating to such Tax Returns or
proceedings until the expiration of the statutory period of limitations (with
regard to waivers and extensions) of the taxable periods to which such documents
relate, and shall make such documents available to Sellers and their
representatives and advisers upon reasonable notice and at reasonable times, it
being understood that Sellers and such representatives and advisers shall be
entitled to make copies of such books and records.
Section 7.5 Public Announcements. Any public announcement or similar
--------------------
publicity with respect to this Agreement or the Contemplated Transactions will
be issued, if at all, at such time and in such manner as Buyer and Sellers
jointly determine. The foregoing shall not limit Sellers' or Buyer's ability to
comply with any disclosure obligations which, in the opinion of such party's
counsel, is required by any Legal Requirement or stock exchange rule, provided
that before Sellers or Buyer, as the case may be, make any such disclosure, the
proposed disclosure must be circulated to the other party hereto.
Section 7.6 Confidentiality. Buyer shall abide by all of its
---------------
obligations under the Confidentiality Agreement dated as of March 6, 1998 (the
"Confidentiality Agreement"), between Kestrel and Buyer, including, without
-------------------------
limitation, that Buyer shall cause all such information of a non-public nature
to be retained confidentially and shall require that its officers, employees and
agents maintain the confidentiality of such information. If this Agreement is
terminated, Buyer shall promptly return all such information (including copies
of such information) and return or destroy all analyses, compilations, studies
and other documents of or prepared by Buyer from such information (and confirm
to Sellers in writing that it has done so).
Section 7.7 Acquired Companies. After Closing, Buyer shall cause the
------------------
Acquired Companies to comply with any post-closing covenants contained in this
Agreement which are applicable to such Acquired Companies.
26
<PAGE>
Section 7.8 Financing. Buyer shall use its best efforts to obtain
---------
acquisition financing on terms and conditions reasonably acceptable to it in
order to consummate the transactions contemplated herein and shall send Sellers
notice thereof no later than June 12, 1998; provided, however, that if the
Sellers fail to provide Buyer with access to the financial records of the
Acquired Companies and such failure results in a delay in completion of Buyer's
financial due diligence examination, such date shall be extended by one day for
each and every day that Sellers delay Buyer's access to such records.
ARTICLE 8.
CONDITIONS TO CLOSING
Section 8.1 Conditions to the Obligations of Buyer. The obligations
--------------------------------------
of Buyer to proceed with the Closing are subject to the satisfaction on or prior
to the Closing Date of all of the following conditions, any one or more of which
may be waived, in whole or in part, by Buyer:
(a) Accuracy of Representations. All of Sellers' representations and
---------------------------
warranties in this Agreement shall be accurate in all material respects as of
the Closing Date as if made on the Closing Date, after giving effect to any
supplement to the Schedules after the date hereof.
(b) Sellers' Performance. All of the covenants and obligations that
--------------------
Sellers are required to perform or to comply with pursuant to this Agreement at
or prior to the Closing shall have been duly performed and complied with in all
material respects.
(c) Consents. Each of the Consents identified in Schedules 4.5(b),
-------- ----------------
and 5.3(b) shall have been obtained and shall be in full force and effect. Any
------
applicable waiting period under the HSR Act shall have expired or been
terminated without action by the FTC or the Antitrust Division to prevent
consummation of this Agreement.
(d) Additional Documents. Each of the following documents shall have
--------------------
been received by Buyer:
(1) certificates representing all of the Shares, duly endorsed (or
accompanied by duly executed stock powers) for transfer to Buyer;
(2) each of the following, dated as of a date not more than 30 days
prior to the Closing Date: (A) a certificate of existence issued by the
Secretary of State of Texas certifying to the existence of each Acquired
Company and (B) a certificate of account status issued by the Comptroller
of Public Accounts for the State of Texas certifying to each Acquired
Company's having paid all franchise taxes as of the date of such
certificate; and
27
<PAGE>
(3) for each Acquired Company, a Secretary's Certificate certifying
that attached thereto are true and complete copies of such Acquired
Company's Articles of Incorporation and Bylaws.
(4) a certificate executed by all Sellers, dated as of the Closing
Date, certifying that: (a) all of the representations and warranties of
Sellers contained in this Agreement and the Exhibits and Schedules hereto
are true and correct as of the Closing Date to the same extent as if made
on such date; (ii) all agreements and covenants of the Acquired Companies
and Sellers required by this Agreement to have been performed or complied
with on or prior to the Closing Date have been so performed or complied
with and (iii) all corporate action required of the Acquired Companies and
Sellers to authorize the consummation of the transactions and agreements
provided for herein has been taken;
(5) an opinion of counsel for Sellers in the form of Exhibit A
hereto;
(6) an Escrow Agreement in the form of Exhibit B hereto, duly
executed by Sellers and Escrow Agent;
(7) letters of resignation executed by each officer or director of
any of the Acquired Companies, dated as of the Closing Date;
(8) general releases executed by each officer or director of any of
the Acquired Companies in favor of the Acquired Companies, in form and
substance reasonably satisfactory to Buyer, which general releases release
the Acquired Companies from all liability to such Seller;
(9) estoppel certificates, subordination agreements and non-
disturbance agreements from the landlords of the leases set forth in
Schedule 4.12(b); and
----------------
(10) with respect to any qualified retirement plans of the Acquired
Companies: (i) copies of the resolutions of the board of directors of the
Acquired Companies terminating such plan; (ii) a copy of the amendment to
such plan effecting its termination; and (iii) a copy of the Form 5310
filed with the IRS in connection with the termination of such plan.
(e) No Proceedings. Since the date of this Agreement, there shall not have
--------------
been commenced or Threatened against Buyer, any Proceeding (1) involving any
challenge to, or seeking damages or other relief in connection with, any of the
Contemplated Transactions or (2) that may have the effect of preventing,
delaying or making illegal any of the Contemplated Transactions.
(f) No Prohibition. Neither the consummation nor the performance of any of
--------------
the Contemplated Transactions will materially contravene, or conflict with, or
result in a material
28
<PAGE>
violation of, or cause Buyer to suffer any material adverse consequence under
any applicable Legal Requirement or Order enacted after the date of this
Agreement.
(g) Environmental Audit. A Phase I environmental audit or assessment shall
-------------------
have been completed with respect to each of the real property described in
Schedule 4.12(a), performed by a firm acceptable to Buyer, the results of which
- ----------------
shall be in form and substance reasonably acceptable to Buyer.
(h) No Material Change. Between the date of this Agreement and the Closing
------------------
Date, there shall not have been any material change in the condition (financial
or otherwise), results of operation, personal and real property, other assets
and liabilities of the Acquired Companies that could reasonably be expected to
involve an adverse effect on any of the Acquired Companies of at least $350,000.
(i) Financing. Buyer shall have obtained acquisition financing on terms
---------
and conditions reasonably acceptable to it in order to consummate the
transactions contemplated herein; provided, however, that this condition shall
lapse and be deemed waived by Buyer if not exercised by giving notice to Sellers
on or prior to June 12, 1998, or such later date as provided in Section 7.8.
-----------
(j) KSA. Kestrel shall have distributed all of its ownership interest in
---
KSA to the Sellers.
(k) Delivery of Schedules. The parties have executed this Agreement
---------------------
without all of the Schedules having been delivered to Buyer. Sellers shall have
delivered to Buyer all Schedules required by this Agreement within ten (10) days
after the date hereof, and all such Schedules shall be in form and content
acceptable to Buyer. The schedules shall include all documents required to be
attached thereto. All such Schedules shall be deemed accepted by Buyer and this
condition to Buyer's obligations hereunder shall be waived unless Buyer has
notified the Sellers of its objection to the form or content of the Schedules
within five (5) business days of their receipt by Buyer.
Section 8.2 Conditions to the Obligations of Sellers. The obligations of
----------------------------------------
Sellers to proceed with the Closing are subject to the satisfaction on or prior
to the Closing Date of all of the following conditions, any one or more of which
may be waived, in whole or in part, by Sellers:
(a) Accuracy of Representations. All of Buyer's representations and
---------------------------
warranties in this Agreement shall be accurate in all material respects as of
the Closing Date as if made on the Closing Date.
(b) Buyer's Performance. All of the covenants and obligations that Buyer
-------------------
is required to perform or to comply with pursuant to this Agreement at or prior
to the Closing shall have been performed and complied with in all material
respects.
29
<PAGE>
(c) Consents. Each of the Consents identified in Schedules 4.5(b), and
-------- ----------------
5.3(b) shall have been obtained and shall be in full force and effect. Any
- ------
applicable waiting period under the HSR Act shall have expired or been
terminated without action by the FTC or the Antitrust Division to prevent
consummation of this Agreement.
(d) Purchase Price. Buyer shall have delivered the Purchase Price to
--------------
Sellers, by wire transfer of immediately available funds directly to an account
or accounts designated by Sellers as set forth in Exhibit D attached hereto.
(e) Additional Documents. Each of the following documents shall have been
--------------------
received by Sellers:
(1) an opinion of counsel for Buyer in the form of Exhibit C hereto; and
(2) an Escrow Agreement in the form of Exhibit B hereto, duly executed by
Buyer and Escrow Agent.
(f) No Injunction. Since the date of this Agreement, there shall not have
-------------
been commenced or Threatened against Sellers, or against any Person affiliated
with Sellers, any Proceeding (1) involving any challenge to, or seeking damages
or other relief in connection with any of the Contemplated Transactions or (2)
that may have the effect of preventing, delaying, making illegal or otherwise
interfering with any of the Contemplated Transactions.
(g) No Prohibition. Neither the consummation nor the performance of any of
--------------
the Contemplated Transactions will materially contravene, or conflict with, or
result in a material violation of, or cause Sellers or any Person affiliated
with Sellers to suffer any material adverse consequence under any applicable
Legal Requirement or Order enacted after the date of this Agreement.
(h) Financing. Sellers shall have received a notice from Buyer that Buyer
---------
has failed to receive acquisition financing on terms and conditions reasonably
acceptable to Buyer.
(i) KSA. Kestrel shall have distributed all of its ownership interest in
---
KSA to the Sellers.
ARTICLE 9.
TERMINATION
Section 9.1 Termination Events. This Agreement may, by written notice
------------------
given prior to or at the Closing, be terminated:
30
<PAGE>
(a) by either Buyer or Sellers if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach has not
been waived;
(b) (1) by Buyer if any of the conditions in Section 8.1 has not been
-----------
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (2) by Sellers, if any of the conditions in Section
-------
8.2 has not been satisfied as of the Closing Date or if satisfaction of such a
- ---
condition is or becomes impossible (other than through the failure of Sellers to
comply with its obligations under this Agreement) and Sellers have not waived
such condition on or before the Closing Date; provided, however, that in the
-------- -------
event all of the conditions in Section 8.1 and Section 8.2 have been satisfied
----------- -----------
except (A) solely the condition with respect to obtaining any required consents,
authorizations or required approvals under the HSR Act as set forth in Section
-------
8.1(c) and Section 8.2(c), respectively, and (B) such failure was not due to any
- ------ --------------
unreasonable delay by the non-terminating party in making any filings required
under the HSR Act, such Closing Date shall be automatically extended to such
date that is ten (10) days after the expiration or termination of any applicable
waiting period under the HSR Act without action by the FTC or the Antitrust
Division to prevent consummation of this Agreement; provided, however, that in
-------- -------
no event shall such Closing Date be extended beyond August 1, 1998 unless
extended by the mutual agreement of Buyer and Sellers.
(c) by mutual written consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before July 10, 1998 or
such later date as the parties may agree upon in writing; provided, however,
-------- -------
that if the Closing has not occurred (1) solely because any applicable waiting
period under the HSR Act shall not have expired or terminated and (2) did not
result from any unreasonable delay by the non-terminating party in making any
filings required under the HSR Act, such date shall be automatically extended
such date that is ten (10) days after the expiration or termination of any
applicable waiting period under the HSR Act without action by the FTC or the
Antitrust Division to prevent consummation of this Agreement; provided, however,
-------- -------
that in no event shall such date be extended beyond August 1, 1998 unless
extended by the mutual agreement of Buyer and Sellers.
Section 9.2 Effect of Termination. Each party's right of termination
---------------------
under Section 9.1 is in addition to any other rights it may have under this
-----------
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
-------
9.1, all further obligations of the parties under this Agreement will terminate,
- ---
except that the obligations in Sections 7.7, 11.1 and 11.3 will survive;
------------------ ----
provided, however, that if this Agreement is terminated by a party because of
- -------- -------
the Breach of the Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the other party's failure to comply with its
31
<PAGE>
obligations under this Agreement, the terminating party's right to pursue its
remedies under Article 10 hereof, will survive such termination unimpaired.
----------
ARTICLE 10.
INDEMNIFICATION
Section 10.1 Survival; Right to Indemnification Affected by Knowledge.
--------------------------------------------------------
All representations, warranties, covenants, and obligations in this Agreement,
the Schedules, the supplements to the Schedules and other certificates and
documents delivered pursuant to this Agreement will survive the Closing;
provided that Sellers' representations and warranties shall expire on December
- --------
31, 1999 except for the Tax Warranty, which shall survive until the Tax Statute
of Limitations Date. No claim for indemnification may be made against Sellers
under this Agreement unless Buyer notifies Sellers of a bona fide claim
specifying the factual basis of that claim in reasonable detail to the extent
then known (without regard to the definition of "Knowledge" contained in this
Agreement) by Buyer on or before the date of expiration of the applicable
representation, warranty, covenant or obligation.
Section 10.2 Indemnification by Sellers. Sellers, severally in proportion
--------------------------
to their respective ownership interest in Kestrel immediately prior to the
Closing, agree to indemnify the Buyer, its officers, directors, employees,
agents and representatives (collectively, the "Buyer Indemnified Parties")
-------------------------
against, and agrees to hold each of the Buyer Indemnified Parties harmless from,
any and all Losses incurred or suffered by any of them relating to or arising
out of or in connection with any of the following:
(a) any breach of or any inaccuracy in any representation or warranty made
by the Sellers in this Agreement; or
(b) any breach of or failure by any Seller to perform any covenant or
obligation of Sellers set out in or contemplated by this Agreement.
(c) any obligations of KSA.
Section 10.3 Indemnification by Buyer. The Buyer agrees to indemnify the
------------------------
Sellers, their officers, directors, employees, agents and representatives
(collectively, the "Seller Indemnified Parties") against, and agrees to hold
--------------------------
each of them harmless from, any and all Losses incurred or suffered by them
relating to or arising out of or in connection with any of the following:
(a) any breach of or any inaccuracy in any representation or warranty made
by the Buyer in this Agreement; or
32
<PAGE>
(b) any breach of or failure by the Buyer to perform any covenant or
obligation of the Buyer set out in or contemplated by this Agreement.
Section 10.4 Indemnification Procedures. A party which believes it is
--------------------------
entitled to indemnification hereunder (an "Indemnified Party") shall promptly
-----------------
(but in any event within fifteen (15) days after any claim is asserted against
the Indemnified Party) give written notice to the party believed to be
responsible for indemnification hereunder (the "Indemnifying Party") of any
------------------
claim or the commencement of any Proceeding by any Person (a "Claim"), in
-----
respect of which indemnity may be sought hereunder; provided that the delay in
--------
giving, or the failure to give, such written notice shall not limit the
Indemnifying Party's obligation to provide indemnification hereunder except to
the extent that the Indemnifying Party is materially damaged by such delay or
failure. The Indemnified Party shall notify the Indemnifying Party with
reasonable particularity of the basis for the Claim and the Indemnified Party
shall give the Indemnifying Party such other information with respect thereto as
the Indemnifying Party may reasonably request. Upon receipt of the notice of
such Claim, the Indemnifying Party may by giving notice to the Indemnified Party
and at the Indemnifying Party's own expense: (i) participate in the defense of
such Claim at any time during the course of such Claim; or (ii) assume the
defense thereof; provided, however, that the Indemnifying Party shall thereafter
-------- -------
consult with the Indemnified Party upon the Indemnified Party's reasonable
request from time to time with respect to such Claim. If the Indemnifying Party
assumes such defense, the Indemnified Party shall have the right (but not the
duty) to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the Indemnifying Party; provided,
--------
further, that if there are legal or equitable defenses available to an
- -------
Indemnified Party which are not available to or ascertainable by the
Indemnifying Party with respect to such Claim, the Indemnified Party shall have
the right to participate in the defense and employ counsel at the reasonable
expense of the Indemnifying Party for such purpose (provided that the
Indemnifying Party shall not be required to reimburse the expenses and costs of
more than one law firm for such purpose). Whether or not the Indemnifying Party
chooses to defend any such Claim, all of the parties hereto shall cooperate in
the defense thereof. After notice from the Indemnifying Party of its election
so to assume the defense thereof, the Indemnifying Party shall not be liable
(except as provided in the second preceding sentence) to such Indemnified Party
for any legal or other expense in connection with such defense incurred by the
Indemnified Party after such date. The parties hereto agree that any such
defense shall be conducted expeditiously and that the Indemnified Party shall be
advised of all significant developments.
Section 10.5 Settlement. Any settlement or compromise made or caused to
----------
be made by the Indemnified Person or the Indemnifying Person, as the case may
be, of any Claim of the kind referred to in Section 10.4 shall also be binding
------------
upon the Indemnifying Person or the Indemnified Person, as the case may be, in
the same manner as if a final judgment or decree had been entered by a court of
competent jurisdiction in the amount of such settlement or compromise; provided,
--------
however, that no obligation, restriction or Loss shall be imposed on the
- -------
Indemnified Person as a result of such settlement without its prior written
consent. If the Indemnifying Party assumes the defense of any Claim as
described in Section 10.4 and so long as the Indemnifying Party is defending
------------
such Claim in good faith, the Indemnifying Party shall
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have the right to settle such Claim and the Indemnified Party will not settle
such Claim; provided, however, that no obligation, restriction or Loss shall be
-------- -------
imposed on the Indemnified Person as a result of such settlement without its
prior written consent; and provided further that the Indemnified Party shall
have no right to settle any Claim the defense of which it has assumed if the
Indemnified Party is participating in the defense as a result of there being
legal or equitable defenses available to an Indemnified Party which are not
available to or ascertainable by the Indemnifying Party with respect to such
Claim. The Indemnified Person will give the Indemnifying Person at least
fifteen (15) days' notice of any proposed settlement or compromise of any claim,
suit, action or proceeding it is defending, during which time the Indemnifying
Person may reject such proposed settlement or compromise; provided, however,
that from and after such rejection, the Indemnifying Person shall be obligated
to assume the defense of and full and complete liability and responsibility for
such claim, suit, action or proceeding and any and all Losses in connection
therewith in excess of the amount of unindemnifiable Losses which the
Indemnified Person would have been obligated to pay under the proposed
settlement or compromise.
Section 10.6 Limitations on Liability. Notwithstanding the foregoing, a
------------------------
claim by any of the parties pursuant to this Article 10 against the other
----------
parties (other than a claim relating to or arising in connection with any
obligations of KSA) shall not be asserted unless and until the aggregate and
cumulative totals of all such claims by the Buyer Indemnified Parties or Seller
Indemnified Parties, as the case may be, shall have exceeded One Hundred
Thousand Dollars ($100,000). However, if claims made by Buyer exceed the sum of
$100,000, then the indemnification and payment obligations of Sellers hereunder
shall include all claims which Buyer has asserted, inclusive of the first
$100,000 in claims. Claims relating to or arising in connection with any
obligations of KSA shall not be subject to the $100,000 threshold set forth
herein. Notwithstanding any provisions herein to the contrary, Sellers'
obligations under this Article 10 shall be limited, in the aggregate to the
----------
Purchase Price.
Section 10.7 Right of Setoff. If Sellers shall be required to pay any
---------------
amounts to Buyer under this Article 10, then Buyer shall first offset any such
----------
amounts against any amounts in the Escrow Account (as defined in the Escrow
Agreement) pursuant to procedures set forth in the Escrow Agreement.
ARTICLE 11.
GENERAL PROVISIONS
Section 11.1 Expenses. Except as otherwise expressly provided in this
--------
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, Representatives, counsel, and accountants; provided, however, any sales,
-------- -------
transfer, use or other Tax or recording cost incurred upon the sale or transfer
of the Shares shall be borne by Buyer.
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<PAGE>
Section 11.2 Notices. All notices, consents, waivers, and other
-------
communications under this Agreement shall be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt), or (c)
when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate by notice to the other parties):
Sellers:
Kestrel Services Ltd.
P.O. Box 219
Butterfield House, Fifth Floor
Fort Street
Grand Cayman
British West Indies
Attention: Robin Jarvis
Facsimile: (345) 949-4590
with a copy to:
Mayer, Brown & Platt
700 Louisiana, Suite 3600
Houston, Texas 77002
Attention: Paul B. Clemenceau
Facsimile: (713) 224-6410
Lynda Grindrod
1426 Milford
Houston, Texas 77006
Donald J. Schad
16306 Kempton Park Drive
Spring, Texas 77379
Philip Burguieres
Weatherford International
711 Louisiana Street, 33rd Floor
Houston, Texas 77002
John Gourley
7528 Glen Albons Circle
Dallas, Texas 75226
35
<PAGE>
C. Berdon Lawrence
55 Waugh Drive
Houston, Texas 77007
Facsimile: (713) 868-6422
with a copy to:
Mayor, Day, Caldwell & Keeton
700 Louisiana, Suite 1900
Houston, TX 77002
Attention: Eddy J. Rogers, Esq.
Facsimile: (713) 225-7047
Buyer:
Pierce Leahy - Corporate Center
631 Park Avenue
King of Prussia, Pennsylvania 19406
Attention: J. Peter Pierce, President
Facsimile: (610) 992-8394
with copy to:
Cozen and O'Connor
1900 Market Street
Philadelphia, Pennsylvania 19103
Attention: Richard J. Busis, Esq.
Facsimile: (215) 665-2013
Section 11.3 Jurisdiction; Service of Process; Waiver of Jury Trial;
-------------------------------------------------------
Attorneys' Fees.
- ---------------
(a) Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Texas, County of Harris, or, if it has or
can acquire subject matter jurisdiction, in the United States District Court for
the Southern District of Texas, Houston Division and each of the parties
consents to the personal, and to the extent possible, subject matter
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid or jurisdiction
asserted therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world. Kestrel
Services Ltd. hereby irrevocably agrees that valid and enforceable process upon
it may be made by serving a copy of a complaint and initial process upon Mayer,
Brown & Platt at the address and in the manner set forth in Section 11.2 for
notice, and so long as service is made in that manner waives all objections to
defects in service or form of process.
36
<PAGE>
(b) As to any Proceeding between the parties hereto or their
Representatives concerning any provisions of this Agreement or the rights and
duties of any Person hereunder, solely as between the parties hereto or their
successors, the party or parties prevailing in such Proceeding will be entitled
to the reasonable fees and expenses of counsel and court or arbitration costs
incurred by reason of such litigation or arbitration.
Section 11.4 Arbitration. Any dispute, controversy or claim arising in
-----------
connection with or related to this Agreement or the Escrow Agreement, including
any question regarding their existence, validity or termination, or regarding a
breach thereof shall be referred to and finally settled by arbitration in
accordance with the provisions of this Section 11.4. Questions of arbitral law
-----------------
and procedure shall be governed by the terms of this Agreement and, to the
extent any issues are not explicitly addressed herein, in order of preference,
by the Texas International Arbitration Act, Tex.civ.prac.& Rem.code (S) 172.001
et seq, and the United States Arbitration Act, 9 U.S.C. (S) 1 et seq.
(a) Arbitrator Defined. As used herein, "Arbitrator" shall mean any
------------------ ----------
natural person who is a resident of the United States and who is not an employee
or former employee of any of the parties hereto or of any entity or person
affiliated with any party. In the selection and appointment of Arbitrators the
parties each agree to act in good faith to name persons with experience and
expertise in the subject matter involved.
(b) Appointment of Arbitrators. The demand for arbitration (1) shall be in
--------------------------
writing, (2) shall be served on all the other parties to this Agreement in the
manner prescribed herein for the giving of notices, and (3) shall set forth a
short statement of the factual basis for the claim, specify with reasonable
particularity the matter or matters to be arbitrated and the relief sought (if
monetary, the amount thereof), and identify the name and address of the
Arbitrator chosen by the party making such demand. Within twenty (20) days
after receipt of the demand, the other party to the dispute shall appoint an
Arbitrator and give written notice of such appointment to all other parties and
shall specify the name and address of such Arbitrator. If such party shall fail
to appoint an Arbitrator and notify the other parties as herein provided within
such twenty-day period, the party making the demand shall have the right to
apply to the American Arbitration Association in Houston, Texas for an
appointment of an Arbitrator.
(c) Procedure. The two Arbitrators appointed or selected as set forth in
---------
clause (b) of this Section 11.4 shall appoint a third Arbitrator as soon as
-----------------
practicable, or if they do not do so within thirty (30) days after notice is
given to the parties of the appointment of the second Arbitrator, any party may
apply to the American Arbitration Association appointment of a third Arbitrator.
After the appointment of the third Arbitrator, the Arbitrators shall hold a
conference with the parties as soon as practicable to define and narrow the
issues and claims to be arbitrated, to define and limit discovery, and to
identify the form of evidence to be presented. Any arbitration pursuant hereto
shall be conducted by the Arbitrators under the guidance of the Federal Rules of
Civil Procedure and the Federal Rules of Evidence, but the Arbitrators shall not
be required to comply strictly with such Rules in conducting any such
arbitration. The Arbitrators shall conduct such evidentiary or other hearings
as they deem necessary or
37
<PAGE>
appropriate and thereafter shall make their determination as soon as
practicable. All such arbitration proceedings shall take place in the Houston,
Texas metropolitan area.
(d) Discovery. In any such arbitration proceeding, subject to any
---------
appropriate protective order, each party thereto shall have full access to the
relevant books and records of the other party prior to the submission of
evidentiary materials by the parties, and the power to call any employee, agent
or officer of any other party for testimony before or at any evidentiary hearing
held by the arbitrators, unless the arbitrators for good reason order otherwise.
The parties shall be entitled to discovery to the extent permitted by the United
States Rules of Federal Procedure, and any such discovery shall be performed in
a period defined by the Arbitrators.
(e) Fees. Each party shall bear its own costs and expenses incurred in
----
the arbitration, including the fees and expenses of the arbitrator appointed by
the party. The fees and expenses of the third Arbitrator shall be borne equally
by the parties.
(f) Award. The Arbitrators shall render their decision and award upon the
-----
concurrence of at least two of their number. Such decision and award shall be
in writing and state the reasons upon which it is based, and counterpart copies
thereof shall be delivered to each of the parties. In rendering such decision
and award, the Arbitrators shall not add to, subtract from or otherwise modify
the provisions of this Agreement or any agreement entered into pursuant hereto.
(g) Limitation of Other Proceedings. Each of the parties agrees that it
-------------------------------
will not file (nor will it cause any other party or person to file) any suit or
otherwise commence any legal action or proceeding in a court asserting a claim
which may be submitted to arbitration pursuant to this Agreement. Upon the
entry of an order by a court dismissing or staying any such action or proceeding
pending arbitration pursuant to this Agreement, the party which filed such
action or proceeding shall promptly pay to the other party the attorneys' fees,
costs and expenses incurred in that court proceeding by such other party prior
to the entry of such order.
Section 11.5 Waiver. Neither the failure nor any delay by any party in
------
exercising any right, power, or privilege under this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege.
Section 11.6 Entire Agreement and Modification. Except as specified
---------------------------------
herein or as stated in the next sentence, this Agreement supersedes all prior
agreements between the parties with respect to its subject matter and
constitutes a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement signed by the parties hereto.
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<PAGE>
Section 11.7 Schedules. Any disclosure made for purposes of, and included
---------
in, any Schedule hereto (including any supplement or amendment thereto) shall be
deemed made and disclosed to Buyer for purposes of all representations and
warranties made in this Agreement.
Section 11.8 Assignments, Successors, and No Third-Party Rights. Neither
--------------------------------------------------
party may assign any of its rights under this Agreement without the prior
consent of the other parties. Subject to the preceding sentence, this Agreement
will apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement
and all of its provisions and conditions are for the sole and exclusive benefit
of the parties to this Agreement and their successors and assigns.
Section 11.9 Severability. If any provision of this Agreement is held
------------
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
Section 11.10 Section Headings, Construction. The headings of Sections in
------------------------------
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections" refer
to the corresponding Section or Sections of this Agreement. All words used in
this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word "including"
does not limit the preceding words or terms.
Section 11.11 Time of Essence. With regard to all dates and time periods
---------------
set forth or referred to in this Agreement, time is of the essence.
Section 11.12 Governing Law. This Agreement will be governed by the laws
-------------
of the State of Texas without regard to conflicts of laws principles.
Section 11.13 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement. Any counterpart signature page delivered by
facsimile transmission shall be deemed to be and have the same force and effect
as an originally executed signature page.
39
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
Sellers: Buyer:
KESTREL SERVICES LTD. PIERCE LEAHY CORP.
By: By:
Name: Name:
Title: Title:
LYNDA GRINDROD
DONALD J. SCHAD
PHILIP BURGUIERES
JOHN GOURLEY
C. BERDON LAWRENCE
40
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report in
this Form 8-K for Pierce Leahy Corp. of our report dated December 5, 1997 on
Kestrol Holdings, Inc. and into the Company's previously filed registration
statement file No. 333-43787.
/s/ James N. Howard and Associates, P.C.
Dallas, Texas
July 2, 1998
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in the Registration Statement (Form 8-K) of Pierce
Leahy Corp., of our report dated January 13, 1998 (except as to note 11 which is
as of February 4, 1998) to the shareholders of Archivex Inc. and into the
Company's previously filed registration statement file No. 333-43787.
/s/ Friedman & Friedman
Chartered Accountants
Montreal, Quebec
July 2, 1998
