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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
DECISIONONE HOLDINGS CORP.
(exact name of registrant as specified in its charter)
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DELAWARE 0-28090 13-3435409
(State or other jurisdiction of (Commission file #) (I.R.S. Employer
incorporation or organization) Identification No.)
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DECISIONONE CORPORATION
(exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 333-28411 23-2328680
(State or other jurisdiction of (Commission file #) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
50 EAST SWEDESFORD ROAD
FRAZER, PENNSYLVANIA 19355
(610) 296-6000
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
PRINCIPAL EXECUTIVE OFFICES OF REGISTRANTS)
SECURITIES REGISTERED PURSUANT TO THE SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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DECISIONONE HOLDINGS CORP.:
9 3/4 SENIOR SUBORDINATED NOTES DUE 2007 NONE
DECISIONONE CORPORATION:
11 1/2 SENIOR DISCOUNT DEBENTURES DUE 2009 NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF
THE ACT:
DECISIONONE HOLDINGS CORP.:
COMMON STOCK, $.01 PAR VALUE NONE
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Indicate by check mark whether DecisionOne Holdings Corp. (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [CHECK] No_______
Indicate by check mark whether DecisionOne Corporation (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes__________ No [CHECK]
The aggregate market value of the voting stock of DecisionOne Holdings
Corp. held by non-affiliates, based upon the closing price of Common Stock on
September 11, 1997, as reported by the Nasdaq National Market System, was
approximately $44,170,728. In making such calculation, registrant is not making
a determination of the affiliate or non-affiliate status of any holders of
shares of Common Stock. All of the voting stock of DecisionOne Corporation is
held by DecisionOne Holdings Corp.
At September 11, 1997, 12,499,978 shares of DecisionOne Holdings Corp.
common stock were outstanding and one share of DecisionOne Corporation common
stock was outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [CHECKED BOX]
DecisionOne Corporation meets the conditions set forth in General
Instruction I(1) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of DecisionOne Holdings Corp.'s Proxy Statement prepared in
connection with its 1997 Annual Meeting of Stockholders (Part III)
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PART I
ITEM 1. BUSINESS
Item 1. is presented with respect to both registrants submitting this
filing, DecisionOne Holdings Corp. and DecisionOne Corporation.
GENERAL
DecisionOne Holdings Corp., through its wholly owned operating subsidiary
DecisionOne Corporation and its subsidiaries (collectively, the "Company") is
the largest independent provider of multivendor computer maintenance and
technology support services in the United States, based on Dataquest
Incorporated ("Dataquest") estimates for calendar year 1996. The Company offers
its customers a single source solution for virtually all of their computer
maintenance and technology support requirements, including hardware maintenance
services, software support, end-user/help desk services, network support and
other technology support services. The Company believes it is the most
comprehensive independent (i.e., not affiliated with an original equipment
manufacturer, or OEM) provider of these services across a broad range of
computing environments, including mainframes, midrange and distributed systems,
work groups, PCs and related peripherals. The Company provides support for over
15,000 hardware products manufactured by more than 1,000 OEMs. The Company also
supports most major operating systems and over 150 off-the-shelf software
applications. The Company delivers its services through an extensive field
service organization of approximately 4,000 field technicians in over 150
service locations throughout the United States and Canada and strategic
alliances in selected international markets.
The Company services over 51,000 customers at over 182,000 sites across the
United States and Canada. The Company's customers include a diverse group of
national and multinational corporations, including SABRE Group, Inc. (an
affiliate of American Airlines, Inc.), Sun Microsystems, Inc. ("Sun"), Compaq
Computer Corporation ("Compaq"), NationsBank, DuPont Company ("DuPont"), Chevron
Corporation and Netscape Communications Corporation ("Netscape").
COMPANY HISTORY
Founded in 1969, the Company began operations as a provider of key punch
machines under the tradename "Decision Data". During the 1980s, its operations
expanded to include the sale of midrange computer hardware and related
maintenance services. During fiscal 1993, the Company decided to focus
principally on providing computer maintenance and support services and sold its
computer hardware products business.
From the beginning of fiscal 1993 through fiscal 1997, the Company has
established a major presence in the computer maintenance and technology support
services industry through the acquisition and integration of 36 complementary
businesses. The most significant of these were IDEA Servcom, Inc. ("Servcom"),
certain assets and liabilities of which were acquired in August 1994 for cash
consideration of $29.5 million; Bell Atlantic Business Systems Services, Inc.
("BABSS") which was acquired in October 1995 for approximately $250.0 million,
and certain assets of the U.S. computer service business of Memorex Telex
("Memorex Telex"), which were acquired in November 1996 for cash consideration
of approximately $24.4 million after certain purchase price adjustments.
BABSS was established in the mid-1950s under the name Sorbus Inc. and was
acquired by Bell Atlantic Corporation in 1985. In January 1990, BABSS acquired
the assets of the third-party service business of Control Data Corporation
("CDC"), expanding its presence in the maintenance of large systems. After the
CDC acquisition, BABSS focused significant resources on the development of, and
experienced significant growth in, its customer and revenue bases, and by
mid-1995 had grown to be among the largest independent providers of multivendor
computer maintenance and technology support services in the United States.
The BABSS acquisition provided the Company with a major presence in the
servicing of large mainframe systems and in other service areas, such as
software and network support, in which the Company had not
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previously competed in a significant fashion. Moreover, the acquisition further
enhanced the Company's presence in its traditional midrange business. As a
result of the acquisition, BABSS became a wholly-owned subsidiary of the Company
and the name of the Company's principal operating subsidiary was changed to
DecisionOne Corporation.
MERGER AND RESTRUCTURING
On August 7, 1997, the Company consummated a merger (the "Merger") with an
affiliate of DLJ Merchant Banking Partners II, L.P. ("DLJ"). Pursuant to the
Merger, DLJ, certain funds affiliated with DLJ (collectively, with DLJ, the "DLJ
Funds"), and third-party investors who have entered into an agreement (the
"Investors' Agreement") with DLJ in respect of the voting and disposition of
shares acquired by them (collectively, the "DLJ Group"), acquired approximately
10.9 million shares, or 87.4% of the Company's outstanding common stock in
exchange for approximately $225 million. Such equity proceeds, along with $145.5
million of net proceeds from the sale of 9 3/4% Senior Subordinated Notes due
2007 (the "9 3/4% Notes"), $81.6 million of net proceeds from the sale of units
consisting of 11 1/2% Senior Discount Debentures due 2008 and 148,400 Warrants
to purchase 281,960 shares of Company common stock exercisable at $23 per share
(the "Units"), and borrowings of $470.0 million under a $575 million senior
secured loan facility were used to repurchase approximately 26.5 million shares
for approximately $609.7 million, cash out existing options and warrants, repay
the Company's then-existing revolving credit facility, and pay fees and expenses
incurred in connection with the Merger. See "Merger and Recapitalization"
included in Item 7 herein.
INDUSTRY BACKGROUND
The United States market for computer hardware maintenance and technology
support services is large and growing. According to Dataquest projections, the
hardware maintenance and technology support services market was approximately
$40.5 billion in 1996 and is projected to grow at a compound annual rate of 5.6%
to $50.3 billion by the year 2000. Within the market surveyed by Dataquest,
Dataquest estimates that the independent, multivendor segment was approximately
$8.8 billion in 1996 and projects the segment to grow at a 14% compound annual
rate to $14.8 billion by the year 2000. According to Dataquest, independent,
multivendor service providers such as the Company are taking market share from
the OEM service providers faster than OEMs are contracting new business. The
Company believes that this is occurring for several reasons including: (i)
customers are looking for single source providers who support multiple computer
hardware and software platforms, (ii) independent service providers are viewed
as being unbiased toward computer purchase decisions and (iii) OEMs are
increasingly outsourcing customer maintenance service (including warranty and
post warranty services) and technical customer support such as help desk
services to independents in order to focus on their core design, technology and
marketing competencies. According to Dataquest, within the independent,
multivendor segment, hardware maintenance was the dominant service, accounting
for approximately 71% of 1996 revenues, with technology support services,
including software support, network support and end-user training, comprising
the remaining 29% of 1996 revenues.
The independent, multivendor segment is also fragmented and consolidating.
Participants in the independent multivendor segment include: (i) several large
independent service providers, (ii) the multivendor segments of OEM service
organizations and (iii) hundreds of smaller independent companies servicing
either product niches or limited geographical areas of the United States. The
significant market position of OEMs is due largely to their traditional role of
servicing their own installed base of equipment and their customers' former
reliance on centralized, single vendor solutions (i.e. mainframe systems).
COMPANY SERVICES
The Company provides a comprehensive range of core technology support
services to customers across a broad range of computing environments, including
mainframes, midrange and distributed systems, work groups, PCs and related
peripherals. The Company customizes its service offerings to the individual
customer's needs in response to the nature of the customer's requirements, the
term of the contract and the combination of services that are provided. Services
are bundled to match the support requirements of
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customers and include hardware support, end-user and software support, network
support, management information services, program management, planning support
and ancillary support services.
Hardware Support
Hardware support services consist of remedial and preventive maintenance
for computers and computer peripheral devices. The Company supports over 15,000
different hardware products manufactured by more than 1,000 OEMs. The Company's
customer support centers ("CSCs") handle over 330,000 calls per month regarding
hardware support. The Company maintains and manages an inventory of over 3.5
million parts representing more than 300,000 part numbers. The Company also has
access to a network of computer equipment vendors, brokers and highly skilled
repair suppliers, as well as access to certain IBM Designated Parts Sales
Locations.
In addition to its on site diagnostic tools, the Company uses industry and
proprietary software diagnostic capabilities to monitor system performance on a
remote basis. Also, large customers are provided remote, on line access to
certain of the Company's systems to log service requests and track service
delivery.
The Company prices its products and services on either a fixed fee or per
incident basis. Pricing is based on various factors including equipment failure
rates, cost of repairable parts and labor expenses.
End-user and Software Support
The Company's CSCs handle over 90,000 calls per month for help desk and
software support. Levels of support range from basic and network support for
corporate end-users to advanced operating system support for systems
administrators. Customized support also is available for vertical market
applications and OEM accounts. Operational services are available seven days per
week, twenty-four hours a day.
The Company currently provides support for PC/workstation operating systems
such as Windows95(R), Windows(R), MS DOS(R), and Sun Microsystems' Solaris(R),
as well as support on network operating systems such as Novell Netware(R) and
Windows NT(R). Groupware products like Lotus Notes and Internet browsers such as
Netscape also are fully supported. Additionally, over 100 PC software products
ranging from spreadsheets and word processing to communications and graphics are
supported, as are numerous on-line services.
The Company is a Microsoft Authorized Support Center, providing help desk
support for a broad range of Microsoft business software applications and
operating systems. Technical support is delivered through the Company's network
of CSCs and ranges from basic end-user software support to second level
professional support, and work in conjunction with Microsoft desktop
applications and operating systems, like Microsoft Windows(R)95 and
Windows(R)NT.
Network Support
The Company provides support services for networked computing environments,
including management, administration, and operations support for both local area
networks and wide area networks ("WANs"). Network support services are designed
to reduce the cost of ownership of networked computing, improve productivity of
network users, and supplement customers' internal support staffs. The Company's
remote network management services provide monitoring of fault and performance
data in customers' networks and problem resolution from the Company's network
management center. The Company also provides on site network services to assist
customers with network administration, operations, and remedial support. Network
specialists may be resident at the customer site or dispatched as necessary.
Logistics Services
The Company also repairs and refurbishes computer parts and assemblies at
seven depot repair centers in the United States. In addition to supporting its
own business, these services are provided primarily for OEMs, distributors and
other third party maintenance companies. Subassemblies repaired include system
logic boards, hard disk drive assemblies, peripherals, power supplies and
related equipment. The Company's depot
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repair facilities located in Malvern, Pennsylvania; Boston, Massachusetts;
Milwaukee, Wisconsin; and San Francisco, California are certified to ISO-9002
standards.
The Company also provides logistics services, including the planning and
forecasting of parts requirements and parts sourcing, inventory and warranty
management, for Compaq and other manufacturers. Under terms of the Compaq
logistics service contract, the Company handles orders from customers, dealers
and distributors in North America for parts that are no longer produced by
Compaq. The parts are used to repair Compaq desktops, laptops and servers and
include such components as flat panels (LCDs), motherboards, monitors, power
supplies and related parts. In addition to repair and replacement work, the
Company manages the program's logistics requirements and parts warranty
reimbursement activities.
Program Management
The Company provides ongoing management services for companies that wish to
outsource all or a portion of their services management requirements. Typical
services include third party vendor management, on site personnel support and
program evaluation, as well as a variety of support capabilities required to
prepare a system for operation and improve its efficiency. These support
capabilities include support for system installation, de-installation, moves,
upgrades, reconfigurations, system configuration audits, inventory tracking
services and data restoration assistance.
Planning Support
The Company assists customers in defining their enterprise service
requirements, establishing service delivery benchmarks, recommending process
improvements and auditing the results of implemented programs over time. The
objective of these consulting services is to assist customers in reducing the
total cost of ownership and improving operating efficiency in their service
environments.
Information Services
The Company makes service improvement recommendations to customers based on
information accumulated from its hardware, network and end-user support
services. Management information services allow customers to make informed
decisions relating to hardware and software procurements as well as the need for
increased employee training. The Company believes these services differentiate
it from OEMs and software developers that may favor their own products.
The Company's AssetOne(TM) service tracks customers' desktop assets and
provides information on hardware configuration, software utilization, warranty
status, equipment location and user profiles. This information can then be used
to improve the way customers' assets are deployed, serviced, and used in order
to reduce costs and increase end-user productivity.
SUPPORT PARTNER PROGRAMS
The Company maintains strategic alliances with several prominent companies
in order to provide customers with comprehensive technology support solutions.
The Company does not receive revenues for services provided by its strategic
partners. Key relationships include: General Electric Computer Leasing Corp.,
which provides computer acquisition, disposition and financing services; SunGard
Recovery Services Inc., which provides disaster recovery services; and MicroAge,
Inc., which supplies hardware products such as personal computers, peripherals,
network products and related devices.
SALES AND MARKETING
The Company's core product capabilities are bundled to match the support
requirements of customers. Individual service portfolios exist for data center,
mid range and desktop environments. In addition, a product portfolio exists for
OEMs who seek support for parts sourcing and repair, inventory management and
related logistics services.
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The Company sells its services through both direct and indirect sales
channels. The Company's direct sales force consists of approximately 275 sales
professionals who are organized into a general commercial sales group as well as
into several dedicated groups including: a Federal Group, which sells to the
Federal Government; a National Accounts Group, which focuses on large and
multinational corporate customers; and a Telesales Group, which focuses on small
accounts.
The Company also sells its services through its indirect sales force
comprised of approximately 25 sales professionals. Product support relationships
exist with OEMs such as Sequent Computer Corporation, EMC(2) Corporation
("EMC"), Sun and Compaq, and software developers such as Netscape, Novell, Inc.,
Microsoft Corporation and SunSoft, Inc.
INTERNATIONAL BUSINESS PARTNERS
In order to provide international service to its multinational customers,
the Company supplements its broad North American infrastructure with strategic
alliances in selected international markets. The Company maintains relationships
with International Computers Limited ("ICL") and FBA Computer Technology
Services ("FBA"). The Company licenses many of its proprietary multivendor
support tools to FBA and to ICL Sorbus Ltd. ("ICL Sorbus"), which is ICL's
multivendor services group in Western Europe. As a result, the Company is able
to offer its multinational customers service in Western Europe, Asia and
Australia.
ICL is a leading information technology company that has approximately
23,000 employees operating in about 80 countries around the world. In Western
Europe, the ICL Sorbus companies provide multivendor services in 17 countries
with approximately 250 service locations and about 5,000 employees. Several of
the Company's major customers, including SABRE Group, Inc. and DuPont, benefit
from the agreement between the Company and ICL Sorbus, whereby ICL Sorbus agrees
to provide services at the European locations of the Company's multinational
customers. Through ICL Sorbus, the Company utilizes the service branches of both
ICL and ICL's parent company, Fujitsu Ltd., to provide worldwide multivendor
support throughout Asia, the Pacific Rim, the Middle East and Africa.
FBA, an affiliate of Fujitsu Ltd., provides multivendor services in
Australia and New Zealand from 21 locations with 150 employees. In addition to
providing technical support to FBA, the Company has supplied various management
and sales support personnel to FBA. FBA also provides services to certain of the
Company's multinational customers, including Sun.
SERVICE INFRASTRUCTURE
Centralized Dispatch
When a customer places a call for remedial maintenance, the Company uses
its Dispatch Data Gathering system ("DDG") to manage the process. When a
customer is identified, the DDG system displays the customer's service level
requirements and covered equipment. Specific information on the symptoms of the
problem and the products that are malfunctioning are entered into the system to
begin tracking the service event. The Company's Customer Support Representative
("CSR") selects, based upon the requirements of the service event, the
appropriate Customer Service Engineer ("CSE") from a list of pre-assigned
primary and back-up personnel and passes this information to the selected CSE.
The Company maintains three CSCs in Malvern, Pennsylvania; Bloomington,
Minnesota; and Tulsa, Oklahoma. Customers can reach the CSCs by calling one toll
free telephone number. The CSCs currently are staffed with over 575 CSRs and 29
staff/operations managers. There is a duty manager on call in each center at all
times. CSCs are available on a 24 hour, 7 day per week basis. Redundancy for
disaster recovery purposes is designed into the CSC system through the three
locations' use of automatic telecommunications switching.
Parts Logistics
In order to meet customer computer repair requirements, the Company
maintains a tiered approach to management of its consumable and repairable spare
parts inventory. Parts or assemblies with low failure rates are stocked in
either the Company's central distribution center located in Malvern,
Pennsylvania or in its
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critical parts center in Dallas, Texas. The Company also maintains six regional
distribution centers in Atlanta, Georgia; Newark, New Jersey; Los Angeles,
California; San Francisco, California; Chicago, Illinois; and Wilmington, Ohio
for critical parts needed more frequently throughout the United States. In order
to service customers whose response time requirements are two to four hours,
higher usage parts are maintained at the Company's branch offices or local
attended stocking locations. Customer site parts storage is arranged when
customer response time requirements are two hours or less.
The Company's field inventory system ("FIS") is a real time system which
tracks the consumable and repairable parts assigned to its field workforce and
located at seven distribution centers, field offices or at customer sites. Parts
information processed through FIS is integrated with the Company's other key
systems, including DDG and International Support Information System ("ISIS").
Service Technology
The Company has developed several proprietary technologies for use in
service planning, support and delivery. These service tools include proprietary
databases, remote diagnostic and system monitoring software, and instructional
documentation. These technical support tools not only provide remote and on site
predictive and remedial service support, but also enable the Company to collect
extensive, objective systems performance measurement information (on the
customer's environment as well as benchmarking against the Company's database)
which its customers can use to identify potential efficiencies, evaluate
competing products and technologies, and determine whether its requirements are
being met.
The Company's proprietary service technologies include ISIS, SERVICE EDGE
and MAXwatch(R). The Company licenses certain of these technologies and provides
other technical support to certain foreign multivendor service providers,
including ICL Sorbus in Europe, FBA in Australia and New Zealand, and PT
Metrodata Electronics in Indonesia.
International Support Information Systems. ISIS is a database accessible
to the Company's customer service engineers that is comprised of diagnostic and
symptom fix data for thousands of products, service updates, and service
planning information, such as machine performance and parts usage information,
and remote support capabilities for large IBM systems, including automatic "call
home" to the Company. The Company believes that ISIS is the most comprehensive
service related database of any independent computer service organization.
SERVICE EDGE. SERVICE EDGE is a PC based system installed at the
customer's site which monitors error messages and collects and reports service
data to help customers predict potential system failures and provide customers
with system performance information.
MAXwatch(R). MAXwatch(R) is an on-site program for products of Digital
Equipment Corporation ("Digital") which monitors system integrity, proactively
detects and corrects certain system errors, and automatically "calls home" for
remote technical support when pre defined error thresholds are exceeded. A
similar product, MAX400, is available for IBM AS/400 systems.
DecisionOne, AssetOne(TM), ISIS, Service Edge and MAXwatch(R) are service
marks or trademarks owned by the Company. All other brand names, service marks
or trademarks appearing herein are the property of their respective owners.
Training
The Company maintains the technical expertise of its engineers through
training programs designed to teach the various techniques for determining the
status of a customer's total computer operations. The Company's training offers
support professionals a broad exposure to various computer system technologies.
The Company's training facilities include 26 classrooms, 23,000 square feet
of hands-on lab space, 26 full-time instructors and video specialists and a
curriculum of over 80 courses. The Company has five training centers and labs
located in Frazer, Pennsylvania; Malvern, Pennsylvania; Bloomington, Minnesota;
Milwau-
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kee, Wisconsin; and Phoenix, Arizona. Six months following course work, the
Company surveys the engineers to gauge the effectiveness and applicability of
its training curriculum.
CUSTOMERS
The Company services over 51,000 customers at over 182,000 sites across the
United States and Canada. The Company sells services primarily to five types of
customers: large businesses that have complex computing support needs and
typically maintain a data center, distributed computing and work group
environments; medium sized businesses that rely primarily on distributed systems
for their computing needs; small businesses that principally use LANs and WANs
for computing; individuals who use stand alone computing systems; and OEMs and
software developers that contract with the Company for warranty services,
logistic support services or help desk support. A significant portion of the
Company's revenues are attributable to large businesses with complex computing
support needs.
COMPETITION
Competition among computer support service providers, both OEM and
independent service organizations, is intense. The Company believes that
approximately 80% of that portion of the hardware maintenance services market
that is related to mainframes and stand alone midrange systems is currently
serviced by OEM service organizations. In addition, the Company believes that
OEM service organizations provide a smaller, but still significant, portion of
the computer maintenance services related to distributed systems, work groups
and PCs. The remainder of the market is serviced by a small number of larger,
independent companies, such as the Company, offering a broader range of service
capabilities, as well as numerous small companies focusing on narrower areas of
expertise.
The Company considers its principal competitors to include: IBM and its
affiliate Technology Service Solutions, Digital, and Wang Laboratories, Inc.,
the multivendor service divisions of certain other OEMs, other national
independent service organizations that are not affiliated with OEMs such as
Vanstar Corporation, Entex Corporation and Stream International, Inc., and
various regional service providers.
The Company believes that the primary competitive factors in the computer
services industry are the quality of a company's services, the ability to
service a wide range of products supplied by a variety of vendors, the
geographic coverage of a company's services and the cost to the customer of
those services. The Company believes that customers are increasingly looking for
service providers capable of providing a single source solution for their
increasingly complex multivendor systems. See "Risk Factors -- Competition;
Competitive Advantages of OEMs."
EMPLOYEES
As of June 30, 1997, the Company had approximately 6,500 full-time and 60
part-time employees. None of the Company's employees is currently covered by
collective bargaining agreements. Management considers employee relations to be
good.
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RISK FACTORS
Cautionary Statement Concerning Forward-Looking Statements
The information herein contains forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Company, or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. These factors include,
but are not limited to, the competitive environment in the computer maintenance
and technology support services industry in general and in the Company's
specific market areas; changes in prevailing interest rates and the availability
of and terms of financing to fund the anticipated growth of the Company's
business; inflation; changes in costs of goods and services; economic conditions
in general and in the Company's specific market areas; demographic changes;
changes in or failure to comply with federal, state and/or local government
regulations; liability and other claims asserted against the Company; changes in
operating strategy or development plans; the ability to attract and retain
qualified personnel; the significant indebtedness of the Company; labor
disturbances; changes in the Company's acquisition and capital expenditure
plans; and other factors referenced herein. In addition, such forward looking
statements are necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown risks uncertainties
and other factors. Accordingly, any forward looking statements included herein
do not purport to be predictions of future events or circumstances and may not
be realized. Forward looking statements can be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "pro forma," "anticipates," or "intends" or
the negative of any thereof, or other variations thereon or comparable
terminology, or by discussions of strategy or intentions. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward looking statements. The Company disclaims any obligations to
update any such factors or to publicly announce the results of any revisions to
any of the forward looking statements contained herein to reflect future events
or developments.
LOSS OF CONTRACT-BASED REVENUE; FIXED FEE CONTRACTS
Over 85% of the Company's revenues during fiscal 1997 were contract based.
As is customary in the computer services industry, the Company experiences
reductions in its contract based revenue as customers may eliminate certain
equipment or services from coverage under the contracts, typically upon 30 days'
notice, or either cancel or elect not to renew their contracts upon 30, 60 or 90
days' notice. The Company believes the principal reasons for the loss of
contract based revenue are the replacement of the equipment being serviced with
new equipment covered under a manufacturer's warranty, the discontinuance of the
use of equipment being serviced for a customer due to obsolescence or a
customer's determination to utilize a competitor's services or to move technical
support services in house. While the Company historically has been able to
offset the reduction of contract based revenue and maintain revenue growth
through acquisitions and new contracts, notwithstanding the reduction in
contract based revenue, there can be no assurance it will continue to do so in
the future, and any failure to consummate acquisitions, enter into new contracts
or add additional services and equipment to existing contracts could have a
material adverse effect on the Company's profitability.
Under many of the Company's contracts, the customer pays a fixed fee for
customized bundled services which are priced by the Company based on its best
estimates of various factors, including estimated future equipment failure
rates, cost of spare parts and labor expenses. While the Company believes it has
historically been able to estimate these factors accurately enough to be able to
price these fixed fee contracts on terms favorable to the Company, there can be
no assurance the Company will be able to continue to do so in the future.
SUBSTANTIAL LEVERAGE; STOCKHOLDERS' DEFICIT; LIQUIDITY
In connection with the Merger, the Company entered into financings (the
"Merger Financing") including a new revolving credit facility (the "New Credit
Facility"), the terms of which include significant operating and financial
restrictions, such as limits on the Company's ability to incur indebtedness,
create liens,
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<PAGE> 10
sell assets, engage in mergers or consolidations, make investments and pay
dividends. In addition, the New Credit Facility requires the Company to maintain
certain debt to equity and other financial ratios.
As of June 30, 1997, after giving pro forma effect to the Merger, including
the Merger Financing and the application of the proceeds thereof, the Company
would have had (i) total consolidated indebtedness of approximately $724.5
million and (ii) a stockholder's deficit of $243.1 million. In addition, subject
to the restrictions in the New Credit Facility and other agreements relating to
the Merger Financing, the Company may incur additional indebtedness from time to
time.
The level of the Company's indebtedness could have important consequences
to the Company, including: (i) limiting cash flow available for general
corporate purposes, including acquisitions, because a substantial portion of the
Company's cash flow from operations must be dedicated to debt service; (ii)
limiting the Company's ability to obtain additional debt financing in the future
for working capital, repairable parts purchases, capital expenditures or
acquisitions; (iii) limiting the Company's flexibility in reacting to
competitive and other changes in the industry and economic conditions generally;
and (iv) exposing the Company to risks inherent in interest rate fluctuations
because certain of the Company's borrowings are at variable rates of interest,
which could result in higher interest expense in the event of increases in
interest rates.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance its indebtedness and to satisfy its other debt
obligations will depend upon its future operating performance, which will be
affected by general economic, financial, competitive, legislative, regulatory,
business and other factors beyond its control. The Company anticipates that its
operating cash flow, together with borrowings under the New Credit Facility,
will be sufficient to meet its anticipated future operating expenses and capital
expenditures and to service its debt requirements as they become due. However,
if the Company's future operating cash flows are less than currently anticipated
it may be forced, in order to meet its debt service obligations, to reduce or
delay acquisitions, purchases of repairable parts or capital expenditures, sell
assets or reduce operating expenses, including, but not limited to, investment
spending such as selling and marketing expenses, expenditures on management
information on systems and expenditures on new products. If the Company were
unable to meet its debt service obligations, it could attempt to restructure or
refinance its indebtedness or to seek additional equity capital. There can be no
assurance that the Company will be able to effect any of the foregoing on
satisfactory terms, if at all. In addition, subject to the restrictions and
limitations contained in the agreements relating to the Merger Financing, the
Company may incur significant additional indebtedness to finance future
acquisitions, which could adversely affect the Company's operating cash flows
and its ability to service its indebtedness. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations: Liquidity and Capital
Resources."
MANAGEMENT AND FUNDING OF GROWTH
Any future growth of the Company will require the Company to manage its
expanding domestic operations and international affiliations and to adapt its
operational and financial systems to respond to changes in its business
environment, while maintaining a competitive cost structure. The acquisition
strategy of the Company and the expansion of the Company's service offerings
have placed and will continue to place significant demands on the Company and
its management to improve the Company's operational, financial and management
information systems, to develop further the management skills of the Company's
managers and supervisors, and to continue to retain, train, motivate and
effectively manage the Company's employees. For example, the Company's
acquisition and integration of BABSS resulted in the loss of certain members of
its finance and accounting organization which resulted in a difficulty in the
timely performance of certain internal reconciliations and account analyses. In
response to these difficulties, the Company has taken various personnel and
procedural actions including, among other things, increasing the size of, and
restructuring its accounting staff, instituting an internal audit function and
enhancing its accounting systems, policies and procedures. The failure of the
Company to manage its prior or any future growth effectively could have a
material adverse effect on the Company.
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<PAGE> 11
Additionally, the Company's ability to maintain and increase its revenue
base and to respond to shifts in customer demand and changes in industry trends
will be partially dependent on its ability to generate sufficient cash flow or
obtain sufficient capital for the purpose of, among other things, financing
acquisitions, satisfying customer contractual requirements and financing
infrastructure growth, including a significant investment in repairable parts,
which are classified as non current assets. There can be no assurance the
Company will be able to generate sufficient cash flow or that financing will be
available on acceptable terms (or permitted to be incurred under the terms of
the Merger Financing and any future indebtedness) to fund the Company's future
growth.
ACQUISITION GROWTH STRATEGY
The Company has historically pursued an aggressive acquisition strategy,
acquiring certain contracts and assets in 36 transactions from the beginning of
fiscal 1993 through June 30, 1997. Future acquisitions and/or internal revenue
growth will be necessary to offset expected declines in contract based revenues.
As a result, the Company expects to continue to evaluate acquisitions that can
provide meaningful benefits by expanding the Company's existing and future
hardware maintenance and technology support capabilities and leveraging its
existing and future infrastructure. However, there are various risks associated
with pursuing an acquisition strategy of this nature. The risks include problems
inherent in integrating new businesses, including potential loss of customers
and key personnel and potential disruption of operations. There can be no
assurance that contracts acquired by the Company will generate significant
revenues or that customers covered by such acquired contracts will not choose to
terminate such contracts. The rate at which any such contracts are terminated
may be higher than the rates at which the Company's contracts have historically
been terminated. There also can be no assurance that suitable acquisition
candidates will be available, that acquisitions can be completed on reasonable
terms, that the Company will successfully integrate the operations of any
acquired entities or that the Company will have access to adequate funds to
effect any desired acquisitions. Future acquisitions may be limited by
restrictions in the Company's indebtedness.
COMPETITION; COMPETITIVE ADVANTAGES OF OEMS
Competition among computer support service providers, both original
equipment manufacturer and independent service organizations, is intense. The
Company believes approximately 80% of that portion of industry hardware
maintenance services related to mainframes and stand alone midrange systems is
currently serviced by OEM service organizations. In addition, the Company
believes that OEM service organizations provide a smaller, but still
significant, portion of the computer maintenance services related to distributed
systems, work groups and PCs. The remainder of the market is serviced by a small
number of larger, independent companies, such as the Company, offering a broader
range of service capabilities, as well as numerous small companies focusing on
narrower areas of expertise or serving limited geographic areas.
In many instances, OEM service organizations have greater resources than
the Company, and, because of their access to the OEM's engineering data, may be
able to respond more quickly to servicing equipment that incorporates new or
emerging technologies. Moreover, some OEMs, especially in the mainframe
environment, do not make available to end-users or independent service
organizations the technical information, repairable parts, diagnostics,
engineering changes and other support items required to service their products,
and design and sell their products in a manner so as to make it virtually
impossible for a third party to perform maintenance services without potentially
infringing upon certain proprietary rights of the OEM. In addition OEMs are
sometimes able to develop proprietary remote diagnostic or monitoring systems
which the Company may not be able to offer. Therefore, OEM service organizations
sometimes have a cost and timing advantage over the Company because the Company
must first develop or acquire from another party the required support items
before the Company can provide services for that equipment. An OEM's cost
advantage, the unavailability of required support items or various proprietary
rights of the OEM may preclude the Company from servicing certain products.
Furthermore, OEMs usually provide warranty coverage for new equipment for
specified periods, during which it is not economically feasible for the Company
to compete for the provision of maintenance services. To the extent OEMs choose,
for marketing reasons or otherwise, to expand their warranty periods or terms,
the Company's business may be adversely affected.
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<PAGE> 12
In June 1994, International Business Machines Corporation ("IBM") filed in
the United States District Court for the Southern District of New York (the
"Court") a motion to terminate a 1956 consent decree (the "IBM Consent Decree")
that, among other things, requires IBM to provide repairable parts,
documentation and other support items for IBM electronic data processing systems
to third parties on reasonable terms and places other restrictions on IBM's
conduct. On January 18, 1996, the Court entered an order approving a
modification of the IBM Consent Decree that, among other things, terminated the
IBM Consent Decree except insofar as it applies to the System 360/370/390
(mainframes) and AS/400 (midrange) families of IBM products. In July 1996, IBM
and the U.S. Department of Justice ("DOJ") reached an agreement in tentative
settlement of the remainder of IBM's motion and jointly moved to terminate on a
phased basis, the remaining provisions of the IBM Consent Decree (the "Joint
Motion"). On May 1, 1997 the Court granted the Joint Motion. Portions of the
order granting the Joint Motion have been appealed. Consequently, certain of the
remaining provisions of the IBM Consent Decree (primarily relating to sales and
marketing restrictions on IBM) terminate either immediately upon, or within six
months of, entry of the Court order; all of the other remaining provisions
(including those requiring IBM to provide parts and other support items to third
parties) terminate on July 2, 2000 with respect to AS/400 systems and on July 2,
2001 with respect to System 360/370/390 mainframes. The impact, if any, upon the
Company of the termination of such sales and marketing restrictions is
impossible to predict because it depends upon what changes, if any, IBM will
make in its sales and marketing policies and practices. As a result of the
termination of the IBM Consent Decree, the Company's ability to service midrange
and mainframe products may be adversely affected. Furthermore, as the Company's
business is highly dependent upon its ability to service a wide variety of
equipment in a multivendor environment, the inability to compete effectively for
the service of IBM mainframes and midrange products could cause the loss of a
substantial portion of the Company's customer base to IBM or an IBM affiliate,
which would have a material adverse effect on the Company's business.
CONSUMABLE AND REPAIRABLE PARTS MANAGEMENT
In order to service its customers, the Company is required to maintain a
high level of consumable and repairable parts for extended periods of time. Any
decrease in the demand for the Company's maintenance services could result in a
substantial portion of the Company's consumable and repairable parts becoming
excess, obsolete or otherwise unusable. In addition, rapid changes in technology
could render significant portions of the Company's consumable and repairable
parts obsolete, thereby giving rise to write-offs and a reduction in
profitability. The inability of the Company to manage its consumable and
repairable parts or the need to write them off in the future could have a
material adverse effect on the Company's business, financial results and results
of operations.
Consumable and repairable parts purchases are made from OEMs and other
vendors. The Company typically has more than a single source of supply for each
part and component, but from time to time it will have only a single supplier
for a particular part. In some cases, the Company's OEM customer may be the only
source of supply for a repair part or component. Should a supplier be unwilling
or unable to supply any part or component in a timely manner, the Company's
business could be adversely affected. In addition, the Company is dependent upon
IBM for obtaining certain parts that are critical to the maintenance of certain
IBM mainframe and midrange systems that IBM is currently required to make
available to third parties pursuant to the IBM Consent Decree. There can no
assurance that IBM will continue to make parts available for AS/400 Systems
after July 2, 2000 and for System 360/370/390 mainframes after July 2, 2001.
Even if such parts or components are available, a shortage of supply could
result in an increase in procurement costs which, if not passed on to the
customer, may adversely affect the Company's profitability.
COPYRIGHT ISSUES
In connection with the Company's performance of most hardware maintenance,
the computer system which is being serviced must be turned on for the purpose of
service or repair. When the computer is turned on, the resident operating system
software and, in some cases diagnostic software, is transferred from a
peripheral storage device or a hard disk drive into the computer's random access
memory. Within the past several years, several OEMs have been involved in
litigation with independent service organizations, including
11
<PAGE> 13
the Company, in which they have claimed such transfer constitutes the making of
an unauthorized "copy" of such software by the independent service organization
which infringes on the software copyrights held by the OEMs. The Company is
aware of three cases in this area which have been decided in favor of the OEM.
Although the Company was not a party in any of these cases, three similar claims
have been asserted against the Company, each of which has been resolved.
Litigation of this nature can be time consuming and expensive, and there can be
no assurance the Company will not be a party to similar litigation in the
future, or that such litigation would be resolved on terms that do not have a
material adverse effect on the Company.
DEPENDENCE ON COMPUTER INDUSTRY TRENDS; RISK OF TECHNOLOGICAL CHANGE
The Company's future success is dependent upon the continuation of a number
of trends in the computer industry, including the migration by information
technology end-users to multivendor and multisystem computing environments, the
overall increase in the sophistication and interdependency of computing
technology, and a focus by information technology managers on cost efficient
management. The Company believes these trends have resulted in a movement by
both end-users and OEMs towards outsourcing and an increased demand for support
service providers that have the ability to provide a broad range of multivendor
support services. There can be no assurance these trends will continue into the
future.
Additionally, rapid technological change and compressed product life cycles
are prevalent in the computer industry, which may lead to the development of
improved or lower cost technologies, higher quality hardware with significantly
reduced failure rates and maintenance needs, or customer decisions to replace
rather than continue to maintain aging hardware, and which could result in a
reduced need for the Company's services in the future. Moreover, such rapid
technological changes could adversely affect the Company's ability to predict
equipment failure rates, and, therefore, to establish prices that provide
adequate profitability. Similarly, new computer systems could be built based
upon proprietary, as opposed to open, systems that could not be serviced by the
Company.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success depends, to a large extent, upon the
efforts and abilities of key managerial employees, particularly the Company's
executive officers. There are not currently any employment contracts which would
ensure the continued employment of any executive officer. Competition for
qualified management personnel in the industry is intense. The loss of the
services of certain of these key employees or the failure to retain qualified
employees when needed could have a material adverse effect on the Company's
business. The Company does not currently maintain key man insurance.
CONTROL BY DLJ
Approximately 87.4% of the outstanding shares of the Company's common stock
are currently held by the DLJ Group. As a result of its stock ownership and the
Investors' Agreement (which includes members of management to the extent their
shares are acquired through the Company's Direct Investment Program), the DLJ
Funds control the Company and have the power to elect a majority of the
Company's directors, appoint new management and approve any action requiring the
approval of the holders of the Company's common stock, including adoption of
certain amendments to the Company's certificate of incorporation and approving
mergers or sales of all or substantially all of the Company's assets. The
directors elected by the DLJ Funds have the authority to effect decisions
affecting the capital structure of the Company, including the issuance of
additional capital stock, the implementation of stock repurchase programs and
the declaration of dividends.
DILUTION
The Company has granted approximately 1,179,000 options to purchase shares
of Company Common Stock to members of the Company's management, and may grant
additional options in the future. The aggregate number of shares of Company
Common Stock reserved for issuance pursuant to the Company's Management
Incentive Plan is 1,698,280, which includes approximately 251,000 shares to
accommodate options rolled over from the Company's previous stock option plan.
The exercise price of any options granted
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<PAGE> 14
pursuant to the Management Incentive Plan may be less than the fair market value
of the shares of Company Common Stock. Any such grant or exercise of any stock
option, will dilute the equity ownership percentage of Company stockholders and
the DLJMB Funds (and the Institutional Investors) and may result in a decrease
of the book value of the Company Common Stock per share. In addition, pursuant
to the Company's Direct Investment Program, certain members of management
purchased approximately 97,520 shares of Company Common Stock at the time of the
Merger. The aggregate number of shares reserved for issuance pursuant to the
Direct Investment Plan is 238,095. These purchases, and any future purchases
under the plan, would also dilute the equity ownership percentage of the DLJMB
Funds (and the Institutional Investors) and the Company stockholders.
POTENTIAL DELISTING AND LOSS OF LIQUIDITY
As a result of the Merger, the Company's common stock no longer meets
certain maintenance requirements of The NASDAQ National Market System
("NASDAQ"). While NASDAQ has granted the Company a dispensation from such
maintenance requirements, there can be no assurance that in the future NASDAQ
will not unilaterally act to delist the Company's common stock. Following the
Merger, there has been a limited market for the Company's common stock because
of the significant ownership of the DLJ Group. In the event that a delisting
occurs stockholders may experience difficulty selling shares or obtaining prices
that reflect the value thereof.
ITEM 2. PROPERTIES
Item 2 is presented with respect to both registrants submitting this
filing, DecisionOne Holdings Corp. and DecisionOne Corporation.
FACILITIES
The Company leases certain office and warehouse facilities under operating
leases and subleases that expire at various dates through November 30, 2005. The
Company's executive offices are located at the Frazer, Pennsylvania facilities
listed below. The principal facilities currently leased or subleased by the
Company are as follows:
<TABLE>
<CAPTION>
SQUARE LEASE
FOOTAGE EXPIRATION
------- --------------
<S> <C> <C>
Frazer, Pennsylvania (Office)............................ 109,800 November 2005
Frazer, Pennsylvania (Office)............................ 35,968 April 2003
Malvern, Pennsylvania (Depot/Call Center)................ 200,000 May 2000
Horsham, Pennsylvania (Warehouse)........................ 100,000 December 1999
Bloomington, Minnesota (Call Center)..................... 66,000 March 1998
Hayward, California (Depot).............................. 91,000 September 1999
Northborough, Massachusetts (Depot)...................... 52,778 July 1998
Wilmington, Ohio (Warehouse)............................. 83,000 January 2001
Grove City, Ohio (Depot)................................. 118,500 January 2002
</TABLE>
In addition, the Company owns two facilities located in Tulsa, Oklahoma
(multipurpose) and the suburbs of Milwaukee, Wisconsin (logistics services). The
Company's management believes that its current facilities will be adequate to
meet its projected growth for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Item 3 is presented with respect to both registrants submitting this
filing, DecisionOne Holdings Corp. and DecisionOne Corporation.
The Company is a party, from time to time, to lawsuits arising in the
ordinary course of business. The Company believes it is not currently a party to
any material legal proceedings. However, within the past several years, several
OEMs have been involved in litigation with independent service organizations,
including
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<PAGE> 15
the Company, in which such OEMs have claimed infringement of software copyrights
held by the OEMs. The Company currently is not involved in any such litigation.
See "Risk Factors -- Copyright Issues."
The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible parties
in respect of four waste disposal sites that have been identified by the United
States Environmental Protection Agency as Superfund Sites: (i) PAS Irwin Dump
Site, Oswego, New York (and six satellite sites, including the Fulton Terminals
Site, Fulton, New York); (ii) North Penn Area 6 Site, Lansdale, Pennsylvania;
(iii) Revere Chemical Site, Nockamixon, Pennsylvania; and (iv) Malvern TCE site,
Malvern, Pennsylvania. In addition, the Company received a notice several years
ago that it may be a potentially responsible party with respect to the Boarhead
Farms Site, Bridgeton, Pennsylvania, at a site related to the Revere Chemical
site, but has not received any additional communication with respect to that
site. Under applicable law, all parties responsible for disposal of hazardous
substances at those sites are jointly and severally liable for clean up costs.
The Company has estimated that its share of the costs of the clean up of one of
the sites will be approximately $500,000, which has been provided for in
liabilities related to the discontinued products division in the accompanying
consolidated balance sheets as of June 30, 1997, 1996 and 1995. Complete
information as to the scope of required clean up at these sites is not yet
available and, therefore, management's evaluation may be affected as further
information becomes available. However, in light of information currently
available to management, including information regarding assessments of the
sites to date and the nature of involvement of the Company's predecessor at the
sites, it is management's opinion that the Company's potential additional
liability, if any, for the cost of clean up of these sites will not be material
to the consolidated financial position, results of operations or liquidity of
the Company. See Note 16 to the Company's Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE OF THE COMMON STOCK
The Common Stock of DecisionOne Holdings Corp. is quoted on the NASDAQ
National Market System under the symbol "DOCI". As of September 15, 1997, there
were 472 stockholders of record. The following table shows, for the periods
indicated, the high and low sale prices of a share of the Company Common Stock
as reported by Bloomberg Financial Markets.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
Second Quarter*....................................................... 29 3/4 19 1/2
Third Quarter......................................................... 26 1/2 12 1/2
Fourth Quarter........................................................ 29 3/4 19 1/2
1997
First Quarter......................................................... 26 1/2 12 1/2
Second Quarter........................................................ 16 3/4 13 1/4
Third Quarter**....................................................... 30 22 3/8
</TABLE>
- ---------------
* The Common Stock has been quoted and traded on the NASDAQ National Market
System since April 4, 1996.
** Through September 11, 1997.
Since its initial public offering in 1996, the Company has not paid any
cash dividends on its Common Stock and it does not have any present intention to
commence payment of any cash dividends. The Company intends to retain earnings
to provide funds for the operation and expansion of the Company's business and
to repay outstanding indebtedness. The Company's debt agreements and other
agreements to which it is a party contain certain covenants restricting the
payment of dividends on, or repurchases of, Company Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data sets forth, for the
periods and the dates indicated, selected consolidated financial data of the
Company, derived from the historical consolidated financial statements of the
Company. The consolidated financial data of the Company for the years ended June
30, 1997, 1996 and 1995 and as of June 30, 1997 and 1996 are derived from the
Company's audited consolidated financial statements included elsewhere herein.
The information set forth below is qualified by reference to and should be read
in conjunction with the Company's and DecisionOne Corporation and Subsidiaries'
Consolidated Financial Statements and Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations". The
following selected financial data (except for per share data, presented only for
DecisionOne Holdings Corp.) is presented for both registrants submitting this
filing, DecisionOne Holdings Corp. and DecisionOne Corporation.
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<PAGE> 17
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------------------------------
THE COMPANY 1997 1996 1995 1994 1993
- ------------------------------------ -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PRO FORMA LOSS PER COMMON SHARE)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Revenues............................ $785,950 $540,191 $163,020 $108,416.. $114,060
Income (loss) before discounted
operations and extraordinary
item.............................. 31,084 20,789 41,415 10,112 (5,234)
Net income (loss)(2)................ 31,084 18,862 42,528 10,112 (10,590)
Pro forma net loss (unaudited)(3)... (183)
Pro forma loss per common share
(unaudited)(3).................... (0.01)
BALANCE SHEET DATA:(1)
Consumable parts.................... $ 34,518 $ 29,770 $ 3,455 $ 3,584 $ 5,528
Repairable parts.................... 199,900 154,970 27,360 9,473... 13,545
Total assets........................ 623,105 514,510 135,553 35,469 44,721
Long-term debt, less current
portion........................... 232,721 188,582 6,157 2,366 44,769
Redeemable preferred stock.......... -- -- 6,811 6,436 --
Total shareholders' equity
(deficiency)...................... 214,888 180,793 14,677 (27,627) (58,146)
</TABLE>
- ---------------
(1) The Selected Financial Data presented includes the results of operations and
balance sheet data of the Company, including the following acquisitions:
Servcom from September 1, 1994, BABSS from October 20, 1995 and certain
assets of the U.S. computer service business of Memorex Telex from November
15, 1996.
(2) The years ended June 30, 1993 and 1994 include income taxes based on an
effective tax rate substantially less than the 40% effective tax rate for
the year ended June 30, 1996 and the 41% effective tax rate for the year
ended June 30, 1997. The year ended June 30, 1995 includes a $23.1 million
net benefit arising from the recognition of future tax benefits of tax loss
carryforwards and temporary timing differences. See Note 9 to the Company's
Consolidated Financial Statements.
(3) Pro forma net loss and loss per common share information for the fiscal year
ended June 30, 1997 is presented to reflect the Merger and related
transactions as if these had occurred on July 1, 1996. Historical per share
data is not presented as this would not be meaningful. See Note 3 to the
Company's Consolidated Financial Statements for additional information.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements, DecisionOne Corporation and Subsidiaries'
Consolidated Financial Statements and the respective Notes thereto, as included
in Item 8 herein. Item 7 is presented with respect to both registrants
submitting this filing, DecisionOne Holdings Corp. and DecisionOne Corporation.
(As used in this Item 7, the term "Company" refers to DecisionOne Holdings Corp.
and its wholly-owned subsidiaries, including DecisionOne Corporation and the
term "Holdings" refers to DecisionOne Holdings Corp.)
This discussion contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" in Item 1.
COMPANY HISTORY
Founded in 1969, the Company began operations as a provider of key punch
machines under the tradename "Decision Data." During the 1980s, its operations
expanded to include the sale of midrange computer hardware and related
maintenance services. During fiscal 1993, the Company decided to focus on
providing computer maintenance and support services and sold its computer
hardware products business.
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<PAGE> 18
Since the beginning of fiscal 1993, the Company established a major
presence in the computer maintenance and technology support services industry
through the acquisition and integration of assets and contracts of 36
complementary businesses. Significant acquisitions included IDEA Servcom, Inc.
("Servcom"), certain assets and liabilities of which were acquired in August
1994 for cash consideration of approximately $29.5 million and BABSS, which was
acquired in October 1995 for cash consideration of approximately $250.0 million.
In addition, certain assets of the U.S. computer service business of Memorex
Telex were acquired in November 1996 for cash consideration of approximately
$24.4 million after certain purchase price adjustments. These acquisitions were
accounted for as purchase transactions.
At the time of its acquisition by the Company, BABSS was among the largest
independent, multivendor service organizations servicing end-user organizations
and OEMs. Prior to the acquisition of BABSS, the Company had higher gross
margins than BABSS principally because approximately 30% of the Company's
revenues in fiscal 1995 were attributable to higher margin contracts involving
systems that can be serviced by a limited number of service providers
("proprietary systems"), whereas BABSS had limited revenues from proprietary
systems.
The Company's primary source of revenues is contracted services for
multivendor computer maintenance and technology support services, including
hardware support, end-user and software support, network support and other
support services. Approximately 85% of the Company's revenues are derived from
maintenance contracts covering a broad spectrum of computer hardware. These
contracts typically have a stipulated monthly fee over a fixed initial term
(typically one year) and continue thereafter unless canceled by either party.
Such contracts generally provide that customers may eliminate certain equipment
and services from the contract upon notice to the Company. In addition, the
Company enters into per-incident arrangements with its customers. Per incident
contracts can cover a range of bundled services for computer maintenance or
support services or for a specific service, such as network support or equipment
relocation services. Another form of per incident service revenues includes time
and material billings for services as needed, principally maintenance and
repair, provided by the Company.
Furthermore, the Company derives additional revenues from the repair of
hardware and components at the Company's logistics services and depot repair
facilities. Pricing of the Company's services is based on various factors
including equipment failure rates, cost of repairable parts and labor expenses.
The Company customizes its contracts to the individual customer based generally
on the nature of the customer's requirements, the term of the contract and the
services that are provided.
The Company experiences reductions in revenue when customers replace
equipment being serviced with new equipment covered under a manufacturer's
warranty, discontinue the use of equipment being serviced due to obsolescence,
choose to use a competitor's services or move technical support services
in-house. The Company must more than offset this revenue "reduction" to grow its
revenues and seeks revenue growth from two principal sources: internally
generated sales from its direct and indirect sales force and the acquisition of
contracts and assets of other service providers. While the Company historically
has been able to offset the erosion of contract-based revenue and maintain
revenue growth through acquisitions and new contracts, notwithstanding the
reduction in contract based revenue, there can be no assurance it will continue
to do so in the future, and any failure to consummate acquisitions, enter into
new contracts or add additional services and equipment to existing contracts
could have a material adverse effect on the Company's profitability.
Cost of revenues is comprised principally of personnel-related costs
(including fringe benefits), consumable parts cost recognition, amortization and
repair costs for repairable parts, and facilities costs and related expenses.
The acquisition of contracts and assets has generally provided the Company
with an opportunity to realize economies of scale because the Company generally
does not increase its costs related to facilities, personnel and consumable and
repairable parts in the same proportion as increases in acquired revenues.
17
<PAGE> 19
MERGER AND RECAPITALIZATION
On August 7, 1997, the Company consummated the Merger with Quaker Holding
Co. ("Quaker"), an affiliate of DLJ Merchant Banking Partners II. The Merger,
which has been recorded as a recapitalization as of the consummation date for
accounting purposes, occurred pursuant to an Agreement and Plan of Merger among
the Company and Quaker dated May 4, 1997, as amended (the "Merger Agreement").
The respective Consolidated Financial Statements of DecisionOne Holdings Corp.
and DecisionOne Corporation and their respective subsidiaries as of and for the
year ended June 30, 1997, included herein, do not reflect transactions related
to the consummation of the merger.
In accordance with the terms of the Merger Agreement, which was approved by
the Company's shareholders on August 7, 1997, Quaker merged with and into the
Company, and the holders of approximately 94.7% of shares of DecisionOne
Holdings Corp. common stock outstanding immediately prior to the Merger received
$23 in cash in exchange for these shares. Holders of approximately 5.3% of
shares of DecisionOne Holdings Corp. common stock outstanding immediately prior
to the Merger retained such shares in the merged Company, as determined based
upon shareholder elections and stock proration factors specified in the Merger
Agreement. The aggregate value of the Merger was approximately $940 million,
including refinancing of DecisionOne Corporation's revolving credit facility
(See Note 3 to the Company's Consolidated Financial Statements).
As a result of the Merger, the Company incurred various expenses,
aggregating approximately $71 million on a pretax basis (approximately $64
million after related tax benefit), subject to adjustment, in connection with
consummating the transaction. These costs consisted primarily of compensation
costs, underwriting discounts and commissions, professional and advisory fees
and other expenses. The Company will report this one-time charge during the
first quarter of fiscal 1998. In addition to these expenses, the Company also
incurred approximately $22.3 million of capitalized debt issuance costs
associated with the Merger Financing. These costs will be charged to expense
over the terms of the related debt instruments (see "Liquidity and Capital
Resources").
As a result of the foregoing, the Company expects to record a significant
net loss in the first quarter of fiscal 1998. Because this loss will result
directly from the one-time charge incurred in connection with the merger, and
this charge will be funded entirely through the proceeds of the Merger
Financing, the Company does not expect this loss to materially impact its
liquidity, ongoing operations or market position. For a discussion of the
consequences of the incurrence of indebtedness in connection with the Merger
Financing, see "Liquidity and Capital Resources."
RESULTS OF OPERATIONS
The following discussion of results of operations is presented for the
fiscal years ended June 30, 1997, 1996 and 1995. The results of operations of
the Company include the operations of Memorex Telex from November 15, 1996,
BABSS from October 20, 1995 and Servcom from September 1, 1994.
18
<PAGE> 20
The following table sets forth, for the periods indicated, certain
operating data expressed in dollar amounts and as a percentage of revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------
1997 1996 1995
--------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 785,950 $ 540,191 $163,020
Cost of Revenues......................................... 581,860 402,316 113,483
-------- -------- --------
Gross Profit............................................. 204,090 137,875 49,537
Selling, general and administrative expenses............. 108,570 69,137 21,982
Employee severance and unutilized lease costs............ 4,300 3,692 --
Amortization of intangibles.............................. 23,470 15,673 6,776
-------- -------- --------
Total operating expenses................................. 136,340 88,502 28,758
Operating income....................................... 67,750 49,373 20,779
Interest expense, net of interest income................. 14,698 14,714 2,468
Provision (benefit) for income taxes..................... 21,968 13,870 (23,104)
Gain from discontinued operations........................ -- -- 1,113
Extraordinary item -- loss on early extinguishment of
debt................................................... -- (1,927) --
-------- -------- --------
Net income..................................... $ 31,084 $ 18,862 $ 42,528
======== ======== ========
OTHER DATA:
EBITDA(1)................................................ $ 172,939 $ 114,816 $ 37,021
Less: Amortization of repairable parts................. (63,870) (37,869) (7,688)
-------- -------- --------
Adjusted EBITDA(1)....................................... 109,069 76,947 29,333
======== ======== ========
Net cash provided by operating activities................ 88,974 51,894 38,415
Net cash (used in) investing activities.................. (129,244) (346,354) (54,271)
Net cash provided by financing activities................ 42,926 300,022 17,537
</TABLE>
- ---------------
(1) Adjusted EBITDA represents income (loss) from continuing operations before
interest expense, interest income, income taxes, depreciation, amortization
of intangibles, amortization of repairable parts, amortization of discounts
and capitalized expenditures related to indebtedness, and non-recurring
employee severance charges and provisions for unutilized leases. ("EBITDA"
represents Adjusted EBITDA, increased by the amortization of repairable
parts). Adjusted EBITDA is presented because it is relevant to certain
covenants contained in debt agreements entered by the Company in connection
with the merger, and because the Company believes that Adjusted EBITDA is a
more-consistent indicator of the Company's ability to meet its debt service,
capital expenditure and working capital requirements than EBITDA.
19
<PAGE> 21
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE
30,
-------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................ 100.0% 100.0% 100.0%
Cost of Revenues.................................................... 74.0% 74.5% 69.6%
----- ----- -----
Gross Profit........................................................ 26.0% 25.5% 30.4%
Selling, general & administrative expenses.......................... 13.8% 12.8% 13.5%
Employee severance and unutilized lease costs....................... 0.5% 0.7% --
Amortization of intangibles......................................... 3.0% 2.9% 4.2%
----- ----- -----
Total operating expenses............................................ 17.3% 16.4% 17.7%
Operating income.................................................. 8.7% 9.1% 12.7%
Interest expense, net of interest income............................ 1.9% 2.7% 1.5%
Provision (benefit) for income taxes................................ 2.8% 2.6% (14.2)%
Gain from discontinued operations................................... -- -- (0.7)%
Extraordinary item -- loss on early extinguishment of debt.......... -- (0.3)% --
----- ----- -----
Net income................................................ 4.0% 3.5% 26.1%
===== ===== =====
</TABLE>
Overview
The Company reported income from continuing operations before income taxes
of $53.1 million, $34.7 million, and $18.3 million in fiscal 1997, 1996 and 1995
respectively. Excluding pre-tax charges for employee severance and unutilized
lease costs in fiscal 1997 and 1996, income from continuing operations before
income taxes was $57.4 million and $38.4 million. Adjusted EBITDA was $109.1
million, $76.9 million, and $29.3 million in fiscal 1997, 1996 and 1995
respectively.
Growth in Adjusted EBITDA and in income from continuing operations before
taxes in fiscal 1997 are primarily a result of certain strategic initiatives,
including the acquisition of complementary contracts and assets, enhancement of
the efficiency of the Company's field technician service force and renegotiation
of certain vendor contracts on more-favorable terms and related increases in
operating leverage.
Fiscal 1997 Compared to Fiscal 1996
Revenues: Revenues increased by $245.8 million, or 45.5%, to $786.0
million for the fiscal year ended June 30, 1997 from $540.2 million for the
fiscal year ended June 30, 1996. This increase is attributable primarily to the
full period effect of the BABSS acquisition, which occurred on October 20, 1995.
To a lesser degree, this increase is attributable to the acquisition of the
service contracts of several complementary businesses, principally Memorex Telex
on November 15, 1996.
Revenues for the quarter ended June 30, 1997 reflected strong growth in
per-incident and other non-contract revenues, compared to the previous quarter.
This revenue is subject to fluctuation depending upon customer demand for the
types and levels of such services. The Company currently expects a decline in
such revenues in the first quarter of fiscal 1998 compared to the fourth quarter
of fiscal 1997.
Gross Profit: Gross profit increased by $66.2 million, or 48.0%, from
$137.9 million for the fiscal year ended June 30, 1996 to $204.1 million for the
fiscal year ended June 30, 1997. This increase is due primarily to the
acquisition of BABSS in October, 1995, and to a lesser degree, the acquisition
of Memorex Telex in November, 1996.
As a percentage of revenues, gross profit increased from 25.5% for the
fiscal year ended June 30, 1996 to 26.0% for the fiscal year ended June 30,
1997. This improvement in gross profit margin is primarily attributable to (i)
increased revenues, both from acquisitions during the fiscal year ended June 30,
1997 and internal sales growth without a proportionate increase in personnel and
other operating expenses, (ii) head count reductions in the Company's field
technician force effected in November 1996 and (iii) more efficient
20
<PAGE> 22
utilization of the Company's field service personnel and resources to service
the increased revenues referred to above.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses, exclusive of employee severance and unutilized lease
costs, increased by $39.4 million, or 56.9%, to $108.6 million for the fiscal
year ended June 30, 1997 from $69.2 million for the fiscal year ended June 30,
1996. This increase is primarily attributable to the full period effect in
fiscal 1997 of the BABSS acquisition, and to a lesser degree, to the acquisition
of Memorex Telex in fiscal 1996. As a percentage of revenues, exclusive of
employee severance and unutilized lease costs, selling, general and
administrative expenses increased to 13.8% for the fiscal year ended June 30,
1997 from 12.8% for the fiscal year ended June 30, 1996.
Employee severance and unutilized lease costs: During the fiscal year
ended June 30, 1997, the Company recorded $4.3 million in employee severance and
unutilized lease/contract costs, in connection with specific acquisitions. These
costs are included in Selling, general and administrative expenses in the
Company's Consolidated Statement of Operations. During fiscal 1996, the Company
recorded $3.6 million in employee severance and unutilized lease costs. These
costs were related principally to future rent obligations and related costs for
facilities of the Company that the Company determined were no longer required as
a result of the acquisition of BABSS. (See Note 15 to the Company's Consolidated
Financial Statements for additional information).
Amortization of Intangibles: Amortization of intangible assets increased
by $7.8 million, or 49.7%, from $15.7 million for the fiscal year ended June 30,
1996 to $23.5 million for the fiscal year ended June 30, 1997. This increase was
attributable principally to the amortization of intangibles resulting from the
BABSS and Memorex Telex acquisitions.
Interest Expense: Interest expense, net of interest income, equaled
approximately $14.7 million for each of the fiscal years ended June 30, 1997 and
1996. This was the result of two offsetting factors, as the Company's reduced
average borrowing rate on long-term indebtedness, (approximately 6.4% for the
fiscal year ended June 30, 1997 as compared to 9.0% for the fiscal year ended
June 30, 1996) substantially offset the increase in average borrowings during
the fiscal year ended June 30, 1997. The reduced average borrowing rate resulted
from the refinancing of the Company's revolving credit facility in April, 1996.
The increased average borrowings during fiscal 1997 were attributable primarily
to the funding requirements of several acquisitions, principally Memorex Telex.
Income Taxes: The Company's income tax provision for the fiscal year ended
June 30, 1997 reflects an estimated effective income tax rate of approximately
41%, while the effective income tax rate for the fiscal year ended June 30, 1996
was approximately 40%. This increase in the Company's anticipated effective
income tax rate was due primarily to the prior-year impact of certain
non-recurring foreign income tax benefits relating to net operating loss
carryforwards.
Fiscal 1996 Compared to Fiscal 1995
Revenues: Revenues increased by $377.2 million, or 231.4%, from $163.0
million for the fiscal year ended June 30, 1995 to $540.2 million for the fiscal
year ended June 30, 1996. The increase is largely a result of acquisitions,
principally the BABSS acquisition in October 1995 which accounted for
approximately $350 million of the increase.
Gross profit: Gross profit increased by $88.4 million, or 178.6%, from
$49.5 million during the fiscal year ended June 30, 1995 to $137.9 million for
the fiscal year ended June 30, 1996. As a percentage of revenues, gross profit
decreased from 30.4% to 25.5%, reflecting the change in mix of services
resulting from the acquisition of BABSS. As a result of that acquisition, a
smaller portion of revenues was derived from proprietary systems which typically
generate higher profit margins than services for nonproprietary systems.
Selling, general and administrative expenses: Selling, general and
administrative expenses, exclusive of employee severance and unutilized lease
costs, increased by $47.2 million, from $22.0 million for the fiscal year ended
June 30, 1995 to $69.2 million for the fiscal year ended June 30, 1996,
principally as a result of the
21
<PAGE> 23
additional expenses relating to the revenue growth discussed above. As a
percentage of revenues, selling, general and administrative decreased from 13.5%
to 12.8%, respectively, reflecting economies of scale.
Employee severance and unutilized lease costs: During fiscal 1996, the
Company recorded $3.6 million in employee severance and unutilized lease costs.
These costs were related principally to future rent obligations and related
costs for facilities of the Company that the Company determined were no longer
required as a result of the acquisition of BABSS. These costs are included in
Selling, general and administrative expenses in the Company's Consolidated
Statement of Operations. (See Note 15 to the Company's Consolidated Financial
Statements for additional information).
Amortization and write-off of intangibles: Amortization of intangibles
increased by $8.9 million, from $6.8 million for the fiscal year ended June 30,
1995 to $15.7 million for the fiscal year ended June 30, 1996, principally due
to the amortization of intangibles arising from the BABSS acquisition.
Interest expense: Interest expense increased by $12.2 million, from $2.5
million for the fiscal year ended June 30, 1995 to $14.7 million for the fiscal
year ended June 30, 1996, principally as a result of the indebtedness incurred
to finance the acquisition of BABSS. See Note 8 to the Company's Consolidated
Financial Statements.
Provision for income taxes: The income tax provision for the fiscal year
ended June 30, 1996 was based on an effective tax rate of approximately 40%. For
the fiscal year ended June 30, 1995, the Company reported an income tax benefit
equivalent of approximately 126%, arising primarily from the recognition of
future tax benefits of tax loss carry-forwards and temporary timing differences.
See Note 9 to the Company's Consolidated Financial Statements.
Extraordinary item -- early extinguishment of debt: Upon consummation of
its initial public offering in April 1996, the Company was required to pay the
total outstanding principal amount of its $30 million of 10.101% subordinated
debentures due October 20, 2001. This prepayment resulted in the write-off of
unamortized original issue discount of approximately $1.9 million, net of income
tax effect of $1.3 million, related to warrants issued with the debentures.
Discontinued operations: During fiscal 1995, the Company revised its
estimates of certain accruals created as a result of the disposal of its
computer products division during fiscal 1993. The reversal of certain accruals
resulted in $1.1 million in additional net income in fiscal 1995.
LIMITATION ON USE OF NET OPERATING LOSS CARRYFORWARDS AND OTHER TAX CREDITS
As of June 30, 1997, the Company had tax loss carryforwards of
approximately $12.9 million and $8.7 million for Federal and state income tax
purposes, respectively, which are scheduled to expire between 1998 and 2008. The
Company also had minimum tax credits of approximately $1.5 million as of June
30, 1997, with no applicable expiration period. These carryforwards and credits
may be utilized, as applicable, to reduce future taxable income. The Company's
initial public offering in April, 1996 resulted in an "ownership change"
pursuant to Section 382 of the Code, which in turn resulted in the usage, for
U.S. federal income tax purposes, of these carryforwards and credits during any
future period being limited to approximately $20 million per annum.
In addition, the Company's merger with Quaker in August, 1997 represents
another "ownership change" under Section 382 of the Code, and the Company,
therefore, estimates that, for U.S. federal income tax purposes, the limitation
on its use of tax loss carryforwards and other credits in any post-merger period
will be reduced to approximately $9.0 million per annum. The Company anticipates
that fees and expenses incurred in connection with the merger will result in
additional tax loss carryforwards arising in fiscal 1998. For financial
reporting purposes, the anticipated tax benefit associated with these
carryforwards will be limited due primarily to the length of the period during
which the anticipated tax benefit is expected to be realized. See Note 9 to the
Company's Consolidated Financial Statements.
22
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
Post-Merger
The Company's principal sources of liquidity will be cash flow from
operations and borrowings under its new $105 million revolving credit facility,
which was entered into in connection with the Merger. The Company's principal
uses of cash will be debt service requirements, capital expenditures, purchases
of repairable parts and acquisitions, and working capital. The Company expects
that ongoing requirements for debt service, capital expenditures, repairable
parts and working capital will be funded from operating cash flow and borrowing
under the new revolving credit facility. To finance future acquisitions, the
Company may require additional funding which may be provided in the form of
additional debt, equity financing or a combination thereof.
The Company incurred substantial indebtedness in connection with the Merger
on August 7, 1997. On a pro forma basis, after giving effect to the Merger,
including the Merger financing and the application of the proceeds thereof, the
Company would have had approximately $724.5 million of indebtedness outstanding
as of June 30, 1997 as compared to actual $237.5 million of indebtedness
outstanding as of June 30, 1997. In addition, on the same pro forma basis, the
Company would have a stockholders' deficit of $243.1 million at June 30, 1997 as
compared to actual stockholders' equity of $214.9 million as of June 30, 1997.
The Company's significant debt service obligations following the Merger could,
under certain circumstances, have material consequences to security holders of
the Company. See "Risk Factors", included herein under Item 1.
In connection with the Merger, Holdings issued $85 million of 11 1/2% Notes
due 2008 (the "11 1/2% Notes"). DecisionOne Corporation issued $150 million of
9 3/4% Notes due 2007 (the "9 3/4% Notes"). DecisionOne Corporation also entered
into a new syndicated credit facility providing for term loans of $470 million
and revolving loans of up to $105 million. The proceeds of the 11 1/2% Notes
(which were issued with attached warrants), 9 3/4% Notes, the initial borrowings
under the new credit facility and the purchase of approximately $225 million of
Holdings common stock by the DLJ Group have been used to finance the payments of
cash to cash-electing shareholders, to pay the holders of stock options and
stock warrants canceled or converted, as applicable, in connection with the
merger, to repay DecisionOne Corporation's existing revolving credit facility
and to pay expenses incurred in connection with the merger. See Note 3 to the
Company's and DecisionOne Corporation's Consolidated Financial Statements for
additional information.
The Company has budgeted approximately $10 million in incremental
expenditures for information systems and related re-engineering initiatives to
be incurred in fiscal 1998. The initiatives to be funded include the following:
(i) enhancements to the Company's service entitlement process which will further
ensure that customers are billed for all work performed; (ii) improvements to
the Company's dispatch system and field engineer data collection and technical
support tools which are designed to increase productivity; (iii) enhancements to
the Company's help desk and central dispatch systems to provide an integrated
support solution to the customer base, and (iv) improvements to the Company's
field inventory tracking system which will facilitate increased transfer of
consumable and repairable parts among field locations and reduce purchases of
repairable parts. There can be no assurance that these amounts will be so
expended by the Company, nor when these amounts will be so expended. These
planned expenditures are expected to negatively impact income during fiscal year
1998.
The Company anticipates that its operating cash flow, together with
borrowings under the new credit facility, will be sufficient to meet its
anticipated future operating expenses and capital expenditures and to service
its debt requirements as they become due. However, the Company's ability to make
scheduled payments of principal of, to pay interest on or to refinance its
indebtedness and to satisfy its other debt obligations will depend upon its
future operating performance, which will be affected by general economic,
financial, competitive, legislative, regulatory, business and other factors
beyond its control. See "Risk Factors", included herein under Item 1.
23
<PAGE> 25
Historical
Financing: Until its initial public offering in April 1996, the Company's
principal sources of capital had been borrowings from banks (primarily to
finance acquisitions), private placements of equity and debt securities with
principal stockholders and cash flow generated by operations. In April 1996, the
Company (i) completed an initial public offering, which raised approximately
$106 million and (ii) refinanced its bank debt, each of which is more fully
discussed below.
The Company has relied on banks as the primary source of funds required for
larger acquisitions, such as the August 1994 acquisition of certain assets and
liabilities of Servcom and the October 1995 acquisition of BABSS. Since July
1993, the Company's smaller acquisitions have been funded primarily through a
combination of seller financing, cash and the assumption of liabilities under
acquired prepaid service contracts.
In April 1996, the Company completed an initial public offering raising
$106 million through the issuance of 6.3 million shares of common stock. The
Company used the proceeds to repay approximately $70 million of its then
existing term loan (the "1995 Term Loan") and the Affiliate Notes. Concurrent
with the initial public offering, the Company's Preferred Stock (Series A, B and
C) was converted into common stock in accordance with the terms thereof.
In April 1996, the Company converted the 1995 Term Loan and an existing $30
million revolving credit facility into a $225 million variable rate, unsecured
revolving credit facility (the "Facility"). During November 1996, in connection
with the acquisition of certain assets of the U.S. computer service business of
Memorex Telex, the Company's lender approved a $75 million increase to the
Facility, raising the total loan commitment to $300 million. See Note 8 to the
Company's Consolidated Financial Statements.
The Facility provides for revolving borrowings up to $300 million. The
commitments thereunder terminate on April 26, 2001. The interest rate applicable
to the Facility varies, at the Company's option, based upon LIBOR (plus an
applicable margin not to exceed 1%) or the prime rate. The Company had entered
into interest rate swap agreements resulting in fixed Euro dollar interest rates
of 5.4% on $40.0 million through December 1997 and 5.5% on another $40.0 million
through December 1998. During fiscal 1997, the Company terminated these interest
rate swap agreements, resulting in an insignificant gain. See Notes 1 and 8 to
the Company's Consolidated Financial Statements.
As of June 30, 1997, the interest rate applicable to loans under the
Facility was LIBOR plus .75%, or an effective rate of approximately 6.5%, and
available borrowings under the Facility were $65.7 million. Borrowings incurred
during fiscal 1997 included substantially all of the funding required with
respect to the Memorex Telex acquisition. See Note 4 to the Company's
Consolidated Financial Statements.
The borrower under the Facility is DecisionOne Corporation, a wholly-owned
and the principal operating subsidiary of the Company. The obligations of
DecisionOne Corporation thereunder are guaranteed by the Company and certain
subsidiaries, except for its Canadian subsidiary. In connection with the merger
in August, 1997, all indebtedness outstanding under the Facility was repaid.
Financial Condition: Cash flow from operating activities for the fiscal
year ended June 30, 1997 was approximately $89.0 million. These funds, together
with borrowings under the Facility, provided the required capital to fund
repairable part purchases and capital expenditures of approximately $97.0
million, as well as the acquisition of contracts and assets of complementary
businesses for approximately $32.3 million.
Reducing cash flow from operating activities for the fiscal year ended June
30, 1997 was a $1.8 million payment to the Internal Revenue Service in full
satisfaction of certain interest liabilities related to prior tax periods. See
Note 7 to the Company's Consolidated Financial Statements. The Company had
adequately accrued for this liability prior to payment, and no further amounts
are due with regard to these matters.
In fiscal years 1996 and 1995, the Company generated net cash flow from
operating activities of $51.9 million and $38.4 million, respectively. Cash
required to fund the purchase of repairable parts and for capital expenditures
totaled $70.8 million and $14.9 million, during fiscal years 1996 and 1995,
respectively.
24
<PAGE> 26
The Company maintains a significant inventory of consumable and repairable
parts. Expendable parts are expensed as they are used in the operations of the
business. Repairable parts are recorded at cost at the time of their acquisition
and amortized over three to five years. The Company maintains a high level of
parts due to the wide range of products serviced, ranging from mainframe to
personal computers. At June 30, 1997, the Company had no material commitments
for purchases of spare parts or for other capital expenditures.
The Company provides for obsolescence when accounting for consumable parts
and reviews obsolescence as it applies to its repairable parts. The Company
believes it has provided adequate reserves for obsolescence for consumable
parts. The Company believes that accumulated amortization on repairable parts
renders the need for an obsolescence reserve with respect to repairable parts
unnecessary.
The most significant of the Company's acquisitions during the fiscal year
ended June 30, 1997 was the Memorex Telex acquisition on November 15, 1996. The
adjusted purchase price was $52.7 million, comprised of the Company's assumption
of $28.3 million of liabilities under acquired customer maintenance contracts,
and $24.4 million in cash, excluding transactions and closing costs, after
taking into account certain purchase price adjustments.
The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible parties
in respect of four waste disposal sites that have been identified by the U.S.
Environmental Protection Agency as Superfund sites. In addition, the Company
received a notice several years ago that it may be a potentially responsible
party in respect of a fifth site, but has not received any other communication
in respect of that site. The Company has estimated that its share of the costs
of the cleanup of one of the sites will be approximately $500,000, which has
been provided for in liabilities related to the discontinued products division
in the Company's financial statements. Complete information as to the scope of
required cleanup at these sites is not yet available and, therefore,
management's evaluation may be affected as further information becomes
available. However, in light of information currently available to management,
including information regarding assessments of the sites to date and the nature
of involvement of the Company's predecessor at the sites, it is management's
opinion that the Company's potential additional liability, if any, for the cost
of cleanup of these sites will not be material to the consolidated financial
position, results of operations or liquidity of the Company. See Note 16 to the
Company's Consolidated Financial Statements.
EFFECT OF INFLATION; SEASONALITY
Inflation has not been a material factor affecting the Company's business.
In recent years, the cost of electronic components has remained relatively
stable due to competitive pressures within the industry, which has enabled the
Company to contain its service costs. The Company's general operating expenses,
such as salaries, employee benefits, and facilities costs, are subject to normal
inflationary pressures.
The operations of the Company are generally not subject to seasonal
fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and a part of this report are financial statements and
supplementary data for DecisionOne Holdings Corp. and DecisionOne Corporation
listed in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE> 27
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF REGISTRANT
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be
filed by the Company with the Securities and Exchange Commission on or before
October 28, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be
filed by the Company with the Securities and Exchange Commission on or before
October 28, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be
filed by the Company with the Securities and Exchange Commission on or before
October 28, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be
filed by the Company with the Securities and Exchange Commission on or before
October 28, 1997.
26
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
See Index to Financial Statements appearing on Page F-1.
(2) Financial Statement Schedules
Schedule I -- Condensed Financial Information of Registrant
(DecisionOne Holdings Corp. only)
Schedule II -- Valuation and Qualifying Accounts
(3) Exhibits
DECISIONONE HOLDINGS CORP.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated May 4, 1997 between the Company and Quaker
Holding Co.(5) (appears as Annex A)
2.2 Amendment No. 1 to the Agreement and Plan of Merger, dated as of July 15, 1997(5)
(appears as Annex A-1)
3.1 Amended and Restated Certificate of Incorporation (Exhibit 3.1)(1)
3.2 Amended and Restated Bylaws (Exhibit 3.2)(1)
4.1* Specimen of DecisionOne Corporation's 9 3/4% Senior Subordinated Notes due 2007
(included in Exhibit 4.2)(6)
4.2* 9 3/4% Senior Subordinated Note Indenture dated as of August 7, 1997 between
DecisionOne Corporation and State Street Bank and Trust Company as Trustee(6)
4.3* Specimen of the Company's 11 1/2% Senior Discount Debenture due 2008 (included in
Exhibit 4.4)
4.4* 11 1/2% Senior Discount Debenture Indenture dated as of August 7, 1997 by and
between Quaker Holding Co. and State Street Bank and Trust as Trustee
4.5* Form of Warrant (included in Exhibit 4.6)
4.6* Warrant Agreement dated as of August 7, 1997 between Quaker Holding Co. and State
Street Bank and Trust as Warrant Agent
4.7* Debenture Agreement dated as of August 7, 1997 between the Company and State Street
Bank and Trust as Trustee (included in Exhibit 4.4)
4.8* Warrant Assumption dated as of August 7, 1997 between the Company and State Street
Bank and Trust as Warrant Agent (included in Exhibit 4.6)
10.1+* Management Incentive Plan
10.2+* Direct Investment Program
10.3* (intentionally omitted)
10.4* U.S. $575,000,000 Credit Agreement dated as of August 7, 1997 by and among
DecisionOne Corporation, various financial institutions, DLJ Capital Funding Inc.
(as Syndication Agent), Nations Bank of Texas, N.A. (as Administrative Agent) and
BankBoston, N.A. (as Documentation Agent)(6)
10.5 Employment Agreement with Kenneth Draeger (Exhibit 10.7)(1)
10.6+ Employment Letter with Stephen J. Felice (Exhibit 10.8)(1)
10.7+ Employment Letter with James J. Greenwell (Exhibit 10.10)(1)
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C>
10.8 Amended and Restated Registration Rights Agreement (Exhibit 10.11)(1)
10.9 First Amendment to Amended and Restated Registration Rights Agreement (Exhibit
10.12)(1)
10.10 Lease for Frazer, Pennsylvania executive offices (East)(Exhibit 10.14)(1)
10.11 Lease for Frazer, Pennsylvania executive offices (West)(Exhibit 10.15)(1)
10.12 Lease for Malvern, Pennsylvania depot and call center (Exhibit 10.16)(1)
10.13+ Employment Letter with Joseph S. Giordano (Exhibit 10.17)(2)
10.14 Lease for Bloomington, Minnesota call center (Exhibit 10.18)(2)
10.15 Lease for Haywood, California depot (Exhibit 10.19)(2)
10.16 Lease for Northborough, Massachusetts depot (Exhibit 10.20)(2)
10.17+ Employment Letter with Thomas J. Fitzpatrick (Exhibit 10.22)(3)
10.18 Employment Letter with Thomas M. Molchan(4)
10.19 Employment Letter with Dwight T. Wilson(4)
10.20* Intercompany Note made by the Company in favor of DecisionOne Corporation dated as
of August 7, 1997
12 Computation of Ratios of Earnings to Fixed Charges(5)
21 Subsidiaries of the Registrant (Exhibit 21)(1)
23.1* Consent of Deloitte & Touche LLP
27* Financial Data Schedule
</TABLE>
- ---------------
(1) Filed as an Exhibit to Registration Statement No. 333-1256 on Form S-1 filed
with the Securities and Exchange Commission on February 9, 1996.
+ Compensation plans and arrangements for executives and others.
* Filed herewith
(2) Filed as an Exhibit to Pre-Effective Amendment No. 1 to Registration
Statement No. 333-1256 on Form S-1 filed with the Securities and Exchange
Commission on March 14, 1996.
(3) Filed as an Exhibit to the Annual Report on Form 10-K filed with the
Securities and Exchange Commission on September 30, 1996.
(4) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on May 15, 1997.
(5) Previously filed as an Exhibit to Registration Statement No. 333-28265 on
Form S-4 filed with the Securities and Exchange Commission on June 2, 1997.
(6) Filed as an Exhibit to the Annual Report on Form 10-K for DecisionOne
Corporation filed with the Securities and Exchange Commission on September
29, 1997.
DECISIONONE CORPORATION
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company, as amended.(1)
3.2 Amended and Restated Bylaws of the Company.(1)
4.1* Specimen of the Company's 9 3/4 Senior Subordinated Notes due 2007 (included in
Exhibit 4.2).
4.2* 9 3/4% Senior Subordinated Note Indenture dated as of August 7, 1997 between the
Company and State Street Bank and Trust as Trustee.
10.1+ Employment Agreement with Kenneth Draeger.(2)
10.2+ Employment Letter with Stephen J. Felice.(2)
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.3 Lease for Frazer, Pennsylvania executive offices (East).(2)
10.4 Lease for Frazer, Pennsylvania executive offices (West).(2)
10.5 Lease for Malvern, Pennsylvania depot and call center.(2)
10.6 Lease for Bloomington, Minnesota call center.(3)
10.7 Lease for Hayward, California depot.(3)
10.8 Lease for Northborough, Massachusetts depot.(3)
10.9 Form of Tax Sharing Agreement.(1)
10.10* U.S. $575,000,000 Credit Agreement dated as of August 7, 1997 by and among the
Company, various finance institutions, DLJ Capital Funding Inc. (as Syndication
Agent), NationsBank of Texas, N.A. (as Administrative Agent) and BankBoston, N.A.
(as Documentation Agent).
10.11* Intercompany Note made by the DecisionOne Holdings Corp. in favor of the Company
dated as of August 7, 1997.(6)
12.1 Statement Regarding Computation of Ratios.(1)
23* Consent of Deloitte & Touche LLP
27* Financial Data Schedule.
</TABLE>
- ---------------
(1) Filed as an Exhibit to Registration Statement No. 333-28411 on Form S-1
filed with the Securities and Exchange Commission on June 3, 1997.
+ Compensation plans and arrangements for executives and others.
* Filed herewith
(2) Filed as an Exhibit to Registration Statement No. 333-1256 on Form S-1 filed
with the Securities and Exchange Commission on February 9, 1996.
(3) Filed as an Exhibit to Pre-Effective Amendment No. 1 to Registration
Statement No. 333-1256 on Form S-1 filed with the Securities and Exchange
Commission on March 14, 1996.
(4) Filed as an Exhibit to the Annual Report on Form 10-K filed by DecisionOne
Holdings Corp. with the Securities and Exchange Commission on September 30,
1996.
(5) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed by
DecisionOne Holdings Corp. with the Securities and Exchange Commission on
May 15, 1997.
(6) Filed as an Exhibit to the Annual Report on Form 10-K filed by DecisionOne
Holdings Corp. with the Securities and Exchange Commission on September 29,
1997.
(b) Current Reports on Form 8-K filed during the quarter ended June 30,
1997:
A Current Report on Form 8-K, dated May 5, 1997, was filed regarding i.)
the Company's Agreement and Plan of Merger with Quaker Holding Co. ("Quaker")
dated May 4, 1997 (the "Merger Agreement"), and ii.) the Voting Agreement by and
among the Company, Quaker and certain partnerships affiliated with Welsh,
Carson, Anderson and Stowe and J.H. Whitney & Co., with respect to the Merger
Agreement.
29
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in Frazer, Pennsylvania
on September 29, 1997.
DECISIONONE HOLDINGS CORP.
By: /s/ KENNETH DRAEGER
------------------------------------
Kenneth Draeger
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the indicated persons. Each person whose
signature appears below in so signing also makes, constitutes and appoints
Kenneth Draeger and Thomas J. Fitzpatrick, and each of them acting for him and
in his name, place and stead in any and all capacities, to execute and cause to
be filed with the Securities and Exchange Commission any and all amendments to
this report, and in each case to file the same, with all exhibits thereto and
other documents in connection therewith, and hereby ratifies and confirms all
that said attorney-in-fact or his substitute or substitutes may do or cause to
be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- --------------------------------------- ------------------
<C> <S> <C>
/s/ KENNETH DRAEGER Chairman of the Board and Chief September 29, 1997
- -------------------------------------- Executive Officer (Principal
Kenneth Draeger Executive Officer)
/s/ THOMAS J. FITZPATRICK Vice President and Chief Financial September 29, 1997
- -------------------------------------- Officer (Principal Financial and
Thomas J. Fitzpatrick Accounting Officer)
/s/ PETER T. GRAUER Director September 29, 1997
- --------------------------------------
Peter T. Grauer
/s/ TOM G. GREIG Director September 29, 1997
- --------------------------------------
Tom G. Greig
/s/ LAWRENCE M. V. D. SCHLOSS Director September 29, 1997
- --------------------------------------
Lawrence M. v. D. Schloss
/s/ KIRK B. WORTMAN Director September 29, 1997
- --------------------------------------
Kirk B. Wortman
</TABLE>
30
<PAGE> 32
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENT OF DECISIONONE HOLDINGS CORP.:
<TABLE>
<S> <C>
Independent Auditors' Report...................................................... F-2
Consolidated Balance Sheets as of June 30, 1997 and 1996.......................... F-3
Consolidated Statements of Operations for the Years Ended June 30, 1997, 1996 and
1995........................................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 1997,
1996 and 1995.................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1997 and
1995........................................................................... F-6
Notes to Consolidated Financial Statements........................................ F-7
CONSOLIDATED FINANCIAL STATEMENTS OF DECISIONONE CORPORATION:
Independent Auditors' Report...................................................... F-26
Consolidated Balance Sheets as of June 30, 1997 and 1996.......................... F-27
Consolidated Statements of Operations for the Years Ended June 30, 1997, 1996 and
1995........................................................................... F-28
Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 1997,
1996 and 1995.................................................................. F-29
Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1997 and
1995........................................................................... F-30
Notes to Consolidated Financial Statements........................................ F-31
FINANCIAL STATEMENT SCHEDULES:
Schedule I -- Condensed Financial Information of Registrant (DecisionOne Holdings
Corp. only).................................................................... S-1
Schedule II -- Valuation and Qualifying Accounts.................................. S-5
</TABLE>
F-1
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of DecisionOne Holdings Corp.:
We have audited the accompanying consolidated balance sheets of DecisionOne
Holdings Corp. and subsidiaries (the "Company") as of June 30, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended June 30, 1997. Our
audits also included the financial statement schedules listed in the Index at
Item 14. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DecisionOne Holdings Corp. and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
August 15, 1997
F-2
<PAGE> 34
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT NUMBER OF SHARES OF COMMON STOCK)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 10,877 $ 8,221
Accounts receivable, net of allowances of $14,869 and $9,580......... 127,462 92,650
Consumable parts, net of allowances of $17,889 and $19,537........... 34,518 29,770
Prepaid expenses and other assets.................................... 4,542 5,112
Deferred tax asset................................................... 5,236 8,018
-------- --------
Total current assets......................................... 182,635 143,771
REPAIRABLE PARTS, Net of accumulated amortization of $154,555 and
$105,462............................................................. 199,900 154,970
PROPERTY AND EQUIPMENT................................................. 34,227 32,430
INTANGIBLES............................................................ 191,366 164,659
OTHER ASSETS........................................................... 14,977 18,680
-------- --------
TOTAL ASSETS........................................................... $623,105 $514,510
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................................... $ 4,788 $ 2,321
Accounts payable and accrued expenses................................ 95,516 89,564
Deferred revenues.................................................... 56,600 38,485
Income taxes and other liabilities................................... 4,664 479
-------- --------
Total current liabilities.................................... 161,568 130,849
REVOLVING CREDIT LOAN AND LONG-TERM DEBT............................... 232,721 188,582
OTHER LIABILITIES...................................................... 13,928 14,286
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; authorized 5,000,000 shares; none
outstanding
Common stock, $.01 par value; authorized 100,000,000 shares; issued
and outstanding 27,817,832 shares in 1997 and 27,340,288 shares in
1996.............................................................. 278 273
Additional paid-in capital........................................... 258,331 255,262
Accumulated deficit.................................................. (42,432) (73,516)
Other................................................................ (1,289) (1,226)
-------- --------
Total shareholders' equity................................... 214,888 180,793
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $623,105 $514,510
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 35
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES................................................... $785,950 $540,191 $163,020
COST OF REVENUES........................................... 581,860 402,316 113,483
-------- -------- --------
GROSS PROFIT............................................... 204,090 137,875 49,537
OPERATING EXPENSES:
Selling, general and administrative expenses............. 112,870 72,829 21,982
Amortization of intangibles.............................. 23,470 15,673 6,776
-------- -------- --------
OPERATING INCOME........................................... 67,750 49,373 20,779
INTEREST EXPENSE, Net of interest income of $197 in 1997,
$239 in 1996 and $53 in 1995............................. 14,698 14,714 2,468
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(BENEFIT), DISCONTINUED OPERATIONS AND EXTRAORDINARY
ITEM..................................................... 53,052 34,659 18,311
PROVISION (BENEFIT) FOR INCOME TAXES....................... 21,968 13,870 (23,104)
-------- -------- --------
INCOME BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY
ITEM..................................................... 31,084 20,789 41,415
DISCONTINUED OPERATIONS -- Income from operations of
discontinued products division........................... 1,113
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM........................... 31,084 20,789 42,528
EXTRAORDINARY ITEM, NET OF TAX BENEFIT OF $1,284........... 1,927
-------- -------- --------
NET INCOME................................................. $ 31,084 $ 18,862 $ 42,528
======== ======== ========
PRO FORMA INFORMATION (UNAUDITED):
Net income before interest expense adjustment............ $ 31,084
Interest expense adjustment, net of tax.................. (31,267)
--------
Pro forma net loss....................................... $ (183)
========
Pro forma loss per share................................. $ (.01)
========
Pro forma weighted average number of common and common
equivalent shares outstanding......................... 14,200
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 36
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT NUMBER OF SHARES OF COMMON STOCK)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN TOTAL
------------------- ADDITIONAL CURRENCY PENSION SHAREHOLDERS'
NUMBER OF PAID-IN ACCUMULATED TRANSLATION LIABILITY (DEFICIENCY)
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT ADJUSTMENT EQUITY
---------- ------ ---------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994................ 8,920,348 $ 89 $108,358 $(134,906) $ 457 $ (1,625) $ (27,627)
Net income.......................... 42,528 42,528
Adjustment to pension liability..... (80) (80)
Foreign currency translation
adjustment........................ 223 223
Accrued dividends on Series A and B
Redeemable Preferred Stock........ (375) (375)
Exercise of stock options........... 15,000 8 8
----------- ---- -------- --------- ---- ------- --------
BALANCE, JUNE 30, 1995................ 8,935,348 89 107,991 (92,378) 680 (1,705) 14,677
Net income.......................... 18,862 18,862
Adjustment to pension liability..... (143) (143)
Common Stock issued:
Exercise of preemptive rights..... 384,502 4 1,526 1,530
Public offering................... 6,300,000 63 106,250 106,313
Exercise of stock options......... 329,850 3 300 303
Exercise of warrants.............. 118,664 1 598 599
Conversion of Redeemable Preferred
Stock........................... 11,271,924 113 37,529 37,642
Stock issuance costs................ (1,573) (1,573)
Issuance of warrants................ 126 126
Issuance of warrants attached to
Subordinated Debentures........... 3,400 3,400
Foreign currency translation
adjustment........................ (58) (58)
Accrued dividends on Redeemable
Preferred Stock................... (885) (885)
----------- ---- -------- --------- ---- ------- --------
BALANCE, JUNE 30, 1996................ 27,340,288 273 255,262 (73,516) 622 (1,848) 180,793
Net income.......................... 31,084 31,084
Adjustment to pension liability..... (25) (25)
Tax benefit -- disqualifying stock
disposition....................... 2,635 2,635
Foreign currency translation
adjustment........................ (38) (38)
Exercise of stock options........... 477,544 5 434 439
----------- ---- -------- --------- ---- ------- --------
BALANCE, JUNE 30, 1997................ 27,817,832 $278 $258,331 $ (42,432) $ 584 $ (1,873) $ 214,888
=========== ==== ======== ========= ==== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 37
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................... $ 31,084 $ 18,862 $ 42,528
Adjustments to reconcile net income to net cash provided
by operating activities:
Income from discontinued operations................... (1,113)
Depreciation.......................................... 13,549 8,309 1,779
Amortization of repairable parts...................... 63,870 37,869 7,688
Amortization of intangibles........................... 23,470 15,673 6,775
Provision for losses on accounts receivable........... 7,849 3,434 1,930
Provision for consumable parts obsolescence........... 2,554 1,171 1,995
Extraordinary item.................................... 1,927
Changes in operating assets and liabilities, net of
effects from companies acquired, which provided
(used) cash:
Accounts receivable................................. (38,365) (1,900) (8,836)
Consumable parts.................................... (6,038) (1,248) 931
Accounts payable and accrued expenses............... 3,885 256 (1,171)
Deferred revenues................................... (25,427) (33,928) 6,811
Net changes in other assets and liabilities......... 12,543 1,469 (20,902)
--------- --------- --------
Net cash provided by operating activities........ 88,974 51,894 38,415
--------- --------- --------
INVESTING ACTIVITIES:
Capital expenditures..................................... (10,540) (7,278) (2,786)
Repairable spare parts purchases, net.................... (86,446) (63,514) (12,154)
Acquisitions of companies and contracts.................. (32,258) (275,562) (39,331)
--------- --------- --------
Net cash used in investing activities............ (129,244) (346,354) (54,271)
--------- --------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock................ 31,392
Proceeds from issuance of subordinated debentures........ 30,000
Proceeds from issuance of common stock................... 439 106,313
Payment of subordinated debentures....................... (30,000)
Net proceeds from borrowings............................. 43,625 165,711 17,537
Principal payments under capital leases.................. (1,075) (3,423)
Other.................................................... (63) 29
--------- --------- --------
Net cash provided by financing activities........ 42,926 300,022 17,537
--------- --------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................. 2,656 5,562 1,681
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............... 8,221 2,659 978
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR..................... $ 10,877 $ 8,221 $ 2,659
========= ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid during the year for:
Interest.............................................. $ 15,640 $ 14,838 $ 2,065
Income taxes.......................................... 8,381 5,344 1,009
Noncash investing/financing activities:
Issuance of seller notes in connection with
acquisitions........................................ 2,224 587 2,866
Issuance of seller notes in exchange for repairable
parts............................................... 1,855
Repairable parts received in lieu of cash for accounts
receivable.......................................... 1,124
Accretion of accrued dividends........................ 885 375
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 38
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1. NATURE OF BUSINESS
DecisionOne Holdings Corp. and its wholly-owned subsidiaries (the
"Company") are providers of multivendor computer maintenance and technology
support services. The Company offers its customers a single-source, independent
(i.e., not affiliated with an original equipment manufacturer, or "OEM")
solution for computer maintenance and technology support requirements, including
hardware maintenance services, software support, end-user/help desk services,
network support and other technology support services. These services are
provided by the Company across a broad range of computing environments,
including mainframes, midrange and distributed systems, workgroups, personal
computers ("PCs") and related peripherals. In addition, the Company provides
outsourcing services for OEMs, software publishers, system integrators and other
independent service organizations. The Company delivers its services through an
extensive field service organization of approximately 4,000 field technicians in
over 150 service locations throughout North America and through strategic
alliances in selected international markets.
Through June 30, 1995, the Company's services predominantly involved the
provision of maintenance services to the midrange computer market. On October
20, 1995, the Company acquired Bell Atlantic Business Systems Services, Inc.
("BABSS") (see Note 4). BABSS provided computer maintenance and technology
support services for computer systems ranging from the data center, which
includes both mainframe and midrange systems, to desk top. Subsequent to the
acquisition, the Company's principal operating subsidiary, Decision Servcom,
Inc., was merged into BABSS, which had changed its name to DecisionOne
Corporation. As a result, DecisionOne Corporation is the principal operating
subsidiary of the Company.
The Company's wholly owned, direct international subsidiaries are not
significant to the Company's consolidated financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts
of DecisionOne Holdings Corp. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Pro Forma Information (Unaudited) -- The pro forma information included in
the accompanying statement of operations and in Note 3 has been prepared to
reflect the Company's recapitalization and merger with Quaker Holding Co.
("Quaker") and related transactions as if these had occurred on July 1, 1996.
Historical earnings per share data for the fiscal years ended June 30, 1997,
1996 and 1995 is not presented as this would not be meaningful.
Cash and Cash Equivalents -- Cash and cash equivalents are highly liquid
investments with remaining maturities of three months or less at the time of
purchase. Cash equivalents, consisting primarily of repurchase agreements with
banks, are stated at cost, which approximates fair market value.
Consumable Parts and Repairable Parts -- In order to provide maintenance
and repair services to its customers, the Company is required to maintain
significant levels of computer parts. These parts are classified as consumable
parts or as repairable parts. Consumable parts, which are utilized during the
repair process, are stated at cost, principally determined using the weighted
average method, less an accumulated allowance for obsolescence and shrinkage.
Consumable parts are reflected in cost of revenues during the period utilized.
Repairable (rotable) parts, which can be refurbished and reused, are stated
at original cost less accumulated amortization. Amortization of repairable parts
is reflected in cost of revenues. Costs of refurbishing repairable parts are
also included in cost of revenues as these costs are incurred. Amortization of
repairable parts is based principally on the composite group method, using
straight-line composite rates.
F-7
<PAGE> 39
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Repairable parts generally have an economic life which corresponds to the normal
life cycle of the related products, currently estimated to be three to five
years.
As consumable and repairable parts are retired, the weighted average gross
amounts at which such parts have been carried are removed from the respective
assets accounts, and charged to the accumulated allowance or accumulated
amortization accounts, as applicable. Periodic revisions to amortization and
allowance estimates are required, based upon the evaluation of several factors,
including changes in product life cycles, usage levels and technology changes.
Changes in these estimates are reflected on a prospective basis unless such
changes result from an extraordinary retirement or from other events or
circumstances which indicate that impairment may exist. Impairment is recognized
when the net carrying value of the parts exceeds the estimated current and
anticipated undiscounted net cash flows. Measurement of the amount of
impairment, if any, is calculated based upon the difference between carrying
value and fair value.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is provided for using the straight-line method over the estimated
useful lives of the depreciable assets. Capitalized equipment leases and
leasehold improvements are amortized over the shorter of the related lease terms
or asset lives. Maintenance and repairs are charged to expense as incurred. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is charged to operations.
Business and Contract Acquisitions -- Business and contract acquisitions
have been accounted for as purchase transactions, with the purchase price of
each acquisition allocated to the assets acquired and liabilities assumed based
upon their respective estimated fair values at the dates of acquisition.
Consistent with the Company's parts retirement accounting methods, the gross
value of parts acquired is generally stated at weighted average cost. Fair value
adjustments, if any, are reflected as adjustments to the respective accumulated
amortization or allowance accounts. The excess of the purchase price over
identified net assets acquired is amortized, on a straight-line basis, over the
expected period of future benefit (see Note 6).
Typical contract acquisitions are comprised primarily of customer
maintenance and support contracts of complementary entities, along with the
accompanying consumable and repairable parts required to support these contracts
and other identifiable intangibles, such as noncompete agreements. Liabilities
assumed in business and contract acquisitions consist primarily of prepaid
amounts related to multi-period customer maintenance and support contracts.
These liabilities are recorded as deferred revenues at acquisition dates and are
recognized as revenues when earned in accordance with the terms of the
respective contracts.
Intangible Assets -- Intangible assets are comprised of excess purchase
price over the fair value of net assets acquired, acquired customer lists and
other intangible assets, including the fair value of contractual profit
participation rights and amounts assigned to noncompete agreements.
Intangible assets, which arise principally from acquisitions, are generally
amortized on a straight-line basis over their respective estimated useful lives
(see Note 6). The Company evaluates the carrying value of intangible assets
whenever events or changes in circumstances indicate that these carrying values
may not be recoverable within the amortization period. Impairment is recognized
when the net carrying value of the intangible asset exceeds the estimated
current and anticipated discounted future net cash flows. Measurement of the
amount of impairment, if any, is calculated based upon the difference between
carrying value and fair value.
Revenue -- The Company enters into maintenance contracts whereby it
services various manufacturers' equipment. Revenues from these contracts are
recognized ratably over the terms of such contracts. Prepaid revenues from
multi-period contracts are recorded as deferred revenues and are recognized
ratably over the term of the contracts.
F-8
<PAGE> 40
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues derived from the maintenance of equipment not under contract are
recognized as the service is performed. Revenues derived from other technology
support services are recognized as the service is performed or ratably over the
term of the contract.
Foreign Currency Translation -- Gains and losses resulting from foreign
currency translation are accumulated as a separate component of shareholders'
equity. Gains and losses resulting from foreign currency transactions are
included in operations.
Credit Risk -- Concentration of credit risk with respect to trade
receivables is limited due to the large number of customers comprising the
Company's customer base and their dispersion across many industries.
Fair Value of Financial Instruments -- The following disclosures of the
estimated fair value of financial instruments were made in accordance with the
requirements of SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies.
Cash and Cash Equivalents, Accounts Receivable, and Accounts
Payable -- The carrying amount of these items are a reasonable estimate of
their fair value.
Short-Term Debt and Long-Term Debt -- As more fully described in Note
8, under its revolving borrowing facility the Company incurs interest at
variable rates based upon market conditions (i.e., based upon the prime
rate or LIBOR). Rates applicable to other debt instruments, which consist
primarily of short-term notes payable in connection with certain
acquisitions, are comparable to those of similar instruments currently
available to the Company. Accordingly, the carrying amount of debt is a
reasonable estimate of its fair value.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates and
assumptions.
Discontinued Operations -- During fiscal 1993, in connection with the sale
of its products division, the Company established estimated liabilities relating
to the settlement of the remaining assets and liabilities of this division. In
1995, the Company revised its estimates as a result of settlement of these
liabilities, and the consolidated statement of operations for 1995 reflects an
increase in net income of $1,113,000 for the change in estimate.
Stock-Based Compensation -- Effective July 1, 1996, the Company adopted the
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123 encourages, but does not require, companies to record compensation cost for
stock-based compensation plans at fair value. The Company has elected to
continue to account for stock-based compensation in accordance with Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, as permitted by SFAS 123. Compensation
expense for stock options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock (see Note 11).
Derivative Financial Instruments -- Derivative financial instruments, which
constitute interest rate swap agreements (see Note 8), are periodically used by
the Company in the management of its variable interest rate exposure. Amounts to
be paid or received under interest rate swap agreements are recognized as
interest expense or interest income during the period in which these accrue.
Gains realized, if any, on the early termination of interest rate swap contracts
are deferred, to be recognized upon the termination of the related asset or
liability or expiration of the original term of the swap contract, whichever is
earlier. The Company does not hold any derivative financial instruments for
trading purposes.
F-9
<PAGE> 41
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Recent Accounting Pronouncement -- In February 1997, the Financial
Accounting Standards Board issued SFAS No. 128, Earnings Per Share. SFAS No.
128, which supersedes APB No. 15, Earnings Per Share, requires a dual
presentation of basic and diluted earnings per share as well as disclosures
including a reconciliation of the computation of basic earnings per share to
diluted earnings per share. Basic earnings per share excludes the dilutive
impact of common stock equivalents and is computed by dividing net income by the
weighted average number of shares of common stock outstanding for the period.
Diluted earnings per share, which will approximate the Company's currently
reported pro forma earnings (loss) per share, includes the effect of potential
dilution from the exercise of outstanding common stock equivalents into common
stock, using the treasury stock method at the average market price of the
Company's common stock for the period.
SFAS No. 128 is effective for interim and annual financial reporting
periods ending after December 15, 1997, and early adoption is not permitted.
When adopted by the Company, as required, for the fiscal quarter ending December
31, 1997, all prior quarters' earnings (loss) per share information will be
required to be restated on a comparable basis.
Assuming that SFAS No. 128 had been implemented, supplemental pro forma
basic loss per share and supplemental pro forma diluted loss per share would not
have differed from the pro forma loss per share presented in the accompanying
consolidated statements of operations for the fiscal year ended June 30, 1997.
Reclassifications -- Certain reclassifications have been made to the 1996
balances in order to conform with the 1997 presentation.
3. MERGER, RECAPITALIZATION AND PRO FORMA INFORMATION
On August 7, 1997, the Company consummated a merger with Quaker Holding Co.
("Quaker"), an affiliate of DLJ Merchant Banking Partners II. The merger, which
will be recorded as a recapitalization for accounting purposes as of the
consummation date, occurred pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") between the Company and Quaker dated May 4, 1997. The
accompanying historical consolidated financial statements do not include any
adjustments with respect to the consummation of the merger.
In accordance with the terms of the Merger Agreement, which was formally
approved by the Company's shareholders on August 7, 1997, Quaker merged with and
into the Company, and the holders of approximately 94.7% of shares of Company
common stock outstanding immediately prior to the merger received $23 in cash in
exchange for each of these shares. Holders of approximately 5.3% of shares of
Company common stock outstanding immediately prior to the merger retained such
shares in the merged Company, as determined based upon shareholder elections and
stock proration factors specified in the Merger Agreement. Immediately following
the merger, continuing shareholders owned approximately 11.9% of shares of
outstanding Company common stock. The aggregate value of the merger transaction
was approximately $940 million, including refinancing of the Company's revolving
credit facility (see Note 8).
In connection with the merger, the Company raised $85 million through the
public issuance of discount debentures, in addition to publicly-issued
subordinated notes for approximately $150 million. The Company also entered into
a new syndicated credit facility providing for term loans of $470 million and
revolving loans of up to $105 million. The proceeds of the discount notes,
subordinated notes, the initial borrowings under the new credit facility and the
purchase of approximately $225 million of Company common stock by Quaker have
been used to finance the payments of cash to cash-electing shareholders, to pay
the holders of stock options and stock warrants canceled or converted, as
applicable, in connection with the merger, to repay the Company's existing
revolving credit facility and to pay expenses incurred in connection with the
merger.
As a result of the merger, the Company incurred various expenses,
aggregating approximately $71 million on a pretax basis (approximately $64
million after related tax benefit), subject to adjustment, in connection with
consummating the transaction. These costs consisted primarily of compensation
costs, underwriting
F-10
<PAGE> 42
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discounts and commissions, professional and advisory fees and other expenses.
The Company will report this one-time charge during the first quarter of fiscal
1998. In addition to these expenses, the Company also incurred approximately
$22.3 million of capitalized debt issuance costs associated with the merger
financing. These costs will be charged to expense over the terms of the related
debt instruments.
The following summarized unaudited pro forma information as of and for the
year ended June 30, 1997 assumes that the merger had occurred on July 1, 1996.
The pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the financial condition or of the results of
operations which actually would have resulted had the merger occurred as of July
1, 1996 or which may result in the future.
<TABLE>
<CAPTION>
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
PRO FORMA BALANCE SHEET INFORMATION:
Total assets................................................................... $652,085
Long term indebtedness (including current portion)............................. 724,500
Other liabilities.............................................................. 170,708
Shareholders' (deficit)........................................................ (243,123)
PRO FORMA INCOME STATEMENT INFORMATION:
Revenues....................................................................... $785,950
Operating income............................................................... 67,750
Loss from continuing operations before income tax benefit...................... (312)
Net loss....................................................................... (183)
Loss per common share.......................................................... $ (0.01)
Weighted average common and common equivalent shares outstanding............... 14,200
</TABLE>
The pro forma net loss reflects a net increase in interest expense of
approximately $53.4 million ($31.3 million after related pro forma tax effect),
attributable to additional financing incurred in connection with the merger, net
of repayment of the Company's existing revolving credit facility. Pro forma
weighted average common and common equivalent shares outstanding include
12,499,978 shares outstanding immediately subsequent to the merger on August 7,
1997 and dilutive common stock warrants and stock options (convertible into
281,960 and 1,418,530 shares of common stock, respectively) issued in connection
with or immediately subsequent to the merger.
4. BUSINESS AND CONTRACT ACQUISITIONS
During the years ended June 30, 1997, 1996 and 1995, the Company acquired
certain net assets of other service companies as follows (in thousands):
<TABLE>
<CAPTION>
EXCESS
CONSIDERATION PURCHASE
----------------------------------------------------------- PRICE OVER
TOTAL FAIR VALUE
NUMBER OF PURCHASE OTHER OF NET ASSETS
YEARS ENDED ACQUISITIONS CASH NOTES PRICE INTANGIBLES ACQUIRED
- -------------------------------- ------------ -------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Significant business acquisitions:
June 30, 1995................. 1 $ 27,413 $ 2,094 $ 29,507 $15,600 $ 7,394
June 30, 1996................. 1 250,549 250,549 72,581 60,533
Nonsignificant business or maintenance contract acquisitions:
June 30, 1995................. 5 9,327 255 9,582 4,577 8,680
June 30, 1996................. 5 14,853 578 15,431 6,522 6,318
June 30, 1997................. 9 31,749 2,224 33,973 231 47,200
</TABLE>
F-11
<PAGE> 43
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 31, 1994, the Company purchased certain net assets and
liabilities of IDEA/Servcom, Inc. for approximately $29,500,000. This
acquisition was funded by cash and the issuance of a $2,600,000 noninterest-
bearing note to the seller. See seller notes payable section of Note 8. The
excess of asset purchase price over the fair value of net assets acquired at the
date of purchase was approximately $7,400,000.
On October 20, 1995, the Company acquired all of the outstanding common
stock of BABSS, a subsidiary of Bell Atlantic Corporation ("BAC") for
approximately $250,549,000. The acquisition was funded with the proceeds from
the issuance of $30,000,000 of Series C preferred stock, $30,000,000 of
subordinated debentures and the balance from additional bank borrowings (see
Notes 8 and 13). The excess of asset purchase price over the fair value of net
assets acquired at the date of purchase was initially recorded as approximately
$58,796,000. Subsequent to the acquisition, the Company recorded a net
adjustment increasing the initial amount by $1,737,000 and adjusted other
balance sheet accounts principally by the same amount. This resulted from the
adjustment and reclassification of certain tax accruals offset by favorable
negotiations on certain leased facilities (see Note 7). As part of the
acquisition, the Company purchased from BAC contractual profit participation
rights whereby the Company will receive a fixed percentage of the annual
operating profits (3.2% or 3.5%, depending upon the level of profits) earned by
a former foreign affiliate of BAC which provides computer maintenance and
technology support services in Europe. The estimated value of the discounted
estimated future cash flows over a twenty-year period from the acquisition date
from these contractual profit participation rights is $25,000,000.
Included in nonsignificant maintenance contract acquisitions is the
acquisition of substantially all of the contracts and related assets, including
spare parts of the U.S. computer service business of Memorex Telex Corporation
and certain of its affiliates (collectively, "Memorex Telex"). Memorex Telex had
filed a petition in bankruptcy in the United States Bankruptcy Court (the
"Court") in the District of Delaware on October 15, 1996; the Court approved the
sale to the Company on November 1, 1996. The adjusted purchase price was $52.7
million, comprised of the assumption of certain liabilities under contracts of
the service business, which were valued at $28.3 million, and base cash
consideration of approximately $24.4 million, after certain purchase price
adjustments, excluding transaction and closing costs.
The estimated fair market values of certain assets acquired, as well as
liabilities assumed, are subject to further adjustment as additional information
becomes available to the Company. During the third quarter of fiscal 1997, the
Company recorded an adjustment increasing the deferred revenues assumed in the
Memorex Telex acquisition by approximately $2,300,000, to revise the estimated
fair value of certain contract liabilities of the business assumed by the
Company.
The following summarized unaudited pro forma information for significant
acquisitions that have a material effect on the Company's results of operations
for the years ended June 30, 1996 and 1995 assumes that the acquisitions
occurred as of July 1, 1994. The nonsignificant business and maintenance
contract acquisitions are not considered material individually or in the
aggregate. The pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the significant acquisitions been in effect on
the dates indicated or which may result in the future.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Revenues....................................................... $697,676 $679,284
Income from continuing operations before extraordinary item.... 31,080 20,153
Net income..................................................... 29,153 21,266
</TABLE>
F-12
<PAGE> 44
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and buildings............................................. $ 6,318 $ 2,055
Equipment...................................................... 16,248 13,858
Computer hardware and software................................. 35,030 27,277
Furniture and fixtures......................................... 8,308 8,051
Leasehold improvements......................................... 4,628 4,125
-------- --------
70,532 55,366
Accumulated depreciation and amortization...................... (36,305) (22,936)
-------- --------
$ 34,227 $ 32,430
======== ========
</TABLE>
The principal lives (in years) used in determining depreciation and
amortization rates of various assets are: buildings (20-40); equipment (3-10);
computer hardware and software (3-5); furniture and fixtures (5-10) and
leasehold improvements (term of related leases).
Depreciation and amortization expense was approximately $13,549,000,
$8,309,000 and $1,779,000 for the fiscal years ended 1997, 1996 and 1995,
respectively.
6. INTANGIBLES
Intangibles consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Excess purchase price over fair value of net assets acquired... $130,548 $ 82,355
Customer lists................................................. 64,688 64,758
Contractual profit participation rights........................ 25,000 25,000
Noncompete agreements.......................................... 4,631 4,500
Other intangibles.............................................. 9,131 7,671
-------- --------
233,998 184,284
Accumulated amortization....................................... (42,632) (19,625)
-------- --------
$191,366 $164,659
======== ========
</TABLE>
The periods (in years) used in determining the amortization rates of
intangible assets are: excess purchase price over fair value of net assets
acquired (4-20); customer lists (3-8); contractual profit participation rights
(20); noncompete agreements (3-5) and other (1-6).
Amortization expense relating to intangibles was approximately $23,470,000,
$15,673,000 and $6,775,000, for the fiscal years ended 1997, 1996 and 1995,
respectively.
F-13
<PAGE> 45
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable................................................. $55,723 $53,347
Compensation and benefits........................................ 22,706 22,115
Interest......................................................... 563 1,505
Unused leases.................................................... 878 3,485
Pension accrual.................................................. 1,371 1,258
Accrued accounting and legal fees................................ 1,435 1,073
Non-income taxes and other....................................... 12,840 6,781
------ ------
$95,516 $89,564
====== ======
</TABLE>
Prior to 1994, the Company received $2,600,000 in tax bills (primarily
interest) from the Internal Revenue Service ("IRS") related to claims for tax
and interest for the years 1981 through 1987. The Company paid approximately
$500,000 of the claims upon receipt of the bills. Although the Company disputed
the tax bills, an IRS mandated payment of $828,000 was made in 1996. As of June
30, 1996, the Company had an accrued liability of $1,883,000 related to this
assessment. During fiscal 1997, the Company paid $1,729,000 in full settlement
of these tax and interest bills.
In connection with the acquisition of BABSS, which has been accounted for
using the purchase method of accounting (see Note 4), the Company recorded
approximately $11,000,000 in liabilities resulting from planned actions with
respect to BABSS, which included the costs to exit certain leased facilities and
to involuntarily terminate employees. The provision of approximately $3,500,000
for the costs to exit certain leased facilities principally relates to future
lease payments on a warehouse in California which has been made idle.
Approximately $4,000,000 was provided for severance and termination benefits of
approximately 210 employees in the field, operations support, sales and
administration. Approximately $3,000,000 was provided in connection with the
exit plan for write-downs of spare parts and equipment at two California
facilities which will not be utilized in future operations. The provision for
various other charges of approximately $500,000 consisted of costs to complete
the exit plan. As of June 30, 1996, the Company had settled all of these
liabilities, except for the lease liabilities on idle facilities for which
payments were scheduled to continue through 1999 (see Note 15). At June 30, 1997
and 1996 remaining amounts due under these leases were $0 and $1,200,000,
respectively.
As a result of successful negotiations of unutilized leased facilities,
during 1996, the Company recorded a reduction of approximately $975,000 to both
the provisions for leased facilities and excess purchase price over fair value
of net assets acquired.
F-14
<PAGE> 46
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. REVOLVING CREDIT LOAN AND LONG-TERM DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit loans......................................... $231,671 $186,400
Seller noninterest-bearing notes payable....................... 2,922 2,118
Seller note payable -- purchase spare parts.................... 1,608
Capitalized lease obligations, payable in varying installments
at interest rates ranging from 7.25% to 13.01% at June 30,
1997......................................................... 1,308 2,385
------- -------
237,509 190,903
Less current portion........................................... 4,788 2,321
------- -------
$232,721 $188,582
======= =======
</TABLE>
REVOLVING CREDIT LOANS
On October 20, 1995, in connection with the BABSS acquisition (see Note 4)
the Company entered into a Credit Agreement which provided for a term loan (the
"1995 Term Loan") of $230,000,000 and a revolving credit facility of up to a
maximum of $30,000,000. The 1995 Term Loan provided for 19 equal quarterly
principal payments of $10,000,000 to be due and payable on the last day of each
calendar quarter commencing December 31, 1995 with a final payment due on
September 30, 2000. Loans under the revolving credit facility were to mature on
September 30, 2000. Interest on the 1995 Term Loan and the revolving credit
facility were at varying rates based, at the Company's option, on the Eurodollar
rate or the Alternative Base Rate (NationsBanc prime rate), plus the Applicable
Margins. Margins were based on the ratio of Total Funded Debt to EBITDA; the
Eurodollar Margin ranged from 1.75% to 2.5%, while the Alternative Base Rate
Margin ranged from 0.5% to 1.25%.
In April 1996, the Company completed an initial public offering (see Note
13). The Company used a portion of the proceeds to repay approximately $70
million of the 1995 Term Loan.
Also in April 1996, the Company converted the 1995 Term Loan and the
existing $30 million Revolving Credit Facility into a $225 million variable
rate, unsecured revolving credit facility ("the 1996 Revolving Credit
Facility"). During fiscal 1997, the 1996 Revolving Credit Facility commitment
was increased to $300 million, in connection with the acquisition of certain
contracts and assets. The 1996 Revolving Credit Facility is at floating interest
rates, based either on the LIBOR or prime rate, in either case plus an
Applicable Margin, at the Company's option. As of June 30, 1997, the applicable
rate was LIBOR plus .75% or approximately 6.5%. The 1996 Revolving Credit
Facility enables the Company to borrow up to $300 million in the form of
revolving credit loans with a maturity date of April 26, 2001 and with interest
periods determined principally on a quarterly basis. To offset the variable rate
characteristics of the borrowings, the Company entered into interest rate swap
agreements with two banks resulting in fixed interest rates of 5.4% on $40.0
million notional principal amount through December 1997 and 5.5% on another
$40.0 million notional principal amount through December 1998.
During fiscal 1997, the Company terminated these swap agreements, resulting
in an insignificant gain which has been deferred to the first quarter of fiscal
1998.
Under the terms of the 1996 Revolving Credit Facility, the Company may use
up to $25,000,000 for letters of credit, subject to the limitation of
$300,000,000 in total credit. As of June 30, 1997, letters of credit in the face
amount of $3,067,000 were outstanding.
F-15
<PAGE> 47
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The loan agreement relating to the 1996 Revolving Credit Facility contains
various terms and covenants which provide for certain restrictions on the
Company's indebtedness, liens, investments, disposition of assets and mergers
and acquisitions and require the Company, among other things, to maintain
minimum levels of consolidated net worth and certain minimum financial ratios.
The borrower under the 1996 Revolving Credit Facility is DecisionOne
Corporation. Repayment of the debt is guaranteed by the Company and its other
subsidiaries except for its Canadian subsidiary.
The Company's debt agreements and other agreements to which it is a party
contain certain covenants restricting the payment of dividends on, or
repurchases of, Company common stock.
The Company had average borrowings of $221,069,000 and $172,065,000 during
1997 and 1996, respectively, at an average interest rate of 6.4% and 8.69%,
respectively. Maximum borrowings during 1997 and 1996 were $243,350,000 and
$268,748,000, respectively.
Subsequent to June 30, 1997, in connection with the Company's merger with
Quaker (see Note 3), the 1996 Revolving Credit Facility was repaid in full,
including all interest due thereon. This refinancing was accomplished, in part,
through the issuance of certain new debt instruments, consisting of senior
discount notes, senior subordinated notes and a term loan/revolving credit
facility which, in the aggregate, provide financing of approximately $810
million, subject to certain conditions. The new revolving credit facility
provides the Company with $105 million of available financing, subject to a
borrowing base, for working capital purposes subsequent to the merger.
The Company's Canadian subsidiary has available a $1.5 million (Canadian)
revolving line of credit agreement with a local financial institution. At June
30, 1997, approximately $471,000 (in U.S. dollars) was outstanding under this
agreement. There were no amounts outstanding at June 30, 1996.
SELLER NOTES PAYABLE
In connection with certain acquisitions (see Note 4), the Company issued
noninterest-bearing notes, the principal of which is primarily due upon
settlement of contingent portions of the acquisition purchase price within a
specified period subsequent to closing, generally not exceeding one year from
the acquisition date. Contingencies typically pertain to actual amounts of
monthly maintenance contract revenues acquired and prepaid contract liabilities
assumed in comparison to amounts estimated in acquisition agreements. The
Company imputes interest, based upon market rates, for long-term,
non-interest-bearing obligations.
During 1997, the Company issued a secured note payable to the seller for
the purchase of repairable parts in the original amount of $1,854,000. The note
accrues interest at an interest rate of approximately 8%, and requires quarterly
payments of principal and interest of approximately $273,000 until maturity in
December 1998.
SUBORDINATED DEBENTURES
In connection with the BABSS acquisition (see Note 4) on October 20, 1995,
the Company issued and sold to its principal shareholders, an aggregate
$30,000,000 principal amount of 10.101% Debentures (the "Affiliate Notes") due
on October 20, 2001. The Affiliate Notes were subordinated to the 1995 Term Loan
and the revolving credit facility. Interest on the Affiliate Notes was payable
semiannually on the last business day of June and December of each year
commencing on December 31, 1995.
In connection with the issuance of the debentures, the Company issued
468,750 Common Stock Purchase Warrants (the "Warrants"). Each Warrant initially
entitled the owner to buy one share of Common Stock for $0.10. The number of
shares that can be purchased per Warrant steps up over 24 months in conjunction
with the increasing conversion privilege applicable to the Preferred Stock such
that, at the end of 24 months, each Warrant entitled the holder to buy
approximately 1.21 shares of Common Stock at a price of
F-16
<PAGE> 48
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$0.10 per share. The Warrants were exercisable from October 20, 1997 until
October 20, 2001, provided that if the Company had a public offering of its
Common Stock meeting certain requirements before October 20, 1997, the Warrants
became exercisable at the time of the public offering and the number of shares
that could be purchased on exercise was fixed at that time and no longer
increased in steps. The Warrants also became exercisable upon retirement of the
Debentures. Each Warrant had an assigned value of $7.25333 which resulted in an
original issue discount of $3,400,000 which was being amortized over the term of
the Affiliate Notes. Upon consummation of its initial public offering in April
1996, the Company was required to pay up to the total amount outstanding under
the Affiliate Notes and, accordingly, the Company used $30,000,000 of the
proceeds to retire the Affiliate Notes. As a result, in 1996 the Company
recorded an extraordinary loss in the amount of $3,211,000, net of taxes of
$1,284,000, due to the acceleration of the amortization of original issue
discount. In connection with the Company's merger with Quaker in August 1997
(see Note 3), the Warrants were converted into cash, with warrant holders
receiving an amount equal to $23 less the exercise price for each Warrant.
In connection with previous credit agreements, the Company issued warrants
to purchase shares of the Company's common stock. At June 30, 1997, warrants to
purchase 134,478 shares at an exercise price of $5.90 per share remained
outstanding. In connection with the Company's merger with Quaker, these warrants
were also converted into cash, with warrant holders receiving an amount equal to
$23 less the exercise price for each warrant.
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $10,909 $ 2,892 $ 16,065
State.............................................. 3,616 1,595 4,599
Foreign............................................ 1,080 548 (1,272)
Deferred:
Federal............................................ 6,460 8,945 (29,897)
State.............................................. 16 641 (3,617)
Foreign............................................ (113) (499)
Benefit of operating loss carryforwards:
Federal............................................ (7,729)
State.............................................. (1,253)
Foreign............................................ (252)
------- ------- --------
Provision (benefit) for income taxes................. $21,968 $13,870 $(23,104)
======= ======= ========
</TABLE>
F-17
<PAGE> 49
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred tax assets:
Accounts receivable............................................ $ 4,771 $ 1,341
Inventory...................................................... 2,195 2,586
Accrued expenses............................................... 7,000 6,378
Unused leases.................................................. 390
Fixed assets................................................... 299
Intangibles.................................................... 6,196 5,670
Operating loss carryforwards................................... 4,868 14,252
Tax credit carryforwards....................................... 1,670 1,170
------- -------
Gross deferred tax assets........................................ 27,090 31,696
Gross deferred tax liabilities:
Repairable spare parts......................................... (8,918) (7,273)
Fixed assets................................................... (108)
------- -------
Gross deferred tax liabilities................................... (9,026) (7,273)
------- -------
Net deferred tax asset........................................... $18,064 $24,423
======= =======
</TABLE>
Net operating loss and minimum tax credit carryforwards available at June
30, 1997 expire in the following years:
<TABLE>
<CAPTION>
YEAR OF
EXPIRATION
AMOUNT ----------
--------------
(IN THOUSANDS)
<S> <C> <C>
Federal operating losses............................... $ 12,877 2006-2008
State operating losses................................. 8,669 1998-2008
Investment tax credit.................................. 134 2004
Minimum tax credit..................................... 1,536 INDEFINITE
</TABLE>
As a result of the Company's initial public offering in April, 1996, an
"ownership change" occurred pursuant to Section 382 of the Internal Revenue
Code. Accordingly, for Federal income tax purposes, net operating loss and tax
credit carryforwards arising prior to the ownership change are limited during
any future period to the Section 382 "limitation amount" of approximately $20.0
million per annum. In addition, the Company's merger with Quaker on August 7,
1997 (see Note 3) represents another such "ownership change" pursuant to Section
382. The Company estimates that the limitation on the use of tax loss
carryforwards and other credits, for Federal income tax purposes, in any
post-merger period will be reduced to approximately $9.0 million per annum.
F-18
<PAGE> 50
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the provision (benefit) for income taxes, computed
by applying the statutory federal income tax rate of 35% for 1997, 1996 and 1995
to income before income taxes, and the actual provision (benefit) for income
taxes follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ------
<S> <C> <C> <C>
Federal income tax provision at statutory tax rate........... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax provision...... 5.0 4.6 3.5
Foreign income taxes......................................... 0.4 (6.9)
Unused lease credit.......................................... (0.1)
Benefit of operating loss carryforward....................... (0.8) (49.1)
Change in valuation allowance................................ (1.4) (108.9)
Other........................................................ 1.0 2.6 0.3
---- ---- ------
Actual income tax provision (benefit) effective tax rate..... 41.4% 40.0% (126.2)%
==== ==== ======
</TABLE>
The Company has recorded a deferred tax asset of $4,868,000 reflecting the
benefit of federal and state net operating loss carryforwards, which expire in
varying amounts between 1998 and 2008. Realization depends on generating
sufficient taxable income before expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax asset will ultimately be realized.
The valuation allowance for deferred tax assets as of July 1, 1994 was
$44,160,000. The net changes in the valuation allowance for the years ended June
30, 1996 and 1995 were decreases of $686,000 and $43,474,000, respectively. Of
these amounts, $252,000 and $8,982,000 resulted from the realization of net
operating loss carryforwards. The remaining decreases of $434,000 and
$34,492,000 for 1996 and 1995, respectively, resulted from the Company's
expected future taxable income.
10. OTHER LIABILITIES
Other (noncurrent) liabilities consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued severance and unutilized lease losses.................... $ 4,532 $ 2,227
Other noncurrent liabilities..................................... 9,396 12,059
------- -------
$ 13,928 $ 14,286
======= =======
</TABLE>
As more fully described in Note 15, accrued severance and unutilized lease
losses represent remaining liabilities for estimated future employee severance
costs and for lease/contract losses associated with duplicate facilities to be
closed. These liabilities were recorded by the Company in connection with the
Memorex Telex and BABSS acquisitions in November 1996 and October 1995,
respectively.
Other noncurrent liabilities include deferred operating lease liabilities
related to scheduled rent increases, recorded in accordance with the provisions
of SFAS No. 13, Accounting for Leases. Also included in other noncurrent
liabilities are provisions relating to various tax matters.
11. STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
Under the 1988 Stock Option and Restricted Stock Purchase Plan, the name of
which was subsequently changed to DecisionOne Stock Option and Restricted Stock
Purchase Plan (the "Plan"), the Company, at the discretion of the Board of
Directors, may issue restricted stock, incentive stock options and non-qualified
F-19
<PAGE> 51
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options for shares of the Company's common stock. Vesting of the restricted
stock and stock options is at the discretion of the Board of Directors and
generally occurs at a rate of 25% per year.
During 1994, the Board of Directors amended the Plan increasing the total
number of shares issuable to approximately 2,350,000. Additionally, in November
1995 the Board of Directors amended the Plan increasing the total number of
shares issuable to approximately 3,350,000, and in December 1996 to 5,350,000.
The price of the incentive stock options issued to employees under the Plan
is not less than 100% of the fair market value of the common shares at the date
of issuance. The option price for nonqualified options is determined by the
Board of Directors at the time of grant and may be less than the fair market
value of the common shares at the time of grant. However, no such options were
granted at prices less then 100% of the fair value of common shares at the date
of issuance.
Options expire through February 2007. Restricted shares which are not
vested upon an employee's termination are subject to a repurchase right of the
Company at a price equal to the amount paid by the employee.
Presented below is the activity in the Plan for the years ended June 30,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
OPTIONS PRICE RANGE
--------- ---------------
<S> <C> <C>
Balance, June 30, 1994................................. 1,943,595 $.50 - $100.00
Options exercised.................................... (15,000) $.50
Options granted...................................... 410,000 $1.25 - $6.00
Options cancelled.................................... (75,275) $.50 - $100.00
---------
Balance, June 30, 1995................................. 2,263,320 $.50 - $6.00
Options exercised.................................... (329,850) $.50 - $6.00
Options granted...................................... 803,000 $8.00 - $27.50
Options cancelled.................................... (125,000) $1.25 - $8.00
---------
Balance, June 30, 1996................................. 2,611,470 $.50 - $27.50
Options exercised.................................... (477,544) $.50 - $8.00
Options granted...................................... 1,254,000 $14.00 - $22.13
Options cancelled.................................... (532,579) $1.25 - $27.50
---------
Balance, June 30, 1997................................. 2,855,347 $.50 - $26.75
=========
</TABLE>
In connection with the Company's merger with Quaker on August 7, 1997 (see
Note 3), all vested and unvested options then outstanding under the Plan were
cancelled, and the holders of these options received the right to receive cash
payments equal to the excess, if any, of $23.00 over the exercise price of each
option. Certain option holders were afforded the opportunity to convert these
options into options to purchase common stock of the merged Company, in lieu of
cash payments.
Pursuant to the 1997 Management Incentive Plan approved subsequent to the
Merger, the Company granted 1,179,000 options at a weighted average exercise
price of approximately $20.61 with a weighted average fair market value of
$11.23.
Because the Company accounts for the Plan under APB No. 25, no compensation
cost has been recognized for stock options. Had compensation expense for the
Plan been determined based on the fair value at the grant dates under the
provisions of SFAS No. 123, the Company's pro forma net loss and pro forma loss
F-20
<PAGE> 52
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
per share (see Note 3) would have been increased to the following adjusted pro
forma amounts (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Pro forma net loss -- as reported.......................................... $ (183)
Pro forma net loss -- as adjusted.......................................... $(2,741)
Pro forma loss per share -- as reported.................................... $ (0.01)
Pro forma loss per share -- as adjusted.................................... $ (0.19)
</TABLE>
The fair value of options was estimated using the Black-Scholes option
pricing model based on the following assumptions:
<TABLE>
<CAPTION>
EXPECTED LIVES
RISK-FREE INTEREST RATE EXPECTED VOLATILITY (YRS)
------------------------ -------------------- ---------------
<S> <C> <C> <C>
Grant issued in 1996.... 5.85%-6.85% 26.9%
Grants issued in 1997... 6.47% 2
</TABLE>
12. LEASE COMMITMENTS
The Company conducts its operations primarily from leased warehouses and
office facilities and uses certain computer, data processing and other equipment
under operating lease agreements expiring on various dates through 2005. The
future minimum lease payments for operating leases having initial or remaining
noncancelable terms in excess of one year for the five years succeeding June 30,
1997 and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................................... $18,415
1999............................................................... 15,224
2000............................................................... 11,406
2001............................................................... 5,815
2002............................................................... 2,879
Thereafter......................................................... 4,757
-------
$58,496
=======
</TABLE>
Rental expense amounted to approximately $17,367,000, $13,149,000 and
$5,878,000, for the fiscal years ended 1997, 1996 and 1995, respectively.
13. SHAREHOLDERS' EQUITY
During fiscal 1994 and 1996, the Company issued three classes of redeemable
preferred stock (Series A, Series B and Series C preferred stock; collectively,
the "Preferred Stock"), aggregating 376,416 preferred stock shares, in exchange
for cash or in settlement of certain debt obligations. The Preferred Stock,
which was valued at $100 per share, accrued dividends at rates ranging between
$4 per share per annum and $6 per share per annum, to be paid as declared by the
Company's Board of Directors. Additionally, the Preferred Stock was to be
automatically converted into Company common stock if the Company were to
complete a public offering of common stock which met certain specified criteria.
On February 9, 1996, the Company amended its Certificate of Incorporation
to increase the number of authorized shares of common stock to 100,000,000
shares and to authorize 5,000,000 shares of Preferred Stock.
F-21
<PAGE> 53
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1996, the Company completed a public offering of 6,300,000 shares
of common stock at $18.00 per share (the "Offering"). Prior to the Offering,
there was no public market for the Company's common stock. The common stock is
listed on the Nasdaq National Market under the symbol "DOCI".
The net proceeds of the offering, after deducting applicable issuance costs
and expenses were $104,740,000. The proceeds were used to repay approximately
$70,000,000 of the 1995 Term Loan, $30,000,000 in Affiliate Notes, approximately
$1,446,000 in accrued and declared dividends to holders of the Preferred Stock
and for other general corporate purposes. In connection with the offering, the
Preferred Stock was automatically converted into 11,271,924 shares of common
stock.
During the year ended June 30, 1996, certain shareholders exercised their
preemptive right to subscribe for and purchase additional shares of common stock
or other securities so issued at the same price as originally issued on certain
occasions from 1992 through 1995. On December 4, 1995, the following securities
were purchased: (a) 382,578 shares of common stock at a price of $4 per share;
(b) 999 shares of Series A Preferred Stock, at a price of $100 per share; (c)
1,776 shares of Series B Preferred Stock, at a price of $100 per share; (d)
1,924 shares of common stock at a price of $.50 per share; (e) 311,141 shares of
Series C Preferred Stock, at a price of $100 per share; and (f) 17,407 Common
Stock Purchase Warrants at a price of $7.25333 per warrant which entitles the
holder to purchase 17,407 shares of common stock at an exercise price of $.10
per share. The 17,407 Common Stock Purchase Warrants were exercised in 1996.
In consideration of his service as a director and Chairman of the Board,
the Company, in a prior year, granted an individual warrants to purchase an
aggregate of 66,667 shares of common stock at an exercise price of $4.00 per
share. In connection with the Company's merger with Quaker in August 1997 (see
Note 3), these warrants were converted into cash, with the holder receiving an
amount equal to $23 less the exercise price.
As more fully described in Note 3, the Company merged with Quaker on August
7, 1997. In accordance with the terms of the Merger Agreement, which was
formally approved by the Company's shareholders on August 7, 1997, Quaker merged
with and into the Company, and the holders of approximately 94.7% of shares of
Company common stock outstanding immediately prior to the merger received $23 in
cash in exchange for these shares. Holders of approximately 5.3% of shares of
Company common stock outstanding immediately prior to the merger retained such
shares in the merged Company, as determined based upon shareholder elections and
stock proration factors specified in the Merger Agreement. Immediately following
the merger, continuing shareholders owned approximately 11.9% of shares of
outstanding Company common stock. The aggregate value of the merger transaction
was approximately $940 million, including refinancing of the Company's revolving
credit facility (see Note 8).
14. RETIREMENT PLANS
The Company maintains a 401(k) plan for its employees which is funded
through the contributions of its participants. A similar plan exists for former
employees of an acquired company for which eligibility and additional
contributions were frozen in September 1988.
In addition, the Company assumed the liability of the defined benefit
pension plan applicable to employees of a company acquired in 1986. The
eligibility and benefits were frozen as of the date of the acquisition.
F-22
<PAGE> 54
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension expense for the defined benefit pension plan was computed as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------
1997 1996 1995
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest cost.............................................. $ 521 $ 495 $ 482
Actual return on plan assets............................... (409) (449) (312)
Net amortization and deferral.............................. 9 72 (42)
----- ----- -----
Periodic pension costs..................................... $ 121 $ 118 $ 128
===== ===== =====
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% and the expected long-term rate of return
on assets was 8.5% for 1997, 1996 and 1995.
The following table sets forth the funded status of the frozen pension plan
as of May 1, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefits (100% vested)............................... $ 7,290 $ 7,116
Fair value of plan assets........................................ 6,128 5,800
------- -------
Unfunded projected benefit obligation.................. 1,162 1,316
Unrecognized net loss............................................ 1,873 1,848
Unrecognized net transition obligation........................... 470 504
Adjustment to recognized minimum liability....................... (2,343) (2,352)
------- -------
Accrued pension costs............................................ $ 1,162 $ 1,316
======= =======
</TABLE>
15. EMPLOYEE SEVERANCE AND UNUTILIZED LEASE COSTS
During the second quarter of fiscal 1997, in connection with the Memorex
Telex acquisition (see Note 4), the Company recorded a $3.4 million pre-tax
charge for estimated future employee severance costs, and a $0.9 million pre-tax
charge for unutilized lease/contract losses ("exit costs"), primarily associated
with duplicate facilities to be closed. The $3.4 million charge, recorded in
accordance with SFAS No. 112, Employers' Accounting for Postemployment Benefits,
reflects the actuarially determined benefit costs for the separation of
employees who are entitled to benefits under pre-existing separation pay plans.
These costs are included in selling, general and administrative expenses in the
accompanying consolidated statement of operations for the year ended June 30,
1997.
In the second quarter of fiscal 1996, in connection with the acquisition of
BABSS, the Company recorded pre-tax charges for exit costs of $6.9 million, and
estimated future employee severance costs of $0.1 million. During the fourth
quarter of fiscal 1996, the Company reversed $3.4 million of these employee
severance and exit cost liabilities. The reversal was primarily the result of
the Company's ability to utilize and sublease various facilities identified in
the original $7.0 million combined liability. Such information was unknown to
the Company when the original liability was recorded.
See Note 10 for further information regarding accrued severance and
unutilized lease losses.
16. COMMITMENTS AND CONTINGENT LIABILITIES
The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible parties
in respect to four waste disposal sites that have been identified by the United
States Environmental Protection Agency as Superfund sites. In addition, the
Company received a notice several years ago that it may be a potentially
responsible party with respect to a fifth, related site, but
F-23
<PAGE> 55
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has not received any other communication with respect to that site. Under
applicable law, all parties responsible for disposal of hazardous substances at
those sites are jointly and severally liable for clean-up costs. The Company
originally estimated that its share of the costs of the clean-up of one of these
sites would be approximately $500,000 which is provided for in liabilities
related to the discontinued products division in the accompanying consolidated
balance sheets as of June 30, 1997 and 1996. Complete information as to the
scope of required clean-up at these sites is not yet available and, therefore,
management's evaluation may be affected as further information becomes
available. However, in light of information currently available to management,
including information regarding assessments of the sites to date and the nature
of involvement of the Company's predecessor at the sites, it is management's
opinion that the Company's potential additional liability, if any, for the cost
of clean-up of these sites will not be material to the consolidated financial
position, results of operations or liquidity of the Company.
The Company is also party to various legal proceedings incidental to its
business. Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company. In the opinion of
management, these actions can be successfully defended or resolved without a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
During the fourth quarter of fiscal 1997, the Company received $2.0 million
in full settlement of a claim against its former insurance carrier, related to
unreimbursed losses. This settlement was reflected as a reduction of selling,
general and administrative costs in the accompanying statement of operations.
17. RELATED PARTY TRANSACTIONS
Prior to 1994, the Company entered into an agreement to purchase printer
products from Genicom Corporation (Genicom). The Company and Genicom are under
common ownership. The initial term of the agreement is for five years with an
option to extend based on mutual agreement of the parties. Purchases from
Genicom for the years ended June 30, 1997, 1996 and 1995 were approximately
$472,000, $1,512,000 and $1,972,000, respectively. Accounts payable to Genicom
amounted to approximately $30,000 and $14,000 as of June 30, 1997 and 1996,
respectively.
During the year ended June 30, 1996, the Company paid approximately
$125,000 for expense reimbursements to certain shareholders for services
rendered in connection with an acquisition in 1988. The amount was accrued for
in prior years.
In connection with the Company's financing of the BABSS acquisition on
October 20, 1995, the Company issued subordinated debentures and redeemable
preferred stock to certain related parties (see Notes 8 and 13).
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information
for the fiscal years ended 1997 and 1996:
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
MARCH
SEPTEMBER 30, DECEMBER 31,(1) 31, JUNE 30,
------------- --------------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997
Revenues................................. $ 176,426 $ 191,253 $205,070 $213,201
Gross profit............................. 41,861 48,221 54,698 59,310
Net income............................... 5,455 4,954 9,507 11,168
Pro forma net income (loss) (Note 3)..... (2,306) (2,813) 1,787 3,149
Pro forma earnings (loss) per share (Note
3)..................................... (0.16) (0.20) 0.13 0.22
</TABLE>
F-24
<PAGE> 56
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
MARCH
SEPTEMBER 30, DECEMBER 31, 31, JUNE 30,(2)
------------- --------------- -------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996
Revenues................................. $ 46,791 $ 149,703 $172,673 $ 171,024
Gross profit............................. 15,524 38,224 42,711 41,416
Income before extraordinary item......... 4,386 638 5,842 9,923
Net income............................... 4,386 638 5,842 7,996
</TABLE>
- ---------------
(1) Net income for the second quarter of 1997 includes a $3.4 million pre-tax
charge for estimated future employee severance costs, and a $.9 million
pre-tax charge for unutilized lease/contract losses, primarily associated
with duplicate facilities to be closed in connection with the Memorex Telex
acquisition (see Note 15).
(2) Net income for the fourth quarter of 1996 includes (a) a $3.4 million
reversal of the previously recorded restructuring charge for unutilized
leases (Note 15); and (b) a $1.5 million adjustment related to recoveries of
previously reserved receivables.
* * * * * *
F-25
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder
of DecisionOne Corporation:
We have audited the accompanying consolidated balance sheets of DecisionOne
Corporation (a wholly-owned subsidiary of DecisionOne Holdings Corp.) and
subsidiaries (the "Company") as of June 30, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1997. Our audits also
included the related financial statement schedule listed in the Index at Item
14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DecisionOne Corporation and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, on May 29,
1997, DecisionOne Holdings Corp. completed a restructuring of the legal
organization of certain of its subsidiaries. The Company's consolidated
financial statements have been presented giving effect to the reorganization for
all periods presented in a manner similar to a pooling of interests.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
August 15, 1997
F-26
<PAGE> 58
DECISIONONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 10,877 $ 8,221
Accounts receivable, net of allowances of $14,869 and $9,580......... 127,462 92,650
Consumable parts, net of allowances of $17,889 and $19,537........... 34,518 29,770
Prepaid expenses and other assets.................................... 4,542 5,112
Deferred tax asset................................................... 5,236 8,018
-------- --------
Total current assets......................................... 182,635 143,771
REPAIRABLE PARTS, Net of accumulated amortization of $154,555 and
$105,462............................................................. 199,900 154,970
PROPERTY AND EQUIPMENT................................................. 34,227 32,430
INTANGIBLES............................................................ 191,366 164,659
OTHER ASSETS........................................................... 14,977 18,680
-------- --------
TOTAL ASSETS........................................................... $623,105 $514,510
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................................... $ 4,788 $ 2,321
Accounts payable and accrued expenses................................ 95,516 89,564
Deferred revenues.................................................... 56,600 38,485
Income taxes and other liabilities................................... 4,664 479
-------- --------
Total current liabilities.................................... 161,568 130,849
REVOLVING CREDIT LOAN AND LONG-TERM DEBT............................... 232,721 188,582
OTHER LIABILITIES...................................................... 13,928 14,286
SHAREHOLDERS' EQUITY:
Common stock, no par value; one share authorized, issued and
outstanding in 1997 and 1996...................................... -- --
Additional paid-in capital........................................... 258,609 255,535
Accumulated deficit.................................................. (42,432) (73,516)
Other................................................................ (1,289) (1,226)
-------- --------
Total shareholder's equity................................... 214,888 180,793
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............................. $623,105 $514,510
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 59
DECISIONONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES................................................... $785,950 $540,191 $163,020
COST OF REVENUES........................................... 581,860 402,316 113,483
-------- -------- --------
GROSS PROFIT............................................... 204,090 137,875 49,537
OPERATING EXPENSES:
Selling, general and administrative expenses............. 112,870 72,829 21,982
Amortization of intangibles.............................. 23,470 15,673 6,776
-------- -------- --------
OPERATING INCOME........................................... 67,750 49,373 20,779
INTEREST EXPENSE, Net of interest income of $197 in 1997,
$239 in 1996 and $53 in 1995............................. 14,698 14,714 2,468
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(BENEFIT), DISCONTINUED OPERATIONS AND EXTRAORDINARY
ITEM..................................................... 53,052 34,659 18,311
PROVISION (BENEFIT) FOR INCOME TAXES....................... 21,968 13,870 (23,104)
-------- -------- --------
INCOME BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY
ITEM..................................................... 31,084 20,789 41,415
DISCONTINUED OPERATIONS -- Income from operations of
discontinued products division........................... 1,113
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM........................... 31,084 20,789 42,528
EXTRAORDINARY ITEM, NET OF TAX BENEFIT OF $1,284........... 1,927
-------- -------- --------
NET INCOME................................................. $ 31,084 $ 18,862 $ 42,528
======== ======== ========
PRO FORMA INFORMATION (UNAUDITED):
Net income before interest expense adjustment............ $ 31,084
Interest expense adjustment, net of tax.................. (25,358)
--------
Pro forma net income..................................... $ 5,726
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 60
DECISIONONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT NUMBER OF SHARES OF COMMON STOCK)
<TABLE>
<CAPTION>
FOREIGN TOTAL
ADDITIONAL CURRENCY PENSION SHAREHOLDER'S
PAID-IN ACCUMULATED TRANSLATION LIABILITY (DEFICIENCY)
CAPITAL DEFICIT ADJUSTMENT ADJUSTMENT EQUITY
---------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994...................................... $114,883 $(134,906) $ 457 $ (1,625) $ (21,191)
Net income................................................ 42,528 42,528
Adjustment to pension liability........................... (80) (80)
Foreign currency translation adjustment................... 223 223
Contributed capital....................................... 8 8
-------- --------- ---- ------- --------
BALANCE, JUNE 30, 1995...................................... 114,891 (92,378) 680 (1,705) 21,488
Net income................................................ 18,862 18,862
Adjustment to pension liability........................... (143) (143)
Contributed capital....................................... 142,090 142,090
Foreign currency translation adjustment................... (58) (58)
Dividends declared........................................ (1,446) (1,446)
-------- --------- ---- ------- --------
BALANCE, JUNE 30, 1996...................................... 255,535 (73,516) 622 (1,848) 180,793
Net income................................................ 31,084 31,084
Adjustment to pension liability........................... (25) (25)
Foreign currency translation adjustment................... (38) (38)
Contributed capital....................................... 3,074 3,074
-------- --------- ---- ------- --------
BALANCE, JUNE 30, 1997...................................... $258,609 $ (42,432) $ 584 $ (1,873) $ 214,888
======== ========= ==== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 61
DECISIONONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................... $ 31,084 $ 18,862 $ 42,528
Adjustments to reconcile net income to net cash provided
by operating activities:
Income from discontinued operations................... (1,113)
Depreciation.......................................... 13,549 8,309 1,779
Amortization of repairable parts...................... 63,870 37,869 7,688
Amortization of intangibles........................... 23,470 15,673 6,775
Provision for losses on accounts receivable........... 7,849 3,434 1,930
Provision for consumable parts obsolescence........... 2,554 1,171 1,995
Extraordinary item.................................... 1,927
Changes in operating assets and liabilities, net of
effects from companies acquired, which provided
(used) cash:
Accounts receivable................................. (38,365) (1,900) (8,836)
Consumable parts.................................... (6,038) (1,248) 931
Accounts payable and accrued expenses............... 3,885 256 (1,171)
Deferred revenues................................... (25,427) (33,928) 6,811
Net changes in other assets and liabilities......... 12,543 1,469 (20,902)
--------- --------- --------
Net cash provided by operating activities........ 88,974 51,894 38,415
--------- --------- --------
INVESTING ACTIVITIES:
Capital expenditures..................................... (10,540) (7,278) (2,786)
Repairable spare parts purchases, net.................... (86,446) (63,514) (12,154)
Acquisitions of companies and contracts.................. (32,258) (275,562) (39,331)
--------- --------- --------
Net cash used in investing activities............ (129,244) (346,354) (54,271)
--------- --------- --------
FINANCING ACTIVITIES:
Capital contributions.................................... 439 142,090
Proceeds from issuance of subordinated debentures........ 30,000
Payment of dividends..................................... (1,446)
Payment of subordinated debentures....................... (30,000)
Net proceeds from borrowings............................. 43,625 162,772 17,537
Principal payments under capital leases.................. (1,075) (3,423)
Other.................................................... (63) 29
--------- --------- --------
Net cash provided by financing activities........ 42,926 300,022 17,537
--------- --------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................. 2,656 5,562 1,681
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............... 8,221 2,659 978
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR..................... $ 10,877 $ 8,221 $ 2,659
========= ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid during the year for:
Interest.............................................. $ 15,640 $ 14,838 $ 2,065
Income taxes.......................................... 8,381 5,344 1,009
Noncash investing/financing activities:
Issuance of seller notes in connection with
acquisitions........................................ 2,224 587 2,866
Issuance of seller notes in exchange for repairable
parts............................................... 1,855
Repairable parts received in lieu of cash for accounts
receivable.......................................... 1,124
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 62
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1. NATURE OF BUSINESS
DecisionOne Corporation (a wholly-owned subsidiary of DecisionOne Holdings
Corp., herein called "Holdings") and its wholly-owned subsidiaries (the
"Company") are providers of multivendor computer maintenance and technology
support services. The Company offers its customers a single-source, independent
(i.e., not affiliated with an original equipment manufacturer, or "OEM")
solution for computer maintenance and technology support requirements, including
hardware maintenance services, software support, end-user/ help desk services,
network support and other technology support services. These services are
provided by the Company across a broad range of computing environments,
including mainframes, midrange and distributed systems, workgroups, personal
computers ("PCs") and related peripherals. In addition, the Company provides
outsourcing services for OEMs, software publishers, system integrators and other
independent service organizations. The Company delivers its services through an
extensive field service organization of approximately 4,000 field technicians in
over 150 service locations throughout North America and through strategic
alliances in selected international markets.
Through June 30, 1995, the Company's services predominantly involved the
provision of maintenance services to the midrange computer market. On October
20, 1995, the Company acquired Bell Atlantic Business Systems Services, Inc.
("BABSS") (see Note 4). BABSS provided computer maintenance and technology
support services for computer systems ranging from the data center, which
includes both mainframe and midrange systems, to desk top. Subsequent to the
acquisition, Holding's principal operating subsidiary, Decision Servcom, Inc.,
was merged into BABSS, which had changed its name to DecisionOne Corporation. As
a result, DecisionOne Corporation is the principal operating subsidiary of the
Holdings.
On May 29, 1997, DecisionOne Holdings Corp. Holdings Corp. ("Holdings")
completed a restructuring of the legal organization of its subsidiaries (the
"Corporate Reorganization"). The Corporate Reorganization involved Holdings'
contribution to DecisionOne Corporation of ownership interests in its
subsidiaries, all of which were under Holdings' control (the "Contributed
Subsidiaries"). The Corporate Reorganization has been accounted for in a manner
similar to a pooling of interests. Accordingly, the Company's consolidated
financial statements include the accounts of the Contributed Subsidiaries for
all periods presented.
The Company's wholly owned, direct international subsidiaries are not
significant to the Company's consolidated financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts
of DecisionOne Corporation and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Pro Forma Information (Unaudited) -- The pro forma information included in
the accompanying statement of operations and in Note 3 has been prepared to
reflect the Company's and Holding's recapitalization and merger with Quaker
Holding Co. ("Quaker") and related transactions as if these had occurred on July
1, 1996.
Cash and Cash Equivalents -- Cash and cash equivalents are highly liquid
investments with remaining maturities of three months or less at the time of
purchase. Cash equivalents, consisting primarily of repurchase agreements with
banks, are stated at cost, which approximates fair market value.
Consumable Parts and Repairable Parts -- In order to provide maintenance
and repair services to its customers, the Company is required to maintain
significant levels of computer parts. These parts are classified as consumable
parts or as repairable parts. Consumable parts, which are utilized during the
repair process, are
F-31
<PAGE> 63
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stated at cost, principally determined using the weighted average method, less
an accumulated allowance for obsolescence and shrinkage. Consumable parts are
reflected in cost of revenues during the period utilized.
Repairable (rotable) parts, which can be refurbished and reused, are stated
at original cost less accumulated amortization. Amortization of repairable parts
is reflected in cost of revenues. Costs of refurbishing repairable parts are
also included in cost of revenues as these costs are incurred. Amortization of
repairable parts is based principally on the composite group method, using
straight-line composite rates. Repairable parts generally have an economic life
which corresponds to the normal life cycle of the related products, currently
estimated to be three to five years.
As consumable and repairable parts are retired, the weighted average gross
amounts at which such parts have been carried are removed from the respective
assets accounts, and charged to the accumulated allowance or accumulated
amortization accounts, as applicable. Periodic revisions to amortization and
allowance estimates are required, based upon the evaluation of several factors,
including changes in product life cycles, usage levels and technology changes.
Changes in these estimates are reflected on a prospective basis unless such
changes result from an extraordinary retirement or from other events or
circumstances which indicate that impairment may exist. Impairment is recognized
when the net carrying value of the parts exceeds the estimated current and
anticipated undiscounted net cash flows. Measurement of the amount of
impairment, if any, is calculated based upon the difference between carrying
value and fair value.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is provided for using the straight-line method over the estimated
useful lives of the depreciable assets. Capitalized equipment leases and
leasehold improvements are amortized over the shorter of the related lease terms
or asset lives. Maintenance and repairs are charged to expense as incurred. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is charged to operations.
Business and Contract Acquisitions -- Business and contract acquisitions
have been accounted for as purchase transactions, with the purchase price of
each acquisition allocated to the assets acquired and liabilities assumed based
upon their respective estimated fair values at the dates of acquisition.
Consistent with the Company's parts retirement accounting methods, the gross
value of parts acquired is generally stated at weighted average cost. Fair value
adjustments, if any, are reflected as adjustments to the respective accumulated
amortization or allowance accounts. The excess of the purchase price over
identified net assets acquired is amortized, on a straight-line basis, over the
expected period of future benefit (see Note 6).
Typical contract acquisitions are comprised primarily of customer
maintenance and support contracts of complementary entities, along with the
accompanying consumable and repairable parts required to support these contracts
and other identifiable intangibles, such as noncompete agreements. Liabilities
assumed in business and contract acquisitions consist primarily of prepaid
amounts related to multi-period customer maintenance and support contracts.
These liabilities are recorded as deferred revenues at acquisition dates and are
recognized as revenues when earned in accordance with the terms of the
respective contracts.
Intangible Assets -- Intangible assets are comprised of excess purchase
price over the fair value of net assets acquired, acquired customer lists and
other intangible assets, including the fair value of contractual profit
participation rights and amounts assigned to noncompete agreements.
Intangible assets, which arise principally from acquisitions, are generally
amortized on a straight-line basis over their respective estimated useful lives
(see Note 6). The Company evaluates the carrying value of intangible assets
whenever events or changes in circumstances indicate that these carrying values
may not be recoverable within the amortization period. Impairment is recognized
when the net carrying value of the intangible asset exceeds the estimated
current and anticipated discounted future net cash flows. Measurement of the
amount of impairment, if any, is calculated based upon the difference between
carrying value and fair value.
F-32
<PAGE> 64
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue -- The Company enters into maintenance contracts whereby it
services various manufacturers' equipment. Revenues from these contracts are
recognized ratably over the terms of such contracts. Prepaid revenues from
multi-period contracts are recorded as deferred revenues and are recognized
ratably over the term of the contracts.
Revenues derived from the maintenance of equipment not under contract are
recognized as the service is performed. Revenues derived from other technology
support services are recognized as the service is performed or ratably over the
term of the contract.
Foreign Currency Translation -- Gains and losses resulting from foreign
currency translation are accumulated as a separate component of shareholders'
equity. Gains and losses resulting from foreign currency transactions are
included in operations.
Credit Risk -- Concentration of credit risk with respect to trade
receivables is limited due to the large number of customers comprising the
Company's customer base and their dispersion across many industries.
Fair Value of Financial Instruments -- The following disclosures of the
estimated fair value of financial instruments were made in accordance with the
requirements of SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies.
Cash and Cash Equivalents, Accounts Receivable, and Accounts
Payable -- The carrying amount of these items are a reasonable estimate of
their fair value.
Short-Term Debt and Long-Term Debt -- As more fully described in Note
8, under its revolving borrowing facility the Company incurs interest at
variable rates based upon market conditions (i.e., based upon the prime
rate or LIBOR). Rates applicable to other debt instruments, which consist
primarily of short-term notes payable in connection with certain
acquisitions, are comparable to those of similar instruments currently
available to the Company. Accordingly, the carrying amount of debt is a
reasonable estimate of its fair value.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates and
assumptions.
Discontinued Operations -- During fiscal 1993, in connection with the sale
of its products division, the Company established estimated liabilities relating
to the settlement of the remaining assets and liabilities of this division. In
1995, the Company revised its estimates as a result of settlement of these
liabilities, and the consolidated statement of operations for 1995 reflects an
increase in net income of $1,113,000 for the change in estimate.
Derivative Financial Instruments -- Derivative financial instruments, which
constitute interest rate swap agreements (see Note 8), are periodically used by
the Company in the management of its variable interest rate exposure. Amounts to
be paid or received under interest rate swap agreements are recognized as
interest expense or interest income during the period in which these accrue.
Gains realized, if any, on the early termination of interest rate swap contracts
are deferred, to be recognized upon the termination of the related asset or
liability or expiration of the original term of the swap contract, whichever is
earlier. The Company does not hold any derivative financial instruments for
trading purposes.
Reclassifications -- Certain reclassifications have been made to the 1996
balances in order to conform with the 1997 presentation.
F-33
<PAGE> 65
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. MERGER, RECAPITALIZATION AND PRO FORMA INFORMATION
On August 7, 1997, the Company and Holdings consummated a merger with
Quaker Holding Co. ("Quaker"), an affiliate of DLJ Merchant Banking Partners II.
The merger, which will be recorded as a recapitalization for accounting purposes
as of the consummation date, occurred pursuant to an Agreement and Plan of
Merger (the "Merger Agreement") by and among the Company, Holdings and Quaker
dated May 4, 1997. The accompanying historical consolidated financial statements
do not include any adjustments with respect to the consummation of the merger.
In accordance with the terms of the Merger Agreement, which was formally
approved by the Company's shareholders on August 7, 1997, Quaker merged with and
into Holdings, and the holders of approximately 94.7% of shares of Holdings
common stock outstanding immediately prior to the merger received $23 in cash in
exchange for each of these shares. Holders of approximately 5.3% of shares of
Holdings common stock outstanding immediately prior to the merger retained such
shares in the merged Holdings, as determined based upon shareholder elections
and stock proration factors specified in the Merger Agreement. Immediately
following the merger, continuing shareholders owned approximately 11.9% of
shares of outstanding Holdings common stock. The aggregate value of the merger
transaction was approximately $940 million, including refinancing of the
Company's revolving credit facility (see Note 8).
In connection with the merger, Holdings raised $85 million through the
public issuance of discount debentures, and the Company issued publicly-held
subordinated notes for approximately $150 million. The Company also entered into
a new syndicated credit facility providing for term loans of $470 million and
revolving loans of up to $105 million. The proceeds of the discount notes,
subordinated notes and the initial borrowings under the new credit facility
along with a loan of approximately $59.1 million from the Company to Holdings
and the purchase of approximately $225 million of Holdings common stock by
Quaker have been used to finance the payments of cash to cash-electing Holdings
shareholders, to pay the holders of Holdings stock options and stock warrants
canceled or converted, as applicable, in connection with the merger, to repay
the Company's existing revolving credit facility and to pay expenses incurred in
connection with the merger.
As a result of the merger, the Company and Holdings incurred various
expenses, aggregating approximately $71 million on a pretax basis (approximately
$64 million after related tax benefit), subject to adjustment, in connection
with consummating the transaction. These costs consisted primarily of
compensation costs, underwriting discounts and commissions, professional and
advisory fees and other expenses. The Company will report this one-time charge
during the first quarter of fiscal 1998. In addition to these expenses, the
Company and Holdings also incurred approximately $22.3 million of capitalized
debt issuance costs associated with the merger financing. These costs will be
charged to expense over the terms of the related debt instruments.
The following summarized unaudited pro forma information of the Company as
of and for the year ended June 30, 1997 assumes that the merger had occurred on
July 1, 1996. The pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the financial condition or of the
results of operations which actually would have resulted had the merger occurred
as of July 1, 1996 or which may result in the future.
F-34
<PAGE> 66
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
PRO FORMA BALANCE SHEET INFORMATION:
Total assets................................................................... $707,785
Long term indebtedness (including current portion)............................. 641,376
Other liabilities.............................................................. 170,708
Shareholders' (deficit)........................................................ (104,299)
PRO FORMA INCOME STATEMENT INFORMATION:
Revenues....................................................................... $785,950
Operating income............................................................... 67,750
Income from continuing operations before income taxes.......................... 9,772
Net income..................................................................... 5,726
</TABLE>
The pro forma net loss reflects a net increase in interest expense of
approximately $43.3 million ($25.4 million after related pro forma tax effect),
attributable to additional financing incurred in connection with the merger, net
of repayment of the Company's existing revolving credit facility.
4. BUSINESS AND CONTRACT ACQUISITIONS
During the years ended June 30, 1997, 1996 and 1995, the Company acquired
certain net assets of other service companies as follows (in thousands):
<TABLE>
<CAPTION>
EXCESS
CONSIDERATION PURCHASE
--------------------------------------------------------- PRICE OVER
TOTAL FAIR VALUE
NUMBER OF PURCHASE OTHER OF NET ASSETS
YEARS ENDED ACQUISITIONS CASH NOTES PRICE INTANGIBLES ACQUIRED
- ---------------------------------- ------------ -------- ------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Significant business acquisitions:
June 30, 1995................... 1 $ 27,413 $2,094 $ 29,507 $15,600 $ 7,394
June 30, 1996................... 1 250,549 250,549 72,581 60,533
Nonsignificant business or maintenance contract acquisitions:
June 30, 1995................... 5 9,327 255 9,582 4,577 8,680
June 30, 1996................... 5 14,853 578 15,431 6,522 6,318
June 30, 1997................... 9 31,749 2,224 33,973 231 47,200
</TABLE>
On August 31, 1994, the Company purchased certain net assets and
liabilities of IDEA/Servcom, Inc. for approximately $29,500,000. This
acquisition was funded by cash and the issuance of a $2,600,000 noninterest-
bearing note to the seller. See seller notes payable section of Note 8. The
excess of asset purchase price over the fair value of net assets acquired at the
date of purchase was approximately $7,400,000.
On October 20, 1995, the Company acquired all of the outstanding common
stock of BABSS, a subsidiary of Bell Atlantic Corporation ("BAC") for
approximately $250,549,000. The acquisition was funded with the proceeds from
the issuance of $30,000,000 of Series C preferred stock, $30,000,000 of
subordinated debentures and the balance from additional bank borrowings (see
Notes 8 and 13). The excess of asset purchase price over the fair value of net
assets acquired at the date of purchase was initially recorded as approximately
$58,796,000. Subsequent to the acquisition, the Company recorded a net
adjustment increasing the initial amount by $1,737,000 and adjusted other
balance sheet accounts principally by the same amount. This resulted from the
adjustment and reclassification of certain tax accruals offset by favorable
negotiations on certain leased facilities (see Note 7). As part of the
acquisition, the Company purchased from BAC contractual profit participation
rights whereby the Company will receive a fixed percentage of the annual
operating profits (3.2% or 3.5%, depending upon the level of profits) earned by
a former foreign affiliate of
F-35
<PAGE> 67
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BAC which provides computer maintenance and technology support services in
Europe. The estimated value of the discounted estimated future cash flows over a
twenty-year period from these contractual profit participation rights is
$25,000,000.
Included in nonsignificant maintenance contract acquisitions is the
acquisition of substantially all of the contracts and related assets, including
spare parts of the U.S. computer service business of Memorex Telex Corporation
and certain of its affiliates (collectively, "Memorex Telex"). Memorex Telex had
filed a petition in bankruptcy in the United States Bankruptcy Court (the
"Court") in the District of Delaware on October 15, 1996; the Court approved the
sale to the Company on November 1, 1996. The adjusted purchase price was $52.7
million, comprised of the assumption of certain liabilities under contracts of
the service business, which were valued at $28.3 million, and base cash
consideration of approximately $24.4 million, after certain purchase price
adjustments, excluding transaction and closing costs.
The estimated fair market values of certain assets acquired, as well as
liabilities assumed, are subject to further adjustment as additional information
becomes available to the Company. During the third quarter of fiscal 1997, the
Company recorded an adjustment increasing the deferred revenues assumed in the
Memorex Telex acquisition by approximately $2,300,000, to revise the estimated
fair value of certain contract liabilities of the business assumed by the
Company.
The following summarized unaudited pro forma information for significant
acquisitions that have a material effect on the Company's results of operations
for the years ended June 30, 1996 and 1995 assumes that the acquisitions
occurred as of July 1, 1994. The nonsignificant business and maintenance
contract acquisitions are not considered material individually or in the
aggregate. The pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the significant acquisitions been in effect on
the dates indicated or which may result in the future.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Revenues....................................................... $697,676 $679,284
Income from continuing operations before extraordinary item.... 31,080 20,153
Net income..................................................... 29,153 21,266
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and buildings............................................. $ 6,318 $ 2,055
Equipment...................................................... 16,248 13,858
Computer hardware and software................................. 35,030 27,277
Furniture and fixtures......................................... 8,308 8,051
Leasehold improvements......................................... 4,628 4,125
-------- --------
70,532 55,366
Accumulated depreciation and amortization...................... (36,305) (22,936)
-------- --------
$ 34,227 $ 32,430
======== ========
</TABLE>
F-36
<PAGE> 68
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The principal lives (in years) used in determining depreciation and
amortization rates of various assets are: buildings (20-40); equipment (3-10);
computer hardware and software (3-5); furniture and fixtures (5-10) and
leasehold improvements (term of related leases).
Depreciation and amortization expense was approximately $13,549,000,
$8,309,000 and $1,779,000 for the fiscal years ended 1997, 1996 and 1995,
respectively.
6. INTANGIBLES
Intangibles consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Excess purchase price over fair value of net assets acquired... $130,548 $ 82,355
Customer lists................................................. 64,688 64,758
Contractual profit participation rights........................ 25,000 25,000
Noncompete agreements.......................................... 4,631 4,500
Other intangibles.............................................. 9,131 7,671
-------- --------
233,998 184,284
Accumulated amortization....................................... (42,632) (19,625)
-------- --------
$191,366 $164,659
======== ========
</TABLE>
The periods (in years) used in determining the amortization rates of
intangible assets are: excess purchase price over fair value of net assets
acquired (4-20); customer lists (3-8); contractual profit participation rights
(20); noncompete agreements (3-5) and other (1-6).
Amortization expense relating to intangibles was approximately $23,470,000,
$15,673,000 and $6,775,000, for the fiscal years ended 1997, 1996 and 1995,
respectively.
7. ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable................................................. $55,723 $53,347
Compensation and benefits........................................ 22,706 22,115
Interest......................................................... 563 1,505
Unused leases.................................................... 878 3,485
Pension accrual.................................................. 1,371 1,258
Accrued accounting and legal fees................................ 1,435 1,073
Non-income taxes and other....................................... 12,840 6,781
------ ------
$95,516 $89,564
====== ======
</TABLE>
Prior to 1994, the Company received $2,600,000 in tax bills (primarily
interest) from the Internal Revenue Service ("IRS") related to claims for tax
and interest for the years 1981 through 1987. The Company paid approximately
$500,000 of the claims upon receipt of the bills. Although the Company disputed
the tax bills, an IRS mandated payment of $828,000 was made in 1996. As of June
30, 1996, the
F-37
<PAGE> 69
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company had an accrued liability of $1,883,000 related to this assessment.
During fiscal 1997, the Company paid $1,729,000 in full settlement of these tax
and interest bills.
In connection with the acquisition of BABSS, which has been accounted for
using the purchase method of accounting (see Note 4), the Company recorded
approximately $11,000,000 in liabilities resulting from planned actions with
respect to BABSS, which included the costs to exit certain leased facilities and
to involuntarily terminate employees. The provision of approximately $3,500,000
for the costs to exit certain leased facilities principally relates to future
lease payments on a warehouse in California which has been made idle.
Approximately $4,000,000 was provided for severance and termination benefits of
approximately 210 employees in the field, operations support, sales and
administration. Approximately $3,000,000 was provided in connection with the
exit plan for write-downs of spare parts and equipment at two California
facilities which will not be utilized in future operations. The provision for
various other charges of approximately $500,000 consisted of costs to complete
the exit plan. As of June 30, 1996, the Company had settled all of these
liabilities, except for the lease liabilities on idle facilities for which
payments were scheduled to continue through 1999 (see Note 15). At June 30, 1997
and 1996 remaining amounts due under these leases were $0 and $1,200,000,
respectively.
As a result of successful negotiations of unutilized leased facilities,
during 1996, the Company recorded a reduction of approximately $975,000 to both
the provisions for leased facilities and excess purchase price over fair value
of net assets acquired.
8. REVOLVING CREDIT LOAN AND LONG-TERM DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit loans......................................... $231,671 $186,400
Seller noninterest-bearing notes payable....................... 2,922 2,118
Seller note payable -- purchase spare parts.................... 1,608
Capitalized lease obligations, payable in varying installments
at interest rates ranging from 7.25% to 13.01% at June 30,
1997......................................................... 1,308 2,385
------- -------
237,509 190,903
Less current portion........................................... 4,788 2,321
------- -------
$232,721 $188,582
======= =======
</TABLE>
REVOLVING CREDIT LOANS
On October 20, 1995, in connection with the BABSS acquisition (see Note 4)
the Company entered into a Credit Agreement which provided for a term loan (the
"1995 Term Loan") of $230,000,000 and a revolving credit facility of up to a
maximum of $30,000,000. The 1995 Term Loan provided for 19 equal quarterly
principal payments of $10,000,000 to be due and payable on the last day of each
calendar quarter commencing December 31, 1995 with a final payment due on
September 30, 2000. Loans under the revolving credit facility were to mature on
September 30, 2000. Interest on the 1995 Term Loan and the revolving credit
facility were at varying rates based, at the Company's option, on the Eurodollar
rate or the Alternative Base Rate (NationsBanc prime rate), plus the Applicable
Margins. Margins were based on the ratio of Total Funded Debt to EBITDA; the
Eurodollar Margin ranged from 1.75% to 2.5%, while the Alternative Base Rate
Margin ranged from 0.5% to 1.25%.
F-38
<PAGE> 70
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1996, the Company completed an initial public offering. The
Company used a portion of the proceeds to repay approximately $70 million of the
1995 Term Loan.
Also in April 1996, the Company converted the 1995 Term Loan and the
existing $30 million Revolving Credit Facility into a $225 million variable
rate, unsecured revolving credit facility ("the 1996 Revolving Credit
Facility"). During fiscal 1997, the 1996 Revolving Credit Facility commitment
was increased to $300 million, in connection with the acquisition of certain
contracts and assets. The 1996 Revolving Credit Facility is at floating interest
rates, based either on the LIBOR or prime rate, in either case plus an
Applicable Margin, at the Company's option. As of June 30, 1997, the applicable
rate was LIBOR plus .75% or approximately 6.5%. The 1996 Revolving Credit
Facility enables the Company to borrow up to $300 million in the form of
revolving credit loans with a maturity date of April 26, 2001 and with interest
periods determined principally on a quarterly basis. To offset the variable rate
characteristics of the borrowings, the Company entered into interest rate swap
agreements with two banks resulting in fixed interest rates of 5.4% on $40.0
million notional principal amount through December 1997 and 5.5% on another
$40.0 million notional principal amount through December 1998.
During fiscal 1997, the Company terminated these swap agreements, resulting
in an insignificant gain which has been deferred to the first quarter of fiscal
1998.
Under the terms of the 1996 Revolving Credit Facility, the Company may use
up to $25,000,000 for letters of credit, subject to the limitation of
$300,000,000 in total credit. As of June 30, 1997, letters of credit in the face
amount of $3,067,000 were outstanding.
The loan agreement relating to the 1996 Revolving Credit Facility contains
various terms and covenants which provide for certain restrictions on the
Company's indebtedness, liens, investments, disposition of assets and mergers
and acquisitions and require the Company, among other things, to maintain
minimum levels of consolidated net worth and certain minimum financial ratios.
The borrower under the 1996 Revolving Credit Facility is DecisionOne
Corporation. Repayment of the debt is guaranteed by the Company, Holdings and
the Company's other subsidiaries except for its Canadian subsidiary.
The Company's debt agreements and other agreements to which it is a party
contain certain covenants restricting the payment of dividends on, or
repurchases of, Holdings common stock.
The Company had average borrowings of $221,069,000 and $172,065,000 during
1997 and 1996, respectively, at an average interest rate of 6.4% and 8.69%,
respectively. Maximum borrowings during 1997 and 1996 were $243,350,000 and
$268,748,000, respectively.
Subsequent to June 30, 1997, in connection with the Company's and Holdings'
merger with Quaker (see Note 3), the 1996 Revolving Credit Facility was repaid
in full, including all interest due thereon. This refinancing was accomplished,
in part, through the issuance of certain new debt instruments, consisting of
senior discount notes, senior subordinated notes and a term loan/revolving
credit facility which, in the aggregate, provide financing of approximately $810
million (including financing obtained by Holdings), subject to certain
conditions. The new revolving credit facility provides the Company with $105
million of available financing, subject to a borrowing base, for working capital
purposes subsequent to the merger.
The Company's Canadian subsidiary has available a $1.5 million (Canadian)
revolving line of credit agreement with a local financial institution. At June
30, 1997, approximately $471,000 (in U.S. dollars) was outstanding under this
agreement. There were no amounts outstanding at June 30, 1996.
SELLER NOTES PAYABLE
In connection with certain acquisitions (see Note 4), the Company issued
noninterest-bearing notes, the principal of which is primarily due upon
settlement of contingent portions of the acquisition purchase price within a
specified period subsequent to closing, generally not exceeding one year from
the acquisition date.
F-39
<PAGE> 71
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contingencies typically pertain to actual amounts of monthly maintenance
contract revenues acquired and prepaid contract liabilities assumed in
comparison to amounts estimated in acquisition agreements. The Company imputes
interest, based upon market rates, for long-term, non-interest-bearing
obligations.
During 1997, the Company issued a secured note payable to the seller for
the purchase of repairable parts in the original amount of $1,854,000. The note
accrues interest at an interest rate of approximately 8%, and requires quarterly
payments of principal and interest of approximately $273,000 until maturity in
December 1998.
SUBORDINATED DEBENTURES
In connection with the BABSS acquisition (see Note 4) on October 20, 1995,
the Company issued and sold to Holdings principal shareholders, an aggregate
$30,000,000 principal amount of 10.101% Debentures (the "Affiliate Notes") due
on October 20, 2001. The Affiliate Notes were subordinated to the 1995 Term Loan
and the revolving credit facility. Interest on the Affiliate Notes was payable
semiannually on the last business day of June and December of each year
commencing on December 31, 1995.
In connection with the issuance of the debentures, Holdings issued 468,750
Common Stock Purchase Warrants (the "Warrants"). Each Warrant initially entitled
the owner to buy one share of Common Stock for $0.10. The number of shares that
can be purchased per Warrant steps up over 24 months in conjunction with the
increasing conversion privilege applicable to the Preferred Stock such that, at
the end of 24 months, each Warrant entitled the holder to buy approximately 1.21
shares of Common Stock at a price of $0.10 per share. The Warrants were
exercisable from October 20, 1997 until October 20, 2001, provided that if
Holdings had a public offering of its Common Stock meeting certain requirements
before October 20, 1997, the Warrants became exercisable at the time of the
public offering and the number of shares that could be purchased on exercise was
fixed at that time and no longer increased in steps. The Warrants also became
exercisable upon retirement of the Debentures. Each Warrant had an assigned
value of $7.25333 which resulted in an original issue discount of $3,400,000
which was being amortized over the term of the Affiliate Notes. Upon
consummation of Holdings initial public offering in April 1996, the Company was
required to pay up to the total amount outstanding under the Affiliate Notes
and, accordingly, the Company used $30,000,000 of the proceeds to retire the
Affiliate Notes. As a result, in 1996 the Company recorded an extraordinary loss
in the amount of $3,211,000, net of taxes of $1,284,000, due to the acceleration
of the amortization of original issue discount.
F-40
<PAGE> 72
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $10,909 $ 2,892 $ 16,065
State.............................................. 3,616 1,595 4,599
Foreign............................................ 1,080 548 (1,272)
Deferred:
Federal............................................ 6,460 8,945 (29,897)
State.............................................. 16 641 (3,617)
Foreign............................................ (113) (499)
Benefit of operating loss carryforwards:
Federal............................................ (7,729)
State.............................................. (1,253)
Foreign............................................ (252)
------- ------- --------
Provision (benefit) for income taxes................. $21,968 $13,870 $(23,104)
======= ======= ========
</TABLE>
The tax effects of temporary differences consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred tax assets:
Accounts receivable............................................ $ 4,771 $ 1,341
Inventory...................................................... 2,195 2,586
Accrued expenses............................................... 7,000 6,378
Unused leases.................................................. 390
Fixed assets................................................... 299
Intangibles.................................................... 6,196 5,670
Operating loss carryforwards................................... 4,868 14,252
Tax credit carryforwards....................................... 1,670 1,170
------- -------
Gross deferred tax assets........................................ 27,090 31,696
Gross deferred tax liabilities:
Repairable spare parts......................................... (8,918) (7,273)
Fixed assets................................................... (108)
------- -------
Gross deferred tax liabilities................................... (9,026) (7,273)
------- -------
Net deferred tax asset........................................... $18,064 $24,423
======= =======
</TABLE>
F-41
<PAGE> 73
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net operating loss and minimum tax credit carryforwards available at June
30, 1997 expire in the following years:
<TABLE>
<CAPTION>
YEAR OF
EXPIRATION
AMOUNT ----------
--------------
(IN THOUSANDS)
<S> <C> <C>
Federal operating losses............................... $ 12,877 2006-2008
State operating losses................................. 8,669 1998-2008
Investment tax credit.................................. 134 2004
Minimum tax credit..................................... 1,536 INDEFINITE
</TABLE>
As a result of the Company's initial public offering in April, 1996, an
"ownership change" occurred pursuant to Section 382 of the Internal Revenue
Code. Accordingly, for Federal income tax purposes, net operating loss and tax
credit carryforwards arising prior to the ownership change are limited during
any future period to the Section 382 "limitation amount" of approximately $20.0
million per annum. In addition, the Company's merger with Quaker on August 7,
1997 (see Note 3) represents another such "ownership change" pursuant to Section
382. The Company estimates that the limitation on the use of tax loss
carryforwards and other credits, for Federal income tax purposes, in any
post-merger period will be reduced to approximately $9.0 million per annum.
A reconciliation between the provision (benefit) for income taxes, computed
by applying the statutory federal income tax rate of 35% for 1997, 1996 and 1995
to income before income taxes, and the actual provision (benefit) for income
taxes follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ------
<S> <C> <C> <C>
Federal income tax provision at statutory tax rate........... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax provision...... 5.0 4.6 3.5
Foreign income taxes......................................... 0.4 (6.9)
Unused lease credit.......................................... (0.1)
Benefit of operating loss carryforward....................... (0.8) (49.1)
Change in valuation allowance................................ (1.4) (108.9)
Other........................................................ 1.0 2.6 0.3
---- ---- ------
Actual income tax provision (benefit) effective tax rate..... 41.4% 40.0% (126.2)%
==== ==== ======
</TABLE>
The Company has recorded a deferred tax asset of $4,868,000 reflecting the
benefit of federal and state net operating loss carryforwards, which expire in
varying amounts between 1998 and 2008. Realization depends on generating
sufficient taxable income before expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax asset will be realized.
The valuation allowance for deferred tax assets as of July 1, 1994 was
$44,160,000. The net changes in the valuation allowance for the years ended June
30, 1996 and 1995 were decreases of $686,000 and $43,474,000, respectively. Of
these amounts, $252,000 and $8,982,000 resulted from the realization of net
operating loss carryforwards. The remaining decrease of $434,000 and $34,492,000
for 1996 and 1995, respectively, resulted from the Company's expected future
taxable income.
F-42
<PAGE> 74
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. OTHER LIABILITIES
Other (noncurrent) liabilities consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued severance and unutilized lease losses.................... $ 4,532 $ 2,227
Other noncurrent liabilities..................................... 9,396 12,059
------- -------
$ 13,928 $ 14,286
======= =======
</TABLE>
As more fully described in Note 15, accrued severance and unutilized lease
losses represent remaining liabilities for estimated future employee severance
costs and for lease/contract losses associated with duplicate facilities to be
closed. These liabilities were recorded by the Company in connection with the
Memorex Telex and BABSS acquisitions in November 1996 and October 1995,
respectively.
Other noncurrent liabilities include deferred operating lease liabilities
related to scheduled rent increases, recorded in accordance with the provisions
of SFAS No. 13, Accounting for Leases. Also included in other noncurrent
liabilities are provisions relating to various tax matters.
11. LEASE COMMITMENTS
The Company conducts its operations primarily from leased warehouses and
office facilities and uses certain computer, data processing and other equipment
under operating lease agreements expiring on various dates through 2005. The
future minimum lease payments for operating leases having initial or remaining
noncancelable terms in excess of one year for the five years succeeding June 30,
1997 and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................................... $18,415
1999............................................................... 15,224
2000............................................................... 11,406
2001............................................................... 5,815
2002............................................................... 2,879
Thereafter......................................................... 4,757
-------
$58,496
=======
</TABLE>
Rental expense amounted to approximately $17,367,000, $13,149,000 and
$5,878,000, for the fiscal years ended 1997, 1996 and 1995, respectively.
12. RETIREMENT PLANS
The Company maintains a 401(k) plan for its employees which is funded
through the contributions of its participants. A similar plan exists for former
employees of an acquired company for which eligibility and additional
contributions were frozen in September 1988.
In addition, the Company assumed the liability of the defined benefit
pension plan applicable to employees of a company acquired in 1986. The
eligibility and benefits were frozen as of the date of the acquisition.
F-43
<PAGE> 75
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension expense for the defined benefit pension plan was computed as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------
1997 1996 1995
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest cost.............................................. $ 521 $ 495 $ 482
Actual return on plan assets............................... (409) (449) (312)
Net amortization and deferral.............................. 9 72 (42)
----- ----- -----
Periodic pension costs..................................... $ 121 $ 118 $ 128
===== ===== =====
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% and the expected long-term rate of return
on assets was 8.5% for 1997, 1996 and 1995.
The following table sets forth the funded status of the frozen pension plan
as of May 1, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefits (100% vested)............................... $ 7,290 $ 7,116
Fair value of plan assets........................................ 6,128 5,800
------- -------
Unfunded projected benefit obligation.................. 1,162 1,316
Unrecognized net loss............................................ 1,873 1,848
Unrecognized net transition obligation........................... 470 504
Adjustment to recognized minimum liability....................... (2,343) (2,352)
------- -------
Accrued pension costs............................................ $ 1,162 $ 1,316
======= =======
</TABLE>
13. EMPLOYEE SEVERANCE AND UNUTILIZED LEASE COSTS
During the second quarter of fiscal 1997, in connection with the Memorex
Telex acquisition (see Note 4), the Company recorded a $3.4 million pre-tax
charge for estimated future employee severance costs, and a $0.9 million pre-tax
charge for unutilized lease/contract losses ("exit costs"), primarily associated
with duplicate facilities to be closed. The $3.4 million charge, recorded in
accordance with SFAS No. 112, Employers' Accounting for Postemployment Benefits,
reflects the actuarially determined benefit costs for the separation of
employees who are entitled to benefits under pre-existing separation pay plans.
These costs are included in selling, general and administrative expenses in the
accompanying consolidated statement of operations for the year ended June 30,
1997.
In the second quarter of fiscal 1996, in connection with the acquisition of
BABSS, the Company recorded pre-tax charges for exit costs of $6.9 million, and
estimated future employee severance costs of $0.1 million. During the fourth
quarter of fiscal 1996, the Company reversed $3.4 million of these employee
severance and exit cost liabilities. The reversal was primarily the result of
the Company's ability to utilize and sublease various facilities identified in
the original $7.0 million combined liability. Such information was unknown to
the Company when the original liability was recorded.
See Note 10 for further information regarding accrued severance and
unutilized lease losses.
14. COMMITMENTS AND CONTINGENT LIABILITIES
The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible parties
in respect to four waste disposal sites that have been identified by the United
States Environmental Protection Agency as Superfund sites. In addition, the
Company received a notice several years ago that it may be a potentially
responsible party with respect to a fifth, related site, but
F-44
<PAGE> 76
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has not received any other communication with respect to that site. Under
applicable law, all parties responsible for disposal of hazardous substances at
those sites are jointly and severally liable for clean-up costs. The Company
originally estimated that its share of the costs of the clean-up of one of these
sites would be approximately $500,000 which is provided for in liabilities
related to the discontinued products division in the accompanying consolidated
balance sheets as of June 30, 1997 and 1996. Complete information as to the
scope of required clean-up at these sites is not yet available and, therefore,
management's evaluation may be affected as further information becomes
available. However, in light of information currently available to management,
including information regarding assessments of the sites to date and the nature
of involvement of the Company's predecessor at the sites, it is management's
opinion that the Company's potential additional liability, if any, for the cost
of clean-up of these sites will not be material to the consolidated financial
position, results of operations or liquidity of the Company.
The Company is also party to various legal proceedings incidental to its
business. Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company. In the opinion of
management, these actions can be successfully defended or resolved without a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
During the fourth quarter of fiscal 1997, the Company received $2.0 million
in full settlement of a claim against its former insurance carrier, related to
unreimbursed losses. This settlement was reflected as a reduction of selling,
general and administrative costs in the accompanying statement of operations.
15. RELATED PARTY TRANSACTIONS
Prior to 1994, the Company entered into an agreement to purchase printer
products from Genicom Corporation (Genicom). The Company and Genicom are under
common ownership. The initial term of the agreement is for five years with an
option to extend based on mutual agreement of the parties. Purchases from
Genicom for the years ended June 30, 1997, 1996 and 1995 were approximately
$472,000, $1,512,000 and $1,972,000, respectively. Accounts payable to Genicom
amounted to approximately $30,000 and $14,000 as of June 30, 1997 and 1996,
respectively.
During the year ended June 30, 1996, the Company paid approximately
$125,000 for expense reimbursements to certain shareholders for services
rendered in connection with an acquisition in 1988. The amount was accrued for
in prior years.
F-45
<PAGE> 77
SCHEDULE I
DECISIONONE HOLDINGS CORP.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(PARENT COMPANY ONLY)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Investment in equity of subsidiaries................................. $214,888 $180,793
-------- --------
Total assets........................................................... $214,888 $180,793
======== ========
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value; authorized 5,000,000 shares; none
outstanding
Common stock, $.01 par value -- authorized, 100,000,000 shares;
issued and outstanding 27,817,832 shares in 1997 and 27,340,288
shares in 1996.................................................... $ 278 $ 273
Additional paid-in capital........................................... 258,331 255,262
Accumulated deficit.................................................. (42,432) (73,516)
Foreign currency translation adjustment.............................. 584 622
Pension liability adjustment......................................... (1,873) (1,848)
-------- --------
Total shareholders' equity............................................. $214,888 $180,793
======== ========
</TABLE>
See note to condensed financial information.
S-1
<PAGE> 78
SCHEDULE I
DECISIONONE HOLDINGS CORP.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF OPERATIONS
(PARENT COMPANY ONLY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Equity in net income of subsidiaries....................... $ 31,084 $ 18,862 $ 42,528
-------- -------- --------
Net income................................................. $ 31,084 $ 18,862 $ 42,528
======== ======== ========
</TABLE>
See note to condensed financial information.
S-2
<PAGE> 79
SCHEDULE I
DECISIONONE HOLDINGS CORP.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF CASH FLOWS
(PARENT COMPANY ONLY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
--------------------------------
1997 1996 1995
-------- --------- -------
<S> <C> <C> <C>
Operating Activities:
Net income.................................................. $ 31,084 $ 18,862 $42,528
Adjustment to reconcile net income to net cash provided by
operating activities..................................... (31,084) (17,416) (42,528)
-------- --------- --------
Net cash provided by operating activities.............. -- 1,446 --
-------- --------- --------
Investing Activities -- contribution to capital of
subsidiaries................................................ (439) (142,090) --
-------- --------- --------
Financing Activities:
Proceeds from issuance of preferred stock 31,392
Proceeds from issuance of common stock and warrants......... 439 110,698
Dividends paid on preferred stock........................... (1,446)
-------- --------- --------
Net cash provided by financing activities.............. 439 140,644 --
-------- --------- --------
Net Change in Cash.......................................... $ -- $ $ --
======== ========= ========
</TABLE>
See note to condensed financial information.
S-3
<PAGE> 80
SCHEDULE 1
DECISIONONE HOLDINGS CORP.
NOTE TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY ONLY)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements include the accounts of
DecisionOne Holdings Corp. (the Parent) and on an equity basis its subsidiaries
and should be read in conjunction with the consolidated financial statements of
DecisionOne Holdings Corp. and Subsidiaries (the "Company") and the notes
thereto.
S-4
<PAGE> 81
SCHEDULE II
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
DECISIONONE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGES TO CHARGES TO BALANCE AT
BEGINNING OF CORP. AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------ ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1995:
Accounts Receivable --
Allowance for uncollectable
accounts................. $ 1,461 $1,930 $ 3,225 $ 6,616
Consumable parts --
Allowance for
Obsolescence............. $ 8,370 $1,995 $ 1,423(b) $ 11,788
Year Ended June 30, 1996:
Allowance for uncollectable
accounts.................... $ 6,616 $ 3,434 $ (470)(a) $ 9,580
Consumable parts --
Allowance for
Obsolescence............. $ 11,788 $1,171 $ 10,193(b) $ (3,615) $ 19,537
Year Ended June 30, 1997:
Accounts Receivable --
Allowance for Uncollectable
Accounts.................... $ 9,580 $7,848 $ 1,593(b) $ (4,152)(a) $ 14,869
Consumable parts --
Allowance for Obsolescence.... $ 19,537 $2,554 $ 3,849(b) $ (8,051) $ 17,889
</TABLE>
- ---------------
(a) Amount primarily represents net recoveries (write-offs) during the year.
(b) Amount primarily represents allowance recorded as a result of acquisitions
during the year.
S-5
<PAGE> 82
DECISIONONE HOLDINGS CORP.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C>
4.3 Specimen of the Company's 11 1/2% Senior Discount Debenture due 2008 (included in
Exhibit 4.4)
4.4 11 1/2% Senior Discount Debenture Indenture dated as of August 7, 1997 by and
between Quaker Holding Co. and State Street Bank and Trust as Trustee
4.5 Form of Warrant (included in Exhibit 4.6)
4.6 Form of Warrant Agreement dated as of August 7, 1997 between Quaker Holding Co. and
State Street Bank and Trust as Warrant Agent
4.7 Debenture Agreement dated as of August 7, 1997 between the Company and State Street
Bank and Trust as Trustee (included in Exhibit 4.4)
4.8* Warrant Assumption dated as of August 7, 1997 between the Company and State Street
Bank and Trust as Warrant Agent (included in Exhibit 4.6)
10.1+ Management Incentive Plan
10.2+ Direct Investment Program
10.3 (intentionally omitted)
10.4 U.S.$575,000,000 Credit Agreement dated as of August 7, 1997 by and among
DecisionOne Corporation, various financial institutions, DLJ Capital Funding Inc.
(as Syndication Agent), NationsBank of Texas, N.A. (as Administrative Agent) and
BankBoston, N.A. (as Documentation Agent)
10.20 Intercompany Note made by the Company in favor of DecisionOne Corporation dated as
of August 7, 1997
12 Computation of Ratios of Earnings to Fixed Charges(5)
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.4
EXECUTION COPY
================================================================================
QUAKER HOLDING CO.
11 1/2% SENIOR DISCOUNT DEBENTURES DUE 2008
------------------------------------
INDENTURE
Dated as of August 7, 1997
------------------------------------
------------------------------------
STATE STREET BANK AND TRUST COMPANY
TRUSTEE
------------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.03. Incorporation By Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.05. Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.06. Form of Documents Delivered To Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.07. Acts of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 2 THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.05. Lists of Holders of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.07. Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.08. Outstanding Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.09. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.10. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.13. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.14. CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.15. Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 3 REDEMPTION AND PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.01. Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.02. Selection by Trustee of Notes to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.04. Effect of Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.06. Notes Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.07. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.08. Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.09. Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.10. Offer to Purchase by Application of Excess Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 4 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.01. Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.02. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.03. Money for Payments to Be Held In Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.04. Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.05. Statement as to Compliance; Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.06. Payment of Taxes and Other Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.07. Stay, Extension, Usury Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.08. Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.09. Offer to Repurchase Upon Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.10. Asset Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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Section 4.11. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.12. Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock. . . . . . . . . . . . . . . 40
Section 4.13. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.14. Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . . . . . . . 43
Section 4.16 Sales of Accounts Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.17. No Restrictions on Consummation of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 5 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 5.01. Merger, Consolidation, or Sale of All or Substantially All Assets . . . . . . . . . . . . . . . . . . 45
Section 5.02. Successor Corporation Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE 6 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.01. Events of Default and Notice Thereof. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.03. Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 6.04. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 6.05. Control by Majority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 6.06. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 6.07. Rights of Holders of Notes to Receive Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 6.08. Collection Suit by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 6.09. Trustee May File Proofs of Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 6.10. Priorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 6.11. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE 7 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.01. Duties of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.02. Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.03. Individual Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.04. Trustee's Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.05. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.06. Reports by Trustee to Holders of the Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.07. Compensation and Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.08. Replacement of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.09. Successor Trustee by Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 7.10. Eligibility; Disqualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 7.11. Preferential Collection of Claims Against the Company. . . . . . . . . . . . . . . . . . . . . . . . 55
Section 7.12. Rights of Holders with Respect to Time Method and Place . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 8.01. Option to Effect Defeasance or Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 8.02. Legal Defeasance and Discharge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 8.03. Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.04. Conditions to Defeasance or Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.05. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. 57
Section 8.06. Repayment to Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
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Section 8.07. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.01. Without Consent of Holders of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.02. With Consent of Holders of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.03. Compliance with TIA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 9.04. Revocation and Effect of Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 9.05. Notation on or Exchange of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE 10 SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.01 Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.02 Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 11 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.01. Conflict of Any Provision of Indenture with TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.02. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.03. Communication by Holders of Notes with Other Holders of Notes. . . . . . . . . . . . . . . . . . . . 64
Section 11.04. Certificate and Opinion as to Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.05. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.06. No Personal Liability of Directors, Officers, Employees and Stockholders. . . . . . . . . . . . . . . 65
Section 11.07. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.08. No Adverse Interpretation of Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.09. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.10. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.11. Counterpart Originals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.12. Table of Contents, Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
EXHIBITS
EXHIBIT A FORM OF NOTE
EXHIBIT B FORM OF ASSUMPTION AGREEMENT
iii
<PAGE> 5
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Indenture Section
Act Section
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 7.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 10.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04; 11.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
iv
<PAGE> 6
INDENTURE dated as of August 7, 1997 between Quaker Holding Co., a
Delaware corporation (the "Issuer"), and State Street Bank and Trust Company,
as trustee (the "Trustee"). The Company and the Trustee agree as follows for
the benefit of each other and for the equal and ratable benefit of the Holders
of the 11 1/2% Senior Discount Debentures due 2008 (the "Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
Set forth below are certain defined terms used in this Indenture.
"Accounts Receivable Subsidiary" means any newly created, Wholly Owned
Subsidiary of the Company (i) which is formed solely for the purpose of, and
which engages in no activities other than activities in connection with,
financing accounts receivable of the Company and/or its Restricted
Subsidiaries, (ii) which is designated by the Board of Directors of the Company
as an Accounts Receivables Subsidiary pursuant to a Board Resolution set forth
in an Officers' Certificate and delivered to the Trustee, (iii) that has total
assets at the time of such designation with a book value not exceeding $500,000
plus the reasonable fees and expenses required to establish such Accounts
Receivable Subsidiary and any accounts receivable financing, (iv) no portion of
Indebtedness or any other obligation (contingent or otherwise) of which (a) is
at any time recourse to or obligates the Company or any Restricted Subsidiary
of the Company in any way, other than pursuant to (I) representations and
covenants entered into in the ordinary course of business in connection with
the sale of accounts receivable to such Accounts Receivable Subsidiary or (II)
any guarantee of any such accounts receivable financing by the Company or any
Restricted Subsidiary that is permitted to be incurred pursuant to the covenant
described in Section 4.12 hereof, or (b) subjects any property or asset of the
Company or any Restricted Subsidiary of the Company, directly or indirectly,
contingently or otherwise, to the satisfaction thereof, other than pursuant to
(I) representations and covenants entered into in the ordinary course of
business in connection with sales of accounts receivable or (II) any guarantee
of any such accounts receivable financing by the Company or any Restricted
Subsidiary that is permitted to be incurred pursuant to the covenant described
in Section 4.12 hereof, (v) with which neither the Company nor any Restricted
Subsidiary of the Company has any contract, agreement, arrangement or
understanding other than contracts, agreements, arrangements and understandings
entered into in the ordinary course of business in connection with sales of
accounts receivable in accordance with the covenant described in Section 4.16
hereof and fees payable in the ordinary course of business in connection with
servicing accounts receivable and (vi) with respect to which neither the
Company nor any Restricted Subsidiary of the Company has any obligation (a) to
subscribe for additional shares of Capital Stock or other Equity Interests
therein or make any additional capital contribution or similar payment or
transfer thereto other than in connection with the sale of accounts receivable
to such Accounts Receivable Subsidiary in accordance with the covenant
described in Section 4.16 hereof or (b) to maintain or preserve the solvency or
any balance sheet term, financial condition, level of income or results of
operations thereof.
"Accreted Value" means, as of any date of determination prior to
August 1, 2002, with respect to any Note, the sum of (a) the initial offering
price (which shall be calculated by discounting the
<PAGE> 7
aggregate principal amount at maturity of such Note at a rate of 11 1/2% per
annum, compounded semi-annually on each February 1 and August 1 from August 1,
2002 to the date of issuance) of such Note and (b) the portion of the excess of
the principal amount of such Note over such initial offering price which shall
have been accreted thereon through such date, such amount to be so accreted on
a daily basis at a rate of 11 1/2 % per annum of the initial offering price of
such Note, compounded semi-annually on each February 1 and August 1 from the
date of issuance of the Notes through the date of determination, computed on
the basis of a 360-day year of twelve 30-day months.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person or assumed in
connection with the acquisition of any asset used or useful in a Permitted
Business acquired by such Person.
"Adjusted Consolidated Net Income" means, with respect to any Person
for any period, the Consolidated Net Income of such Person for such period
plus, to the extent deducted in calculating Consolidated Net Income, the sum of
(i) 100% of the aggregate amortization of intangibles (less any tax benefit
recorded by such Person as a result of such amortization), plus, with respect
to the Company, up to $25.0 million of charges arising from any write-off of
intangibles reflected on the Company's balance sheet as of March 31, 1997, for
such period of such Person and its Restricted Subsidiaries, (ii) 100% of
non-cash compensation expense for such period incurred by such Person and its
Restricted Subsidiaries related to stock options or other Equity Interests
granted to the employees or directors of such Person and its Restricted
Subsidiaries and (iii) expenses and charges of the Company and DecisionOne
Corp. related to the Merger which are paid, taken or otherwise accounted for
within 90 days of the consummation of the Merger.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with") as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback) other than (A) in the ordinary course of business or (B) sales of
accounts receivables to the Accounts Receivables Subsidiary in accordance with
Section 4.16 hereof (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole will be governed by Section 4.09 hereof and/or
Section 5.01 hereof and not by the provisions of Section 4.10 hereof); and (ii)
the issue by any Restricted Subsidiary of the Company of any Equity Interests
of such Restricted Subsidiary and the sale by the Company or any of its
Restricted Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of clauses (i) and (ii), whether in a single
transaction or series of related transactions (a) that have a fair market value
in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million.
Notwithstanding the foregoing: (1) a transfer of assets by the Company to a
Restricted
2
<PAGE> 8
Subsidiary or by a Restricted Subsidiary to the Company or to another
Restricted Subsidiary, (2) an issuance of Equity Interests by a Restricted
Subsidiary to the Company or to another Restricted Subsidiary, (3) a Restricted
Payment that is permitted by Section 4.11 hereof, (4) the sale and leaseback of
any assets within 90 days of the acquisition of such assets, (5) foreclosures
on assets and (6) a disposition of Cash Equivalents in the ordinary course of
business will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP)
of the obligation of the lessee for net rental payments during the remaining
term of the lease included in such sale and leaseback transaction (including
any period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar foreign,
federal or state law for the relief of debtors.
"Board of Directors" means the board of directors of the Company or
any duly authorized committee of such board of directors.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Business" shall have the meaning assigned to such term in Article 11,
Rule 11-01(d) of Regulation S-X, promulgated pursuant to the Securities Act, as
such regulation is in effect on the date of this Indenture.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance sheet
in accordance with GAAP.
"Capital Stock" means, (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) Government Securities, (ii) any
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution or any
lender under the New Credit Facility, (iii) commercial paper maturing not more
than 365 days after the date of acquisition of an issuer (other than an
Affiliate of the Company) with a rating, at the time as of which any investment
therein is made, of "A-3" (or higher) according to S&P or "P-2" (or higher)
according to Moody's or carrying an equivalent rating by a nationally
recognized rating agency if both of the two named rating agencies cease
publishing ratings of investments, (iv) any bankers acceptances
3
<PAGE> 9
or money market deposit accounts issued by an Eligible Institution and (v) any
fund investing exclusively in investments of the types described in clauses (i)
through (iv) above.
"Change of Control" means the occurrence of any of the following: (i)
any sale, lease, transfer, conveyance or other disposition (other than by way
of merger or consolidation) in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken as
a whole to any "person" (as defined in Section 13(d) of the Exchange Act) or
"group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act)
other than the Principals and their Related Parties; (ii) the adoption of a
plan for the liquidation or dissolution of the Company; (iii) the Company
consolidates with, or merges with or into, another "person" (as defined above)
or "group" (as defined above) in a transaction or series of related
transactions in which the Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any transaction
where (A) the outstanding Voting Stock of the Company is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee corporation and (B) either (1) the "beneficial owners" (as defined
in Rule 13d-3 under the Exchange Act) of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly through one
or more Subsidiaries, not less than a majority of the total Voting Stock of the
surviving or transferee corporation immediately after such transaction or (2)
if, immediately prior to such transaction the Company is a direct or indirect
Subsidiary of any other Person (such other Person, the "Parent Holding
Company"), then the "beneficial owners" (as defined above) of the Voting Stock
of such Parent Holding Company immediately prior to such transaction own,
directly or indirectly through one or more Subsidiaries, not less than a
majority of the Voting Stock of the surviving or transferee corporation
immediately after such transaction; (iv) the consummation of any transaction or
series of related transactions (including, without limitation, by way of merger
or consolidation) the result of which is that any "person" (as defined above)
or "group" (as defined above) other than the Principals and their Related
Parties becomes the "beneficial owner" (as defined above) of more than 50% of
the voting power of the Voting Stock of the Company or any Parent Holding
Company of the Company or (v) the first day on which a majority of the members
of the Board of Directors of the Company or any Parent Holding Company of the
Company are not Continuing Directors.
"Closing Date" means the closing date of the sale and original
issuance of the Notes under this Indenture.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value .01
per share.
"Company" means the Issuer, as obligor under the Notes, until the
Merger, whereupon the term shall refer to Holdings, unless and until a
successor replaces Holdings in accordance with Article 5 hereof, and thereafter
includes such successor.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period, plus, to the extent deducted in computing
Consolidated Net Income, (i) provision for taxes based on income or profits of
such Person and its Restricted Subsidiaries for such period, (ii) Fixed Charges
of such Person for such period, (iii) depreciation and amortization (including
amortization of goodwill and other intangibles) and all other non-cash charges
(excluding any such non-cash charge to the extent that it represents (x) an
accrual of or reserve for cash charges in any future period, (y) amortization
of a prepaid cash expense that was paid in a prior period or (z) amortization
attributable to rotable inventory which has been capitalized in
4
<PAGE> 10
accordance with GAAP) of such Person and its Restricted Subsidiaries for such
period, (iv) any net loss realized in connection with any Asset Sale and any
extraordinary or non-recurring loss, in each case, on a consolidated basis
determined in accordance with GAAP and (v) expenses and charges of the Company
or DecisionOne Corp. related to the Merger which are paid, taken or otherwise
accounted for within 90 days of the consummation of the Merger.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, the Fixed Charges of, and the depreciation and amortization and
other non-cash charges of, a Restricted Subsidiary of a Person shall be added
to Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the Net Income of such Restricted Subsidiary
was included in calculating the Consolidated Net Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum of: (a) the interest expense of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP (including amortization of original issue discount,
non-cash interest payments, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments, if any,
pursuant to Hedging Obligations; provided, however, that in no event shall any
amortization of deferred financing costs be included in Consolidated Interest
Expense) and (b) consolidated capitalized interest of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that (i) the Net Income or loss of any Person
that is not a Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid to the referent Person or a Restricted
Subsidiary thereof in cash, (ii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to, the date of such
acquisition shall be excluded and (iii) the cumulative effect of a change in
accounting principles,shall be excluded.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company or any Parent Holding Company
of the Company who (i) was a member of such Board of Directors immediately
after consummation of the Merger, including the Offering and the application of
the net proceeds thereof, or (ii) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or election or
any successor Continuing Directors appointed by such Continuing Directors (or
their successors).
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"DecisionOne Corp." means DecisionOne Corporation, a Delaware
corporation, or its successors.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
5
<PAGE> 11
"Designated Preferred Stock" means preferred stock of the Company
(other than Disqualified Stock) that is issued for cash (other than to a
Restricted Subsidiary) and is so designated as Designated Preferred Stock,
pursuant to an Officers' Certificate executed by the principal executive
officer and the principal financial officer of the Company, on the issuance
date thereof, the cash proceeds of which are excluded from the calculation set
forth in clause (c) of Section 4.11 hereof.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock that, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, is exchangeable for Indebtedness (except to the extent
exchangeable at the option of such Person subject to the terms of any debt
instrument to which such Person is a party), or is redeemable at the option of
the Holder thereof, in whole or in part, on or prior to August 1, 2008;
provided, however, that if such Capital Stock is issued to any plan for the
benefit of employees of the Company or its Subsidiaries or by any such plan to
such employees, such Capital Stock shall not constitute Disqualified Stock
solely because it may be required to be repurchased by the Company in order to
satisfy applicable statutory or regulatory obligations.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus not less than $100.0 million or its equivalent in
foreign currency, whose short-term debt is rated "A-3" or higher according to
S&P or "P-2" or higher according to Moody's or carrying an equivalent rating by
a nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any (i) issuance of common stock or preferred
stock by the Company (other than Disqualified Stock) that is registered
pursuant to the Securities Act, other than issuances registered on Form S-8
under the Securities Act and issuances registered on Form S-4 under the
Securities Act, and (ii) any private issuance of common stock or preferred
stock by the Company (other than Disqualified Stock), excluding, in the case of
clauses (i) and (ii) above, issuances of common stock pursuant to employee
benefit plans of the Company or its Restricted Subsidiaries or otherwise as
compensation to employees of the Company or its Restricted Subsidiaries.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the New Credit Facility
or the Senior Subordinated Notes) in existence on the date of this Indenture
until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, guarantees, redeems or
repays any Indebtedness (other than revolving credit borrowings) or issues or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but on or
6
<PAGE> 12
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee, redemption or repayment of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. For purposes of
making the computation referred to above, (i) the Consolidated Cash Flow of the
Company shall include (a) the Consolidated Cash Flow of the Company and its
Restricted Subsidiaries for the latest four-quarter period for which
consolidated internal financial statements of the Company are available as
derived from such financial statements plus or minus (b) with respect to any
Business or Qualified Contracts that have been acquired by the Company or any
of its Restricted Subsidiaries, including through mergers or consolidations,
after the first day of the applicable four-quarter period and prior to the
Calculation Date, the result of (1) the Consolidated Cash Flow of such Business
or Qualified Contracts for the most recent three-month period prior to such
acquisition for which internal financial statements in respect of such acquired
Business or Qualified Contracts are available times four multiplied by (2) a
fraction the numerator of which is 365 minus the number of days during the
relevant four-quarter period for which the results of operations of such
Business or Qualified Contracts were included in clause (a) of this sentence
and the denominator of which is 365, (ii) the acquisition of any Business or
Qualified Contracts that has been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions after the first day of the applicable
four-quarter period and on or prior to the Calculation Date shall give pro
forma effect to financing transactions (including the incurrence of Acquired
Debt) in connection with the acquisition of such Business or Qualified
Contracts, as if such acquisition had occurred at the beginning of the
applicable reference period, and (iii) the Consolidated Cash Flow and expenses
attributable to discontinued operations as determined in accordance with GAAP,
and operations, Businesses and Qualified Contracts disposed of prior to the
Calculation Date shall be excluded. For purposes of the foregoing clause (i),
the Consolidated Cash Flow attributable to any Business or Qualified Contracts
acquired by the Company or any Restricted Subsidiary of the Company shall be
calculated utilizing the actual revenues attributable to such Business or
Qualified Contracts for the applicable period and the expenses that would have
been attributable to such Business or Qualified Contracts had the Company
acquired such Business or Qualified Contracts at the beginning of the
applicable three-month period, as determined in good faith by the Company,
taking into account the Company's historical expenses in connection with the
provision of similar services for similar equipment under similar contracts.
If since the beginning of the applicable four-quarter period any Person (that
subsequently becomes a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made or engaged in any Investment, disposition of operations, Businesses
or Qualified Contracts, or merger or consolidation, or shall have discontinued
any operations or acquired any Business or Qualified Contracts that would have
required adjustment pursuant to this definition had such Person been a
Restricted Subsidiary at the time of such Investment, disposition, merger,
consolidation, discontinued operation or acquisition, then "Consolidated Cash
Flow" shall be calculated giving pro forma effect thereto for such period as if
such Investment, acquisition, disposition, merger, consolidation or
discontinued operation had occurred at the beginning of the applicable
four-quarter period.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the Consolidated Interest Expense of such
Person for such period and (ii) any interest expense on Indebtedness of another
Person that is guaranteed by the referent Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such guarantee or Lien is called upon)
and (iii) the product of (a) all cash dividend payments of the Company or any
Restricted Subsidiary of the Company on any series of preferred stock of the
7
<PAGE> 13
Company or such Restricted Subsidiary times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with
GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect on the date of this
Indenture; provided, however, that all reports and other financial information
provided by the Company to the Holders, the Trustee and/or the Commission shall
be prepared in accordance with GAAP, as in effect on the date of such report or
other financial information.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America is
pledged.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or foreign exchange rates.
"Holder" means a Person in whose name a Note is registered.
"Holdings" means DecisionOne Holdings Corp., a Delaware corporation,
the corporate parent of DecisionOne Corp.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing Capital
Lease Obligations or the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued expense or
trade payable, or representing any Hedging Obligations, if and to the extent
any of the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all indebtedness of others secured
by a Lien on any asset of such Person (whether or not such indebtedness is
assumed by such Person), the maximum fixed repurchase price of Disqualified
Stock issued by such Person and the liquidation preference of preferred stock
issued by such Person, in each case, if held by any Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company, and, to the
extent not otherwise included, the guarantee by such Person of any indebtedness
of any other Person; provided that Indebtedness shall not include the pledge
8
<PAGE> 14
by the Company of the Capital Stock of an Unrestricted Subsidiary of the
Company to secure Non-Recourse Debt of such Unrestricted Subsidiary.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Initial Sale" means (i) the first transaction after the commencement
of any accounts receivable financing arrangement in which accounts receivable
are sold by the Company and/or its Restricted Subsidiaries to an Accounts
Receivable Subsidiary and (ii) the first transaction following any amendment to
any such arrangement pursuant to which the class of eligible receivables to be
purchased pursuant to such arrangement is expanded in which such expanded class
of accounts receivable are sold by the Company and/or its Restricted
Subsidiaries to an Accounts Receivable Subsidiary.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP; provided that an acquisition of assets,
Equity Interests or other securities by the Company for consideration
consisting of common equity securities of the Company shall not be deemed to be
an Investment. If the Company or any Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of Section 4.11 hereof.
"Investors' Agreement" means the investors' agreement, dated as of
August 7, 1997, among DecisionOne Holdings Corp., DLJ Merchant Banking Partners
II, L.P. and affiliated funds, a limited number of institutional investors and
certain members of management of the Company, as amended from time to time.
"Legal Holiday" means a Saturday, Sunday or a day on which banking
institutions in the City of New York, the city where the principal office of
the Trustee is located, or at a place of payment are authorized by law,
regulation or executive order to remain closed. If a payment date is a Legal
Holiday at a place of payment, payment may be made at that place on the next
succeeding day that is not a Legal Holiday.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest).
"Management Loans" means one or more loans by the Company or
DecisionOne Corp. to officers and/or directors of the Company and any of its
Restricted Subsidiaries to finance the purchase by such officers and directors
of common stock of Holdings; provided, however, that the aggregate principal
amount of all such Management Loans outstanding at any time shall not exceed
$10.0 million.
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<PAGE> 15
"Merger" means the merger of the Issuer with and into Holdings, with
Holdings continuing as the surviving corporation.
"Moody's" means Moody's Investor Services, Inc.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions)
or (b) the extinguishment of any Indebtedness of such Person or any of its
Restricted Subsidiaries, and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss), and (iii) with respect to the Company, the
after-tax amount of any interest income with respect to the Intercompany Note.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Indebtedness of the Company or any
Restricted Subsidiary referred to in clause (a) or (b) of the second paragraph
of Section 4.10 hereof secured by a Lien on the asset or assets that are the
subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain credit agreement, dated as of
August 7, 1997, by and among DecisionOne Corp., Donaldson, Lufkin & Jenrette
Securities Corporation, as arranger, DLJ Capital Funding, Inc., as syndication
agent, and the lenders party thereto, including any related notes, guarantees,
collateral documents, instruments and agreement executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced
refinanced from time to time, including any agreement extending the maturity of
or refinancing or refunding all or any portion of the Indebtedness thereunder
or increasing the amount that may be borrowed under such agreement or any
successor agreement, whether or not among the same parties.
"Non-Recourse Debt" means Indebtedness (i) no default with respect to,
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (ii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock (other
than the stock of an Unrestricted Subsidiary pledged by the Company to secure
debt of such Unrestricted Subsidiary) or assets of the Company or any of its
Restricted Subsidiaries; provided, however, that in no event shall Indebtedness
of any Unrestricted Subsidiary fail to be Non-Recourse Debt solely as a result
of any default provisions contained in a guarantee thereof by the Company or
any of its Restricted Subsidiaries if the Company or such Restricted Subsidiary
was otherwise permitted to incur such guarantee pursuant to this Indenture.
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<PAGE> 16
"Notes" means the Company's 11 1/2% Senior Discount Debentures due
2008 issued in compliance with this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering and sale of units (the "Units")
consisting of the Notes and warrants to purchase shares of common stock of the
Company pursuant to a prospectus, dated as of July 30, 1997, contained or
incorporated in the Registration Statement.
"Offerings" means the Offering and the concurrent offering of the
11 1/2% Senior Subordinated Notes due 2207 by DecisionOne Corp. pursuant to a
prospectus dated as of July 30, 1997, contained or incorporated in a
Registration Statement on Form S-1 (No. 333-28539) filed with the Commission on
June 3, 1997 and all exhibits, schedules and amendments thereto.
"Officer" means the Chairman of the Board, the President, any Vice
President or the Secretary of the Company.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two officers of the Company, one of whom must be the Chairman of the
Board, the President, a Vice President or the Secretary of the Company that
meets the requirements set forth in Section 1.05 hereof.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company and who shall be acceptable to the Trustee, in form and
substance satisfactory to the Trustee. Each such opinion shall include the
statements provided for in TIA Section 314(e) to the extent applicable.
"Pari Passu Indebtedness" means Indebtedness of the Company that ranks
pari passu in right of payment to the Notes.
"Permitted Business" means the equipment maintenance or support
services business or any business reasonably ancillary or related thereto.
"Permitted Investments" means (i) Investments in the Company or in a
Restricted Subsidiary of the Company, (ii) Investments in cash or Cash
Equivalents, (iii) Investments by the Company or any Restricted Subsidiary of
the Company in a Person if, as a result of such Investment, (a) such person
becomes a Restricted Subsidiary of the Company or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Restricted
Subsidiary of the Company, (iv) Investments in accounts and notes receivable
acquired in the ordinary course of business, (v) any non-cash consideration
received in connection with an Asset Sale that complies with Section 4.10
hereof, (vi) loans and advances to officers, directors and employees for
business-related travel expenses, moving expenses and other similar expenses,
in each case, incurred in the ordinary course of business, (vii) any guarantees
permitted to be made pursuant to Section 4.12 hereof, (viii) Investments in any
Accounts Receivable Subsidiary made in connection with the formation of any
Accounts Receivable Subsidiary or received in consideration of sales of
accounts receivable, in each case, in accordance with Section 4.16 hereof, (ix)
the Intercompany Note and (x) the Management Loans.
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<PAGE> 17
"Permitted Liens" means (i) Liens on assets of DecisionOne Corp. and
its Subsidiaries; (ii) Liens in favor of the Company; (iii) Liens created by
Restricted Subsidiaries of the Company to secure Indebtedness of such
Restricted Subsidiaries to the Company or to other Wholly Owned Restricted
Subsidiaries of the Company; (iv) the pledge of the capital stock of
DecisionOne Corp. to secure the New Credit Facility; (v) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance bonds
or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (vii) carriers',
warehousemen's, mechanics', landlords', materialmen's, repairmen's or other
similar Liens arising in the ordinary course of business that are not
delinquent or remain payable without penalty; (viii) easements, rights-of-way,
restrictions and other similar encumbrances incurred in the ordinary course of
business that, in the aggregate, are not substantial in amount, and that do not
in any case materially detract from the value of the property subject thereto
or interfere with the ordinary conduct of the businesses of the Company; (ix)
Liens arising by operation of law in connection with judgments to the extent,
for an amount and for a period not resulting in an Event of Default with
respect thereto; (x) any customary retention of title by the lessor under a
Capital Lease Obligation incurred in compliance with Section 4.12 hereof; (xi)
Liens in favor of the United States of America or any State thereof, or any
department, agency or instrumentality or political subdivision thereof, to
secure partial, progress, advance or other payments; (xii) Liens (other than
any Lien imposed by the Employee Retirement Income Security Act of 1974)
consisting of pledges or deposits required in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
social security legislation; (xiii) Liens arising solely by virtue of any
statutory or common law provision relating to banker's liens, rights of set-off
or similar rights and remedies, in each case as to deposit accounts or other
funds maintained with a creditor depository institution; provided that (A) such
deposit account is not a dedicated cash collateral account and is not subject
to restrictions against access by the Company in excess of those set forth by
regulations promulgated by the Federal Reserve Board, and (B) such deposit
account is not intended by the Company to provide collateral to the depository
institution; (xiv) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company; provided that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; and (xv) Liens on property
existing at the time of acquisition thereof by the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accredit value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses and premiums incurred in connection therewith);
(ii) such Permitted Refinancing Indebtedness has a final maturity date at least
as late as the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment to,
the Notes on terms at least as
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<PAGE> 18
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is Pari Passu Indebtedness, such
Permitted Refinancing Indebtedness has a final maturity date on or later than
the final maturity date of, and is subordinated or pari passu in right of
payment to, the Notes on terms at least as favorable to the Holders of Notes as
those contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Principals" means DLJ Merchant Banking, Inc., DLJ Offshore Partners
II C.V., DLJ Diversified Partners, L.P. DLJMB Funding II, Inc., UK Investment
Plan 1997 Partners and DLJ ESC LLC and each of their respective Affiliates.
"Qualified Contract" means any contract for the provision of computer
maintenance and/or technology support services with respect to which the
Company and its Restricted Subsidiaries have not received notice that the
counterparty to such contract intends to terminate such contract prior to the
expiration of its term or not to renew such contract at the end of its term.
"Qualified Proceeds" means any of the following or any combination of
the following: (i) cash, (ii) Cash Equivalents, (iii) assets that are used or
useful in a Permitted Business and (iv) the Capital Stock of any Person engaged
in a Permitted Business if, in connection with the receipt by the Company or
any Restricted Subsidiary of the Company of such Capital Stock, (a) such Person
becomes a Restricted Subsidiary of the Company or any Restricted Subsidiary of
the Company or (b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or any Restricted Subsidiary of the Company.
"Receivables Fees" means distributions or payments made directly or by
means of discounts with respect to any participation interests issued or sold
in connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any receivables financing permitted pursuant to
Section 4.16 hereof.
"Registration Statement" means the Registration Statement (No.
333-28539) on Form S-1 relating to the Units filed with the Commission on June
3, 1997 and all exhibits, schedules and amendments thereto.
"Related Party" means, with respect to the Principals, (i) any
controlling stockholder or partner of any Principal on the date of this
Indenture, or (ii) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
(directly or through one or more Subsidiaries) a 51% or more controlling
interest of which consist of the Principals and/or such other Persons referred
to in the immediately preceding clauses (i) or (ii).
"Responsible Officer," when used with respect to the Trustee, means
any officer in the Corporate Trust Office of the Trustee and also means, with
respect to a particular corporate trust matter, any other officer or employee
to whom such matter is referred because of his knowledge of and familiarity
with the particular subject.
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<PAGE> 19
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of this Indenture.
"Specified Agreements" means the Investors' Agreement and the Tax
Sharing Agreement.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Voting Stock is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or one
or more Subsidiaries of such Person (or any combination thereof); provided,
however, that the Accounts Receivable Subsidiary and its Subsidiaries shall not
be deemed Subsidiaries of the Company or any of its other Subsidiaries.
"Tax Sharing Agreement" means the tax sharing agreement, dated as of
August 7, 1997, among the Company, DecisionOne Corp., and the DecisionOne
Corp's Subsidiaries on the date of this Indenture, as amended from time to
time.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Trustee" means the party named as such above unless and until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means such successor.
"Unrestricted Subsidiary" means any Subsidiary (other than DecisionOne
Corp.) that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution, but only to the extent that such
Subsidiary: (i) has no Indebtedness other than Non- Recourse Debt; (ii) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Company; (iii) is a Person with
respect to which neither the Company nor any of its Restricted Subsidiaries has
any direct or indirect obligation (a) to subscribe for additional Equity
Interests or (b) to maintain or preserve such Person's financial condition or
to cause such Person to achieve any specified levels, of operating results; and
(iv) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing
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<PAGE> 20
with the Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by Section 4.11
hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as a Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under Section 4.12 hereof, the Company
shall be in default of such covenant). The Board of Directors of the Company
may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Section 4.12 hereof and
(ii) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock
of any other class or classes shall have, or might have, voting power by reason
of the happening of any contingency).
"Warrant Agreement" means the Warrant Agreement, dated as of the date
of this Indenture, between the Company and State Street Bank and Trust Company,
as warrant agent.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the then
outstanding principal amount of such Indebtedness into (ii) the total of the
product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries
of such Person or by such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
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<PAGE> 21
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Term Defined in
Section
<S> <C>
"Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.07
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . . . . . . 4.13
"Asset Sale Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10
"Change of Control Offer" . . . . . . . . . . . . . . . . . . . . . . . . 4.09
"Change of Control Payment" . . . . . . . . . . . . . . . . . . . . . . . 4.09
"Change of Control Payment Date" . . . . . . . . . . . . . . . . . . . . 4.09
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . 8.03
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.01
"Electronic Message" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.02
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Excess Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10
"Financier" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.16
"incur" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.12
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.02
"Offer Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10
"Offer Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Payment Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Permitted Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.12
"Purchase Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10
"Promissory Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.19
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Restricted Payments" . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11
"Separation Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.02
"Units" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.01
"Warrant Endorsement" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.02
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
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<PAGE> 22
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Notes means the Company and any successor
obligors upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute,
replacement or successor sections or rules adopted by
the Commission from time to time.
SECTION 1.05. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that, in the case of any such application or request as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or opinion (other than the certificates required by
Section 4.05(a) hereof) with respect to compliance with a condition or covenant
provided for in this Indenture shall comply with the provisions of TIA 314(e)
and shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
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<PAGE> 23
(c) a statement that, in the opinion of each such individual, he
or she has made such examination or investigation as is necessary to enable him
or her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.06. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representation
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.07. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and (subject to TIA Section 315) conclusive in
favor of the Trustee and the Company, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any reasonable manner that the Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by a register kept by
the Registrar.
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<PAGE> 24
(d) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of such Holders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or
other Act, but the Company shall have no obligation to do so. Notwithstanding
TIA Section 316(c), any such record date shall be the record date specified in
or pursuant to such Board Resolution, which shall be a date not more than 30
days prior to the first solicitation of Holders generally in connection
therewith and no later than the date such solicitation is completed.
If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for the purposes of determining
whether Holders of the requisite proportion of Notes then outstanding have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for this purpose the Notes
then outstanding shall be computed as of such record date; provided that no
such request, demand, authorization, direction, notice, consent, waiver or
other Act by the Holders on such record date shall be deemed effective unless
it shall become effective pursuant to the provisions of this Indenture not
later than six months after the record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act by the Holder of any Note shall bind every future
Holder of the same Note or the Holder of every Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof, in
respect of anything done, suffered or omitted to be done by the Trustee, any
Paying Agent or the Company in reliance thereon, whether or not notation of
such action is made upon such Note.
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Notes may have
notations, legends or endorsements approved as to form by the Company and
required by law, stock exchange rule, agreements to which the Company is
subject, or usage. Each Note shall be dated the date of its authentication.
The Notes shall be issuable in registered form, without coupons, and only in
denominations of $1,000 and integral multiples thereof.
Notes issued in global form shall be substantially as set forth in
Exhibit A hereto (including the text referred to in footnotes 1 and 2 thereto).
Notes issued in definitive form shall be substantially as set forth in Exhibit
A hereto (but without the text referred to in footnotes 1 and 2 thereto). Each
Note in global form shall represent such of the outstanding Notes as shall be
specified therein and each shall provide that it shall represent the aggregate
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate amount of outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges and redemptions.
Any endorsement of a Note in global form to reflect the amount of any increase
or decrease in the amount of outstanding Notes represented thereby shall be
made by the Trustee or the Depositary in accordance with instructions given
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by the Holder thereof as required by Section 2.06. The Company initially
appoints The Depository Trust Company ("DTC") to act as Depositary with respect
to the Notes in global form.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer of the Company shall sign the Notes for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Notes and may be in facsimile form.
If an Officer of the Company whose signature is on a Note no longer
holds that office at the time the Note is authenticated, the Note shall
nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature of the Trustee shall be conclusive evidence that
the Note has been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Notes shall be substantially
as set forth in Exhibit A hereto.
The Trustee shall, upon a written order of the Company signed by an
Officer of the Company, authenticate Notes for original issue up to an
aggregate principal amount at maturity of Notes stated in the Notes. The
aggregate principal amount at maturity of Notes outstanding at any time shall
not exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the
Company.
All Notes issued prior to the separation described below shall have
printed or overprinted thereon the following (the "Warrant Endorsement"):
THE NOTES EVIDENCED BY THIS CERTIFICATE ARE NOT TRANSFERABLE
SEPARATELY FROM THE WARRANTS ATTACHED HERETO ORIGINALLY SOLD AS A UNIT
WITH THE NOTES UNTIL THE EARLIEST TO OCCUR OF (I) FEBRUARY 7, 1998
(II) SUCH EARLIER DATE AS THE UNDERWRITER MAY DETERMINE AND (III) THE
OCCURRENCE OF A CHANGE OF CONTROL, (THE "SEPARATION DATE"). PRIOR TO
SUCH DATE, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN INTEGRAL MULTIPLES OF $1,000 PRINCIPAL AMOUNT OF NOTES AND
ONLY WITH THE SIMULTANEOUS TRANSFER TO THE TRANSFEREE OF ONE WARRANT
FOR EACH $1,000 PRINCIPAL AMOUNT SO TRANSFERRED.
Under the terms of the warrant agreement relating to the Warrants (the
"Warrant Agreement"), the holder of this security may at any time on
or after the Separation Date, at its option, by notice to the Trustee
elect to separate or separately transfer the Notes and the Warrants
represented hereby, in whole or in part, for a definitive Warrant
Certificate or Warrant Certificates or a beneficial interest in a
Global Warrant (as defined in the Warrant Agreement) evidencing the
underlying Warrants and for a Note or Notes or a beneficial interest
in a global Note of a like aggregate principal amount at maturity of
authorized denominations and not containing a Warrant Endorsement in
accordance with the Indenture (such surrender and exchange being
referred to
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<PAGE> 26
herein as a "Separation" and the related Warrants being referred to as
"Separated"); provided that no delay or failure on the part of the
Trustee or the Warrant Agent to exchange this security and Note or
Notes shall affect the Separation of the Notes and the Warrants
represented hereby or their separate transferability. Until such
separation, the holder of this security is, for each $1,000 principal
amount of Notes, also the record owner of one Warrant expiring August
1, 2007, each to purchase 1.9 shares of common stock of the Company,
par value $.01 per share (the "Common Stock," subject to adjustment as
provided in the Warrant Agreement. The Company has deposited with the
Trustee, as custodian for the Holder of the Notes bearing this Warrant
Endorsement, a certificate or certificates for such Warrants to
purchase an aggregate of _______ shares of Common Stock (subject to
adjustment as provided in the Warrant Agreement). Prior to the
separation of the Notes and the Warrants as described above, record
ownership of such Warrants is transferable only by the transfer of
this Note on the Note register maintained by the Company pursuant to
the Indenture. After such separation, ownership of a Warrant is
transferable only by the transfer of the certificate representing such
Warrant in accordance with the provisions of the Warrant Agreement.
By accepting a security bearing this Warrant Endorsement, each holder
of this security shall be bound by all of the terms and provision of
the Warrant Agreement (a copy of which is available on request to the
Company or the Warrant Agent).
Election to Exercise. On or after the Separation Date, the Warrants
may be exercised by obtaining from the Trustee, as custodian for
holders of securities bearing this Warrant Endorsement, the required
forms of election to exercise, declaration from and instructions for
payment of the Exercise Price (as such term is defined in the Warrant
Agreement). Upon receiving the required forms and payment of such
Exercise Price, the Trustee as custodian for the Holder of the
security bearing this Warrant Endorsement, shall exercise such
Warrants in accordance with the provisions of the Warrant Agreement.
Election of Exchange. The holder hereof may elect to separate its
Notes and Warrants and to exchange this security (representing
ownership of __________ Warrants evidenced by Warrant Certificates
deposited with the Trustee) for a new Note in the principal amount
hereof and a Warrant Certificate in the amount of said _______________
Warrants either by (i) completing and signing in the space below or
(ii) delivery of a computer-generated message transmitted by DTC to
the Trustee (an "Electronic Message").
Dated:
Name of Holder of this security:________________________
Address:_________________________
_________________________
Signature:_______________________
Note: The above signature must correspond with the name as
written upon the face of this security in every
particular,without alteration or enlargement whatever and if
the certificate representing any principal amount at maturity
of this security or the associated Warrants is to be
registered in a name other than that in which this security is
registered.
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<PAGE> 27
By delivery of this security or upon receipt of an Electronic Message,
the holder hereof hereby irrevocably instructs the Trustee (A) to
issue in the name of such registered holder a new Note (CUSIP 243458
AB 2) not containing the above Warrant Endorsement in the principal
amount equal to the principal amount hereof and (B) to deliver this
security to the Warrant Agent pursuant to the provisions of the
Warrant Agreement with instructions to issue in the name of, or
release to, such holder a Warrant Certificate (CUSIP 243458114)
representing the number of Warrants equal to the number of Warrants
represented by this security or with respect to which an Electronic
Message has been received and, if applicable, to issue a new Warrant
Certificate to replace the Warrant Certificate held on deposit by the
Trustee as custodian representing the number of Warrants equal to the
difference between (x) the number of Warrants represented by the
Warrant Certificate so held on deposit and (y) the number of Warrants
represented by this security or with respect to which an Electronic
Message has been received."
Until any Note and the Warrant with which it is initially issued are
separated or separately transferred pursuant to the terms of the Warrant
Endorsement, the Trustee shall hold such Warrant as custodian on behalf of the
holder of such Note bearing such legends.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain (i) an office or agency where Notes may be
presented for registration of transfer or for exchange (including any
co-registrar, the "Registrar") and (ii) an office or agency where Notes may be
presented for payment ("Paying Agent") within the City of and the State of New
York or, at the option of the Company, payment of interest may be made by check
mailed to the Holders at their respective addresses set forth in the register
of Holders; provided that all payments with respect to Notes represented by one
or more permanent global Notes will be paid by wire transfer of immediately
available funds to the account of the Depository Trust Company or any successor
thereto. The Registrar shall keep a register of the Notes and of their
transfer and exchange. The Company may appoint one or more co-Registrars and
one or more additional paying agents. The term "Paying Agent" includes any
additional paying agent. The Company may change any Paying Agent, Registrar or
co-Registrar without prior notice to any Holder. The Company shall notify the
Trustee in writing and the Trustee shall notify the Holders of the name and
address of any Agent not a party to this Indenture. The Company may act as
Paying Agent, Registrar or co-Registrar. The Company shall enter into an
appropriate agency agreement with any Agent not a party to this Indenture,
which shall be subject to any obligations imposed by the provisions of the TIA.
The agreement shall implement the provisions of this Indenture that relate to
such Agent. The Company shall notify the Trustee of the name and address of
any such Agent. If the Company fails to maintain a Registrar or Paying Agent,
or fails to give the foregoing notice, the Trustee shall act as such, and shall
be entitled to appropriate compensation in accordance with Section 7.07 hereof.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands in connection with the Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all money held by the Paying Agent for the payment
of principal of, premium, if any, and interest on the Notes, and shall notify
the Trustee of any Default by the Company in making any such payment. While
any such Default
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<PAGE> 28
continues, the Trustee may require a Paying Agent to pay all money held by it
to the Trustee and to account for any funds disbursed. The Company at any time
may require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than the Company) shall
have no further liability for the money delivered to the Trustee. If the
Company acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent.
SECTION 2.05. LISTS OF HOLDERS OF THE NOTES.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven (7)
Business Days before each interest payment date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, including
the aggregate principal amount at maturity of the Notes held by each thereof,
and the Company shall otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
When Notes are presented to the Registrar with a request to register
the transfer or to exchange them for an equal principal amount of Notes of
other denominations, the Registrar shall register the transfer or make the
exchange if its requirements for such transactions are met; provided, however,
that any Note presented or surrendered for registration of transfer or exchange
shall be duly endorsed or accompanied by a written instruction of transfer in
form satisfactory to the Registrar and the Trustee duly executed by the Holder
thereof or by his attorney duly authorized in writing. To permit registrations
of transfer and exchanges, the Company shall issue and the Trustee shall
authenticate Notes at the Registrar's request, subject to such rules as the
Trustee may reasonably require.
Neither the Company nor the Registrar shall be required to (i) issue,
register the transfer of or exchange Notes during a period beginning at the
opening of business on a Business Day fifteen (15) days before the day of any
selection of Notes for redemption or purchase under Section 3.01 hereof and
ending at the close of business on the day of selection, (ii) register the
transfer of or exchange any Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part or (iii)
register the transfer or exchange of a Note between a record date and the next
succeeding interest payment date.
No service charge shall be made to any Holder for any registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 2.10, 3.06 or 9.05 hereof, which shall be paid by the Company).
Prior to due presentment to the Trustee for registration of the
transfer of any Note, the Trustee, any Agent and the Company may deem and treat
the Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of, premium, if any, and
interest on such Note and for all other purposes whatsoever, whether or not
such Note is overdue, and none of the Trustee, any Agent nor the Company shall
be affected by notice to the contrary.
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SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Note and the ownership thereof, the Company shall issue and the
Trustee, upon the written order of the Company signed by an Officer of the
Company, shall authenticate a replacement Note if the Trustee's requirements
for replacements of Notes are met. If required by the Trustee or the Company,
an indemnity bond must be supplied by the Holder that is sufficient in the
reasonable judgment of the Trustee and the Company to protect the Company, the
Trustee, each Agent and each authenticating agent from any loss which any of
them may suffer if a Note is replaced. The Company and the Trustee may charge
for its expenses in replacing a Note.
Every replacement Note is an additional Obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and ratably
with all other Notes duly issued hereof.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation and those described in this Section 2.08 as not outstanding. If a
Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Note is
held by a bona fide purchaser. If the principal amount of any Note is
considered paid under Section 4.01 hereof, it ceases to be outstanding and
interest on it ceases to accrue. Subject to Section 2.09 hereof, a Note does
not cease to be outstanding because the Company or an Affiliate of the Company
holds the Note.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or any Affiliate of the Company shall be considered as though not
outstanding, except that for purposes of determining whether the Trustee shall
be protected in relying on any such direction, waiver or consent, only Notes
which a Responsible Officer of the Trustee knows to be so owned shall be so
considered. Notwithstanding the foregoing, Notes that are to be acquired by
the Company or an Affiliate of the Company pursuant to an exchange offer,
tender offer or other agreement shall not be deemed to be owned by such entity
until legal title to such Notes passes to such entity.
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may prepare
and upon the written order of the Company signed by an Officer of the Company
the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company and the Trustee consider appropriate for temporary Notes. Without
unreasonable delay, the Company shall prepare and the Trustee, upon receipt of
the written order of the Company signed by an Officer of the Company, shall
authenticate definitive Notes in exchange for temporary Notes. Until such
exchange, temporary Notes shall be entitled to the same rights, benefits and
privileges as definitive Notes.
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SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation. Subject to Section 2.07
hereof, the Company may not issue new Notes to replace Notes that it has
redeemed or paid or that have been delivered to the Trustee for cancellation.
All cancelled Notes held by the Trustee shall be destroyed and certification of
their destruction delivered to the Company, unless by a written order, signed
by an Officer of the Company, the Company shall direct that cancelled Notes be
returned to it.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, the
Company shall pay the defaulted interest in any lawful manner plus, to the
extent lawful, interest payable on the defaulted interest, to the Persons who
are Holders on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five (5) Business Days
prior to the payment date, in each case at the rate provided in the Notes and
in Section 4.01 hereof. The Company shall fix or cause to be fixed each such
special record date and payment date, and shall, promptly thereafter, notify
the Trustee of any such date. At least fifteen (15) days before the special
record date, the Company (or the Trustee, in the name of and at the expense of
the Company) shall mail to Holders, at their addresses as they appear on the
register of Notes maintained by the Registrar, a notice that states the special
record date, the related payment date and the amount of such interest to be
paid.
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of Holders
entitled to vote or consent to any action by vote or consent authorized or
permitted under this Indenture shall be determined as provided for in TIA
Section 316(c).
SECTION 2.14. CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number and, if it
does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company
will promptly notify the Trustee of any change in the CUSIP number.
SECTION 2.15. COMPUTATION OF INTEREST.
Interest on the Notes will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
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ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Notes pursuant to Section
3.08 shall be evidenced by a Board Resolution. In case of any redemption at
the election of the Company, the Company shall, at least 45 but not more than
60 days prior to the redemption date fixed by it (unless a shorter notice
period shall be satisfactory to the Trustee for its convenience), notify the
Trustee pursuant to an Officers' Certificate of (i) such redemption date, (ii)
the principal amount of Notes to be redeemed and (iii) the clause of this
Indenture pursuant to which the redemption shall occur.
SECTION 3.02. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed or, if the Notes are not so listed, on a pro rata
basis, by lot or by such other method as the Trustee deems fair and
appropriate, provided that no Notes with a principal amount at maturity of
$1,000 or less shall be redeemed in part.
The Trustee shall promptly notify the Company and the Registrar in
writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount at maturity of such Note which has been or is to be redeemed.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.10 hereof, notice of redemption
shall be mailed by first class mail, postage prepaid, at least 30 but not more
than 60 days before the redemption date to each Holder of Notes to be redeemed
at its registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed.
All notices of redemption shall state:
(a) the redemption date;
(b) the redemption price;
(c) if less than all Notes then outstanding are to be
redeemed, the identification (and, in the case of a
Note to be redeemed in part, the principal amount) of
the particular Notes to be redeemed;
(d) that on the redemption date the redemption price will
become due and payable upon each such Note or portion
thereof, and that (unless the Company shall
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default in payment of the redemption price) interest
thereon shall cease to accrue and original issue
discount will cease to accrete on or after said date;
(e) the places or places where such Notes are to be
surrendered for payment of the redemption price;
(f) that Notes called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(g) the CUSIP number, if any, relating to such Notes, and
(h) in the case of a Note to be redeemed in part, the
principal amount of such Note to be redeemed and that
after the redemption date upon surrender of such
Note, a new Note or Notes in the aggregate principal
amount at maturity equal to the unredeemed portion
thereof will be issued.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at its request, by the Trustee in the
name and at the expense of the Company.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Sections 3.03,
3.10 or 4.09 hereof, Notes called for redemption become irrevocably due and
payable on the redemption date at the redemption price. A notice of redemption
may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
Prior to 11:00 a.m. on any redemption date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company is acting as its
own Paying Agent, segregate and hold in trust as provided in Section 4.03
hereof) an amount of money in same day funds (or New York Clearing House funds
if such deposit is made prior to the applicable redemption date) sufficient to
pay the redemption price of, and accrued interest on, all the Notes or portions
thereof which are to be redeemed on that date.
SECTION 3.06. NOTES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the redemption date, become due and payable at the
redemption price therein specified and from and after such date (unless the
Company shall default in the payment of the redemption price and accrued
interest) such Notes shall cease to bear interest. Upon surrender of any such
Note for redemption in accordance with said notice, such Note shall be paid by
the Company at the redemption price together with accrued interest to the
redemption date.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal thereof (and premium, if any, thereon)
shall, until paid, bear interest from the redemption date at the rate borne by
such Note.
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SECTION 3.07. NOTES REDEEMED IN PART.
Any Note which is to be redeemed only in part shall be surrendered at
the office or agency of the Company maintained for such purpose pursuant to
Section 4.02 hereof (with, if the Company, the Registrar or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company, the Registrar or the Trustee duly executed by, the
Holder thereof or his attorney duly authorized in writing), and a new Note in
principal amount equal to the unpurchased or unredeemed portion will be issued
in the name of the Holder thereof upon cancellation of the original Note. On
and after the purchase or redemption date, unless the Company defaults in
payment of the purchase or redemption price, interest shall cease to accrue on
Notes or portions thereof purchased or called for redemption.
SECTION 3.08. OPTIONAL REDEMPTION.
(a) Except as described in this Section 3.08, the Notes will not
be redeemable at the Company's option prior to August 1, 2002. Thereafter, the
Notes will be subject to redemption at the option of the Company, in whole or
in part, upon not less than 30 nor more than 60 days' written notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, together with accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on August
1 of each of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE
OF
PRINCIPAL
YEAR AMOUNT
- ---- --------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.750%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.833%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.917%
2005 and thereafter . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
In addition, prior to August 1, 2000, the Company may, at its option,
on any one or more occasions, redeem up to 35% of the original aggregate
principal amount at maturity of Notes at a redemption price equal to 111.50% of
the Accreted Value thereof, with the net cash proceeds of one or more Equity
Offerings; provided that at least 65% of the original aggregate principal
amount at maturity of Notes remains outstanding immediately after the
occurrence of each such redemption; and provided, further, that any such
redemption shall occur within 90 days of the date of the closing of each such
Equity Offering.
(b) Any redemption pursuant to this Section 3.08 shall be made
pursuant to the provisions of Sections 3.01 through 3.07 hereof.
SECTION 3.09. MANDATORY REDEMPTION.
Except as set forth under Sections 4.09 and 4.10 hereof, the Company
shall not be required to make mandatory redemption or sinking fund payments
with respect to the Notes.
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SECTION 3.10. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later
than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount at maturity
of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer
Amount") or, if less than the Offer Amount has been tendered, all Notes
tendered in response to the Asset Sale Offer.
If the Purchase Date is on or after an interest payment record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.10 and Section 4.10 hereof and the length of time
the Asset Sale Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer
shall cease to accrete after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with
the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, or transfer by book-entry
transfer, to the Company, a depositary, if appointed by the
Company, or a Paying Agent at the address specified in the
notice not later than the third Business Day preceding the end
of the Offer Period;
(f) that Holders shall be entitled to withdraw their election if
the Company, the depositary or the Paying Agent, as the case
may be, receives, not later than the third Business Day
preceding the end of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note the Holder delivered
for purchase and a statement that such Holder is withdrawing
his election to have such Note purchased;
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(g) that, if the aggregate principal amount at maturity or
Accreted Value (as applicable) of Notes surrendered by Holders
exceeds the Offer Amount, the Company shall select the Notes
to be purchased on a pro rata basis (with such adjustments as
may be deemed appropriate by the Company so that only Notes in
denominations of $1,000, or integral multiples thereof, shall
be purchased); and
(h) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered (or transferred by book-entry
transfer).
On or before 12:00 p.m. (New York City time) on each Purchase Date,
the Company shall, irrevocably deposit with the Trustee or Paying Agent in
immediately available funds the aggregate purchase price with respect to a
principal amount of Notes equal to the Offer Amount, together with accrued and
unpaid interest thereon to the Purchase Date, to be held for payment in
accordance with the terms of this Section 3.10. On the Purchase Date, the
Company shall, to the extent lawful, (i) accept for payment, on a pro rata
basis to the extent necessary, the Offer Amount of Notes or portions thereof
tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has
been tendered, all Notes tendered, (ii) deliver or cause the Paying Agent or
depositary, as the case may be, to deliver to the Trustee Notes so accepted and
(iii) deliver to the Trustee an Officers' Certificate stating that such Notes
or portions thereof were accepted for payment by the Company in accordance with
the terms of this Section 3.10. The Company, the depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than three
Business Days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, plus any accrued and unpaid interest,
thereon to the Purchase Date, and the Company shall promptly issue a new Note,
and the Trustee, upon written request from the Company shall authenticate and
mail or deliver such new Note to such Holder, equal in principal amount to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall send a notice to each Holder stating the results of the Asset Sale Offer
on the Purchase Date.
Other than as specifically provided in this Section 3.10, any purchase
pursuant to this Section 3.10 shall be made pursuant to the provisions of
Sections 3.01 through 3.07 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in
the Notes. Principal, premium, if any, and interest shall be considered paid
on the date due if the Paying Agent, if other than the Company or a Subsidiary
thereof, holds as of 11:00 a.m. Eastern Time on the due date money deposited by
the Company in immediately available funds and designated for and sufficient to
pay all principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable
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interest rate on the Notes to the extent lawful; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest (without regard to any applicable grace
period) at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain, in The City of New York, an office or
agency where Notes may be presented or surrendered for payment, where Notes may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may
be served. The Company will give prompt written notice to the Trustee of any
change in the location of any such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other offices
or agencies (in or outside of The City of New York) where the Notes may be
presented or surrendered for any or all such purposes, and may from time to
time rescind such designation; provided, however, that no such designation or
recession shall in any manner relieve the Company of its obligation to maintain
an office or agency in The City of New York for such purposes. The Company
will give prompt written notice to the Trustee of any such designation or
recession and any change in the location of any such office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03 hereof.
SECTION 4.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of, premium, if any, or interest on
any of the Notes, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal, premium, if any, or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided, and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal of, premium, if
any, or interest on any Notes, deposit with a Paying Agent a sum in same day
funds (or New York Clearing House funds if such deposit is made prior to the
date on which such deposit is required to be made) sufficient to pay the
principal, premium, if any, or interest so becoming due (or at the option of
the Company, payment of interest may be mailed by check to the Holders of the
Notes at their respective addresses set forth in the register of Holders of
Notes; provided that all payments with respect to Notes represented by one or
more permanent global Notes will be paid by wire transfer of immediately
available funds to the account of the Depository Trust Company or any successor
thereto) such sum to be held in trust for the benefit of the Persons entitled
to such principal, premium or interest and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act.
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The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Notes in trust for the benefit
of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of
principal, premium, if any, or interest;
(c) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all respects with
the provisions of this Indenture relating to the duties,
rights and obligations of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be
paid to the Company at the request of the Company or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, shall at the
expense of the Company cause notice to be promptly sent to each Holder that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such notification any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 4.04. REPORTS.
Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will furnish to
the Trustee and the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results
of operations of the Company and its Restricted Subsidiaries and, with respect
to the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports. In addition whether or not required by the rules and
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regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request.
SECTION 4.05. STATEMENT AS TO COMPLIANCE; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year ending after the date of this Indenture, an
Officers' Certificate stating whether, to such Officers' knowledge, the Company
is in compliance with all covenants and conditions to be complied with by it
under this Indenture (including with respect to any Restricted Payments made
during such year, the basis upon which the calculations required by Section
4.07 hereof were computed, which calculations may be based on the Company's
latest financial statements), and further stating, as to each Officer signing
such certificate, that to the best of his or her knowledge each entity is not
in default in the performance or observance of any terms, provisions and
conditions of this Indenture (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge and what action the Company is taking or proposes to take
with respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest or premium, if any, on the Notes is prohibited or if
such event has occurred, a description of the event and what action the Company
is taking or proposes to take with respect thereto. For purposes of this
Section 4.05, such compliance shall be determined without regard to any period
of grace or requirement of notice under this Indenture.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the annual reports
delivered pursuant to Section 4.04(a) hereof shall be accompanied by a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary
for certification of such financial statements, nothing has come to their
attention that would lead them to believe that the Company has violated any
provisions of Article Four or Article Five hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, within five Business Days, upon becoming
aware of any Default or Event of Default or any default under any document,
instrument or agreement representing Indebtedness of the Company or any
Restricted Subsidiary, deliver to the Trustee an Officers' Certificate
specifying such Default or Event of Default.
SECTION 4.06. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments
and governmental charges levied or imposed upon it or any Subsidiary or upon
the income, profits or property of the Company or any of its Subsidiaries and
(b) all material lawful claims for labor, materials and supplies, which, if
unpaid, might by law become a lien upon the property of the Company or any of
its Subsidiaries that could produce a material adverse effect on the
consolidated financial condition of the Company; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and in respect of which appropriate reserves (in the good faith
judgment of management of the Company) are being maintained in accordance with
GAAP.
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SECTION 4.07. STAY, EXTENSION, USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law whatever
enacted, now or at any time hereafter in force, that may affect that covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby waives all benefit or advantage of any such law, and
covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been
enacted.
SECTION 4.08. CORPORATE EXISTENCE.
Subject to Article Five hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and that of each Subsidiary of the Company and the
corporate rights (charter and statutory), corporate licenses and corporate
franchises of the Company and its Subsidiaries, except where a failure to do
so, singly or in the aggregate, is not likely to have a materially adverse
effect upon the business, assets, financial conditions or results of operations
of the Company and the Subsidiaries taken as a whole determined on a
consolidated basis in accordance with GAAP; provided that prior to the
occurrence and continuance of an Event of Default, the Company shall not be
required to preserve any such existence (except of the Company), right, license
or franchise if the Board of Directors of the Company shall determine and
deliver to the Trustee an Officers' Certificate to the effect that the
preservation thereof is no longer desirable in the conduct of the business of
the Company or such Subsidiary and that the loss thereof is not disadvantageous
in any material respect to the Holders.
SECTION 4.09. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of
Notes shall have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount at maturity
thereof plus accrued and unpaid interest thereon to the date of purchase (or,
in the case of repurchases of Notes prior to August 1, 2002, at a purchase
price equal to 101% of the Accreted Value thereof as of the date of repurchase)
(the "Change of Control Payment").
(b) Within 65 days following any Change of Control, the Company
shall mail a notice to each Holder of Notes issued under this Indenture, with a
copy to the Trustee, with the following statements and/or information:
(1) a Change of Control Offer is being made pursuant to
this Section 4.09 and that all Notes properly
tendered pursuant to such Change of Control Offer
will be accepted for payment;
(2) the purchase price and the purchase date, which will
be no earlier than 30 days nor later than 60 days
from the date such notice is mailed, except as may be
otherwise required by applicable law (the "Change of
Control Payment Date");
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(3) any Note not properly tendered will remain
outstanding and continue to accrue interest;
(4) unless the Company defaults in the payment of the
Change of Control Payment, all Notes accepted for
payment pursuant to the Change of Control Offer will
cease to accrue interest on the Change of Control
Payment Date;
(5) Holders electing to have any Notes purchased pursuant
to a Change of Control Offer will be required to
surrender the Notes, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the
Notes completed, to the Paying Agent and at the
address specified in the notice prior to the close of
business on the third Business Day preceding the
Change of Control Payment Date;
(6) Holders will be entitled to withdraw their tendered
Notes and their election to require the Company to
purchase such Notes, provided that the paying agent
receives, not later than the close of business on the
third Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the
Holder, the principal amount of Notes tendered for
purchase, and a statement that such Holder is
withdrawing his tendered Notes and his election to
have such Notes purchased; and
(7) that Holders whose Notes are being purchased only in
part will be issued new Notes equal in principal
amount to the unpurchased portion of the Notes
surrendered, which unpurchased portion must be equal
to $1,000 in principal amount or an integral multiple
thereof.
(c) Prior to complying with the provisions of this Section 4.09,
but in any event within 30 days following a Change of Control, the Company
shall either repay all outstanding Senior Debt, or offer to repay in full all
outstanding Senior Debt and repay the Senior Debt with respect to which such
offer has been accepted, or obtain the requisite consents, if any, under all
outstanding Senior Debt to permit the repurchase of the Notes required by this
Section 4.09.
(d) The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws or regulations are applicable in connection with the
repurchase of the Notes pursuant to a Change of Control Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations described in this Indenture by virtue thereof.
(e) On the Change of Control Payment Date, the Company shall, to
the extent lawful, (i) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (ii) deposit with
the Paying Agent an amount equal to the Change of Control Payment in respect of
all Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount at maturity of Notes or
portions thereof being purchased by the Company. The Paying Agent shall
promptly mail to each Holder of Notes so tendered the Change of Control Payment
for such Notes, and the Trustee shall promptly authenticate and mail (or cause
to be transferred by book entry) to each Holder a new Note equal in principal
amount at maturity to any unpurchased portion of the Notes surrendered, if any;
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provided that each such new Note will be in a principal amount at maturity of
$1,000 or an integral multiple thereof. The Company shall publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
(f) The Change of Control provisions described in this Section
4.09 will be applicable whether or not any other provisions of this Indenture
are applicable.
SECTION 4.10. ASSET SALES.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time
of such Asset Sale at least equal to the fair market value (evidenced by a
Board of Resolution set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of (I) cash or Cash Equivalents or
(II) property or assets that are used or useful in a Permitted Business, or
Capital Stock of any Person primarily engaged in a Permitted Business if, as a
result of the acquisition by the Company or any Restricted Subsidiary thereof,
such Person becomes a Restricted Subsidiary; provided that the amount of (x)
any liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto), of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities of the Company
that are by their terms subordinated to the Notes) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Restricted Subsidiary from further liability and
(y) any notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are converted by the Company or
such Restricted Subsidiary into cash or Cash Equivalents (to the extent of the
cash or Cash Equivalents received) within 180 days following the closing of
such Asset Sale, will be deemed to be cash for purposes of this provision;
provided further, that the 75% limitation referred to above shall not apply to
any sale, transfer or other disposition of assets in which the cash portion of
the consideration received therefor, determined in accordance with the
foregoing proviso, is equal to or greater than what the after-tax net proceeds
would have been had such transaction complied with the aforementioned 75%
limitation.
Within 395 days after the Company's or any Restricted Subsidiary's
receipt of any Net Proceeds from an Asset Sale, the Company or such Restricted
Subsidiary shall apply such Net Proceeds (a) to permanently reduce Indebtedness
of a Restricted Subsidiary of the Company (and to correspondingly reduce
commitments with respect thereto) or (b) to repay Pari Passu Indebtedness
(provided that if the Company shall so repay Pari Passu Indebtedness, it will
equally and ratably reduce Indebtedness under the Notes if the Notes are then
redeemable or, if the Notes may not be then redeemed, the Company shall make an
offer pursuant to Section 3.10 hereof to purchase at 100% of the principal
amount thereof at maturity (or, in the case of repurchases of Notes prior to
August 1, 2002 at a purchase price equal to 100% of the Accreted Value thereof
as of the date of repurchase) the amount of Notes that would otherwise be
redeemed or (c) to an investment in property, capital expenditures or assets
that are used or useful in a Permitted Business, or Capital Stock of any Person
primarily engaged in a Permitted Business if, as a result of the acquisition by
the Company or any Restricted Subsidiary thereof, such Person becomes a
Restricted Subsidiary. Any Net Proceeds from Asset Sales that are not applied
or invested as provided in the preceding sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $15.0 million, the Company shall be required to make an Asset
Sale Offer to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the
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principal amount at maturity thereof plus accrued and unpaid interest thereon
to the date of purchase (or, in the case of repurchases of Notes prior to
August 1, 2002 at a purchase price equal to 100% of the Accreted Value thereof
as of the date of repurchase), in accordance with the procedures set forth in
Section 3.10 hereof. To the extent that the aggregate principal amount at
maturity or Accreted Value (as applicable) of Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount at maturity of or Accreted Value (as applicable) of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Indenture relating to such Asset Sale Offer, the Company
will comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations described in this Indenture by
virtue thereof.
SECTION 4.11. LIMITATION ON RESTRICTED PAYMENTS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any other payment or distribution on account of any Equity Interests of
the Company or any of its Restricted Subsidiaries (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or dividends or distributions payable to the Company or any Wholly
Owned Restricted Subsidiary); (ii) purchase, redeem or otherwise acquire or
retire for value any Equity Interests of the Company, any of its Restricted
Subsidiaries or any other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary of the Company);
(iii) make any principal payment on, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness of the Company that is pari passu
with or subordinated in right of payment to the Notes, except in accordance
with the scheduled mandatory redemption or repayment provisions set forth in
the original documentation governing such Indebtedness or in accordance with
Section 4.10 (but not pursuant to any mandatory offer to repurchase upon the
occurrence of any event); or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, and
(b) immediately after giving effect to such transaction on a pro
forma basis, the Company would have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 4.12 hereof, and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of this Indenture (excluding Restricted Payments permitted by
clauses (i) (to the extent that the declaration of any dividend referred to
therein reduces amounts available for Restricted Payments pursuant to this
clause (c)), (ii), (iii), (v), (vi), (viii), (ix), (x), (xiii), (xiv), (xvi)
and (xvii) of the next succeeding paragraph), is less than the sum of (1) 50%
of the Adjusted Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first calendar month
commencing after the date of this Indenture to the end of
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the Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Adjusted Consolidated Net Income for such period is a deficit, minus 100% of
such deficit), plus (2) 100% of the Qualified Proceeds received by the Company
since the date of this Indenture from contributions to the Company's capital or
the issue or sale since the date of the this Indenture of Equity Interests of
the Company or of convertible debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary of the Company and other than
Designated Preferred Stock, Disqualified Stock or convertible debt securities
that have been converted into Disqualified Stock), plus (3) the amount equal to
the net reduction in Investments in Persons after the date of this Indenture
who are not Restricted Subsidiaries (other than Permitted Investments)
resulting from (x) Qualified Proceeds received as a dividend, repayment of a
loan or advance or other transfer of assets (valued at the fair market value
thereof) to the Company or any Restricted Subsidiary from such Persons, (y)
Qualified Proceeds received upon the sale or liquidation of such Investment and
(z) the redesignation of Unrestricted Subsidiaries (other than any Unrestricted
Subsidiary designated as such pursuant to clause (vii) or (xv) of the following
paragraph) whose assets are used or useful in, or which is engaged in one or
more Permitted Businesses as Restricted Subsidiaries (valued (proportionate to
the Company's equity interest in such Subsidiary) at the fair market value of
the net assets of such Subsidiary at the time of such redesignation) not to
exceed, in the case of clauses (x), (y) and (z), the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person,
which amount was a Restricted Payment; provided that no proceeds received by
the Company from the issue or sale of any Equity Interests of the Company will
be counted in determining the amount available for Restricted Payments under
this clause (c) to the extent such proceeds were used to redeem, repurchase,
retire or acquire any Equity Interests or subordinated Indebtedness of the
Company pursuant to clauses (ii) and (iv) of the next succeeding paragraph.
The foregoing provisions shall not prohibit:
(i) the payment of any dividend within 60 days after the
date of declaration thereof, if at such date of declaration such
payment would have complied with the provisions of this Indenture;
(ii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company or pari passu or
subordinated Indebtedness of the Company in exchange for, or out of
the net proceeds of, the substantially concurrent sale (other than to
a Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(2)
of the preceding paragraph;
(iii) the defeasance, redemption, repurchase or other
acquisition of pari passu or subordinated Indebtedness with the net
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(iv) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or
DecisionOne Corp. held by any member of the Company's or any of the
Company's Restricted Subsidiaries' management pursuant to any
management equity subscription agreement or stock option agreement;
provided that (A) the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed (I)
$5.0 million in any calendar year (with unused amounts in any calendar
year being carried over to
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succeeding calendar years subject to a maximum (without giving effect
to the following clause (II)) of $10.0 million in any calendar year)
plus (II) the aggregate cash proceeds received by the Company during
such calendar year from any reissuance of Equity Interests by the
Company or DecisionOne Corp. to members of management of the Company
and its Restricted Subsidiaries and (B) no Default or Event of Default
shall have occurred and be continuing immediately after such
transaction; provided further that the aggregate cash proceeds referred
to in clause (II) above shall be excluded from clause (c)(2) of the
preceding paragraph;
(v) the payment of dividends by a Restricted Subsidiary
on any class of common stock of such Restricted Subsidiary if (A) such
dividend is paid pro rata to all holders of such class of common stock
and (B) at least 51% of such class of common stock is held by the
Company or one or more of its Restricted Subsidiaries;
(vi) the repurchase of any class of common stock of a
Restricted Subsidiary if (A) such repurchase is made pro rata with
respect to such class of common stock and (B) at least 51% of such
class of common stock is held by the Company or one or more of its
Restricted Subsidiaries;
(vii) any other Restricted Investment made in a Permitted
Business which, together with all other Restricted Investments made
pursuant to this clause (vii) since the date of this Indenture, does
not exceed $40.0 million (in each case, after giving effect to all
subsequent reductions in the amount of any Restricted Investment made
pursuant to this clause (vii), either as a result of (A) the repayment
or disposition thereof for cash or (B) as a result of the redesignation
of an Unrestricted Subsidiary as a Restricted Subsidiary (valued
proportionate to the Company's equity interest in such Subsidiary at
the time of such redesignation) at the fair market value of the net
assets of such Subsidiary at the time of such redesignation), in the
case of clause (A) and (B), not to exceed the amount of such Restricted
Investment previously made pursuant to this clause (vii); provided that
no Default or Event of Default shall have occurred and be continuing
immediately after making such Restricted Investment;
(viii) the declaration and payment of dividends to holders
of any class or series of Disqualified Stock of the Company issued
after the date of this Indenture in accordance with the covenant
described in Section 4.12 hereof; provided that no Default or Event of
Default shall have occurred and be continuing immediately after such
declaration or payment;
(ix) repurchases of Equity Interests deemed to occur upon
exercise of stock options if such Equity Interests represent a portion
of the exercise price of such options;
(x) (A) payments made by the Company in respect of
statutory appraisal rights (and any settlement thereof) and (B)
payments made by the Company to fund the cash consideration payable in
the Merger (including pursuant to statutory appraisal rights and any
settlement thereof) to security holders of Holdings (including without
limitation, the Cash Merger Consideration, the Option Cash Proceeds and
the Warrant Cash Proceeds (each as defined in the Registration
Statement)) and fees and expenses of the Company and DecisionOne Corp.
in connection with the Merger;
(xi) a Restricted Payment to pay for the repurchase,
retirement or other acquisition or retirement for value of Equity
Interests of Holdings outstanding on the date of this Indenture
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and which are not held by the Principals or any member of management of
Holdings or any Subsidiary of Holdings on the date of this Indenture
(including any Equity Interests issued in respect of such Equity
Interests as a result of a stock split, recapitalization, merger,
combination, consolidation or otherwise, but excluding any Equity
Interests issued pursuant to any management equity plan or stock option
plan or similar agreement), provided that the aggregate Restricted
Payments made under this clause (xi) shall not exceed $40.0 million,
provided further that prior to the first anniversary of the
consummation of the Merger, the aggregate amount of Restricted Payments
made under this clause (xi) shall not exceed $20.0 million, provided
further that notwithstanding the foregoing proviso, the Company shall
be permitted to make Restricted Payments under this clause (xi) only if
after giving effect thereto, the Company would be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.12
hereof; provided that no Default or Event of Default shall have
occurred and be continuing immediately after making such Restricted
Payment;
(xii) the payment of dividends on the Company's common
stock, following the first public offering of the Company's or
Holdings' common stock after the date of this Indenture, of up to 6.0%
per annum of the net proceeds received by the Company as common equity
from such public offering, other than, in each case, with respect to
public offerings with respect to the Company's or Holdings' common
stock registered on Form S-8; provided that no Default or Event of
Default shall have occurred and be continuing immediately after any
such payment of dividends;
(xiii) the declaration and payment of dividends to holders
of any class or series of Designated Preferred Stock issued after the
date of this Indenture; provided, however, immediately after the date
of issuance of such Designated Preferred Stock, after giving effect to
such issuance on a pro forma basis, the Company would have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.12 hereof.
(xiv) the payment in cash in lieu of fractional shares of
Common Stock under the Warrant Agreement;
(xv) any other Restricted Payment which, together with all
other Restricted Payments made pursuant to this clause (xvi) since the
date of this Indenture, does not exceed $40.0 million (in each case,
after giving effect to all subsequent reductions in the amount of any
Restricted Investment made pursuant to this clause (xv) either as a
result of (A) the repayment or disposition thereof for cash or (B) the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary
(valued proportionate to the Company's equity interest in such
Subsidiary at the time of such redesignation) at the fair market value
of the net assets of such Subsidiary at the time of such
redesignation), in the case of clause (A) and (B), not to exceed the
amount of such Restricted Investment previously made pursuant to this
clause (xvi); provided that no Default or Event of Default shall have
occurred and be continuing immediately after making such Restricted
Payment;
(xvi) the pledge by the Company of the Capital Stock of an
Unrestricted Subsidiary of the Company to secure Non-Recourse Debt of
such Unrestricted Subsidiary; and
(xvii) distributions or payments of Receivables Fees.
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The Board of Directors may designate any Restricted Subsidiary (other
than DecisionOne Corp.) to be an Unrestricted Subsidiary if such designation
would not cause a Default. For purposes of making such designation, all
outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
Section 4.11. All such outstanding Investments will be deemed to constitute
Restricted Investments in an amount equal to the greater of (i) the net book
value of such Investments at the time of such designation and (ii) the fair
market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Investment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of (i) all Restricted Payments (other than restricted
Payments made in cash) shall be the fair market value on the date of the
Restricted Payment of the asset(s) or securities proposed to be transferred or
issued by the Company or such Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment and (ii) Qualified Proceeds (other than cash)
shall be the fair market value on the date of receipt thereof by the Company of
such Qualified Proceeds. The fair market value of any non-cash Restricted
Payment and Qualified Proceeds shall be determined by the Board of Directors
whose resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market
value exceeds $20.0 million. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee and Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this Section 4.11 were computed, which
calculations shall be based upon the Company's latest available financial
statements.
SECTION 4.12. LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED
STOCK.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become, directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), (ii) that the Company will not issue any Disqualified Stock and (iii)
that the Company will not permit any of its Restricted Subsidiaries to issue any
preferred stock; provided, however, that the Company and its Restricted
Subsidiaries may incur Indebtedness (including Acquired Debt), the Company may
issue shares of Disqualified Stock and any Restricted Subsidiary of the Company
may issue Preferred Stock if the Company's Fixed Charge Coverage Ratio for the
Company's most recently ended four fiscal quarters for which internal financial
statements are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock or Preferred Stock is
issued, would have been at least 1.50 to 1.00, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock or
Preferred Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The foregoing provisions will not apply to (collectively, "Permitted
Debt"):
(i) the incurrence by the Company, DecisionOne Corp. and
its Restricted Subsidiaries of Indebtedness under the New Credit
Facility; provided that the aggregate principal amount of all
Indebtedness (with letters of credit and bankers' acceptances being
deemed to have a principal amount equal to the maximum amount
thereunder available to be drawn) outstanding
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under the New Credit Facility after giving effect to such incurrence
does not exceed an amount equal to $625.0 million;
(ii) the incurrence by (A) the Company and its Restricted
Subsidiaries of Indebtedness represented by the Notes and (B)
DecisionOne Corp. and its Restricted Subsidiaries of Indebtedness
represented by the Senior Subordinated Notes and any guarantee thereof;
(iii) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations, in each
case, incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property used
in the business of the Company or such Restricted Subsidiary, in
aggregate principal amount not to exceed $25.0 million at any time
outstanding;
(iv) Existing Indebtedness;
(v) the incurrence by the Company or any of its
Restricted Subsidiaries of Permitted Refinancing Indebtedness in
exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund, Indebtedness that was
permitted by this Indenture;
(vi) Indebtedness of the Company to a Restricted
Subsidiary; provided that any subsequent issuance or transfer of any
Capital Stock or other event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of any such Indebtedness (except to the Company or another
Restricted Subsidiary) shall be deemed, in each case, to be an
incurrence of such Indebtedness;
(vii) Indebtedness of a Restricted Subsidiary to the
Company or another Restricted Subsidiary; provided that any subsequent
issuance or transfer of any Capital Stock of any Restricted Subsidiary
to whom such Indebtedness is owed or any other event which results in
any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or
any subsequent transfer of any such Indebtedness (except to the Company
or another Restricted Subsidiary) shall be deemed, in each case, to be
an incurrence of such Indebtedness;
(viii) the incurrence by the Company or any of its
Restricted Subsidiaries of Hedging Obligations that are incurred for
the purpose of fixing or hedging (a) interest rate risk with respect to
any floating rate Indebtedness of such Person that is permitted by the
terms of this Indenture to be outstanding or (b) exchange rate risk
with respect to agreements or Indebtedness of such Person payable
denominated in a currency other than U.S. dollars; provided that such
agreements do not increase the Indebtedness of the obligor outstanding
at any time other than as a result of fluctuations in foreign currency
exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder;
(ix) the incurrence by the Company or any of its
Restricted Subsidiaries of Acquired Debt, in an aggregate principal
amount at any time outstanding not to exceed $25.0 million;
(x) the incurrence by the Company or any Restricted
Subsidiary of Indebtedness (in addition to Indebtedness permitted by
any other clause of this paragraph) in an aggregate principal amount at
any time outstanding not to exceed the sum of $60.0 million;
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(xi) Indebtedness arising from agreements of the Company
or a Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or a
Restricted Subsidiary, other than guarantees of Indebtedness incurred
by any Person acquiring all or any portion of such business, assets or
a Restricted Subsidiary for the purpose of financing such acquisition;
provided, however, that (i) such Indebtedness is not reflected on the
balance sheet of the Company or any Restricted Subsidiary (contingent
obligations referred to in a footnote to financial statements and not
otherwise reflected on the balance sheet will not be deemed to be
reflected on such balance sheet for purposes of this clause (i)) and
(ii) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including
noncash proceeds (the fair market value of such noncash proceeds being
measured at the time received and without giving effect to any
subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(xii) obligations in respect of performance and surety
bonds and completion guarantees provided by the Company or any
Restricted Subsidiary in the ordinary course of business; and
(xiii) (A) any guarantee by a Restricted Subsidiary of the
Company of Indebtedness of the Company that is passu in right of
payment to the Debentures that was permitted to be incurred under this
Indenture and (B) any guarantee by a Restricted Subsidiary of the
Company of Indebtedness of any other Restricted Subsidiary of the
Company that was permitted to be incurred under this Indenture.
For purposes of determining compliance with this Section 4.12, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of original
issue discount will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
SECTION 4.13. TRANSACTIONS WITH AFFILIATES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with or for the benefit of,
any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is on terms that are no less favorable to the Company
or such Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) if such Affiliate Transaction involves aggregate
payments in excess of $5.0 million, the Company delivers to the Trustee either
(x) a resolution of the Board of Directors of the Company set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and such Affiliate Transaction is approved by a majority of the
members of the Board of Directors of the Company or (y) an opinion as to the
fairness to the Holders of the Notes of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment banking
firm of national standing; provided, however, that (a) any employment agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the
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Company or such Restricted Subsidiary, (b) transactions between or among the
Company and/or its Restricted Subsidiaries, (c) transactions between the Company
or its Restricted Subsidiaries on the one hand, and the Underwriter or its
Affiliates on the other hand, involving the provision of financial, consulting
or underwriting services by the Underwriter or its Affiliates, provided that the
fees payable to the Underwriter or its Affiliates do not exceed the usual and
customary fees of the Underwriter and its Affiliates for similar services, (d)
transactions in accordance with the Specified Agreements, as amended; provided
that no such amendment contains any provisions that are materially adverse to
the Holders of the Notes, (e) payment of employee benefits, including bonuses,
retirement plans and stock options, in the ordinary course of business,
consistent with past practice, (f) the payment of reasonable and customary fees
to, and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Restricted Subsidiary; (g) Restricted Payments
permitted by the provisions of clauses (i), (iv), (v), (vi), (ix), (x), (xiv)
and (xvi) of the second paragraph of Section 4.11 hereof, (h) payments and
transactions in connection with the Merger and the application of the net
proceeds from the Offering, including the payment of any fees and expenses with
respect thereto, (i) transactions pursuant to the Intercompany Note and any
forgiveness of Indebtedness thereunder, (j) transactions permitted by the
provisions of Section 4.11 hereof and (k) transactions pursuant to the
Management Loans, in each case, shall not be deemed Affiliate Transactions.
SECTION 4.14. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to: (i) (a) pay dividends or make any other distributions
to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits or (b) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries; (ii) make loans or advances to the Company or any of its
Restricted Subsidiaries; or (iii) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (a) the terms of any Indebtedness
permitted by this Indenture to be incurred by any Restricted Subsidiary of the
Company, (b) Existing Indebtedness, as in effect on the date of this Indenture;
(c) any agreement or other instrument of a Person acquired by the Company or any
of its Restricted Subsidiaries, as in effect at the time of such acquisition
(but not created in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired; (d) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices; (e) applicable
law; (f) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions of the nature described in clause (iii)
above on the property so acquired; or (g) contracts for the sale of assets,
including, without limitation, customary restrictions with respect to a
Subsidiary pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary.
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SECTION 4.15 LIMITATIONS ON LIENS
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly create, incur, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired, or any income or profits therefrom,
or assign or convey any rights to receive income therefrom, unless all payments
due under this Indenture and the Notes are secured on an equal and ratable basis
with the obligations so secured or until such time as such obligation is no
longer secured by a Lien except for (i) Liens existing on the date of this
Indenture, (ii) Liens on assets of any Restricted Subsidiary of the Company
securing indebtedness of Restricted Subsidiaries of the Company and (iii)
Permitted Liens.
SECTION 4.16 SALES OF ACCOUNTS RECEIVABLES.
The Company may, and any of its Restricted Subsidiaries may, sell at
any time and from time to time, accounts receivable to any Accounts Receivable
Subsidiary; provided that (i) the aggregate consideration received in each such
sale is at least equal to the aggregate fair market value of the receivables
sold, as determined by the Board of Directors of the Company in good faith, (ii)
no less than 80% of the consideration received in each such sale consists of
either cash or a promissory note (a "Promissory Note") which is subordinated to
no Indebtedness or obligation other than the financial institution or other
entities providing the financing to the Accounts Receivable Subsidiary with
respect to such accounts receivable (the "Financier") and the remainder of such
consideration consists of an Equity Interest in such Accounts Receivable
Subsidiary; provided further that the Initial Sale will include all accounts
receivable of the Company and/or its Restricted Subsidiaries that are party to
such arrangements that constitute eligible receivables under such arrangements,
(iii) the cash proceeds received from the Initial Sale less reasonable and
customary transaction costs will be deemed to be Net Proceeds and will be
applied in accordance with the second paragraph of Section 4.10 hereof, and (iv)
the Company and its Restricted Subsidiaries will sell all accounts receivable
that constitute eligible receivables under such arrangements to the Accounts
Receivable Subsidiary no less frequently than on a weekly basis.
The Company (i) will not permit any Accounts Receivable Subsidiary to
sell any accounts receivable purchased from the Company or any of its Restricted
Subsidiaries to any other person except on an arm's-length basis and solely for
consideration in the form of cash or Cash Equivalents, (ii) will not permit the
Accounts Receivable Subsidiary to engage in any business or transaction other
than the purchase, financing and sale of accounts receivable of the Company and
its Restricted Subsidiaries and activities incidental thereto, (iii) will not
permit any Accounts Receivable Subsidiary to incur Indebtedness in an amount in
excess of 97% of the book value of such Accounts Receivable Subsidiary's total
assets, as determined in accordance with GAAP, (iv) will, at least as frequently
as monthly, cause the Accounts Receivable Subsidiary to remit to the Company as
payment for additional receivables or on the Promissory Notes or as a dividend,
all available cash or Cash Equivalents not held in a collection account pledged
to a Financier, to the extent not applied to pay or maintain reserves for
reasonable operating expenses of the Accounts Receivable Subsidiary or to
satisfy reasonable minimum capital requirements based on then current market
practices of rating agencies in similar transactions involving receivables of a
similar type and quality, as determined by the Board of Directors of the Company
in good faith and (v) will not, and will not permit any of its Subsidiaries to,
sell accounts receivable to any Accounts Receivable Subsidiary upon (1) the
occurrence of an Event of Default with respect to the Company and its Restricted
Subsidiaries and (2) the occurrence of certain events of bankruptcy or
insolvency with respect to such Accounts Receivable Subsidiary.
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SECTION 4.17. NO RESTRICTIONS ON CONSUMMATION OF MERGER.
Notwithstanding any provision contained herein to the contrary, this
Indenture will not prohibit the consummation of the Merger, provided that
concurrently with the Merger, (a) Holdings, as the surviving corporation, shall
execute and deliver to the Trustee an assumption agreement substantially in the
form of EXHIBIT B hereto pursuant to which it shall assume all the Obligations
of the Issuer under the Notes and this Indenture.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS
The Company shall not consolidate or merge with or into (whether or not
the Company is the surviving entity), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions to, another Person unless (i) the Company is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition will have been made assumes all the obligations of the Company under
the Notes and this Indenture pursuant to a supplemental indenture in form
reasonably satisfactory to the Trustee; (iii) immediately after such
transaction, no Default or Event of Default exists; and (iv) the Company or the
Person formed by or surviving any such consolidation or merger, or to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made will, at the time of such transaction after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.12 hereof. The foregoing clause (iv) will not
prohibit (a) a merger between the Company and a Wholly Owned Subsidiary of an
Affiliate of the Company created solely for the purpose of holding the Capital
Stock of the Company, (b) a merger between the Company and a Wholly Owned
Restricted Subsidiary or (c) a merger between the Company and an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
State of the United States so long as, in each case, the amount of Indebtedness
of the Company and its Restricted Subsidiaries is not increased thereby.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease or conveyance or other disposition of all or substantially all of the
assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company) and may
exercise every right and power of the Company under this Indenture with the same
effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
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obligation to pay the principal of and interest on the Notes except in the case
of a sale of all of the Company's assets that meets the requirements of Section
5.01 hereof; provided, further, that solely for purposes of computing
Consolidated Net Income for purposes of clause (c) of the first paragraph of
Section 4.11 hereof, the Consolidated Net Income of any Person other than the
Company or any of its Restricted Subsidiaries shall be included only for periods
subsequent to the effective time of such consolidation or merger, sale,
assignment, transfer, lease or conveyance or other disposition of assets.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT AND NOTICE THEREOF.
Each of the following constitutes an "Event of Default":
(a) default which continues for 30 days in the payment
when due of interest on the Notes;
(b) default in payment when due of principal or premium,
if any, on the Notes at maturity, upon redemption or otherwise;
(c) failure by the Company for 30 days after receipt of
notice from the Trustee or Holders of at least 30% in principal amount
of the Notes then outstanding to comply with the provisions of Sections
3.10, 4.09, 4.10, 4.11, 4.12 or Article 5 hereof.
(d) failure by the Company for 60 days after notice from
the Trustee or the Holders of at least 30% in principal amount of the
Notes then outstanding to comply with its other agreements in this
Indenture or the Notes;
(e) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of
its Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of
this Indenture, which default (i) is caused by a failure to pay
Indebtedness at its stated final maturity (after giving effect to any
applicable grace period provided in such Indebtedness) (a "Payment
Default") or (ii) results in the acceleration of such Indebtedness
prior to its stated final maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of
any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates
$20.0 million or more;
(f) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $20.0
million (net of any amounts with respect to which a reputable and
creditworthy insurance company has acknowledged liability in writing),
which judgments are not paid, discharged or stayed within 60 days after
their entry;
(g) the Company or any of its Restricted Subsidiaries
that is a Significant Subsidiary pursuant to or within the meaning of
the Bankruptcy Law:
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(i) commences a voluntary case,
(ii) consents to the entry of an order for relief
against it in an involuntary case,
(iii) consents to the appointment of a Custodian
of it or for all or substantially all of its
property,
(iv) makes a general assignment for the benefit
of its creditors,
(v) generally is not paying its debts as they
become due; or
(h) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any of
its Restricted Subsidiaries that is a
Significant Subsidiary in an involuntary
case;
(ii) appoints a Custodian of the Company or any
of its Restricted Subsidiaries that is a
Significant Subsidiary or for all or
substantially all of the property of the
Company or any of its Restricted
Subsidiaries that is a Significant
Subsidiary;
(iii) orders the liquidation of the Company or any
of its Restricted Subsidiaries that is a
Significant Subsidiary; and
and the order or decree remains unstayed and in effect for 60
consecutive days.
SECTION 6.02. ACCELERATION
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 30% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default specified in clause (g) or clause
(h) of Section 6.01 hereof, all outstanding Notes will become due and payable
without further action or notice. Upon any acceleration of maturity of the
Notes, all principal of and accrued interest on (if on or after August 1, 2002)
or Accreted Value of (if prior to August 1, 2002) the Notes shall be due and
payable immediately. Holders of the Notes may not enforce this Indenture or the
Notes except as provided in this Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. In the event of a
declaration of acceleration of the Notes because an Event of Default has
occurred and is continuing as a result of the acceleration of any Indebtedness
described in clause (e) of Section 6.01 hereof, the declaration of acceleration
of the Notes shall be automatically annulled if the holders of any Indebtedness
described in clause (e) of Section 6.01 hereof have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of such
declaration and if (y) the annulment of the acceleration of the Notes would not
conflict with any judgment or decree of a court of competent jurisdiction and
(z) all existing Events of Default, except nonpayment of principal or interest
on the Notes that became due solely because of the acceleration of the Notes,
have been cured or waived.
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SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may upon
delivery of pursue any available remedy to collect the payment of principal,
premium, if any, and interest on the Notes or to enforce the performance of any
provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding, by notice to the Trustee, may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its consequences
under this Indenture, except a continuing Default or Event of Default in the
payment of interest or premium on, or principal of, the Notes. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal, premium, if any, or interest) if it determines that withholding
notice is in such Holders' interest.
SECTION 6.05. CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal amount at maturity of
the then outstanding Notes may direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee or exercising
any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture, that the Trustee
determines may be unduly prejudicial to the rights of other Holders of Notes or
that may involve the Trustee in personal liability. The Trustee may take any
other action which it deems proper which is not inconsistent with any such
direction.
SECTION 6.06. LIMITATION ON SUITS.
No Holder of a Note will have any right to institute any proceeding
with respect to this Indenture or for any remedy hereunder, unless (i) such
Holder shall have previously given to the Trustee written notice of a continuing
Event of Default with respect to the Notes, (ii) the Holders of at least 30% in
aggregate principal amount at maturity of the Notes then outstanding shall have
made written request to the Trustee to institute such proceeding and, if
requested by the Trustee, provided reasonable indemnity to the Trustee, with
respect to such proceeding and (iii) the Trustee shall not have received from
the Holders of a majority in aggregate principal amount at maturity of the Notes
then outstanding a direction inconsistent with such request and shall have
failed to institute such proceeding within 60 days.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on any Note, on or after the respective due
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dates expressed in any Note, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) hereof
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium, if any, and interest remaining unpaid on the
Notes and interest on overdue principal and, to the extent lawful, interest and
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, as administrative expenses associated with any such proceeding and
in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section 7.07
hereof. To the extent that the payment of any such compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof out of the estate in any such
proceeding, shall be denied for any reason, payment of the same shall be secured
by a Lien on, and shall be paid out of, any and all distributions, dividends,
money, securities and other properties that the Holders may be entitled to
receive in such proceeding whether in liquidation or under any plan of
reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article Six, it
shall pay out the money, subject to Article 10 hereof, in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium, if any, and interest, ratably, without preference
or priority of any kind, according to the amounts due and payable on
the Notes for principal, premium and, if any, and interest,
respectively;
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Third: without duplication, to the Holders for any other Obligations
owing to the Holders under this Indenture and the Notes; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of
a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(1) the duties of the Trustee shall be determined solely
by the express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no others,
and no implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture, provided, that the
Trustee shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section 7.01;
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(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), (c), (e) and (f) of this Section 7.01 and Section 7.02
hereof.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders unless the Holders shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact
or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The
Trustee shall not be liable for any action it takes or omits
to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel. The Trustee may consult
with counsel and the written advice of such counsel or any
Opinion of Counsel shall be full and complete authorization
and protection from liability in respect of any action taken,
suffered or omitted by it hereof in good faith and in reliance
thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any
agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized
or within the rights or powers conferred upon it by this
Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be
sufficient if signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders unless such Holders
shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities that
might be incurred by it in compliance with such request or
direction.
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SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company with the same
rights it would have if it were not Trustee. However, in the event that the
Trustee acquires any conflicting interest it must eliminate such conflict within
90 days, apply to the Commission for permission to continue as trustee or
resign. Any Agent may do the same with like rights and duties. The Trustee is
also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the direction of the Company under any provision of
this Indenture, it shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document furnished or issued in connection with the sale of the Notes
or pursuant to this Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
actually known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs. Except
in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Note, the Trustee may withhold the notice if
and so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA Section 313(a) (but if no event described
in TIA Section 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports
as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Notes are listed
on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee, from time to time as may be
agreed upon between them, reasonable compensation for its acceptance of this
Indenture and services hereof. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee promptly upon request for all reasonable disbursements,
advances
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and expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.
The Company shall indemnify and hold harmless the Trustee against any
and all losses, liabilities or expenses incurred by it arising out of or in
connection with the acceptance or administration of its duties under this
Indenture, including the costs and expenses of enforcing this Indenture against
the Company (including this Section 7.07) and defending itself against any claim
(whether asserted by the Company or any Holder or any other person) or liability
in connection with the exercise or performance of any of its powers or duties
hereof, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereof. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in Section 6.01(g) or (h) hereof,
the expenses and the compensation for the services (including the fees and
expenses of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of a majority
in principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof,
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or
its property; or
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(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10 hereof, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereof have been paid and subject to the Lien provided for
in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to
this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business (including the trust
created by this Indenture) to, another corporation, the successor corporation
without any further act shall be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereof that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has, or is a wholly owned subsidiary of a bank holding
company that has, a combined capital and surplus of at least $100 million as set
forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
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SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
SECTION 7.12. RIGHTS OF HOLDERS WITH RESPECT TO TIME METHOD AND PLACE
Subject to the limitations of this Article 7, a majority in principal
amount of the outstanding Notes issued hereof shall have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy
available to the Trustee, subject to certain exceptions.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 8.02 or Section 8.03 hereof
be applied to all Notes then outstanding upon compliance with the conditions set
forth below in this Article Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all Notes then outstanding on
the date the conditions set forth below are satisfied ("Legal Defeasance"). For
this purpose such defeasance means that the Company shall be deemed to have paid
and discharged the entire indebtedness represented by the Notes outstanding,
which shall thereafter be deemed to be "outstanding" only for the purposes of
Section 8.05 and the other Sections of this Indenture referred to in clauses (i)
and (ii) of this Section 8.02, and to have satisfied all its other obligations
under such Notes and this Indenture (and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal amount at maturity or Accreted
Value (as applicable), premium, if any, and interest on such Notes when such
payments are due, or on the redemption date, as the case may be, solely from
amounts deposited with the Trustee as provided in Section 8.04 hereof, (ii) the
Company's obligations with respect to the Notes under Sections 2.03, 2.04, 2.05,
2.06, 2.07, 2.10, 4.02 and 4.03 hereof, (iii) the rights, powers, trusts,
duties, indemnities and immunities of the Trustee and the Company's obligations
in connection therewith and (iv) this Section 8.02.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall be released from its
obligations under the covenants contained in Article Five and in Sections 4.04,
4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15 and 4.16 with respect to the
outstanding Notes, if any, on and after the date the conditions set forth below
are satisfied (hereinafter, "Covenant
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Defeasance"), and the Notes shall thereafter be deemed to be not "outstanding"
for the purposes of any direction, waiver, consent or declaration or Act of
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder
(it being understood that such Notes shall not be deemed outstanding for
financial accounting purposes). For this purpose, such Covenant Defeasance means
that, with respect to the outstanding Notes, the Company may omit to comply with
and shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01(c) hereof, but, except as specified above, the remainder of
this Indenture and such Notes shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.01 hereof of the option applicable to this
Section 8.03, Sections 6.01(d) through 6.01(f) and Section 6.01(i) shall not
constitute Events of Default.
SECTION 8.04. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either Section
8.02 or Section 8.03 hereof to the outstanding Notes:
(i) the Company shall have irrevocably deposited with the
Trustee, in trust, for the benefit of the Holders of the Notes and without
retaining any legal interest corpus of such trust, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal amount at maturity of or
Accreted Value (as applicable), premium, if any, and interest due on the
outstanding Notes on the stated maturity thereof or on the applicable optional
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the United States Internal
Revenue Service a ruling or (B) since the Closing Date, there has been a change
in the applicable U.S. federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel in the United States shall
confirm that, subject to customary assumptions and exclusions, the Holders of
the outstanding Notes will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such Legal Defeasance and will be subject to
U.S. federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Notes will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of such Covenant Defeasance and will be subject to such U.S. federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit) or,
insofar as Events of Default set forth in Section 6.01(g) and (h), at any time
in the
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period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be satisfied until the expiration of
such period);
(v) such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default under, any
material agreement or instrument (other than this Indenture) to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound;
(vi) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that, as of the date of such opinion and
subject to customary assumptions and exclusions (which assumptions and
exclusions shall not relate to the operation of Section 547 of the United States
Bankruptcy Code or any analogous New York State law provision or related
judicial decisions) after the 91st day following the deposit the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally, and that
the Trustee has a perfected security interest in such trust funds for the
ratable benefit of the Holders;
(vii) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding any
creditors of the Company or others;
(viii) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel in the United States (which
Opinion of Counsel may be subject to customary assumptions and exclusions) each
stating that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been complied
with; and
(ix) the Trustee shall have received such other documents
and assurances as the Trustee shall reasonably require.
SECTION 8.05. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 4.03 hereof,
all money and Government Securities (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
Notes then outstanding shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such Notes of
all sums due and to become due thereon in respect of principal (and premium, if
any) and interest, but such money need not be segregated from other funds except
to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or Government Securities
deposited pursuant to Section 8.04 hereof or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the Notes then outstanding.
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Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time at the Company's
request any money or Government Securities held by it as provided in Section
8.04 hereof which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(i) hereof), are
in excess of the amount thereof which would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Subject to Section 7.07 hereof, the Trustee shall promptly pay to the
Company, after written request by the Company therefor, any money held at such
time in excess of the amounts required to pay any of the Company's Obligations
then owing with respect to the Notes.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest, if any, on any Note and remaining unclaimed for one year after such
principal, and premium, if any, or interest, if any, have become due and payable
shall be paid to the Company on its request or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in The New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or Government Securities in accordance with Section 8.02 hereof or
Section 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.02 hereof or Section 8.03 hereof, as the case may
be, until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 8.02 hereof or Section 8.03 hereof, as the
case may be; provided, however, that if the Company makes any payment of
principal of (or premium, if any) or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
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ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 hereof, without the consent of any Holder
of Notes, the Company and the Trustee may amend or supplement this Indenture or
the Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes;
(c) to comply with Article 5 hereof;
(d) to provide for the assumption of the Company's obligations to
the Holders of the Notes in the case of a merger,
consolidation, sale, assignment, transfer lease or other
conveyance or other disposition of assets;
(e) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not, in the
opinion of counsel, adversely affect the legal rights
hereunder of any such Holder;
(f) to add covenants for the benefit of the Holders or to
surrender any right or power conferred upon the Company; or
(g) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under
the Trust Indenture Act.
Upon the written request of the Company accompanied by a Board
Resolution authorizing the execution of any such amended or supplemental
indenture, and upon receipt by the Trustee of an Officers' Certificate and an
Opinion of Counsel, the Trustee shall join with the Company in the execution of
any amended or supplemental indenture authorized or permitted by the terms of
this Indenture and to make any further appropriate agreements and stipulations
that may be therein contained, but the Trustee shall not be obligated to enter
into such amended or supplemental indenture that affects its own rights, duties
or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, this Indenture and the
Notes issued hereunder may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount at maturity of the Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or a tender offer or exchange offer for the Notes), and, subject
to Sections 6.02, 6.04 and 6.07 hereof, any existing default or compliance with
any provision of this Indenture, the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including, without limitation, consents obtained in connection with a purchase
of, or a tender offer or exchange offer, for the Notes).
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Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of
an Officers' Certificate and an Opinion of Counsel, the Trustee shall join with
the Company in the execution of such amended or supplemental indenture unless
such amended or supplemental indenture affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise, in which case the Trustee may
in its discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
The consent of the Holders is not necessary under this Section 9.02 to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount at maturity of the Notes
then outstanding may waive compliance in a particular instance by the Company
with any provision of this Indenture, the Notes. However, without the consent of
each Holder affected, an amendment or waiver may not (with respect to any Note
held by a non-consenting Holder):
(i) reduce the principal amount of the Notes whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal amount at maturity of or change the fixed
maturity of any Note or alter the redemption provisions with
respect to the redemption of the Notes (other than provisions
relating to Sections 4.09 and 4.10 hereof) or amend or modify
the calculation of the Accreted Value so as to reduce the
amount of the Accreted Value of the Notes;
(iii) reduce the rate of or change the time for payment of interest
on any Note;
(iv) waive a Default or Event of Default in the payment of
principal of, premium, if any, or interest on the Notes
(except a rescission of acceleration of the Notes by the
Holders of at least a majority in aggregate principal amount
at maturity of such Notes and a waiver of the payment default
that resulted from such acceleration) or in respect of a
covenant or a provision contained herein which cannot be
amended or modified without the consent of all Holders;
(v) make any Note payable in money other than that stated in such
Notes;
(vi) make any change in Section 6.04 or Section 6.07 hereof;
(vii) waive a redemption or repurchase payment with respect to any
Note (other than a payment required by Sections 3.10, 4.09 or
4.10 hereof);
(viii) modify any provision of this Indenture with respect to the
priority of the Notes in right of payment; or
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(ix) make any change in the foregoing amendment and waiver
provisions of this Article 9.
Notwithstanding the foregoing, any amendment or waiver to Section 4.09
hereof will require the consent of the Holders of at least two-thirds in
aggregate principal amount at maturity of the Notes then outstanding if such
amendment would adversely affect the rights of Holders of Notes.
SECTION 9.03. COMPLIANCE WITH TIA.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in an amended or supplemental indenture that complies with the TIA as
then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may, but shall not be required to, place an appropriate
notation about an amendment, supplement or waiver on any Note thereafter
authenticated. The Company in exchange for all Notes may issue and the Trustee
shall authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article Nine if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental indenture until the Board of Directors
approves it. In signing or refusing to sign any amended or supplemental
indenture the Trustee shall be entitled to receive and (subject to Section 7.01
hereof) shall be fully protected in relying upon an Officers's Certificate and
an Opinion of Counsel stating that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture, that it is not
inconsistent herewith, and that it will be valid and binding upon the Company,
if any, in accordance with its terms.
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ARTICLE 10
SATISFACTION AND DISCHARGE
SECTION 10.01 SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall be discharged and will cease to be of further
effect as to all Notes issued hereunder, when either
(a) all such Notes theretofore authenticated and delivered (except
lost, stolen or destroyed Notes which have been replaced or
paid and Notes for whose payment money has theretofore been
deposited in trust and thereafter repaid to the Company) have
been delivered to the Trustee for cancellation; or
(b) (i) all such Notes not theretofore delivered to such
Trustee for cancellation have become due and payable
by reason of the making of a notice of redemption or
otherwise or will become due and payable within one
year and the Company has irrevocably deposited or
caused to be deposited with such Trustee as trust
funds in trust an amount of money sufficient to pay
and discharge the entire Indebtedness on such Notes
not theretofore delivered to the Trustee for
cancellation for principal, premium, if any, and
accrued interest to the date of maturity or
redemption;
(ii) no Default or Event of Default with respect to this
Indenture or the Notes shall have occurred and be
continuing on the date of such deposit or shall occur
as a result of such deposit and such deposit will not
result in a breach or violation of, or constitute a
default under, any other instrument to which the
Company is a party or by which the Company is bound;
(iii) the Company has paid or caused to be paid all sums
payable by it under this Indenture; and
(iv) the Company has delivered irrevocable instructions to
the Trustee under this Indenture to apply the
deposited money toward the payment of such Notes at
maturity or the redemption date, as the case may be.
In addition, the Company must deliver an Officers' Certificate and an
Opinion of Counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
SECTION 10.02 APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 4.03 hereof,
all money deposited with the Trustee pursuant to Section 11.01 hereof shall be
held in trust and applied by it, in accordance with the provisions of the Notes
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Trustee may determine, to
Persons entitled thereto, of the principal (and premium, if any) and interest
for whose payment such money has been deposited with the Trustee.
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If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 11.01 hereof by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Notes shall
be revived and reinstated as though such deposit had occurred pursuant to
Section 11.01 hereof; provided that if the Company has made any payment of
principal of, premium, if any, or interest on any Notes because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money or
Government Securities held by the Trustee or Paying Agent.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. CONFLICT OF ANY PROVISION OF INDENTURE WITH TIA.
If any provision of this Indenture limits, qualifies, or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 11.02. NOTICES.
Any notice or communication by the Company, or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
DecisionOne Holdings Corp.
50 East Swedesford Road
Frazer, Pennsylvania 19355
Attention: Thomas M. Molchan, Esq.
Facsimile: (610) 408-3820
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Richard D. Truesdell, Esq.
Facsimile: (212) 450-4800
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If to the Trustee:
State Street Bank and Trust Company
777 Main Street, 11th Floor
Hartford, Connecticut 06115
Attention: Corporate Trust Department
Facsimile: (860) 986-7920
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the
statements set forth in Section 1.05 hereof) stating that, in
the opinion of the signers, all conditions precedent and
covenants, if any, provided for in this Indenture relating to
the proposed action have been satisfied; and
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(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the
statements set forth in Section 1.05 hereof) stating that, in
the opinion of such counsel, all such conditions precedent and
covenants have been satisfied.
SECTION 11.05. LEGAL HOLIDAYS.
In any case where any interest payment date, any date established for
payment of defaulted interest pursuant to Section 2.12 hereof, or any maturity
date with respect to any Note shall not be a Business Day, then (notwithstanding
any other provisions of this Indenture or the Notes) payment of interest or
principal (and premium, if any) need not be made on such date but may be made on
the next succeeding Business Day with the same force and effect as if made on
the interest payment date or date established for payment of defaulted interest
pursuant to Section 2.12 hereof or the maturity date, as applicable, and no
interest shall accrue with respect to such payment for the period from and after
such interest payment date or date established for payment of defaulted interest
pursuant to Section 2.12 or maturity date , as the case may be, to the next
succeeding Business Day.
SECTION 11.06. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company shall have any liability for any obligations of the Company under the
Notes or this Indenture or for any claim based on, in respect of, or by reason
of such obligations or their creation. Each Holder of the Notes by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
SECTION 11.07. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE, GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE CHOICE OF LAW RULES THEREOF.
SECTION 11.08. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 11.09. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall
bind its respective successors and assigns, whether so expressed or not. All
covenants and agreements in this Indenture by the Trustee shall bind its
respective successors and assigns, whether so expressed or not.
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SECTION 11.10. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.11. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.12. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed in New York, New York as of the day and year first above written.
QUAKER HOLDING CO.
Dated: August 7, 1997 By:_________________________________
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
Dated: August 7, 1997 By:_________________________________
Name:
Title:
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EXHIBIT A
(Face of Note)
[Unless and until it is exchanged in whole or in part for Notes in definitive
form, this Note may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. The Depository
Trust Company shall act as the Depositary until a successor shall be appointed
by the Company. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the Company or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.](1)
[Insert Warrant Endorsement as applicable]
- --------
(1) This paragraph should be included only if the Note is issued in global form.
A-1
<PAGE> 75
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT;
FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE PRICE IS $560.13,
THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $439.87, THE ISSUE DATE IS AUGUST 7,
1997 AND THE YIELD TO MATURITY IS 11 1/2% PER ANNUM.
11 1/2% Senior Discount Debentures due 2008
No. $_________
Cusip No:
QUAKER HOLDING CO.
promises to pay to Cede & Co. or registered assigns, the principal sum of
$_________________ (_______________________________ Dollars) on __________,
2008.
Interest Payment Dates: February 1 and August 1
Record Dates: January 15 and July 15
By:______________________________
Name:
Title:
This is one of the 11 1/2% Senior
Discount Debentures due 2008
referred to in the within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: _____________________________
Authorized Signature
A-2
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(Back of Note)
QUAKER HOLDING CO.
11 1/2% Senior Discount Debentures 2008
Capitalized terms used herein shall have the meanings assigned to them in the
Indenture referred to below.
1. INTEREST. Quaker Holding Co., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate of 11
1/2% per annum in the manner specified below. Interest will not accrue prior to
August 1, 2002. Thereafter, the Company shall pay interest semi-annually in
arrears on February 1 and August 1 of each year, or if any such day is not a
Business Day, on the next succeeding Business Day (each an "Interest Payment
Date"). Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from August 1, 2002.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate equal to the per annum rate on the Notes
then in effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) to the Persons who are registered Holders of Notes at the
close of business on January 15 and July 15 next preceding the Interest Payment
Date, even if such Notes are cancelled after such record date and on or before
such Interest Payment Date, except as provided in Section 2.12 of the Indenture
with respect to defaulted interest. The Notes will be payable as to principal,
premium, if any, and interest at the office or agency of the Company maintained
for such purpose within or without the City and State of New York, or, at the
option of the Company, payment of interest may be made by check mailed to the
Holders at their addresses set forth in the register of Holders; provided that
all payments with respect to Notes represented by one or more permanent global
Notes will be paid by wire transfer of immediately available funds to the
account of the Depository Trust Company or any successor thereto. Such payment
shall be in such coin or currency of the United Sates of America as at the time
of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust Company,
the Trustee under the Indenture, will act as Paying Agent and Registrar. The
Notes may be presented for registration of transfer and exchange at the offices
of the Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as of August
7, 1997 (the "Indenture") between the Company and the Trustee. The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture
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<PAGE> 77
Act of 1939, as amended (15 U.S. Code SectionSection 77aaa-77bbbb). The Notes
are subject to all such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms. The Notes are general unsecured
obligations of the Company limited to $148,400,000 in aggregate principal amount
at maturity.
5. OPTIONAL REDEMPTION. Except as set forth in the next paragraph, the Notes
will not be redeemable at the Company's option prior to August 1, 2002.
Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
written notice, at the redemption prices (expressed as a percentage of principal
amount) set forth below, together with accrued and unpaid interest thereon, to
the applicable redemption date, if redeemed during the twelve-month period
beginning on August 1 of each of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE OF
PRINCIPAL
AMOUNT
<S> <C>
2002 ................................................ 105.750%
2003 ................................................ 103.833%
2004 ................................................ 101.017%
2005 and thereafter ................................. 100.000%
</TABLE>
In addition, prior to August 1, 2000, the Company may, at its option, on any
one or more occasions redeem up to 35% of the original aggregate principal
amount at maturity of Notes at a redemption price equal to 111.50% of the
Accreted Value thereof, with the net cash proceeds of one or more Equity
Offerings; provided that at least 65% of the original aggregate principal amount
at maturity of Notes remains outstanding immediately after the occurrence of
each such redemption; and provided, further that any such redemption shall occur
within 90 days of the date of closing of each such Equity Offering.
6. MANDATORY REDEMPTION. Other than as set forth in paragraph 8, the Company
shall not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days
but not more than 60 days before the redemption date to each Holder whose Notes
are to be redeemed at its registered address. Notes may be redeemed in part but
only in whole multiples of $1,000. On and after the redemption date interest
ceases to accrue on Notes or portions thereof called for redemption.
8. REPURCHASE AT OPTION OF HOLDERS. (a) Upon the occurrence of a Change of
Control, the Company shall make an offer (a "Change of Control Offer") to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
the Notes at a price in cash equal to 101% of the aggregate principal amount at
maturity thereof plus accrued and unpaid interest, if any, to the date of
purchase (or, in the case of repurchases of Notes prior to August 1, 2002, at a
purchase price equal to 101% of the Accreted Value thereof as of the date of
repurchase) (the "Change of Control Payment"). Within 65 days following any
Change of Control, the Company shall mail a notice to each Holder of Notes
issued under the Indenture, with a copy to the Trustee, containing the
information set forth in Section 4.09 of the Indenture. Holders of Notes that
are
A-4
<PAGE> 78
subject to an offer to purchase may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" on the reverse
side of this Note.
(b) Within 395 days after the Company's or any Restricted Subsidiary's
receipt of any Net Proceeds from an Asset Sale, the Company or such Restricted
Subsidiary shall apply such Net Proceeds (a) to permanently reduce Indebtedness
of a Restricted Subsidiary of the Company (and to correspondingly reduce
commitments with respect thereto) or (b) to repay Pari Passu Indebtedness
(provided that if the Company shall so repay Pari Passu Indebtedness, it will
equally and ratably reduce Indebtedness under the Notes if the Notes are then
redeemable or, if the Notes may not be then redeemed, the Company shall make an
offer pursuant to Section 3.10 of the Indenture to purchase at 100% of the
principal amount thereof at maturity (or, in the case of repurchases of Notes
prior to August 1, 2002, at a purchase price equal to 100% of the Accreted Value
thereof as of the date of repurchase) the amount of Notes that would otherwise
be redeemed or (c) to an investment in property, capital expenditures or assets
that are used or useful in a Permitted Business, or Capital Stock of any Person
primarily engaged in a Permitted Business if, as a result of the acquisition by
the Company or any Restricted Subsidiary thereof, such Person becomes a
Restricted Subsidiary. Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the preceding sentence of this paragraph will be deemed
to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $15.0 million, the Company shall be required to make an Asset Sale Offer
to purchase the maximum principal amount of Notes that may be purchased out of
the Excess Proceeds at an offer price in cash in an amount equal to 100% of the
principal amount at maturity thereof plus accrued and unpaid interest thereon to
the date of purchase (or, in the case of repurchases of Notes prior to August 1,
2002, at a purchase price equal to 100% of the Accreted Value thereof as of the
date of repurchase), in accordance with the procedures set forth in Section 3.10
of the Indenture. To the extent that the aggregate principal amount at maturity
or Accreted Value (as applicable) of Notes amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount at maturity of or Accreted Value (as applicable) of Notes
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without
coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. Neither the
Company nor the Registrar need exchange or register the transfer of any Note or
portion of a Note selected for redemption. Also, neither the Company nor the
Registrar need exchange or register the transfer of any Notes for a period of 15
days before a selection of Notes to be redeemed.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its
owner for all purposes.
A-5
<PAGE> 79
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture and the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount at maturity of the then
outstanding Notes, and, subject to the terms of the Indenture, any existing
default (other than a default in the payment of the principal of, premium, if
any, or interest on, the Notes) or compliance with any provision of the
Indenture and the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder, the Indenture and the Notes may be amended or supplemented to
cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes
in addition to or in place of certificated Notes, to comply with Article 5 of
the Indenture, to provide for the assumption of the Company's obligations to
Holders of the Notes, to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, to add covenants for
the benefit of the Holders or to surrender any right or power conferred upon the
Company, to comply with the requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the TIA or to provide for the
appointment of a successor trustee in compliance with the requirements of
Section 7.10 of the Indenture.
12. DEFAULTS AND REMEDIES. Each of the following constitutes an "Event of
Default": (a) default for 30 days in the payment when due of interest on the
Notes; (b) default in payment when due of principal or premium, if any, on the
Notes at maturity, upon redemption or otherwise; (c) failure by the Company for
30 days after receipt of notice from the Trustee or Holders of at least 30% in
principal amount of the Notes then outstanding to comply with the provisions of
Sections 3.10, 4.09, 4.10, 4.11, 4.12 or Article 5 of the Indenture; (d) failure
by the Company for 60 days after notice from the Trustee or the Holders of at
least 30% in principal amount of the Notes then outstanding to comply with its
other agreements in the Indenture or the Notes; (e) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (i) is caused by a failure to pay Indebtedness at its stated final
maturity (after giving effect to any applicable grace period provided in such
Indebtedness) (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its stated final maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $20.0 million or more; (f) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $20.0 million (net of any amounts with respect to which
a reputable and creditworthy insurance company has acknowledged liability in
writing), which judgments are not paid, discharged or stayed within 60 days
after their entry; and (g) certain events of bankruptcy with respect to the
Company or any of its Restricted Subsidiaries that is a Significant Subsidiary.
If an Event of Default occurs and is continuing under the Indenture, the
Trustee or the Holders of at least 30% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising under
clause (f) or (g) of the preceding paragraph, all outstanding Notes will
A-6
<PAGE> 80
become due and payable without further action or notice. Upon any acceleration
of maturity of the Notes, all principal of and accrued interest on (if on or
after August 1, 2002) or Accreted Value of (if prior to August 1, 2002) the
Notes shall be due and payable immediately. Holders of the Notes may not enforce
the Indenture or the Notes except as provided under the Indenture. Subject to
certain limitations Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
In the event of a declaration of acceleration of the Notes because an Event of
Default has occurred and is continuing as a result of the acceleration of any
Indebtedness described in clause (e) of Section 6.01 of the Indenture, the
declaration of acceleration of the Notes shall be automatically annulled if the
holders of any Indebtedness described in clause (e) of Section 6.01 of the
Indenture have rescinded the declaration of acceleration in respect of such
Indebtedness within 30 days of the date of such declaration and if (y) the
annulment of the acceleration of the Notes would not conflict with any judgment
or decree of a court of competent jurisdiction and (z) all existing Events of
Default, except nonpayment of principal or interest on the Notes that became due
solely because of the acceleration of the Notes, have been cured or waived. The
Trustee may withhold from Holders of Notes notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the payment
of principal, premium, if any, or interest) if it determines that withholding
notice is in their interest. In addition, the Trustee shall have no obligation
to accelerate the Notes if in the best judgment of the Trustee acceleration is
not in the best interest of the Holders of such Notes.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company, and may otherwise deal with the Company, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as
such, of the Company shall not have any liability for any obligations of the
Company under these Notes or the Indenture or for any claim based on, in respect
of or by reason of such obligations or their creation. Each Holder by accepting
any of these Notes waives and releases all such liability.
15. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder
or an assignee, such as: TEN COM (= tenants in common), TENANT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Notes and the Trustee may use CUSIP numbers in notices of
redemption as a convenience to Holders. No representation is made as to the
accuracy of such numbers either as printed on the Notes or as contained in any
notice of redemption and reliance may be placed only on the other identification
numbers placed thereon.
18. GOVERNING LAW. The internal law of the State of New York shall govern and be
used to construe the terms of this Note.
A-7
<PAGE> 81
The Company shall furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
DecisionOne Holdings Corp.
50 East Swedesford Road
Frazer, Pennsylvania 19355
Attention: Thomas M. Molchan, Esq.
Facsimile: (610) 408-3820
A-8
<PAGE> 82
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:______________________
Your Signature:__________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee.
A-9
<PAGE> 83
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.09 or 4.10 of the Indenture, check the box below:
[ ] Section 4.09 [ ] Section 4.10
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.09 or Section 4.10 of the Indenture, state the amount you
elect to have purchased: $___________
Date:___________________ Your Signature:__________________________
(Sign exactly as your name appears on the Note)
Tax Identification No.:__________________
Signature Guarantee.
A-10
<PAGE> 84
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES(2)
The following exchanges of a part of this global Note for Notes in
definitive form have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized
Principal Amount of Principal Amount of following such decrease officer of
Date of Exchange this Global Note this Global Note (or increase) Trustee
- ---------------------- ----------------------- ------------------------ ------------------------ ------------
<S> <C> <C> <C> <C>
</TABLE>
- --------
(2) This should be included only if the Note is issued in global form.
A-11
<PAGE> 85
EXHIBIT B
FORM OF ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT (this "Agreement"), dated as of August 7, 1997,
between DecisionOne Holdings Corp., a Delaware corporation (the "Company"), and
State Street Bank and Trust Company, as trustee under the indenture referred to
below (the "Trustee").
W I T N E S S E T H
WHEREAS, Quaker Holding Co., a Delaware corporation ("Quaker"), has
heretofore executed and delivered to the Trustee an indenture (the "Indenture"),
dated as of the date hereof, providing for the issuance of 11 1/2% Senior
Discount Debentures due 2008 (the "Notes");
WHEREAS, Quaker has been merged with and into the Company;
WHEREAS, pursuant to Section 4.17 of the Indenture, the Company is
required to execute and deliver this Agreement concurrently with such merger;
WHEREAS, pursuant to Section 9.01 of the Indenture the Trustee is
authorized to execute and deliver this Agreement; and
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the Company
and the Trustee mutually covenant and agree for the equal and ratable benefit of
the holders of the Securities as follows:
1. ASSUMPTION. The Company hereby assumes all of the obligations
of Quaker under the Indenture and the Notes and, hereafter, shall be deemed the
"Company" for all purposes under the Indenture and the Notes.
2. NEW YORK LAW TO GOVERN. The internal law of the State of New
York, without regard to the choice of law rules thereof, shall govern and be
used to construe this Agreement.
3. COUNTERPARTS. The parties may sign any number of copies of
this Agreement. Each signed copy shall be an original, but all of them together
represent the same agreement.
4. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
[Signatures on following page]
B-1
<PAGE> 86
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the date first above written.
Dated: August 7, 1997 DECISIONONE HOLDINGS CORP.
By: _____________________________________
Name:
Title:
Dated: August 7, 1997 STATE STREET BANK AND TRUST COMPANY
as Trustee
By: _____________________________________
Name:
Title:
B-2
<PAGE> 1
EXHIBIT 4.6
EXECUTION COPY
================================================================================
QUAKER HOLDING CO.
148,400 Units Consisting of
$148,400,000 Aggregate Principal Amount at Maturity of
11 1/2% Senior Discount Debentures due 2008 and 148,400 Warrants to
Purchase 281,960 Shares of Common Stock
WARRANT AGREEMENT
Dated as of August 7, 1997
STATE STREET BANK AND TRUST COMPANY
Warrant Agent
================================================================================
<PAGE> 2
WARRANT AGREEMENT dated as of August 7, 1997 between Quaker Holding Co., a
Delaware corporation ("Quaker"), and State Street Bank and Trust Company, as
warrant agent (the "Warrant Agent").
WHEREAS, Quaker proposes to issue warrants (the "Warrants") to initially
purchase up to an aggregate of 281,960 shares of Common Stock, par value $.01
per share (the "Quaker Common Stock"), of Quaker (the Quaker Common Stock
issuable on exercise of the Warrants being referred to herein as the "Quaker
Warrant Shares"), in connection with the offering (the "Offering") by Quaker of
148,400 Units (the "Units"), each consisting of $1,000 principal amount at
maturity of Quaker's 11 1/2% Senior Discount Debentures due 2008 (the
"Debentures") and 148,400 Warrants, each Warrant initially representing the
right to purchase 1.9 Quaker Warrant Shares.
WHEREAS, the Units are being issued and sold in connection with the
execution of an Agreement and Plan of Merger, as amended (the "Merger
Agreement"), dated as of May 4, 1997, by and between Quaker and DecisionOne
Holdings Corp. ("Holdings") and the Merger Agreement provides, among other
things, for the merger of Quaker with and into Holdings (the "Merger").
WHEREAS, at the effective time of the Merger (the "Effective Time"), each
share of Quaker Common Stock will become one share of common stock of Holdings,
par value $.01 per share ("Holdings Common Stock"), each Warrant will by its
terms become exercisable to initially purchase 281,960 shares of Holdings Common
Stock (the "Holdings Warrant Shares") and Holdings will succeed to the
obligations of Quaker hereunder and with respect to the indenture relating to
the Debentures (the "Indenture"), the Debentures and the Warrants.
WHEREAS, immediately subsequent to the Effective Time, Holdings will
authorize, execute and deliver an assumption agreement substantially in the form
of Exhibit C hereto pursuant to which Holdings will assume all of the
obligations of Quaker under the Warrants and the Warrant Agreement.
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance of Warrant Certificates (as defined) and other matters as provided
herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
As used herein, the "Company" shall refer to Quaker prior to the Merger
and to Holdings from and after the Effective Time. As used herein, "Common
Stock" shall refer to Quaker Common Stock prior to the Merger and to Holdings
Common Stock from and after the Effective Time. As used herein, the term
"Warrant Shares" shall refer to the Quaker Warrant Shares prior to the Merger
and the Holdings Warrant Shares from and after the Effective Time.
<PAGE> 3
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Warrant Certificates. The certificates evidencing the Warrants
(the "Warrant Certificates") to be delivered pursuant to this Agreement shall be
in registered form only and shall be substantially in the form set forth in
Exhibit A attached hereto and shall, prior to the Separation Date (as defined
herein), bear the legend set forth in Exhibit B attached hereto.
The Warrants initially will be issued in global form (the "Global
Warrants"), substantially in the form of Exhibit A attached hereto (including
the text referred to in footnotes 1 and 2 thereto). The Global Warrant shall
represent such of the outstanding Warrants as shall be specified therein and
shall provide that it shall represent the aggregate amount of outstanding
Warrants from time to time endorsed thereon and that the aggregate amount of
outstanding Warrants represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and exercises. Any endorsement
of the Global Warrant to reflect the amount of any increase or decrease in the
amount of outstanding Warrants represented thereby shall be made by the Warrant
Agent or the depositary with respect to the Global Warrants (the "Depositary")
in accordance with instructions given by the holder thereof. The Company
initially appoints The Depository Trust Company ("DTC") to act as Depositary
with respect to the Warrants in global form.
Each Global Warrant shall bear the following legend on the face thereof:
"Unless and until it is exchanged in whole or in part for Warrants in
definitive form, this Warrant may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by
the Depositary or any such nominee to a successor Depositary or a nominee
of such successor Depositary. The Depository Trust Company shall act as
the Depositary until a successor shall be appointed by the Company. Unless
this certificate is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York, New York) ("DTC"), to
the Company or its agent for registration of transfer, exchange or
payment, and any certificate issued is registered in the name of Cede &
Co. or such other name as may be requested by an authorized representative
of DTC (and any payment is made to Cede & Co. or such other entity as may
be requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest
herein."
Beneficial owners of interests in a Global Warrant may receive Warrants in
definitive form (the "Definitive Warrants"), substantially in the form of
Exhibit A attached hereto (but without the text referred to in footnotes 1 and 2
thereto) in the name of such beneficial owners in accordance with the procedures
of the Warrant Agent and the Depositary. In connection with the execution and
delivery of such Definitive Warrants, the Warrant Agent shall reflect on its
books and records
2
<PAGE> 4
a decrease in the principal amount of the relevant Global Warrant equal to the
number of such Definitive Warrants and the Company shall execute and the Warrant
Agent shall countersign and deliver one or more Definitive Warrants in an equal
aggregate number.
SECTION 3. Execution of Warrant Certificates. (a) Warrant Certificates
shall be signed on behalf of the Company by its Chairman of the Board, Chief
Executive Officer, its President or a Vice President and by its Secretary or an
Assistant Secretary. Each such signature upon the Warrant Certificates may be in
the form of a facsimile signature of the present or any future Chairman of the
Board, Chief Executive Officer, President, Vice President, Secretary or
Assistant Secretary and may be imprinted or otherwise reproduced on the Warrant
Certificates and for that purpose the Company may adopt and use the facsimile
signature of any person who shall have been Chairman of the Board, Chief
Executive Officer, President, Vice President, Secretary or Assistant Secretary,
notwithstanding the fact that at the time the Warrant Certificates shall be
countersigned and delivered or disposed of he shall have ceased to hold such
office. The seal of the Company may be in the form of a facsimile thereof and
may be impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates.
(b) In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
(c) Warrant Certificates shall be dated the date of countersignature by
the Warrant Agent.
SECTION 4. Registration and Countersignature. (a) The Warrant Agent, on
behalf of the Company, shall number and register the Warrant Certificates in a
register as they are issued by the Company.
(b) Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. The
Warrant Agent shall, upon written instructions of the Chairman of the Board, the
Chief Executive Officer, the President, a Vice President, the Treasurer or the
Controller of the Company, initially countersign, issue and deliver Warrant
Certificates entitling the holders thereof to purchase not more than the number
of Warrant Shares referred to above in the first recital hereof and shall
countersign and deliver Warrant Certificates as otherwise provided in this
Agreement.
(c) The Company and the Warrant Agent may deem and treat the registered
holder(s) of the Warrant Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for all purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
3
<PAGE> 5
SECTION 5. Registration of Transfers and Exchanges. (a) The Warrant
Certificates shall be issued in registered form only. The Company shall cause to
be kept at the office of the Warrant Agent a register in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Warrant Certificates and transfers or exchanges of Warrant
Certificates as provided in this Agreement. All Warrant Certificates issued upon
any registration of transfer or exchange of Warrant Certificates shall be the
valid obligations of the Company, evidencing the same obligations, and entitled
to the same benefits under this Agreement, as the Warrant Certificates
surrendered for such registration of transfer or exchange.
A holder may transfer its Warrants only by written application to
the Warrant Agent stating the name of the proposed transferee and otherwise
complying with the terms of this Agreement. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a holder only upon,
final acceptance and registration of the transfer by the Warrant Agent in the
register. Prior to the registration of any transfer of Warrants by a holder as
provided herein, the Company, the Warrant Agent, and any agent of the Company
may treat the person in whose name the Warrants are registered as the owner
thereof for all purposes and as the person entitled to exercise the rights
represented thereby, any notice to the contrary notwithstanding. Furthermore,
any holder of a Global Warrant shall, by acceptance of such Global Warrant,
agree that transfers of beneficial interests in such Global Warrant may be
effected only through a book-entry system maintained by the holder of such
Global Warrant (or its agent), and that ownership of a beneficial interest in
the Warrants represented thereby shall be required to be reflected in a
book-entry. When Warrant Certificates are presented to the Warrant Agent with a
request to register the transfer or to exchange them for an equal amount of
Warrants of other authorized denominations, the Warrant Agent shall register
such transfer or make such exchange as requested if its requirements for such
transactions are met. To permit registrations of transfers and exchanges, the
Company shall execute Warrant Certificates at the Warrant Agent's request. No
service charge shall be made for any registration of transfer or exchange of
Warrants, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
registration of transfer of Warrants.
(b) The Global Warrants initially shall (i) be registered in the name of
the Depositary for such Global Warrants or the nominee of such Depositary, (ii)
be delivered to the Warrant Agent as custodian for such Depositary and (iii)
bear legends as set forth in Section 2 hereof. Members of, or participants in,
the Depositary ("Agent Members") shall have no rights under this Agreement with
respect to the Global Warrants, as the case may be, held on their behalf by the
Depositary or the Warrant Agent as its custodian, and the Depositary may be
treated by the Company, the Warrant Agent and any agent of the Company or the
Warrant Agent as the absolute owner of such Global Warrant for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Warrant Agent or any agent of the Company or the Warrant Agent,
from giving effect to any written certification, proxy or other authorization
furnished by the Depositary or impair, as between the Depositary and its Agent
Members, the operation of customary practices governing the exercise of the
rights of a holder of any Warrants.
(c) Transfers of a Global Warrant shall be limited to transfers of such
Global Warrant in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests
4
<PAGE> 6
of beneficial owners in the Global Warrants may be transferred in accordance
with the rules and procedures of the Depositary. Certificated Warrants shall be
issued and transferred to all beneficial owners in exchange for their beneficial
interests in the Global Warrant if the Depositary notifies the Company that it
is unwilling or unable to continue as Depositary for any such Global Warrant and
a successor depositary is not appointed by the Company within 120 days of such
notice.
(d) In connection with the transfer of the entire Global Warrant to the
beneficial owners thereof pursuant to paragraph (c) above, the Global Warrant
shall be surrendered to the Warrant Agent for cancellation, and the Company
shall execute, and the Warrant Agent shall countersign and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the Global Warrant, Definitive Warrants of authorized denominations
representing, in the aggregate, the number of Warrants theretofore represented
by the Global Warrant.
(e) The registered holder of a Global Warrant may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a holder is
entitled to take under this Agreement or the Warrants.
(f) The Warrant Agent shall retain copies of all letters, notices and
other written communications received pursuant to this Section 5. The Company
shall have the right to inspect and make copies of all such letters, notices or
other written communications at any reasonable time upon the giving of
reasonable written notice to the Warrant Agent.
(g) Any Warrant Certificate surrendered for registration of transfer,
exchange or exercise of the Warrants represented thereby shall, if surrendered
to the Company, be delivered to the Warrant Agent, and all Warrant Certificates
surrendered or so delivered to the Warrant Agent shall be promptly cancelled by
the Warrant Agent and shall not be reissued by the Company and, except as
provided in this Section 5 in case of an exchange, Section 6 hereof in case of
the exercise of less than all the Warrants represented thereby or Section 8
hereof in case of a mutilated Warrant Certificate, no Warrant Certificate shall
be issued hereunder in lieu thereof. The Warrant Agent shall deliver to the
Company from time to time or otherwise dispose of such cancelled Warrant
Certificates as the Company may direct.
(h) The Warrant Agent is hereby authorized to countersign, in accordance
with the provisions of this Section 5 and of Section 4 hereof, the new Warrant
Certificates required pursuant to the provisions of this Section 5.
(i) Notwithstanding the provisions of Section 5(a), until Separated (as
defined herein) each Warrant Certificate will be held by the Trustee, as
custodian for the registered holders of each Debenture or Debenture in global
form, and will be registered in the name of the registered holder of such
Debenture initially in the amount specified to the Warrant Agent by the Company.
Such holder may, at any time, on or after the Separation Date (as defined
herein), at its option, by notice to the Trustee elect to separate and/or
separately transfer the Debentures and the Warrants represented by such
Debenture or Debenture in global form containing a Warrant Endorsement (as
5
<PAGE> 7
defined in the Indenture), in whole or in part, for a definitive Warrant
Certificate or Warrant Certificates or a beneficial interest in a Global Warrant
evidencing the underlying Warrants and for a Debenture or Debentures or a
beneficial interest in a global Debenture of a like aggregate principal amount
at maturity of authorized denominations and not containing a Warrant Endorsement
in accordance with the Indenture (such surrender and exchange being referred to
herein as a "Separation" and the related Warrants being referred to as
"Separated"); provided that no delay or failure on the part of the Trustee or
the Warrant Agent to exchange such Warrant Certificate and Debenture or
Debentures shall affect the Separation of the Debentures and the Warrants or
their separate transferability. Prior to Separation, record ownership of the
Warrants will be evidenced by the certificates for Debentures or a global
Debenture registered in the names of the holders of the Debentures or global
Debenture, which certificates or global Debenture will bear thereon a Warrant
Endorsement substantially in the form set forth in the Indenture, and the right
to receive or exercise Warrants will be transferable only in connection with the
transfer of such Debentures or a beneficial interest in a global Debenture.
All Debentures and global Debentures containing a Warrant
Endorsement presented for Separation shall be duly endorsed by the registered
holder or holders thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney, and in the case of transfer, which signature
shall be medallion guaranteed by an institution which is a member of a
Securities Transfer Association recognized signature guarantee program. Upon
notice from the Trustee of a Separation, the Warrant Agent shall, with respect
to Definitive Warrants, deliver (or cause to be delivered) the Warrant
Certificate or Warrant Certificates executed by the Company and countersigned by
the Warrant Agent in the name of such registered holder or holders or such
transferee or transferees or shall, with respect to Global Warrants, deliver (or
cause to be delivered) a Global Warrant (CUSIP 243458114) executed by the
Company and countersigned by the Warrant Agent in the name of the Depositary or
its nominee for such aggregate number of Warrants (or, with respect to a Global
Warrant, increasing the number of Warrants represented thereby in such amount)
as shall equal one Warrant for each $1,000 principal amount at maturity of
Debentures so exchanged for Separation, bearing numbers or other distinguishing
symbols not contemporaneously outstanding, to the person or persons entitled
thereto. Upon registration of transfer or exchange of a Warrant Certificate, the
Warrant Agent shall countersign and deliver by certified mail a new Warrant
Certificate to the persons entitled thereto.
(j) No service charge shall be made for registration of transfer or
exchange upon surrender of any Warrant Certificate at the office of the Warrant
Agent maintained for that purpose. The Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration, transfer or exchange of Warrant Certificates.
SECTION 6. Separation of Warrants; Terms of Warrants; Exercise of
Warrants. (a) The Debentures and Warrants will not be separately transferable
until the close of business on the earliest to occur of (i) February 7, 1998,
(ii) such earlier date as Donaldson, Lufkin & Jenrette Securities Corporation
may determine and (iii) the occurrence of a Change of Control (as defined in the
Indenture) (the earliest of such dates, the "Separation Date"), at which time
such Warrants shall become separately transferable. Subject to the terms of this
Agreement, each Warrant holder
6
<PAGE> 8
shall have the right, which may be exercised during the period commencing at the
opening of business on the Separation Date and until 5:00 p.m., New York City
time on August 1, 2007 (the "Exercise Period"), to receive from the Company the
number of fully paid and nonassessable Warrant Shares which the holder may at
the time be entitled to receive on exercise of such Warrants and payment of the
exercise price (the "Exercise Price") then in effect for such Warrant Shares;
provided that holders shall be able to exercise their Warrants only if a
registration statement relating to the Warrant Shares is then in effect, or the
exercise of such Warrants is exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and such securities
are qualified for sale or exempt from qualification under the applicable
securities laws of the states in which the various holders of the Warrants or
other persons to whom it is proposed that the Warrant Shares be issued on
exercise of the Warrants reside. Each holder may exercise its right, during the
Exercise Period, to receive Warrant Shares on a net basis, such that, without
the exchange of any funds, the holder tenders Debentures having an aggregate
principal amount at maturity, plus accrued and unpaid interest, if any thereon,
to the date of exercise (or, if such exercise takes place prior to August 1,
2002, an Accreted Value (as defined in the Indenture) on the date of exercise)
equal to the Exercise Price of the Warrants being exercised by such holder. Each
Warrant not exercised prior to 5:00 p.m., New York City time, on August 1, 2007
(the "Expiration Date") shall become void and all rights thereunder and all
rights in respect thereof under this agreement shall cease as of such time. No
adjustments as to dividends will be made upon exercise of the Warrants.
(b) In order to exercise all or any of the Warrants represented by a
Warrant Certificate, (i) in the case of Definitive Warrants, the holder thereof
must surrender for exercise the Warrant Certificate to Company at the office of
the Warrant Agent at its New York corporate trust office set forth in Section 19
hereof, (ii) in the case of a book-entry interest in a Global Warrant, the
exercising Agent Member whose name appears on a securities position listing of
the Depositary as the holder of such book-entry interest must comply with the
Depositary's procedures relating to the exercise of such book-entry interest in
such Global Warrant and (iii) in the case of both Global Warrants and Definitive
Warrants, the holder thereof or the Agent Member, as applicable, must deliver to
the Company at the office of the Warrant Agent the form of election to purchase
on the reverse thereof duly filled in and signed, which signature shall be
medallion guaranteed by an institution which is a member of a Securities
Transfer Association recognized signature guarantee program, and upon payment to
the Warrant Agent for the account of the Company of the Exercise Price, which is
set forth in the form of Warrant Certificate attached hereto as Exhibit A, as
adjusted as herein provided, for the number of Warrant Shares in respect of
which such Warrants are then exercised. Payment of the aggregate Exercise Price
shall be made (i) in cash, by wire transfer or by certified or official bank
check payable to the order of the Company or (ii) on a net basis in the manner
provided in Section 6(a) hereof.
(c) Subject to the provisions of Section 7 hereof, upon compliance with
clause (b) above, the Company shall deliver or cause to be delivered with all
reasonable dispatch, to or upon the written order of the holder and in such name
or names as the Warrant holder or Agent Member may designate, a certificate or
certificates for the number of whole Warrant Shares issuable upon the exercise
of such Warrants or other securities or property to which such holder is
entitled hereunder, together with cash as provided in Section 12 hereof;
provided that if any consolidation,
7
<PAGE> 9
merger or lease or sale of assets is proposed to be effected by the Company as
described in Section 11(m) hereof, or a tender offer or an exchange offer for
shares of Common Stock shall be made, upon such surrender of Warrants and
payment of the Exercise Price as aforesaid, the Company shall, as soon as
possible, but in any event not later than two business days thereafter, deliver
or cause to be delivered the full number of Warrant Shares issuable upon the
exercise of such Warrants in the manner described in this sentence or other
securities or property to which such holder is entitled hereunder, together with
cash as provided in Section 12 hereof. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price.
(d) The Warrants shall be exercisable, at the election of the holders
thereof, either in full or from time to time in part. If less than all the
Warrants represented by a Definitive Warrant are exercised, such Definitive
Warrant shall be surrendered and a new Definitive Warrant of the same tenor and
for the number of Warrants which were not exercised shall be executed by the
Company and delivered to the Warrant Agent and the Warrant Agent shall
countersign the new Definitive Warrant, registered in such name or names as may
be directed in writing by the holder, and shall deliver the new Definitive
Warrant to the Person or Persons entitled to receive the same. The Warrant Agent
shall make such notations on Schedule A to each Global Warrant as are required
to reflect any change in the number of Warrants represented by such Global
Warrant resulting from any exercise in accordance with the terms hereof.
(e) All Warrant Certificates surrendered upon exercise of Warrants shall
be cancelled by the Warrant Agent. Such cancelled Warrant Certificates shall
then be disposed of by the Warrant Agent in a manner satisfactory to the
Company. The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all monies received by
the Warrant Agent for the purchase of the Warrant Shares through the exercise of
such Warrants.
(f) The Warrant Agent shall keep copies of this Agreement and any notices
given or received hereunder available for inspection by the holders during
normal business hours at its office. The Company shall supply the Warrant Agent
from time to time with such numbers of copies of this Agreement as the Warrant
Agent may request.
SECTION 7. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants; provided that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue of
any Warrant Certificates or any certificates for Warrant Shares in a name other
than that of the registered holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or deliver
such Warrant Certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
8
<PAGE> 10
SECTION 8. Mutilated or Missing Warrant Certificates. In case any of the
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
may in its discretion issue and the Warrant Agent may countersign, in exchange
and substitution for and upon cancellation of the mutilated Warrant Certificate,
or in lieu of and substitution for the Warrant Certificate lost, stolen or
destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity, if requested, also satisfactory to them.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company or the Warrant Agent may prescribe.
SECTION 9. Reservation of Warrant Shares. (a) The Company will at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
(b) The Company or, if appointed, the transfer agent for the Common Stock
(the "Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Company will furnish such Transfer Agent a copy of all notices of
adjustments, and certificates related thereto, transmitted to each holder
pursuant to Section 14 hereof.
(c) Before taking any action which would cause an adjustment pursuant to
Section 11 hereof to reduce the Exercise Price below the then par value (if any)
of the Warrant Shares, the Company will take any corporate action which may, in
the opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at the Exercise Price as so adjusted.
(d) The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon issue, be fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issuance thereof.
SECTION 10. Obtaining Stock Exchange Listings. The Company will from time
to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the principal securities exchanges and markets within the United States of
America, if any, on which other shares of Common Stock are then listed, if any.
9
<PAGE> 11
SECTION 11. Adjustment of Exercise Price and Number of Warrant Shares
Issuable. The Exercise Price and the number of Warrant Shares issuable upon the
exercise of each Warrant are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 11. For purposes of this
Section 11, "Common Stock" means shares now or hereafter authorized of any class
of common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
Notwithstanding anything to the contrary contained herein, the Exercise
Price and the number of Warrant Shares issuable upon the exercise of each
Warrant shall not be subject to adjustment under this Article 11 in connection
with the Merger. Instead, at the Effective Time, each Warrant shall be and shall
become the right initially to purchase 1.9 shares of Holdings Common Stock at an
initial Exercise Price of $23.00 per share and, from and after the Effective
Time, such number of shares of Holdings Common Stock and such Exercise Price
shall be subject to adjustment pursuant to this Section 11.
(a) Adjustment for Change in Capital Stock. If the Company (i) pays a
dividend or makes a distribution on its Common Stock in shares of its Common
Stock, (ii) subdivides its outstanding shares of Common Stock into a greater
number of shares, (iii) combines its outstanding shares of Common Stock into a
smaller number of shares, (iv) makes a distribution on its Common Stock in
shares of its capital stock other than Common Stock or (v) issues by
reclassification of its Common Stock any shares of its capital stock; then the
Exercise Price in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which he would have owned immediately following such action if such
Warrant had been exercised immediately prior to such action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification. If, after an
adjustment, a holder of a Warrant upon exercise of it may receive shares of two
or more classes of capital stock of the Company, the Company shall determine the
allocation of the adjusted Exercise Price between the classes of capital stock.
After such allocation, the exercise privilege and the Exercise Price of each
class of capital stock shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Stock in this Section 11. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) Adjustment for Rights Issue. If the Company distributes any rights,
options or warrants to all holders of its Common Stock entitling them for a
period expiring within 45 days after the record date mentioned below to purchase
shares of Common Stock at a price per share
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<PAGE> 12
less than the Fair Value (as defined herein) per share on that record date, the
Exercise Price shall be adjusted in accordance with the formula:
O + N x P
-----
E' = E x M
-----------
O + N
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the Fair Value per share of Common Stock on the record date.
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, options or warrants. If at the end of the period during which such
rights, options or warrants are exercisable, not all rights, options or warrants
shall have been exercised, the Exercise Price shall be immediately readjusted to
what it would have been if "N" in the above formula had been the number of
shares actually issued.
(c) Adjustment for Other Distributions. If the Company distributes to all
holders of its Common Stock any of its assets or debt securities or any rights
or warrants to purchase debt securities, assets or other securities of the
Company, the Exercise Price shall be adjusted in accordance with the formula:
E' = E x M - F
--------
M
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
M = the Fair Value per share of Common Stock on the record date
mentioned below.
11
<PAGE> 13
F = the fair market value on the record date of the assets,
securities, rights or warrants to be distributed in respect of
one share of Common Stock as determined in good faith by the
Board of Directors of the Company (the "Board of Directors."
The adjustment shall be made successively whenever any such distribution
is made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
This Section 11(c) does not apply to cash dividends or cash distributions
paid out of consolidated current or retained earnings as shown on the books of
the Company prepared in accordance with generally accepted accounting
principles. Also, this Section 11(c) does not apply to rights, options or
warrants referred to in Section 11(b) hereof.
(d) Adjustment for Common Stock Issue.
If the Company issues shares of Common Stock for a consideration per
share less than the Fair Value per share on the date the Company fixes the
offering price of such additional shares, the Exercise Price shall be adjusted
in accordance with the formula:
P
---
E' = E x O + M
--------
A
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the issuance
of such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
M = the Fair Value per share on the date of issuance of such additional
shares.
A = the number of shares outstanding immediately after the issuance of
such additional shares.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
12
<PAGE> 14
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and
(c) of this Section 11,
(2) the exercise of Warrants, or the conversion or exchange of
other securities convertible or exchangeable for Common Stock,
(3) Common Stock issued to the Company's employees under bona
fide employee benefit plans adopted by the Board of Directors and approved
by the holders of Common Stock when required by law, if such Common Stock
would otherwise be covered by this subsection (d) (but only to the extent
that the aggregate number of shares excluded hereby and issued after the
date of this Warrant Agreement shall not exceed 15% of the Common Stock
outstanding at the time of the adoption of each such plan, exclusive of
antidilution adjustments thereunder),
(4) Common Stock upon the exercise of rights or warrants
issued to the holders of Common Stock,
(5) Common Stock issued to shareholders of any person which
merges into the Company in proportion to their stock holdings of such
person immediately prior to such merger, upon such merger, or
(6) the issuance of shares of Common Stock pursuant to rights,
options or warrants which were originally issued in a Non-Affiliate Sale
(as defined below) together with one or more other securities as part of a
unit at a price per unit.
(e) Adjustment for Convertible Securities Issue.
If the Company issues any securities convertible into or
exchangeable for Common Stock (other than securities issued in transactions
described in subsections (b) and (c) of this Section 11) for a consideration per
share of Common Stock initially deliverable upon conversion or exchange of such
securities less than the Fair Value per share on the date of issuance of such
securities, the Exercise Price shall be adjusted in accordance with this
formula:
13
<PAGE> 15
P
---
E' = E x O + M
---------
O + D
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the issuance
of such securities.
P = the aggregate consideration received for the issuance of such
securities.
M = the Fair Value per share on the date of issuance of such securities.
D = the maximum number of shares deliverable upon conversion or in
exchange for such securities at the initial conversion or exchange
rate.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
If all of the Common Stock deliverable upon conversion or exchange
of such securities have not been issued when such securities are no longer
outstanding, then the Exercise Price shall promptly be readjusted to the
Exercise Price which would then be in effect had the adjustment upon the
issuance of such securities been made on the basis of the actual number of
shares of Common Stock issued upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities issued
to shareholders of any person which merges into the Company, or with a
subsidiary of the Company, in proportion to their stock holdings of such person
immediately prior to such merger, upon such merger.
(f) Consideration Received.
For purposes of any computation respecting consideration received
pursuant to subsections (d) and (e) of this Section 11, the following shall
apply:
(1) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to
14
<PAGE> 16
be the fair market value thereof as determined in good faith by the Board
of Directors (irrespective of the accounting treatment thereof), whose
determination shall be conclusive, and described in a Board resolution
which shall be filed with the Warrant Agent;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional consideration, if any, to
be received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided
in clauses (1) and (2) of this subsection); and
(4) in the case of the issuance of shares of Common Stock pursuant
to rights, options or warrants which rights, options or warrants were
originally issued together with one or more other securities as part of a
unit, the consideration shall be deemed to be (i) the fair value of such
rights, options or warrants at the time of issuance thereof as determined
in good faith by the Board of Directors whose determination shall be
conclusive and described in a Board resolution which shall be filed with
the Warrant Agent plus (ii) the additional consideration, if any, to be
received by the Company upon the exercise, conversion or exchange thereof
(as determined in the same manner as provided in clause (1) and (2) of
this subsection).
(g) Fair Value. In Sections 11(d) and (e) hereof, the "Fair Value" per
security at any date of determination shall be (1) in connection with a sale by
the Company to a party that is not an Affiliate of the Company in an
arm's-length transaction (a "Non-Affiliate Sale"), the price per security at
which such security is sold and (2) in connection with any sale by the Company
to an Affiliate of the Company, (a) the last price per security at which such
security was sold in a Non-Affiliate Sale within the three-month period
preceding such date of determination or (b) if clause (a) is not applicable, the
fair market value of such security determined in good faith by (i) a majority of
the Board of Directors, including a majority of the Disinterested Directors, and
approved in a Board resolution delivered to the Warrant Agent or (ii) a
nationally recognized investment banking, appraisal or valuation firm, which is
not an Affiliate of the Company, in each case, taking into account, among all
other factors deemed relevant by the Board of Directors or such investment
banking, appraisal or valuation firm, the trading price and volume of such
security on any national securities exchange or automated quotation system on
which such security is traded. Notwithstanding the foregoing, any sale to
Donaldson, Lufkin & Jenrette Securities Corporation (or any successor thereto)
pursuant to an underwritten public offering registered under the Securities Act
shall be deemed to be and treated as a Non-Affiliate Sale.
In Sections 11(b) and (c) hereof, the "Fair Value" per security at any
date of determination shall be (a) the last price per security at which such
security was sold by the Company in a Non-Affiliate Sale within the three-month
period preceding such date of determination or (b) if clause (a) is not
applicable, the fair market value of such security determined in good faith by
(i) a majority of the Board of Directors, including a majority of the
Disinterested Directors, and approved in a Board resolution delivered to the
Warrant Agent or (ii) a nationally recognized investment banking, appraisal or
valuation firm, which is not an Affiliate of the Company, in each
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case, taking into account, among all other factors deemed relevant by the Board
of Directors or such investment banking, appraisal or valuation firm, the
trading price and volume of such security on any national securities exchange or
automated quotation system on which such security is traded.
For purposes of this Section 11(g), "Disinterested Director" means, in
connection with any issuance of securities that gives rise to a determination of
the Fair Value thereof, each member of the Board of Directors who is not an
officer, employee, director or other Affiliate of the party to whom the Company
is proposing to issue the securities giving rise to such determination.
For purposes of this Section 11(g), "Affiliate" of any specified Person
means (A) any other Person directly or indirectly controlling or controlled by
or under direct or indirect common control with such specified Person and (B)
any director, officer or employee of such specified person. For purposes of this
definition "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with") as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
(h) When De Minimis Adjustment May Be Deferred. No adjustment in the
Exercise Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Exercise Price. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 11 shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be.
(i) When No Adjustment Required. No adjustment need be made for a
transaction referred to Section 11(a), (b), (c), (d) or (e) hereof, if Warrant
holders are to participate in the transaction on a basis and with notice that
the Board of Directors determines to be fair and appropriate in light of the
basis and notice on which holders of Common Stock participate in the
transaction. No adjustment need be made for (i) rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest, (ii) a
change in the par value or no par value of the Common Stock or (iii) the
issuance by the Company of the DLJMB Warrants (as defined in the registration
(No. 333-28539) on Form S-1 relating to the Units filed with the Securities and
Exchange Commission (the "Commission") on June 3, 1997). To the extent the
Warrants become convertible into cash, no adjustment need be made thereafter as
to the cash.
Interest will not accrue on the cash.
(j) Notice of Adjustment. Whenever the Exercise Price is adjusted, the
Company shall provide the notices required by Section 13 hereof.
(k) Voluntary Reduction. The Company from time to time may reduce the
Exercise Price by any amount for any period of time, if the period is at least
20 days and if the reduction is irrevocable during the period; provided that in
no event may the Exercise Price be less than the par value of a share of Common
Stock. Whenever the Exercise Price is reduced, the Company shall mail to Warrant
holders a notice of the reduction. The Company shall mail the notice at least
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<PAGE> 18
15 days before the date the reduced Exercise Price takes effect. The notice
shall state the reduced Exercise Price and the period in which it will be in
effect. A reduction of the Exercise Price does not change or adjust the Exercise
Price otherwise in effect for purposes of Sections 11(a), (b), (c), (d) and (e)
hereof.
(l) Notice of Certain Transactions. If (i) the Company takes any action
that would require an adjustment in the Exercise Price pursuant to Section
11(a), (b), (c), (d) or (e) hereof and if the Company does not arrange for
Warrant holders to participate pursuant to Section 11(i) hereof, (ii) the
Company takes any action that would require a supplemental Warrant Agreement
pursuant to Section 11(m) hereof or (iii) there is a liquidation or dissolution
of the Company, then the Company shall mail to Warrant holders a notice stating
the proposed record date for a dividend or distribution or the proposed
effective date of a subdivision, combination, reclassification, consolidation,
merger, transfer, lease, liquidation or dissolution. The Company shall mail the
notice at least 15 days before such date. Failure to mail the notice or any
defect in it shall not affect the validity of the transaction.
(m) Reorganization of Company. Immediately after the Effective Time, if
the Company consolidates or merges with or into, or transfers or leases all or
substantially all its assets to, any person, upon consummation of such
transaction the Warrants shall automatically become exercisable for the kind and
amount of securities, cash or other assets which the holder of a Warrant would
have owned immediately after the consolidation, merger, transfer or lease if the
holder had exercised the Warrant immediately before the effective date of the
transaction. Concurrently with the consummation of such transaction, the
corporation formed by or surviving any such consolidation or merger if other
than the Company, or the person to which such sale or conveyance shall have been
made, shall enter into a supplemental Warrant Agreement so providing and further
providing for adjustments which shall be as nearly equivalent as may be
practical to the adjustments provided for in this Section 11(m). The successor
Company shall mail to Warrant holders a notice describing the supplemental
Warrant Agreement. If the issuer of securities deliverable upon exercise of
Warrants under the supplemental Warrant Agreement is an affiliate of the formed,
surviving, transferee or lessee corporation, that issuer shall join in the
supplemental Warrant Agreement. If this Section 11(m) applies, Sections 11(a),
(b), (c), (d) and (e) hereof do not apply.
(n) Company Determination Final. Any determination that the Company or the
Board of Directors must make pursuant to Section 11(a), (c), (d), (e), (f), (g)
or (h) hereof is conclusive.
(o) Warrant Agent's Disclaimer. The Warrant Agent has no duty to determine
when an adjustment under this Section 11 should be made, how it should be made
or what it should be. The Warrant Agent has no duty to determine whether any
provisions of a supplemental Warrant Agreement under Section 11(m) hereof are
correct. The Warrant Agent makes no representation as to the validity or value
of any securities or assets issued upon exercise of Warrants. The Warrant Agent
shall not be responsible for the Company's failure to comply with this Section
11.
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(p) When Issuance or Payment May Be Deferred. In any case in which this
Section 11 shall require that an adjustment in the Exercise Price be made
effective as of a record date for a specified event, the Company may elect to
defer until the occurrence of such event (i) issuing to the holder of any
Warrant exercised after such record date the Warrant Shares and other capital
stock of the Company, if any, issuable upon such exercise over and above the
Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise on the basis of the Exercise Price and (ii) paying to such holder
any amount in cash in lieu of a fractional share pursuant to Section 12 hereof;
provided that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
Warrant Shares, other capital stock and cash upon the occurrence of the event
requiring such adjustment.
(q) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to this Section 11, each Warrant outstanding prior to
the making of the adjustment in the Exercise Price shall thereafter evidence the
right to receive upon payment of the adjusted Exercise Price that number of
shares of Common Stock (calculated to the nearest hundredth) obtained from the
following formula:
N' = N x E
-----
E'
where:
N' = the adjusted number of Warrant Shares issuable upon
exercise of a Warrant by payment of the adjusted
Exercise Price.
N = the number or Warrant Shares previously issuable
upon exercise of a Warrant by payment of the Exercise
Price prior to adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
(r) Form of Warrants. Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon the exercise of the
Warrants, Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the Warrants initially
issuable pursuant to this Agreement.
SECTION 12. Fractional Interests. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 12,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the Fair
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<PAGE> 20
Value per Warrant Share, as determined on the day immediately preceding the date
the Warrant is presented for exercise, multiplied by such fraction, computed to
the nearest whole U.S. cent.
SECTION 13. Notices to Warrant Holders. (a) Upon any adjustment of the
Exercise Price pursuant to Section 11 hereof, the Company shall promptly
thereafter (i) cause to be filed with the Warrant Agent a certificate of a firm
of independent public accountants of recognized standing selected by the Board
of Directors of the Company (who may be the regular auditors of the Company)
setting forth the Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, upon
exercise of a Warrant and payment of the adjusted Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, and (ii) cause to be given to each of the registered holders of
Warrants at the address appearing on the Warrant register for each such
registered holder written notice of such adjustments by first-class mail,
postage prepaid. Where appropriate, such notice may be given in advance and
included as a part of the notice required to be mailed under the other
provisions of this Section 13.
(b) In case:
(i) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for
or purchase shares of Common Stock or of any other subscription rights
or warrants;
(ii) the Company shall authorize the distribution to all
holders of shares of Common Stock of evidences of its indebtedness or
assets (other than cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends payable in shares
of Common Stock or distributions referred to in Section 11(a) hereof);
(iii) of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is
required, or of the conveyance or transfer of the properties and assets
of the Company substantially as an entirety, or of any reclassification
or change of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common
Stock;
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(v) the Company proposes to take any action (other than
actions of the character described in Section 11(a) hereof) which would
require an adjustment of the Exercise Price pursuant to Section 11
hereof;
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the registered holders of Warrants at his address
appearing on the Warrant register, at least
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<PAGE> 21
20 days (or 10 days in any case specified in clauses (i) or (ii) above) prior to
the applicable record date hereinafter specified, or promptly in the case of
events for which there is no record date, by first-class mail, postage prepaid,
a written notice stating (x) the date as of which the holders of record of
shares of Common Stock to be entitled to receive any such rights, options,
warrants or distribution are to be determined, (y) the initial expiration date
set forth in any tender offer or exchange offer for shares of Common Stock, or
(z) the date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up is expected to become effective or
consummated, and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange such shares for securities
or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up. The failure to give the notice required by this Section 13 or any defect
therein shall not affect the legality or validity of any distribution, right,
option, warrant, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
(c) Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders of Warrants the
right to vote or to consent or to receive notice as stockholders in respect of
the meetings of stockholders or the election of directors of the Company or any
other matter, or any rights whatsoever as stockholders of the Company.
SECTION 14. Merger, Consolidation or Change of Name of Warrant Agent.
(a) Any corporation into which the Warrant Agent may be merged or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor warrant agent under
the provisions of Section 16 hereof. In case at the time such successor to the
Warrant Agent shall succeed to the agency created by this Agreement, and in case
at that time any of the Warrant Certificates shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent; and in case at that time any of
the Warrant Certificates shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrant Certificates either in the name of
the predecessor Warrant Agent or in the name of the successor to the Warrant
Agent; and in all such cases such Warrant Certificates shall have the full force
and effect provided in the Warrant Certificates and in this Agreement.
(b) In case at any time the name of the Warrant Agent shall be changed
and at such time any of the Warrant Certificates shall have been countersigned
but not delivered, the Warrant Agent whose name has been changed may adopt the
countersignature under its prior name, and in case at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name, and in all such cases such Warrant Certificates shall have the full force
and effect provided in the Warrant Certificates and in this Agreement.
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<PAGE> 22
SECTION 15. Warrant Agent. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Warrants, by their acceptance
thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates
shall be taken as statements of the Company and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Warrant Agent or action taken or to be taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any holder of any Warrant
Certificate in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant Certificate for any action taken in
reliance on any Warrant Certificate, certificate of shares, notice, resolution,
waiver, consent, order, certificate, or other paper, document or instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the execution of this Agreement and to indemnify the Warrant
Agent and save it harmless against any and all liabilities, including judgments,
costs and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of this Agreement except as a result of its gross negligence or bad
faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as it may consider proper,
whether with or without any such security or indemnity. All rights of action
under this Agreement or under any of the Warrants may be enforced by the Warrant
Agent without the possession of any of the Warrant Certificates or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent and any recovery of judgment shall be for the
ratable benefit of the registered holders of the Warrants, as their respective
rights or interests may appear.
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(g) The Warrant Agent, and any stockholder, director, officer or
employee of it, may buy, sell or deal in any of the Warrants or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the provisions hereof. The
Warrant Agent shall not be liable for anything which it may do or refrain from
doing in connection with this Agreement except for its own gross negligence or
bad faith.
(i) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of any Warrant Certificate to make or cause to be
made any adjustment of the Exercise Price or number of the Warrant Shares or
other securities or property deliverable as provided in this Agreement, or to
determine whether any facts exist which may require any of such adjustments, or
with respect to the nature or extent of any such adjustments, when made, or with
respect to the method employed in making the same. The Warrant Agent shall not
be accountable with respect to the validity or value or the kind or amount of
any Warrant Shares or of any securities or property which may at any time be
issued or delivered upon the exercise of any Warrant or with respect to whether
any such Warrant Shares or other securities will when issued be validly issued
and fully paid and nonassessable, and makes no representation with respect
thereto.
SECTION 16. Change of Warrant Agent. If the Warrant Agent shall become
incapable of acting as Warrant Agent, the Company shall appoint a successor to
such Warrant Agent. If the Company shall fail to make such appointment within a
period of 30 days after it has been notified in writing of such incapacity by
the Warrant Agent or by the registered holder of a Warrant Certificate, then the
registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Pending
appointment of a successor to such Warrant Agent, either by the Company or by
such a court, the duties of the Warrant Agent shall be carried out by the
Company. The holders of a majority of the unexercised Warrants shall be entitled
at any time to remove the Warrant Agent and appoint a successor to such Warrant
Agent. Such successor to the Warrant Agent need not be approved by the Company
or the former Warrant Agent. After appointment the successor to the Warrant
Agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Warrant Agent without further act or deed;
provided that the former Warrant Agent shall deliver and transfer to the
successor to the Warrant Agent any property at the time held by it hereunder and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Failure to give any notice provided for in this Section 16,
however, or any defect therein, shall not affect the legality or validity of the
appointment of a successor to the Warrant Agent.
SECTION 17. Registration. Holders shall be able to exercise their
Warrants only if a registration statement relating to the Warrant Shares is then
in effect, or the exercise of such Warrants is exempt from the registration
requirements of the Securities Act, and such securities
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<PAGE> 24
are qualified for sale or exempt from qualification under the applicable
securities laws of the states in which the various holders of the Warrants or
other persons to whom it is proposed that the Warrant Shares be issued on
exercise of the Warrants reside.
(a) (i) The Company shall prepare and cause to be filed with the
Commission pursuant to Rule 415 under the Securities Act a shelf registration
statement on the appropriate form relating to the offer and sale by the Company
of the Warrant Shares to the holders of Warrants upon exercise of the Warrants
and resales of the Warrant Shares by the holders thereof.
(ii) In addition, the Company shall prepare and cause to be
filed with the Commission pursuant to Rule 415 under the Securities Act a shelf
registration statement on the appropriate form relating to the resale of Warrant
Shares upon the exercise of the Warrants by any broker or dealer registered
under the Securities Exchange Act of 1934, as amended (together with the
registration statement contemplated by clause (i) above, the "Registration
Statements").
(b) The Company shall use its reasonable best efforts to cause such
Registration Statements to be declared effective by the Commission by the
earlier of (i) the later of the Separation Date and 120 days from the date of
this Agreement and (ii) 45 days after the occurrence of a Change of Control.
(c) The Company shall use its best efforts to keep the Registration
Statements continuously effective under the Securities Act in order to permit
the prospectus included therein to be lawfully delivered by the Company to the
holders exercising the Warrants until the Expiration Date or such shorter period
that will terminate when all the Warrants have been exercised; provided that,
except as provided below with respect to any Black Out Period (as defined
herein), the Company shall be deemed not to have used its reasonable best
efforts to keep the Registration Statements effective during the requisite
period if it voluntarily takes any action that would result in it not being able
to offer and sell the Warrant Shares upon exercise of the Warrants during that
period, unless such action is required by applicable law. Notwithstanding the
foregoing, the Company shall not be required to amend or supplement the
Registration Statements, any related prospectus or any document incorporated
therein by reference, for a period (a "Black Out Period") not to exceed, for so
long as this Agreement is in effect, an aggregate of 45 days in any calendar
year, in the event that (i) an event occurs and is continuing as a result of
which the Registration Statements, any related prospectus or any document
incorporated therein by reference as then amended or supplemented would, in the
Company's good faith judgment, contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
and (ii)(A) the Company determines in its good faith judgment that the
disclosure of such event at such time would have a material adverse effect on
the business, operations or prospects of the Company or (B) the disclosure
otherwise relates to a material business transaction which has not yet been
publicly disclosed; provided that no Black Out Period may be in effect during
the three months prior to the Expiration Date.
(d) The Company shall cause the Registration Statements and the related
prospectus and any amendment or supplement thereto, as of the effective date of
the Registration Statements,
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<PAGE> 25
amendment or supplement, (i) to comply in all material respects with the
applicable requirements of the Securities Act and the rules and regulations of
the Commission and (ii) not to contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(e) The Company shall give prompt written notice to the holders of the
Warrants and the Warrant Agent of (i) the effectiveness of the Registration
Statements or any post-effective amendment thereto, (ii) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statements or the initiation or threatening of any proceedings for that purpose,
(iii) the receipt by the Company or its legal counsel of any notification with
respect to the suspension of the qualification of the Warrant Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose, (iv) the happening of any event that requires the Company to make
changes in the Registration Statements or the prospectus in order to make the
statements therein not misleading and (v) the commencement and termination of
any Black Out Period.
(f) The Company shall use its reasonable best efforts to prevent the
issuance or obtain the withdrawal of any order suspending the effectiveness of
the Registration Statements at the earliest possible time.
(g) Upon the occurrence of any event contemplated by Section 17(e)(iv)
or (v) hereof (subject to the last sentence of Section 17(c) hereof) the Company
shall promptly prepare a post-effective amendment to the Registration Statements
or a supplement to the related prospectus or file any other required document so
that, as thereafter delivered to holders of the Warrants, the prospectus will
not contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and will contain the current
information required by the Securities Act.
(h) Not later than the effective date of the Registration Statements,
the Company will provide a CUSIP number for the Warrant Shares and provide the
Warrant Agent with printed certificates for the Warrant Shares in a form
eligible for deposit with the Depository Trust Company.
(i) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the Registration
Statements.
(j) The Company shall register or qualify or cooperate with the holders
in connection with the registration or qualification of the Warrant Shares for
offer and sale by the Company upon exercise of the Warrants under the securities
or blue sky laws of such states of the United States as any holder reasonably
requests and do any and all other acts or things necessary or advisable to
enable such offer and sale in such jurisdictions; provided that the Company
shall not be required to (i) qualify to do business in any jurisdiction in which
it is not then so qualified or (ii) take any action which would subject it to
general service of process or to taxation in any jurisdiction in which it is not
then so subject.
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(k) The Company shall bear all expenses incurred by it in connection
with the performance of its obligations under this Section 17.
(l) The Company acknowledges and agrees that any remedy at law for
breach of any provision of this Section 17 will be inadequate and that, in
addition to any other remedies that the holder may have, the holders shall be
entitled to the remedy of specific performance to ensure the Company performs
its obligations under this Section 17. The election of any one or more remedies
by the holders hereunder shall not constitute a waiver of the right to pursue
other available remedies.
(m) No person is entitled to include any securities of the Company held
by such person in, or to have such securities registered under, the Registration
Statements.
SECTION 18. Reports.
(a) Whether or not required by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), so long as any Warrants
are outstanding, the Company shall furnish to the Warrant Agent and the holders
of Warrants (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the rules
and regulations of the Commission, the Company shall file a copy of all such
information and reports with the Commission for public availability (unless the
Commission shall not accept such a filing) and make such information available
to securities analysts and prospective investors upon request.
(b) The Company shall provide the Warrant Agent with a sufficient
number of copies of all such reports that the Warrant Agent may be required to
deliver to the holders of the Warrants under this Section 18.
SECTION 19. Notices to Company and Warrant Agent. Any notice or demand
authorized by this Agreement to be given or made by the Warrant Agent or by the
registered holder of any Warrant to or on the Company shall be sufficiently
given or made when and if deposited in the mail, first class or registered,
postage prepaid, addressed (until another address is filed in writing by the
Company with the Warrant Agent) as follows:
DecisionOne Holdings Corp.
50 East Swedesford Road
Frazer, Pennsylvania 19355
Telephone: (610) 296-6000
Attention: Thomas M. Molchan, Esq.
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In case the Company shall fail to maintain such office or agency or
shall fail to give such notice of the location or of any change in the location
thereof, presentations may be made and notices and demands may be served at the
principal office of the Warrant Agent.
Any notice pursuant to this Agreement to be given by the Company or by
the registered holder(s) of any Warrant to the Warrant Agent shall be
sufficiently given when and if deposited in the mail, first-class or registered,
postage prepaid, addressed (until another address is filed in writing by the
Warrant Agent with the Company) to the Warrant Agent as follows:
State Street Bank and Trust Company
777 Main Street, 11th Floor
Hartford, Connecticut 06115
Attention: Corporate Trust Department
Facsimile: (860) 986-7920
SECTION 20. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not in any way
adversely affect the interests of the holders of Warrants. Any amendment or
supplement to this Agreement that has a material adverse effect on the interests
of the holders of Warrants shall require the written consent of the holders of a
majority of the then outstanding Warrants (excluding Warrants held by the
Company or any of its affiliates). The consent of each holder of Warrants
affected shall be required for any amendment pursuant to which the Exercise
Price would be increased or the number of Warrant Shares purchasable upon
exercise of Warrants would be decreased (other than pursuant to adjustments
provided in this Agreement.
SECTION 21. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder,
whether so expressed or not.
SECTION 22. Termination. This Agreement shall terminate at 5:00 p.m.,
New York City time on August 1, 2007. Notwithstanding the foregoing, this
Agreement will terminate on any earlier date if all Warrants have been
exercised. The provisions of Section 15 shall survive such termination.
SECTION 23. Governing Law. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
internal laws of said State.
SECTION 24. Benefits of This Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of Warrants any legal or equitable
right, remedy or claim under this Agreement; but this
26
<PAGE> 28
Agreement shall be for the sole and exclusive benefit of the Company, the
Warrant Agent and the registered holders of Warrants.
SECTION 25. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
[Signature Page Follows]
27
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
QUAKER HOLDING CO.
By:_________________________________
Name:
Title:
[Seal]
Attest: ______________________
Secretary
STATE STREET BANK AND TRUST COMPANY,
as Warrant Agent
By _________________________________
Name:
Title:
[Seal]
Attest: _______________________
Secretary
28
<PAGE> 30
EXHIBIT A
FORM OF WARRANT
[Face of Warrant Certificate]
[Unless and until it is exchanged in whole or in part for Warrants in definitive
form, this Warrant may not be transferred except as a whole by the Depositary to
a nominee of the Depositary or by a nominee of the Depositary to the Depositary
or another nominee of the Depositary or by the Depositary or any such nominee to
a successor Depositary or a nominee of such successor Depositary. The Depository
Trust Company shall act as the Depositary until a successor shall be appointed
by the Company. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the Company or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.](1)
EXERCISABLE ON OR AFTER THE SEPARATION DATE
No. _____ __________Warrants
Warrant Certificate
QUAKER HOLDING CO.
This Warrant Certificate certifies that ______________, or registered
assigns, is the registered holder of Warrants expiring August 1, 2007 (the
"Warrants") to purchase Common Stock. Each Warrant entitles the holder upon
exercise to receive from the Company commencing on the Separation Date (as
defined in the Warrant Agreement) until 5:00 p.m. New York City Time on August
1, 2007, the number of fully paid and nonassessable Warrant Shares as set forth
in the Warrant Agreement, subject to adjustment as set forth in Section 11 of
the Warrant Agreement, at the initial exercise price (the "Exercise Price") of
$23.00 per share payable in lawful money of the United States of America upon
surrender of this Warrant Certificate and payment of the Exercise Price at the
office or agency of the Warrant Agent, but only subject to the conditions set
forth herein and in the Warrant Agreement referred to on the reverse hereof.
Notwithstanding the foregoing, Warrants may be exercised without the exchange of
funds pursuant to the net exercise provisions of Section 6 of the Warrant
Agreement. The Exercise Price and number of Warrant Shares issuable upon
exercise of the Warrants are subject to adjustment upon the
- --------
1. This paragraph should be included only if the Warrant is issued in global
form.
A-1
<PAGE> 31
occurrence of certain events set forth in the Warrant Agreement. No Warrant may
be exercised after 5:00 p.m., New York City Time on August 1, 2007, and to the
extent not exercised by such time such Warrants shall become void. Reference is
hereby made to the further provisions of this Warrant Certificate set forth on
the reverse hereof and such further provisions shall for all purposes have the
same effect as though fully set forth at this place. This Warrant Certificate
shall not be valid unless countersigned by the Warrant Agent, as such term is
used in the Warrant Agreement. This Warrant Certificate shall be governed and
construed in accordance with the internal laws of the State of New York.
IN WITNESS WHEREOF, Quaker Holding Co. has caused this Warrant
Certificate to be signed by its President and Treasurer and by its Vice
President and Secretary and may cause its corporate seal to be affixed hereunto
or imprinted hereon.
Dated: August 7, 1997
QUAKER HOLDING CO.
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
Countersigned:
STATE STREET BANK AND TRUST COMPANY
as Warrant Agent
By:________________________________
Name:
Title:
A-2
<PAGE> 32
[Reverse of Warrant Certificate]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring August 1, 2007 entitling the holder on
exercise to receive shares of Common Stock, and are issued or to be issued
pursuant to a Warrant Agreement dated as of August 7, 1997 (the "Warrant
Agreement"), duly executed and delivered by the Company to State Street Bank and
Trust Company, as warrant agent (the "Warrant Agent"), which Warrant Agreement
is hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Warrant Agent, the Company
and the holders (the words "holders" or "holder" meaning the registered holders
or registered holder) of the Warrants. A copy of the Warrant Agreement may be
obtained by the holder hereof upon written request to the Company.
Warrants may be exercised at any time on or after the Separation Date
and on or before August 1, 2007; provided that holders shall be able to exercise
their Warrants only if a registration statement relating to the Warrant Shares
is then in effect, or the exercise of such Warrants is exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of the Warrants or other persons to whom it is proposed that the
Warrant Shares be issued on exercise of the Warrants reside. In order to
exercise all or any of the Warrants represented by this Warrant Certificate, (i)
in the case of Definitive Warrants, the holder must surrender for exercise this
Warrant Certificate to the Warrant Agent at its New York corporate trust office
set forth in Section 19 of the Warrant Agreement, (ii) in the case of a
book-entry interest in a Global Warrant, the exercising Agent Member whose name
appears on a securities position listing of the Depositary as the holder of such
book-entry interest must comply with the Depositary's procedures relating to the
exercise of such book-entry interest in such Global Warrant and (iii) in the
case of both Global Warrants and Definitive Warrants, the holder thereof or the
Agent Member, as applicable, must deliver to the Warrant Agent the form of
election to purchase on the reverse hereof duly filled in and signed, which
signature shall be medallion guaranteed by an institution which is a member of a
Securities Transfer Association recognized signature guarantee program, and upon
payment to the Warrant Agent for the account of the Company of the Exercise
Price, as adjusted as provided in the Warrant Agreement, for the number of
Warrant Shares in respect of which such Warrants are then exercised. No
adjustment shall be made for any dividends on any Common Stock issuable upon
exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will pay
the cash value thereof determined as provided in the Warrant Agreement.
The Company has agreed under the terms of the Warrant Agreement to file
and use its reasonable best efforts to make effective no later than the earlier
of (i) the later of the Separation
A-3
<PAGE> 33
Date and 120 days from the date of the Warrant Agreement and (ii) 45 days after
the occurrence of a Change of Control and (subject to Black Out Periods) to
maintain effective until expiration or exercise of all Warrants shelf
registration statements (the "Registration Statements") on appropriate forms
under the Securities Act covering the issuance and resale of Warrant Shares upon
exercise of the Warrants.
Warrant Certificates, when surrendered at the office of the Warrant
Agent by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.
A-4
<PAGE> 34
Form of Election to Purchase
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive __________ shares of Common
Stock and herewith tenders payment for such shares to the order of the Company
in the amount of $______ in accordance with the terms hereof unless the holder
is exercising Warrants pursuant to the net exercise provisions of Section 6 of
the Warrant Agreement in which case the holder shall tender Debentures having an
aggregate principal amount at maturity, plus accrued and unpaid interest, if any
thereon, to the date of exercise (or, if such exercise takes place prior to
August 1, 2002, an Accreted Value (as defined in the Indenture) on the date of
exercise equal to the Exercise Price of the Warrants being exercised by such
holder. The undersigned requests that a certificate for such shares be
registered in the name of _______________________________, whose address is
_______________________________ and that such shares be delivered to
________________ whose address is _________________________________. If said
number of shares is less than all of the shares of Common Stock purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the remaining balance of such shares be registered in the name of
______________, whose address is _________________________, and that such
Warrant Certificate be delivered to _________________, whose address is
__________________.
Date: ______________, ____
__________________________
(Signature)
__________________________
(Signature Guaranteed)
A-5
<PAGE> 35
SCHEDULE A(2)
SCHEDULE OF WARRANTS
EVIDENCED BY THIS GLOBAL WARRANT
The initial number of Warrants evidenced by this Global
Warrant shall be 148,400. The following decreases/increases in the number of
Warrants evidenced by this Warrant have been made:
<TABLE>
<CAPTION>
Decrease in Increase in Total Number of
Number of Number of Warrants Evidenced
Warrants Warrants by this Global Notation Made
Date of Evidenced by Evidenced by Warrant Following by or on
Decrease/ this Global this Global such Decrease/ Behalf of
Increase Warrant Warrant Increase Warrant Agent
- -------- ------- ------- -------- -------------
<S> <C> <C> <C> <C>
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
- ------------ ------------- ------------- ------------------------ ----------------------
</TABLE>
- --------
2. To be included only on Global Warrants.
A-6
<PAGE> 36
EXHIBIT B
FORM OF TRANSFER LEGEND
Each Certificate evidencing Warrants originally issued as part of a
Unit of Debentures and Warrants issued by the Company (and each Certificate
evidencing Warrants issued on registration of transfer thereof or in exchange or
substitution therefor prior to the close of business on the Separation Date (as
defined)) shall bear a legend, which may be affixed by stamp or sticker, in
substantially the following form:
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE NOT TRANSFERABLE
SEPARATELY FROM THE DEBENTURES ORIGINALLY SOLD AS A UNIT WITH THE
WARRANTS UNTIL THE EARLIEST TO OCCUR OF (I) FEBRUARY 7, 1997, (II) SUCH
EARLIER DATE AS DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MAY
DETERMINE AND (III) THE OCCURRENCE OF A CHANGE IN CONTROL (AS DEFINED
IN THE INDENTURE RELATING TO THE DEBENTURES). PRIOR TO SUCH DATE, THE
WARRANTS EVIDENCED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY WITH THE
SIMULTANEOUS TRANSFER TO THE TRANSFEREE OF $1,000 PRINCIPAL AMOUNT OF
DEBENTURES FOR EACH WARRANT SO TRANSFERRED.
B-1
<PAGE> 37
EXHIBIT C
FORM OF ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT (this "Agreement"), dated as of August 7,
1997, between DecisionOne Holdings Corp., a Delaware corporation (the
"Company"), and State Street Bank and Trust Company, as Warrant Agent under the
warrant agreement referred to below (the "Warrant Agent").
W I T N E S S E T H
WHEREAS, Quaker Holding Co., a Delaware corporation
("Quaker"), has heretofore executed and delivered to the Warrant Agent a warrant
agreement (the "Warrant Agreement"), dated as of the date hereof, providing for
the issuance of 148,400 Warrants (the "Warrants") to purchase 281,960 shares of
common stock, par value $.01 per share (the "Common Stock"), of Quaker;
WHEREAS, Quaker has been merged with and into the Company;
WHEREAS, pursuant to Section 20 of the Warrant Agreement the
Warrant Agent is authorized to execute and deliver this Agreement; and
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Company and the Warrant Agent mutually covenant and agree for the equal and
ratable benefit of the holders of the Warrants as follows:
1. ASSUMPTION. The Company hereby assumes all of the
obligations of Quaker under the Warrant Agreement and the Warrants and,
hereafter, shall be deemed the "Company" for all purposes under the Warrant
Agreement and the Warrants.
2. NEW YORK LAW TO GOVERN. The internal law of the State of
New York, without regard to the choice of law rules thereof, shall govern and be
used to construe this Agreement.
3. COUNTERPARTS. The parties may sign any number of copies of
this Agreement. Each signed copy shall be an original, but all of them together
represent the same agreement.
4. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
[Signatures on following page]
C-1
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the date first above
written.
Dated: August 7, 1997 DECISIONONE HOLDINGS CORP.
By: ____________________________
Name:
Title:
Dated: August 7, 1997 STATE STREET BANK AND TRUST COMPANY
as Warrant Agent
By: ____________________________
Name:
Title:
C-2
<PAGE> 1
EXHIBIT 10.1
DECISIONONE HOLDINGS CORP.
1997 MANAGEMENT INCENTIVE PLAN
SECTION 1. Purpose. The purposes of the DecisionOne Holdings Corp. 1997
Management Incentive Plan are to promote the interests of DecisionOne Holdings
Corp. (the "Company") and its stockholders by (i) attracting and retaining
exceptional executive personnel and other key employees of the Company and its
Subsidiaries, as defined below; (ii) motivating such employees by means of
performance-related incentives to achieve longer-range performance goals; and
(iii) enabling such employees to participate in the long-term growth and
financial success of the Company. In addition, the Plan shall cover certain
"rollover" options resulting from the merger of the Company with Quaker Holding
Co.
SECTION 2. Definitions. As used in the Plan, the following terms shall
have the meanings set forth below:
"AFFILIATE" means (i) any entity that is, directly or indirectly,
controlled by the Company and (ii) any other entity in which the Company has a
significant equity interest or which has a significant equity interest in the
Company, in either case as determined by the Committee.
"AWARD" means any Option or Stock Appreciation Right.
"AWARD AGREEMENT" means any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means, unless otherwise defined in any Employment Agreement or
Award Agreement:
(a) a Participant's willful and continued failure substantially to
perform his duties (other than as a result of total or partial incapacity due to
physical or mental illness);
(b) an act or acts on a Participant's part constituting a felony under
the laws of the United States or any state thereof or any other jurisdiction in
which the Company conducts business;
<PAGE> 2
(c) a Participant being repeatedly under the influence of illegal drugs
or alcohol while performing his duties; or
(d) any other act or omission which is materially injurious to the
financial condition or business reputation of the Company or any of its
Affiliates as determined in the reasonable discretion of the Company, including
a Participant's breach of the provisions of any non-competition,
non-solicitation or confidentiality covenant in favor of the Company or its
Affiliates binding upon such Participant.
"CHANGE OF CONTROL" shall mean, unless otherwise defined in any
Employment Agreement or Option Agreement,
(i) any "person" (as such term is used in Section 3(a)(9) and
13(d)(3) of the Exchange Act) other than (A) the DLJ Entities, the
Institutional Shareholders (as defined in the Investors' Agreement)
and/or their respective Permitted Transferees (as defined in the
Investors' Agreement) or (B) any "group" (within the meaning of such
Section 13(d)(3)) of which any of the DLJ Entities or any of the
Institutional Shareholders is a part, acquires, directly or indirectly,
by virtue of the consummation of any purchase, merger or other
combination, securities of the Company representing more than 51% of the
combined voting power of the Company's then outstanding voting
securities with respect to matters submitted to a vote of the
stockholders generally; or
(ii) a sale or transfer by the Company or any of its
Subsidiaries of substantially all of the consolidated assets of the
Company and its Subsidiaries to an entity which is not an Affiliate of
the Company prior to such sale or transfer.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITTEE" means a committee of the Board designated by the Board to
administer the Plan and composed of not less than the minimum number of persons
from time to time required by Rule 16b-3 and Section 162(m) each of whom, to the
extent necessary to comply with Rule 16b-3 and Section 162(m) only, is a
"Non-Employee Director" and an "Outside Director" within the meaning of Rule
16b-3 and Section 162(m), respectively. Until otherwise determined by the Board,
the full Board shall be the Committee under the Plan.
"DISABILITY" shall mean a Participant's inability, as a result of
physical or mental illness, to perform the duties of his position(s) for a
period of 90
2
<PAGE> 3
consecutive days or for an aggregate of 150 days in any twelve consecutive month
period. Any question as to the existence of the Disability of a Participant as
to which such Participant and the Company cannot agree shall be determined in
writing by a qualified independent physician selected by the Company and
reasonably acceptable to the Participant. The determination of Disability made
in writing to the Company and the Participant shall be final and conclusive for
all purposes of the Plan.
"EMPLOYEE" means an employee of the Company or any Subsidiary.
"EMPLOYMENT AGREEMENT" means an employment agreement entered into
between the Company or any Subsidiary and a Participant.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means with respect to the Shares, as of the
consummation of the merger of the Company and Quaker Holding Co., $20.6084 per
share, and as of any other given date or dates, the average reported closing
price of a share of such class of common stock on such exchange or market as is
the principal trading market for such class of common stock for the three
trading days immediately preceding such date or dates. If such class of common
stock is not traded on an exchange or principal trading market on such date, the
fair market value of a Share shall be determined by the Committee in good faith
taking into account as appropriate recent sales of the Shares, recent valuations
of the Shares and such other factors as the Committee shall in its discretion
deem relevant or appropriate.
"GOOD REASON" shall mean, unless otherwise defined in any Employment
Agreement or Award Agreement:
(A) A Participant is removed from his/her position or assigned duties
and responsibilities materially inconsistent with his/her position; or
(B) A Participant's base salary and benefits (including target bonus
opportunities and criteria but not actual bonus payments) are reduced by more
than 10% in the aggregate, except for across-the-board reductions similarly
affecting similarly situated employees.
"INCENTIVE STOCK OPTION" means a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is intended to meet
the requirements of Section 422 of the Code or any successor provision thereto.
3
<PAGE> 4
"INVESTORS' AGREEMENT" means the Investors' Agreement dated as of the
date hereof among Quaker Holding Co., DLJ Merchant Banking Partners II, L.P.,
DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millenium
Partners, L.P., DLJ Millenium Partners-A, L.P., DLJMB Funding II, Inc., UK
Investment Plan 1997 Partners, DLJ EAB Partners, L.P., DLJ First ESC, LLC, and
certain other shareholders listed on the signature pages thereto.
"NON-QUALIFIED STOCK OPTION" means a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is not intended to
be an Incentive Stock Option.
"OPTION" means an Incentive Stock Option or a Non-Qualified Stock
Option.
"PARTICIPANT" means any Employee selected by the Committee to receive an
Award under the Plan and any former director who receives a Rollover Option (and
to the extent applicable, any heirs or legal representatives thereof).
"PERMITTED TRANSFEREE" shall have the meaning assigned to it in the
Investors' Agreement.
"PERSON" means any individual, corporation, limited liability company,
partnership, association, joint-stock company, trust, unincorporated
organization, government or political subdivision thereof or other entity.
"PLAN" means this DecisionOne Holdings Corp. 1997 Management Incentive
Plan.
"ROLLOVER OPTION" means any employee or director options "rolled over"
in connection with the merger of the Company with Quaker Holding Co.
"RULE 16B-3" means Rule 16b-3 as promulgated and interpreted by the SEC
under the Exchange Act, or any successor rule or regulation thereto as in effect
from time to time.
"SEC" means the Securities and Exchange Commission or any successor
thereto.
"SECTION 162(M)" means Section 162(m) of the Code, or any successor
section thereto as in effect from time to time.
4
<PAGE> 5
"SHARES" means shares of common stock, $.01 par value, of the Company or
such other securities as may be designated by the Committee from time to time.
"STOCK APPRECIATION RIGHT" means any right granted under Section 7 of
the Plan.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person.
"SUBSTITUTE AWARDS" means Awards granted in assumption of, or in
substitution for, outstanding awards previously granted by a company acquired by
the Company or with which the Company combines.
SECTION 3. Administration.
(a) AUTHORITY OF COMMITTEE. The Plan shall be administered by the
Committee. Subject to the terms of the Plan, applicable law and contractual
restrictions affecting the Company, and in addition to other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall have
full power and authority to: (i) designate Participants; (ii) determine the type
or types of Awards to be granted to a Participant; (iii) determine the number of
Shares to be covered by, or with respect to which payments, rights, or other
matters are to be calculated in connection with, Awards; (iv) determine the
terms and conditions of any Award and Award Agreement; (v) determine whether. to
what extent, and under what circumstances Awards may be settled or exercised in
cash, Shares, other securities, other Awards or other property, or canceled,
forfeited, or suspended and the method or methods by which Awards may be
settled, exercised, canceled, forfeited. or suspended; (vi) determine whether,
to what extent, and under what circumstances cash, Shares, other securities,
other Awards, other property, and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the holder thereof
or of the Committee; (vii) interpret and administer the Plan and any instrument
or agreement relating to, or Award made under, the Plan; (viii) establish,
amend, suspend, or waive such rules and regulations and appoint such agents as
it shall deem appropriate for the proper administration of the Plan; and (ix)
make any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan.
(b) COMMITTEE DISCRETION BINDING. Unless otherwise expressly provided in
the Plan, all designations, determinations, interpretations, and other
5
<PAGE> 6
decisions under or with respect to the Plan or any Award shall be within the
sole discretion of the Committee, may be made at any time and shall be final,
conclusive and binding upon all Persons, including the Company, any Subsidiary,
any Participant, any holder or beneficiary of any Award, any shareholder and any
Employee.
SECTION 4. Shares Available for Awards.
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section 4(b)
and 4(c), the number of Shares with respect to which Awards may be granted under
the Plan shall be 1,447,452 plus the number of Shares necessary to accommodate
the Rollover Options and the number of Shares with respect to which Incentive
Stock Options may be granted under the Plan shall be 1,447,452 plus the number
of Shares necessary to accommodate any Rollover Options which are Incentive
Stock Options. If, after the effective date of the Plan, any Shares covered by
an Award granted under the Plan or to which such an Award relates are forfeited,
or if such an Award is settled for cash or otherwise terminates or is canceled
without the delivery of Shares, then the Shares covered by such Award, or to
which such Award relates, or the number of Shares otherwise counted against the
aggregate number of Shares with respect to which Awards may be granted, to the
extent of any such settlement, forfeiture, termination or cancellation, shall,
in the calendar year in which such settlement, forfeiture, termination or
cancellation occurs, again become Shares with respect to which Awards may be
granted unless any dividends have been paid thereon prior to such settlement,
forfeiture, termination or cancellation. In addition, Shares tendered in
satisfaction or partial satisfaction of the exercise price of any Award or any
tax withholding obligations will again become Shares with respect to which
Awards may be granted. Notwithstanding the foregoing and subject to adjustment
as provided in Section 4(b), no Employee of the Company may receive Options
and/or Stock Appreciation Rights in any calendar year that relate to more than
375,000 Shares.
(b) ADJUSTMENTS. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, reclassification, merger, consolidation, split-up,
spin-off, combination, repurchase, or exchange of Shares or other securities of
the Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number of
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<PAGE> 7
Shares of the Company (or number and kind of other securities or property) with
respect to which Awards may thereafter be granted, (ii) the number of Shares or
other securities of the Company (or number and kind of other securities or
property) subject to outstanding Awards, and (iii) the grant or exercise price
with respect to any Award, or, if deemed appropriate, make provision for a cash
payment to the holder of an outstanding Award; provided, in each case that, with
respect to Awards of Incentive Stock Options, no such adjustment shall be
authorized to the extent that such authority would cause the Plan to violate
Section 422(b)(1) of the Code, as from time to time amended.
(c) SUBSTITUTE AWARDS. Any Shares underlying Substitute Awards shall not
be counted against the Shares available for Awards under the Plan.
(d) SOURCES OF SHARES DELIVERABLE UNDER AWARDS. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
SECTION 5. Eligibility. Any Employee, including any officer or
employee-director of the Company or any Subsidiary, and any former director of
the Company receiving a Rollover Option, shall be eligible to be designated a
Participant.
SECTION 6. Stock Options.
(a) GRANT. Subject to the provisions of the Plan and contractual
restrictions affecting the Company, the Committee shall have sole and complete
authority to determine the Employees to whom Options shall be granted, the
number of Shares to be covered by each Option, the exercise price therefor and
the conditions and limitations applicable to the exercise of the Option. The
Committee shall have the authority to grant Incentive Stock Options, or to grant
Non-Qualified Stock Options, or to grant both types of options. In the case of
Incentive Stock Options, the terms and conditions of such grants shall be
subject to and comply with such rules as may be prescribed by Section 422 of the
Code, as from time to time amended, and any regulations implementing such
statute.
(b) EXERCISE PRICE. The Committee in its sole discretion shall establish
the exercise price at the time each Option is granted.
(c) EXERCISE. Each Option shall be exercisable at such times and subject
to such terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Award Agreement or thereafter. The Committee may
impose such conditions with respect to the exercise of Options, including
without
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<PAGE> 8
limitation, any relating to the application of Federal or state securities laws,
as it may deem necessary or advisable.
(d) PAYMENT. No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the exercise price, or adequate provision
therefor, is received by the Company. Such payment may be made: (i) in cash;
(ii) in Shares owned by the Participant for at least six months (the value of
such Shares shall be their Fair Market Value on the date of exercise); (iii) by
a combination of cash and Shares; (iv) if approved by the Committee, in
accordance with a cashless exercise program; or (v) in such other manner as
permitted by the Committee at the time of grant or thereafter.
(e) ROLLOVER OPTIONS. Except as otherwise specifically provided herein
and in any option rollover agreement, the Rollover Options shall continue to be
governed by the terms under which they were originally granted.
SECTION 7. Stock Appreciation Rights.
(a) GRANT. Subject to the provisions of the Plan and contractual
restrictions affecting the Company, the Committee shall have sole and complete
authority to determine the Employees to whom Stock Appreciation Rights shall be
granted, the number of Shares to be covered by each Stock Appreciation Right
Award, the grant thereof and the conditions and limitations applicable to the
exercise thereof. Stock Appreciation Rights may be granted in tandem with
another Award, in addition to another Award, or freestanding and unrelated to
another Award. Stock Appreciation Rights granted in tandem with or in addition
to an Award may be granted either at the same time as the Award or at a later
time. Stock Appreciation Rights shall not be exercisable earlier than six months
after grant and shall have an exercise price as determined by the Committee on
the date of grant.
(b) EXERCISE AND PAYMENT. A Stock Appreciation Right shall entitle the
Participant to receive an amount equal to the excess of the Fair Market Value of
a Share on the date of exercise of the Stock Appreciation Right over the
exercise price thereof. The Committee shall determine whether a Stock
Appreciation Right shall be settled in cash, Shares or a combination of cash and
Shares.
(c) OTHER TERMS AND CONDITIONS. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine, at or after the grant
of a Stock Appreciation Right, the term, methods of exercise, methods and form
of settlement, and any other terms and conditions of any Stock Appreciation
Right. Any such determination by the Committee may be changed by the Committee
from time to time and may govern the exercise of Stock Appreciation
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<PAGE> 9
Rights granted or exercised prior to such determination as well as Stock
Appreciation Rights granted or exercised thereafter. The Committee may impose
such conditions or restrictions on the exercise of any Stock Appreciation Right
as it shall deem appropriate.
SECTION 8. Termination or Suspension of Employment or Service. The
following provisions shall apply in the event of the Participant's termination
of employment or service unless the Committee shall have provided otherwise,
either at the time of the grant of the Award or thereafter.
(i) TERMINATION OF EMPLOYMENT OR SERVICE. Except as the Committee may at
any time otherwise provide or as required to comply with applicable law, if the
Participant's employment or service with the Company or its Subsidiaries is
terminated for any reason other than death, Disability, retirement at age 62 or
older or by the Company for Cause, the Participant's right to exercise any
Option or Stock Appreciation Right shall terminate, and such Option or Stock
Appreciation Right shall expire, on the earlier of (A) the ninetieth day
following such termination of employment or service or (B) the date such Option
or Stock Appreciation Right would have expired had it not been for the
termination of employment or service. The Participant shall have the right to
exercise such Option or Stock Appreciation Right prior to such expiration to the
extent it was exercisable at the date of such termination of employment or
service and shall not have been exercised.
(ii) DEATH, DISABILITY OR RETIREMENT. Except as the Committee may at any
time otherwise provide or as required to comply with applicable law, if the
Participant's employment or service with the Company or its Subsidiaries is
terminated by reason of death, Disability, or retirement at age 62 or older, all
Time Vesting Options (as defined in an Award Agreement) shall vest and become
immediately exercisable and the Participant or his successor (if employment or
service is terminated by death) shall have the right to exercise any Option or
Stock Appreciation Right during the one-year period following such termination
of employment or service, to the extent it was exercisable and outstanding at
the date of such termination of employment or service, but in no event shall
such option be exercisable later than the date the Option would have expired had
it not been for the termination of such employment or service.
(iii) CAUSE. If the Participant's employment or service with the Company
or its Subsidiaries is terminated by the Company for Cause, all Awards other
than the Rollover Options (whether vested or unvested) shall be forfeited.
(iv) PUTS, CALLS. In the event of a Participant's termination of
employment by reason of death or Disability, termination of employment by the
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<PAGE> 10
Company other than for Cause or termination by a Participant for Good Reason
(and, in the case of the Rollover Options, upon any type of termination), the
Company or its designee shall have the right to purchase all or a portion of the
vested Options and/or Shares acquired upon the exercise of Options, and the
Participant shall have the right to cause the Company to purchase all or a
portion of the vested Options and/or Shares acquired upon the exercise of
Options, at a per share price equal to Fair Market Value on the date of
purchase, less the exercise price in the case of vested Options. If either the
Company or a Participant elects to exercise its right under this clause (iv),
the Company or the Participant, as the case may be, shall deliver written notice
(a "PURCHASE NOTICE") to the other to such effect within 60 days of a
termination of employment. For purposes of this Section 8, the "date of
purchase" shall mean the third business day following the receipt of notice by
the other party that the purchase right is to be exercised. Payment of the
purchase price may be made in cash or by certified check; provided that if the
terms of any agreement to which the Company is a party, or any of the indentures
governing any debt securities issued by the Company or any of its subsidiaries
would prohibit the Company from effecting such payment, payment may be effected
through a promissory note having such commercially reasonable terms and interest
rate as may be determined by the Company in its reasonable discretion, provided
that in any event such note shall become due at such time as the prohibitions
described above shall lapse.
SECTION 9. Change of Control. The Committee, in its sole discretion, may
provide in an Award Agreement for the accelerated vesting of an Award in the
event of a Change of Control.
SECTION 10. Amendment and Termination.
(a) AMENDMENTS TO THE PLAN. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief from Section
16(b) of the Exchange Act, for which or with which the Board deems it necessary
or desirable to qualify or comply. Notwithstanding anything to the contrary
herein, the Committee may amend the Plan in such manner as may be necessary so
as to have the Plan conform with local rules and regulations in any jurisdiction
outside the United States.
(b) AMENDMENTS TO AWARDS. Subject to the terms of the Plan and
applicable law, the Committee may waive any conditions or rights under, amend
any terms of, or alter, suspend, discontinue, cancel or terminate, any Award
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<PAGE> 11
theretofore granted, prospectively or retroactively; provided that any such
waiver, amendment, alteration, suspension, discontinuance, cancellation or
termination that would adversely affect the rights Participant or any holder or
beneficiary of any Award theretofore granted shall not to that extent be
effective without the consent of the affected Participant, holder or
beneficiary.
(c) CANCELLATION. Any provision of this Plan or any Award Agreement to
the contrary notwithstanding, in the event of a Change of Control or an offer to
Participants generally relating to the acquisition of Shares, including through
purchase, merger or otherwise, the Committee may cause any Award granted
hereunder to be canceled in consideration of a cash payment or alternative Award
made to the holder of such canceled Award equal in value to the Fair Market
Value of such canceled Award.
SECTION 11. General Provisions.
(a) DIVIDEND EQUIVALENTS. In the sole and complete discretion of the
Committee, an Award may provide the Participant with dividends or dividend
equivalents, payable in cash, Shares, other securities or other property on a
current or deferred basis.
(b) NONTRANSFERABILITY. Except to the extent otherwise provided in an
Award Agreement, no Award shall be assigned, alienated, pledged, attached, sold
or otherwise transferred or encumbered by a Participant, except by will or the
laws of descent and distribution.
(c) NO RIGHTS TO AWARDS. No Employee, Participant or other Person shall
have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Participants, or holders or beneficiaries
of Awards. The terms and conditions of Awards need not be the same with respect
to each recipient.
(d) SHARE CERTIFICATES. Certificates issued in respect of Shares shall,
unless the Committee otherwise determines, be registered in the name of the
Participant or its Permitted Transferees and, so long as a Participant continues
to be governed by the provisions of any Loan, shall be deposited by such
Participant or Permitted Transferee, together with a stock power endorsed in
blank, with the Company. When the Participant ceases to be bound by the
provisions of any Loan, the Company shall deliver such certificates to the
Participant upon request. Such stock certificate shall carry such appropriate
legends, and such written instructions shall be given to the Company's transfer
agent, as may be deemed necessary or advisable by counsel to the Company in
order to comply with the requirements of (i) the Securities Act of 1933, any
state securities laws or any
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other applicable laws, (ii) the Investors' Agreement and (iii) any Loan. Subject
to the provisions of the Investors' Agreement, all certificates for Shares or
other securities of the Company or any Subsidiary delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to such stop
transfer orders and other restrictions as the Committee may deem advisable under
the Plan or the rules, regulations and other requirements of the Securities and
Exchange Commission or any stock exchange upon which such Shares or other
securities are then listed and any applicable laws or rules or regulations, and
the Committee may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
(e) WITHHOLDING. A Participant may be required to pay to the Company or
any Subsidiary, and the Company or any Subsidiary shall have the right and is
hereby authorized to withhold from any Award, from any payment due or transfer
made under any Award or under the Plan or from any compensation or other amount
owing to a Participant the amount (in cash, Shares, other securities, other
Awards or other property) of any applicable withholding taxes in respect of an
Award, its exercise, or any payment or transfer under an Award or under the Plan
and to take such other action as may be necessary in the opinion of the Company
to satisfy all obligations for the payment of such taxes. The Committee may
provide for additional cash payments to holders of Awards to defray or offset
any tax arising from any such grant, lapse, vesting, or exercise of any Award.
(f) AWARD AGREEMENTS. Each Award hereunder shall be evidenced by an
Award Agreement which shall be delivered to the Participant and shall specify
the terms and conditions of the Award and any rules applicable thereto.
(g) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in
the Plan shall prevent the Company or any Subsidiary from adopting or continuing
in effect other compensation arrangements, which may, but need not, provide for
the grant of options, restricted stock, Shares and other types of Awards
provided for hereunder (subject to shareholder approval if such approval is
required), and such arrangements may be either generally applicable or
applicable only in specific cases.
(h) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ or service of the
Company or any Subsidiary. Further, the Company or an Subsidiary may at any time
dismiss a Participant from employment or service, free from any liability or any
claim under the Plan, unless otherwise expressly provided in the Plan or in any
Award Agreement.
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(i) RIGHTS AS A STOCKHOLDER. Subject to the provisions of the applicable
Award, no Participant or holder or beneficiary of any Award shall have any
rights as a stockholder with respect to any Shares to be issued under the Plan
until he or she has become the holder of such Shares.
(j) GOVERNING LAW. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan and any Award Agreement shall
be determined in accordance with the laws of the State of Delaware.
(k) SEVERABILITY. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to the applicable laws, or if it cannot
be construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Person or Award and the remainder of the Plan
and any such Award shall remain in full force and effect.
(l) OTHER LAWS. The Committee may refuse to issue or transfer any Shares
or other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant in connection therewith shall
be promptly refunded to the relevant Participant, holder or beneficiary. Without
limiting the generality of the foregoing, no Award granted hereunder shall be
construed as an offer to sell securities of the Company, and no such offer shall
be outstanding, unless and until the Committee in its sole discretion has
determined that any such offer, if made, would be in compliance with all
applicable requirements of the U.S. federal securities laws and any other laws
to which such offer, if made, would be subject.
(m) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Subsidiary and a Participant
or any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Subsidiary pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Subsidiary.
(n) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash or other securities or other property shall be paid or transferred
in
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lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(o) TRANSFER RESTRICTIONS. Shares acquired hereunder may not be sold,
assigned, transferred, pledged or otherwise disposed of, except as provided in
the Plan, the applicable Award Agreement and the Investors' Agreement.
(p) HEADINGS. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
(q) INVESTORS' AGREEMENT. A Participant shall, as a condition precedent
to the exercise or settlement of an Award, execute an instrument agreeing to be
bound by the terms of the Investors' Agreement or, at the election of the
Company, a counterpart of the Investors' Agreement. In any event, any Shares
acquired upon exercise or settlement shall be subject to the provisions in the
Investors' Agreement regarding restrictions on transfer and the Company's rights
to compel sales and repurchase Shares.
SECTION 12. Term of the Plan.
(a) EFFECTIVE DATE. The Plan shall be effective as of August 7, 1997,
subject to approval by the shareholders of the Company. Awards may be granted
hereunder prior to such shareholder approval subject in all cases, however, to
such approval.
(b) EXPIRATION DATE. No Incentive Stock Option shall be granted under
the Plan after August 6, 2007. Unless otherwise expressly provided in the Plan
or in an applicable Award Agreement, any Award granted hereunder may, and the
authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any conditions or rights
under any such Award shall, continue after the authority for grant of new Awards
hereunder has been exhausted.
<PAGE> 1
EXHIBIT 10.2
DECISIONONE HOLDINGS CORP.
DIRECT INVESTMENT PROGRAM
SECTION 1. Purpose. The purpose of the DecisionOne Holdings Corp. Direct
Investment Program is to promote the interests of DecisionOne Holdings Corp.
(the "COMPANY") and its stockholders by (i) attracting and retaining exceptional
executive personnel and other key officers and employees of the Company and its
Subsidiaries; (ii) motivating such individuals by means of an equity-based
incentive to achieve longer-range performance goals; and (iii) enabling such
individuals to participate in the long-term growth and financial success of the
Company.
SECTION 2. Definitions. As used in the Plan, the following terms shall
have the meanings set forth below:
"AFFILIATE" means (i) any entity that is, directly or indirectly,
controlled by the Company and (ii) any other entity in which the Company has a
significant equity interest or which has a significant equity interest in the
Company, in either case as determined by the Committee.
"BOARD" shall mean the Board of Directors of the Company.
"CAUSE" shall mean, unless otherwise defined in any Employment Agreement
or Purchase Agreement:
(A) a Participant's willful and continued failure substantially to
perform his duties (other than as a result of total or partial incapacity due to
physical or mental illness);
(B) an act or acts on a Participant's part constituting a felony under
the laws of the United States or any state thereof or any other jurisdiction in
which the Company conducts business;
(C) a Participant being repeatedly under the influence of illegal drugs
or alcohol while performing his duties; or
(D) any other act or omission which is materially injurious to the
financial condition or business reputation of the Company or any of its
Affiliates as determined in the reasonable discretion of the Company, including
a Participant's breach of the provisions of any non-competition,
non-solicitation or
<PAGE> 2
confidentiality covenant in favor of the Company or its Affiliates binding upon
such Participant.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITTEE" means a committee of the Board designated by the Board to
administer the Plan and composed of not less than the minimum number of persons
from time to time required by Rule 16b-3, each of whom, to the extent necessary
to comply with Rule 16b-3 only, is a "Non-Employee Director" within the meaning
of Rule 16b-3. Until otherwise determined by the Board, the full Board shall be
the Committee under the Plan.
"DISABILITY" shall mean a Participant's inability, as a result of
physical or mental illness, to perform the duties of his position(s) for a
period of 90 consecutive days or for an aggregate of 150 days in any twelve
consecutive month period. Any question as to the existence of the Disability of
a Participant as to which such Participant and the Company cannot agree shall be
determined in writing by a qualified independent physician selected by the
Company and reasonably acceptable to the Participant. The determination of
Disability made in writing to the Company and the Participant shall be final and
conclusive for all purposes of the Plan.
"DLJ ENTITIES" shall mean Quaker Holding Co., DLJ Merchant Banking
Partners II, L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore
Partners II, C.V., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A,
L.P., DLJ Millennium Partners, L.P., DLJ Millennium Partners-A, L.P., DLJ
Funding II, Inc., UK Investment Plan 1997 Partners, DLJ EAB Partners, L.P. and
DLJ First ESC, LLC.
"EMPLOYEE" means an employee of the Company or any Subsidiary.
"EMPLOYMENT AGREEMENT" means an employment agreement entered into
between the Company or any Subsidiary and a Participant.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FAIR MARKET VALUE" means with respect to the Shares, as of the
consummation of the merger of the Company and Quaker Holding Co., $20.6084 per
share, and as of any other given date or dates, the average reported closing
price of a share of such class of common stock on such exchange or market as is
the principal trading market for such class of common stock for the three
trading
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<PAGE> 3
days immediately preceding such date or dates. If such class of common stock is
not traded on an exchange or principal trading market on such date, the fair
market value of a Share shall be determined by the Committee in good faith
taking into account as appropriate recent sales of the Shares, recent valuations
of the Shares and such other factors as the Committee shall in its discretion
deem relevant or appropriate.
"GOOD REASON" shall mean, unless otherwise defined in any Employment
Agreement or Purchase Agreement:
(A) A Participant is removed from his/her position or assigned duties
and responsibilities materially inconsistent with his/her position; or
(B) A Participant's base salary and benefits (including target bonus
opportunities and criteria but not actual bonus payments) are reduced by more
than 10% in the aggregate, except for across-the-board reductions similarly
affecting similarly situated employees.
"INVESTORS' AGREEMENT" means the Investors' Agreement dated as of the
date hereof among Quaker Holding Co., DLJ Merchant Banking Partners II, L.P.,
DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium
Partners, L.P., DLJ Millennium Partners-A, L.P., DLJMB Funding II, Inc., UK
Investment Plan 1997 Partners, DLJ EAB Partners, L.P., DLJ First ESC, LLC, and
certain other shareholders listed on the signature pages thereto.
"PARTICIPANT" means any Employee selected by the Committee to become an
investor under the Plan (and to the extent applicable, any heirs, legatees or
legal representatives thereof).
"PERMITTED TRANSFEREE" shall have the meaning assigned to it in the
Investors' Agreement.
"PERSON" means any individual, corporation, limited liability company,
partnership, association, joint-stock company, trust, unincorporated
organization, government or political subdivision thereof or other entity.
"PLAN" means this DecisionOne Holding Corp. Direct Investment Program.
"PURCHASE AGREEMENT" shall mean an agreement to be executed by the
Company and a Participant as a condition to the acquisition of Shares under the
Plan by such Participant.
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"PURCHASE PRICE" shall have the meaning set forth in Section 6(b).
"RULE 16B-3" shall mean Rule 16b-3 as promulgated and interpreted by the
SEC under the Exchange Act, or any successor rule or regulation thereunder as in
effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto.
"SHARES" means shares of common stock, $.01 par value, of the Company or
such other securities as may be designated by the Committee from time to time.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person.
SECTION 3. Administration.
(a) Authority of Committee. The Plan shall be administered by the
Committee or by the Board as a whole, if no Committee has been constituted. All
references to the powers and responsibilities of the Committee set forth in this
Plan shall be deemed to be references to the Board if no Committee has been
constituted. Subject to the terms of the Plan, applicable law and contractual
restrictions affecting the Company, and in addition to other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall have
full power and authority to: (i) designate Participants; (ii) determine the
number of Shares to be covered by Purchase Agreements; (iii) determine the terms
and conditions of any Purchase Agreement; (iv) determine whether, to what
extent, and under what circumstances Purchase Agreements may be amended or
terminated and Shares acquired thereunder may be reacquired or transferred; (v)
interpret and administer the Plan and any Purchase Agreement or other instrument
or agreement relating to, or made under, the Plan; (vi) establish, amend,
suspend, or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (vii) make any
other determination and take any other action that the Committee deems necessary
or desirable for the administration of the Plan.
(b) Committee Discretion Binding. Unless otherwise expressly provided in
the Plan, all designations, determinations, interpretations, and other decisions
under or with respect to the Plan or any Purchase Agreement shall be within the
sole discretion of the Committee, may be made at any time and shall be final,
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<PAGE> 5
conclusive and binding upon all Persons, including the Company, any Subsidiary,
any Participant, any holder or beneficiary of any Purchase Agreement, any
shareholder and any Employee.
SECTION 4. Shares Available for Purchase Agreements; Minimum Investment.
(a) Shares Available. Subject to adjustment as provided in Section 4(b),
the number of Shares which may be issued under the Plan shall be 238,095. Each
Participant shall be required to make a minimum investment of $50,000.
(b) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, reclassification, merger, consolidation, split-up,
spin-off, combination, repurchase, or exchange of Shares or other securities of
the Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits of a Participant's investment in Shares under the Plan, then
the Committee shall, in such manner as it deems equitable, make such
adjustments, if any, to the number and kind of Shares (or number and kind of
other securities or property) with respect to which Purchase Agreements have
been or may thereafter be entered into hereunder as it deems appropriate and
necessary.
(c) Sources of Shares. Any Shares delivered pursuant to a Purchase
Agreement may be either authorized and unissued shares, or previously issued
shares, held in the treasury of the Company.
SECTION 5. Eligibility. Shares under the Plan may be made available for
purchase by any Employee, as determined by the Committee. In selecting
Employees, the Committee may take into consideration any factors it may deem
relevant, including its estimate of the Employee's present and potential
contributions to the success of the Company and its Subsidiaries.
SECTION 6. Share Purchases.
(a) Purchase. Subject to the provisions of the Plan and contractual
restrictions affecting the Company, the Committee shall have sole and complete
authority to determine the Employees eligible to purchase Shares hereunder, the
number of Shares available for purchase by each such Participant, the Purchase
Price therefor and the conditions and limitations applicable to such purchase,
the
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<PAGE> 6
duration of the period during which, and the conditions under which, such Shares
may be repurchased by the Company, and the other terms and conditions of the
related Purchase Agreements.
(b) Purchase Price. Unless otherwise determined by the Committee, the
price at which each Share under the Plan may be purchased (the "PURCHASE PRICE")
shall be the Fair Market Value.
(c) Payment. No Shares shall be delivered hereunder until payment in
full of the Purchase Price therefor is received by the Company. Such payment may
be made in cash or its equivalent, pursuant to financing arrangements approved
by the Committee, including loans to Participants made by the Company in the
form of Exhibit A hereto (the "LOAN"), or a combination of the foregoing,
provided that the combined value of all cash, cash equivalents and such
financing arrangements is at least equal to such Purchase Price.
SECTION 7. Investors' Agreement. A Participant shall, as a condition
precedent to the purchase of Shares, execute an instrument agreeing to be bound
by the terms of the Investors' Agreement or, at the election of the Company, a
counterpart of the Investors' Agreement. In any event, any Shares shall be
subject to the provisions in the Investors' Agreement regarding restrictions on
transfer and the Company's rights to compel sales and repurchase Shares.
SECTION 8. Termination of Employment; Repayment of Loan. Except as may
be set forth in any Purchase Agreement, Employment Agreement or as otherwise
determined by the Committee at any time, upon the termination of a Participant's
employment with the Company and its Subsidiaries:
(a) Any outstanding Loan shall become due in accordance with the terms
of such Loan.
(b) In the event of a Participant's death or Disability, retirement at
age 62 or later or termination of employment by the Company other than for Cause
or by the Participant for Good Reason, the Company or its designee shall have
the right to purchase all or a portion of the Shares, and the Participant shall
have the right to cause the Company to purchase all or a portion of the Shares,
at a per share price equal to the Fair Market Value on the date of purchase.
(c) In the event of a Participant's termination of employment with the
Company by the Company for Cause or by the Participant other than for Good
Reason, the Company or its designee shall have the right to purchase all or a
portion of the Shares, and the Participant shall have the right to cause the
6
<PAGE> 7
Company to purchase all or a portion of the Shares, at a per share price equal
to 85% of the Fair Market Value on the date of purchase.
(d) In the event an outstanding Loan becomes due prior to the
termination of a Participant's employment, the Participant shall have the right
to cause the Company to purchase that portion of the Shares necessary to repay
the principal amount of the Loan and any interest accrued thereon at a per share
price equal to 100% of the Fair Market Value on the date of purchase.
(e) If either the Company or a Participant elects to exercise its right
under this Section 8, the Company or the Participant, as the case may be, shall
deliver written notice (a "PURCHASE NOTICE") to the other to such effect within
60 days of a termination of employment or, in the case of a purchase pursuant to
(d) above, three business days prior to the Loan becoming due. For purposes of
this Section 8, the "date of purchase" shall mean the third business day
following the receipt of notice by the other party that the purchase right is to
be exercised or, in the case of a purchase pursuant to (d) above, the date the
Loan becomes due. Payment of the purchase price may be made in cash or by
certified check; provided that if the terms of any agreement to which the
Company is a party, or any of the indentures governing any debt securities
issued by the Company or any of its subsidiaries would prohibit the Company from
effecting such payment, payment may be effected through a promissory note having
such commercially reasonable terms and interest rate as may be determined by the
Company in its reasonable discretion, provided that in any event such note shall
become due at such time as the prohibitions described above shall lapse.
SECTION 9. Amendment and Termination.
(a) Amendments to and Termination of the Plan. Unless the Plan shall
theretofore have been terminated as hereinafter provided, the Plan shall
terminate on, and no Purchase Agreement shall be entered into thereunder after,
August 6, 2007. Subject to any contractual restrictions affecting the Company,
the Board may amend, alter, suspend, discontinue, or terminate the Plan or any
portion thereof at any time; provided that no such amendment, alteration,
suspension, discontinuation or termination shall be made without shareholder
approval if such approval is necessary to comply with any tax or regulatory
requirement for which or with which the Board deems it necessary or desirable to
qualify or comply.
(b) Amendments to Purchase Agreements. The Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend, discontinue,
cancel or terminate, any Purchase Agreement, prospectively or retroactively;
provided that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation or termination that would adversely affect the
rights
7
<PAGE> 8
of any Participant under any Purchase Agreement shall not to that extent be
effective without the consent of the affected Participant.
SECTION 10. General Provisions.
(a) No Rights to Participation. No Employee, Participant or other Person
shall have any claim to be granted the opportunity to purchase any Shares
hereunder, and there is no obligation for uniformity of treatment of Employees
or Participants. The terms and conditions of Purchase Agreements need not be the
same with respect to each recipient.
(b) Share Certificates. Certificates issued in respect of Shares shall,
unless the Committee otherwise determines, be registered in the name of the
Participant or its Permitted Transferees and, so long as a Participant continues
to be governed by the provisions of any Loan, shall be deposited by such
Participant or Permitted Transferee, together with a stock power endorsed in
blank, with the Company. When the Participant ceases to be bound by the
provisions of any Loan, the Company shall deliver such certificates to the
Participant upon request. Such stock certificate shall carry such appropriate
legends, and such written instructions shall be given to the Company's transfer
agent, as may be deemed necessary or advisable by counsel to the Company in
order to comply with the requirements of (i) the Securities Act of 1933, any
state securities laws or any other applicable laws, (ii) the Investors'
Agreement and (iii) any Loan. Subject to the provisions of the Investors'
Agreement, all certificates for Shares or other securities of the Company or any
Affiliate delivered under the Plan pursuant to any Purchase Agreement shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the Plan, the applicable Purchase Agreement or the rules,
regulations and other requirements of the SEC or any stock exchange upon which
such Shares or other securities are then listed and any applicable laws or rules
or regulations.
(c) Execution of Purchase Agreement: Disposition of Shares. No Shares
shall be issued hereunder unless and until a Purchase Agreement shall be
executed by the Company and the Participant.
(d) No Limit on Compensation Arrangements. Nothing contained in the Plan
shall prevent the Company or any Subsidiary from adopting or continuing in
effect compensation arrangements, which may, but need not, provide for the grant
of options, restricted stock, Shares and other types of awards (subject to
shareholder approval if such approval is required), and such arrangements may be
either generally applicable or applicable only in specific cases.
8
<PAGE> 9
(e) No Rights to Employment. Nothing in this Plan or in any Purchase
Agreement shall confer on any individual any right to continue in the employ of
the Company or any Subsidiary of the Company or interfere in any way with the
right of the Company or any Subsidiary of the Company to terminate his or her
employment at any time.
(f) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan and any Purchase Agreement
shall be determined in accordance with the laws of the State of Delaware,
without application of the conflict of laws principles thereof.
(g) Severability. If any provision of the Plan or any Purchase Agreement
is or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Purchase Agreement, or would disqualify the
Plan or any Purchase Agreement under any law deemed applicable by the Committee,
such provision shall be construed or deemed amended to conform to the applicable
laws, or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of the Plan or
the Purchase Agreement, such provision shall be stricken as to such
jurisdiction, Person or Purchase Agreement and the remainder of the Plan and any
such Purchase Agreement shall remain in full force and effect.
(h) Other Laws. The Committee may refuse to issue or transfer any Shares
or other consideration under a Purchase Agreement if, acting in its sole
discretion, it determines that the issuance or transfer of such Shares or such
other consideration might violate any applicable law or regulation or entitle
the Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant in connection therewith shall
be promptly refunded to the relevant Participant. Without limiting the
generality of the foregoing, no Purchase Agreement shall be construed as an
offer to sell securities of the Company, and no such offer shall be outstanding,
unless and until the Committee in its sole discretion has determined that any
such offer, if made, would be in compliance with all applicable requirements of
the U.S. Federal securities laws and any other laws to which such offer, if
made, would be subject.
(i) No Trust or Fund Created. Neither the Plan nor any Purchase
Agreement shall create or be construed to create a trust or separate fund of any
kind or a fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person acquires a right
to receive payments from the Company or any Affiliate pursuant to a Purchase
Agreement, such right shall be no greater than the right of any unsecured
general creditor of the Company or any Affiliate.
9
<PAGE> 10
(j) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Purchase Agreement, and the Committee
shall determine whether cash or other securities or other property shall be paid
or transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated, or otherwise
eliminated.
SECTION 11. Effective Date. The Plan shall be effective as of August 7,
1997.
10
<PAGE> 1
Exhibit 10.20
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD,
UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
SUBORDINATED PROMISSORY NOTE DUE 2010
$59,100,000.00 August 7, 1997
New York, New York
DECISIONONE HOLDINGS CORP., a Delaware corporation (the "BORROWER"),
for value received, hereby promises to pay, in lawful money of the United
States in immediately available funds, to DecisionOne Corporation, a Delaware
corporation, or its registered assigns (the "HOLDER"), at 50 East Swedesford
Road, Frazer, Pennsylvania 19355, or such other place as the Holder may
designate from time to time, on August 31, 2010, the principal sum of Fiftynine
Million One Hundred Thousand Dollars (the "PRINCIPAL AMOUNT"). Interest
(computed on the basis of a 360-day year of twelve 30-day months) will be paid
in cash or accrued at the rate of 8.25% per annum on the Principal Amount from
time to time remaining unpaid hereon, semi-annually on November 30 and May 31 of
each year (commencing on November 30, 1997) until said Principal Amount shall
be paid in full.
The Borrower hereby waives presentment, demand, protest or notice of
any kind in connection with this Note.
This Note and the indebtedness evidenced hereby is subordinated to the
prior payment in full of all other indebtedness for borrowed money of the
Borrower (but not trade payables arising in the ordinary course of business),
whether currently existing or hereinafter incurred (any such indebtedness, the
"SENIOR DEBT"). No payment of principal, interest or other amounts in respect
of the indebtedness evidenced hereby shall be made at any time at which there
exists any default or event of default in respect of any Senior Debt. Upon any
dissolution, winding up, liquidation or reorganization of the Borrower, all
principal, interest and other amounts payable in respect of any Senior Debt
shall be paid in full before any payment is made in respect of the indebtedness
<PAGE> 2
evidenced hereby. In the event that any payment shall be made in respect of the
indebtedness evidenced hereby in contravention of the terms hereof, such
payment shall be held in trust by the recipients thereof for the benefit of,
and shall be paid forthwith over and delivered to, the holders of the Senior
Debt for application pro rata to the payment of all Senior Debt to the extent
necessary to pay such Senior Debt in full.
Subject to the foregoing, the Borrower may, at its option, pay the
Principal Amount in whole at any time without the Holder's prior demand, and
upon final payment in full of the Principal Amount and any accrued interest
thereon, this Note shall immediately be deemed cancelled and of no further
force or effect without any further action on the part of the Borrower.
This Note is registered on the books of the Borrower and is
transferable only by surrenders hereof at the principal office of the Borrower
duly endorsed or accompanied by a written instrument of transfer duly executed
by the Holder or its attorney duly authorized in writing. Payment of or on
account of principal and interest on the Note shall be made only to or upon the
order in writing of the Holder.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND SHALL BE GOVERNED
BY THE INTERNAL LAWS (AND NOT THE CONFLICTS LAWS) OF THE STATE OF NEW YORK.
DECISIONONE HOLDINGS CORP.
By: /s/ Thomas J. Fitzpatrick
--------------------------
Name: Thomas J. Fitzpatrick
Title: Vice President and
Chief Financial Officer
2
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-03267, 333-19095, 333-33043, 333-33045 on Form S-8 and 333-33057, 333-33061
on Form S-3 of DecisionOne Holdings Corp. of our reports dated August 15, 1997
appearing in this Annual Report on Form 10-K of DecisionOne Holdings
Corp. and DecisionOne Corporation for the year ended June 30, 1997.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
September 29, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
AS OF JUNE 30, 1997 AND THE YEAR THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<CURRENCY> U.S. DOLLARS
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 10,877
<SECURITIES> 0
<RECEIVABLES> 142,331
<ALLOWANCES> 14,869
<INVENTORY> 34,518
<CURRENT-ASSETS> 182,635
<PP&E> 70,532
<DEPRECIATION> 36,305
<TOTAL-ASSETS> 623,105
<CURRENT-LIABILITIES> 161,568
<BONDS> 0
0
0
<COMMON> 278
<OTHER-SE> 214,610
<TOTAL-LIABILITY-AND-EQUITY> 623,105
<SALES> 785,950
<TOTAL-REVENUES> 785,950
<CGS> 581,860
<TOTAL-COSTS> 581,860
<OTHER-EXPENSES> 128,491
<LOSS-PROVISION> 7,849
<INTEREST-EXPENSE> 14,698
<INCOME-PRETAX> 53,052
<INCOME-TAX> 21,698
<INCOME-CONTINUING> 31,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,084
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