<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1997
REGISTRATION NO. 333-28411
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------
DECISIONONE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7378 23-2328680
(State or other jurisdiction of (Primary Standard Industrial Classification (I.R.S. Employer
incorporation or organization) Code Number) Identification No.)
50 EAST SWEDESFORD ROAD
FRAZER, PENNSYLVANIA 19355
(610) 296-6000
(Address and telephone number of registrant's principal executive offices)
KENNETH DRAEGER
DECISIONONE CORPORATION
50 EAST SWEDESFORD ROAD
FRAZER, PENNSYLVANIA 19355
(610) 296-6000
(Name, address and telephone number of agent for service)
</TABLE>
---------
Copies to:
RICHARD D. TRUESDELL, ESQ. MARC D. JAFFE, ESQ.
DAVIS POLK & WARDWELL LATHAM & WATKINS
450 LEXINGTON AVENUE 885 THIRD AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10022
(212) 450-4000 (212) 906-1200
---------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to the offering
(the "Offering") of $150,000,000 aggregate principal amount of % Senior
Subordinated Notes due 2007 (the "Senior Subordinated Notes") by DecisionOne
Corporation, together with separate Prospectus pages relating to certain
market-making transactions in the Senior Subordinated Notes. The complete
Prospectus for the Offering follows immediately after this Explanatory Note.
Following such Prospectus are certain portions of the Prospectus relating to
the market-making transactions, which include an alternate front cover page,
a new paragraph captioned "Trading Market for the Senior Subordinated Notes"
to be inserted in the section captioned "Risk Factors" in lieu of the
paragraph captioned "Absence of Public Market for the Senior Subordinated
Notes," an alternate "Use of Proceeds" section, a section entitled "Plan of
Distribution" to be inserted in lieu of the section "Underwriting," and an
alternate "Legal Matters" section. All other sections of the Prospectus for
the initial sale of the Senior Subordinated Notes (including the Prospectus
Summary) are to be used in the Prospectus relating to the market-making
transactions. In order to register under Rule 415 of the Securities Act of
1933 those Senior Subordinated Notes that will be offered and sold in
market-making transactions, the appropriate box on the cover page of the
Registration Statement has been checked and the undertakings required by Item
512(a) of the Regulation S-K have been included in Item 17 of Part II.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 30, 1997
PROSPECTUS
, 1997
$150,000,000
[DECISIONONE CORPORATION LOGO]
DECISIONONE CORPORATION
% SENIOR SUBORDINATED NOTES DUE 2007
The % Senior Subordinated Notes due 2007 (the "Senior Subordinated
Notes") are being offered hereby (the "Offering") by DecisionOne Corporation,
a Delaware corporation (the "Issuer"). The Offering is part of the Merger
Financing (as defined herein) in connection with the Merger (as defined
herein) of the Issuer's parent, DecisionOne Holdings Corp. ("Holdings") with
Quaker Holding Co. ("Quaker"). See "The Merger and Merger Financing." Quaker
was organized by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and
affiliated funds and entities for the purpose of effecting the Merger and
Merger Financing.
The Senior Subordinated Notes will mature on , 2007. Interest on the
Senior Subordinated Notes will be payable semi-annually on and of
each year, commencing on , 1997. The Senior Subordinated Notes will be
redeemable at the option of the Issuer, in whole or in part, at any time on
or after , 2002, in cash at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, thereon to the redemption date. In
addition, at any time prior to , 2000, the Issuer may, at its option, on
any one or more occasions, redeem up to 35% of the aggregate principal amount
of the Senior Subordinated Notes originally issued at a redemption price
equal to % of the aggregate principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the redemption date, with the net cash
proceeds of one or more Equity Offerings (as defined herein) by (i) the
Issuer or (ii) Holdings to the extent the net cash proceeds thereof are
contributed to the Issuer, as a capital contribution to the common equity of
the Issuer; provided that at least 65% of the original aggregate principal
amount of the Senior Subordinated Notes will remain outstanding immediately
following each such redemption. Upon the occurrence of a Change of Control
(as defined herein), each Holder of Senior Subordinated Notes will have the
right to require the Issuer to repurchase such Holder's Senior Subordinated
Notes at a price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date of
repurchase. See "Description of the Senior Subordinated Notes."
The Senior Subordinated Notes will be general unsecured obligations of the
Issuer and will be subordinated in right of payment to all existing and
future Senior Debt (as defined herein) of the Issuer, including indebtedness
pursuant to the New Credit Facility (as defined herein). The Senior
Subordinated Notes will rank pari passu with any future senior subordinated
indebtedness of the Issuer and will rank senior to all Subordinated
Indebtedness (as defined herein) of the Issuer. The Senior Subordinated Notes
will be effectively subordinated to all liabilities of the Company's
subsidiaries that do not guarantee the Senior Subordinated Notes as set forth
herein. On the date of the Senior Subordinated Note Indenture (as defined
herein), none of the Company's subsidiaries will guarantee the Senior
Subordinated Notes. The Senior Subordinated Note Indenture will provide that
if any Restricted Subsidiary of the Company guarantees the payment of any
Indebtedness of the Company (other than the Senior Subordinated Notes) or any
Indebtedness of any other Restricted Subsidiary, such Restricted Subsidiary
will simultaneously execute and deliver a supplemental indenture to the
Senior Subordinated Note Indenture providing for a Subsidiary Guarantee (as
defined herein) of payment of the Senior Subordinated Notes by such
Restricted Subsidiary on the terms set forth in the Senior Subordinated Note
Indenture. See "Description of Senior Subordinated Notes--Certain
Comments--Subsidiary Guarantees." On a pro forma basis after giving effect to
the Merger, including the Merger Financing and the application of the
proceeds thereof, as of March 31, 1997, the Issuer would have had outstanding
approximately $503.0 million of Senior Debt and the Issuer's subsidiaries
would have had approximately $10.9 million of outstanding liabilities,
including trade payables.
Consummation of the Offering will occur concurrently with and is
conditioned upon, consummation of the Merger and Merger Financing. As part of
the Merger Financing, Quaker is offering pursuant to a separate prospectus
units, each consisting of $1,000 principal amount at maturity of its %
Senior Discount Debentures due 2008 (the "Debentures") and warrants (the
"Public Warrants") to purchase shares of common stock, par value $.01
per share, of Quaker ("Quaker Common Stock"). Upon consummation of the
Merger, Holdings will succeed to the obligations of Quaker with respect to
the Debentures and the Public Warrants and the Public Warrants will by their
terms become exercisable for an equal number of shares of common stock of
Holdings, par value $.01 per share ("Holdings Common Stock"). See "The Merger
and Merger Financing."
<PAGE>
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO THE UNDERWRITING DISCOUNTS PROCEEDS TO THE
PUBLIC(1) AND COMMISSIONS(2) ISSUER(1)(3)
- -------------------------------- ---------------- -------------------------- -------------------
<S> <C> <C> <C>
Per Senior Subordinated Note .... % % %
Total............................ $ $ $
- -------------------------------- ---------------- -------------------------- -------------------
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) See "Underwriting" for indemnification arrangements with the
Underwriter (as defined herein).
(3) Before deducting expenses payable by the Company, estimated at $ .
The Senior Subordinated Notes are offered by the Underwriter, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
various prior conditions, including the right to reject orders in whole or in
part. It is expected that delivery of the Senior Subordinated Notes will be
made in New York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE % SENIOR SUBORDINATED NOTES DUE 2007 OF
DECISIONONE CORPORATION BEING OFFERED HEREBY TO CALIFORNIA RESIDENTS, SUCH
SECURITIES MAY BE SOLD ONLY TO: (1) "ACCREDITED INVESTORS" WITHIN THE MEANING
OF REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (2) BANKS,
SAVINGS AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES,
INVESTMENT COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940,
PENSION AND PROFIT SHARING TRUSTS, ANY CORPORATIONS OR OTHER ENTITIES, WHICH,
TOGETHER WITH SUCH CORPORATION'S OR OTHER ENTITY'S AFFILIATES WHICH ARE UNDER
COMMON CONTROL, HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR
MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN
REVIEWED BUT NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS
THAN $14,000,000 AND SUBSIDIARIES OF THE FOREGOING, (3) ANY PERSON (OTHER
THAN A PERSON FORMED FOR THE SOLE PURPOSE OF PURCHASING THE SECURITIES
OFFERED HEREBY) WHO PURCHASES AT LEAST $1,000,000 AGGREGATE AMOUNT OF THE
SECURITIES OFFERED HEREBY, OR (4) ANY NATURAL PERSON WHO (A) HAS AN INCOME OF
$65,000 AND A NET WORTH OF $250,000, OR (B) HAS A NET WORTH OF $500,000 (IN
EACH CASE EXCLUDING HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES). EACH
CALIFORNIA RESIDENT PURCHASING THE SECURITIES OFFERED HEREBY AGREES THAT IT
WILL NOT SELL OR OTHERWISE TRANSFER SUCH SECURITY TO A CALIFORNIA RESIDENT
UNLESS THE TRANSFEREE COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES AND
THAT IT WILL ADVISE THE TRANSFEREE OF THIS CONDITION WHICH TRANSFEREE, BY
BECOMING SUCH, WILL BE BOUND BY THE SAME RESTRICTIONS ON RESALE.
---------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SENIOR
SUBORDINATED NOTES. SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION
WITH THE OFFERING AND MAY BID FOR AND PURCHASE THE SENIOR SUBORDINATED NOTES
IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
---------
AVAILABLE INFORMATION
The Issuer has filed a registration statement on Form S-1 (together with
all amendments, supplements and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with the Securities and Exchange Commission (the "Commission") with
respect to the Senior Subordinated Notes offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission, and reference is hereby made to the
Registration Statement and the exhibits and schedules thereto for further
information. Summary and other statements contained herein concerning the
provisions of any document are not necessarily complete, and in each instance
reference is hereby made to the copy of the document filed as an exhibit to
the Registration Statement. Each such statement is qualified in its entirety
by such reference.
Following the Offering, the Issuer will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following regional offices: Seven World Trade Center, 13th Floor,
New York, New York 10048; and at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition,
such material can also be obtained from the Commission's Web site at
http://www.sec.gov.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Investors are urged to read this Prospectus in
its entirety. As used in this Prospectus, the term "Holdings" means
DecisionOne Holdings Corp., including its predecessors and subsidiaries, the
term "Issuer" means DecisionOne Corporation (a wholly owned subsidiary of
Holdings), and the terms "Company" and "DecisionOne" mean the Issuer and its
predecessors and subsidiaries, all of which are wholly owned. On May 29,
1997, Holdings contributed to the Issuer all of its ownership interests in
its subsidiaries (other than the Issuer) (the "Corporate Reorganization").
All financial information contained herein is presented as if the Corporate
Reorganization had occurred on July 1, 1993. References to industry size and
statistics contained herein, unless otherwise indicated, are derived from
information provided by Dataquest Incorporated ("Dataquest").
THE COMPANY
OVERVIEW
The Company is the largest independent provider of multivendor computer
maintenance and technology support services in the United States. 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 ("OEM")) provider of these services across a broad
range of computing environments, including mainframes, midrange and
distributed systems, workgroups, personal computers ("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 ("shrink-wrapped") 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.
DecisionOne has emerged as the leading independent, multivendor provider
of computer maintenance and technology support services by (i) consummating
over 35 complementary acquisitions since the beginning of fiscal 1993, (ii)
expanding maintenance capabilities and introducing new technology support
services, (iii) increasing sales to existing customers by increasing
equipment under contract and by selling existing customers new technology
support services, (iv) adding new corporate customers and (v) providing
outsourcing services for OEMs, software publishers, system integrators and
other independent service organizations. As a result, the Company's revenues
have grown at a compound annual rate of 69.2% to approximately $820.4 million
for the annualized quarter ended March 31, 1997 from $114.1 million in fiscal
1993. Over the same period, the Company's Adjusted EBITDA (as defined herein)
has grown at a 74.2% compound annual rate to approximately $120.3 million for
the annualized quarter ended March 31, 1997 from $15.0 million in fiscal
1993.
In 1996, based on Dataquest projections, the Company estimates it had a 9%
market share of the $8.8 billion independent, multivendor segment of the
$40.5 billion U.S. hardware maintenance and technology support services
market. The independent, multivendor segment is projected by Dataquest to
grow at a 14% compound annual rate from $8.8 billion in 1996 to $14.8 billion
in 2000. The Company believes this growth is being driven by the
proliferation of computer equipment as well as outsourcing trends, including:
(i) the outsourcing by corporate customers of hardware maintenance and
technical support requirements and (ii) the outsourcing by major hardware
OEMs and software publishers of maintenance services (including warranty and
post-warranty services) and end-user technical support requirements. In
addition, the Company believes that demand for its services is being driven
by the increasing complexity of computing environments which has resulted
from the migration of computer systems from single OEM, centralized systems
to multivendor, decentralized systems. The Company believes that this
increased complexity has generally surpassed the technical capabilities of
many in-house support staffs and has
3
<PAGE>
accelerated the pace of outsourcing. The Company believes that customers are
increasingly turning to independent service providers when outsourcing due to
the increased use of multiple vendors for hardware and the perception that
OEM service providers are biased toward specifying their own equipment as
computer purchase requirements arise. Furthermore, many OEMs such as Sun
Microsystems, Inc. ("Sun") and Compaq Computer Corporation ("Compaq") are
outsourcing certain non-core customer service activities, including
maintenance services (including warranty and post-warranty services) and
product support services (such as end-user help desk services) to independent
service organizations such as the Company.
COMPETITIVE STRENGTHS
The Company believes that it possesses a number of competitive strengths
that have allowed it to become the leading independent provider of
multivendor computer maintenance and technology support services, including:
EXTENSIVE SERVICE INFRASTRUCTURE. The Company provides customers with
high quality service through an extensive infrastructure including: (i)
approximately 4,000 highly trained field technicians, (ii) over 150
geographic locations throughout the United States and Canada, (iii) a
substantial spare parts inventory to ensure supply and rapid response times,
(iv) a broad service offering which enhances the Company's ability to provide
customers with a single source solution, (v) an extensive proprietary
database of historical failure rates for over 15,000 hardware products
manufactured by over 1,000 OEMs, (vi) a detailed record of major customers'
hardware and software assets and a record of such customers' maintenance
patterns and (vii) proprietary dispatch systems to ensure rapid customer
response times.
INDEPENDENT, MULTIVENDOR SERVICE PROVIDER. The Company provides customers
with an independent, multivendor solution for their computer maintenance and
technology support needs. As an independent service provider, the Company
believes it is viewed by customers as impartial to any particular OEM's
products. As a multivendor service provider, the Company supports over 15,000
hardware products manufactured by more than 1,000 OEMs as well as most major
operating systems and over 150 shrink-wrapped software applications. OEM,
specialty and local service providers do not offer either the breadth of
services or the geographic presence throughout the United States and Canada
provided by the Company.
CONTRACT-BASED REVENUES. Approximately 85% of the Company's revenues in
fiscal 1996 were derived from contracts, under which equipment and services
may be added and deleted. Furthermore, the Company believes that its
extensive service infrastructure and its unique knowledge of its customers'
hardware and software service requirements enhance the Company's ability to
provide superior service. The Company believes that the resulting track
record of service to existing customers affords it a competitive advantage in
renewing existing contracts and winning new contracts. Although many of the
Company's existing customer contracts are currently terminable on short
notice, 49 out of the Company's top 50 customers in fiscal 1994 are still
customers today.
DIVERSIFIED AND STABLE FORTUNE 1000 CUSTOMER BASE. The Company services
over 51,000 customers at over 182,000 sites across the United States and
Canada. In fiscal 1996, the Company's top 10 customers represented 23% of
revenues and the top 100 customers represented 47% of revenues. The Company's
customers include a diverse group of national and multinational corporations,
including SABRE Group, Inc. (an affiliate of American Airlines, Inc.), Sun,
Compaq, NationsBank, DuPont Company ("DuPont"), Chevron Corporation, and
Netscape Communications Corporation ("Netscape"). The Company believes that
the scope of its service offerings and the breadth of its geographic presence
in the United States and Canada allow it to serve this diverse group of
national and multinational customers as well as thousands of smaller
customers who also require customized services.
MITIGATED TECHNOLOGY AND RECESSION RISKS. The Company provides services
across a broad range of computing environments, including mainframes,
midrange and distributed systems, workgroups, PCs and related peripherals.
Consequently, although each segment of the computer hardware and software
industry is subject to shifts in technology, the Company believes that the
diversity of computing environments for which it provides services mitigates
the potential adverse effects of technological
4
<PAGE>
changes in any one segment. Furthermore, the Company believes that because
computer maintenance requirements are based primarily on usage, the Company's
hardware maintenance business may be insulated from the adverse effects of
declines in spending during recessionary periods, so long as computer usage
continues to necessitate maintenance spending.
BUSINESS STRATEGY
DecisionOne has developed a business strategy which it believes will
enable it to profitably grow future revenue and cash flow and which includes
the following elements:
PROVIDE A SINGLE SOURCE TECHNOLOGY SUPPORT SOLUTION. The Company intends
to continue its strategy of offering its customers a broad and expanding
range of computer technology support services in a single interface format.
The Company believes it meets the customer's preference for a single
interface by offering maintenance and technology support services across most
leading brands of hardware and software within virtually all computing
environments. In addition, the Company's single source solution enables the
Company to retain customers when customers change, substitute or upgrade
their computing environments.
OFFER ADDITIONAL SERVICES TO EXISTING CUSTOMERS. The Company generates new
revenues from existing customers by adding new equipment to existing hardware
maintenance contracts and by providing existing customers with additional
support services. Recent revenue growth attributable to the expansion of
additional support services has been derived primarily from (i) end-user
support services such as help desk services, (ii) network support services
such as local area networks ("LAN") administration, security management and
fault management, (iii) logistics services such as parts repair, inventory
and asset management, and warranty parts management and (iv) program
management services such as technology deployment and computer and software
moves, adds and changes. The Company believes that the breadth of its
additional support services has permitted, and will continue to permit, the
Company to leverage its historic strength in hardware maintenance to increase
revenues from existing customers and has enabled the Company to grow sales to
its top 50 customers in fiscal 1994 by 33.3% through fiscal 1996.
LEVERAGE EXISTING SERVICE INFRASTRUCTURE. The Company believes, that due
to the large scale of the Company's service infrastructure, the Company
enjoys substantial operating leverage and has positioned itself to increase
productivity and profitability whether the Company grows internally or
through acquisitions. The principal areas in which the Company expects to
realize the benefits of operating leverage include: (i) increased customer
call density in a region permitting field service technicians in the region
to complete a greater number of service calls per day, (ii) increased
comparable equipment density allowing the Company to operate with
proportionally lower inventory of spare parts and (iii) productivity gains
driven by new services such as end-user support services which reduce
unnecessary trips by field technicians to existing customers and by the
addition of new equipment under existing maintenance contracts. The Company
intends to further improve the productivity of its existing infrastructure by
investing in upgrades of its management information systems.
PURSUE COMPLEMENTARY ACQUISITIONS. The Company believes it is well
positioned strategically to participate in the further consolidation of the
computer maintenance and technology support services market and expects to
continue to evaluate complementary acquisitions. Further, the Company
believes that pursuing complementary acquisitions is an attractive growth
strategy due to the significant synergies which the Company may achieve when
it successfully consolidates acquisitions into its service infrastructure.
Since the beginning of fiscal 1993, the Company has completed over 35
acquisitions. The Company's typical acquisition consists principally of
customer maintenance and support contracts as well as the accompanying spare
parts inventory. The Company generally reduces the cost structure necessary
to service the acquired customer contracts by leveraging DecisionOne's
extensive service infrastructure, spare parts inventory and administrative
function. For example, the Company was able to service the
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<PAGE>
contracts acquired from Memorex Telex Corporation and certain of its
affiliates ("Memorex Telex") in November 1996 with approximately 36% fewer
employees than previously required by Memorex Telex. In addition, the Company
seeks to increase sales and profitability by offering acquired customers
additional services.
CAPITALIZE ON OUTSOURCING TREND AMONG OEMS, SOFTWARE PUBLISHERS AND
SYSTEMS INTEGRATORS. The Company expands its marketing reach by offering its
services through outsourcing arrangements and indirect channels. For fast
growing hardware OEMs and software publishers concerned with cost savings and
time-to-market issues such as Sun, Netscape and Compaq, the Company provides
outsourced customer support services such as help desk services, warranty and
post-warranty maintenance services, and technical product support services.
For systems integrators, the Company provides maintenance and technology
support services on a subcontract basis to several large outsourcing clients
of Electronic Data Systems Corp. ("EDS") and Computer Sciences Corp.
STRATEGIC INITIATIVES
During fiscal 1997, the Company has implemented several strategic
initiatives designed to rationalize its cost structure and capitalize on
economies of scale. These initiatives included:
o the acquisition of complementary contracts and assets which the Company
has been able to service with fewer employees than the prior owners by
leveraging the Company's existing infrastructure. For example, during
fiscal 1997, the Company acquired contracts and assets of Memorex Telex
and Xerox Canada and reduced the number of service personnel required
to support such contracts from 1,192 to 768 and 160 to 120,
respectively;
o ongoing initiatives to enhance the efficiency of the Company's field
technician service force, including the addition of functionalities to
the Company's information systems which enable the Company to match
field technician skill sets with call productivity history and workload
requirements and the implementation of best practices, benchmarking and
targeted training programs across the Company's over 150 branch
locations; and
o the renegotiation of certain vendor contracts on more favorable terms,
including the Company's data center outsourcing contract with EDS and
the Company's telecommunications contracts with several providers.
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<PAGE>
As a result of these strategic initiatives and the Company's increased
operating leverage, the Company's Adjusted EBITDA has increased in each
successive quarter of fiscal 1997. Adjusted EBITDA for the quarter ended
March 31, 1997 increased to $30.1 million from $20.6 million for the quarter
ended September 30, 1996. Over the same period, Adjusted EBITDA margin
increased to 14.7% from 11.7%. In addition, these initiatives enabled the
Company to reduce 203 employees from its core business in November and
December of 1996 without impacting service levels and resulted in improved
revenue per employee from $30,700 in the quarter ended September 30, 1996 to
$32,400 in the quarter ended March 31, 1997. Certain quarterly data for
fiscal 1997 are shown in the table below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
SEPTEMBER 30, 1996 DECEMBER 31, 1996 MARCH 31, 1997
------------------ ----------------- --------------
(dollars in thousands)
----------------------
<S> <C> <C> <C>
Revenues................................ $176,426 $191,253 $205,070
Sequential growth...................... 3.2% 8.4% 7.2%
Gross profit............................ $ 41,861 $ 48,221 $ 54,698
% of revenues.......................... 23.7% 25.2% 26.7%
Adjusted EBITDA(1)...................... $ 20,589 $ 25,386 $ 30,063
% of revenues.......................... 11.7% 13.3% 14.7%
Revenue per average number of
employees.............................. $ 30.7 $ 31.6 $ 32.4
</TABLE>
- ------------
(1) As defined in Note 7 to the Summary Historical and Unaudited Pro Forma
Condensed Consolidated Financial Data.
RECENT DEVELOPMENTS
The Company's 1997 fiscal year ended on June 30, 1997. While the final
results of the quarter ended June 30, 1997 are not yet available, the Company
currently estimates that it recorded revenues of approximately $213.2 million
during the fourth quarter, and during such quarter realized operating income
of approximately $22.7 million and net income of approximately $11.2 million.
The Company currently estimates that revenues for the full fiscal year
ended June 30, 1997 were approximately $785.9 million and that it realized
operating income of approximately $67.8 million and net income of
approximately $31.1 million. Results of operations for the full fiscal year
ended June 30, 1997 include the impact of certain charges recorded during the
second quarter of fiscal 1997.
The above information is preliminary in nature only, and is subject in all
respects to completion of various internal analyses and procedures necessary
to finalize the Company's financial statements, and to completion of the
audit of the Company's financial statements for the fiscal year ended June
30, 1997.
HISTORY
DecisionOne is a wholly owned subsidiary of Holdings through which the
operations of Holdings are conducted. Founded in 1969, the Company began
operations as a provider of key punch machines under the tradename Decision
Data. During fiscal 1993, the Company decided to focus principally on
providing computer maintenance and technology support services and sold its
computer hardware products business. The Company established a major presence
in the servicing of midrange computer systems through the successful
acquisition and integration of assets and contracts of over 35 complementary
businesses from the beginning of fiscal 1993. In October 1995, the Company
significantly expanded its computer maintenance presence by acquiring Bell
Atlantic Business Systems Services, Inc. ("BABSS"). Prior to the acquisition,
BABSS established a strong record of internal growth, growing revenues from
$338.4 million in 1991 to $486.1 million in 1994, representing a compound
annual growth rate of 12.8%.
7
<PAGE>
THE MERGER AND MERGER FINANCING
Holdings and Quaker (which as of the date hereof is a wholly owned
subsidiary of DLJMB and affiliated funds and entities (the "Funds") have
entered into an Agreement and Plan of Merger, as amended (the "Merger
Agreement"), dated as of May 4, 1997. The Merger Agreement provides, among
other things, for the merger of Quaker with and into Holdings, with Holdings
continuing as the surviving corporation (the "Merger"). Certain additional
funds affiliated with DLJMB (the "Additional Funds") are expected to acquire
a portion of the securities of Quaker immediately prior to the Merger. As
used herein, all references to the "DLJMB Funds" prior to the time of the
acquisition of securities of Quaker by the Additional Funds shall refer to
the Funds, and thereafter, to the Funds and the Additional Funds,
collectively. The DLJMB Funds expect that a limited number of institutional
investors (the "Institutional Investors") may acquire a portion of the
securities of Quaker that would otherwise be purchased by the DLJMB Funds as
described in this Prospectus. In no event would any such purchases reduce the
fully diluted ownership by the DLJMB Funds of Holdings Common Stock after the
Effective Time to below a majority, or limit rights of the DLJMB Funds as
described in "Certain Relationships and Related Transactions."
In order to fund the payment of the cash portion of the Merger
Consideration (as defined herein), the Option Cash Proceeds (as defined
herein) and the Warrant Cash Proceeds (as defined herein), to refinance
outstanding indebtedness of the Company, and pay expenses incurred in
connection with the Merger, the Issuer is issuing the Senior Subordinated
Notes and will enter into a syndicated senior secured loan facility providing
for term loan borrowings in the aggregate principal amount of approximately
$470 million and revolving loan borrowings of $105 million (the "New Credit
Facility"). At the Effective Time (as defined herein), the Company is
expected to borrow all term loans available thereunder and approximately $8.3
million of revolving loans. The remaining revolving loans will, subject to a
borrowing base, be available to fund the working capital requirements of the
Company. The proceeds of such financings will, in part, be distributed to
Holdings in the form of a dividend and, in part, lent to Holdings pursuant to
an intercompany note. On May 4, 1997, DLJMB Inc., an affiliate of DLJMB,
received an executed commitment letter from DLJ Capital Funding, Inc. ("DLJ
Capital Funding") to provide the New Credit Facility, which will be
syndicated by DLJ Capital Funding. Additionally, on May 4, 1997, DLJMB Inc.
received a letter from DLJSC (as defined herein) with respect to the
underwriting, purchase or private placement of the Senior Subordinated Notes
in which DLJSC indicated that it was highly confident of its ability to sell
the Senior Subordinated Notes in the public market. Each of the commitments
is subject to customary conditions, including the negotiation, execution and
delivery of definitive documentation with respect to such commitment. See
"Description of the New Credit Facility," "The Merger and Merger Financing"
and "Certain Relationships and Related Transactions."
Quaker is expected to raise an additional $85 million through the
concurrent issuance of the Debentures, which may be sold together with the
Public Warrants to purchase the Quaker Common Stock in the public markets (or
alternatively, through the issuance of preferred stock to the DLJMB Funds and
the Institutional Investors). At the Effective Time, Holdings will succeed to
the obligations of Quaker with respect to the Debentures and any Public
Warrants issued together with the Debentures, and the Public Warrants will,
by their terms, become exercisable for an equal number of shares of Holdings
Common Stock. The DLJMB Funds and the Institutional Investors also expect to
purchase 9,782,508 shares of Quaker Common Stock and may acquire up to
1,417,180 warrants to purchase shares of Quaker Common Stock at an exercise
price of not less than $0.01 per share (the "DLJMB Warrants") for
approximately $225 million (the "DLJMB Equity Investment"). In lieu of
acquiring the DLJMB Warrants, the DLJMB Funds and the Institutional Investors
may acquire directly those shares of Quaker Common Stock (up to 1,417,180
shares) for which such DLJMB Warrants would have been exercisable, at a price
that would be equivalent to the exercise price of the DLJMB Warrants (the
"Direct Shares"). The number of DLJMB Warrants issued or Direct Shares
purchased will be reduced by the number of Public Warrants issued (if any).
Upon the effectiveness of the Merger ("Effective Time"), the proceeds of such
purchase will become an asset of Holdings, each share of Quaker Common Stock,
including the Direct Shares, if any, will become a share of Holdings Common
Stock and each warrant to acquire Quaker Common Stock will by its terms
become exercisable for an equal number of shares of Holdings Common Stock.
8
<PAGE>
The following table sets forth the estimated cash sources and uses of
funds as if the Merger and Merger Financing, including the application of the
proceeds therefrom, occurred and were completed at the Effective Time.
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
TOTAL SOURCES:
New Credit Facility:
Revolving credit facility ........................ $ 8.3
Term loans........................................ 470.0
Senior Subordinated Notes.......................... 150.0
Debentures and Public Warrants .................... 85.0
Common stock and warrants purchased by DLJMB
Funds............................................. 225.0
-------------
Total cash sources............................... $938.3
=============
TOTAL USES:
Cash Merger Consideration ......................... $605.9
Option Cash Proceeds and Warrant Cash Proceeds ... 58.4
Repayment of existing revolving credit facility .. 221.2
Estimated transaction fees and expenses............ 52.8
-------------
Total cash uses.................................. $938.3
=============
</TABLE>
9
<PAGE>
THE OFFERING
Securities Offered ............ $150.0 million aggregate principal amount of
% Senior Subordinated Notes due 2007.
Maturity Date ................. , 2007.
Interest Payment Dates ........ and , commencing ,
1997.
Optional Redemption ........... The Senior Subordinated Notes will be
redeemable, in whole or in part, at any time
on or after , 2002, in cash at the
redemption prices set forth herein, plus
accrued and unpaid interest, if any, thereon
to the redemption date. In addition, at any
time on or prior to , 2000, the
Issuer may, at its option, on any one or
more occasions, redeem up to 35% of the
aggregate principal amount of the Senior
Subordinated Notes originally issued at a
redemption price equal to % of the
aggregate principal amount thereof, plus
accrued and unpaid interest, if any, thereon
to the redemption date, with the net cash
proceeds of one or more Equity Offerings by
(i) the Issuer or (ii) Holdings to the
extent the net cash proceeds thereof are
contributed to the Issuer as a capital
contribution to the common equity of the
Issuer; provided that at least 65% of the
original aggregate principal amount of the
Senior Subordinated Notes will remain
outstanding immediately following each such
redemption.
Change of Control ............. Upon the occurrence of a Change of Control,
each Holder of Senior Subordinated Notes
will have the right to require the Issuer to
offer to repurchase such Holder's Senior
Subordinated Notes in cash at a price equal
to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest,
if any, thereon to the date of repurchase.
The New Credit Facility will prohibit the
Issuer from purchasing the Senior
Subordinated Notes (except in certain
limited amounts) and will also provide that
certain change of control events with
respect to the Issuer will constitute a
default thereunder. Any future credit
agreements or other agreements relating to
Senior Debt to which the Issuer becomes a
party may contain similar restrictions and
provisions. In the event a Change of Control
occurs at a time when the Issuer is
prohibited from purchasing the Senior
Subordinated Notes, the Issuer could seek
the consent of its lenders to the purchase
of the Senior Subordinated Notes or could
attempt to refinance the borrowings that
contain such prohibition. If the Issuer does
not obtain such consent or repay such
borrowings, the Issuer will remain
prohibited from purchasing the Senior
Subordinated Notes by the relevant Senior
Debt. In such case, the Issuer's failure to
purchase the tendered Senior Subordinated
Notes would constitute an Event of Default
under the Senior Subordinated Note Indenture
which would, in turn, constitute a default
under the New Credit Facility and could
constitute a default under other Senior
Debt.
10
<PAGE>
In such circumstances, the subordination
provisions in the Senior Subordinated Note
Indenture would likely restrict payments to
the Holders of the Senior Subordinated
Notes. Furthermore, no assurance can be
given that the Issuer will have sufficient
resources to satisfy its repurchase
obligation with respect to the Senior
Subordinated Notes following a Change of
Control. See "Description of the Senior
Subordinated Notes."
Ranking ....................... The Senior Subordinated Notes will be
general unsecured obligations of the Issuer
and will be subordinated in right of payment
to all existing and future Senior Debt of
the Issuer, including indebtedness pursuant
to the New Credit Facility. The Senior
Subordinated Notes will rank pari passu with
any future senior subordinated indebtedness
of the Issuer and will rank senior to all
Subordinated Indebtedness of the Issuer. The
Senior Subordinated Notes will be
effectively subordinated to all liabilities
of the Issuer's subsidiaries that do not
guarantee the Senior Subordinated Notes as
set forth herein. On the date of the Senior
Subordinated Note Indenture, none of the
Company's subsidiaries will guarantee the
Senior Subordinated Notes. The Senior
Subordinated Note Indenture will provide
that if any Restricted Subsidiary of the
Company guarantees the payment of any
Indebtedness of the Company (other than the
Senior Subordinated Notes) or any
Indebtedness of any other Restricted
Subsidiary, such Restricted Subsidiary shall
simultaneously execute and deliver a
supplemental indenture to the Senior
Subordinated Note Indenture providing for a
Subsidiary Guarantee of payment of the
Senior Subordinated Notes by such Restricted
Subsidiary on the terms set forth in the
Senior Subordinated Note Indenture. See
"Description of Senior Subordinated
Notes--Certain Covenants--Subsidiary
Guarantees." On a pro forma basis after
giving effect to the Merger, including the
Merger Financing and the application of
proceeds thereof, as of March 31, 1997, the
Issuer would have had outstanding
approximately $503.0 million of Senior Debt
and the Issuer's subsidiaries would have had
approximately $10.9 million of outstanding
liabilities, including trade payables.
Certain Covenants ............. The Senior Subordinated Note Indenture will
contain certain covenants that, among other
things, limit the ability of the Issuer and
its Restricted Subsidiaries (as defined
herein) to: incur indebtedness and issue
preferred stock, repurchase Capital Stock
(as defined herein) and Subordinated
Indebtedness, engage in transactions with
affiliates, engage in sale and leaseback
transactions, incur or suffer to exist
certain liens, pay dividends or other
distributions, sell accounts receivable,
make investments, sell assets and engage in
certain mergers and consolidations.
Use of Proceeds ............... The net proceeds from the Offering, together
with the initial borrowings under the New
Credit Facility, the DLJMB Equity Investment
and the issuance of the Debentures, will be
used to
11
<PAGE>
fund payment of the cash portion of the
Merger Consideration, the Option Cash
Proceeds and the Warrant Cash Proceeds, to
refinance outstanding indebtedness of the
Company and to pay the expenses incurred in
connection with the Merger.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the Senior Subordinated Notes.
12
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data for and as of the end
of each of the years in the three-year period ended June 30, 1996 set forth
below have been derived from the audited consolidated financial statements of
the Company. The summary historical consolidated financial data set forth
below for and as of the end of the nine-month and the three-month periods
ended March 31, 1996 and March 31, 1997 have been derived from the unaudited
condensed consolidated financial statements of the Company. The historical
condensed consolidated results of operations of the Company for the nine
months and three months ended March 31, 1996 and 1997 are unaudited and are
not necessarily indicative of the Company's results of operations for the
full year. The unaudited historical consolidated financial data reflects all
adjustments (consisting of normal, recurring adjustments) which are, in the
opinion of management, necessary for a fair summary of the Company's
financial position, results of operations and cash flows for and as of the
end of the periods presented.
The unaudited summary consolidated pro forma financial data of the Company
set forth below are based on historical consolidated financial statements of
the Company, as adjusted to give effect to the Company's acquisition of BABSS
which occurred on October 20, 1995 and the Merger, including the Merger
Financing and the application of the proceeds thereof. The pro forma
statement of operations for the year ended June 30, 1996 gives effect to the
BABSS acquisition and the Merger, including the Merger Financing and the
application of the proceeds thereof, as if they had occurred as of July 1,
1995. The pro forma statements of operations for the nine-month and
three-month periods ended March 31, 1997 give effect to the Merger, including
the Merger Financing and the application of the proceeds thereof, as if they
had occurred as of July 1, 1996. The pro forma balance sheet gives effect to
the Merger, including the Merger Financing and the application of the
proceeds thereof, as if they had occurred at March 31, 1997. The pro forma
adjustments are based upon available information and upon certain assumptions
that management believes are reasonable under the circumstances. The pro
forma financial data do not purport to represent what the Company's actual
results of operations or actual financial position would have been if the
BABSS acquisition and the Merger, including the Merger Financing and the
application of the proceeds thereof, had occurred on such dates or to project
the Company's results of operations or financial position for any future
period or date.
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Condensed Consolidated Pro Forma Financial Data," "Selected
Consolidated Financial Data," and the Company's Consolidated Financial
Statements and Notes thereto, included elsewhere herein.
13
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------------------------
PRO FORMA
1994 1995 1996 1996
---------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues............................................. $108,416 $163,020 $ 540,191 $697,676
Gross profit......................................... 31,436 49,537 137,875 180,432
Operating income(2)(3)............................... 15,983 20,779 49,373 68,687
Interest expense..................................... (4,979) (2,521) (14,953) (60,808)
Interest income...................................... 132 53 239 4,853
Income from continuing operations(4)(5) ............. 10,112 41,415 20,789 7,639
Net income .......................................... 10,112 42,528 18,862 5,712
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents............................ $ 978 $ 2,659 $ 8,221
Inventory............................................ 4,459 4,024 30,130
Repairable parts(6).................................. 9,473 27,360 154,970
Total assets......................................... 35,496 135,553 514,510
Total debt........................................... 4,539 25,571 190,903
Total stockholder's equity (deficit)................. (27,627) 14,677 180,793
CONSOLIDATED CASH FLOWS DATA:
Net cash provided by operations ..................... $ 28,722 $ 38,415 $ 51,894
Net cash (used in) investing activities ............. (3,348) (54,271) (346,354)
Net cash (used in) provided by financing activities (24,946) 17,537 300,022
OTHER DATA:
EBITDA(7)............................................ $ 22,672 $ 37,021 $ 114,816 $147,805
Amortization of repairable parts..................... 5,929 7,688 37,869 48,467
---------- ---------- ----------- -----------
Adjusted EBITDA(7)................................... 16,743 29,333 76,947 99,338
Adjusted EBITDA margin(8)............................ 15.4% 18.0% 14.2% 14.2%
Depreciation and amortization of intangibles ........ $ 7,161 $ 8,554 $ 23,982 $ 30,651
Repairable parts purchases........................... 1,857 12,154 63,514 74,287
Capital expenditures................................. 304 2,786 7,278 11,243
Cash interest expense................................ 1,232 2,314 14,743 58,094
Revenue per average number of employees(9) .......... 105.8 113.8 119.6 120.0
</TABLE>
14
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
DATA
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
----------------------- ---------------------
1996 1997 1996 1997
----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues............................. $ 369,167 $ 572,749 $172,673 $205,070
Gross profit......................... 96,459 144,780 42,711 54,698
Operating income(2)(3)............... 29,323 45,041 15,536 20,080
Interest expense..................... (11,289) (11,097) (5,855) (4,005)
Interest income...................... 69 393 54 316
Income from continuing operations(5) 10,866 19,916 5,842 9,507
Net income .......................... 10,866 19,916 5,842 9,507
CONSOLIDATED BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash equivalents............ $ 12,886
Inventory............................ 35,186
Repairable parts(6).................. 195,656
Total assets......................... 641,677
Total debt........................... 246,671
Total stockholder's equity
(deficit)........................... 201,095
CONSOLIDATED CASH FLOWS DATA:
Net cash provided by operations .... $ 35,489 $ 57,654 $ 20,590 $ 36,667
Net cash (used in) investing
activities ......................... (308,771) (105,329) (20,713) (34,569)
Net cash provided by financing
activities ......................... 276,032 52,388 4,933 2,510
OTHER DATA:
EBITDA(7)............................ $ 75,568 $ 121,680 $ 34,308 $ 46,419
Amortization of repairable parts ... 23,017 45,642 11,214 16,356
----------- ----------- ---------- ----------
Adjusted EBITDA(7)................... 52,551 76,038 23,094 30,063
Adjusted EBITDA margin(8)............ 14.2% 13.3% 13.4% 14.7%
Depreciation and amortization of
intangibles......................... $ 16,228 $ 26,697 $ 7,558 $ 9,983
Repairable parts purchases........... 31,715 64,803 19,560 28,815
Capital expenditures................. 3,331 6,093 1,153 2,261
Cash interest expense................ 11,134 10,578 5,803 3,642
Ratio of Adjusted EBITDA to cash
interest expense.................... 4.72x 7.19x 3.98x 8.25x
Revenue per average number of
employees(9)........................ $ 90.3 $ 94.7 $ 29.8 $ 32.4
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues............................. $572,749 $ 205,070
Gross profit......................... 144,780 54,698
Operating income(2)(3)............... 45,041 20,080
Interest expense..................... (45,313) (15,130)
Interest income...................... 3,815 1,457
Income from continuing operations(5) 2,055 3,716
Net income .......................... 2,055 3,716
CONSOLIDATED BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash equivalents............ $ 12,886
Inventory............................ 35,186
Repairable parts(6).................. 195,656
Total assets......................... 722,616
Total debt........................... 653,771
Total stockholder's equity
(deficit)........................... (125,066)
CONSOLIDATED CASH FLOWS DATA:
Net cash provided by operations ....
Net cash (used in) investing
activities .........................
Net cash provided by financing
activities .........................
OTHER DATA:
EBITDA(7)............................ $121,680 $ 46,419
Amortization of repairable parts ... 45,642 16,356
-------------- --------------
Adjusted EBITDA(7)................... 76,038 30,063
Adjusted EBITDA margin(8)............ 13.3% 14.7%
Depreciation and amortization of
intangibles......................... $ 26,697 $ 9,983
Repairable parts purchases........... 64,803 28,815
Capital expenditures................. 6,093 2,261
Cash interest expense................ 42,916 14,141
Ratio of Adjusted EBITDA to cash
interest expense.................... 1.77x 2.13x
Revenue per average number of
employees(9)........................ $ 94.7 $ 32.4
</TABLE>
15
<PAGE>
- ------------
(1) The Summary Statement of Operations Data excludes the effects of
discontinued operations. See Note 3 of the Notes to the Company's
Consolidated Financial Statements.
(2) Operating income includes a $6.4 million credit arising from unused
lease liabilities for the year ended June 30, 1994. During the nine
months ended March 31, 1997 the Company recorded a $4.3 million
charge for estimated future employee severance costs of $3.4 million
and unutilized lease costs of $0.9 million.
(3) Operating income includes a $7.0 million charge for future employee
severance costs and unutilized lease costs, incurred in connection
with the BABSS acquisition, for the nine months ended March 31, 1996.
The year ended June 30, 1996 includes a reversal of $3.4 million of
this charge due to the Company's ability to utilize and sublease
various facilities identified in the original charge. See Note 15 of
the Notes to the Company's Consolidated Financial Statements.
(4) Income from continuing operations for the year ended June 30, 1994
reflects interest expense arising from the Company's subordinated
debt which was refinanced as a part of the 1994 Restructuring. See
Note 10 of the Notes to the Company's Consolidated Financial
Statements.
(5) Income from continuing operations for the year ended June 30, 1994
includes income taxes based on an effective tax rate substantially
less than the effective tax rates used for the years ended June 30,
1995 and 1996, and the three and nine months ended March 31, 1996 and
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 11 of
the Notes to the Company's Consolidated Financial Statements.
(6) Repairable parts represent parts that can be repaired and reused and
are required in order to meet the requirements of the contracts with
the Company's maintenance customers. These parts are principally
purchased from equipment manufacturers and other third parties. As
these parts are purchased, they are capitalized at cost and amortized
using the straight-line method over three to five years, the
estimated useful life of these repairable parts. Costs to refurbish
these parts are charged to expense as incurred.
(7) "EBITDA" represents income from continuing operations before interest
expense, interest income, income taxes, depreciation, amortization of
repairable parts, amortization of intangibles, amortization of
discounts and capitalized expenses related to indebtedness and
non-recurring employee severance charges and provisions for
unutilized leases. The Company's historical results include
amortization of repairable parts which is unique to the industry in
which the Company competes. "Adjusted EBITDA" represents EBITDA
reduced by amortization of repairable parts. Neither EBITDA nor
Adjusted EBITDA is intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flows as a measure of
liquidity and may not be comparable to similarly titled measures of
other companies. Adjusted EBITDA is presented because it is relevant
to certain covenants expected to be contained in the agreements
relating to the Merger Financing and 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.
(8) Adjusted EBITDA margin measures Adjusted EBITDA as a percentage of
revenues.
(9) Revenue per average number of employees is calculated by dividing
revenues for applicable periods by the average number of employees
during the respective periods.
16
<PAGE>
RISK FACTORS
In addition to the other information set forth herein, prospective
investors should carefully consider the following information in evaluating
the Company and its business before making an investment in the Senior
Subordinated Notes.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The information herein contains forward-looking statements 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" or "anticipates," "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.
SUBSTANTIAL LEVERAGE; LIQUIDITY; STOCKHOLDER'S DEFICIT
In connection with the Merger and the Merger Financing, including the
application of the proceeds therefrom, the Company will incur a significant
amount of indebtedness. As of March 31, 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 $653.8 million, (ii) $78.0 million of
additional borrowings available under the New Credit Facility and (iii) a
stockholder's deficit of $125.1 million. In addition, subject to the
restrictions in the New Credit Facility and the Senior Subordinated Note
Indenture, 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 may be
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,
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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, 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 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."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Senior Subordinated Note Indenture will restrict, among other things,
the Company's ability to incur additional indebtedness, incur liens, pay
dividends or make certain other restricted payments, enter into certain
transactions with affiliates, impose restrictions on the ability of a
Restricted Subsidiary to pay dividends or make certain payments to the
Company, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
the assets of the Company. In addition, the New Credit Facility contains
other and more restrictive covenants and prohibits the Company from prepaying
its other indebtedness (including the Senior Subordinated Notes). See
"Description of New Credit Facility" and "Description of the Senior
Subordinated Notes--Certain Covenants." The New Credit Facility requires the
Company to maintain specified financial ratios and satisfy certain other
financial condition tests. The Company's ability to meet those financial
ratios and tests can be affected by events beyond its control, and there can
be no assurance that the Company will meet those tests. A breach of any of
these covenants could result in a default under the New Credit Facility
and/or the Senior Subordinated Notes. Upon the occurrence of an event of
default under the New Credit Facility, the lenders could elect to declare all
amounts outstanding under the New Credit Facility, to be immediately due and
payable. If the Company were unable to repay those amounts, the lenders could
proceed against the collateral granted to them to secure that indebtedness.
If the lenders under the New Credit Facility accelerate, there can be no
assurance that the assets of the Company, would be sufficient to repay in
full such indebtedness and the other indebtedness of the Company, including
the Senior Subordinated Notes. Substantially all of the Issuer's assets are
pledged as security under the New Credit Facility. See "Description of New
Credit Facility."
SUBORDINATION; ASSET ENCUMBRANCES
The Senior Subordinated Notes will be general unsecured obligations of the
Issuer and will be subordinated in right of payment to all existing and
future Senior Debt of the Issuer, including all indebtedness under the New
Credit Facility. As of March 31, 1997, on a pro forma basis after giving
effect to the Merger, including the Merger Financing and the application of
the net proceeds thereof, the Company would have had approximately $503.0
million of Senior Debt, $500.1 million of which would have been secured
borrowings and approximately $78.0 million of additional revolving borrowings
available under the New Credit Facility. By reason of such subordination, in
the event of the insolvency, liquidation, reorganization, dissolution or
other winding-up of the Issuer or upon a default in payment with respect to,
or the acceleration of, any Senior Debt, the holders of such Senior Debt and
any other creditors who are holders of Senior Debt and creditors of
subsidiaries, if any, must be paid in full before the Holders of the Senior
Subordinated Notes may be paid. If the Issuer incurs any additional pari
passu debt, the holders of such debt would be entitled to share ratably with
the Holders of the Senior Subordinated Notes in any proceeds distributed in
connection with any insolvency, liquidation, reorganization, dissolution or
other winding-up of the Issuer. This may have the effect of reducing the
amount
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of proceeds paid to Holders of the Senior Subordinated Notes. In addition, no
cash payments may be made with respect to the Senior Subordinated Notes
during the continuance of a payment default with respect to Senior Debt and,
under certain circumstances, no payments may be made with respect to the
principal of (and premium, if any) on the Senior Subordinated Notes for a
period of up to 179 days if a non-payment default exists with respect to
Senior Debt. In addition, holders of indebtedness and other liabilities of
the Issuer's subsidiaries that do not guarantee the Senior Subordinated Notes
as set forth herein will have claims that are effectively senior to the
Senior Subordinated Notes. On the date of the Senior Subordinated Note
Indenture, none of the Company's subsidiaries will guarantee the Senior
Subordinated Notes. See "Description of the Senior Subordinated Notes."
HOLDING COMPANY STRUCTURE
The Company currently conducts a small percentage of its business through
subsidiaries. While the Company conducts a majority of its business and
operations at the Issuer level, in the future the Issuer may be dependent on
the cash flow of its subsidiaries and distributions thereof from its
subsidiaries to the Issuer in order to meet its debt service obligations.
Subject to the provisions of the Senior Subordinated Note Indenture, future
borrowings by the Company's subsidiaries may contain restrictions or
prohibitions on the payment of dividends by such subsidiaries to the Company.
In addition, under applicable state law, subsidiaries of the Issuer may be
limited in the amount that they are permitted to pay as dividends on their
capital stock.
ABSENCE OF PUBLIC MARKET
The Senior Subordinated Notes are a new security for which no public
market exists. The Senior Subordinated Notes will not be listed on a
securities exchange. There can be no assurance that an active public market
will develop or be sustained upon completion of the Offering or at what
prices Holders of the Senior Subordinated Notes would be able to sell such
securities, if at all. In addition, prevailing interest rate levels, market
fluctuations and general economic and political conditions may adversely
affect the liquidity and the market price of the Senior Subordinated Notes,
regardless of the Company's financial and operating performance. The market
for "high yield" securities, such as the Senior Subordinated Notes, is
volatile and unpredictable, which may have an adverse effect on the liquidity
of, and prices for, such securities. The Company has been advised by the
Underwriter that it currently intends to make a market in the Senior
Subordinated Notes after consummation of the Offering as permitted by
applicable laws and regulations; however, the Underwriter is not obligated to
do so and may discontinue doing so without notice at any time. Accordingly,
no assurance can be given that a liquid trading market of the Senior
Subordinated Notes will develop or be sustained. In addition, because the
Underwriter may be deemed to be an affiliate of the Company, the Underwriter
will be required to deliver a current "market-maker" prospectus and otherwise
to comply with the registration requirements of the Securities Act in
connection with any secondary market sale of the Senior Subordinated Notes,
which may affect its ability to continue market-making activities. The
Underwriter's ability to engage in market-making transactions will therefore
be subject to the availability of a current "market-maker" prospectus. For so
long as any of the Senior Subordinated Notes are outstanding and, in the
reasonable judgment of the Underwriter and its counsel, the Underwriter or
any of its affiliates is required to deliver a prospectus in connection with
the sale of the Senior Subordinated Notes, the Company has agreed to make a
"market-maker" prospectus available to the Underwriter to permit it to engage
in market-making transactions.
FRAUDULENT TRANSFER STATUTES
Under federal or state fraudulent transfer laws, if a court were to find
that, at the time the Senior Subordinated Notes were issued, the Issuer (i)
issued the Senior Subordinated Notes with the intent of hindering, delaying
or defrauding current or future creditors or (ii)(A) received less than fair
consideration or reasonably equivalent value for incurring the indebtedness
represented by the Senior Subordinated Notes and (B)(1) was insolvent or was
rendered insolvent by reason of the issuance of the Senior Subordinated
Notes, (2) was engaged, or about to engage, in a business or transaction for
which its assets
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were unreasonably small or (3) intended to incur, or believed (or should have
believed) it would incur, debts beyond its ability to pay as such debts
mature (as all of the foregoing terms are defined in or interpreted under
such fraudulent transfer statutes), such court could avoid all or a portion
of the Issuer's obligations to the Holders of the Senior Subordinated Notes,
subordinate the Issuer's obligations to the Holders of the Senior
Subordinated Notes to other existing and future indebtedness of the Issuer,
the effect of which would be to entitle such other creditors to be paid in
full before any payment could be made on the Senior Subordinated Notes, and
take other action detrimental to the Holders of the Senior Subordinated
Notes, including in certain circumstances, invalidating the Senior
Subordinated Notes. In that event, there would be no assurance that any
repayment on the Senior Subordinated Notes would ever be recovered by the
Holders of the Senior Subordinated Notes.
The definition of insolvency for purposes of the foregoing considerations
varies among jurisdictions depending upon the federal or state law that is
being applied in any such proceeding. However, the Issuer generally would be
considered insolvent at the time it incurs the indebtedness constituting the
Senior Subordinated Notes, if (i) the fair market value (or fair saleable
value) of its assets is less than the amount required to pay its total
existing debts and liabilities (including the probable liability on
contingent liabilities) as they become absolute or matured or (ii) it is
incurring debts beyond its ability to pay as such debts mature. There can be
no assurance as to what standard a court would apply in order to determine
whether the Issuer was "insolvent" as of the date the Senior Subordinated
Notes were issued, or that, regardless of the method of valuation, a court
would not determine that the Issuer was insolvent on that date. Nor can there
be any assurance that a court would not determine, regardless of whether the
Issuer was insolvent on the date the Senior Subordinated Notes were issued,
that the payments constituted fraudulent transfers on another ground. To the
extent that proceeds from the sale of the Senior Subordinated Notes are used
to repay indebtedness under the Company's existing indebtedness, or to fund
the cash portion of the Merger Consideration, a court may find that the
Company did not receive fair consideration or reasonably equivalent value for
the incurrence of the indebtedness represented by the Senior Subordinated
Notes.
POSSIBLE INABILITY TO REPURCHASE SENIOR SUBORDINATED NOTES UPON CHANGE OF
CONTROL
In the event of a Change of Control, each Holder of Senior Subordinated
Notes will have the right to require the Issuer to repurchase all or any part
of such Holder's Senior Subordinated Notes at the price specified therefor in
the Senior Subordinated Note Indenture. Under the Senior Subordinated Note
Indenture, a Change of Control will occur upon the happening of certain
events including among others: (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 Issuer 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 (as
defined herein) and their Related Parties (as defined herein); (ii) the
Issuer effects certain consolidations or mergers; (iii) the Issuer
consummates 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 (as
defined herein) of the Issuer or any parent holding company of the Issuer or
(iv) the first day on which a majority of the members of the Board of
Directors of the Issuer or any parent holding company of the Issuer are not
Continuing Directors (as defined herein).
The New Credit Facility will prohibit the Issuer from purchasing the
Senior Subordinated Notes (except in certain limited amounts) and will also
provide that certain change of control events with respect to the Issuer will
constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Issuer becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Issuer is prohibited from purchasing the Senior
Subordinated Notes, the Issuer could seek the consent of its lenders to the
purchase of the Senior Subordinated Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Issuer does not obtain such
consent or repay such borrowings, the Issuer will remain prohibited from
purchasing the Senior Subordinated Notes by the relevant Senior Debt. In such
case, the
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Issuer's failure to purchase the tendered Senior Subordinated Notes would
constitute an event of default under the Senior Subordinated Note Indenture
which would, in turn, constitute a default under the New Credit Facility and
could constitute a default under other Senior Debt. In such circumstances,
the subordination provisions in the Senior Subordinated Note Indenture would
likely restrict payments to the Holders of the Senior Subordinated Notes.
Furthermore, no assurance can be given that the Issuer will have sufficient
resources to satisfy its repurchase obligation with respect to the Senior
Subordinated Notes following a Change of Control. See "Description of the
Senior Subordinated Notes."
CONTROL BY THE DLJMB FUNDS
Following the Merger, up to 86.9% of the outstanding shares of Holdings
Common Stock (or 77.2% on a fully diluted basis) (or, if the DLJMB Funds
purchase the Direct Shares, 88.4% of the outstanding shares of Holdings
Common Stock) will be held by the stockholders of Quaker. As of the date
hereof, all of the outstanding capital stock of Quaker is owned in the
aggregate by the DLJMB Funds. While the DLJMB Funds expect that the
Institutional Investors may acquire a portion of the securities of Quaker
that would otherwise be purchased by the DLJMB Funds in the DLJMB Equity
Investment, in no event would any such purchases reduce the fully diluted
ownership by the DLJMB Funds of Holdings Common Stock after the Effective
Time to below a majority, or limit the rights of the DLJMB Funds as described
in "Certain Relationships and Related Transactions."
It is expected that at the Effective Time, the DLJMB Funds, the
Institutional Investors and any members of Holdings' management who choose to
purchase shares of Holdings Common Stock will enter into a stockholders'
agreement (the "Investors' Agreement") which will contain provisions that,
among other things, will entitle the DLJMB Funds to appoint a majority of the
members of the Board of Directors. As a result of its stock ownership and the
Investors' Agreement, following the Effective Time the DLJMB Funds will
control Holdings (and, through Holdings, the Issuer,) and have the power to
elect a majority of the directors of Holdings and the Issuer, appoint new
management and approve any action requiring the approval of the holders of
Holdings Common Stock and common stock of the Issuer, including adopting
certain amendments to the certificate of incorporation of Holdings and the
Issuer and approving mergers or sales of all or substantially all of the
assets of Holdings and the Issuer. The directors elected by the DLJMB Funds
will have the authority to effect decisions affecting the capital structure
of Holdings and the Issuer, including the issuance of additional capital
stock, the implementation of stock repurchase programs and the declaration of
dividends.
The general partners of each of the DLJMB Funds and the members of DLJ
First are affiliates or employees of Donaldson, Lufkin & Jenrette, Inc.
("DLJ, Inc."). DLJ Capital Funding, which has committed to DLJMB to provide
the New Credit Facility in connection with the Merger, is also an affiliate
of DLJ, Inc. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"),
which is the Underwriter with respect to the Debentures and the Senior
Subordinated Notes, is also an affiliate of DLJ, Inc.
LOSS OF CONTRACT-BASED REVENUE; FIXED FEE CONTRACTS
Over 85% of the Company's revenues during fiscal 1996 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.
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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.
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.
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 35 transactions from the beginning
of fiscal 1993 through March 31, 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
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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, workgroups 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.
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 Motions"). On May 1, 1997 the Court granted the Joint
Motion. The order granting the Joint Motion is subject to appeal.
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.
INVENTORY AND REPAIRABLE PARTS MANAGEMENT
In order to service its customers, the Company is required to maintain a
high level of inventory 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 inventory and repairable
parts
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becoming excess, obsolete or otherwise unusable. In addition, rapid changes
in technology could render significant portions of the Company's inventory
and repairable parts obsolete, thereby giving rise to write-offs and a
reduction in profitability. The inability of the Company to manage its
inventory 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.
Inventory 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 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.
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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. See "Management." Competition for qualified management
personnel in the industry is intense. There are not currently any employment
contracts which would ensure the continued employment of any executive
officer following the Merger. 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.
POTENTIAL ENVIRONMENTAL 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 of three 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 fourth, related site, but has
not received any other communication with respect to that site. 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 currently has
sufficient reserves for its share, if any, of the cost of clean-up of these
sites and to the extent current reserves prove inadequate, any payments in
excess of the reserved amounts will not be material to the consolidated
financial position, results of operations or liquidity of the Company. See
"Business--Legal Proceedings" and Note 16 of the Notes to the Company's
Consolidated Financial Statements.
25
<PAGE>
THE MERGER AND MERGER FINANCING
THE MERGER FINANCING
In order to fund the payment of the cash portion of the Merger
Consideration, the Option Cash Proceeds and the Warrant Cash Proceeds, to
refinance outstanding indebtedness of the Company, and pay expenses incurred
in connection with the Merger, the Issuer is issuing the Senior Subordinated
Notes and will enter into a syndicated senior secured loan facility providing
for term loan borrowings in the aggregate principal amount of approximately
$470 million and revolving loan borrowings of $105 million. At the Effective
Time, the Company is expected to borrow all term loans available thereunder
and approximately $8.3 million of revolving loans. The remaining revolving
loans will, subject to a borrowing base, be available to fund the working
capital requirements of the Company. The proceeds of such financings will, in
part, be distributed to Holdings in the form of a dividend and, in part, lent
to Holdings pursuant to an intercompany note. On May 4, 1997, DLJMB Inc., an
affiliate of DLJMB, received an executed commitment letter from DLJ Capital
Funding to provide the New Credit Facility, which will be syndicated by DLJ
Capital Funding. Additionally, on May 4, 1997, DLJMB Inc. received a letter
from DLJSC with respect to the underwriting, purchase or private placement of
the Senior Subordinated Notes in which DLJSC indicated that it was highly
confident of its ability to sell the Senior Subordinated Notes in the public
market. Each of the commitments is subject to customary conditions, including
the negotiation, execution and delivery of definitive documentation with
respect to such commitment. See "Description of the New Credit Facility" and
"Certain Relationships and Related Transactions."
Quaker is expected to raise an additional $85 million through the
concurrent issuance of the Debentures, which may be sold together with the
Public Warrants to purchase Quaker Common Stock in the public markets (or
alternatively, through the issuance of preferred stock to the DLJMB Funds and
the Institutional Investors). At the Effective Time, Holdings will succeed to
the obligations of Quaker with respect to the Debentures and any Public
Warrants issued together with the Debentures, and the Public Warrants will,
by their terms, become exercisable for an equal number of shares of Holdings
Common Stock. The DLJMB Funds and the Institutional Investors also expect to
purchase 9,782,508 shares of Quaker Common Stock and may acquire the DLJMB
Warrants to purchase shares of Holdings Common Stock at an exercise price not
less than $0.01 per share immediately prior to the Effective Time for
approximately $225 million. In lieu of acquiring the DLJMB Warrants, the
DLJMB Funds and the Institutional Investors may acquire directly those shares
of Common Stock (up to 1,417,180 shares) for which such DLJMB Warrants would
have been exercisable at a price that would be equivalent to the exercise
price of the DLJMB Warrants (the "Direct Shares"). The number of DLJMB
Warrants issued or Direct Shares purchased will be reduced by the number of
Public Warrants issued (if any). At the Effective Time, the proceeds of such
purchase will become an asset of Holdings, each share of Quaker Common Stock,
including the Direct Shares, if any, will become a share of Holdings Common
Stock and each warrant to acquire Quaker Common Stock will by its terms
become exercisable for an equal number of shares of Holdings Common Stock.
THE MERGER AGREEMENT
The Merger Agreement provides, among other things, for the merger of
Quaker with and into Holdings, with Holdings continuing as the surviving
corporation. Pursuant to the Merger Agreement, at the Effective Time, each
share of Holdings Common Stock held by Holdings as treasury stock or owned by
Quaker immediately prior to the Effective Time will be cancelled, and no
payment will be made with respect thereto; each share of Quaker Common Stock
outstanding immediately prior to the Effective Time will be converted into
and become one share of common stock of the surviving corporation with the
same rights, powers and privileges as the shares so converted; each share of
preferred stock, par value $0.01 per share, of Quaker ("Quaker Preferred
Stock"), if any, outstanding immediately prior to the Effective Time will be
converted into and become one share of preferred stock of the surviving
corporation with the same rights, powers and privileges as the shares of
preferred stock so converted; each outstanding warrant to purchase shares of
Quaker Common Stock (each, a "Quaker Warrant") will, pursuant to its terms,
become exercisable for an equal number of shares of Holdings Common Stock on
the same terms and conditions as the Quaker Warrant; and each share of
Holdings Common Stock outstanding immediately prior to the Effective Time
will, except as otherwise provided with respect to shares as to which
appraisal rights have been exercised, be converted into the following (the
"Merger
26
<PAGE>
Consideration"): for each such share with respect to which an election to
retain Holdings Common Stock has been effectively made, revoked or lost
("Stock Electing Shares"), the right to retain one share of Holdings Common
Stock, and for each such share (other than Stock Electing Shares), the right
to receive in cash from Quaker an amount equal to $23.00 (the "Cash Merger
Consideration"). The Merger contemplates that approximately 94.7% of the
presently issued and outstanding shares of Holdings Common Stock will be
converted, at the election of the holder, into cash, as described above, and
that approximately 5.3% (or 1,474,345 as of April 21, 1997) of such shares
will be retained by existing stockholders. Because 5.3% of the shares
outstanding after the Merger must be retained by existing stockholders of
Holdings, the right to receive $23.00 per share or retain shares of Holdings
Common Stock is subject to proration. The shares which are to be retained
will represent approximately 13.1% of the shares of Holdings Common Stock (or
11.6% on a fully diluted basis) expected to be issued and outstanding
immediately after the Merger. If the Merger is approved, 9,782,609 shares of
Quaker Common Stock will be converted into Holdings Common Stock that will
represent approximately 86.9% of Holdings Common Stock (or 77.2% on a fully
diluted basis) (or, if the DLJMB Funds purchase the Direct Shares, 88.4% of
the outstanding Holdings Common Stock) after the Merger. The DLJMB Funds
expect that the Institutional Investors may acquire a portion of the
securities of Quaker that would otherwise be purchased by the DLJMB Funds in
the DLJMB Equity Investment. In no event would any such purchases reduce the
fully diluted ownership by the DLJMB Funds of Holdings Common Stock after the
Merger to below a majority, or limit the rights of the DLJMB Funds under the
Investors Agreement.
The DLJMB Warrants, issued by Quaker, will be exercisable for a maximum of
1,417,180 shares of Quaker Common Stock at an exercise price of not less than
$.01 per share; however, the number of DLJMB Warrants (or if issued the
Direct Shares) will be decreased by the number, if any, of Public Warrants
that are issued together with the Debentures. All such Quaker Warrants will,
by their terms, become exercisable for an equal number of shares of Holdings
Common Stock on identical terms following the Effective Time. As a result,
following the Effective Time, the DLJMB Warrants and Public Warrants will
permit the holders thereof to purchase up to an additional 1,417,180 shares
of Holdings Common Stock which would represent, when exercised, approximately
11.2% of the Holdings Common Stock (on a fully diluted basis) after the
Merger.
At the Effective Time, each outstanding option to acquire shares of
Holdings Common Stock granted to employees and directors, whether vested or
not (the "Options"), will be cancelled and, in lieu thereof, as soon as
reasonably practicable as of or after the Effective Time, the holders of such
Options will receive, with respect to each Option, a cash payment in an
amount equal to the product of (x) the excess, if any, of $23.00 over the
exercise price of such Option multiplied by (y) the number of shares of
Holdings Common Stock subject to such Option (the "Option Cash Proceeds").
Alternatively, a portion of such options may be converted into options to
purchase Holdings Common Stock after the Effective Time.
Holdings will use its reasonable best efforts to cause holders of all
outstanding warrants to purchase Holdings Common Stock (the "Existing
Warrants") to surrender such Existing Warrants to Holdings prior to the
Effective Time in exchange for a cash payment immediately after the Effective
Time of an amount equal to the (x) excess, if any, of $23.00 over the
exercise price of such Existing Warrant, multiplied by (y) the number of
shares of Holdings Common Stock subject to such Existing Warrant (the
"Warrant Cash Proceeds"), and upon such other terms and conditions
satisfactory to Quaker.
Holdings will submit the Merger Agreement to its stockholders for approval
and adoption at a special meeting of stockholders of Holdings, which is
expected to be held between August 5, 1997 and August 7, 1997 (the "Special
Meeting"). Approval of the Merger Agreement requires an affirmative vote of
the outstanding shares of Holdings Common Stock. J.H. Whitney & Co. and
certain partnerships associated with Welsh, Carson, Anderson & Stowe have
entered into a Voting Agreement and Irrevocable Proxy, dated as of May 4,
1997, pursuant to which they have agreed upon the terms set forth therein to
vote shares constituting approximately 30% of the outstanding Holdings Common
Stock in favor of approval and adoption of the Merger Agreement.
The obligations of Quaker and Holdings to effect the Merger are further
subject to, certain customary conditions, including approval of the Merger
Agreement by the stockholders of Holdings.
27
<PAGE>
The Merger Agreement contains customary representations, warranties and
covenants of Holdings and Quaker, and may be terminated at any time prior to
the Effective Time (notwithstanding any approval of the Merger Agreement by
the stockholders of Holdings) under certain circumstances, including by
either Holdings or Quaker, if the Merger has not been consummated by the
later of (x) the earlier of September 15, 1997 and ten business days after
the Special Meeting, and (y) August 15, 1997, provided that the party seeking
to exercise such right is not then in breach in any material respect of any
of its obligations under the Merger Agreement.
28
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the Senior Subordinated Notes, after
deducting expenses of the Offering, including discounts to the Underwriter,
are estimated to be approximately $ million. The proceeds from the
Offering, together with the borrowings under the New Credit Facility, the
DLJMB Equity Investment, and the issuance of Debentures will be used to
finance the conversion into cash of approximately 94.7% of the shares of
Holdings Common Stock currently outstanding, to refinance the outstanding
indebtedness of the Company under the existing bank credit facility
(approximately $239.9 million outstanding at an interest rate of 6.44% as of
March 31, 1997 and which matures April 26, 2001), fund payments of the Option
Cash Proceeds and the Warrant Cash Proceeds, and finance the expenses and
fees incurred in connection with the Merger. See "The Merger and Merger
Financing." Approximately $299 million of the proceeds to the Issuer from the
initial borrowings under the New Credit Facility and the Senior Subordinated
Notes will be dividended or loaned to Holdings to fund a portion of the Cash
Merger Consideration and fees and expenses of Holdings in connection
therewith.
The following table sets forth the estimated cash sources and uses of
funds as if the Merger and Merger Financing, including the application of the
net proceeds therefrom, occurred and were completed at the Effective Time.
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
TOTAL SOURCES:
New Credit Facility:
Revolving credit facility......................... $ 8.3
Term loans........................................ 470.0
Senior Subordinated Notes.......................... 150.0
Debentures and Public Warrants..................... 85.0
Common stock and warrants purchased by DLJMB
Funds............................................. 225.0
-------------
Total cash sources............................... $938.3
=============
TOTAL USES:
Cash Merger Consideration ......................... $605.9
Option Cash Proceeds and Warrant Cash Proceeds ... 58.4
Repayment of existing revolving credit facility .. 221.2
Estimated transaction fees and expenses............ 52.8
-------------
Total cash uses.................................. $938.3
=============
</TABLE>
29
<PAGE>
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of March 31, 1997, and on a pro forma basis to give effect
to the Merger, including the Merger Financing and the application of the
proceeds thereof, as if they had occurred on March 31, 1997. See "Use of
Proceeds." The information set forth below should be read in conjunction with
the Company's Unaudited Condensed Consolidated Pro Forma Financial Data, the
Company's Consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
------------------------
HISTORICAL PRO FORMA
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................ $ 12,886 $ 12,886
============ ===========
Total debt (including current portion):
New Credit Facility:
Revolving credit facility (1).......... $ -- $ 26,950
Term loan facility .................... -- 470,000
Existing revolving credit facility (1) . 239,850 --
Senior Subordinated Notes offered
hereby................................. -- 150,000
Notes payable and other debt............ 5,398 5,398
Capitalized lease obligations........... 1,423 1,423
------------ -----------
Total debt............................ 246,671 653,771
Shareholder's equity (deficit)(2) ...... 201,095 (125,066)
------------ -----------
Total capitalization.................. $447,766 $ 528,705
============ ===========
</TABLE>
- ------------
(1) It is assumed that, at the Effective Time, actual borrowings under the
existing revolving credit facility will be approximately $221.2
million. Any variation in the actual borrowings outstanding under the
existing revolving credit facility at the Effective Time will result in
a corresponding change in borrowings under the New Credit Facility.
(2) For a description of the pro forma adjustments, see Note 6 to the Notes
to Unaudited Condensed Consolidated Pro Forma Balance Sheet Data.
30
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL DATA
The following unaudited condensed consolidated pro forma financial data
(the "Pro Forma Financial Data") of the Company are based on historical
consolidated financial statements of the Company as adjusted to give effect
to the Company's acquisition of BABSS on October 20, 1995 and the Merger,
including the Merger Financing and the application of the proceeds thereof.
The unaudited condensed consolidated pro forma statement of operations data
for the year ended June 30, 1996 gives effect to the BABSS acquisition and
the Merger, including the Merger Financing and the application of the
proceeds thereof, as if they had occurred as of July 1, 1995. The unaudited
condensed consolidated pro forma statements of operations data for the
nine-month and three-month periods ended March 31, 1997 give effect to the
Merger, including the Merger Financing and the application of the proceeds
thereof, as if it had occurred as of July 1, 1996. The pro forma balance
sheet gives effect to the Merger, including the Merger Financing and the
application of the proceeds thereof, as if they had occurred as of March 31,
1997. The pro forma adjustments are based upon available information and upon
certain assumptions that management believes are reasonable under the
circumstances. The Pro Forma Financial Data and accompanying notes should be
read in conjunction with the historical consolidated financial statements of
the Company, including the notes thereto, and other financial information
pertaining to the Company. The Pro Forma Financial Data do not purport to
represent what the Company's actual results of operations or actual financial
position would have been if the Merger, including the Merger Financing and
the application of the proceeds thereof, and BABSS acquisition in fact
occurred on such dates or to project the Company's results of operations or
financial position for any future period or date. The Pro Forma Financial
Data do not give effect to any transactions other than the BABSS acquisition
and the Merger, including the Merger Financing and the application of the
proceeds thereof, discussed in the notes to the Pro Forma Financial Data
included elsewhere herein.
As a result of the proposed Merger, Holdings, the Company and Quaker will
incur various costs currently estimated to range between $95 million and $105
million (pretax) in connection with consummating the transaction. These costs
consist primarily of professional fees, registration costs, compensation
costs and other expenses. While the exact timing, nature and amount of these
costs are subject to change the Company anticipates that a one-time pretax
charge of approximately $76 million ($69 million after tax) will be recorded
in the quarter in which the Merger is consummated. As a result of the
foregoing, the Company expects to record a significant net loss in the
quarter in which the Merger is recorded. 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 "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
The pro forma adjustments were applied to the respective historical
consolidated financial statements of the Company to reflect and account for
the Merger as a recapitalization; accordingly, the historical basis of the
Company's assets and liabilities has not been impacted thereby.
31
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
--------------------------------------------------
HISTORICAL RESULTS BABSS ACQUISITION
------------------------ -------------------------
THE COMPANY BABSS ADJUSTMENTS PRO FORMA
------------- ---------- ------------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
Revenues............................... $540,191 $157,485 -- $697,676
Cost of revenues....................... 402,316 127,049 $ (9,549)(1) 517,244
(1,250)(2)
83 (3)
(1,405)(4)
------------- ---------- ------------- -----------
Gross profit........................... 137,875 30,436 12,121 180,432
Operating Expenses:
Selling, general, and administrative
expenses............................. 69,237 27,152 (1,701)(1) 92,211
(500)(2)
83 (3)
(997)(4)
(1,063)(5)
Amortization and write off of
intangibles.......................... 15,673 625 (625)(6) 19,534
3,861 (7)
Employee severance and unutilized
lease cost........................... 3,592 (3,592)(8)
------------- ---------- ------------- -----------
Operating income....................... 49,373 2,659 16,655 68,687
Interest expense....................... (14,953) (539) 539 (9) (20,570)
(5,617)(10)
Interest income........................ 239 52 291
------------- ---------- ------------- -----------
Income from continuing operations
before income taxes, and
extraordinary item.................... 34,659 2,172 11,577 48,408
(Provision) benefit for income taxes .. (13,870) 250 (5,743)(11) (19,363)
------------- ---------- ------------- -----------
Income from continuing operations
before extraordinary item............. 20,789 2,422 5,834 29,045
Extraordinary item--early retirement
of debt............................... (1,927) (1,927)
------------- ---------- ------------- -----------
Net income ............................ $ 18,862 $ 2,422 $ 5,834 $ 27,118
============= ========== ============= ===========
OTHER DATA:
EBITDA (15)........................... $114,816 $ 16,524 $147,805
Amortization of repairable parts .... 37,869 10,598 48,467
------------- ---------- -----------
Adjusted EBITDA (15).................. 76,947 5,926 99,338
Adjusted EBITDA margin (16)........... 14.2% 3.8% 14.2%
Depreciation and amortization of
intangibles.......................... $ 23,982 $ 3,267 $ 30,651
Repairable parts purchases ........... 63,514 10,773 74,287
Capital expenditures ................. 7,278 3,965 11,243
Cash interest expense................. 14,743 539 20,360
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THE MERGER
----------------------------
PRO FORMA,
ADJUSTMENTS AS ADJUSTED
-------------- -------------
<S> <C> <C>
Revenues............................... $697,676
Cost of revenues....................... 517,244
-------------
Gross profit........................... 180,432
Operating Expenses:
Selling, general, and administrative
expenses............................. 92,211
Amortization and write off of
intangibles.......................... 19,534
Employee severance and unutilized
lease cost...........................
-------------
Operating income....................... 68,687
Interest expense....................... (59,878)(12) (60,808)
19,640 (13)
Interest income........................ 4,562 (14) 4,853
-------------- -------------
Income from continuing operations
before income taxes, and
extraordinary item.................... (35,676) 12,732
(Provision) benefit for income taxes .. 14,270 (11) (5,093)
-------------- -------------
Income from continuing operations
before extraordinary item............. (21,406) 7,639
Extraordinary item--early retirement
of debt............................... (1,927)
-------------- -------------
Net income ............................ $(21,406) $ 5,712
============== =============
OTHER DATA:
EBITDA (15)........................... $147,805
Amortization of repairable parts .... 48,467
-------------
Adjusted EBITDA (15).................. 99,338
Adjusted EBITDA margin (16)........... 14.2%
Depreciation and amortization of
intangibles.......................... $ 30,651
Repairable parts purchases ........... 74,287
Capital expenditures ................. 11,243
Cash interest expense................. 58,094
</TABLE>
32
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1997
--------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
Revenues.......................................... $572,749 $572,749
Cost of revenues ................................. 427,969 427,969
------------ -----------
Gross profit...................................... 144,780 144,780
Operating Expenses:
Selling, general, and administrative expenses ... 78,578 78,578
Amortization and write off of intangibles ....... 16,861 16,861
Employee severance and unutilized lease cost .... 4,300 4,300
------------ -----------
Operating income.................................. 45,041 45,041
Interest expense.................................. (11,097) (44,908)(12) (45,313)
10,692 (13)
Interest income................................... 393 3,422 (14) 3,815
------------ ------------- -----------
Income before income taxes........................ 34,337 (30,794) 3,543
(Provision) benefit for income taxes.............. (14,421) 12,933 (11) (1,488)
------------ ------------- -----------
Net income ....................................... $ 19,916 $(17,861) $ 2,055
============ ============= ===========
OTHER DATA:
EBITDA (15)...................................... $121,680 $121,680
Amortization of repairable parts................. 45,642 45,642
------------ -----------
Adjusted EBITDA (15)............................. 76,038 76,038
Adjusted EBITDA margin (16)...................... 13.3% 13.3%
Depreciation and amortization of intangibles .... $ 26,697 $ 26,697
Repairable parts purchases....................... 64,803 64,803
Capital expenditures............................. 6,093 6,093
Cash interest expense............................ 10,578 42,916
Ratio of Adjusted EBITDA to cash interest
expense......................................... 7.19x 1.77x
</TABLE>
33
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
---------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
------------ -------------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
Revenues.......................................... $205,070 $205,070
Cost of revenues ................................. 150,372 150,372
------------ -----------
Gross profit...................................... 54,698 54,698
Operating Expenses:
Selling, general, and administrative expenses ... 28,228 28,228
Amortization and write off of intangibles ....... 6,390 6,390
------------ -----------
Operating income.................................. 20,080 20,080
Interest expense.................................. (4,005) (14,970)(12) (15,130)
3,845 (13)
Interest income................................... 316 1,141 (14) 1,457
------------ -------------- -----------
Income before income taxes........................ 16,391 (9,984) 6,407
(Provision) benefit for income taxes.............. (6,884) 4,193 (11) (2,691)
------------ -------------- -----------
Net income ....................................... $ 9,507 $ (5,791) $ 3,716
============ ============== ===========
OTHER DATA:
EBITDA (15)...................................... $ 46,419 $ 46,419
Amortization of repairable parts................. 16,356 16,356
------------ -----------
Adjusted EBITDA (15)............................. 30,063 30,063
Adjusted EBITDA margin (16)...................... 14.7% 14.7%
Depreciation and amortization of intangibles .... $ 9,983 $ 9,983
Repairable parts purchases....................... 28,815 28,815
Capital expenditures............................. 2,261 2,261
Cash interest expense............................ 3,642 14,141
Ratio of Adjusted EBITDA to cash interest
expense......................................... 8.25x 2.13x
</TABLE>
34
<PAGE>
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS DATA
(1) To reflect employee-related cost savings associated with the
redundancies created by the combination of the Company and BABSS.
Components of savings include, but are not limited to, salaries,
fringe benefits (except for those separately accounted for in Note 4
to the Pro Forma Combined Financial Data), travel and other.
Personnel reductions, totaling 405 employees, were implemented in the
field (260), operations support (90), sales (10) and administration
(45). These personnel reductions were announced and substantially
effected by December 31, 1995. The reductions were spread throughout
the United States with the only area of concentration being at the
respective headquarters locations in Horsham and Frazer,
Pennsylvania.
(2) To reflect rental expense reductions associated with facilities that
have been deemed "unutilized" as a result of the combination of the
Company and BABSS. See Note 15 of the Notes to the Company's
Consolidated Financial Statements. Included in such facilities are
the Company's former corporate headquarters, several large repair
depots (identified as surplus) as well as numerous duplicate field
offices throughout the United States. All remaining lease liabilities
associated with this unutilized space have either been included in
the purchase accounting of the BABSS acquisition or have been
expensed as part of the Company's net charge of $3.6 million recorded
in the results of operations for the twelve months ended June 30,
1996.
(3) To reflect additional depreciation resulting from a $2 million
increase in property and equipment valuation recorded as part of the
overall purchase price allocation of the BABSS acquisition, assuming
an estimated four-year depreciable life.
(4) To eliminate BABSS benefit expenses associated with pension and
postemployment benefits that are not part of the Company's benefit
package and have not, therefore, been incurred subsequent to the
acquisition. See Note 3 and 11 of the Notes to DecisionOne
Corporation's (formerly BABSS, (the "Predecessor")) Consolidated
Financial Statements included elsewhere herein. Both of these benefit
programs ceased to exist as of the acquisition date.
(5) To eliminate redundant corporate overhead allocations recorded in the
historical BABSS financial statements which have not been incurred
subsequent to the acquisition. BABSS was predominantly a
self-sufficient operation. The parent company of BABSS charged
corporate overhead to BABSS; these charges are not a component of the
ongoing expense structure of the Company.
(6) To eliminate intangible amortization expense recorded in the
historical BABSS financial statements.
(7) To reflect amortization expense resulting from the adjustments to
intangible assets recorded as part of the purchase price allocation
of BABSS. See Note 8 of the Notes to the Company's Consolidated
Financial Statements.
(8) To eliminate the non-recurring charge for employee severance and
unutilized lease costs.
(9) To eliminate intercompany interest expense charged by Bell Atlantic
Corporation, the parent company of BABSS, to BABSS.
(10) To reflect interest expense associated with the financing of the
BABSS acquisition. The assumed borrowing level associated with this
adjustment was $242.0 million, which is comprised of $212.0 million
of term loan debt and $30.0 million of notes to Significant
Stockholders (the "Affiliate Notes"). In April 1996, the Company used
the proceeds of Holdings' initial public offering to reduce the term
loan debt by $70.0 million and repay the Affiliate Notes. The
interest rate on the term loan was 8.75% per annum, and the effective
interest rate on the Affiliate Notes was 12.9% per annum. The
interest rate swap agreements entered into by the Company have not
been given effect in the calculation of these adjustments, based on
immateriality.
35
<PAGE>
The pro forma interest adjustment has been computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1996
---------------
(IN THOUSANDS)
<S> <C>
Term loan interest.............................................. $ 17,019
Affiliate Notes interest:
Stated rate (10.101% per annum)................................ 2,273
Amortization of original issue discount........................ 354
Less actual interest expense included in the historical results (14,029)
---------------
Pro forma interest adjustment................................... $ 5,617
===============
</TABLE>
(11) To adjust the income tax (provision) benefit for effect of all pro
forma entries above at an effective tax rate of 40% and 42% for the
year ended June 30, 1996 and nine-month and three-month periods ended
March 31, 1997, respectively. Utilization of the Company's net
operating loss ("NOLs") tax carryforwards have not been reflected in
the pro forma income tax expense. The recognition of the Company's
NOLs have been recorded in the historical financials, see Note 11 of
the Notes to the Company's Consolidated Financial Statements.
(12) To reflect the additional interest expense attributable to the Merger
Financing, as follows:
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, 1996 MARCH 31, 1997 MARCH 31, 1997
--------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
New Credit Facility:
Term Loan A and revolving credit
facility............................ $18,311 $13,733 $ 4,578
Term Loan B .......................... 12,750 9,563 3,188
Term Loan C .......................... 10,938 8,203 2,734
Senior Subordinated Notes ............. 15,375 11,531 3,844
Amortization of deferred financing
costs............................... 2,504 1,878 626
--------------- -------------- --------------
$59,878 $44,908 $14,970
=============== ============== ==============
</TABLE>
The amounts and assumed interest rates of the Merger Financing are as
follows:
<TABLE>
<CAPTION>
ASSUMED
RATE
AMOUNT PER ANNUM
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
New Credit Facility:
Term Loan A and revolving credit facility $221,950 LIBOR + 2.50%
Term Loan B ............................... 150,000 LIBOR + 2.75%
Term Loan C ............................... 125,000 LIBOR + 3.00%
Senior Subordinated Notes .................. 150,000 10.25%
</TABLE>
The effect of a 1/4% change in interest rates on the above Merger
Financing would be $1.6 million, $1.2 million, and $0.4 million for the
year ended June 30, 1996, nine months ended March 31, 1997 and the three
months ended March 31, 1997, respectively.
(13) To reflect the elimination of interest expense (including
amortization of deferred financing costs, which are not considered to
be material) attributable to indebtedness to be paid in connection
with the Merger as follows:
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, 1996 MARCH 31, 1997 MARCH 31, 1997
--------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Existing revolving credit facility
(including BABSS pro forma) ............. $19,640 $10,692 $3,845
</TABLE>
36
<PAGE>
(14) To reflect the interest income attributable to the intercompany loan
from the Company to Holdings in the principal amount of $55.3 million
at a rate of 8.25% per annum. Interest on the intercompany loan will
accrue and compound until maturity. At the Company's option, interest
on the intercompany loan will be payable in cash.
(15) "EBITDA" represents income from continuing operations before interest
expense, interest income, income taxes, depreciation, amortization of
repairable parts inventory, amortization of intangibles, amortization
of discounts and capitalized expenses related to indebtedness, and
non-recurring employee severance charges and provisions for
unutilized leases. The Company's historical financial results include
amortization of repairable parts which is unique to the industry in
which the Company competes. "Adjusted EBITDA" represents EBITDA
reduced by amortization of repairable parts. Neither EBITDA nor
Adjusted EBITDA is intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flows as a measure of
liquidity and may not be comparable to similarly titled measures of
other companies. Adjusted EBITDA is presented because it is relevant
to certain covenants expected to be contained in the agreements
relating to the Merger Financing and the Company believes that
Adjusted EBITDA is a more consistent indicator of the Company's
ability to meet its debt service, capital expenditure and working
capital requirements than EBITDA.
(16) Adjusted EBITDA margin measures Adjusted EBITDA as a percentage of
revenues.
37
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET DATA
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................$ 12,886 $ -- (1) $ 12,886
Accounts receivable, net................. 136,401 136,401
Inventories.............................. 35,186 35,186
Other.................................... 7,637 7,637
------------ ---------
Total current assets..................... 192,110 192,110
Loan to Holdings ........................ -- 55,300 (2) 55,300
Repairable parts, net.................... 195,656 195,656
Property & equipment, net................ 33,283 33,283
Intangibles, net and other assets........ 220,628 7,000 (3) 246,267
18,875 (4)
(236)(5)
------------ -------------- ---------
Total assets...............................$641,677 $ 80,939 $ 722,616
============ ============== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term debt........$ 4,756 $ 4,756
Accounts payable and accrued expenses.... 101,516 101,516
Deferred revenues........................ 72,096 72,096
Other.................................... 3,691 3,691
------------ ---------
Total current liabilities................ 182,059 182,059
New Credit Facility:
Revolving credit facility................ -- $ 26,950 (1) 26,950
Term loans............................... -- 470,000 (1) 470,000
Senior Subordinated Notes ............... -- 150,000 (1) 150,000
Existing revolving credit facility....... 239,850 (239,850)(1) --
Other long term debt..................... 2,065 2,065
Other liabilities........................ 16,608 16,608
------------ -------------- ---------
Total liabilities....................... 440,582 407,100 847,682
------------ -------------- ---------
Total stockholder's equity (deficit).... 201,095 (326,161)(6) (125,066)
------------ -------------- ---------
Total liabilities and stockholder's
equity...................................$641,677 $ 80,939 $ 722,616
============ ============== =========
</TABLE>
38
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET DATA
(1) The net effect on cash and cash equivalents of the Merger, including
the Merger Financing and the application of the proceeds thereof as
of March 31, 1997, is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
TOTAL SOURCES:
New Credit Facility:
Revolving credit facility(a).................... $ 26,950
Term loans...................................... 470,000
Senior Subordinated Notes........................ 150,000
--------------
Total sources.................................. $646,950
==============
TOTAL USES:
Dividend to Holdings ............................ $244,000
Loan to Holdings ................................ 55,300
Option Cash Proceeds............................. 45,400
Warrant Cash Proceeds............................ 13,000
Repayment of existing revolving credit facility 239,850
Estimated transaction fees and expenses ......... 49,400
--------------
Total uses..................................... $646,950
==============
</TABLE>
(2) Represents loan to Holdings at an interest rate of 8.25% per annum.
(3) Represents the anticipated tax benefit related to the transaction
fees and expenses. The anticipated tax benefit is limited due to the
expected non-deductibility of certain Merger transaction fees and
expenses and limitations on the recognition of deferred tax benefits
resulting from net operating losses expected to be reported in the
fiscal year ended June 30, 1998.
(4) Represents the portion of estimated transaction fees and expenses
attributable to the New Credit Facility and the Senior Subordinated
Notes, which will be recorded as deferred debt issuance costs and
will be amortized over the life of the debt to be issued. Such
estimated deferred debt issuance costs include estimated fees and
expenses payable to banks, and advisors and underwriting discounts
and commissions.
(5) The adjustment reflects the write-off deferred debt issuance costs
associated with the existing revolving credit financing.
(6) Represents the net change in stockholders' equity as a result of the
Merger, including the Merger Financing and the application of the
proceeds thereof:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Dividend to Holdings ..................... $(244,000)
Transaction fees and expenses(b).......... (30,525)
Write-off of deferred debt issuance
costs.................................... (236)
Option Cash Proceeds(c) .................. (45,400)
Warrant Cash Proceeds..................... (13,000)
Tax benefit of above expense adjustments . 7,000
--------------
Total................................... $(326,161)
==============
</TABLE>
---------
(a) Based on borrowings of $239.9 million that were outstanding
under the existing revolving credit facility as of March 31,
1997. Any variation in the actual borrowings outstanding
under the existing revolving credit facility on the closing
date will result in a corresponding change in borrowings
under the New Credit Facility.
(b) Represents the portion of the total $49.4 million of
estimated transaction fees and expenses which will be
recorded as an expense immediately upon consummation of the
Merger and related transactions; the remainder of such
transaction fees and expenses are recorded in Note (4) above
as deferred debt issuance costs.
(c) Represents compensation costs of the Company resulting from
the cancellation of options which will be recorded as an
expense immediately upon consummation of the Merger and
related transactions.
39
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the periods and
dates indicated set forth below have been derived from the audited
consolidated financial statements and the unaudited condensed consolidated
financial statements of the Company. The condensed consolidated results of
operations of the Company for the nine months and three months ended March
31, 1996 and 1997 are unaudited and are not necessarily indicative of the
Company's results of operations for the full year. The unaudited condensed
consolidated financial data reflects all adjustments (consisting of normal,
recurring adjustments) which are, in the opinion of management, necessary for
a fair summary of the Company's financial position, results of operations and
cash flows for and as of the end of the periods presented.
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and Notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues....................................... $112,773 $114,060 $108,416 $163,020 $ 540,191
Gross profit................................... 27,753 27,575 31,436 49,537 137,875
Operating income(2)(3)......................... 11,288 4,406 15,983 20,779 49,373
Interest expense............................... (9,881) (9,353) (4,979) (2,521) (14,953)
Interest income................................ 178 25 132 53 239
Income (loss) from continuing
operations(4)(5).............................. 1,441 (5,234) 10,112 41,415 20,789
Net income (loss).............................. 2,524 (10,590) 10,112 42,528 18,862
Ratio of earnings to fixed charges(6)(7) ...... 1.13x -- 2.67x 5.09x 2.79x
CONSOLIDATED BALANCE SHEET DATA
(AT PERIOD END):
Cash and cash equivalents...................... $ 737 $ 550 $ 978 $ 2,659 $ 8,221
Inventory...................................... 14,787 7,146 4,459 4,024 30,130
Repairable parts(8)............................ 19,657 13,545 9,473 27,360 154,970
Total assets................................... 84,846 44,721 35,496 135,553 514,510
Total debt..................................... 72,972 51,530 4,539 25,571 190,903
Total stockholder's equity (deficit)........... (47,477) (58,146) (27,627) 14,677 180,793
CONSOLIDATED CASH FLOWS DATA:
Net cash provided by operations ............... $ 16,550 $ 17,137 $ 28,722 $ 38,415 $ 51,894
Net cash (used in) provided by investing
activities ................................... (8,226) 11,779 (3,348) (54,271) (346,354)
Net cash (used in) provided by financing
activities ................................... (8,905) (29,103) (24,946) 17,537 300,022
OTHER DATA:
EBITDA(9)...................................... $ 27,871 $ 24,361 $ 22,672 $ 37,021 $ 114,816
Amortization of repairable parts............... 12,016 9,375 5,929 7,688 37,869
---------- ---------- ---------- ---------- -----------
Adjusted EBITDA(9)............................. 15,855 14,986 16,743 29,333 76,947
Adjusted EBITDA margin(10)..................... 14.1% 13.1% 15.4% 18.0% 14.2%
Depreciation and amortization of intangibles .. $ 4,567 $ 4,769 $ 7,161 $ 8,554 $ 23,982
Repairable parts purchases..................... 4,939 3,263 1,857 12,154 63,514
Capital expenditures........................... 1,752 681 304 2,786 7,278
Cash interest expense.......................... 4,474 3,428 1,232 2,314 14,743
Revenue per average number of employees(11) ... 70.9 82.3 105.8 113.8 119.6
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
----------------------- ---------------------
1996 1997 1996 1997
----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues.......................................... $ 369,167 $ 572,749 $172,673 $205,070
Gross profit...................................... 96,459 144,780 42,711 54,698
Operating income(2)(3)............................ 29,323 45,041 15,536 20,080
Interest expense.................................. (11,289) (11,097) (5,855) (4,005)
Interest income................................... 69 393 54 316
Income (loss) from continuing operations(5) ..... 10,866 19,916 5,842 9,507
Net income (loss)................................. 10,866 19,916 5,842 9,507
Ratio of earnings to fixed charges(6)(7) ......... 2.34x 3.17x 2.31x 3.90x
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents......................... $ 12,886
Inventory......................................... 35,186
Repairable parts(8)............................... 195,656
Total assets...................................... 641,677
Total debt........................................ 246,671
Total stockholder's equity........................ 201,095
CONSOLIDATED CASH FLOWS DATA:
Net cash provided by operations .................. $ 35,489 $ 57,654 $ 20,590 $ 36,667
Net cash (used in) investing activities ......... (308,771) (105,329) (20,713) (34,569)
Net cash provided by financing activities ....... 276,032 52,388 4,933 2,510
OTHER DATA:
EBITDA(9)......................................... $ 75,568 $ 121,680 $ 34,308 $ 46,419
Amortization of repairable parts ................. 23,017 45,642 11,214 16,356
----------- ----------- ---------- ----------
Adjusted EBITDA(9)................................ 52,551 76,038 23,094 30,063
Adjusted EBITDA margin(10)........................ 14.2% 13.3% 13.4% 14.7%
Depreciation and amortization of intangibles ..... $ 16,228 $ 26,697 $ 7,558 $ 9,983
Repairable parts purchases........................ 31,715 64,803 19,560 28,815
Capital expenditures.............................. 3,331 6,093 1,153 2,261
Cash interest expense............................. 11,134 10,578 5,803 3,642
Ratio of Adjusted EBITDA to cash interest
expense.......................................... 4.72x 7.19x 3.98x 8.25x
Revenue per average number of employees(11) ...... $ 90.3 $ 94.7 $ 29.8 $ 32.4
</TABLE>
41
<PAGE>
- ------------
(1) The Summary Statement of Operations Data excludes the effects of
discontinued operations. See Note 3 of the Notes to the Company's
Consolidated Financial Statements.
(2) Operating income includes a $5.8 million charge and a $6.4 million
credit arising from unused lease liabilities for the years ended June
30, 1993 and 1994. During the nine months ended March 31, 1997 the
Company recorded a $4.3 million charge for estimated future employee
severance costs of $3.4 million and unutilized lease costs of $0.9
million.
(3) Operating income includes a $7.0 million charge for future employee
severance costs and unutilized lease costs, incurred in connection
with the BABSS acquisition, for the nine months ended March 31, 1996.
The year ended June 30, 1996 includes a reversal of $3.4 million of
this charge due to the Company's ability to utilize and sublease
various facilities identified in the original charge. See Note 15 of
the Notes to the Company's Consolidated Financial Statements.
(4) Income (loss) from continuing operations for the years ended June 30,
1992 through 1994 reflects interest expense arising from the
Company's subordinated debt which was refinanced as a part of the
1994 Restructuring. See Note 10 of the Notes to the Company's
Consolidated Financial Statements.
(5) Income (loss) from continuing operations for the years ended June 30,
1992 through 1994 include income taxes based on an effective tax rate
substantially less than the effective tax rates used for the years
ended June 30, 1995 and 1996, and the three and nine months ended
March 31, 1996 and 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 11 of the Notes to the Company's Consolidated Financial
Statements.
(6) In calculating this ratio, "earnings" represents income from
continuing operations before provision for income taxes and
extraordinary items plus fixed charges. Fixed charges consist of
interest and amortization of discounts and capitalized expenses
related to indebtedness and one-third of rent expense, which is
representative of the interest factor.
(7) For the year ended June 30, 1993, earnings were insufficient to cover
fixed charges by $4.9 million.
(8) Repairable parts represent parts that can be repaired and reused and
are required in order to meet the requirements of the contracts with
the Company's maintenance customers. These parts are principally
purchased from equipment manufacturers and other third parties. As
these parts are purchased, they are capitalized at cost and amortized
using the straight-line method over three to five years, the
estimated useful life of these repairable parts. Costs to refurbish
these parts are charged to expense as incurred.
(9) "EBITDA" represents income (loss) from continuing operations before
interest expense, interest income, income taxes, depreciation,
amortization of repairable parts, amortization of intangibles,
amortization of discounts and capitalized expenses related to
indebtedness and non-recurring employee severance charges and
provisions for unutilized leases. The Company's historical results
include amortization of repairable parts which is unique to the
industry in which the Company competes. "Adjusted EBITDA" represents
EBITDA reduced by amortization of repairable parts. Neither EBITDA
nor Adjusted EBITDA is intended to represent cash flow from
operations as defined by generally accepted accounting principles and
should not be considered as an alternative to net income as an
indicator of the Company's operating performance or to cash flows as
a measure of liquidity and may not be comparable to similarly titled
measures of other companies. Adjusted EBITDA is presented because it
is relevant to certain covenants expected to be contained in the
agreements relating to the Merger Financing and 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.
(10) Adjusted EBITDA margin measures Adjusted EBITDA as a percentage of
revenues.
(11) Revenue per average number of employees is calculated by dividing
revenues for applicable periods by the average number of employees
during the respective periods.
42
<PAGE>
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 including the notes thereto.
This discussion contains forward-looking statements 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."
COMPANY HISTORY
DecisionOne Corporation is a wholly owned subsidiary of Holdings through
which the operations of Holdings are conducted. 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.
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 over 35
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, BABSS which was acquired
in October 1995 for cash consideration of approximately $250.0 million and
certain assets of the U.S. computer service business of Memorex Telex which
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. Prior to the acquisition, BABSS established a
strong record of internal revenue growth, growing revenues from $338.4
million in 1991 to $486.1 million in 1994, representing a compound annual
rate of 12.8%.
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 during the last
fiscal year were 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
cancelled 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 other 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
43
<PAGE>
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), inventory cost recognition, amortization of
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
repairable parts in the same proportion as increases in acquired revenues.
The proposed Merger, which will be recorded as a recapitalization for
accounting purposes, is subject to a number of conditions, including
regulatory approvals and approval by Holdings' stockholders. The transaction
is estimated to have an aggregate cash value of approximately $957 million,
including refinancing of the Company's existing revolving credit facility
balance at March 31, 1997. The Company expects the Merger to close by
September 1997.
As a result of the proposed Merger, including the Merger Financing and the
application of the proceeds thereof, Holdings, the Company and Quaker will
incur various costs currently estimated to range between $95 million and $105
million (pretax) in connection with consummating the transaction. These costs
consist primarily of compensation costs, underwriting discounts and
commissions, professional and advisory fees and other expenses. While the
exact timing, nature and amount of these costs are subject to change, the
Company anticipates that a one-time pretax charge of approximately $76
million ($69 million after tax) will be recorded in the quarter in which the
Merger is consummated. As a result of the foregoing, the Company expects to
record a significant net loss in the quarter in which the Merger is recorded.
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."
RECENT DEVELOPMENTS
The Company's 1997 fiscal year ended on June 30, 1997. While the final
results of the quarter ended June 30, 1997 are not yet available, the Company
currently estimates that it recorded revenues of approximately $213.2 million
during the fourth quarter, and during such quarter realized operating income
of approximately $22.7 million and net income of approximately $11.2 million.
The Company currently estimates that revenues for the full fiscal year
ended June 30, 1997 were approximately $785.9 million and that it realized
operating income of approximately $67.8 million and net income of
approximately $31.1 million. Results of operations for the full fiscal year
ended June 30, 1997 include the impact of certain charges recorded during the
second quarter of fiscal 1997, as discussed below.
The above information is preliminary in nature only, and is subject in all
respects to completion of various internal analyses and procedures necessary
to finalize the Company's financial statements, and to completion of the
audit of the Company's financial statements for the fiscal year ended June
30, 1997.
RESULTS OF OPERATIONS
The following discussion of results of operations is presented for the
three and nine month periods ended March 31, 1997, and fiscal years ended
June 30, 1996, 1995 and 1994. 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.
44
<PAGE>
The following table sets forth, for the periods indicated, certain
operating data expressed in dollar amounts and as a percentage of revenues:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED JUNE 30, MARCH 31,
-------------------------------- ---------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................... $108,416 $163,020 $540,191 $369,167 $572,749
Cost of revenues........... 76,980 113,483 402,316 272,708 427,969
---------- ---------- ---------- ---------- ----------
Gross profit............... 31,436 49,537 137,875 96,459 144,780
Operating Expenses:
Selling, general and
administrative expenses .. 16,474 21,982 69,237 49,519 78,578
Amortization and write-off
of intangibles............ 5,380 6,776 15,673 10,617 16,861
Employee severance and
unutilized lease costs
(credit).................. (6,401) -- 3,592 7,000 4,300
---------- ---------- ---------- ---------- ----------
Operating income........... 15,983 20,779 49,373 29,323 45,041
OTHER DATA:
EBITDA..................... 22,672 37,021 114,816 75,568 121,680
Adjusted EBITDA (1)........ 16,743 29,333 76,947 52,551 76,038
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................... $172,673 $205,070
Cost of revenues........... 129,962 150,372
---------- ----------
Gross profit............... 42,711 54,698
Operating Expenses:
Selling, general and
administrative expenses .. 22,303 28,228
Amortization and write-off
of intangibles............ 4,872 6,390
Employee severance and
unutilized lease costs
(credit).................. -- --
---------- ----------
Operating income........... 15,536 20,080
OTHER DATA:
EBITDA..................... 34,308 46,419
Adjusted EBITDA (1)........ 23,094 30,063
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE NINE MONTHS ENDED THREE MONTHS
30, MARCH 31, ENDED MARCH 31,
-------------------------- ----------------- -----------------
1994 1995 1996 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........... 71.0 69.6 74.5 73.9 74.7 75.3 73.3
-------- -------- -------- -------- -------- -------- --------
Gross profit............... 29.0 30.4 25.5 26.1 25.3 24.7 26.7
Operating Expenses:
Selling, general and
administrative expenses .. 15.2 13.5 12.8 13.4 13.7 12.9 13.8
Amortization and write-off
of intangibles............ 5.0 4.2 2.9 2.9 2.9 2.8 3.1
Employee severance and
unutilized lease costs
(credit).................. (5.9) -- 0.7 1.9 0.8 -- --
-------- -------- -------- -------- -------- -------- --------
Operating income........... 14.7 12.7 9.1 7.9 7.9 9.0 9.8
OTHER DATA:
EBITDA..................... 20.9 22.7 21.3 20.5 21.2 19.9 22.6
Adjusted EBITDA (1)........ 15.4 18.0 14.2 14.2 13.3 13.4 14.7
</TABLE>
- ------------
(1) As defined in Note 7 to the Summary Historical and Unaudited Pro Forma
Condensed Consolidated Financial Data.
THREE AND NINE MONTHS ENDED MARCH 31, 1997
The following discussion of results of operations is presented for the
Company for the fiscal quarters ended March 31, 1997 and 1996 (the "1997
Quarter" and "1996 Quarter", respectively), and for the nine-month periods
then ended (the "1997 Period" and the "1996 Period", respectively).
Revenues: Revenues for the 1997 Quarter increased by $32.4 million, or
18.8%, to $205.1 million as compared to revenues for the 1996 Quarter of
$172.7 million. This increase is attributable primarily to the acquisition of
Memorex Telex in November 1996, which resulted in increased revenues of
approximately $25 million as compared to the 1996 Quarter.
45
<PAGE>
For the 1997 Period, revenues increased to $572.7 million, as compared to
revenues of $369.2 million for the 1996 Period. This 55.1% increase was due
primarily to the BABSS acquisition, which occurred on October 20, 1995.
Gross Profit: Gross profit increased by $12.0 million, or 28.1%, from
$42.7 million for the 1996 Quarter to $54.7 million for the 1997 Quarter.
This increase is due principally to the increase in revenues during the 1997
Quarter attributable to the Memorex Telex acquisition, which occurred during
the second quarter of fiscal 1997. As a percentage of revenues, gross profit
increased from 24.7% in the 1996 Quarter to 26.7% in the 1997 Quarter.
The improvement in gross profit margin was primarily attributable to (i)
increased revenues from both acquisitions (including contract and asset
acquisitions from Memorex Telex, Xerox Canada and EMC) during the 1997 Period
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
utilization of the Company's field service personnel and resources to service
the increased revenues referred to above.
Gross profit increased by $48.3 million, or 50.1%, from $96.5 million in
the 1996 Period to $144.8 million in the 1997 Period. The increase was due
primarily to the increase in revenues during the 1997 Period attributable to
the full period effect of the BABSS acquisition and, to a lesser extent, the
Memorex Telex acquisition. As a percentage of revenues, gross profit
decreased from 26.1% in the 1997 Period to 25.3% in the 1996 Period. The
decrease in gross margin was attributable to the full period effect in the
1997 Period of the change in mix of the Company's services resulting from the
BABSS acquisition, partially offset by improved gross profit margins
attributable to the efficiencies and productivity improvements described
above during the second and third quarters of the 1997 Period. As a result of
the BABSS acquisition, a significantly smaller portion of the Company's
revenues was derived from proprietary systems which typically generate higher
profit margins than services for non-proprietary systems.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased by $5.9 million, or 26.5%, from $22.3
million for the 1996 Quarter to $28.2 million for the 1997 Quarter. This
increase was attributable primarily to the Memorex Telex acquisition,
including increased sales force salaries and commissions, as well as
increased travel and bad debt expenses. As a percentage of revenues, selling,
general and administrative expenses increased from 12.9% for the 1996 Quarter
to 13.8% for the 1997 Quarter. Selling, general and administrative expenses
increased by $29.1 million, or 58.8% from $49.5 million in the 1996 Period to
$78.6 million in the 1997 Period. This increase was due primarily to the
acquisition of BABSS in October 1995. Selling, general and administrative
expenses as a percentage of revenue increased from 13.4% for the 1996 Period
to 13.7% for the 1997 Period.
Amortization of Intangibles: Amortization of intangible assets increased
by $1.5 million, or 30.6%, from $4.9 million for the 1996 Quarter to $6.4
million for the 1997 Quarter. This increase was attributable principally to
the amortization of intangibles, primarily goodwill, arising from
acquisitions during the 1997 Period, principally Memorex Telex in November,
1996.
Amortization of intangible assets increased by $6.3 million, or 59.4%,
from $10.6 million for the 1996 Period to $16.9 million for the 1997 Period.
This increase was attributable principally to the amortization of intangibles
resulting from the BABSS and Memorex Telex acquisitions.
Employee severance and unutilized lease costs (credit): The Company
recorded charges of $4.3 million and $7.0 million, respectively, in the
second quarter of 1997 and 1996 for estimated future employee severance costs
and unutilized lease/contract losses in connection with specific
acquisitions. See Note 4 to the Unaudited Condensed Consolidated Financial
Statements.
Interest Expense: Interest expense, net of interest income, decreased by
$2.1 million, or 36.2%, from $5.8 million for the 1996 Quarter to $3.7
million for the 1997 Quarter. This decrease was primarily attributable to the
Company's reduced average borrowing rate on long-term indebtedness, which
equaled approximately 9.0% and 6.4%, respectively, for the corresponding
periods. The decrease in the average borrowing rate resulted from the
refinancing of the Company's revolving credit facility in April, 1996. This
interest rate-related decrease, coupled with lower average outstanding
borrowings in the 1997 Quarter resulted in decreased overall interest
expense.
46
<PAGE>
Interest expense, net of interest income, decreased by $0.5 million, or
4.6%, from $11.2 million for the 1996 Period to $10.7 million for the 1997
Period. This decrease was also due primarily to the factors noted above.
Income Taxes: The Company's income tax provisions for the 1997 Quarter and
the 1997 Period reflect an estimated effective income tax rate of
approximately 42%, while the effective income tax rate for the 1996 Quarter
and the 1996 Period 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
non-proprietary systems.
Selling, general and administrative expenses: Selling, general and
administrative expenses 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 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.
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.
Employee severance and unutilized lease costs (credit): During fiscal
1996, the Company recorded $3.6 million (net of adjustments recording during
the year) 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.
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 10 of the Notes 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 11 of the Notes to the Company's Consolidated
Financial Statements.
Extraordinary item--early extinguishment of debt: Upon consummation of
Holdings' 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.
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues: Revenues increased by $54.6 million, or 50.4%, from $108.4
million for fiscal 1994 to $163.0 million for fiscal 1995. The increase
principally reflected the benefit throughout the period of the
47
<PAGE>
Company's acquisition of certain assets and liabilities of Servcom in August
1994. Servcom had a monthly revenue base of approximately $5 million at the
time of the acquisition.
Gross profit: Gross profit increased by $18.1 million, or 57.6%, from
$31.4 million in fiscal 1994 to $49.5 million in fiscal 1995. As a percentage
of revenues, gross profit increased from 29.0% to 30.4%, principally as a
result of increased revenues from service contracts without a proportionate
increase in personnel costs.
Selling, general and administrative: Selling, general and administrative
expenses increased by $5.5 million, from $16.5 million in fiscal 1994 to
$22.0 million in fiscal 1995. The increase is related predominantly to the
Servcom acquisition, which required additional administrative and selling
support for the Servcom customer contracts. As a percentage of revenues,
selling, general and administrative expenses decreased from 15.2% to 13.5%,
due to economies of scale.
Amortization and write-off of intangibles: Amortization of intangibles
increased by $1.4 million, from $5.4 million in fiscal 1994 to $6.8 million
in fiscal 1995. The amortization in fiscal 1994 included a $2.9 million
write-off of intangibles relating to acquisitions in prior years.
Furthermore, amortization of intangibles arising from acquisitions made in
1991 and 1992 ended during fiscal 1994, offsetting, in part, the additional
amortization of intangibles recorded during fiscal 1995 as a result of the
August 1994 acquisition of Servcom.
Employee severance and unutilized lease costs (credit): During fiscal
1994, the Company recorded a benefit of $6.4 million arising from the
settlement of lease obligations for facilities no longer used in the
Company's business, which obligations had previously been accrued in fiscal
1993. During fiscal 1995, there were no comparable lease settlements.
Interest expense: Interest expense decreased $2.3 million, from $4.8
million in fiscal 1994 to $2.5 million in fiscal 1995, due to the
restructuring of indebtedness of the Company in 1994 (see Note 10 of the
Notes to the Company's Consolidated Financial Statements) and a decrease in
the prevailing interest rates on bank loans.
Income taxes: During fiscal 1995, the Company recorded a $23.1 million
income tax benefit related to the expected utilization of tax loss
carryforwards (which is net of a $10 million offsetting charge for potential
limitations on their use) and the future tax benefit of other deductible
temporary differences. As of June 30, 1995, based on its ability to generate
taxable income, the Company recorded the appropriate deferred taxes. See Note
11 of the Notes to the Company's Consolidated Financial Statements. The
effective tax rate in 1994 was approximately 9.2%, which resulted from
application of alternative minimum income tax and state taxes.
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.
See Note 3 of the Notes to the Company's Consolidated Financial Statements.
LIMITATION ON USE OF NET OPERATING LOSS CARRYFORWARDS AND OTHER TAX CREDITS
As of June 30, 1996, the Company had tax loss carryforwards of
approximately $38.1 million and $15.2 million for Federal and state income
tax purposes, respectively, which are scheduled to expire between 1997 and
2009. The Company also had minimum tax credits of approximately $1.2 million
as of June 30, 1996, with no applicable expiration period. These
carryforwards and credits may be utilized, as applicable, to reduce future
taxable income. Holdings' initial public offering 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. See Note 11 to the Company's Consolidated Financial Statements for
the year ended June 30, 1996. In addition, the Merger will cause another
"ownership change" of Holdings 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
48
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
Post-Merger
Following the Merger, the Company's principal sources of liquidity will be
cash flow from operations and borrowings under the New Credit Facility. 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 Credit Facility. In
connection with 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 will incur substantial indebtedness in connection with the
Merger and the Merger Financing. On a pro forma basis, after giving effect to
the Merger, the Merger Financing and the application of the proceeds thereof,
the Company would have had approximately $653.8 million of indebtedness
outstanding as of March 31, 1997 as compared to $246.7 million of
indebtedness outstanding as of March 31, 1997. In addition, on the same pro
forma basis, the Company would have a stockholders' deficit of $125.1 million
at March 31, 1997 as compared to a stockholders' equity of $201.1 million as
of March 31, 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."
In connection with the Merger, Quaker expects to raise $85 million through
the issuance of the Debentures, which may be sold together with Public
Warrants to purchase the Quaker Common Stock in the public markets (or,
alternatively, through the issuance of preferred stock to the DLJMB Funds).
At the Effective Time, Holdings will succeed to the obligations of Quaker
with respect to the Debentures and any Public Warrants issued together with
the Debentures, and the Public Warrants will, by their terms, become
exercisable for an equal number of shares of Holdings Common Stock. In
addition, the Issuer expects to issue the Senior Subordinated Notes for
approximately $150 million of gross proceeds, and expects to enter into the
New Credit Facility providing for term loans of $470 million and revolving
loans of up to $105 million. At the Effective Time, the Issuer is expected to
borrow all term loans available thereunder and approximately $8.3 million of
revolving loans. The remaining revolving loans will, subject to a borrowing
base, be available to fund the working capital requirements of the Company
after the Merger. Approximately $299 million of the proceeds to the Issuer
from the initial borrowings under the New Credit Facility and the Senior
Subordinated Notes will be dividended or loaned to Holdings to fund a portion
of the Cash Merger Consideration and fees and expenses of Holdings in
connection therewith. Each financing is subject to customary conditions,
including the negotiation, execution and delivery of definitive documentation
with respect to such financing.
The DLJMB Funds and certain Institutional Investors also expect to
purchase approximately 9,782,508 shares of Quaker Common Stock and the DLJMB
Warrants (or the Direct Shares) for approximately $225 million. Upon the
effectiveness of the Merger, the proceeds of such purchase will become an
asset of Holdings. The proceeds of the Debentures, the Senior Subordinated
Notes, the initial borrowings under the New Credit Facility and the purchase
of common stock by DLJMB Funds will be used to finance the payment of the
cash portion of the Merger Consideration, the Option Cash Proceeds and the
Warrant Cash Proceeds, to refinance outstanding indebtedness of the Company
and to pay expenses incurred in connection with the Merger.
The term loan facility under the New Credit Facility will consist of (i) a
$195 million Term Loan A, (ii) a $150 million Term Loan B and (iii) a $125
million Term Loan C. Term Loan A will mature six years after the closing
date, Term Loan B will mature seven years after the closing date and Term
Loan C will
49
<PAGE>
mature eight years after the closing date. Commitments under the revolving
credit facility of the New Credit Facility will terminate six years after the
closing date.
Borrowings under the New Credit Facility will bear interest based on a
margin over, at the Company's option, the base rate or LIBOR. The applicable
margin will vary based on the Company's ratio of consolidated indebtedness to
Adjusted EBITDA. The Company's obligations under the New Credit Facility will
be secured by substantially all of the assets of the Company, including a
pledge of the capital stock of all of its direct material subsidiaries,
subject to certain limitations with respect to foreign subsidiaries. In
addition, Holdings will guarantee the obligations of the Company under the
New Credit Facility. Such guarantee will only be recourse to Holdings' pledge
of all of the outstanding capital stock of the Company to secure the
Company's obligations under the New Credit Facility. The New Credit Facility
will contain customary covenants and events of default, including substantial
restrictions on the Company's ability to make dividends or other
distributions to Holdings.
The Debentures will be issued by Quaker and, at the Effective Time, will
become obligations of Holdings. The Debentures will not be guaranteed by the
Company or any of the Company's subsidiaries. The Debentures will mature in
2008. No interest will accrue or be payable on the Debentures until ,
2002. Thereafter, interest on the Debentures will be payable semi-annually in
cash. The Debentures will contain customary covenants and events of default,
including covenants that limit the ability of Holdings and its subsidiaries
to incur debt, pay dividends and make certain investments.
The Senior Subordinated Notes will be issued by the Issuer and, upon
issuance, will not be guaranteed by Holdings or any of the Issuer's
subsidiaries. The Senior Subordinated Notes will mature in 2007. Interest on
the Senior Subordinated Notes will be payable semi-annually in cash. The
Senior Subordinated Notes will contain customary covenants and events of
default, including covenants that limit the ability of the Issuer and its
subsidiaries to incur debt, pay dividends and make certain investments.
As of March 31, 1997, the Company had no material commitments for
purchases of repairable parts or for capital expenditures.
The Company has budgeted approximately $10 million in incremental
expenditures for information systems 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 inventory 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.
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, 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--Substantial Leverage; Ability to
Service Indebtedness; Stockholders' Deficit."
Historical
Financing: Until Holdings' 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, Holdings completed an initial public offering raising $106
million through the issuance of 6.3 million shares of common stock. The
proceeds of the initial public offering were used to repay approximately $70
million of the Company's then existing term loan (the "1995 Term Loan") and
the Affiliate Notes.
50
<PAGE>
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 converted the 1995 Term Loan and an existing
$30 million revolving credit facility into a $225 million variable rate,
unsecured revolving credit facility (the "1996 Revolving Credit 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 1996 Revolving Credit Facility,
raising the total loan commitment to $300 million. See Note 3 to the
unaudited Condensed Consolidated Financial Statements.
The 1996 Revolving Credit Facility provides for revolving borrowings up to
$300 million. The commitments thereunder terminate on April 26, 2001. The
interest rate applicable to the 1996 Revolving Credit Facility varies, at the
Company's option, based upon LIBOR (plus an applicable margin not to exceed
1%) or the prime rate. The Company has 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. See Notes 2 and 10 to the Company's audited Consolidated
Financial Statements. Although it may be exposed to losses in the event of
nonperformance by counterparties to such swap agreements, the Company does
not expect such losses, if any, to be material. As of March 31, 1997, the
interest rate applicable to loans under the 1996 Revolving Credit Facility
was LIBOR plus .75%, or an effective rate of approximately 6.5%, and
available borrowings under the 1996 Revolving Credit Facility were $55.5
million.
Borrowings incurred under the 1996 Revolving Credit Facility in the 1997
Quarter and the 1997 Period were approximately $2.6 million and $52.9
million, respectively. Borrowings incurred during the 1997 Period included
substantially all of the funding required with respect to the Memorex Telex
acquisition. The obligations of the Company thereunder are guaranteed by
Holdings and certain of the Company's subsidiaries, except for its Canadian
subsidiary. In connection with the Merger, the Merger Financing and the
application of the proceeds thereof, all indebtedness outstanding under the
1996 Revolving Credit Facility will be repaid.
Cash Flow and Leverage: Cash flow from operating activities for the 1997
Quarter was approximately $36.7 million. These funds, together with
borrowings under the 1996 Revolving Credit Facility, provided the required
capital to fund capital expenditures of approximately $31.0 million, as well
as the acquisition of assets from complementary businesses for approximately
$3.5 million. Cash flow from operating activities for the 1997 Period was
approximately $57.7 million. These funds, together with borrowings under the
1996 Revolving Credit Facility, provided the capital required to fund capital
expenditures of approximately $70.9 million, as well as the acquisition of
assets from complementary businesses for approximately $34.4 million.
Reducing cash flow from operating activities for the 1997 Quarter and the
1997 Period 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 9 to the Company's audited consolidated financial
statements for the fiscal year ended June 30, 1996. 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, 1995, and 1994, the Company generated net cash flow
from operating activities of $51.9 million, $38.4 million, and $28.7 million,
respectively. Cash required to fund the purchase of repairable parts and for
capital expenditures totaled $70.8 million, $14.9 million and $2.2 million,
during fiscal 1996, 1995 and 1994, respectively.
The majority of the Company's capital expenditures have historically
consisted of purchases of repairable parts needed to meet the service
requirements of customers under computer maintenance contracts. These
repairable parts are generally purchased from OEMs and other third parties.
The Company expended $86.4 million for the purchase of repairable parts in
fiscal 1997 including purchases relating to the Company's Compaq "End of
Life" Program. As of March 31, 1997, the Company had no material commitments
for purchases of repairable parts or for capital expenditures other than
those in the ordinary course of business.
51
<PAGE>
The Company maintains a significant inventory of expendable 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 five years. The Company maintains a high level
of inventories due to the wide range of products serviced, ranging from
mainframe to personal computers.
The Company provides for obsolescence when accounting for expendable
inventories and reviews obsolescence as it applies to its repairable parts.
The Company believes it has provided adequate reserves for obsolescence for
expendable inventories. 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 1997 Period
was the Memorex Telex acquisition on November 15, 1996. The base purchase
price was $50.4 million, comprised of the Company's assumption of $26.0
million of liabilities under acquired customer maintenance contracts, and
$24.4 million in cash after taking into account certain purchase price
adjustments.
The balance sheet reflects working capital (deficiency) as of March 31,
1997 of $10.1 million, and as of June 30, 1996, 1995, and 1994, of $12.9
million, ($51.8) million and ($34.0) million, respectively, which deficits
for 1995 and 1994 were primarily attributable to the use of short-term
liabilities to fund the purchase of long-term assets.
The allowance for uncollectible accounts at March 31, 1997 and 1996
amounted to 7.9% and 9.4% of trade receivables, respectively. The allowance
for uncollectible accounts at June 30, 1996 and 1995 amounted to 9.4% and
19.2% of trade receivables, respectively, because of the Company's write-off
experience with respect to accounts receivable obtained by acquisition and
the potential offset against an OEM's trade receivable in respect of
unreturned, unused and replaced parts.
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 three 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 fourth, related 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 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 Company's financial statements.
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 share, if any, of 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 of the Notes to the Company's
Consolidated Financial Statements. See "Risk Factors--Potential Environmental
Liabilities."
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.
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BUSINESS
OVERVIEW
The Company is the largest independent provider of multivendor computer
maintenance and technology support services in the United States, based on
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 OEM) provider of
these services across a broad range of computing environments, including
mainframes, midrange and distributed systems, workgroups, 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 shrink-wrapped 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.
DecisionOne has emerged as the leading independent, multivendor provider
of computer maintenance and technology support services by (i) consummating
over 35 complementary acquisitions since the beginning of fiscal 1993, (ii)
expanding maintenance capabilities and introducing new technology support
services, (iii) increasing sales to existing customers by increasing
equipment under contract and by selling existing customers new technology
support services, (iv) adding new corporate customers and (v) providing
outsourcing services for OEMs, software publishers, system integrators and
other independent service organizations. As a result, the Company's revenues
have grown at a compound annual rate of 69.2% to approximately $820.4 million
for the annualized quarter ended March 31, 1997 from $114.1 million in fiscal
1993. Over the same period, the Company's Adjusted EBITDA has grown at a
74.2% compound annual rate to approximately $120.3 million for the annualized
quarter ended March 31, 1997 from $15.0 million in fiscal 1993.
In 1996, based on Dataquest projections, the Company estimates it had a 9%
market share of the $8.8 billion independent, multivendor segment of the
$40.5 billion U.S. hardware maintenance and technology support services
market. The independent, multivendor segment is projected by Dataquest to
grow at a 14% compound annual rate from $8.8 billion in 1996 to $14.8 billion
in 2000. The Company believes this growth is being driven by the
proliferation of computer equipment as well as outsourcing trends, including:
(i) the outsourcing by corporate customers of hardware maintenance and
technical support requirements and (ii) the outsourcing by major hardware
OEMs and software publishers of maintenance services (including warranty and
post-warranty services) and end-user technical support requirements. In
addition, the Company believes that demand for its services is being driven
by the increasing complexity of computing environments which has resulted
from the migration of computer systems from single OEM, centralized systems
to multivendor, decentralized systems. The Company believes that this
increased complexity has generally surpassed the technical capabilities of
many in-house support staffs and has accelerated the pace of outsourcing. The
Company believes that customers are increasingly turning to independent
service providers when outsourcing due to the increased use of multiple
vendors for hardware and the perception that OEM service providers are biased
toward specifying their own equipment as computer purchase requirements
arise. Furthermore, many OEMs such as Sun and Compaq are outsourcing certain
non-core customer service activities, including maintenance services
(including warranty and post-warranty services) and product support services
(such as end-user help desk services) to independent service organizations
such as the Company.
COMPETITIVE STRENGTHS
The Company believes that it possesses a number of competitive strengths
that have allowed it to become the leading independent provider of
multivendor computer maintenance and technology support services, including:
EXTENSIVE SERVICE INFRASTRUCTURE. The Company provides customers with
high quality service through an extensive infrastructure including: (i)
approximately 4,000 highly trained field technicians, (ii)
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over 150 geographic locations throughout the United States and Canada, (iii)
a substantial spare parts inventory to ensure supply and rapid response
times, (iv) a broad service offering which enhances the Company's ability to
provide customers with a single source solution, (v) an extensive proprietary
database of historical failure rates for over 15,000 hardware products
manufactured by over 1,000 OEMs, (vi) a detailed record of major customers'
hardware and software assets and a record of such customers' maintenance
patterns and (vii) proprietary dispatch systems to ensure rapid customer
response times.
INDEPENDENT, MULTIVENDOR SERVICE PROVIDER. The Company provides customers
with an independent, multivendor solution for their computer maintenance and
technology support needs. As an independent service provider, the Company
believes it is viewed by customers as impartial to any particular OEM's
products. As a multivendor service provider, the Company supports over 15,000
hardware products manufactured by more than 1,000 OEMs as well as most major
operating systems and over 150 shrink-wrapped software applications. OEM,
specialty and local service providers do not offer either the breadth of
services or the geographic presence throughout the United States and Canada
provided by the Company.
CONTRACT-BASED REVENUES. Approximately 85% of the Company's revenues in
fiscal 1996 were derived from contracts, under which equipment and services
may be added and deleted. Furthermore, the Company believes that its
extensive service infrastructure and its unique knowledge of its customers'
hardware and software service requirements enhance the Company's ability to
provide superior service. The Company believes that the resulting track
record of service to existing customers affords it a competitive advantage in
renewing existing contracts and winning new contracts. Although many of the
Company's existing customer contracts are currently terminable on short
notice, 49 out of the Company's top 50 customers in fiscal 1994 are still
customers today.
DIVERSIFIED AND STABLE FORTUNE 1000 CUSTOMER BASE. The Company services
over 51,000 customers at over 182,000 sites across the United States and
Canada. In fiscal 1996, the Company's top 10 customers represented 23% of
revenues and the top 100 customers represented 47% of revenues. The Company's
customers include a diverse group of national and multinational corporations,
including SABRE Group, Inc. (an affiliate of American Airlines, Inc.), Sun,
Compaq, NationsBank, DuPont, Chevron Corporation and Netscape. The Company
believes that the scope of its service offerings and the breadth of its
geographic presence in the United States and Canada allow it to serve this
diverse group of national and multinational customers as well as thousands of
smaller customers who also require customized services.
MITIGATED TECHNOLOGY AND RECESSION RISKS. The Company provides services
across a broad range of computing environments, including mainframes,
midrange and distributed systems, workgroups, PCs and related peripherals.
Consequently, although each segment of the computer hardware and software
industry is subject to shifts in technology, the Company believes that the
diversity of computing environments for which it provides services mitigates
the potential adverse effects of technological changes in any one segment.
Furthermore, the Company believes that because computer maintenance
requirements are based primarily on usage, the Company's hardware maintenance
business may be insulated from the adverse effects of declines in spending
during recessionary periods, so long as computer usage continues to
necessitate maintenance spending.
BUSINESS STRATEGY
DecisionOne has developed a business strategy which it believes will
enable it to profitably grow future revenue and cash flow and which includes
the following elements:
PROVIDE A SINGLE SOURCE TECHNOLOGY SUPPORT SOLUTION. The Company intends
to continue its strategy of offering its customers a broad and expanding
range of computer technology support services in a single interface format.
The Company believes it meets the customer's preference for a single
interface by offering maintenance and technology support services across most
leading brands of hardware and software within virtually all computing
environments. In addition, the Company's single source solution enables the
Company to retain customers when customers change, substitute or upgrade
their computing environments.
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OFFER ADDITIONAL SERVICES TO EXISTING CUSTOMERS. The Company generates new
revenues from existing customers by adding new equipment to existing hardware
maintenance contracts and by providing existing customers with additional
support services. Recent revenue growth attributable to the expansion of
additional support services has been derived primarily from (i) end-user
support services such as help desk services, (ii) network support services
such as LAN administration, security management and fault management, (iii)
logistics services such as parts repair, inventory and asset management, and
warranty parts management and (iv) program management services such as
technology deployment and computer and software moves, adds and changes. The
Company believes that the breadth of its additional support services has
permitted, and will continue to permit, the Company to leverage its historic
strength in hardware maintenance to increase revenues from existing customers
and has enabled the Company to grow sales to its top 50 customers in fiscal
1994 by 33.3% through fiscal 1996.
LEVERAGE EXISTING SERVICE INFRASTRUCTURE. The Company believes that, due
to the large scale of the Company's service infrastructure, the Company
enjoys substantial operating leverage and has positioned itself to increase
productivity and profitability whether the Company grows internally or
through acquisitions. The principal areas in which the Company expects to
realize the benefits of operating leverage include: (i) increased customer
call density in a region permitting field service technicians in the region
to complete a greater number of service calls per day, (ii) increased
comparable equipment density allowing the Company to operate with
proportionally lower inventory of spare parts and (iii) productivity gains
driven by new services such as end-user support services which reduce
unnecessary trips by field technicians to existing customers and by the
addition of new equipment under existing maintenance contracts. The Company
intends to further improve the productivity of its existing infrastructure by
investing in upgrades of its management information systems.
PURSUE COMPLEMENTARY ACQUISITIONS. The Company believes it is well
positioned strategically to participate in the further consolidation of the
computer maintenance and technology support services market and expects to
continue to evaluate complementary acquisitions. Further, the Company
believes that pursuing complementary acquisitions is an attractive growth
strategy due to the significant synergies which the Company may achieve when
it successfully consolidates acquisitions into its service infrastructure.
Since the beginning of fiscal 1993, the Company has completed over 35
acquisitions. The Company's typical acquisition consists principally of
customer maintenance and support contracts as well as the accompanying spare
parts inventory. The Company generally reduces the cost structure necessary
to service the acquired customer contracts by leveraging DecisionOne's
extensive service infrastructure, spare parts inventory and administrative
function. For example, the Company was able to service the contracts acquired
from Memorex Telex in November 1996 with approximately 36% fewer employees
than previously required by Memorex Telex. In addition, the Company seeks to
increase sales and profitability by offering acquired customers additional
services.
CAPITALIZE ON OUTSOURCING TREND AMONG OEMS, SOFTWARE PUBLISHERS AND
SYSTEMS INTEGRATORS. The Company expands its marketing reach by offering its
services through outsourcing arrangements and indirect channels. For fast
growing hardware OEMs and software publishers concerned with cost savings and
time-to-market issues such as Sun, Netscape and Compaq, the Company provides
outsourced customer support services such as help desk services, warranty and
post-warranty maintenance services, and technical product support services.
For systems integrators, the Company provides maintenance and technology
support services on a subcontract basis to several large outsourcing clients
of EDS and Computer Sciences Corp.
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
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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.
According to Dataquest, the top 10 participants accounted for less than 50%
of the market in 1995. 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, workgroups, 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
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 Windows(Registered Trademark) 95, Windows(Registered
Trademark), MS-DOS(Registered Trademark), and Sun Microsystems'
Solaris(Registered Trademark), as well as support on network operating
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systems such as Novell Netware(Registered Trademark) and Windows(Registered
Trademark) NT. 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(Registered
Trademark) 95 and Windows(Registered Trademark) 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 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.
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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(Trademark) 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 significant
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.
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.
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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.
Inventory Logistics. In order to meet customer computer repair
requirements, the Company maintains a tiered approach to inventory
management. Parts or assemblies with low failure rates are stocked in either
the Company's central distribution center located in Malvern, Pennsylvania or
in its 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 inventory 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(Trademark). 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,
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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(Trademark). MAXwatch(Trademark) 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(Trademark), ISIS, SERVICE EDGE and
MAXwatch(Trademark) 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; Milwaukee, 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 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,
workgroups 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
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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."
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
LOCATION FOOTAGE LEASE 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
(multi-purpose) 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.
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.
LEGAL PROCEEDINGS
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 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 three 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; and (iii) Revere Chemical Site, Nockamixon,
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, 1996, 1995 and 1994.
Complete information as to the scope of required clean-up at these sites is
not
61
<PAGE>
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 share, if any, of 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 of the Notes to the Company's
Consolidated Financial Statements.
REGULATION
Under the National Industrial Security Operating Manual, companies with
contracts or subcontracts with the U.S. government that involve access to
classified information must, if they will come under foreign ownership,
control or influence ("FOCI"), notify the U.S. Department of Defense. If they
wish to retain their security clearances such companies must propose a plan
of action to mitigate or negate the FOCI. The Company currently requires
security clearances in order to perform services under certain classified
contracts. As a result, on May 13, 1997, Holdings notified the Defense
Department of the proposed Merger, and on June 27, 1997, it submitted to the
Defense Department its plan to mitigate or negate FOCI through use of a
Special Security Agreement. Among other things, the Company has proposed to
mitigate the FOCI by the addition of two independent directors to the board
of directors of the Company. There is no deadline by which the Department of
Defense must approve a plan. If no plan has been approved by the date of the
Merger, the status of existing contracts will be subject to case-by-case
review and the Company will be unable to bid on new classified government
work until and unless such an approval is forthcoming.
62
<PAGE>
MANAGEMENT
THE COMPANY
The following table sets forth certain information concerning the current
directors and executive officers of the Company. It is expected that such
persons will serve in such capacities with the Company following the
Effective Time.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth Draeger ....... 56 Chairman and Chief Executive Officer and Director
Stephen J. Felice .... 40 President
Thomas J. Fitzpatrick 39 Vice President and Chief Financial Officer
Joseph S. Giordano ... 42 Senior Vice President--Operations
James J. Greenwell ... 38 Senior Vice President--Sales & Marketing
Thomas M. Molchan .... 42 General Counsel and Corporate Secretary
Dwight T. Wilson ...... 41 Vice President--Human Resources
</TABLE>
Kenneth Draeger has been the Chief Executive Officer, and a Director of
the Company since October 1995, and Chairman of the Company since November
1995. From July 1992 to October 1995, he was the Chief Executive Officer and
a Director of the Company's predecessor, Servcom. From 1988 to 1991, Mr.
Draeger was President of Agfa/Compugraphic, a manufacturer of electronic
pre-press equipment. Mr. Draeger is also a director of Galileo Corporation.
Stephen J. Felice has been the President of the Company since October
1995. Mr. Felice joined BABSS in March 1987. He served as Vice President and
General Manager, Sales and Operations of BABSS from January 1991 to October
1995 and was responsible for all service delivery, sales activity, customer
management, and marketing channels with management responsibility over almost
3,000 employees.
Thomas J. Fitzpatrick has been the Vice President and Chief Financial
Officer of the Company since August 1996. Prior to August 1996 Mr.
Fitzpatrick was Vice President of Network Finance at Bell Atlantic Network
Services, Inc. Mr. Fitzpatrick served more than eight years at BABSS,
including over four years as Vice President and Chief Financial Officer.
Joseph S. Giordano has been Senior Vice President--Operations of the
Company since October 1995. From October 1993 to October 1995, Mr. Giordano
was Vice President Sales and Service Delivery of BABSS. From January 1991 to
October 1993, he was an Area General Manager of BABSS.
James J. Greenwell has been Senior Vice President--Sales & Marketing of
the Company since October 1995, and was Vice President Sales and Marketing of
Servcom from 1993 to October 1995. From January 1992 to 1993, Mr. Greenwell
was Director of Operations of Servcom's Qantel operation. Prior to January
1992, he was Vice President, Sales and Marketing of Qantel Corporation.
Thomas M. Molchan has been General Counsel and Corporate Secretary of the
Company since October 1995. From December 1986 to October 1995, he was Vice
President and General Counsel of BABSS.
Dwight T. Wilson has been Vice President--Human Resources of the Company
since October 1995. From April 1994 to October 1995, Mr. Wilson was Vice
President--Human Resources of BABSS. From October 1990 to March 1994, Mr.
Wilson was Director, Human Resources Policies and Planning of BABSS.
In addition, it is expected that at the Effective Time, Peter T. Grauer
and Kirk B. Wortman will become directors of the Company.
Peter T. Grauer has been a Managing Director of DLJ Merchant Banking II,
Inc. since September 1992. From April 1989 to September 1992, he was
Co-Chairman of Grauer & Wheat, Inc., an investment firm specializing in
leveraged buyouts. Prior thereto, Mr. Grauer was a Senior Vice President of
Donaldson, Lufkin & Jenrette Securities Corporation. Mr. Grauer is a director
of Doane Products Co., SDW Holdings, Inc. and Total Renal Care, Inc.
(NYSE:(TRL)).
63
<PAGE>
Kirk B. Wortman has been a Principal of DLJ Merchant Banking II, Inc.
since February 1997. For the five years prior to joining DLJ Merchant
Banking, Inc. he worked in the Leveraged Finance Group within DLJ's
Investment Banking Group, most recently as a Senior Vice President.
In connection with the Company's efforts to ensure continuance of certain
existing contracts with the U.S. government, the Company has submitted a
Special Security Agreement to the Department of Defense for approval. If
approved, the agreement would provide, among other things, that at least two
individuals (the "Outside Directors") would have no prior relationship with
the Company or any of its affiliates will be named to its Board of Directors.
The agreement would also require that the Board of Directors include at least
one officer of the Company (an "Officer Director") and that the total number
of Outside Directors and Officer Director always be greater than the number
of directors representing Holdings. The agreement would also provide that the
Outside Directors could be removed, and new or replacement Outside Directors
or Officer Directors could not serve, unless approved by the Defense
Investigative Service. See "Business--Regulation."
HOLDINGS
The following table sets forth the name, age and position with Holdings of
each person who is expected to serve as a director of Holdings following the
Effective Time.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth Draeger ......... 56 Chairman and Chief Executive Officer and Director
Peter T. Grauer ......... 51 Director
Lawrence M.v.D. Schloss 42 Director
Tom G. Greig ............ 49 Director
Kirk B. Wortman ......... 34 Director
</TABLE>
In addition, it is expected that two additional directors, not affiliated
with DLJMB or Holdings, will be appointed at the Effective Time.
Lawrence M.v.D. Schloss has been the Managing Partner of DLJ Merchant
Banking II, Inc. since November 1995. Prior to November 1995, he was the
Chief Operating Officer and Managing Director of DLJ Merchant Banking, Inc.
Mr. Schloss currently serves as Chairman of the Board of McCulloch
Corporation and as a director of Wilson, Greatbatch, Inc. Mr. Schloss has
previously served as a director of GTECH Corporation (NYSE:GTK), Krueger
International, Inc., OSi Specialties, Inc. and MPB Corporation.
Tom G. Greig is a Managing Director in the Investment Banking Division of
DLJ and serves as co-head of the Technology Investment Banking Group. Mr.
Greig is a director of Manufacturers Services Limited, a contract electronics
manufacturer. Mr. Greig has over 20 years of experience in the investment
banking industry, the majority of which he has spent working with technology
based companies.
64
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth for the years ended June 30, 1997, 1996 and
1995 certain compensation paid by the Company to its Chief Executive Officer
and the four other most highly paid executive officers of the Company whose
cash compensation exceeded $100,000 for the year ended June 30, 1997. Certain
members of management are expected to enter into new employment agreements at
the Effective Time which may alter their compensation arrangements.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
----------------------------------------------- --------------
SECURITIES
OTHER UNDERLYING
SALARY BONUS ANNUAL OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#)
- ---------------------------------- ------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Kenneth Draeger 1997 425,000 -- (1) -- 50,000
Chief Executive Officer 1996 355,000 484,500 (2) -- 70,000
1995 250,625 375,000 -- --
Stephen J. Felice 1997 225,000 60,000 (1) -- 9,000
President 1996 157,500(3) 130,340 (3) -- 100,000
1995 -- -- -- --
Thomas J. Fitzpatrick 1997 168,077 (4) 59,866 (1)(4)224,908 (5) 100,000
Vice President and Chief 1996 -- -- -- --
Financial Officer 1995 -- -- -- --
Thomas M. Molchan 1997 139,300 27,500 (1) -- 10,000
General Counsel and Corporate 1996 90,020(3) 42,725 (3) -- 33,000
Secretary 1995 -- -- -- --
James J. Greenwell 1997 140,500 22,500 (1) -- --
Senior Vice President--Sales and 1996 131,000 58,460 -- 10,000
Marketing 1995 129,500 90,000 -- 40,000
</TABLE>
- ------------
(1) Final payment of bonuses for fiscal 1997 will be determined in August
1997. Therefore, there may be additional bonus payments for fiscal
1997 which have not been determined at the time of filing.
(2) Mr. Draeger's bonus for fiscal 1996 was paid in two parts. $357,000
of this bonus was paid on August 15, 1996. The remaining $127,500 was
paid on May 15, 1997 after completion of ten consecutive trading days
where the share price of Holdings Common Stock closed above $18.00.
(3) Messrs. Felice and Molchan joined the Company and were named
executive officers on October 21, 1995. The salaries and bonuses
shown reflect the amount earned after such date through June 30,
1996.
(4) Mr. Fitzpatrick joined the Company and was named an executive officer
on August 12, 1996. The salary and bonus reflect the amount earned
after such date through June 30, 1997. Of the bonus amount, $30,000
was a one-time signing bonus.
(5) Of this amount, $223,908 is for relocation assistance. The other
$1,000 was for tax preparation assistance.
65
<PAGE>
The following table summarizes stock options to purchase Holdings Common
Stock granted during fiscal 1997 to the persons named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
HOLDINGS' OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
--------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES OF
------------------------------------------------------- STOCK PRICE
APPRECIATION FOR
OPTION TERM(1)
NUMBER OF -----------------------
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS
OPTIONS GRANTED TO EXERCISE OF
GRANTED(1) EMPLOYEES IN BASE PRICE EXPIRATION
NAME(2) (#) FISCAL 1997 ($/SH) DATE 5%($) 10%($)
- --------------------- ------------ ------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Draeger....... 50,000 4.3% $16.750 12/04/06 $ 526,699 $1,334,759
Stephen J. Felice .... 9,000 0.8 16.750 12/04/06 94,806 240,257
Thomas J. 100,000 (3) 8.7 22.875 08/12/06 1,438,596 3,645,686
Fitzpatrick.......... 100,000 8.7 14.000 09/08/06 880,452 2,231,239
Thomas M. Molchan .... 10,000 0.9 16.750 12/04/06 105,340 266,952
James J. Greenwell ... -- -- -- -- -- --
</TABLE>
- ------------
(1) Options vest in four equal annual installments commencing on the
first anniversary of the date of grant. Unvested options are subject
to termination upon termination of the optionee's service with the
Company.
(2) Potential Realizable Values are based on an assumption that the share
price of Holdings Common Stock starts equal to the exercise price
shown for each particular option grant and appreciates at the annual
rate shown (compounded annually) from the date of the grant until the
end of the term of the option. These amounts are reported net of the
option exercise price, but before any taxes associated with exercise
or subsequent sale of the underlying stock. The actual value, if any,
an optionholder may realize will be a function of the extent to which
the share price exceeds the exercise price on the date the option is
exercised and also will depend on the optionholder's continued
employment through the vesting period. The actual value to be
realized by the optionholder may be greater or less than the values
estimated in this table.
(3) This grant, which was issued on August 13, 1996 was subsequently
cancelled and, as shown in the table, replaced by another grant on
September 9, 1996.
The following table summarizes option exercises during fiscal 1997 and the
value of vested and unvested options for the persons named in the Summary
Compensation Table at June 30, 1997. Year-end values are based upon a price
of $22.75 per share, which was the closing market price of a share of
Holdings Common Stock on June 30, 1997, the last trading day of the fiscal
year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END HOLDINGS'
OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT JUNE 30, 1997 AT JUNE 30, 1997
----------------------------- -----------------------------
SHARES
ACQUIRED ON
EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ---------------------- ------------- -------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Draeger........ 25,000 337,500 1,109,780 102,500 24,561,355 1,074,375
Stephen J. Felice .... 3,000 24,750 22,000 84,000 324,500 1,160,250
Thomas J. Fitzpatrick -- -- -- 100,000 -- 600,000
Thomas M. Molchan...... -- -- 8,250 34,750 121,688 425,063
James J. Greenwell .... 60,000 1,040,000 79,000 27,500 1,629,000 445,625
</TABLE>
Neither the Company nor Holdings currently grants any long-term
incentives, other than stock options, to its executives or other employees,
nor does it sponsor any defined benefit or actuarial plans at this time.
Immediately prior to the Effective Time, all outstanding options granted
to employees and directors, whether or not vested, will be cancelled, and the
holders of such options will receive a cash payment in
66
<PAGE>
respect of such options following the Effective Time. Alternatively, a
portion of such options may be converted into options to purchase Holdings
Common Stock following the Merger. See "The Merger and Merger Financing."
EXISTING EMPLOYMENT AND SEVERANCE AGREEMENTS
Mr. Draeger entered into an employment agreement with Decision Data Inc.,
the predecessor of a wholly owned subsidiary of Holdings, in October 1992.
The employment agreement, which is terminable at will by either party,
provides for a base salary of not less than $250,000 plus an annual bonus
awarded pursuant to a target formula developed by the Board of Directors of
Holdings. The employment agreement also provides for a bonus to be paid to
Mr. Draeger in the event of a change of control of Holdings, ranging from
$300,000 if the Equity Value (as defined in the employment agreement) of the
transaction is at least $40.0 million, to an amount equal to $2.0 million
plus 2% of any excess in Equity Value over $100.0 million for transactions
with an Equity Value in excess of $100.0 million. The amount payable to Mr.
Draeger upon consummation of the Merger is approximately $13.9 million. In
addition, severance benefits are payable to Mr. Draeger in the event that his
employment is terminated, other than for cause (as defined in the agreement),
death or disability, for a period of 18 months following such termination in
a monthly amount equal to one-twelfth of his annual salary. Mr. Draeger has
agreed not to compete with Holdings or any of its affiliates (as defined in
the agreement) for a one year period after termination of his employment for
any reason. Mr. Draeger is expected to enter into a new employment agreement
with Holdings or the Company at the Effective Time.
Messrs. Felice, Fitzpatrick, Giordano, Greenwell, Molchan and Wilson have
severance arrangements with the Company which in various instances provide
for a severance payment of up to one times base annual salary, a pro-rata
portion of accrued bonus, and the continuation of certain benefits for up to
one year in the event of termination without cause.
COMPENSATION OF DIRECTORS
Currently, directors of the Company receive no compensation in their
capacity as directors of the Company.
67
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF HOLDINGS
All of the Company's issued and outstanding capital stock is owned by
Holdings. The following table sets forth certain information with respect to
the beneficial ownership of the Holdings Common Stock immediately following
the consummation of the Merger by (i) any person or group who beneficially
owns more than five percent of Holdings Common Stock and (ii) all directors
and executive officers of Holdings and the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PERCENTAGE OF OUTSTANDING
AFTER THE RECAPITALIZATION COMMON STOCK
------------------------------ -----------------------------
<S> <C> <C>
NAME AND ADDRESS OF BENEFICIAL OWNER:
- -------------------------------------
DLJ Merchant Banking Partners II, L.P.
and related investors (1)(2) ........................... 11,199,789 88.37%
Lawrence M.v.D. Schloss (3) ............................. -- --
DLJ Merchant Banking Partners II, Inc.
277 Park Avenue
New York, NY 10172
Peter T. Grauer (3) ..................................... -- --
DLJ Merchant Banking Partners II, Inc.
277 Park Avenue
New York, NY 10172
Thomas G. Greig (3) ..................................... -- --
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, NY 10172
Kirk B. Wortman (3) ..................................... -- --
DLJ Merchant Banking Partners II, Inc.
277 Park Avenue
New York, NY 10172
All directors and officers as a group
(11 persons)(3)(4) ..................................... -- --
</TABLE>
(footnotes on following page)
68
<PAGE>
- ------------
(1) Includes 1,417,180 shares of Holdings Common Stock issuable upon the
exercise of the DLJMB Warrants. The number of DLJMB Warrants will be
reduced by the number of Public Warrants issued. See "The Merger and
the Merger Financing."
(2) Consists of shares held directly by the following investors related to
DLJ Merchant Banking Partners II, L.P. ("DLJMB"): DLJ Offshore Partners
II, C.V. ("Offshore"), a Netherlands Antilles limited partnership, DLJ
Diversified Partners, L.P. ("Diversified"), a Delaware limited
partnership, DLJMB Funding II, Inc. ("Funding"), a Delaware
corporation, DLJ Merchant Banking Partners II-A, L.P. ("DLJMBPIIA"), a
Delaware limited partnership, DLJ Diversified Partners--A L.P.
("Diversified A"), a Delaware limited partnership, DLJ Millennium
Partners, L.P. ("Millennium"), a Delaware limited partnership, DLJ
Millennium Partners-A, L.P. ("Millennium A"), a Delaware limited
partnership, DLJ EAB Partners, L.P. ("EAB"), UK Investment Plan 1997
Partners ("UK Partners"), a Delaware partnership, and DLJ First ESC
LLC, a Delaware limited liability company ("DLJ First"). See "Certain
Relationships and Related Transactions" and "Underwriting." The address
of each of DLJMB, Diversified, Funding, DLJMBPIIA, Diversified A,
Millenium, Millenium A, DLJ First and EAB is 277 Park Avenue, New York,
New York 10172. The address of Offshore is John B. Gorsiraweg 14,
Willemstad, Curacao, Netherlands Antilles. The address of UK Partners
is 2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles,
California 90067. The DLJMB Funds expect that the Institutional
Investors may acquire a portion of the securities of Quaker that would
otherwise be purchased by the DLJMB Funds. In no event would any such
purchases reduce the fully diluted ownership by the DLJMB Funds of
Holdings Common Stock after the Effective Time to below a majority, or
limit the rights of the DLJMB Funds under the Investors' Agreement. The
Institutional Investors include Apollo Advisors II, L.P. ("Apollo"),
Bain Capital, Inc. ("Bain Capital"), Thomas H. Lee Company ("THL"),
certain investment funds associated with DLJ Capital Corp. ("Sprout")
and Ontario Teacher's Pension Plan Board ("Teachers").
Any investment by Apollo in Quaker (expected to represent approximately
6.57% of the outstanding Holdings Common Stock) would be made by Apollo
Investment Fund III, L.P., a Delaware limited partnership ("AIF III"),
Apollo Overseas Partners III, L.P., a Delaware limited partnership
("Overseas Partners"), and Apollo (U.K.) Partners III, L.P., a limited
partnership organized under the laws of England ("Apollo UK Partners")
(collectively, "Apollo Entities"). Each of the Apollo Entities is
principally engaged in the business of investment securities.
Apollo Advisors II, L.P., a Delaware limited partnership ("Advisors"),
is the general partner of AIF III and the managing general partner of
Overseas Partners and Apollo UK Partners. Advisors is principally
engaged in the business of providing advice regarding investments by,
and serving as the general partner of, the Apollo Entities. The address
of Apollo is 1301 Avenue of the Americas, 38th Floor, New York, New
York 10019.
Any investment by Bain Capital in Quaker (expected to represent
approximately 6.57% of the outstanding Holdings Common Stock) would by
made by Bain Capital Fund V, L.P., Bain Capital Fund, V-B, L.P., BCIP
Associates, and BCIP Trust Associates, L.P. Bain Capital Investors V,
Inc. is the general partner of Bain Capital Partners V, L.P. ("BCP V"),
a Delaware limited partnership. BCP V is the general partner of Bain
Capital Fund V, L.P. and Bain Capital Fund V-B, L.P. (the "Bain Fund
Vs"), both of which are Delaware limited partnerships. The Bain Fund
Vs' primary business activity is to make investments in private equity
securities and other interests in business organizations, domestic and
foreign.
BCIP Associates, a general partnership, and BCIP Trust Associates,
L.P., a limited partnership (together the "BCIPs"), are both organized
under the laws of the State of Delaware. The BCIPs' primary business
activity is to make investments in private equity securities and other
interests in business organizations, domestic and foreign. The address
of Bain Capital is Two Copley Place, Boston, Massachusetts 02116.
69
<PAGE>
Any investment by THL in Quaker (expected to represent approximately
6.57% of the outstanding Holdings Common Stock) would be made by Thomas
H. Lee Equity Fund III, L.P., a Delaware limited partnership ("Fund
III"), Thomas H. Lee Foreign Fund III, L.P., a Delaware limited
partnership ("Foreign Fund"), THL Co-Investors III-A, LLC, a
Massachusetts limited liability company ("Co-Investors A"), and THL
Co-Investors III-B, LLC, a Massachusetts limited liability company
("Co-Investors B"). The general partner of each of Fund III and Foreign
Fund is THL Equity Advisors III Limited Partnership, a Massachusetts
limited partnership ("Equity Advisors"). The general partner of Equity
Advisors is THL Equity Trust III, a Massachusetts business trust, the
beneficial owners of which are affiliates of Thomas H. Lee Company. The
manager of each of Co-Investors A and Co-Investors B is Thomas H. Lee.
The address of THL is 75 State Street, 26th Floor, Boston,
Massachusetts 02109.
DLJ Capital Corporation ("DLJCC"), a Delaware corporation, Sprout
Growth II, L.P., a Delaware limited partnership, The Sprout CEO Fund,
L.P., a Delaware limited partnership, and one additional entity managed
by the Sprout Group, the Venture Capital affiliate of DLJ, may also
acquire capital stock of Quaker. DLJCC is a wholly owned subsidiary of
DLJ. Sprout Growth II, L.P. has two general partners: DLJCC is also the
managing general partner and DLJ Growth Associates II, L.P. is the
general partner. DLJ Growth Associates II, L.P. is a Delaware limited
partnership, whose general partners are a group of individual employees
of DLJCC and DLJ Growth Associates (II), Inc., a Delaware corporation
which is a wholly owned subsidiary of DLJCC. DLJCC is the managing
general partner of The Sprout CEO Fund. The address of Sprout is 277
Park Avenue, New York, New York 10172.
Teachers is an independent corporation established in 1990 to
administer the benefits and manage the investments of the pension plan
for over 200,000 Ontario teachers. At year end 1996, the fund assets
stood at a total of Cdn $51 billion. The address of Teachers is 5650
Yonge Street, 5th Floor, North York, Ontario M2M 4H5.
(3) Messrs. Schloss, Grauer and Wortman are officers of DLJ Merchant
Banking II, Inc., an affiliate of DLJMB and the Underwriter. Mr. Greig
is an officer of DLJSC. Share data shown for such individuals excludes
shares shown as held by the DLJMB Funds, as to which such individuals
disclaim beneficial ownership.
(4) Does not include Holding Common Stock owned at the Effective Time or
options which may be issued to or retained by certain employees of the
Company under Holdings' stock option plan or shares which may be
purchased by certain employees of the Company under Holdings' stock
purchase plan.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Merger, DLJMB has proposed that an Investors'
Agreement be entered into, at the Effective Time, among the Company, the
DLJMB Funds, the Institutional Investors and the members of management who
own shares of Holdings Common Stock (the "Management Shareholders"). It is
expected that the terms of the Investors' Agreement will restrict transfers
of the shares of Holdings Common Stock by the Management Shareholders, permit
the Management Shareholders to participate in certain sales of shares of
Holdings Common Stock by the DLJMB Funds, require the Management Shareholders
to sell shares of Holdings Common Stock in certain circumstances should the
DLJMB Funds choose to sell any such shares owned by the DLJMB Funds, permit
the Management Shareholders and the Institutional Shareholders to purchase
equity securities proposed to be issued by the Company on a preemptive basis
in the event the DLJMB Funds choose to acquire any such equity securities,
and provide for certain registration rights. It is also expected that the
Investors' Agreement will provide that the DLJMB Funds have the right to
appoint a majority of the members of the Board of Directors of Holdings.
In addition, DLJ Capital Funding received customary fees and reimbursement
of expenses in connection with the arrangement and syndication of the New
Credit Facility and as a lender thereunder. DLJSC received customary fees in
connection with the underwriting of the Senior Subordinated Notes and the
Debentures. DLJSC will receive a merger advisory fee of $5.0 million in cash
from Quaker upon consummation of the Merger. It is also expected that DLJSC
will receive an annual fee from Holdings for financial advisory services.
Each DLJMB Warrant, if any that is issued, will entitle the holder thereof
to purchase one share of Holdings Common Stock at an exercise price of not
less than $0.01 per share subject to customary antidilution provisions and
other customary terms. The DLJMB Warrants will be exercisable at any time
prior to 5:00 p.m., New York City time, on August 15, 2007. The exercise of
the DLJMB Warrants also will be subject to applicable federal and state
securities laws. Each Public Warrant will have the same terms as the DLJMB
Warrants, other than the exercise price and certain antidilution provisions.
The DLJMB Funds will be entitled to request six demand registrations with
respect to the DLJMB Warrants (together with all or any portion of the Senior
Preferred Stock owned by them) and the Holdings Common Stock owned by them,
which demand registration rights will be immediately exercisable subject to
customary deferral and cutback provisions. In addition, the holders of the
DLJMB Warrants will also be entitled to unlimited piggyback registration
rights with respect to such Warrants (together with all or any portion of the
Senior Preferred Stock) subject to customary cutback provisions. If the DLJMB
Warrants are sold in connection with a registered sale or a sale under Rule
144A of the Securities Act of the Senior Preferred Stock, the Holdings will
(not earlier than the time the Company registers the Senior Preferred Stock
(or exchange securities in the case of a Rule 144A offering)) file a shelf
registration statement covering the Holdings Common Stock underlying such
DLJMB Warrants.
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DESCRIPTION OF NEW CREDIT FACILITY
The New Credit Facility will be provided by a syndicate of banks and other
financial institutions led by Donaldson, Lufkin & Jenrette Securities
Corporation, as arranger (the "Arranger"), DLJ Capital Funding, as
syndication agent (the "Syndication Agent") and , as administrative
agent (the "Administrative Agent"). The New Credit Facility will include a
$470.0 million Term Loan Facility and a $105.0 million Revolving Credit
Facility (subject to adjustment as provided below), which will provide for
loans and up to $25.0 million of letters of credit. The Term Loan Facility is
comprised of a term A facility of $195.0 million (the "Term A Facility"),
which will have a maturity of six years, a term B facility of $150.0 million
(the "Term B Facility"), which will have a maturity of seven years, and a
term C facility of $125.0 million (the "Term C Facility"), which will have a
maturity of eight years. The revolving facility will terminate six years
after the date of initial funding of the New Credit Facility and is subject
to an increase of up to $50.0 million at the Company's request at any time
prior to the revolving facility termination date.
The New Credit Facility will bear interest, at the Company's option, at
the Administrative Agent's alternate base rate or reserve-adjusted London
Interbank Offered Rate ("LIBOR") plus, in each case, applicable margins of
(i) in the case of alternate base rate loans (x) 1.25% for revolving and Term
A loans, (y) 1.50% for Term B loans and (z) 1.75% for Term C loans and (ii)
in the case of LIBOR loans (x) 2.50% for revolving and Term A loans, (y)
2.75% for Term B loans and (z) 3.00% for Term C loans.
The Company will pay a commitment fee calculated at a rate of 1/2 of 1.00%
per annum on the daily average unused commitment under the Revolving Credit
Facility (whether or not then available). Such fee will be payable quarterly
in arrears and upon termination of the Revolving Credit Facility (whether at
stated maturity or otherwise).
Beginning six months after the consummation of the Merger and the Merger
Financing, the applicable margins for the Term A Facility and the Revolving
Credit Facility, as well as the commitment fee, will be subject to reductions
based on the ratio of consolidated debt to Adjusted EBITDA (as defined in the
New Credit Facility).
The Company will pay a letter of credit fee calculated at a rate per annum
equal to the then applicable margin for LIBOR loans under the Revolving
Credit Facility plus a fronting fee on the stated amount of each letter of
credit. Such fees will be payable quarterly in arrears. In addition, the
Company will pay customary transaction charges in connection with any letters
of credit.
The Term Loan Facility will be subject to the following amortization
schedule:
<TABLE>
<CAPTION>
YEAR TERM LOAN A TERM LOAN B TERM LOAN C
- ------ ------------- ------------- -------------
<S> <C> <C> <C>
1 $ 0.00 $ 1.50 $ 1.25
2 9.75 1.50 1.25
3 19.50 1.50 1.25
4 39.00 1.50 1.25
5 48.75 1.50 1.25
6 78.00 1.50 1.25
7 -- 141.00 1.25
8 -- -- 116.25
- ------ ------------- ------------- -------------
$195.00 $150.00 $125.00
</TABLE>
The Term Loan Facility will be subject to mandatory prepayment: (i) with
100% of the net cash proceeds from the issuance of debt, subject to certain
exceptions, (ii) with 100% of the net cash proceeds of asset sales, subject
to certain exceptions, (iii) with 50% of the Company's excess cash flow (as
defined in the New Credit Facility) unless the Leverage Ratio (as defined in
the New Credit Facility) equals or is less than 3.5 to 1.0, and (iv) with 50%
of the net cash proceeds from the issuance of equity. The Company's
obligations under the New Credit Facility will be secured by a first-priority
perfected lien on: (i) all property and assets, tangible and intangible, of
the Company including a pledge of the capital stock
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of all of the Company's direct material subsidiaries, and (ii) all
intercompany indebtedness; provided, however, no more than 65% of the equity
interests of the foreign subsidiaries will be required to be pledged as
security in the event that a pledge of a greater percentage would result in
material increased tax or similar liabilities for the Company and its
subsidiaries on a consolidated basis. Holdings will guarantee the obligations
of the Company under the New Credit Facility. Such guarantee will only be
recourse to Holdings' pledge of all of the outstanding capital stock of the
Company to secure the Company's obligations under the New Credit Facility. In
addition, obligations under the New Credit Facility will be guaranteed by all
material (as defined in the New Credit Facility) domestic subsidiaries of the
Company and all foreign subsidiaries of the Company if such foreign
subsidiaries' guarantees will not have material adverse tax consequences on
the Company. Currently, the Company has no material subsidiaries and
therefore no such guarantees are required.
The New Credit Facility will contain customary covenants and restrictions
on the Company's ability to engage in certain activities, including, but not
limited to: (i) limitations on the incurrence of liens and indebtedness, (ii)
restrictions on sale lease-back transactions, consolidations, mergers, sale
of assets, capital expenditures, transactions with affiliates and
investments, and (iii) severe restrictions on dividends, and other similar
distributions.
The New Credit Facility will also contain financial covenants requiring
the Company to maintain a minimum level of Adjusted EBITDA (as defined in the
New Credit Facility); a minimum Interest Coverage Ratio (as defined in the
New Credit Facility); a minimum Fixed Charge Coverage Ratio (as defined in
the New Credit Facility); and a maximum Leverage Ratio (as defined in the New
Credit Facility).
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DESCRIPTION OF THE SENIOR SUBORDINATED NOTES
GENERAL
The Senior Subordinated Notes will be issued pursuant to the indenture
(the "Senior Subordinated Note Indenture") between the Company and State
Street Bank and Trust Company , as trustee (the "Trustee"). The terms of the
Senior Subordinated Notes include those stated in the Senior Subordinated
Note Indenture and those made part of the Senior Subordinated Note Indenture
by reference to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The Senior Subordinated Notes are subject to all such terms,
and Holders of Senior Subordinated Notes are referred to the Senior
Subordinated Note Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Senior
Subordinated Note Indenture does not purport to be complete and is qualified
in its entirety by reference to the Senior Subordinated Note Indenture,
including the definitions therein of certain terms used below. A copy of the
proposed form of Senior Subordinated Note Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part and
is available as set forth below under "--Additional Information." The
definitions of certain terms used in the following summary are set forth
below under "--Certain Definitions." For purposes of this summary, the term
"Company" refers only to DecisionOne Corporation and not to any of its
Subsidiaries.
The Senior Subordinated Notes will be general unsecured obligations of the
Company and will be subordinated in right of payment to all Senior Debt of
the Company, whether outstanding on the date of the Senior Subordinated Note
Indenture or incurred thereafter. See "--Subordination." The Senior
Subordinated Notes will be effectively subordinated to all Indebtedness and
other liabilities of the Company's Subsidiaries. On the date of issuance of
the Senior Subordinated Notes, none of the Company's Subsidiaries will
guarantee the Company's obligations under the Senior Subordinated Notes.
However, the Company's obligations under the Senior Subordinated Notes may be
unconditionally guaranteed on an unsecured, senior subordinated basis,
jointly and severally, by each Subsidiary of the Company that executes and
delivers a supplemental indenture to the Senior Subordinated Note Indenture
pursuant to the terms of the covenant described below under the caption
entitled "--Certain Covenants--Subsidiary Guarantees." See "--Certain
Covenants--Subsidiary Guarantees." As of March 31, 1997, on a pro forma basis
after giving effect to the Merger, including the Merger Financing and the
application of the proceeds therefrom, the Company would have had Senior Debt
of approximately $503.0 million and the Company's Subsidiaries would have had
approximately $10.9 million of outstanding liabilities, including trade
payables. The Senior Subordinated Note Indenture will permit the incurrence
of certain additional Senior Debt and Indebtedness of the Company's
Subsidiaries in the future. See "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
As of the date of the Senior Subordinated Note Indenture, all of the
Company's Subsidiaries will be Restricted Subsidiaries. However, under
certain circumstances, the Company will be permitted to designate current or
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
will not be subject to many of the restrictive covenants set forth in the
Senior Subordinated Note Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Senior Subordinated Notes will be limited in aggregate principal
amount to $150.0 million and will mature on , 2007. Interest on the Senior
Subordinated Notes will accrue at the rate of % per annum and will be
payable semiannually in arrears on and , commencing on , 1997, to
Holders of record on the immediately preceding and . Interest on the
Senior Subordinated Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest
on the Senior Subordinated Notes will be payable at the office or agency of
the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of interest may be made by check
mailed to the Holders of the Senior Subordinated Notes at their respective
addresses set forth in the register of Holders of Senior Subordinated Notes;
provided that all payments with respect to Senior Subordinated Notes
represented by one or more permanent global Senior Subordinated Notes will be
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paid by wire transfer of immediately available funds to the account of the
Depository Trust Company or any successor thereto. Until otherwise designated
by the Company, the Company's office or agency in New York will be the office
of the Trustee maintained for such purpose. The Senior Subordinated Notes
will be issued in minimum denominations of $1,000 and integral multiples
thereof.
SUBORDINATION
The payment of Subordinated Note Obligations will be subordinated in right
of payment, as set forth in the Senior Subordinated Note Indenture, to the
prior payment in full in cash or cash equivalents of all Senior Debt, whether
outstanding on the date of the Senior Subordinated Note Indenture or
thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property,
an assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to
receive payment in full in cash or cash equivalents of all Obligations due in
respect of such Senior Debt (including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior Debt) before
the Holders of Senior Subordinated Notes will be entitled to receive any
payment with respect to Subordinated Note Obligations (except that Holders of
Senior Subordinated Notes may receive Permitted Junior Securities and
payments made from the trust described under "--Legal Defeasance and Covenant
Defeasance"), and until all Obligations with respect to Senior Debt are paid
in full in cash or cash equivalents, any distribution to which the Holders of
Senior Subordinated Notes would be entitled shall be made to the holders of
Senior Debt (except that Holders of Senior Subordinated Notes may receive
Permitted Junior Securities and payments made from the trust described under
"--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Subordinated Note Obligations (except in Permitted Junior Securities or from
the trust described under "--Legal Defeasance and Covenant Defeasance") if
(i) a default in the payment of the principal of (including reimbursement
obligations in respect of both of letters of credit), premium, if any, or
interest on, or commitment fees related to, Designated Senior Debt occurs and
is continuing beyond any applicable period of grace or (ii) any other default
occurs and is continuing with respect to Designated Senior Debt that permits
holders of the Designated Senior Debt as to which such default relates to
accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Debt (or their representative). Payments on the Senior Subordinated
Notes may and shall be resumed (a) in the case of a payment default, upon the
date on which such default is cured or waived and (b) in case of a nonpayment
default, the earlier of the date on which such nonpayment default is cured or
waived or 179 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Senior Debt has
been accelerated. No new period of payment blockage may be commenced unless
and until 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been cured or waived for a period of
not less than 90 days.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Senior Subordinated Notes may
recover less ratably than creditors of the Company who are holders of Senior
Debt. On a pro forma basis, after giving effect to the Merger, including the
Offering and the initial borrowing under the New Credit Facility, the
principal amount of Senior Debt outstanding at March 31, 1997 would have been
approximately $503.0 million. The Senior Subordinated Note Indenture will
limit, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Debt, that the Company and its Subsidiaries
can incur. See "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock."
"Designated Senior Debt" means (i) so long as Indebtedness is outstanding
pursuant to the New Credit Facility, all such Indebtedness incurred under the
New Credit Facility and, thereafter, (ii) any other
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Senior Debt or Guarantor Senior Debt permitted under the Senior Subordinated
Note Indenture the principal amount of which is $50.0 million or more and
that has been designated by the Company as "Designated Senior Debt."
"Permitted Junior Securities" means Equity Interests in the Company or
debt securities of the Company or the relevant Guarantor that are
subordinated to all Senior Debt (and any debt securities issued in exchange
for Senior Debt) or Guarantor Senior Debt (and any debt securities issued in
exchange for Guarantor Senior Debt), as applicable, to substantially the same
extent as, or to a greater extent than, the Senior Subordinated Notes are
subordinated to Senior Debt or the Subsidiary Guarantees are subordinated to
Guarantor Senior Debt, as applicable, pursuant to the Senior Subordinated
Note Indenture.
"Senior Debt" means (i) all Obligations of the Company outstanding under
the New Credit Facility and all Hedging Obligations payable to a lender under
the New Credit Facility or any of its affiliates, including, without
limitation, in each case, interest accruing subsequent to the filing of, or
which would have accrued but for the filing of, a petition for bankruptcy,
whether or not such interest is an allowable claim in such bankruptcy
proceeding, (ii) any other Indebtedness permitted to be incurred by the
Company under the terms of the Senior Subordinated Note Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that
it is on a parity with or subordinated in right of payment to the Senior
Subordinated Notes and (iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will
not include (a) any liability for federal, state, local or other taxes owed
or owing by the Company or any of its Subsidiaries, (b) any Indebtedness of
the Company to any of its Subsidiaries or other Affiliates, (c) any accounts
payable or trade liabilities arising in the ordinary course of business
(including instruments evidencing such liabilities) other than obligations in
respect of bankers' acceptances and letters of credit under the New Credit
Facility, (d) any Indebtedness that is incurred in violation of the Senior
Subordinated Note Indenture, (e) Indebtedness which, when incurred and
without respect to any election under Section 1111(b) of Title 11, United
States Code, is without recourse to the Company, (f) any Indebtedness,
guarantee or obligation of the Company which is subordinate or junior in
right of payment to any other Indebtedness, guarantee or obligation of the
Company, (g) Indebtedness evidenced by the Senior Subordinated Notes and (h)
Capital Stock of the Company.
"Subordinated Note Obligations" means all Obligations with respect to the
Senior Subordinated Notes, including, without limitation, principal, premium
(if any) and interest payable pursuant to the terms of the Senior
Subordinated Notes (including upon the acceleration or redemption thereof),
together with and including any amounts received or receivable upon the
exercise of rights of recission or other rights of action (including claims
for damages) or otherwise.
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the Senior Subordinated Notes
will not be redeemable at the Company's option prior to , 2002.
Thereafter, the Senior Subordinated Notes will be subject to redemption at
the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages
of principal amount) set forth below, together with accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
YEAR PRINCIPAL AMOUNT
- ---- ----------------
<S> <C>
2002 ................ %
2003 ................
2004 ................
2005 and thereafter 100.000%
</TABLE>
Prior to , 2000, the Company may, at its option, on any one or more
occasions, redeem up to 35% of the aggregate principal amount of Senior
Subordinated Notes originally offered in the Offering at a redemption price
equal to % of the principal amount thereof, plus accrued and unpaid
interest
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thereon to the redemption date, with the net cash proceeds of one or more
Equity Offerings by (i) the Company or (ii) Holdings to the extent the net
cash proceeds thereof are contributed to the Company as a capital
contribution to the common equity of the Company; provided that at least 65%
of the original aggregate principal amount of Senior Subordinated 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.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders,"
the Company is not required to make any mandatory redemption or sinking fund
payments with respect to the Senior Subordinated Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Senior
Subordinated Notes will have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Senior Subordinated Notes pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest thereon
to the date of purchase (the "Change of Control Payment"). Within 30 days
following any Change of Control, the Company will mail a notice to each
Holder describing the transaction or transactions that constitute the Change
of Control and offering to repurchase Senior Subordinated Notes pursuant to
the procedures required by the Senior Subordinated Note Indenture and
described in such notice. The Company will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Senior Subordinated Notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the Senior
Subordinated Note Indenture relating to such Change of Control Offer, the
Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in the Senior
Subordinated Note Indenture by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Senior Subordinated Notes or portions
thereof properly tendered pursuant to the Change of Control Offer, (2)
deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Senior Subordinated Notes or portions thereof so
tendered and (3) deliver or cause to be delivered to the Trustee the Senior
Subordinated Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Senior Subordinated Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail
to each Holder of Senior Subordinated Notes so tendered the Change of Control
Payment for such Senior Subordinated Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each
Holder a new Senior Subordinated Note equal in principal amount to any
unpurchased portion of the Senior Subordinated Notes surrendered, if any;
provided that each such new Senior Subordinated Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Senior Subordinated Note Indenture will provide that, prior to
complying with the provisions of this covenant, but in any event within 30
days following a Change of Control, the Company will either repay all
outstanding amounts under all Senior Debt or offer to repay in full all
outstanding amounts under all Senior Debt and repay the Obligations owed to
each lender who has accepted such offer or obtain the requisite consents, if
any, under all Senior Debt to permit the repurchase of the Senior
Subordinated Notes required by this covenant.
Except as described above with respect to a Change of Control, the Senior
Subordinated Note Indenture does not contain provisions that permit the
Holders of the Senior Subordinated Notes to require that the Company
repurchase or redeem the Senior Subordinated Notes in the event of a
takeover, recapitalization or similar restructuring.
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The Company's other Senior Debt, including the New Credit Facility,
contains prohibitions of certain events that would constitute a Change of
Control. In addition, the exercise by the Holders of Senior Subordinated
Notes of their right to require the Company to repurchase the Senior
Subordinated Notes could cause a default under such other Senior Debt, even
if the Change of Control itself does not, due to the financial effect of such
repurchases on the Company. Finally, the Company's ability to pay cash to the
Holders of Senior Subordinated Notes upon a repurchase may be limited by the
Company's then existing financial resources.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the assets of the Company and its Subsidiaries, taken
as a whole. Although there is a developing body of case law interpreting the
phrase "substantially all," there is no precisely established definition of
the phrase under applicable law. Accordingly, the ability of a Holder of
Senior Subordinated Notes to require the Company to repurchase such Senior
Subordinated Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Senior Subordinated Note Indenture will provide that 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 resolution of the Board of Directors
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 Senior Subordinated
Notes or any guarantee thereof) 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 365 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 may apply such Net Proceeds (a) to permanently reduce Indebtedness
under Senior Debt or Guarantor Senior Debt (and to correspondingly reduce
commitments with respect thereto), to permanently reduce Indebtedness of a
Restricted Subsidiary that is not a Guarantor or 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 (in accordance with the procedures set forth below for an Asset Sale
Offer) to all Holders to purchase at 100% of the principal amount thereof the
amount of Senior Subordinated Notes that would otherwise be redeemed or (b)
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 will be required to make an
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offer to all Holders of Senior Subordinated Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Senior Subordinated Notes that may
be purchased out of the Excess Proceeds at an offer price in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase, in accordance with the procedures
set forth in the Senior Subordinated Note Indenture. To the extent that the
aggregate amount of Senior Subordinated Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Senior Subordinated Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Senior
Subordinated 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 will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Senior Subordinated Notes pursuant to an Asset Sale Offer.
To the extent that the provisions of any securities laws or regulations
conflict with the provisions of the Senior Subordinated Note 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 the Senior Subordinated Note Indenture
by virtue thereof.
Selection and Notice
If less than all of the Senior Subordinated Notes are to be redeemed at
any time, selection of Senior Subordinated 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 Senior Subordinated Notes are
listed or, if the Senior Subordinated 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 Senior Subordinated Notes with a principal
amount of $1,000 or less shall be redeemed in part. Notice of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each Holder of Senior Subordinated Notes to be
redeemed at its registered address. If any Senior Subordinated Note is to be
redeemed in part only, the notice of redemption that relates to such Senior
Subordinated Note shall state the portion of the principal amount thereof to
be redeemed. A new Senior Subordinated Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Senior Subordinated Note. On and after the
redemption date, interest will cease to accrue on Senior Subordinated Notes
or portions thereof called for redemption.
CERTAIN COVENANTS
Restricted Payments
The Senior Subordinated Note Indenture will provide that the Company will
not, and will 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 subordinated in
right of payment to the Senior Subordinated Notes, except in accordance with
the scheduled mandatory redemption or repayment provisions set forth in the
original documentation governing such Indebtedness (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
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(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 the covenant described below under
caption entitled "--Incurrence of Indebtedness and Issuance of Preferred
Stock," 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 the Senior Subordinated Note 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), (vii), (viii), (x), (xi), (xii), (xv), (xvii) and (xviii) 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 the Senior Subordinated Note Indenture to the
end of the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(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 the Senior Subordinated
Note Indenture from contributions to the Company's capital or the issue or
sale since the date of the Senior Subordinated Note 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 the Senior Subordinated Note 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
(ix) or (xvi) of the following paragraph) whose assets are used or useful
in, or which is engaged in, one or more Permitted Business 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, plus (4) all cash payments received after the date
of the Senior Subordinated Note Indenture by the Company from Holdings
with respect to the Intercompany Note; 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 will 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 the Senior Subordinated Note
Indenture;
(ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or Subordinated Indebtedness of
the Company or any Guarantor 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
Subordinated Indebtedness with the net proceeds from an incurrence of
Permitted Refinancing Indebtedness;
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(iv) the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company or Holdings 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 and any dividend to
Holdings to fund any such repurchase, redemption or acquisition;
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 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 Holdings or the Company 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 or the making of loans or advances by
the Company to Holdings not to exceed $2.0 million in any fiscal year
for costs and expenses incurred by Holdings in its capacity as a
holding company or for services rendered by Holdings on behalf of the
Company;
(vi) 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;
(vii) 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;
(viii) payments to Holdings (A) pursuant to the Tax Sharing Agreement
as in effect on the date of the Senior Subordinated Note Indenture and
(B) pursuant to the Tax Sharing Agreement as amended from time to
time; provided however; that in no event shall the amount permitted to
be paid pursuant to this clause (viii) (B) exceed the amount the
Company would be required to pay for income taxes were it to file a
consolidated tax return for itself and its consolidated Restricted
Subsidiaries;
(ix) any other Restricted Investment made in a Permitted Business
which, together with all other Restricted Investments made pursuant to
this clause (ix) since the date of the Senior Subordinated Note
Indenture, does not exceed $30.0 million (in each case, after giving
effect to all subsequent reductions in the amount of any Restricted
Investment made pursuant to this clause (ix), 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 (ix); provided that no Default or Event of Default shall have
occurred and be continuing immediately after making such Restricted
Investment;
(x) the declaration and payment of dividends to holders of any class
or series of Disqualified Stock of the Company or any Guarantor issued
after the date of the Senior Subordinated Note Indenture in accordance
with the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" provided that no
Default or Event of Default shall have occurred and be continuing
immediately after such declaration or payment;
(xi) 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;
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(xii) (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) and fees and expenses of the Company
and Holdings in connection with the Merger and (C) dividends to
Holdings for any such payments referred to in clause (B);
(xiii) 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 the Senior Subordinated Note
Indenture and which are not held by the Principals or any member of
management of Holdings or any Subsidiary of Holdings on the date of
the Senior Subordinated Note 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
(xiii) 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 (xiii) 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 (xiii) 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 the covenant described under the
caption entitled "--Incurrence of Indebtedness and Issuance of
Preferred Stock;" provided that no Default or Event of Default shall
have occurred and be continuing immediately after making such
Restricted Payment;
(xiv) 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 the Senior Subordinated Note Indenture,
of up to 6.0% per annum of (A) the net proceeds received by the
Company from such public offering of its common stock or (B) the net
proceeds received by the Company from such public offering of
Holdings' common stock as common equity or preferred equity (other
than Disqualified Stock), 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;
(xv) the declaration and payment of dividends to holders of any class
or series of Designated Preferred Stock issued after the date of the
Senior Subordinated Note 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 the covenant described below under caption entitled
"--Incurrence of Indebtedness and Issuance of Preferred Stock;"
(xvi) any other Restricted Payment which, together with all other
Restricted Payments made pursuant to this clause (xvi) since the date
of the Senior Subordinated Note Indenture, does not exceed $20.0
million (in each case, after giving effect to all subsequent
reductions in the amount of any Restricted Investment made pursuant to
this clause (xvi) 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;
(xvii) 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
(xviii) distributions or payments of Receivables Fees.
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The Board of Directors may designate any Restricted Subsidiary 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 covenant. 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 an Officers'
Certificate stating that such Restricted Payment is permitted and setting
forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed, which calculations shall be based upon
the Company's latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Senior Subordinated Note Indenture will provide that (i) the Company
will not, and will 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
neither the Company nor any Guarantor will issue any Disqualified Stock and
(iii) the Company will not permit any of the Company's Restricted
Subsidiaries that are not Guarantors to issue any shares of preferred stock;
provided, however, that the Company and any Guarantor may incur Indebtedness
(including Acquired Debt) or issue shares of Disqualified 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 is issued would have been at least 2.00
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 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 and the Guarantors 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
face amount thereunder) outstanding 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 the Company and any Guarantor of Indebtedness
represented by the Senior Subordinated Notes and the Subsidiary
Guarantees;
(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;
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(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 the Senior Subordinated Note Indenture;
(vi) Indebtedness of the Company to a Restricted Subsidiary; provided
that any such Indebtedness is made pursuant to an intercompany note and is
subordinated in right of payment to the Senior Subordinated Notes;
provided further 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 (i) any such Indebtedness is made
pursuant to an intercompany note and (ii) if a Guarantor incurs such
Indebtedness to a Restricted Subsidiary that is not a Guarantor, such
Indebtedness is subordinated in right of payment to the Subsidiary
Guarantee of such Guarantor; provided further 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 the Senior
Subordinated Note 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 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 $35.0
million;
(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) any guarantee by a Restricted Subsidiary of the Company of Senior
Indebtedness or Pari Passu Indebtedness of the Company that was permitted
to be incurred under the Senior Subordi-
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nated Note Indenture; provided that, prior to or concurrently with the
issuance of such guarantee such Restricted Subsidiary complies with the
terms of the covenant entitled "--Subsidiary Guarantees."
For purposes of determining compliance with this covenant, 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 accreted value will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
Sale and Leaseback Transactions
The Senior Subordinated Note Indenture will provide that the Company will
not, and will not permit any of its Restricted Subsidiaries to, enter into
any sale and leaseback transaction; provided that the Company and any
Guarantor may enter into a sale and leaseback transaction if (i) the Company
or such Guarantor could have (a) incurred Indebtedness in an amount equal to
the Attributable Debt relating to such sale and leaseback transaction
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption entitled
"--Incurrence of Indebtedness and Issuance of Preferred Stock" and (b)
incurred a Lien to secure such Indebtedness pursuant to the covenant
described below under the caption entitled "--Liens," (ii) the gross cash
proceeds of such sale and leaseback transaction are at least equal to the
fair market value (as determined in good faith by the Board of Directors and
set forth in an Officers' Certificate delivered to the Trustee) of the
property that is the subject of such sale and leaseback transaction and (iii)
the transfer of assets in such sale and leaseback transaction is permitted
by, and the proceeds of such transaction are applied in compliance with, the
covenant described above under the caption entitled "--Repurchase at the
Option of Holders--Asset Sales."
Anti-Layering
The Senior Subordinated Note Indenture will provide that (i) the Company
will not directly or indirectly incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt and senior in any respect in right of
payment to the Senior Subordinated Notes and (ii) no Guarantor will incur,
create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to its
Guarantor Senior Debt and senior in any respect in right of payment to such
Guarantor's Subsidiary Guarantee.
Liens
The Senior Subordinated Note Indenture will provide that the Company will
not, and will not permit any Restricted Subsidiary to, directly or
indirectly, create, incur, assume or suffer to exist any Lien that secures
obligations under any Pari Passu Indebtedness or Subordinated Indebtedness on
any asset or property now owned or hereafter acquired by the Company or any
of its Restricted Subsidiaries, or any income or profits therefrom or assign
or convey any right to receive income therefrom, unless the Senior
Subordinated Notes or the Subsidiary Guarantees, as applicable, are equally
and ratably secured with the obligations so secured until such time as such
obligations are no longer secured by a Lien; provided, that in any case
involving a Lien securing Subordinated Indebtedness, such Lien is
subordinated to the Lien securing the Senior Subordinated Notes or the
Subsidiary Guarantees, as applicable, to the same extent that such
Subordinated Indebtedness is subordinated to the Senior Subordinated Notes or
the Subsidiary Guarantees, as applicable.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Senior Subordinated Note Indenture will provide that the Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or
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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) Existing Indebtedness, as in effect on the date of the Senior
Subordinated Note Indenture; (b) the New Credit Facility and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof; provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive with respect to such
dividend and other payment restrictions in the aggregate than those contained
in the New Credit Facility, as in effect on the date of the Senior
Subordinated Note Indenture; (c) the Senior Subordinated Note Indenture and
the Senior Subordinated Notes; (d) applicable law or any applicable rule,
regulation or order; (e) 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; (f) customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices; (g) 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; (h) 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; or (i)
Permitted Refinancing Indebtedness; provided that the restrictions contained
in the agreements governing such Permitted Refinancing Indebtedness are no
more restrictive with respect to such dividend and other payment restrictions
in the aggregate than those contained in the agreements governing the
Indebtedness being refinanced.
Merger, Consolidation, or Sale of Assets
The Senior Subordinated Note Indenture will provide that the Company may
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 Senior Subordinated Notes and the Senior Subordinated Note
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; (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 one 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 the covenant described above under the
caption entitled "--Incurrence of Indebtedness and Issuance of Preferred
Stock" and (v) each Guarantor, if any, unless it is the other party to the
transactions described above, shall have by supplemental indenture confirmed
that its Subsidiary Guarantee shall apply to such Person's obligations under
the Indenture and the Senior Subordinated Notes. The foregoing clause (iv)
will not prohibit (a) a merger between the Company and a Wholly Owned
Subsidiary of a Wholly Owned Subsidiary of Holdings created for the purpose
of holding the Capital Stock of the Company, (b) a merger between the Company
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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.
Transactions with Affiliates
The Senior Subordinated Note Indenture will provide that the Company will
not, and will 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 Senior Subordinated 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 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 provisions 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 Senior
Subordinated 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 the Senior Subordinated Note
Indenture described above under clauses (i), (iv), (v), (vi), (vii), (viii),
(xi), (xii) and (xvii) of the second paragraph of the covenant described
above under the caption entitled "--Restricted Payments," (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 the Indenture under the covenant described below under the
caption entitled "--Sales of Accounts Receivable," in each case, shall not be
deemed Affiliate Transactions and (k) transactions pursuant to the Management
Loans.
Subsidiary Guarantees
(a) The Indenture will provide that the Company will not permit any
Restricted Subsidiary to guarantee the payment of any Indebtedness of the
Company or any Indebtedness of any other Restricted Subsidiary (in each case,
the "Guaranteed Debt") unless (i) if such Restricted Subsidiary is not a
Guarantor, such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Senior Subordinated Note Indenture providing
for a Subsidiary Guarantee of payment of the Senior Subordinated Notes by
such Restricted Subsidiary, (ii) if the Senior Subordinated Notes or the
Subsidiary Guarantee (if any) of such Restricted Subsidiary are subordinated
in right of payment to the Guaranteed Debt, the Subsidiary Guarantee under
the supplemental indenture shall be subordinated to such Restricted
Subsidiary's guarantee with respect to the Guaranteed Debt substantially to
the same extent as the Senior Subordinated Notes or the Subsidiary Guarantee
are subordinated to the Guaranteed Debt under the Senior Subordinated Note
Indenture, (iii) if the Guaranteed Debt is by its express terms
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subordinated in right of payment to the Senior Subordinated Notes or the
Subsidiary Guarantee (if any) of such Restricted Subsidiary, any such
guarantee of such Restricted Subsidiary with respect to the Guaranteed Debt
shall be subordinated in right of payment to such Restricted Subsidiary's
Subsidiary Guarantee with respect to the Senior Subordinated Notes
substantially to the same extent as the Guaranteed Debt is subordinated to
the Senior Subordinated Notes or the Subsidiary Guarantee (if any) of such
Restricted Subsidiary, (iv) such Restricted Subsidiary waives and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights
of reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee, and (v) such Restricted
Subsidiary shall deliver to the Trustee an opinion of counsel to the effect
that (A) such Subsidiary Guarantee of the Senior Subordinated Notes has been
duly executed and authorized and (B) such Subsidiary Guarantee of the Senior
Subordinated Notes constitutes a valid, binding and enforceable obligation of
such Restricted Subsidiary, except insofar as enforcement thereof may be
limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity.
(b) Notwithstanding the foregoing and the other provisions of the Senior
Subordinated Note Indenture, any Subsidiary Guarantee by a Restricted
Subsidiary of the Senior Subordinated Notes shall provide by its terms that
it shall be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer, to any Person not an Affiliate of the
Company, of all of the Company's Capital Stock in, or all or substantially
all the assets of, such Restricted Subsidiary (which sale, exchange or
transfer is not prohibited by the Senior Subordinated Note Indenture) or (ii)
the release or discharge of the guarantee which resulted in the creation of
such Subsidiary Guarantee, except a discharge or release by or as a result of
payment under such guarantee.
Sales of Accounts Receivable
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 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 the
covenant described above under the caption entitled "--Repurchase at the
Option of Holders--Asset Sales," 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 arms-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
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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 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.
Reports
The Senior Subordinated Note Indenture will provide that, whether or not
required by the rules and regulations of the Securities an Exchange
Commission (the "Commission"), so long as any Senior Subordinated Notes are
outstanding, the Company will furnish to the Holders of Senior Subordinated
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
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.
EVENTS OF DEFAULT AND REMEDIES
The Senior Subordinated Note Indenture will provide that each of the
following constitutes an Event of Default:
(i) default for 30 days in the payment when due of interest on the Senior
Subordinated Notes (whether or not prohibited by the subordination
provisions of the Senior Subordinated Note Indenture);
(ii) default in payment when due of principal or premium, if any, on the
Senior Subordinated Notes at maturity, upon redemption or otherwise
(whether or not prohibited by the subordination provisions of the Senior
Subordinated Note Indenture);
(iii) failure by the Company or any Guarantor for 30 days after receipt
of notice from the Trustee or Holders of at least 30% in principal amount
of the Senior Subordinated Notes then outstanding to comply with the
provisions of the covenants described under the captions entitled
"--Repurchase at the Option of Holders--Change of Control," "--Repurchase
at the Option of Holders--Asset Sales," "--Certain Covenants--Restricted
Payments," "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," "--Certain Covenants--Sale and Leaseback
Transactions" or "--Certain Covenants--Merger, Consolidation or Sale of
Assets;"
(iv) failure by the Company or any Guarantor for 60 days after notice
from the Trustee or the Holders of at least 30% in principal amount of the
Senior Subordinated Notes then outstanding to comply with its other
agreements in the Senior Subordinated Note Indenture or the Senior
Subordinated Notes;
(v) 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 Senior Subordinated Note
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,
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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;
(vi) 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;
(vii) certain events of bankruptcy or insolvency with respect to the
Company or any Restricted Subsidiary that is a Significant Subsidiary; and
(viii) the termination of any Subsidiary Guarantee for any reason not
permitted by the Senior Subordinated Note Indenture, or the denial of any
Guarantor or any Person acting on behalf of any Guarantor of such
Guarantor's obligations under its respective Subsidiary Guarantee.
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 Senior
Subordinated Notes may declare all the Senior Subordinated Notes to be due
and payable immediately; provided, however, that, so long as any Indebtedness
permitted to be incurred pursuant to the New Credit Facility shall be
outstanding, no such acceleration shall be effective until the earlier of (i)
acceleration of any such Indebtedness under the New Credit Facility or (ii)
five business days after the giving of written notice to the Company and the
representative under the New Credit Facility of such acceleration.
Notwithstanding the foregoing, in the case of an Event of Default arising
from certain events of bankruptcy or insolvency with respect to the Company
or any Guarantor that constitutes a Significant Subsidiary, all outstanding
Senior Subordinated Notes will become due and payable without further action
or notice. Holders of the Senior Subordinated Notes may not enforce the
Senior Subordinated Note Indenture or the Senior Subordinated Notes except as
provided in the Senior Subordinated Note Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then
outstanding Senior Subordinated Notes may direct the Trustee in its exercise
of any trust or power. In the event of a declaration of acceleration of the
Senior Subordinated Notes because an Event of Default has occurred and is
continuing as a result of the acceleration of any Indebtedness described in
clause (v) of the preceding paragraph, the declaration of acceleration of the
Senior Subordinated Notes shall be automatically annulled if the holders of
any Indebtedness described in clause (v) of the preceding paragraph have
rescinded the declaration of acceleration in respect of such Indebtedness
within 30 days of the date of such declaration and if (a) the annulment of
the acceleration of the Notes would not conflict with any judgment or decree
of a court of competent jurisdiction and (b) all existing Events of Default,
except nonpayment of principal or interest on the Notes that became due
solely because of the acceleration of the Senior Subordinated Notes, have
been cured or waived.
The Holders of a majority in aggregate principal amount of the Senior
Subordinated Notes then outstanding, by notice to the Trustee, may on behalf
of the Holders of all of the Senior Subordinated Notes waive any existing
Default or Event of Default and its consequences under the Senior
Subordinated Note Indenture, except a continuing Default or Event of Default
in the payment of interest or premium on, or principal of, the Senior
Subordinated Notes. The Trustee may withhold from Holders of the Senior
Subordinated Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in such Holders'
interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Senior Subordinated Note Indenture, and the
Company is required upon becoming aware of any Default or Event of Default to
deliver to the Trustee a statement specifying such Default or Event of
Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of
the Company or the Guarantors under the Senior Subordinated Notes, the
Subsidiary Guarantees or the Senior Subordinated Note Indenture or for any
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claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Senior Subordinated Notes by accepting a Senior
Subordinated Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Senior Subordinated
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.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have the
obligation of the Company discharged with respect to the outstanding Senior
Subordinated Notes and have each Guarantor's obligation discharged with
respect to its Subsidiary Guarantee ("legal defeasance"). Such legal
defeasance means that the Company will be deemed to have paid and discharged
the entire indebtedness represented by the outstanding Senior Subordinated
Notes, except for (a) the rights of Holders of outstanding Senior
Subordinated Notes to receive payments in respect of the principal of,
premium, if any, and interest on the Senior Subordinated Notes when such
payments are due, or on the redemption date, as the case may be, (b) the
Company's obligations with respect to the Senior Subordinated Notes
concerning issuing temporary Senior Subordinated Notes, registration of
Senior Subordinated Notes, mutilated, destroyed, lost or stolen Senior
Subordinated Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (c) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (d) the legal defeasance provisions of the Senior
Subordinated Note Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company and each Guarantor
released with respect to certain covenants that are described in the Senior
Subordinated Note Indenture ("covenant defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the Senior Subordinated Notes. In the event
covenant defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "--Events of Default and Remedies" will no longer constitute an Event
of Default with respect to the Senior Subordinated Notes.
In order to exercise either legal defeasance or covenant defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Senior Subordinated Notes, 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 selected by the Trustee, to pay the
principal of, premium, if any, and interest on the outstanding Senior
Subordinated Notes on the stated maturity or on the applicable optional
redemption date, as the case may be, and the Company must specify whether the
Senior Subordinated 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 Internal Revenue Service a
ruling or (B) since the date of the Senior Subordinated Note Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm
that, subject to customary assumptions and exclusions, the Holders of the
outstanding Senior Subordinated Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such legal defeasance and will
be subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such legal defeasance had
not occurred; (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 Senior
Subordinated Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; (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 from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such legal defeasance or covenant defeasance
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will not result in a breach or violation of, or constitute a default under
any material agreement or instrument (other than the Senior Subordinated Note
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 must
have delivered to the Trustee an opinion of counsel to the effect that,
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), 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; (vii) the Company must
deliver to the Trustee an Officers' Certificate stating that the deposit was
not made by the Company with the intent of preferring the Holders of Senior
Subordinated Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or
others; and (viii) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel (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 have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Subordinated Notes in accordance
with the Senior Subordinated Note Indenture. The Registrar and the Trustee
may require a Holder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Holder to pay any taxes
and fees required by law or permitted by the Senior Subordinated Note
Indenture. The Company is not required to transfer or exchange any Senior
Subordinated Note selected for redemption. Also, the Company is not required
to transfer or exchange any Senior Subordinated Note for a period of 15 days
before a selection of Senior Subordinated Notes to be redeemed.
The registered Holder of a Senior Subordinated Note will be treated as the
owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Senior
Subordinated Note Indenture, the Senior Subordinated Notes or the Subsidiary
Guarantees may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the Senior Subordinated Notes then
outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Senior
Subordinated Notes), and any existing default or compliance with any
provision of the Senior Subordinated Note Indenture or the Senior
Subordinated Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Senior Subordinated
Notes (including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Senior Subordinated
Notes).
Without the consent of each Holder affected, however, an amendment or
waiver may not (with respect to any Senior Subordinated Note held by a
non-consenting Holder): (i) reduce the principal amount of Senior
Subordinated Notes whose Holders must consent to an amendment, supplement or
waiver; (ii) reduce the principal of or change the fixed maturity of any
Senior Subordinated Note or alter the provisions with respect to the
redemption of the Senior Subordinated Notes (other than provisions relating
to the covenants described above under the caption entitled "--Repurchase at
the Option of Holders"); (iii) reduce the rate of or change the time for
payment of interest on any Senior Subordinated Notes; (iv) waive a Default or
Event of Default in the payment of principal of or premium, if any, or
interest on the Senior Subordinated Notes (except a rescission of
acceleration of the Senior Subordinated Notes by the Holders of at least a
majority in aggregate principal amount of the Senior Subordinated Notes and a
waiver of the payment default that resulted from such acceleration); (v) make
any Senior Subordinated Note payable in money other than that stated in the
Senior Subordinated Notes; (vi) waive a redemption or repurchase payment with
respect to any Senior Subordinated Note (other a payment required by one of
the covenants described above under the caption entitled "--Repurchase at the
Option of Holders"), (vii) make any change in the foregoing amendment and
waiver provisions or (viii) except
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as provided under the caption "--Legal Defeasance and Covenant Defeasance" or
in accordance with the terms of any Subsidiary Guarantee, release a Guarantor
from its obligations under its Subsidiary Guarantee or make any change in a
Subsidiary Guarantee that would adversely affect the Holders of the Senior
Subordinated Notes. Notwithstanding the foregoing, any (i) amendment or
waiver to the covenant described above under the caption "--Repurchase at the
Option of Holders--Change of Control," and (ii) any amendment or waiver
relating to the subordination provisions of the Senior Subordinated Notes and
the Subsidiary Guarantees will require the consent of the Holders of at least
two-thirds in aggregate principal amount of the Senior Subordinated Notes
then outstanding if such amendment would adversely affect the rights of
Holders of Senior Subordinated Notes.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Subordinated Notes, the Company, a Guarantor (with respect to a Subsidiary
Guarantee or the Indenture to which it is a party) and the Trustee may amend
or supplement the Senior Subordinated Note Indenture, the Senior Subordinated
Notes or the Subsidiary Guarantees to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Senior Subordinated Notes in
addition to or in place of certificated Senior Subordinated Notes, to provide
for the assumption of the Company's or any Guarantor's obligations to Holders
of the Senior Subordinated Notes in the case of a merger or consolidation, to
make any change that would provide any additional rights or benefits to the
Holders of the Senior Subordinated Notes or that does not adversely affect
the legal rights under the Senior Subordinated Note Indenture of any such
Holder, to comply with requirements of the Commission in order to effect or
maintain the qualification of the Senior Subordinated Note Indenture under
the Trust Indenture Act or to allow any Guarantor to guarantee the Senior
Subordinated Notes.
CONCERNING THE TRUSTEE
The Senior Subordinated Note Indenture contains certain limitations on the
rights of the Trustee, should the Trustee become a creditor of the Company,
to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
Trustee will be permitted to engage in other transactions with the Company;
however, if 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.
The Holders of a majority in principal amount of the then outstanding
Senior Subordinated Notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee subject to certain exceptions. The Senior Subordinated Note Indenture
provides that in case an Event of Default shall occur (which shall not be
cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Senior Subordinated Note
Indenture at the request of any Holder of Senior Subordinated Notes, unless
such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Senior
Subordinated Note Indenture, without charge by writing to the Company, 50
East Swedesford Road, Frazer, Pennsylvania 19355, Attention: General Counsel.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Senior Subordinated
Note Indenture. Reference is made to the Senior Subordinated Note Indenture
for a full disclosure of all such terms, as well as any other capitalized
terms used herein for which no definition is provided.
"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
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Subsidiaries, (ii) which is designated by the Board of Directors of the
Company as an Accounts Receivables Subsidiary pursuant to a Board of
Directors' 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 under the caption entitled "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," 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 that is permitted to be incurred pursuant to the covenant described
under the caption entitled "--Certain Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock," (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
under the caption "--Certain Covenants--Sales of Accounts Receivable" 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
under "--Certain Covenants--Sales of Accounts Receivable" or (b) to maintain
or preserve the solvency or any balance sheet term, financial condition,
level of income or results of operations thereof.
"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 specified 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 plus, with respect to the
Company, up to $25 million 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 less any tax benefit recorded
by such Person as a result of such amortization, (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, (iii) expenses and charges of the Company related to the Merger
which are paid, taken or otherwise accounted for within 90 days of the
consummation of the Merger, and (iv) 100% of any loss realized in connection
with the extinguishment of Indebtedness pursuant to the Intercompany Loan.
"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
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"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.
"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 the
covenant described under the caption entitled "--Certain Covenants--Sales of
Accounts Receivable" (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 the provisions of the
Senior Subordinated Note Indenture described above under the caption entitled
"--Repurchase at the Option of Holders--Change of Control" and/or the
provisions described above under the caption entitled "--Certain
Covenants--Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant); and (ii) the issue by any Restricted
Subsidiaries 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 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 the covenant described above under the caption entitled
"--Certain Covenants--Restricted Payments," (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).
"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 the Indenture.
"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 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
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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 "Holding Company"), then the "beneficial
owners" (as defined above) of the Voting Stock of such 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 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 Holding Company of the Company are not Continuing
Directors.
"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
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 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
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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, (iii) the cumulative effect of a change in
accounting principles, shall be excluded, and (iv) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary
of that Net Income is not, at the date of determination, permitted without
any prior governmental approval (which has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors the Company or any 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).
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated 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 the covenant described under the caption entitled "--Certain
Covenants--Restricted Payments."
"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 the date on
which the Senior Subordinated Notes mature; 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 Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to
Moody's Investor Services, Inc. ("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 to Holdings and other than Disqualified
Stock) or Holdings (other than Disqualified Stock) that is registered
pursuant to the Securities Act, other than issuances registered on Form S-8
and issuances registered on Form S-4, and (ii) any private issuance of common
stock or preferred stock by the Company (other than to Holdings and other
than Disqualified Stock) or Holdings (other than Disqualified Stock),
excluding, in the case of clauses (i) and (ii) above, issuances of common
stock pursuant to employee benefit plans of Holdings or the Company or
otherwise as compensation to employees of the Company or Holdings.
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"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the New Credit
Facility) in existence on the date of the Senior Subordinated Note Indenture
until such amounts are repaid.
"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
and any Guarantor on any series of preferred stock of the Company or such
Guarantor 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.
"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 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
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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.
"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 the Senior Subordinated Note 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 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.
"Guarantor" means any Restricted Subsidiary that shall have guaranteed,
pursuant to a supplemental indenture and the requirements therefor set forth
in the Senior Subordinated Note Indenture, the payment of all principal of,
and interest and premium, if any, on, the Senior Subordinated Notes and all
other amounts payable under the Senior Subordinated Notes or the Senior
Subordinated Note Indenture, which guarantee shall be subordinate to all
Senior Debt and pari passu with or senior to all other Indebtedness of such
Restricted Subsidiary.
"Guarantor Senior Debt" means, with respect to any Guarantor, (i) all
Indebtedness of such Guarantor outstanding under the New Credit Facility and
all Hedging Obligations with respect thereto, (ii) any other Indebtedness
permitted to be incurred by such Guarantor under the terms of the Senior
Subordinated Note Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Subsidiary Guarantee of such
Guarantor and (iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Guarantor Senior
Debt will not include (a) any liability for federal, state, local or other
taxes owed or owing by such Guarantor or any of its Subsidiaries, (b) any
Indebtedness of such Guarantor to any of its Subsidiaries or other
Affiliates, (c) any accounts payable or trade liabilities arising in the
ordinary course of business (including instruments evidencing such
liabilities) other than obligations in respect of bankers' acceptances and
letters of credit under the New Credit Facility, (d) any Indebtedness that is
incurred in violation of the Senior Subordinated Note Indenture, (e)
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to such
Guarantor, (f) any Indebtedness, guarantee or obligation of such Guarantor
which is subordinate or junior to any other Indebtedness, guarantee or
obligation of such Guarantor, (g) Indebtedness evidenced by the Subsidiary
Guarantee of such Guarantor and (h) Capital Stock of such Guarantor.
"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.
"Holdings" means DecisionOne Holdings Corp., a Delaware corporation, the
corporate parent of the Company, or its successors.
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"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 by the Company of the Capital Stock of an
Unrestricted Subsidiary of the Company to secure Non-Recourse Debt of such
Unrestricted Subsidiary.
"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.
"Intercompany Note" means the note issued by Holdings to the Company on
the Closing Date to evidence the loan by the Company to Holdings of $
million of the proceeds of the Offerings which proceeds, together with
dividends to Holdings will fund the merger consideration and costs and
expenses in connection therewith.
"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 the covenant described above under the caption
entitled "--Certain Covenants--Restricted Payments."
"Investors' Agreement" means the investors' agreement, dated as of ,
1997, among the Company, the DLJMB Funds, the Institutional Investors and the
Management Shareholders, as amended from time to time.
"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 Holdings 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.
"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
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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) of the second paragraph
of the covenant described above under the caption "--Repurchase at the Option
of Holders--Asset Sales") 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 by and among the
Company, 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 the Senior Subordinated Note Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Other Qualified Notes" means any outstanding Indebtedness that ranks pari
passu in right of payment with the Senior Subordinated Notes issued pursuant
to an indenture or other agreement, in either case, having a provision
substantially similar to the Asset Sale Offer provision contained in the
Senior Subordinated Note Indenture.
"Pari Passu Indebtedness" means Indebtedness of the Company or any
Guarantor that ranks pari passu in right of payment to the Senior
Subordinated Notes or any Subsidiary Guarantee.
"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
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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 the covenant described above
under the caption entitled "--Repurchase at the Option of Holders--Asset
Sales," (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 the covenant described under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," (viii) Investments in any Accounts Receivable Subsidiary
made in connection with the formation of an Accounts Receivable Subsidiary or
received in consideration of sales of accounts receivable, in each case, in
accordance with the covenant described under the caption entitled "--Certain
Covenants--Sales of Accounts Receivable," (ix) the Intercompany Note and (x)
the Management Loans.
"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 accreted 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 Senior Subordinated 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 Senior
Subordinated Notes on terms at least as favorable to the Holders of Senior
Subordinated Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (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 Senior Subordinated Notes on terms at least as favorable to the Holders
of Senior Subordinated Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded and (v) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"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 First ESC LLC 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 the covenant entitled "Sales of Accounts Receivable."
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"Related Party" means, with respect to the Principals, (i) any controlling
stockholder or partner of any Principal on the date of the Senior
Subordinated Note 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).
"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.
"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 the Indenture.
"Specified Agreements" means the Investors' Agreement and the Tax Sharing
Agreement.
"Subordinated Indebtedness" means any Indebtedness of the Company or any
Guarantor which is expressly by its terms subordinated in right of payment to
the Senior Subordinated Notes or any Subsidiary Guarantee.
"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 ,
1997, between the Company and Holdings, as amended from time to time.
"Unrestricted Subsidiary" means any Subsidiary 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 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 the covenant described above under the
caption entitled "--Certain Covenants--Restricted Payments." 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 the Senior Subordinated Note 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 the
covenant described under the caption entitled "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," 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
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of such Unrestricted Subsidiary and such designation shall only be permitted
if (i) such Indebtedness is permitted under the covenant described under the
caption entitled "--Certain Covenants--Incurrence of Indebtedness and
Issuance Preferred of Stock" 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).
"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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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") between the Company and Donaldson, Lufkin &
Jenrette Securities Corporation (the "Underwriter" or "DLJSC"), the
Underwriter has agreed to purchase from the Company, and the Company has
agreed to sell to the Underwriter, all of the Senior Subordinated Notes
offered hereby.
The Underwriting Agreement provides that the obligations of the
Underwriter thereunder are subject to certain conditions precedent. The
Underwriting Agreement also provides that the Company will indemnify the
Underwriter against certain liabilities and expenses, including liabilities
under the Securities Act. The nature of the Underwriter's obligation is such
that it is required to purchase all of the Senior Subordinated Notes if any
Senior Subordinated Notes are purchased by the Underwriter.
The Underwriter has advised the Company that it proposes initially to
offer the Senior Subordinated Notes, in part, directly to the public at the
public offering price set forth on the cover of this Prospectus and in part
to selected dealers at such price less a concession not in excess of % of
the aggregate principal amount at stated maturity of the Senior Subordinated
Notes. The Underwriter may allow, and such dealers may reallow, a discount
not in excess of % of the aggregate principal amount at stated maturity of
the Senior Subordinated Notes to certain other dealers. After the initial
public offering of the Senior Subordinated Notes, the offering price and the
other selling terms may be changed by the Underwriter.
The Senior Subordinated Notes are a new security for which no public
market exists. The Senior Subordinated Notes will not be listed on any
securities exchange. There can be no assurance that an active public market
will develop or be sustained upon completion of the Offering or at what
prices Holders of the Senior Subordinated Notes would be able to sell such
securities, if at all. In addition, prevailing interest rate levels, market
fluctuations and general economic and political conditions may adversely
affect the liquidity and the market price of the Senior Subordinated Notes,
regardless of the Company's financial and operating performance. The market
for "high yield" securities, such as the Senior Subordinated Notes, is
volatile and unpredictable, which may have an adverse effect on the liquidity
of, and prices for, such securities. The Company has been advised by the
Underwriter that it currently intends to make a market in the Senior
Subordinated Notes after consummation of the Offering as permitted by
applicable laws and regulations; however, the Underwriter is not obligated to
do so and may discontinue doing so without notice at any time. Accordingly,
no assurance can be given that a liquid trading market of the Senior
Subordinated Notes will develop or be sustained. In addition, because the
Underwriter may be deemed to be an affiliate of the Company, the Underwriter
will be required to deliver a current "market-maker" prospectus and otherwise
to comply with the registration requirements of the Securities Act in
connection with any secondary market sale of the Senior Subordinated Notes,
which may affect its ability to continue market-making activities. The
Underwriter's ability to engage in market-making transactions will therefore
be subject to the availability of a current "market-maker" prospectus. For so
long as any of the Senior Subordinated Notes are outstanding and, in the
reasonable judgment of the Underwriter and its counsel, the Underwriter or
any of its affiliates (as defined in the rules and regulations under the
Securities Act) is required to deliver a prospectus in connection with sales
of the Senior Subordinated Notes, the Company has agreed to make a
"market-maker" prospectus available to the Underwriter to permit it to engage
in market-making transactions.
The Underwriter has informed the Company that it does not intend to
confirm sales of the Senior Subordinated Notes to any accounts over which it
exercises discretionary authority.
In connection with the Offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Senior Subordinated Notes. Specifically, the Underwriter may overallot the
Offering, creating a syndicate short position. The Underwriter may bid for
and purchase the Senior Subordinated Notes in the open market to cover
syndicate short positions. In addition, the Underwriter may bid for and
purchase the Senior Subordinated Notes in the open market to stabilize the
price of the Senior Subordinated Notes. These activities may stabilize or
maintain the market price for the Senior Subordinated Notes above independent
market levels. The Underwriter is not required to engage in these activities,
and may end these activities at any time.
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The Underwriter is also acting as underwriter in connection with a
concurrent offering by Holdings of Debentures and will receive customary
discounts and commissions in connection therewith. In addition, the
Underwriter is acting as Arranger and DLJ Capital Funding, an affiliate of
the Underwriter, is the syndication agent and a lender under the New Credit
Facility. DLJ Capital Funding and the Underwriter will receive fees pursuant
to the New Credit Facility customary to performing such services.
DLJMB and certain related entities, all of which are affiliates of the
Underwriter, will own a significant amount of Holdings Common Stock following
the Merger and Merger Financing. See "Certain Relationships and Related
Transactions--Transactions with DLJ and its Affiliates."
DLJSC will receive customary fees in connection with the underwriting,
purchase or placement of the Senior Subordinated Notes and Debentures as well
as a merger advisory fee of $5.0 million in cash from Quaker upon
consummation of the Merger. It is also expected that DLJSC will receive an
annual fee from Holdings for financial advisory services.
Under Rule 2720 of the Conduct Rules ("Rule 2720") of the National
Association of Securities Dealers, Inc. ("NASD"), the Underwriter may be
deemed to be an "affiliate" of the Company and to have a "conflict of
interest" with the Company by virtue of the fact that affiliates of the
Underwriter may be deemed to beneficially own greater than 10% of the voting
stock of the Company. Under Rule 2720, when a member of the NASD, such as the
Underwriter, proposes to underwrite or otherwise assist in the distribution
of an affiliate's debt securities in a public offering, the yield at which
such securities are to be distributed to the public must not be lower than
that recommended by a "qualified independent underwriter", who must
participate in the preparation of the registration statement and the
prospectus and who must exercise the usual standards of due diligence with
respect thereto. In accordance with such requirements, Ladenburg Thalmann &
Co. Inc. (the "QIU") has agreed to act as the qualified independent
underwriter in connection with the Offering, has participated in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part and has exercised the usual standards of due
diligence with respect thereto. The yield of the Senior Subordinated Notes when
sold will be no lower than that recommended by the QIU. The QIU will receive
an aggregate fee of $125,000 and will be reimbursed for certain other expenses,
all of which will be paid by the Company and Holdings in connection with the
offering of the Senior Subordinated Notes and Units. In addition, the Company,
Holdings and Quaker have jointly and severally agreed to indemnify the QIU
against certain liabilities, including liabilities under the Securities Act,
or to contribute to payments which the QIU may be required to make in respect
thereof.
LEGAL MATTERS
The validity of the Senior Subordinated Notes offered hereby will be
passed upon for the Company by Davis Polk & Wardwell, New York, New York.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriter by Latham & Watkins, New York, New York.
EXPERTS
The Consolidated Financial Statements of the Company as of June 30, 1996
and for each of the three years in the period ended June 30, 1996 and the
Consolidated Financial Statements of DecisionOne Corporation (formerly BABSS
(the "Predecessor")) as of December 31, 1994 and October 20, 1995 and for the
years ended December 31, 1993 and 1994 and the period from January 1, 1995 to
October 20, 1995, and the related financial statement schedules appearing in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as set forth in their reports included herein and are included in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
DECISIONONE CORPORATION
Audited Financial Statements:
Independent Auditors' Report.............................................................. F-2
Consolidated Balance Sheets as of June 30, 1995 and 1996.................................. F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1994, 1995 and 1996............................................................. F-4
Consolidated Statements of Shareholder's Equity for the Years Ended
June 30, 1994, 1995 and 1996............................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1994, 1995 and 1996............................................................. F-6
Notes to Consolidated Financial Statements................................................ F-7
Unaudited Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as of June 30, 1996 and March 31, 1997 ... F-22
Unaudited Condensed Consolidated Statements of Operations for the
Nine Months Ended March 31, 1996 and 1997................................................ F-23
Unaudited Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1996 and 1997................................................ F-24
Unaudited Notes to Condensed Consolidated Financial Statements............................ F-25
PREDECESSOR FINANCIAL STATEMENTS--
DECISIONONE CORPORATION (FORMERLY BELL ATLANTIC BUSINESS SYSTEMS SERVICES, INC.)
Audited Financial Statements:
Independent Auditors' Report.............................................................. F-27
Consolidated Balance Sheets as of December 31, 1994 and October 20, 1995 ................. F-28
Consolidated Statements of Operations for the Years Ended December 31, 1993
and 1994 and the Period January 1, 1995 to October 20, 1995.............................. F-29
Consolidated Statements of Shareholder's Equity for the Years Ended December 31, 1993
and 1994 and for the Period January 1, 1995 to October 20, 1995.......................... F-30
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993
and 1994 and for the Period January 1, 1995 to October 20, 1995.......................... F-31
Notes to Consolidated Financial Statements................................................ F-32
</TABLE>
F-1
<PAGE>
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, 1995 and 1996, and the
related consolidated statements of operations, shareholder's equity and cash
flows for each of the three years in the period ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DecisionOne Corporation,
Inc. and subsidiaries at June 30, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended June 30, 1996 in conformity with generally accepted accounting
principles.
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
May 30, 1997
F-2
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 2,659 $ 8,221
Accounts receivable, net.................................... 27,758 92,650
Inventories................................................. 4,024 30,130
Prepaid expenses, income tax receivable and other assets ... 763 4,752
Deferred tax asset.......................................... 8,503 8,018
---------- ----------
Total current assets....................................... 43,707 143,771
---------- ----------
Repairable Parts, net........................................ 27,360 154,970
Property and Equipment, net.................................. 4,429 32,430
Deferred Tax Asset, net...................................... 25,011 16,405
Intangibles, net............................................. 34,568 164,659
Other Assets................................................. 478 2,275
---------- ----------
Total Assets................................................. $135,553 $514,510
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term debt........................... $ 19,414 $ 2,321
Accounts payable............................................ 11,412 53,347
Accrued expenses............................................ 21,773 36,217
Deferred revenues........................................... 40,222 38,485
Income taxes payable........................................ 1,648
Net liabilities related to discontinued products division .. 1,056 479
---------- ----------
Total current liabilities.................................. 95,525 130,849
---------- ----------
Revolving Credit Loan and Long-Term Debt..................... 6,157 188,582
Other Liabilities............................................ 12,383 14,286
Shareholder's Equity:
Common stock, no par value; one share authorized, issued
and outstanding in 1995 and 1996 .........................
Additional paid-in capital.................................. 114,891 255,535
Accumulated deficit......................................... (92,378) (73,516)
Foreign currency translation adjustment..................... 680 622
Pension liability adjustment................................ (1,705) (1,848)
---------- ----------
Total shareholder's equity................................. 21,488 180,793
---------- ----------
Total Liabilities and Shareholder's Equity................... $135,553 $514,510
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Service.................................................. $ 97,548 $154,044 $526,703
Other.................................................... 10,868 8,976 13,488
--------- ---------- ----------
108,416 163,020 540,191
--------- ---------- ----------
Cost of Revenues:
Service.................................................. 70,502 107,922 393,311
Other.................................................... 6,478 5,561 9,005
--------- ---------- ----------
76,980 113,483 402,316
--------- ---------- ----------
Gross Profit.............................................. 31,436 49,537 137,875
Operating Expenses:
Selling, general and administrative expenses............. 16,474 21,982 69,237
Amortization and write-off of intangibles................ 5,380 6,776 15,673
Credit for unused leases, net............................ (6,401)
Employee severance and unutilized lease costs .......... -- -- 3,592
--------- ---------- ----------
Operating Income.......................................... 15,983 20,779 49,373
Interest expense, net of interest income of $132 in 1994,
$53 in 1995 and $239 in 1996............................. 4,847 2,468 14,714
--------- ---------- ----------
Income from continuing operations before income taxes
(benefit), discontinued operations and extraordinary
item..................................................... 11,136 18,311 34,659
Provision for income taxes (benefit)...................... 1,024 (23,104) 13,870
--------- ---------- ----------
Income before discontinued operations and extraordinary
item..................................................... 10,112 41,415 20,789
Discontined operations--income from operations of
discontinued products division........................... -- 1,113 --
--------- ---------- ----------
Income before extraordinary item.......................... 10,112 42,528 20,789
Extraordinary item, net of tax benefit of $1,284 ......... -- -- 1,927
--------- ---------- ----------
Net Income................................................ $ 10,112 $ 45,528 $ 18,862
========= ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY PENSION
PAID-IN ACCUMULATED TRANSLATION LIABILITY
CAPITAL DEFICIT ADJUSTMENT ADJUSTMENT
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Balance, June 30, 1993.................. $ 87,413 $(145,018) $445 $ (986)
Net income............................ 10,112
Adjustment to pension liability....... (639)
Foreign currency translation
adjustment .......................... 12
Capital contribution.................. 27,470 -- -- --
------------ ------------- ------------- ------------
Balance, June 30, 1994.................. 114,883 (134,906) 457 (1,625)
Net Income............................ 42,528
Adjustment to pension liability....... (80)
Foreign currency translation
adjustment .......................... 223
Contributed capital................... 8 -- -- --
------------ ------------- ------------- ------------
Balance, June 30, 1995.................. 114,891 (92,378) 680 (1,705)
Net income............................ 18,862
Adjustment to pension liability....... (143)
Contributed capital................... 142,090
Foreign currency translation
adjustment .......................... (58)
Dividends declared.................... (1,446) -- -- --
------------ ------------- ------------- ------------
Balance, June 30, 1996.................. $255,535 $ (73,516) $622 $(1,848)
============ ============= ============= ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Operating Activities:
Net income............................................. $ 10,112 $ 42,528 $ 18,862
Adjustments to reconcile net income to net cash
provided by operating activities:
Income from discontinued operations................... (1,113)
Write-down of intangible assets....................... 2,932 70
Net credit on unused leases, net...................... (6,401)
Depreciation and amortization of property and
equipment ........................................... 1,781 1,778 8,309
Amortization of intangibles........................... 2,448 6,706 15,673
Amortization of repairable parts...................... 5,929 7,688 37,869
Deferred income taxes................................. (23,104) (7,579)
Provision (recovery of loss) on accounts receivable... (162) 1,930 (3,434)
Provision for inventory obsolescence.................. 1,580 1,995 1,171
Extraordinary item.................................... 1,927
Changes in operating assets and liabilities, net of
effects from companies acquired, which provided
(used) cash:
Accounts receivable.................................. (3,498) (8,836) (1,900)
Inventories.......................................... 1,107 931 (1,248)
Accounts payable..................................... (787) 4,552 29
Accrued expenses..................................... 264 (5,723) 227
Deferred revenues.................................... 9,547 6,811 (33,928)
Net changes in other assets and liabilities........... 3,870 2,202 (6,110)
---------- ---------- -----------
Net cash provided by operating activities........... 28,722 38,415 51,894
---------- ---------- -----------
Investing Activities:
Capital expenditures--net of retirements............... (304) (2,786) (7,278)
Repairable parts purchases............................. (1,857) (12,154) (63,514)
Purchases of companies................................. (1,187) (39,331) (275,562)
---------- ---------- -----------
Net cash used in investing activities............... (3,348) (54,271) (346,354)
---------- ---------- -----------
Financing Activities:
Proceeds from issuance of subordinated debentures...... 26,600
Capital contribution................................... 2,250 142,090
Proceeds from borrowings............................... 11,000 32,000 703,720
Payment on subordinated debentures..................... (30,000)
Payments on borrowings................................. (37,713) (14,463) (537,548)
Principal payments under capital leases................ (3,423)
Payment of dividends................................... (1,446)
Other.................................................. (483) -- 29
---------- ---------- -----------
Net cash provided by (used in) financing activities. (24,946) 17,537 300,022
---------- ---------- -----------
Net increase in cash and cash equivalents................ 428 1,681 5,562
Cash and cash equivalents, beginning of year............. 550 978 2,659
---------- ---------- -----------
Cash and cash equivalents, end of year................. $ 978 $ 2,659 $ 8,221
========== ========== ===========
Supplemental Disclosures of Cash Flow Information:
Net cash paid during the year for:
Interest.............................................. $ 485 $ 2,065 $ 14,838
Income taxes.......................................... 397 1,009 5,344
Noncash investing/financing activities:
Interest exchanged for debt........................... 2,073
Issuance of seller notes in connection with
acquisitions ....................................... 1,313 2,866 587
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
1. NATURE OF BUSINESS
DecisionOne Corporation (a wholly owned subsidiary of DecisionOne Holdings
Corp.) and its wholly owned subsidiaries (the "Company") are providers of
multi-vendor computer maintenance and technology support services. The
Company's services include hardware support, user and software support,
network support and other support services. These services are offered by the
Company across a broad range of computing environments, including mainframes,
midrange and distributed systems, workgroups, personal computers and related
peripherals. The Company maintains approximately 3,900 technical personnel
located in over 150 service locations in North America.
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, DecisionOne Holdings Corp.'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.
On May 29, 1997, DecisionOne 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, international subsidiaries are not significant
to the Company's financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION -- The consolidated financial statements include the
accounts of DecisionOne Corporation and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
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.
INVENTORIES -- Inventories are stated at the lower of cost or market, cost
principally being determined using the weighted average method. The Company
previously determined cost using the FIFO (first-in, first-out) method. The
change has no material effect on the financial statements.
REPAIRABLE PARTS -- Repairable parts are required in order to meet the
requirements of the contracts with the Company's maintenance customers. These
parts are principally purchased from equipment manufacturers and other third
parties. As these parts are purchased, they are capitalized at cost and
amortized principally using the straight-line method over three to five
years, their estimated useful life. Repairable parts are repaired by the
Company based upon anticipated need and generally have an economic life that
extends beyond the normal life cycle of the applicable product. Costs of
refurbishing parts are charged to operations as incurred. Repairable parts
are stated at cost, less accumulated amortization of $46,554 and $45,064 as
of June 30, 1995 and 1996, respectively. Repairable parts amortization
expense for the years ended June 30, 1994, 1995 and 1996 was $5,929, $7,688
and $37,869 respectively.
F-7
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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; renewals and betterments are capitalized. 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.
INTANGIBLE ASSETS -- Intangible assets are comprised of excess purchase
price over net assets acquired (goodwill), debt issuance costs and other
intangible assets, including the fair value of contractual profit
participation rights, acquired customer contracts, tradenames, other
intangibles, and amounts assigned to noncompete agreements.
Goodwill is being amortized on a straight-line basis over 20 years. Other
intangibles are being amortized, primarily on a straight-line basis, over 3
to 8 years for customer contracts; 20 years for contractual profit
participation rights; 1 to 6 years for tradenames and other intangibles; and
over four-year terms for specific noncompete agreements. Debt issuance costs
are amortized using the interest method over the term of the related debt.
CARRYING VALUE OF LONG-TERM ASSETS -- The Company evaluates the carrying
value of long-term assets, property and equipment, repairable parts and
intangible assets, based upon current and anticipated undiscounted cash
flows, and recognizes an impairment when such estimated cash flows will be
less than the carrying value of the asset. Measurement of the amount of
impairment, if any, is 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. 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.
Estimated losses on contracts, if any, are charged against earnings in the
period in which such losses are identified.
FOREIGN CURRENCY TRANSLATION -- Gains and losses resulting from foreign
currency translation are accumulated as a separate component of shareholder's
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.
INCOME TAXES -- Effective July 1, 1993, the Company changed its policy of
accounting for income taxes to conform to Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes. The Company
previously followed Financial Accounting Standards No. 96, Accounting for
Income Taxes. SFAS No. 109 requires, among other things, the accrual of
deferred tax liabilities for future taxable amounts, deferred tax assets for
future deductions and operating loss carryforwards and a
F-8
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
valuation allowance to reduce deferred tax assets to the amounts that are
more likely than not to be realized. The adoption of SFAS No. 109 on July 1,
1993 did not have a material effect on the Company's consolidated financial
position or results of operations.
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 -- Rates currently available to the
Company for debt with similar terms and remaining maturities are used to
estimate the fair value for debt issues. 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.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS -- Effective July 1, 1994, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 106, ("SFAS No. 106") Employers' Accounting for Postretirement Benefits
Other Than Pensions, and Statement of Financial Accounting Standards No. 112
("SFAS No. 112"), Employers' Accounting for Postemployment Benefits. The
adoption of SFAS No. 106 and SFAS No. 112 did not have a material effect on
the Company's consolidated financial position or results of operations.
DERIVATIVE FINANCIAL INSTRUMENTS -- Derivative financial instruments,
which constitute interest rate swaps (see Note 10), are used by the Company
in the management of its interest rate exposure and are accounted for on an
accrual basis. These derivative financial instruments are used to hedge risk
caused by fluctuating interest rates. Hedged financial instruments are
accounted for based on settlement accounting. Income and expense are recorded
in the same category as that arising from the related asset or liability. The
amounts to be paid or received under interest rate swap agreements are
recognized as interest income or expense in the periods in which they accrue.
Gains and losses resulting from effective hedges of existing assets,
liabilities or firm commitments are deferred and recognized when the
offsetting gains and losses are recognized on the related hedged items. Gains
realized on termination of interest rate swap contracts are deferred and
amortized over the remaining terms of the original swap agreements. The
Company does not hold or issue any derivative financial instruments for
trading purposes.
3. DISCONTINUED OPERATIONS
On February 9, 1993, the Company sold all of the inventory, fixed assets
and other intangible assets, as defined in the asset purchase agreement, of
its products division. The remaining assets and liabilities of the
discontinued operations consisted mainly of accounts receivable and accrued
expenses for warranty, lease commitments and other accrued costs. In 1993,
the Company established liabilities based on the best available information.
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 for the change in estimate.
F-9
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
3. DISCONTINUED OPERATIONS (CONTINUED)
In conjunction with the sale of the products division, the Company
entered into a maintenance service agreement with the purchaser. The
agreement provides that the Company has the option to be the exclusive
provider of warranty, extended warranty and maintenance services of products
marketed by the purchaser for a term of 5 years after the date of the sale.
4. BUSINESS ACQUISITIONS
During the years ended June 30, 1994, 1995 and 1996, the Company acquired
certain net assets of a series of service companies as follows:
<TABLE>
<CAPTION>
CONSIDERATION
----------------------------
TOTAL
NUMBER OF PURCHASE
YEARS ENDED ACQUISITIONS CASH NOTES PRICE
- ----------- -------------- --------- -------- --------
<S> <C> <C> <C> <C>
Significant business acquisitions:
June 30, 1995 .................... 1 $ 27,413 $2,094 $ 29,507
June 30, 1996 .................... 1 250,549 250,549
Nonsignificant business and
maintenance contract acquisitions:
June 30, 1994 .................... 5 975 1,490 2,465
June 30, 1995 .................... 5 9,327 255 9,582
June 30, 1996 .................... 5 14,853 578 15,431
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
OTHER
YEARS ENDED INTANGIBLES GOODWILL
- ----------- ------------- ----------
<S> <C> <C>
Significant business acquisitions:
June 30, 1995 ............. $15,600 $ 7,394
June 30, 1996 ............. 72,581 60,533
Nonsignificant business and
maintenance contract acquisitions:
June 30, 1994 ............. 3,193
June 30, 1995 ............. 4,577 8,680
June 30, 1996 ............. 6,522 6,318
</TABLE>
The Company purchased substantially all of the operating assets and
assumed certain liabilities of the acquired entities. These acquisitions have
been accounted for as purchase transactions, with the purchase price of each
acquisition allocated to the assets and liabilities acquired based on their
respective estimated fair values at the dates of acquisition. The results of
operations of the acquired entities have been included in the accompanying
consolidated financial statements from the dates of acquisition.
On August 31, 1994, the Company purchased certain net assets and
liabilities of IDEA/Servcom, Inc. ("Servcom") for approximately $29,500. This
acquisition was funded by cash and the issuance of a $2,600
noninterest-bearing note to the seller. See seller notes payable section of
Note 10. The excess of asset purchase price over the fair value of assets
acquired at the date of purchase resulted in goodwill of approximately
$7,400.
<PAGE>
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. The acquisition was funded with the proceeds from the
issuance by Holdings of $30,000 of Series C preferred stock, $30,000 of
subordinated debentures issued by the Company and the balance from additional
bank borrowings. The proceeds from the issuance of preferred stock was
contributed to the Company. The excess of asset purchase price over the fair
value of assets acquired at the date of purchase resulted in goodwill of
approximately $58,796 initially recorded. Subsequent to the acquisition, the
Company recorded a net adjustment increasing goodwill by $1,737 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 9). 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 value of the
discounted estimated future cash flows over a twenty-year period from these
contractual profit participation rights is $25,000.
F-10
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
4. BUSINESS ACQUISITIONS (CONTINUED)
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, 1995 and 1996 assumes that the
Servcom and BABSS 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,
---------------------
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues................................................... $679,284 $697,676
Income from continuing operations before extraordinary
item...................................................... 20,153 31,080
Net income................................................. 21,266 29,153
</TABLE>
5. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Trade receivables ........................ $33,843 $ 99,762
Other .................................... 531 2,468
--------- ---------
34,374 102,230
Less allowance for uncollectible
accounts................................. (6,616) (9,580)
--------- ---------
$27,758 $ 92,650
========= =========
</TABLE>
6. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Consumable parts.......................... $ 15,243 $ 40,564
Finished goods............................ 569 360
---------- ----------
15,812 40,924
Less allowance for uncollectible
accounts................................. (11,788) (10,794)
---------- ----------
$ 4,024 $ 30,130
========== ==========
</TABLE>
F-11
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Land and buildings........................ $ 2,055
Equipment................................. $ 5,682 13,858
Computer hardware and software............ 8,359 27,277
Furniture and fixtures.................... 4,306 8,051
Leasehold improvements.................... 1,450 4,125
---------- ----------
19,797 55,366
Accumulated depreciation and
amortization............................. (15,368) (22,936)
---------- ----------
$ 4,429 $ 32,430
========== ==========
</TABLE>
The principal lives (in years) used in determining depreciation and
amortization rates of various assets are: buildings (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 $1,781, $1,778,
and $8,309, for the fiscal years ended 1994, 1995 and 1996.
8. INTANGIBLES
Intangibles consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1996
--------- ----------
<S> <C> <C>
Goodwill................................ $16,074 $ 82,355
Customer contracts...................... 20,248 64,758
Contractual profit participation
rights................................. 25,000
Noncompete agreement.................... 3,000 4,500
Other intangibles....................... 2,250 7,671
Tradename............................... 1,500 --
--------- ----------
43,072 184,284
Accumulated amortization................ (8,504) (19,625)
--------- ----------
$34,568 $164,659
========= ==========
</TABLE>
Based upon the results of an impairment evaluation for the years ended
June 30, 1994 and 1995, management determined that customer contracts should
be written down $2,932 and $70, respectively. There were no write-downs of
intangibles in 1996.
Amortization expenses relating to intangibles were approximately $2,448,
$6,706 and, $15,673 for the fiscal years ended 1994, 1995 and 1996.
F-12
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
9. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Compensation and benefits ........ $11,046 $22,115
Interest.......................... 2,246 1,505
Unused leases..................... 857 3,485
Pension accrual................... 1,262 1,258
Accrued accounting and legal
fees............................. 920 1,073
Other accrued expenses............ 5,442 6,781
--------- ---------
$21,773 $36,217
========= =========
</TABLE>
Prior to 1994, the Company received $2,600 in tax bills (primarily
interest) from the Internal Revenue Service ("IRS") related to claims for tax
and interest for the years ended 1981 through 1987. The Company paid
approximately $500 of the claims upon receipt of the bills. As the Company
disputes the tax bills, no payments were made in 1994 nor 1995. In 1996, an
IRS mandated payment of $828 was made. As of June 30, 1995 and 1996, the
Company has an accrued liability of $2,500 and $1,883, respectively.
Subsequent to June 30, 1996, the Company provided the IRS with a letter of
credit in the amount of $1,768 to collateralize the outstanding balance.
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 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 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 was provided for severance and termination benefits of
approximately 210 employees in the field, operations support, sales and
administration. Approximately $3,000 was provided in connection with the exit
plan for write-downs of inventory and equipment at two California facilities
which will not be utilized in future operations. The provision for various
other charges of approximately $500 consisted of costs to complete the exit
plan. As of June 30, 1996, the Company has settled all of these liabilities,
except for the lease liabilities on idle facilities approximating $1,200 for
which payments will continue through 1999.
As a result of successful negotiations of unutilized leased facilities,
during 1996, the Company recorded a reduction of approximately $975 to both
the provisions for leased facilities and goodwill.
F-13
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
10. REVOLVING CREDIT LOAN AND LONG-TERM DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1996
--------- ----------
<S> <C> <C>
Revolving credit loan............................................ $186,400
Bank debt........................................................ $21,000
Promissory note, noninterest-bearing, due August 31, 1998 ....... 2,256 3,485
Seller noninterest-bearing notes payable......................... 2,122 2,118
Capitalized lease obligations, payable in varying installments
amounting to $1,413 and $972 in 1997 and 1998, respectively, at
interest rates ranging from 7.25% to 13.01% at June 30, 1996,
net of interest of approximately $6 and $187 in 1995 and 1996,
respectively.................................................... 193 2,385
--------- ----------
25,571 190,903
Less current portion............................................. 19,414 2,321
--------- ----------
$ 6,157 $188,582
========= ==========
</TABLE>
BANK DEBT AND REVOLVING CREDIT LOAN
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 and a revolving credit facility of up to a
maximum of $30,000. The 1995 Term Loan provided for 19 equal quarterly
principal payments of $10,000 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 (NationsBank 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, Holdings completed an initial public offering. Holdings
contributed the proceeds of the offering to the Company. The Company used a
portion of the proceeds to repay approximately $70,000 of the 1995 Term Loan.
Also in April 1996, the Company converted the 1995 Term Loan and the
existing $30,000 Revolving Credit Facility into a $225,000 variable rate,
unsecured revolving credit facility ("the 1996 Revolving Credit Facility").
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, 1996, the applicable rate was LIBOR
plus .75% or 6.32%. The 1996 Revolving Credit Facility enables the Company to
borrow up to $225,000 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 has entered into interest rate swap agreements with
two banks resulting in fixed interest rates of 5.4% on $40,000 notional
principal amount through December 1997 and 5.5% on another $40,000 notional
principal amount through December 1998, thereby leaving approximately
$100,000 subject to floating rates under the 1996 Revolving Credit Facility.
Under the swap agreements, the Company receives interest payments at a
floating rate based on the pricing of the three-month LIBOR and pays interest
on the same notional amounts at an average fixed
F-14
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
10. REVOLVING CREDIT LOAN AND LONG-TERM DEBT (CONTINUED)
rate of 5.45%. The floating rate is 5.44% for the three-month period ended
June 30, 1996. For the three-month period ending September 30, 1996, the
floating rate is 5.57%. The agreements convert a portion of the Company's
debt obligation from a floating rate to a fixed rate basis. The fair value of
the interest rate swap agreements generally reflects the estimated amount
that the Company would receive or pay to terminate the agreements. As of June
30, 1996, the Company would receive approximately $1,100 to terminate the
swap agreements.
The Company attempts to minimize its credit exposure by entering into
interest rate swap agreements only with major financial institutions.
Although the Company may be exposed to losses in the event of nonperformance
by counterparties, the Company does not expect such losses, if any, to be
significant.
Under the terms of the 1996 Revolving Credit Facility, the Company may use
up to $25,000 for letters of credit, subject to the limitation of $225,000 in
total credit. As of June 30, 1996, letters of credit in the face amount of
$3,498 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 the Company.
Repayment of the debt is guaranteed by Holdings and the Company's other
subsidiaries except for its Canadian subsidiary. The Canadian subsidiary is
not significant to the Company's consolidated financial statements.
The Company had average borrowings of $24,379 and $172,065 during 1995 and
1996, respectively, at an average interest rate of 10.34% and 8.69%,
respectively. Maximum borrowings during 1995 and 1996 were $32,648 and
$268,748, respectively.
SELLER NOTES PAYABLE
In connection with various acquisitions, the Company issued
noninterest-bearing notes, the principal of which is payable monthly,
primarily based upon a percentage of monthly maintenance contract revenues
billed during the previous month (ranging from 12.5% to 30.0%). Aggregate
maturities of these notes are as follows: 1997-$908; 1998-$647, 1999-$475,
and 2000-$88. As of June 30, 1996, the notes are presented at their estimated
net present value based on imputed interest rates ranging from 7.25% to
11.00%.
PROMISSORY NOTE
As part of the August 31, 1994 acquisition of certain assets and
liabilities of IDEA/Servcom, Inc., the Company issued a $2,600
noninterest-bearing note which was due in annual installments of $650 over
four years. The liability was reflected on the Company's books, net of a $506
discount calculated at the Company's then incremental borrowing rate of
9.50%. The loan was scheduled to mature on August 31, 1998. During the year
ended June 30, 1996, the Company prepaid the entire outstanding loan balance.
The resulting gain from prepayment was not material.
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 principal amount of 10.101% debentures
F-15
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
10. REVOLVING CREDIT LOAN AND LONG-TERM DEBT (CONTINUED)
(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 Holdings' 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 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 of the proceeds to retire the Affiliate Notes. As a result, the
Company recorded an extraordinary loss in the amount of $3,211, net of taxes
of $1,284, due to the acceleration of the amortization of original issue
discount.
1994 DEBT RESTRUCTURING
On January 27, 1994, the Company amended its then current Credit Agreement
to provide an $11,000 term loan and an $8,000 Revolving Credit Facility. The
term loan provided for 29 equal monthly payments of $350 beginning January
31, 1994 through May 31, 1996. Interest was at the "Base Rate" (the higher of
the bank's base rate or 1/2 percent above the Federal Funds Effective Rate)
plus 1-1/2 percent. The Revolving Credit Facility was due on demand and bore
interest at the Base Rate plus 1-1/2 percent. The loans were collateralized
by all of the Company's assets. The proceeds of the term loan were used to
extinguish certain subordinated notes. The term loan was prepaid in June
1994. There were no borrowings under the Revolving Credit Facility through
June 30, 1994.
Also, on January 27, 1994, the Company and Holdings agreed with certain
noteholders to restructure its equity capitalization and subordinated debt.
The noteholders forgave debt approximating $46,698 of principal and interest
in exchange for cash and equity interest in Holdings which resulted in a net
gain of approximately $20,031 which was recorded as additional paid-in
capital of the Company.
11. INCOME TAXES
The Company is a wholly owned subsidiary of Holdings and is included in
Holdings' consolidated tax returns. The Company participates in a tax sharing
arrangement with Holdings whereby consolidated income tax expense or benefit
is allocated to the Company based on the proportion of the Company's taxable
income or loss to Holding's consolidated total.
F-16
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
11. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
-----------------------------
1994 1995 1996
--------- ---------- --------
<S> <C> <C> <C>
Current:
Federal................................. $ 2,485 $ 16,065 $ 2,892
State................................... 760 4,599 1,595
Foreign................................. (1,272) (548)
Deferred:
Federal................................. (29,897) 8,945
State................................... (3,617) 641
Foreign................................. (499)
Benefit of operating loss carryforwards:
Federal................................. (1,861) (7,729)
State................................... (360) (1,253)
Foreign................................. -- -- (252)
--------- ---------- --------
Provision (benefit) for income taxes ... $ 1,024 $ 23,104 $13,870
========= ========== ========
</TABLE>
The tax effects of temporary differences consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Gross deferred tax assets:
Accounts receivable................................... $ 1,443 $ 1,341
Inventory............................................. 3,299 2,586
Accrued expenses...................................... 3,761 6,378
Unused leases......................................... 1,353
Fixed assets.......................................... 100 299
Goodwill and other intangibles........................ 598 5,670
Operating loss carryforwards.......................... 25,482 14,252
Minimum tax carryforward.............................. 632 1,170
Gross deferred tax asset.............................. 36,668 31,696
Net valuation allowance............................... (686)
Gross deferred tax liabilities--repairable spare
parts............................................... (2,468) (7,273)
--------- ---------
Net deferred tax asset................................ $33,514 $24,423
========= =========
</TABLE>
The change in the valuation allowance from 1995 to 1996 is principally due
to the utilization of foreign net operating loss carryforwards.
F-17
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
11. INCOME TAXES (CONTINUED)
Net operating loss and minimum tax credit carryforwards available at June
30, 1996 expire in the following years:
<TABLE>
<CAPTION>
YEAR OF
AMOUNT EXPIRATION
-------- ------------
<S> <C> <C>
Federal operating
losses.................. 38,136 2002-2009
State operating losses . 15,223 1997-2009
Minimum tax credit ...... 1,170 INDEFINITE
</TABLE>
As a result of the Parent's initial public offering, an "ownership change"
occurred pursuant to Section 382 of the Internal Revenue Code. Accordingly,
net operating loss and tax credit carryforwards of the Company and its Parent
are limited during any future period to approximately $20,000 per annum.
A reconciliation between the provision (benefit) for income taxes,
computed by applying the statutory federal income tax rate of 34% for 1994,
35% for 1995 and 35% for 1996 to income before income taxes, and the actual
provision (benefit) for income taxes follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- --------- -------
<S> <C> <C> <C>
Federal income tax provision at statutory tax rate ..... 34.0% 35.0% 35.0%
State income taxes, net of federal income tax provision . 4.5 3.5 4.6
Foreign income taxes .................................... (6.9)
Unused lease credit ..................................... (18.1) (0.1)
Write-off of intangibles ................................ 12.6
Benefit of operating loss carryforward .................. (19.9) (49.1) (0.8)
Change in valuation allowance ........................... (108.9) (1.4)
Other ................................................... (3.9) (0.3) 2.6
-------- --------- -------
Actual income tax provision (benefit) effective tax rate 9.2% 126.2% 40.0%
======== ========= =======
</TABLE>
12. OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1995 1996
--------- --------
<S> <C> <C>
Accrued rent, unused facilities and deferred revenues $ 2,334 $ 4,237
Other noncurrent liabilities .......................... 10,049 10,049
--------- --------
$12,383 $14,286
========= ========
</TABLE>
Other noncurrent liabilities include provisions for possible liabilities
relating to various tax matters.
F-18
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
13. 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, 1996 and thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997......... 20,477
1998......... 16,080
1999......... 13,300
2000......... 10,811
2001......... 4,621
Thereafter .. 12,150
--------
77,439
========
</TABLE>
On December 29, 1993, the Company entered into a settlement agreement to
terminate an existing lease on an unused facility, resulting in a payment to
the lessor amounting to $1,000. The payment was structured in the form of
cash and a $250 five-year, noninterest-bearing note payable. The settlement
resulted in a credit of approximately $8,000 recorded in the consolidated
statement of operations net of the provision of $1,599 for additional unused
leases for the year ended June 30, 1994. The outstanding balance of the $250
five-year, noninterest-bearing note payable was repaid in full during the
year ended June 30, 1995.
Rental expense, exclusive of unused rental expense and credits under all
noncancelable operating leases, amounted to approximately $5,128, $5,878 and
$13,149 for the fiscal years ended 1994, 1995 and 1996, respectively.
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.
Pension expense for the defined benefit pension plan was computed as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Interest cost................. $ 461 $ 482 $ 495
Actual return on plan assets . (271) (312) (449)
Net amortization and
deferral..................... (72) (42) (72)
------- ------- -------
Periodic pension costs........ $ 118 $ 128 $ 118
======= ======= =======
</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 1994, 1995 and 1996.
F-19
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
14. RETIREMENT PLANS (CONTINUED)
The following table sets forth the funded status of the frozen pension
plan as of May 1, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Accumulated benefits (100% vested) ........ $ 6,757 $7,116
Fair value of plan assets.................. 5,432 5,800
--------- --------
Unfunded projected benefit obligation .... 1,325 1,316
Unrecognized net loss...................... 1,705 1,848
Unrecognized net transition obligation .... 536 504
Adjustment to recognized minimum
liability................................. (2,241) 2,352
--------- --------
Accrued pension costs..................... $ 1,325 $1,316
========= ========
</TABLE>
15. EMPLOYEE SEVERANCE AND UNUTILIZED LEASE COSTS
In the second quarter of fiscal year 1996, in connection with the BABSS
acquisition, the Company recorded a $7,000 charge for $6,900 of leases of
duplicate facilities (the former headquarters, several large repair depots,
and numerous field offices of the Company) and $100 of severance of former
employees of the Company. Such amounts were based on management estimates.
In the fourth quarter of fiscal year 1996, the Company reversed $3,400 of
the charge. The reversal was the result of the Company's ability to utilize
and sublease various facilities identified in the original charge. Such
information was unknown to the Company when the original charge was recorded.
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 three 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 fourth related site, but 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 which is provided for in
liabilities related to the discontinued products division in the accompanying
consolidated balance sheets as of June 30, 1995 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 share, if any, of
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.
F-20
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
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, 1994, 1995 and 1996 were
approximately $1,421, $1,972 and $1,512, respectively. Accounts payable to
Genicom amounted to approximately $42 and $14 as of June 30, 1995 and 1996,
respectively.
During the year ended June 30, 1996, the Company entered into a contract
with a related party for cleaning services. The approximate annual value of
the contract approximates $150.
During the year ended June 30, 1996, the Company paid approximately $125
for expense reimbursements to certain shareholders for services rendered in
connection with an acquisition in prior years. The amount was accrued for in
prior years.
F-21
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1997
---------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ....................................... $ 8,221 $ 12,886
Accounts receivable, net of allowances of $9,580 and $11,727 .... 92,650 136,401
Inventories, net of allowances of $19,537 and $19,928 ........... 30,130 35,186
Other ........................................................... 12,770 7,637
---------- -----------
Total current assets ........................................... 143,771 192,110
Repairable Parts, Net of Accumulated Amortization of $105,462 and
$144,158 .......................................................... 154,970 195,656
Intangibles, Net of Accumulated Amortization of $19,625 and $36,164 164,659 197,675
Property, Plant and Equipment, Net of Accumulated Depreciation of
$22,936 and $36,530 ............................................... 32,430 33,283
Other .............................................................. 18,680 22,953
---------- -----------
Total Assets ....................................................... $514,510 $641,677
========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term debt ............................... $ 2,321 $ 4,756
Accounts payable and accrued expenses ........................... 89,564 101,156
Deferred revenues ............................................... 38,485 72,096
Other ........................................................... 479 3,691
---------- -----------
Total current liabilities ...................................... 130,849 182,059
Revolving Credit Loan and Long-term Debt ........................... 188,582 241,915
Other Liabilities .................................................. 14,286 16,608
Shareholder's Equity:
Common stock, no par value, one share authorized, issued and
outstanding in 1996 and 1997 .................................... -- --
Additional paid-in capital ...................................... 255,535 255,969
Accumulated deficit ............................................. (73,516) (53,600)
Other ........................................................... (1,226) (1,274)
---------- -----------
Total Shareholder's Equity ..................................... 180,793 201,095
---------- -----------
Total Liabilities and Shareholder's Equity ......................... $514,510 $641,677
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-22
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ---------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues ................................. $172,673 $205,070 $369,167 $572,749
Cost of Revenues ......................... 129,962 150,372 272,708 427,969
---------- ---------- ---------- ----------
Gross Profit ............................. 42,711 54,698 96,459 144,780
Operating Expenses:
Selling, general and administrative
expenses ............................. 22,303 28,228 56,519 82,878
Amortization of intangibles ........... 4,872 6,390 10,617 16,861
---------- ---------- ---------- ----------
Total Operating Expenses ............ 27,175 34,618 67,136 99,739
Operating Income ......................... 15,536 20,080 29,323 45,041
---------- ---------- ---------- ----------
Interest Expense, Net of Interest Income 5,801 3,689 11,220 10,704
---------- ---------- ---------- ----------
Income Before Income Taxes ............... 9,735 16,931 18,103 34,337
Provision for Income Taxes ............... 3,893 6,884 7,237 14,421
---------- ---------- ---------- ----------
Net Income ............................... $ 5,842 $ 9,507 $ 10,866 $ 19,916
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-23
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Operating Activities:
Net income.............................................................. $ 10,866 $ 19,916
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property and equipment................. 5,611 9,836
Amortization of intangibles............................................. 10,617 16,861
Amortization of repairable parts........................................ 23,017 45,642
Changes in assets and liabilities, net of effects of business
acquisitions........................................................... (14,622) (34,601)
----------- -----------
Net cash provided by operating activities.............................. 35,489 57,654
----------- -----------
Investing Activities:
Business acquisitions................................................... (273,725) (34,433)
Capital expenditures, net of retirements................................ (3,331) (6,093)
Repairable parts purchases.............................................. (31,715) (64,803)
----------- -----------
Net cash used in investing activities.................................. (308,771) (105,329)
----------- -----------
Financing Activities:
Capital contribution.................................................... 36,549 434
Proceeds from issuance of subordinated debentures ...................... 26,600 --
Proceeds from borrowings................................................ 260,945 52,915
Payments on borrowings.................................................. (48,062) --
Principal payments under capital leases................................. -- (961)
----------- -----------
Net cash provided by financing activities.............................. 276,032 52,388
----------- -----------
Effect of exchange rates on cash......................................... (20) (48)
----------- -----------
Net change in cash and cash equivalents................................... 2,730 4,665
Cash and cash equivalents beginning of period............................. 2,659 8,221
----------- -----------
Cash and cash equivalents end of period................................... $ 5,389 $ 12,886
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-24
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
(Dollars in thousands)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
DecisionOne Corporation (a wholly-owned subsidiary of DecisionOne Holdings
Corp.) and Subsidiaries (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission and,
therefore, do not include all information and footnotes necessary for
presentation of financial position, results of operations and cash flows
required by generally accepted accounting principles. The June 30, 1996
balance sheet was derived from the Company's audited consolidated financial
statements. The information furnished reflects all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair summary of the financial position, results of operations
and cash flows. The results of operations for the three and nine month
periods ended March 31, 1996 and 1997 are not necessarily indicative of the
operating results to be expected for the full fiscal year.
On May 29, 1997, DecisionOne Holding Corp. ("The Parent") completed a
restructuring of the legal organization of its subsidiaries (the "Corporate
Reorganization"). The Corporate Reorganization involved the Parent's
contribution to the Company of ownership interests in its subsidiaries, all
of which were under the Parent's 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.
NOTE 2: BUSINESS ACQUISITION
On November 15, 1996, the Company acquired substantially all of the assets
of the U.S. computer service business (the "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 in the District of Delaware on October 15, 1996; the Court
approved the sale to the Company on November 1, 1996. The base purchase price
was $52,500, comprised of the assumption of certain liabilities under
contracts of the Business (the "Deferred Revenues"), which were estimated at
closing to be $26,015, and base cash consideration of $26,485, excluding
transaction and closing costs. The purchase price is subject to further
adjustment based upon the actual amount of Deferred Revenues, the amount of
revenues of the Business for the two calendar months prior to closing, and
the actual amount of inventory. The estimated fair market values of certain
assets acquired, as well as liabilities assumed, are also subject to further
adjustment as additional information becomes available to the Company. During
the third quarter of fiscal 1997, the estimated Deferred Revenue liability
was increased by approximately $2,300.
The primary source of funds used for the acquisition was the Company's
revolving credit facility, which was increased from $225,000 to $300,000 on
November 13, 1996.
NOTE 3: EMPLOYEE SEVERANCE AND EXIT COSTS
In the second quarter of fiscal 1997, in connection with the Memorex Telex
acquisition, the Company recorded a $3,400 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 $3,400 charge, recorded in accordance
with Statement of Financial Accounting Standards No. 112 ("SFAS 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
unaudited condensed consolidated statement of operations for the nine month
period ended March 31, 1997. For further information regarding the Memorex
Telex acquisition, see Note 2.
F-25
<PAGE>
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 3: EMPLOYEE SEVERANCE AND EXIT COSTS (Continued)
In the second quarter of fiscal 1996, in connection with the acquisition
of Bell Atlantic Business Systems Services ("BABSS"), the Company recorded
pre-tax charges for exit costs of $6,900, and estimated future employee
severance costs of $100. During the fourth quarter of fiscal 1996, the
Company reversed $3,400 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 $7,000
combined liability. Such information was unknown to the Company when the
original liability was recorded.
NOTE 4: SUBSEQUENT EVENT
On May 4, 1997, the Company and Quaker Holding Co. ("Quaker") an affiliate
of DLJ Merchant Banking Partners II, L.P. and affiliated funds and other
entities, entered into a definitive Agreement and Plan of Merger (the "Merger
Agreement"). Under the terms of the Merger Agreement, Quaker will merge with
and into the Company, and, subject to the following sentence, the holders of
each share of the Company's common stock can elect to receive $23 in cash for
such share or to retain such share in the merged Company. In any event,
holders will be required to retain 5.3% of the Company's common stock
outstanding immediately prior to the merger. In addition, the Company and
Quaker entered into a voting agreement with certain partnerships affiliated
with Welsh, Carson, Anderson & Stowe and J.H. Whitney & Co., pursuant to
which these partnerships, subject to certain conditions, have agreed to vote
in favor of the merger 8,345,349 of the 14,837,501 shares of Company common
stock owned by them, exclusive of warrants to purchase 468,750 shares of
common stock at $0.10 per share. The 8,345,349 shares represent approximately
30% of the Company's common stock outstanding on April 21, 1997.
The proposed merger, which will be recorded as a recapitalization for
accounting purposes, is subject to a number of conditions, including
regulatory approvals and approval by Company stockholders. The transaction is
estimated to have an aggregate value of approximately $957,000, including
refinancing of the Company's existing revolving credit facility. The Company
expects the merger to close by September, 1997.
As a result of the proposed merger, the Company and Quaker will incur
various costs, currently estimated to range between $95,000 and $105,000, on
a pretax basis, in connection with consummating the transaction. These costs
consist primarily of professional fees, registration costs, compensation
costs and other expenses. Although the exact timing, nature and amount of
these merger transaction costs are subject to change, the Company expects
that a one-time pre-tax charge for these costs of approximately $76 million
($69 million after tax) will be recorded in the quarter during which the
merger is consummated.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder
of DecisionOne Corporation (formerly Bell Atlantic Business Systems Services,
Inc.):
We have audited the accompanying consolidated balance sheets of
DecisionOne Corporation (formerly, Bell Atlantic Business Systems Services,
Inc.) and subsidiary (the "Company") as of December 31, 1994 and October 20,
1995, and the related consolidated statements of operations, stockholder's
equity and of cash flows for the years ended December 31, 1993 and 1994 and
the period from January 1, 1995 to October 20, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DecisionOne Corporation and
subsidiary as of December 31, 1994 and October 20, 1995, and the results of
their operations and their cash flows for the years ended December 31, 1993
and 1994 and the period from January 1, 1995 to October 20, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postemployment
benefits as of January 1, 1993.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December 29, 1995
F-27
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC BUSINESS
SYSTEMS SERVICES, INC.) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents.................................... $ 6,456 --
Accounts receivable, net.................................... 50,743 66,426
Inventories, net............................................ 28,620 24,371
Deferred tax asset--current................................. 6,910 --
Prepaid expenses and other assets........................... 2,754 2,990
-------------- -------------
Total current assets...................................... 95,483 93,787
Repairable parts, net........................................ 91,012 91,486
Property and equipment, net.................................. 24,925 28,352
Intangibles, net............................................. 52,345 50,747
Deferred tax asset, net...................................... 12,814 1,062
Other assets................................................. 1,005 499
-------------- -------------
Total assets................................................. $ 277,584 $ 265,933
============== =============
Liabilities and Stockholder's Equity
Current Liabilities:
Accounts payable............................................ $ 24,767 $ 26,260
Accrued expenses............................................ 20,160 18,384
Deferred revenues........................................... 14,582 29,231
Current capitalized lease obligations....................... 1,627 1,525
Income taxes payable........................................ 1,548 --
Due to Bell Atlantic affiliates............................. 39,579 --
-------------- -------------
Total current liabilities................................. 102,263 75,400
Noncurrent capitalized lease obligations..................... 3,128 1,880
Due to Bell Atlantic affiliates.............................. 773 862
Other liabilities............................................ 23,377 1,293
Commitments and contingent liabilities
Stockholder's equity:
Common stock, no par value; one share authorized, issued
and outstanding in 1994 and 1995........................... -- --
Additional paid-in capital.................................. 276,619 314,262
Accumulated deficit......................................... (127,730) (127,134)
Foreign currency translation adjustment..................... (846) (630)
-------------- -------------
Total stockholder's equity................................ 148,043 186,498
-------------- -------------
Total liabilities and stockholder's equity................... $ 277,584 $ 265,933
============== =============
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED DECEMBER 31, JANUARY 1 TO
----------------------- OCTOBER 20,
1993 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
Revenues:
Service................................................... $375,977 $457,675 $388,203
Other..................................................... 27,405 28,418 24,283
---------- ---------- --------------
403,382 486,093 412,486
---------- ---------- --------------
Cost of revenues:
Service................................................... 304,334 369,596 316,964
Other..................................................... 21,856 21,281 20,348
---------- ---------- --------------
326,190 390,877 337,312
---------- ---------- --------------
Gross profit............................................... 77,192 95,216 75,174
Operating expenses:
Selling, general and administrative expenses.............. 71,096 74,627 69,980
Amortization of intangibles............................... 4,383 3,884 1,652
---------- ---------- --------------
Operating income........................................... 1,713 16,705 3,542
Interest expense........................................... (3,341) (2,203) (1,855)
Interest income............................................ 206 54 218
---------- ---------- --------------
Income (loss) before income taxes and cumulative effect of
accounting change......................................... (1,422) 14,556 1,905
Provision for income taxes................................. 132 6,595 1,309
---------- ---------- --------------
Income (loss) before cumulative effect of accounting
change.................................................... (1,554) 7,961 596
Cumulative effect of accounting change..................... 1,881
---------- ---------- --------------
Net income.............................................. $ 327 $ 7,961 $ 596
========== ========== ==============
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(in thousands, except number of shares)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK FOREIGN
----------------- ADDITIONAL CURRENCY TOTAL
NUMBER OF PAID-IN ACCUMULATED TRANSLATION STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
--------- ------ --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 ... 1 $0 $295,419 $(136,018) $(312) $159,089
Net income ............... 327 327
Foreign currency
translation adjustment .. (215) (215)
Distributions to BAC ..... (1,900) (1,900)
----------- -------- ------------ ------------- ------------- ---------------
Balance, December 31, 1993 . 1 0 293,519 (135,691) (527) 157,301
Net income ............... 7,961 7,961
Foreign currency
translation adjustment .. (319) (319)
Distributions to BAC ..... (16,900) (16,900)
----------- -------- ------------ ------------- ------------- ---------------
Balance, December 31, 1994 . 1 0 276,619 (127,730) (846) 148,043
Net income ............... 596 596
Foreign currency
translation adjustment .. 216 216
Distributions to BAC ..... (800) (800)
Contributed capital ...... 38,443 38,443
----------- -------- ------------ ------------- ------------- ---------------
Balance, October 20, 1995 .. 1 $0 $314,262 $(127,134) $(630) $186,498
=========== ======== ============ ============= ============= ===============
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED PERIOD
DECEMBER 31, JANUARY 1,
-------------------- TO OCTOBER 20,
1993 1994 1995
-------- --------- --------------
<S> <C> <C> <C>
Operating activities:
Net income ............................................... $ 327 $ 7,961 $ 596
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and
equipment............................................ 7,572 8,499 7,171
Amortization of intangibles........................... 4,383 3,884 1,652
Amortization of repairable parts...................... 43,443 43,450 28,767
Loss on fixed asset retirements ...................... 259 215 165
Provision for accounts receivable .................... 1,213 810 810
Provision for inventory obsolescence ................. 5,351 4,802 6,365
Changes in operating assets and liabilities, net of
effects from contributed capital, which provided
(used) cash:
Accounts receivable ............................. (9,448) (7,660) (18,305)
Inventories ..................................... (4,321) (3,800) (2,116)
Accounts payable ................................ 5,673 7,755 1,493
Accrued expenses ................................ 3,734 3,391 2,953
Deferred revenues ............................... 5,154 (757) 14,649
Net changes in income taxes, deferred taxes,
other assets and liabilities ................... (2,865) (189) 4,415
---------- ---------- --------------
Net cash provided by operating activities ....... 60,475 68,361 48,615
---------- ---------- --------------
Investing activities:
Capital expenditures ..................................... (8,336) (9,585) (10,763)
Repairable parts purchases ............................... (29,833) (45,907) (29,241)
Proceeds from sale of fixed assets ....................... 124 -- --
---------- ---------- --------------
Net cash used in investing activities ........... (38,045) (55,492) (40,004)
---------- ---------- --------------
Financing activities:
Distributions to shareholder ............................. (1,900) (16,900) (3,475)
Net borrowings (repayments) on affiliated debt ........... (19,029) 7,544 (10,242)
Additions to capital lease obligations ................... 1,825 2,283
Payments on capital lease obligations .................... (1,309) (1,357) (1,350)
---------- ---------- --------------
Net cash used in financing activities ........... (20,413) (8,430) (15,067)
---------- ---------- --------------
Net increase (decrease) in cash and cash equivalents ....... 2,017 4,439 (6,456)
Cash and cash equivalents, beginning of year ................ -- 2,017 6,456
---------- ---------- --------------
Cash and cash equivalents, end of year ...................... $ 2,017 $ 6,456 --
========== ========== ==============
Supplemental disclosures of cash flow information:
Net cash paid during the year for:
Interest ............................................... $ 3,409 $ 2,307 $ 1,986
Income taxes ........................................... 1,598 8,366 5,237
Noncash investing and financing activities:
Assets and liabilities contributed to capital by
stockholder:
Accounts receivable .................................... $ 1,812
Accounts payable ....................................... (4,729)
Notes payable .......................................... (29,248)
Income tax payable ..................................... 1,675
Deferred taxes ......................................... 17,079
Employee related liabilities ........................... (27,707)
--------------
$(41,118)
==============
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(IN THOUSANDS)
1. NATURE OF BUSINESS
The consolidated financial statements include the accounts of DecisionOne
Corporation (formerly, Bell Atlantic Business Systems Services, Inc.
("BABSS")) and its wholly-owned subsidiary, Sorbus Canada Ltd. (the
"Company"). Prior to the acquisition discussed below, BABSS had been wholly
owned by Bell Atlantic Business Systems, Inc., a subsidiary of Bell Atlantic
Enterprises International, Inc., and, ultimately by Bell Atlantic Corporation
("BAC"). The Company is a provider of multivendor computer maintenance
service and technology support services.
On September 19, 1995, BAC entered into a stock purchase agreement (the
"Agreement") to sell all of the outstanding common stock of BABSS to Decision
Servcom, Inc. ("Operating Co."), an independent provider of computer
maintenance services in the mid-range computer market, for a cash purchase
price of approximately $250,000. In connection with the acquisition, the
Company's name was changed from BABSS to DecisionOne Corporation, and
Operating Co. was merged into it.
The Company's wholly-owned international subsidiary is not significant to
the Company's financial statements.
2. BASIS OF PRESENTATION
The Company was acquired effective October 20, 1995, through a transaction
accounted for using the purchase method of accounting. The accounts of the
Company do not reflect the allocation of the purchase price.
BAC's retention of certain of the Company's liabilities, and net of
certain assets (including cash and cash equivalents), has been accounted for
as a contribution of capital in the Company's accompanying consolidated
statements of stockholder's equity for the period ended October 20, 1995. See
Note 4.
Obligations arising out of employee benefit and pension plans accrued
prior to October 20, 1995, as well as certain claims and causes of action
related to the Company's actions or omissions that occurred prior to October
20, 1995 have been retained by BAC. Therefore, no accruals for the
aforementioned have been made in the Company's accompanying consolidated
balance sheet as of October 20, 1995.
3. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION -- The consolidated financial statements include the
accounts of BABSS and its wholly owned subsidiary. All intercompany balances
and transactions have been eliminated in consolidation.
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.
INVENTORIES -- Inventories are stated at the lower of cost or market, cost
being determined using the weighted average method. Inventories consist of
consumable replacement parts which are charged to operations when used.
Inventories are stated net of a provision for obsolescence of $21,718,
$22,742 and $23,852 at December 31, 1993 and 1994 and October 20, 1995,
respectively.
REPAIRABLE PARTS -- Repairable parts are required in order to meet the
requirements of the contracts with the Company's maintenance customers. These
parts are primarily purchased from equipment manufacturers or other third
parties. As these parts are purchased, they are capitalized at cost and
amortized using the straight-line method over five years, the estimated
useful life of these repairable parts.
F-32
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(IN THOUSANDS)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
When a repairable part is used in providing maintenance services to a
customer's equipment, the defective part taken from the equipment is
exchanged for the repairable part taken from the Company's inventory.
Repairable parts are repaired by the Company based upon anticipated need and
generally have an economic life that extends beyond the normal life cycle of
the applicable product. Costs of refurbishing parts are charged to operations
as incurred. Repairable parts are stated at cost, less accumulated
amortization of $68,803 and $74,411 as of December 31, 1994 and October 20,
1995, respectively. Repairable parts amortization expense for the years ended
December 31, 1993 and 1994 and the period ended October 20, 1995 was $43,443,
$43,450 and $28,767, respectively.
No such impairment writedowns were required in the years ended December
31, 1993, or 1994, or in the period ended October 20, 1995.
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; renewals and betterments are capitalized. 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.
INTANGIBLE ASSETS -- Intangible assets are comprised of excess purchase
price over net assets acquired ("goodwill") and the fair value of acquired
customer contracts.
Goodwill is being amortized on a straight-line basis over a life of 25 to
40 years. Other intangibles are being amortized on a straight-line basis,
with lives between 2 to 18 years.
CARRYING VALUE OF LONG-TERM ASSETS -- The Company evaluates the carrying
value of long-term assets, property and equipment, repairable parts and
intangible assets, based upon current and anticipated undiscounted cash
flows, and recognizes an impairment when such estimated cash flows will be
less than the carrying value of the asset. Measurement of the amount of
impairment, if any, is based upon the difference between carrying value and
fair value.
SERVICE REVENUE -- The Company enters into maintenance contracts whereby
it services various manufacturers' equipment. Revenues from these contracts
are recorded as deferred revenues and are recognized ratably over the term of
the contract. Revenues derived from the maintenance of equipment not under
contract are recognized as the service is performed.
FOREIGN CURRENCY TRANSLATION -- Gains and losses resulting from foreign
currency translation are accumulated in a separate component of shareholder's
equity titled, "Cumulative Foreign Currency Translation Adjustment". Gains
and losses resulting from foreign currency transactions are not significant
and 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.
INCOME TAXES -- The Company is included in the consolidated federal tax
return of BAC. Calculation of the Company's income taxes on a separate return
basis would not result in any change to the amounts reflected in the
consolidated financial statements. Effective January 1, 1993, the Company
changed its policy of accounting for income taxes to conform to Statement of
Financial Accounting Standards
F-33
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(IN THOUSANDS)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
("SFAS") No. 109, Accounting for Income Taxes. The Company previously
followed Accounting Principles Board Opinion No. 11, "Accounting for Income
Taxes." SFAS No. 109 requires, among other things, the accrual of deferred
tax liabilities for future taxable amounts, deferred tax assets for future
deductions and operating loss carryforwards, and a valuation allowance to
reduce deferred tax assets to the amounts that are more likely than not to be
realized. The cumulative effect of adopting SFAS No. 109 as of January 1,
1993 resulted in a non-cash increase to net income of $1,881 for the initial
adjustment of deferred tax balances to reflect the tax rates in effect at
adoption.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The following disclosure of the
estimated fair value of financial instruments was 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.
NOTES PAYABLE -- Rates currently available to the Company for debt with
similar terms and remaining maturities are used to estimate the fair value
for debt issues, 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 could differ from those
estimates.
PENSION PLAN -- Substantially all of the Company's employees participated
in a noncontributory defined benefit pension plan sponsored by BAC for the
years ended December 31, 1993 and 1994 and for the period ended October 20,
1995. Amounts contributed by the Company to the pension plan were determined
by BAC based principally on the aggregate cost actuarial method, and are
subject to applicable federal income tax regulations. The obligation of the
pension plan which has been terminated as of October 20, 1995, will be
assumed by BAC.
POSTEMPLOYMENT BENEFITS -- Effective January 1, 1993, the Company adopted
the provisions of SFAS No. 112, Employers' Accounting for Postemployment
Benefits. SFAS No. 112 establishes accrual accounting standards for
employer-provided benefits which cover former or inactive employees after
employment, but before retirement. The adoption of SFAS No. 112 on January 1,
1993 did not have a material effect on the Company's consolidated financial
position or results of operations.
The Company's employees, if eligible, are provided post employment
benefits under plans administered by BAC for the years ended December 31,
1993 and 1994 and for the period ended October 20, 1995. Amounts contributed
by the Company to the benefit plans were determined by BAC based on an
actuarial methodology. BAC has assumed all such liabilities accrued as of
October 20, 1995.
4. CONTRIBUTED CAPITAL
Effective October 20, 1995, in accordance with the Agreement between BAC
and Operating Co., the Company accounted for BAC's retention of liabilities,
net of certain assets, as a contribution of capital.
F-34
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(IN THOUSANDS)
4. CONTRIBUTED CAPITAL (CONTINUED)
Amounts contributed to capital were as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash .................................. $ (2,675)
Accounts receivable.................... (1,812)
Accounts payable and accrued expenses 4,729
Income taxes payable................... (1,675)
Notes payable to affiliates............ 29,248
Deferred taxes......................... (17,079)
Employee related liabilities........... 27,707
----------
Net amount contributed to capital ..... $ 38,443
==========
</TABLE>
5. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Trade receivables......................... $51,513 $68,136
Due from affiliates....................... 1,655 1,362
Other..................................... 847 697
-------------- -------------
54,015 70,195
Less allowance for uncollectible
accounts................................. (3,272) (3,769)
-------------- -------------
$50,743 $66,426
============== =============
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Land and buildings........................ $ 2,419 $ 2,509
Equipment, furniture and fixtures ........ 48,008 54,722
Leasehold improvements.................... 3,964 4,721
Other..................................... 11,461 10,854
-------------- -------------
65,852 72,806
Accumulated depreciation and
amortization............................. (40,927) (44,454)
-------------- -------------
$ 24,925 $ 28,352
============== =============
</TABLE>
The principal lives (in years) used in determining depreciation rates of
various assets are: buildings (40); computers and equipment (5); furniture
and fixtures (10); office machines (10); and leasehold improvements (term of
related leases).
Depreciation expense was $7,572 and $8,499, for the years ended December
31, 1993 and 1994, respectively, and $7,171 for the period ended October 20,
1995.
F-35
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(IN THOUSANDS)
7. INTANGIBLES
Intangibles consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Customer contracts....... $ 8,500 $ 8,500
Goodwill................. 59,141 59,214
-------------- -------------
67,641 67,714
Accumulated
amortization............ (15,296) (16,967)
-------------- -------------
$ 52,345 $ 50,747
============== =============
</TABLE>
The Company periodically evaluates the fair value of goodwill and other
intangible assets and recognizes an impairment when it is probable that
estimated future undiscounted cash flows will be less than the carrying value
of the asset. No writedowns of goodwill or other intangible assets were made
in 1993, 1994 or 1995.
Amortization expense relating to intangibles was approximately $4,383 and
$3,884 for the years ended December 31, 1993 and 1994, respectively, and
$1,652 for the period ended October 20, 1995.
8. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Compensation and
benefits................. $ 6,642 $ 7,272
Bonuses................... 5,109 2,790
Other accrued expenses ... 8,409 8,322
-------------- -------------
$20,160 $18,384
============== =============
</TABLE>
9. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
PERIOD
YEARS ENDED JANUARY 1
DECEMBER 31, TO
----------------- OCTOBER 20,
1993 1994 1995
------ ------ -----------
<S> <C> <C> <C>
Continuing operations:
Current:
Federal..................................... $ 2,820 $ 7,243 $ 390
State....................................... 126 727 (110)
Foreign..................................... 552 1,026 653
--------- --------- -------------
3,498 8,996 933
--------- --------- -------------
Deferred:
Federal..................................... (3,119) (2,078) 707
State....................................... (7) 1,455 225
Foreign..................................... (240) (323) (331)
--------- --------- -------------
(3,366) (946) 601
--------- --------- -------------
Benefit of net operating loss carryforwards:
State....................................... -- (1,455) (225)
--------- --------- -------------
Provision for income taxes (benefit) ......... $ 132 $ 6,595 $1,309
========= ========= =============
</TABLE>
F-36
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(IN THOUSANDS)
9. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax asset were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Deferred tax assets (liabilities):
Current:
Accounts receivable ............... $ 1,934 --
Inventory ......................... 5,186 --
Accrued expenses ................... (489) --
Other .............................. 279 --
Deferred state taxes ............... 1,395 --
--------------
Gross deferred tax asset--current . 8,305 --
Less valuation allowance............... (1,395) --
--------------
Net deferred tax assets--current .. 6,910 --
--------------
Non-current:
Property and equipment ........... 2,646 1,062
Repairable parts ................... 2,211 --
Employee benefits ................. 8,100 --
Deferred state taxes .............. 1,777 --
Other ............................. (143) --
State net operating loss
carryforwards ................... 5,163 --
-------------- -------------
Gross deferred tax
asset--noncurrent ............... 19,754 1,062
Less valuation allowance............... (6,940) --
-------------- -------------
Net deferred tax asset--noncurrent 12,814 1,062
-------------- -------------
Net deferred tax asset................. $19,724 $1,062
============== =============
</TABLE>
The net deferred tax asset as of December 31, 1994 in essence represents
an intercompany receivable from BAC, resulting from the future benefit of the
inclusion of the Company's temporary differences in the consolidated U.S.
federal tax return of BAC.
The October 20, 1995 deferred tax asset related to foreign operations.
A reconciliation between the provision (benefit) for income taxes,
computed by applying the statutory income tax rate to income before income
taxes, and the actual provision for income taxes follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- ------- -------
<S> <C> <C> <C>
Federal income tax provision (benefit) at statutory tax
rate....................................................... (35.0)% 35.0% 35.0%
State income taxes, net of federal income tax benefit ..... 5.4 3.2 (3.7)
Foreign income tax rate differential ....................... 5.1 1.2 6.6
Nondeductible expenses ..................................... 6.8 1.8 9.7
Amortization of goodwill.................................... 33.8 4.1 21.7
Other ...................................................... (6.9) -- (0.6)
--------- ------- -------
Actual income tax provision effective tax rate ............. 9.2% 45.3% 68.7%
========= ======= =======
</TABLE>
F-37
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(IN THOUSANDS)
10. LEASE COMMITMENTS
The Company leases certain computer equipment under noncancellable capital
leases. 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 at various dates during
the next six years.
Future minimum payments under noncancellable capital leases and operating
leases as of October 20, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
October 21, 1995 to December 31, 1995 .. $ 364 $ 3,639
1996.................................... 1,669 15,308
1997.................................... 1,261 13,456
1998.................................... 400 10,885
1999.................................... 58 8,343
2000.................................... 55 4,588
Thereafter.............................. -- 11
--------- -----------
Total minimum lease payments............ 3,807 $56,230
Less amount representing interest ...... 402
---------
Present value of minimum lease
payments............................... 3,405
Less current obligations................ 1,525
---------
Noncurrent obligations.................. $1,880
=========
</TABLE>
Rental expense for operating leases was $12,609 and $14,145 for the years
ended December 31, 1993 and 1994 and $12,749 for the period ended October 20,
1995.
11. BENEFIT PLANS
Substantially all of the Company's employees were covered under a
noncontributory pension benefit plan sponsored by BAC, which plan was
terminated on October 20, 1995 (see Note 3). The pension benefit formula used
in the determination of pension cost is based on the greater of a flat dollar
amount per year of service or a stated percentage of adjusted career average
income. BAC's objective in funding the plan is to accumulate funds at a
relatively stable rate over participants' working lives so that benefits are
fully funded at retirement. Plan assets consist principally of investments in
corporate equity securities, U.S. Government and corporate debt securities
and real estate.
SFAS No. 87 requires a comparison of the actuarial present value of
projected benefit obligations with the fair value of plan assets, the
disclosure of the components of net periodic pension costs and a
reconciliation of the funded status of the plan with amounts recorded on the
balance sheet. Such disclosures are not presented for the Company because the
structure of the plan does not allow for determination of this information on
an individual company basis.
F-38
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(IN THOUSANDS)
11. BENEFIT PLANS (CONTINUED)
The Company recognized pension expense of $3,243 and $4,202 for the years
ended December 31, 1993 and 1994 and $4,846 for the period ended October 20,
1995.
The assumptions used in the actuarial computations by BAC for
determination of the above pension expense were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Discount rate ................................... 7.25% 8.25% 7.25%
Expected long-term rate of return on plan
assets.......................................... 8.25 8.25 8.25
Future compensation growth rate ................. 5.25 5.25 4.75
</TABLE>
Substantially all of the Company's employees participate in a savings plan
provided by BAC which provides opportunities for eligible employees to save
for retirement on a tax deferred basis. The Company recognized contribution
expense of $1,482 and $1,531 for the years ended December 31, 1993 and 1994
and $1,602 for the period ended October 20, 1995.
Under the Agreement, Operating Co. assumed no liabilities of the Company
relating to employee benefit programs.
12. OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Other postemployment benefit liabilities $19,120 $ --
Accrued pension cost ..................... 3,220 --
Other noncurrent liabilities ............. 1,037 1,293
-------------- -------------
$23,377 $1,293
============== =============
</TABLE>
Effective October 20, 1995, employee related liabilities (including other
postemployment benefit liabilities and accrued pension costs) were
contributed to capital by BAC. (see Note 4).
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a defendant in a number of lawsuits in the ordinary course
of business, including actions alleging wrongful termination of employment
and breach of contract. In several of the alleged wrongful termination cases,
the plaintiffs are seeking punitive damages. The Company believes it has
meritorious defenses to all of the claims and is vigorously defending the
lawsuits. Although the ultimate outcome of these lawsuits cannot be predicted
with certainty, the Company's management, after consultation with legal
counsel, does not expect that such lawsuits will have a material adverse
effect on the Company's financial condition, results of operation or
liquidity.
F-39
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(IN THOUSANDS)
14. RELATED PARTY TRANSACTIONS
The Company engages in various activities with Bell Atlantic affiliated
companies. Amounts due from the affiliated companies consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Bell Atlantic Network Services, Inc. $ 797 $ 806
Bell Atlantic Network Integration ... 252 281
New Jersey Bell ...................... 65 70
Bell of Pennsylvania ................. 35 62
C&P Telephone Company--Maryland ..... 96 35
Other ................................ 410 108
-------------- -------------
Total due from affiliates .......... $1,655 $1,362
============== =============
</TABLE>
Amounts due to the affiliated companies consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Bell Atlantic Enterprises International ...... $ 3,856 $ 309
Bell Atlantic Professional Services........... 110 297
Bell Atlantic Customer Services
International................................ 239
Other......................................... 340 159
-------------- -------------
Total accounts payable affiliates........... 4,545 765
-------------- -------------
Notes payable--FSI............................ 39,579
Notes payable--BAP............................ 773 862
-------------- -------------
Total notes payable affiliates.............. 40,352 862
-------------- -------------
Total due to affiliates..................... $44,897 $1,627
============== =============
</TABLE>
The Company engages in various activities with affiliated companies. The
amount due to Bell Atlantic Financial Services, Inc. ("FSI") at December 31,
1994 is represented by a promissory note for the aggregate unpaid principal
balance plus interest on demand. The interest rates charged are based on the
weighted average cost of FSI's outstanding borrowings during the month. The
weighted average interest rate for 1994 and 1995 was approximately 5.8%.
The amount due to Bell Atlantic Properties ("BAP") is also represented by
a promissory note for the aggregate unpaid principal balance plus interest.
Interest is payable monthly on the unpaid principal at the rate of 9.88% per
annum.
Effective October 20, 1995, notes payable excluding interest of $29,248
due to FSI, and $4,650 of accounts payable due to affiliates were contributed
to capital by BAC. See Note 4.
F-40
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(IN THOUSANDS)
14. RELATED PARTY TRANSACTIONS (CONTINUED)
Transactions with affiliated companies had the following impact on the
results of operations:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1 TO
YEARS ENDED OCTOBER 20,
DECEMBER 31, 1993 1995
------------------- --------------
1993 1994 1995
--------- --------- --------------
<S> <C> <C> <C>
Revenues....................................... $17,347 $13,971 $10,270
--------- --------- --------------
Total operating and other expenses:
Rent expense ................................ $ 5,329 $ 3,176 $ 2,626
Other service and general and administrative
expenses.................................... 11,957 14,191 8,153
Interest expense............................. 3,035 1,823 1,512
--------- --------- --------------
$20,321 $19,190 $12,291
========= ========= ==============
</TABLE>
F-41
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information.................... 2
Prospectus Summary....................... 3
Risk Factors............................. 17
The Merger and Merger Financing.......... 26
Use of Proceeds.......................... 29
Capitalization........................... 30
Unaudited Condensed Consolidated Pro
Forma Financial Data.................... 31
Selected Consolidated Financial Data .... 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 43
Business................................. 53
Management............................... 63
Executive Compensation................... 65
Security Ownership of Certain Beneficial
Owners and Management of Holdings ...... 68
Certain Relationships and Related
Transactions............................ 71
Description of New Credit Facility ...... 72
Description of the Senior Subordinated
Notes................................... 74
Underwriting............................. 105
Legal Matters............................ 106
Experts.................................. 106
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
Until , 1997 (90 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
$150,000,000
[DECISIONONE CORPORATION LOGO]
DECISIONONE CORPORATION
% SENIOR SUBORDINATED
NOTES DUE 2007
---------
PROSPECTUS
---------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1997
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 30, 1997
PROSPECTUS
, 1997
$150,000,000
[DECISIONONE CORPORATION LOGO]
DECISIONONE CORPORATION
% SENIOR SUBORDINATED NOTES DUE 2007
The % Senior Subordinated Notes due 2007 (the "Senior Subordinated
Notes") offered hereby (the "Offering") by DecisionOne Corporation, a
Delaware corporation (the "Issuer") were originally issued by the Issuer as
part of the Merger Financing (as defined herein) in connection with the
Merger (as defined herein) of the Issuer's parent, DecisionOne Holdings Corp.
("Holdings") with Quaker Holding Co. ("Quaker"). See "The Merger and Merger
Financing." Quaker was organized by DLJ Merchant Banking Partners II, L.P.
("DLJMB") and affiliated funds and entities for the purpose of effecting the
Merger and Merger Financing.
The Senior Subordinated Notes will mature on , 2007. Interest on
the Senior Subordinated Notes will be payable semi-annually on and
of each year, commencing on , 1997. The Senior Subordinated
Notes will be redeemable at the option of the Issuer, in whole or in part, at
any time on or after , 2002, in cash at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, thereon to the redemption
date. In addition, at any time prior to , 2000, the Issuer may, at its
option, on any one or more occasions, redeem up to 35% of the aggregate
principal amount of the Senior Subordinated Notes originally issued at a
redemption price equal to % of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the redemption date,
with the net cash proceeds of one or more Equity Offerings (as defined
herein) by (i) the Issuer or (ii) Holdings to the extent the net cash
proceeds thereof are contributed to the Issuer, as a capital contribution to
the common equity of such Holder's Issuer; provided that at least 65% of the
original aggregate principal amount of the Senior Subordinated Notes will
remain outstanding immediately following each such redemption. Upon the
occurrence of a Change of Control (as defined herein), each Holder of Senior
Subordinated Notes will have the right to require the Issuer to repurchase
such Holder's Senior Subordinated Notes at a price in cash equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the date of repurchase. See "Description of the Senior
Subordinated Notes."
The Senior Subordinated Notes will be general unsecured obligations of the
Issuer and will be subordinated in right of payment to all existing and
future Senior Debt (as defined herein) of the Issuer, including indebtedness
pursuant to the New Credit Facility (as defined herein). The Senior
Subordinated Notes will rank pari passu with any future senior subordinated
indebtedness of the Issuer and will rank senior to all Subordinated
Indebtedness (as defined herein) of the Issuer. The Senior Subordinated Notes
will be effectively subordinated to all liabilities of the Company's
subsidiaries that do not guarantee the Senior Subordinated Notes as set forth
herein. See "Description of Senior Subordinated Notes--Certain
Covenants--Subsidiary Guarantees." On the date of the Senior Subordinated
Note Indenture (as defined herein), none of the Company's subsidiaries will
guarantee the Senior Subordinated Notes. On a pro forma basis after giving
effect to the Merger, including the Merger Financing and the application of
the proceeds thereof, as of March 31, 1997, the Issuer would have had
outstanding approximately $503.0 million of Senior Debt and the Issuer's
subsidiaries would have had approximately $10.9 million of outstanding
liabilities (as defined herein), including trade payables.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE SENIOR
SUBORDINATED NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
This Prospectus has been prepared for use by Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC") in connection with offers and sales of the
Senior Subordinated Notes which may be made by it from time to time in
market-making transactions at negotiated prices relating to prevailing market
prices at the time of sale. There is currently no public market for the
Senior Subordinated Notes. The Company has been advised by DLJSC that it
intends to make a market for the Senior Subordinated Notes, however, DLJSC is
not obligated to do so. Any market-making may be discontinued at any time,
and there is no assurance that an active public market for the Senior
Subordinated Notes will develop or, that if such market develops, that it
will continue. DLJSC may act as principal agent in any such transaction. See
"Plan of Distribution."
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
[ALTERNATE]
TRADING MARKET FOR THE NOTES
The Senior Subordinated Notes are not listed for trading on any securities
exchange or on any automated dealer quotation system. The Company has been
advised by DLJSC that it intends to make a market in the Senior Subordinated
Notes; however, DLJSC is not obligated to do so. Any market-making may be
discontinued at any time, and there is no assurance that an active public
market for the Senior Subordinated Notes will develop or, that if such market
develops, that it will continue. Further, the liquidity of, and trading
market for the Senior Subordinated Notes may be adversely affected by
declines and volatility in the market for high yield securities generally.
The liquidity of and trading market for the Senior Subordinated Notes may be
adversely affected by any changes in the Company's financial performance or
prospects.
ALT-2
<PAGE>
[ALTERNATE]
USE OF PROCEEDS
The net proceeds to the Company from the Offering (after deducting
underwriting discounts and commissions and other expenses of the Offering)
were approximately $ million. Such net proceeds were used, together with
the initial borrowings under the New Credit Facility, the DLJMB Equity
Investment and the issuance of Debentures to finance the conversion into cash
of approximately 94.7% of the shares of Holdings Common Stock then
outstanding, to refinance the outstanding indebtedness of the Company under
the existing bank credit facility (approximately $239.9 million outstanding
at an interest rate of 6.44% as of March 31, 1997 and which matures April 26,
2001), fund payments of the Option Cash Proceeds and the Warrant Cash
Proceeds, and finance the expenses and fees incurred in connection with the
Merger. See "The Merger and Merger Financing." Approximately $299 million of
the proceeds to the Issuer from the initial borrowings under the New Credit
Facility and the Senior Subordinated Notes were dividended or loaned to
Holdings to fund a portion of the Cash Merger Consideration and fees and
expenses of Holdings in connection therewith.
The following table sets forth the estimated cash sources and uses of
funds as if the Merger and Merger Financing, including the application of the
net proceeds therefrom, occurred and were completed at the Effective Time.
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
TOTAL SOURCES:
New Credit Facility:
Revolving credit facility......................... $ 8.3
Term loans........................................ 470.0
Senior Subordinated Notes.......................... 150.0
Senior Discount Debentures and Warrants............ 85.0
Common stock and warrants purchased by DLJMB
Funds............................................. 225.0
-------------
Total cash sources............................... $938.3
=============
TOTAL USES:
Cash Merger Consideration ......................... $605.9
Option Cash Proceeds and Warrant Cash Proceeds ... 58.4
Repayment of existing revolving credit facility .. 221.2
Estimated transaction fees and expenses............ 52.8
-------------
Total cash uses.................................. $938.3
=============
</TABLE>
ALT-3
<PAGE>
[ALTERNATE]
PLAN OF DISTRIBUTION
This Prospectus has been prepared for use by DLJSC in connection with
offers and sales of the Senior Subordinated Notes in market-making
transactions at negotiated prices related to prevailing market prices at the
time of the sale. DLJSC may act as principal or agent in such transactions.
The Company has been advised by DLJSC that it intends to make a market in the
Senior Subordinated Notes; however, DLJSC is not obligated to do so. Any
market-making may be discontinued at any time, and there is no assurance that
an active public market for the Senior Subordinated Notes will develop or,
that if such market develops, that it will continue.
DLJSC served as the underwriter in the Offering and received total
underwriting discounts and commissions of $ in connection therewith.
DLJ Capital Funding, Inc., an affiliate of DLJSC, received customary fees
and reimbursement of expenses in connection with the arrangement and
syndication of the New Credit Facility and as a lender thereunder. DLJSC
received customary fees in connection with the underwriting of the Senior
Subordinated Notes and the Units. In addition, DLJSC received a merger
advisory fee of $5.0 million in cash from Quaker upon consummation of the
Merger. It is also expected that DLJSC will receive an annual fee from
Holdings for financial advisory services. See "Certain Relationships and
Related Transactions."
DLJMB and certain related entities, all of which are affiliates of DLJSC,
will own a significant amount of Holding Common Stock following the Merger.
In addition, Holdings, the DLJMB Funds and the members of management who
owned shares of Holdings Common Stock following the Merger (the "Management
Shareholders") are party to the Investors' Agreement. The Investors'
Agreement restricts transfer of the shares of Holdings Common Stock by the
Management Shareholders, permits the Management Shareholders to participate
in certain sales of shares of Holdings Common Stock by the DLJMB Funds,
requires the Management Shareholders to sell shares of Holdings Common Stock
in certain circumstances should the DLJMB Funds choose to sell any such
shares owned by the DLJMB Funds and provides for certain registration rights.
The Investors' Agreement also provides that the DLJMB Funds have the right to
appoint a majority of the members of the Board of Directors of Holdings.
ALT-4
<PAGE>
[ALTERNATE]
LEGAL MATTERS
The validity of the Senior Subordinated Notes offered hereby was passed
upon for the Company by Davis Polk & Wardwell.
ALT-5
<PAGE>
[ALTERNATE]
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, DLJSC OR ANY OTHER PERSON. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SENIOR
SUBORDINATED NOTES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information.................... 2
Prospectus Summary....................... 3
Risk Factors............................. 17
The Merger and Merger Financing.......... 26
Use of Proceeds.......................... 29
Capitalization........................... 30
Unaudited Condensed Consolidated Pro
Forma Financial Data.................... 31
Selected Consolidated Financial Data .... 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 43
Business................................. 53
Management............................... 63
Executive Compensation................... 65
Security Ownership of Certain Beneficial
Owners and Management of Holdings ...... 68
Certain Relationships and Related
Transactions............................ 71
Description of New Credit Facility ...... 72
Description of the Senior Subordinated
Notes................................... 74
Plan of Distribution..................... 105
Legal Matters............................ 106
Experts.................................. 106
Index to Consolidated Financial
Statements ............................. F-1
</TABLE>
$150,000,000
[DECISIONONE CORPORATION LOGO]
DECISIONONE CORPORATION
% SENIOR SUBORDINATED
NOTES DUE 2007
---------
PROSPECTUS
---------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the issuance and distribution of the
securities being registered hereby, other than underwriting discounts, are
estimated (except for the Securities and Exchange Commission ("SEC")
registration and National Association of Securities Dealers ("NASD") filing
fees, which are the actual amounts) as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee ................ $45,454.55
NASD filing fee ..................... 15,500.00
Blue Sky fees and expenses .......... 25,000.00
Accounting fees and expenses ....... 150,000.00
Legal fees and expenses ............. 150,000.00
Printing and engraving expenses .... 200,000.00
Trustee fees and expenses ........... 10,000.00
Miscellaneous ....................... 104,045.45
--------------
Total.............................. $700,000.00
==============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty,
except (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
the unlawful payment of dividends or unlawful stock purchases or redemptions)
or (iv) for any transaction from which a director derived an improper
personal benefit. Section 145 of the DGCL empowers the Company to indemnify,
subject to the standards set forth therein, any person in connection with any
action, suit or proceeding brought before or threatened by reason of the fact
that the person was a director, officer, employee or agent of such company,
or is or was serving as such with respect to another entity at the request of
such company. The DGCL also provides that the Company may purchase insurance
of behalf of any such director, officer, employee or agent.
The Company's Amended and Restated Certificate of Incorporation makes
mandatory indemnification expressly authorized under the DGCL for directors
of the Company. With respect to officers of the Company, the Company's
Amended and Restated Certificate of Incorporation provides indemnification to
such extent and to such effect as the Board of Directors shall determine to
be appropriate and authorized by Delaware law.
The Company's Amended and Restated Certificate of Incorporation and
By-laws are being amended to provide as set forth above, and will be filed by
amendment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -------------
<S> <C>
1.1* Form of Underwriting Agreement between Donaldson, Lufkin & Jenrette Securities Corporation,
Inc., and the Company with respect to the % Senior Subordinated Notes due 2007.
3.1* Amended and Restated Certificate of Incorporation of the Company, as amended.
3.2* Amended and Restated Bylaws of the Company.
4.1* Specimen of the Company's % Senior Subordinated Notes due 2007 (included in Exhibit 4.2).
II-1
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -------------
4.2 * Form of Senior Subordinated Note Indenture.
4.3 * Form of Credit Agreement dated as of , 1997 by and among the Company and DLJ Capital
Funding, Inc.
4.4 * Form of Qualified Independent Underwriter Agreement.
5.1 * Form of Opinion of Davis Polk & Wardwell.
10.1 Stock Option and Restricted Stock Purchase Plan, as amended and restated. (3)
10.2 Form of Incentive Stock Option Agreement. (1)
10.3 Incentive Stock Option Agreement, dated June 1, 1993, with Kenneth Draeger. (1)
10.4 Incentive Stock Option Agreement, dated August 1, 1993, with Kenneth Draeger. (1)
10.5 Incentive Stock Option Agreement, dated February 1, 1994, with Kenneth Draeger. (1)
10.6 Employment Agreement with Kenneth Draeger. (1)
10.7 Employment Letter with Stephen J. Felice. (1)
10.8 Lease for Frazer, Pennsylvania executive offices (East). (1)
10.9 Lease for Frazer, Pennsylvania executive offices (West). (1)
10.10 Lease for Malvern, Pennsylvania depot and call center. (1)
10.11 Lease for Bloomington, Minnesota call center. (2)
10.12 Lease for Hayward, California depot. (2)
10.13 Lease for Northborough, Massachusetts depot. (2)
10.14 Revolving Credit Agreement, dated as of April 26, 1996, among DecisionOne Holdings Corp.,
DecisionOne Corporation and The First National Bank of Boston et al. (3)
10.15 Employment Agreement with Thomas J. Fitzpatrick. (3)
10.16 Employment Letter with James J. Greenwell. (1)
10.17 Employment Letter with Joseph S. Giordano. (2)
10.18 Employment Agreement with Thomas M. Molchan. (4)
10.19 Employment Agreement with Dwight T. Wilson. (4)
10.20 Employment Letter with R. Peter Zimmermann. (1)
10.21* Form of Tax Sharing Agreement.
12.1 Statement Regarding Computation of Ratios. (5)
21.1 Subsidiaries of the Registrant. (5)
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1).
23.2 * Consent of Deloitte & Touche LLP.
23.3 * Consent of Peter T. Grauer
23.4 * Consent of Kirk B. Wortman
24.1 Power of Attorney. (5)
25.1 * Statement of the Eligibility of Trustee on Form T-1 (bound separately).
</TABLE>
- ------------
* Filed herewith.
(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.
(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 10-K filed by DecisionOne Holdings Corp.
with the Securities and Exchange Commission on September 30, 1996.
(4) Filed as an Exhibit to the 10-Q filed by DecisionOne Holdings Corp.
with the Securities and Exchange Commission on May 15, 1997.
(5) Previously filed as an Exhibit to the Registration Statement No.
333-28411 on Form S-1 filed with the Securities and Exchange
Commission on June 3, 1997.
(b) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules of DecisionOne Corporation and subsidiaries
as of June 30, 1994, 1995 and 1996, and March 31, 1997 (unaudited) and for
the years ended June 30, 1994, 1995 and 1996 and the nine months ended
March 31, 1997 (unaudited):
II-2
<PAGE>
I. Condensed Financial Information of Registrant
II.1 Valuation and Qualifying Accounts
Financial Statement Schedule of DecisionOne Corporation (formerly Bell
Atlantic Business Systems Services, Inc.) and subsidiary as of
December 31, 1993 and 1994 and October 20, 1995 and for the years
ended December 31, 1993 and 1994 and the period from January 1, 1995
to October 20, 1995:
II.2 Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the Offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Frazer, Pennsylvania on the 30th day of July, 1997.
DecisionOne Corporation
By: /s/ Kenneth Draeger
-------------------------------
Name: Kenneth Draeger
Title: Chairman, Chief
Executive Officer
and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ------
<S> <C> <C>
/s/ Kenneth Draeger
----------------------------- Chairman, Chief Executive Officer and Director July 30, 1997
Kenneth Draeger (Principal Executive Officer)
/s/ Thomas J. Fitzpatrick
----------------------------- Vice President and Chief Financial July 30, 1997
Thomas J. Fitzpatrick Officer (Principal Financial and
Accounting Officer)
II-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
DecisionOne Corporation:
We have audited the consolidated financial statements of DecisionOne
Corporation and subsidiaries as of June 30, 1995 and 1996, and for each of
the three years in the period ended June 30, 1996, and have issued our report
thereon dated May 30, 1997, (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule listed
in Item 16 of this Registration Statement. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
May 30, 1997
S-1
<PAGE>
SCHEDULE II.1
DECISIONONE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE OF CHARGES TO CHARGES TO BALANCE
BEGINNING OF CORP. AND OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------- -------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1994
Accounts receivable--
Allowance for uncollectible
accounts............................. $ 2,170 $ (162) $ (547) $ 1,461
Inventory--
Allowance for obsolescence .......... $ 6,196 $1,580 $ 594(b) $ 8,370
YEAR ENDED JUNE 30, 1995
Accounts receivable--
Allowance for uncollectible accounts $ 1,481 $1,930 $3,225(a) $ 6,616
Inventory--
Allowance for obsolescence........... $ 8,370 $1,995 $1,423(b) $11,788
YEAR ENDED JUNE 30, 1996
Accounts receivable--
Allowance for uncollectible accounts $ 6,616 $3,434 $ (470)(a) $ 9,580
Inventory--
Allowance for obsolescence .......... $11,788 $1,171 $1,450(b) $ (3,615) $14,794
NINE MONTH PERIOD ENDED
MARCH 31, 1997 (UNAUDITED)
Accounts receivable--
Allowance for doubtful accounts ..... $ 9,580 $2,726 $1,593(b) (2,172)(a) $11,727
Inventory--
Allowance for obsolescence........... $14,794 $2,088 $3,046 $19,928
</TABLE>
- ------------
(a) Amount represents net recoveries (writeoffs) during the year and
allowances recorded as a result of acquisitions during the year.
(b) Amount primarily represents allowance recorded as a result of
acquisitions during the year.
S-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
DecisionOne Corporation:
We have audited the consolidated financial statements of DecisionOne
Corporation (formerly Bell Atlantic Business Systems Services, Inc. (the
"Predecessor")) and subsidiary as of December 31, 1994 and October 20, 1995,
and for the years ended December 31, 1993 and 1994 and the period from
January 1, 1995 to October 20, 1995, and have issued our report thereon dated
December 29, 1995 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16 of
this Registration Statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December 29, 1995
S-3
<PAGE>
SCHEDULE II.2
DECISIONONE CORPORATION
(FORMERLY, BELL ATLANTIC BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGES TO CHARGES TO BALANCE
BEGINNING OF COSTS AND OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------- -------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Accounts receivable--
Allowance for uncollectible accounts $ 2,719 $1,213 $(1,074)(a) $ 2,858
Inventory--
Allowance of obsolescence ........... $21,040 $5,351 $(4,673)(b) $21,718
YEAR ENDED DECEMBER 31, 1994
Accounts receivable--
Allowance for uncollectible accounts $ 2,858 $ 810 $ (396)(a) $ 3,272
Inventory--
Allowance of obsolescence............ $21,718 $4,802 $(3,778)(b) $22,742
YEAR ENDED OCTOBER 20, 1995
Accounts receivable--
Allowance for uncollectible
accounts............................. $ 3,272 $ 810 $ (313)(a) $ 3,769
Inventory--
Allowance of obsolescence ........... $22,742 $6,365 $(5,255)(b) $23,852
</TABLE>
- ------------
(a) Amount primarily represents net write offs during the year.
(b) Amount primarily represents the writeoff of inventory during the
year.
S-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
----------- ------------- ----------------
<S> <C> <C>
1.1 * Form of Underwriting Agreement between Donaldson, Lufkin & Jenrette Securities
Corporation, Inc., and the Company with respect to the % Senior Subordinated
Notes due 2007.
3.1 * Amended and Restated Certificate of Incorporation of the Company, as amended.
3.2 * Amended and Restated Bylaws of the Company.
4.1 * Specimen of the Company's % Senior Subordinated Notes due 2007 (included in
Exhibit 4.2).
4.2 * Form of Senior Subordinated Note Indenture.
4.3 * Form of Credit Agreement dated as of , 1997 by and among the Company and DLJ
Capital Funding, Inc.
4.4 * Form of Qualified Independent Underwriter Agreement.
5.1 * Form of Opinion of Davis Polk & Wardwell.
10.1 Stock Option and Restricted Stock Purchase Plan, as amended and restated. (3)
10.2 Form of Incentive Stock Option Agreement. (1)
10.3 Incentive Stock Option Agreement, dated June 1, 1993, with Kenneth Draeger. (1)
10.4 Incentive Stock Option Agreement, dated August 1, 1993, with Kenneth Draeger.
(1)
10.5 Incentive Stock Option Agreement, dated February 1, 1994, with Kenneth Draeger.
(1)
10.6 Employment Agreement with Kenneth Draeger. (1)
10.7 Employment Letter with Stephen J. Felice. (1)
10.8 Lease for Frazer, Pennsylvania executive offices (East). (1)
10.9 Lease for Frazer, Pennsylvania executive offices (West). (1)
10.10 Lease for Malvern, Pennsylvania depot and call center. (1)
10.11 Lease for Bloomington, Minnesota call center. (2)
10.12 Lease for Hayward, California depot. (2)
10.13 Lease for Northborough, Massachusetts depot. (2)
10.14 Revolving Credit Agreement, dated as of April 26, 1996, among DecisionOne
Holdings Corp., DecisionOne Corporation and The First National Bank of Boston et
al. (3)
10.15 Employment Agreement with Thomas J. Fitzpatrick. (3)
10.16 Employment Letter with James J. Greenwell. (1)
10.17 Employment Letter with Joseph S. Giordano. (2)
10.18 Employment Agreement with Thomas M. Molchan. (4)
10.19 Employment Agreement with Dwight T. Wilson. (4)
10.20 Employment Letter with R. Peter Zimmermann. (1)
10.21* Form of Tax Sharing Agreement.
12.1 Statement Regarding Computation of Ratios. (5)
21.1 Subsidiaries of the Registrant. (5)
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1).
23.2 * Consent of Deloitte & Touche LLP.
23.3 * Consent of Peter T. Grauer
23.4 * Consent of Kirk B. Wortman.
24.1 Power of Attorney. (5)
25.1 * Statement of the Eligibility of Trustee on Form T-1 (bound separately).
</TABLE>
- ------------
* Filed herewith.
(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.
(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 10-K filed by DecisionOne Holdings Corp.
with the Securities and Exchange Commission on September 30, 1996.
(4) Filed as an Exhibit to the 10-Q filed by DecisionOne Holdings Corp.
with the Securities and Exchange Commission on May 15, 1997.
(5) Previously filed as an Exhibit to the Registration Statement No.
333-28411 on Form S-1 filed with the Securities and Exchange
Commission on June 3, 1997.
<PAGE>
L&W DRAFT 7/29/97
$150,000,000
DecisionOne Corporation
____% Senior Subordinated Notes due 2007
UNDERWRITING AGREEMENT
July 31, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
Dear Sirs:
DecisionOne Corporation, a Delaware corporation (the
"COMPANY"), proposes to issue and sell $150,000,000 principal amount of its
___% Senior Subordinated Notes due 2007 (the "NOTES") to Donaldson, Lufkin &
Jenrette Securities Corporation ("YOU" or the "UNDERWRITER"). The Notes are to
be issued pursuant to the provisions of an Indenture to be dated as of August
7, 1997 (the "INDENTURE") between the Company and State Street Bank and Trust
Company, as Trustee (the "TRUSTEE").
The Notes are being issued and sold in connection with the
merger of the Company's parent, DecisionOne Holdings Corp., a Delaware
corporation ("HOLDINGS"), with Quaker Holding Co., a Delaware corporation
("QUAKER"), pursuant to an Agreement and Plan of Merger (the "MERGER
AGREEMENT"), dated as of May 4, 1997. The Merger Agreement provides, among
other things, for the merger of Quaker with and into Holdings (the "MERGER").
In order to fund the payment of the cash portion of the
Merger Consideration (as defined in the Prospectus), the Option Cash Proceeds
(as defined in the Prospectus) and the Warrant Cash Proceeds (as defined in the
Prospectus), to refinance $____ million of outstanding indebtedness of the
Company (the "REFINANCING"), and to pay expenses incurred in connection with
the Merger, (i) the Company (A) is issuing the Notes and (B) will enter into a
syndicated senior secured loan facility (the "NEW CREDIT FACILITY") providing
for term loan borrowings in
<PAGE>
the aggregate principal amount of approximately $470 million and revolving loan
borrowings of approximately $105 million, (ii) Quaker will issue units (the
"UNITS"), each consisting of $1,000 principal amount at maturity of ___% Senior
Discount Debentures due 2008 (the "DEBENTURES") and warrants (the "WARRANTS")
to purchase common stock of Quaker for aggregate gross proceeds of $85 million
and (iii) the DLJMB Funds (as defined in the Prospectus) and the Institutional
Investors (as defined in the Prospectus) will purchase 9,782,508 shares of
common stock of Quaker and may acquire up to 1,417,180 DLJMB Warrants (as
defined in the Prospectus) for an aggregate of approximately [$225] million
(the "Equity Investment"). At the effective time of the Merger (the "EFFECTIVE
TIME"), the Company will borrow all term loans available under the New Credit
Facility and [$8.3 million] of revolving loans available thereunder.
Approximately $___ million of the proceeds of such borrowings and the proceeds
from the sale of Notes hereunder will be distributed to Holdings in the form of
a dividend and the remaining $____ million will be loaned to Holdings pursuant
to an intercompany note (the "INTERCOMPANY NOTE"). In addition, at the
Effective Time, each share of common stock of Quaker will become one share of
common stock of Holdings ("Holdings Common Stock"), each warrant to acquire
common stock of Quaker will by its terms become exercisable for an equal number
of shares of Holdings Common Stock and Holdings will assume and succeed to the
obligations of Quaker with respect to the Debentures, the Warrants and the
DLJMB Warrants.
SECTION 1. Registration Statement and Prospectus. The Company
has prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-1, including a
prospectus, relating to the Notes. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to
Rule 430A under the Act, is hereinafter referred to as the "REGISTRATION
STATEMENT;" and the prospectus in the form first used to confirm sales of the
Notes is hereinafter referred to as the "PROSPECTUS." If the Company has filed
or is required pursuant to the terms hereof to file a registration statement
pursuant to Rule 462(b) under the Act registering additional ___% Senior
Subordinated Notes due 2007 (a "RULE 462(B) REGISTRATION STATEMENT"), then,
unless otherwise specified, any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase. On the basis of
the representations and warranties contained in this Agreement, and subject to
its terms and conditions, the Company agrees to issue and sell, and the
Underwriter agrees to purchase from the Company all of the Notes at a price
equal to ___% of the principal amount thereof (the "PURCHASE PRICE") plus
accrued interest thereon, if any, from ______, 1997 to the date of payment and
delivery.
SECTION 3. Terms of Public Offering. The Company is advised
by you that you propose (1) to make a public offering of the Notes as soon
after the execution and delivery of this Agreement as in your judgment is
advisable and (2) initially to offer the Notes upon the terms set forth in the
Prospectus.
SECTION 4. Delivery and Payment. Delivery to the Underwriter
of and payment for the Notes shall be made at 10:00 A.M., New York City time,
on August 7, 1997 (the
<PAGE>
"CLOSING DATE") at such place as you shall designate. The Closing Date and the
location of delivery of and payment for the Notes may be varied by agreement
between you and the Company.
Certificates for the Notes shall be registered in such names
and issued in such denominations as you shall request in writing not later than
two full business days prior to the Closing Date. Such certificates shall be
made available to you for inspection not later than 9:30 A.M., New York City
time, on the business day prior to the Closing Date. Certificates in definitive
form evidencing the Notes will be delivered to you on the Closing Date with any
transfer taxes thereon duly paid by the Company, for your account, against
payment to the Company of the Purchase Price therefor by wire transfer of
Federal or other funds immediately available in New York City.
SECTION 5. Agreements of the Company. The Company agrees with
you:
(a) To advise you promptly and, if requested by you, to
confirm such advice in writing, (1) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to the
Prospectus or for additional information, (2) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
of the suspension of qualification of the Notes for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purposes, (3) when
any amendment to the Registration Statement becomes effective, (4) if the
Company is required to file a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, when the Rule 462(b) Registration Statement
has become effective and (5) of the happening of any event during the period
referred to in Section 5(d) below which makes any statement of a material fact
made in the Registration Statement or the Prospectus untrue or which requires
any additions to or changes in the Registration Statement or the Prospectus in
order to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
(b) To furnish to you three signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you such number of conformed copies
of the Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
(c) To prepare the Prospectus in a form approved by you and
to file the Prospectus in such form with the Commission within the applicable
period specified in Rule 424(b) under the Act; not to file any further
amendment to the Registration Statement and not to make any amendment or
supplement to the Prospectus of which you shall not previously have been
advised or to which you shall reasonably object after being so advised; and to
prepare and file with the Commission, promptly upon your reasonable request,
any amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Notes by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
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(d) Prior to 4:00 P.M., New York City time, on the first
business day after the date of this Agreement and from time to time thereafter
for such period as in the opinion of counsel for the Underwriter a prospectus
is required by law to be delivered in connection with sales by the Underwriter
or a dealer, to furnish in New York City to the Underwriter and any dealer as
many copies of the Prospectus (and of any amendment or supplement to the
Prospectus) as the Underwriter or any such dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event
shall occur or condition shall exist as a result of which, in the opinion of
counsel for the Underwriter, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if, in the opinion of counsel for the Underwriter, it is necessary to amend
or supplement the Prospectus to comply with applicable law, forthwith to
prepare and file with the Commission an appropriate amendment or supplement to
the Prospectus so that the statements in the Prospectus, as so amended or
supplemented, will not in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with applicable
law, and to furnish to the Underwriter and to any dealer as many copies thereof
as the Underwriter or any such dealer may reasonably request.
(f) Prior to any public offering of the Notes, to cooperate
with you and counsel for the Underwriter in connection with the registration or
qualification of the Notes for offer and sale by you and by dealers under the
state securities or Blue Sky laws of such jurisdictions as you may request, to
continue such qualification in effect so long as required for distribution of
the Notes and to file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification;
provided, however, that the Company shall not be required in connection
therewith to register or qualify as a foreign corporation in any jurisdiction
in which it is not now so qualified or to take any action that would subject it
to general consent to service of process or taxation other than as to matters
and transactions relating to the Prospectus, the Registration Statement, any
preliminary prospectus or the offering or sale of the Notes, in any
jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its security
holders as soon as practicable an earnings statement covering the twelve-month
period ending ______________, that shall satisfy the provisions of Section
11(a) of the Act, and to advise you in writing when such statement has been so
made available.
(h) So long as the Notes are outstanding and so long as the
Indenture so requires to mail and make generally available as soon as
practicable after the end of each fiscal year to the record holders of the
Notes (1) all documents filed with the Commission by the Company pursuant to
Sections 13, 14 and 15 of the Securities Exchange Act of 1934, as amended (the
"REPORTS"), which requirement to furnish shall be deemed satisfied upon the
filing of such Reports with the Commission and (2) for any period during which
the Company no longer files such Reports with the Commission, to mail and make
generally available to the record holders of the Notes the information that
would otherwise be included in Reports as soon as reasonably available.
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(i) So long as the Notes are outstanding, to furnish to you
as soon as available copies of all reports furnished to or filed with the
Commission or any national securities exchange on which any class of securities
of the Company is listed and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
(j) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to
be paid all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel and the Company's accountants in connection with the registration and
delivery of the Notes under the Act and all other fees or expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to
any of the foregoing prior to or during the period specified in Section 5(d),
including the mailing and delivering of copies thereof to the Underwriter and
dealers in the quantities specified herein, (ii) all costs and expenses related
to the transfer and delivery of the Notes to the Underwriter, including any
transfer or other taxes payable thereon, (iii) all costs of printing or
producing this Agreement and any other agreements or documents in connection
with the offering, purchase, sale or delivery of the Notes, (iv) all expenses
in connection with the registration or qualification of the Notes for offer and
sale under the securities or Blue Sky laws of the several states and all costs
of printing or producing any Preliminary and Supplemental Blue Sky Memoranda in
connection therewith (including the filing fees and fees and disbursements of
counsel for the Underwriter in connection with such registration or
qualification and memoranda relating thereto), (v) the filing fees and
disbursements of counsel for the Underwriter in connection with the review and
clearance of the offering of the Notes by the National Association of
Securities Dealers, Inc., (vi) the cost of printing certificates representing
the Notes, (vii) the costs and charges of any transfer agent, registrar and/or
depositary (including the Depository Trust Company), (viii) the fees and
expenses of the qualified independent underwriter (the "QIU") (including the
fees and disbursements of counsel to the QIU), (ix) any fees charged by rating
agencies for the rating of the Notes, (x) the fees and expenses of the Trustee
and the Trustee's counsel in connection with the Indenture and the Notes and
(xi) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section.
(k) During the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell, contract to
sell or otherwise transfer or dispose of any debt securities of the Company or
any warrants, rights or options to purchase or otherwise acquire debt
securities of the Company substantially similar to the Notes (other than (1)
the Notes and (2) commercial paper issued in the ordinary course of business),
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
(l) Not to voluntarily claim, and to actively resist any
attempts to claim, the benefit of any usury laws against the holders of the
Notes.
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(m) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by the
Company prior to the Closing Date and to satisfy all conditions precedent to
the delivery of the Notes.
(n) If the Registration Statement at the time of the
effectiveness of this Agreement does not cover all of the Notes, to file a Rule
462(b) Registration Statement with the Commission registering the Notes not so
covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on
the date of this Agreement and to pay to the Commission the filing fee for such
Rule 462(b) Registration Statement at the time of the filing thereof or to give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
(o) The Company will, for so long as any of the Notes are
outstanding and if, in the reasonable judgment of the Underwriter or its
counsel, the Underwriter or any of its affiliates (as defined in the rules and
regulations under the Act) is required to deliver a prospectus (any such
prospectus, a "MARKET MAKING PROSPECTUS") in connection with sales of the
Notes, to (i) provide the Underwriter, without charge, as many copies of the
Market Making Prospectus as the Underwriter may reasonably request, (ii)
periodically amend the Registration Statement so that the information contained
in the Registration Statement complies with the requirements of Section 10(a)
of the Act, (iii) amend the Registration Statement or amend or supplement the
Market Making Prospectus when necessary to reflect any material changes in the
information provided therein and promptly file such amendment or supplement
with the Commission, (iv) provide the Underwriter with copies of each amendment
or supplement so filed and such other documents, including opinions of counsel
and "comfort" letters, as the Underwriter may reasonably request and (iv)
indemnify the Underwriter with respect to the Market Making Prospectus and if
applicable, contribute to any amount paid or payable by the Underwriter in a
manner substantially identical to that specified in Section 7 hereof (with
appropriate modifications). The Company consents to the use, subject to the
provisions of the Act and the state securities or Blue Sky laws of the
jurisdictions in which the Notes are offered by the Underwriter, of each Market
Making Prospectus.
SECTION 6. Representations and Warranties of the Company. The
Company represents and warrants to the Underwriter that:
(a) The Registration Statement has become effective (other
than any Rule 462(b) Registration Statement to be filed by the Company after
the effectiveness of this Agreement); any Rule 462(b) Registration Statement
filed after the effectiveness of this Agreement will become effective no later
than 10:00 P.M., New York City time, on the date of this Agreement; and no stop
order suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement (other than any Rule
462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement), when it became effective, did not contain
and, as amended, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) the Registration
Statement (other than any Rule
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462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading and (B) will comply in all material respects with the Act and
(iv) the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not misleading,
except that the representations and warranties set forth in this paragraph do
not apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to the Underwriter furnished to the
Company in writing expressly for use therein nor to that part of the
Registration Statement that constitutes the Statement of Eligibility (Form T-1)
under the Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT").
The Company hereby acknowledges that the only information furnished to the
Company by the Underwriter for use in the Registration Statement and the
Prospectus is the information contained under the caption "Underwriting."
(c) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the Act, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in any preliminary prospectus based upon information
relating to the Underwriter furnished to the Company in writing by you
expressly for use therein. The Company hereby acknowledges that the only
information furnished to the Company by the Underwriter for use in the
Registration Statement, the Prospectus and each preliminary prospectus filed as
part of the Registration Statement is the information contained under the
caption "Underwriting."
(d) Each of the Company and its Subsidiaries, (as defined
below) has been duly incorporated, is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as described in the
Prospectus and to own, lease and operate its properties, and each is duly
qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not reasonably be expected to (i) have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole or
(ii) in any manner draw into question the validity of (I) this Agreement, the
Indenture or the Notes or (II) the New Credit Facility, the Intercompany Note
or the Tax Sharing Agreement (as defined in the Indenture) (each of the
documents referred to in this clause II, the "OPERATIVE DOCUMENTS") (the events
referred to in clauses (i) and (ii), a "MATERIAL ADVERSE EFFECT").
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(e) The outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights.
(f) Except as otherwise set forth in the Prospectus, all of
the outstanding shares of capital stock of each of the Company's subsidiaries
have been duly authorized and validly issued and are fully paid and
non-assessable, and are owned by the Company, directly or indirectly through
one or more subsidiary, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature (each, a "LIEN"). No subsidiary
listed on Schedule I hereto, other than [LIST THE MATERIAL SUBSIDIARIES]
(collectively, the "Subsidiaries"), has (i) contributed in the last three
fiscal years or in the three-month period ended March 31, 1997 greater than 10%
of the Company's revenues, EBITDA (as defined in the Registration Statement and
Prospectus) or net income or (ii) at any of December 31, 1996 or March 31, 1997
constituted greater than 10% of the total assets of the Company.
(g) The Indenture has been duly qualified under the Trust
Indenture Act and, on the Closing Date, will have been duly authorized,
executed and delivered by the Company and will be a valid and binding agreement
of the Company, enforceable in accordance with its terms except as (a) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (b) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(h) The Notes have been duly authorized and, on the Closing
Date, will have been validly executed and delivered by the Company. When the
Notes have been executed and authenticated in accordance with the provisions of
the Indenture and delivered to and paid for by the Underwriter in accordance
with the terms of this Agreement, the Notes will be entitled to the benefits of
the Indenture and will be valid and binding obligations of the Company,
enforceable in accordance with their terms except as (a) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (b) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability.
(i) The Notes conform as to legal matters to the description
thereof contained in the Prospectus.
(j) All of the indebtedness represented by the Notes, is
being incurred, and all of the indebtedness being repaid in the Refinancing was
incurred, for proper purposes and in good faith and the Company was, at the
time of the incurrence of the indebtedness being repaid in the Refinancing, and
that both as of the date hereof and, immediately subsequent to the Effective
Time and the transactions contemplated hereby and by each of the Operative
Documents, (a) the fair value and present fair saleable value of the Company's
assets exceeds and would exceed its stated liabilities and identified
contingent liabilities, (b) the Company should be able to pay its debts as they
become absolute and matured and (c) the capital of the Company is not and would
not be unreasonably small for the business in which it is engaged and for the
business proposed to be conducted after consummation of the Merger.
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(k) Neither the Company nor any of its Subsidiaries is in
violation of its respective charter or by-laws or in default in the performance
of any obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its subsidiaries, taken as a whole, to which such
entity is a party or by which any such person or its respective property is
bound.
(l) The execution, delivery and performance of this
Agreement, the Indenture, the Notes and the Operative Documents by the Company,
compliance by the Company with all the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will not
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such as
may be required under the securities or Blue Sky laws of the various states)
and will not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or any
of its subsidiaries or any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its subsidiaries,
taken as a whole, to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or their respective property is
bound, or violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency
having jurisdiction over the Company, any of its subsidiaries or their
respective property.
(m) When executed and delivered by the Company and the other
parties thereto, each of the Operative Documents will be the valid and legally
binding obligation of the Company enforceable against the Company, and to the
best of the Company's knowledge, each of the other parties thereto, in
accordance with its respective terms, except as (a) the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting the
creditors' rights generally and (b) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability.
(n) No action has been taken and no law, statute, rule or
regulation or order has been enacted, adopted or issued by any governmental
agency or body which prevents the execution, delivery and performance of any of
this Agreement, the Indenture, the Notes or any of the Operative Documents or
the issuance of the Notes or the Units, or suspends the sale of the Notes or
the Units in any jurisdiction referred to in Section 5(f); and no injunction,
restraining order or other order or relief of any nature by a federal or state
court or other tribunal of competent jurisdiction has been issued with respect
to the Company or any of its Subsidiaries which would prevent or suspend the
issuance or sale of the Notes or the Units in any jurisdiction referred to in
Section 5(f).
(o) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its Subsidiaries is or could be a
party or to which any of their respective property is or could be subject that
are required to be described in the Registration Statement or the Prospectus
and are not so described; nor are there any statutes, regulations, contracts or
other documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required.
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(p) Neither the Company nor any of its Subsidiaries has
violated any foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS") or any
provisions of the Employee Retirement Income Security Act of 1974, as amended,
or the rules and regulations promulgated thereunder, except for such violations
which, singly or in the aggregate, would not have a Material Adverse Effect or
except as otherwise set forth in the Prospectus.
(q) Except as otherwise set forth in the Prospectus, there
are no costs or liabilities associated with Environmental Laws (including,
without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any
potential liabilities to third parties) which would, singly or in the
aggregate, have a Material Adverse Effect.
(r) Each of the Company and its subsidiaries has such
permits, licenses, consents, exemptions, franchises, authorizations and other
approvals (each an "AUTHORIZATION") of, and has made all filings with and
notices to, all governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including, without
limitation, under any applicable Environmental Laws, as are necessary to own,
lease, license and operate its respective properties and to conduct its
business, except where the failure to have any such Authorization or to make
any such filing or notice would not, singly or in the aggregate, have a
Material Adverse Effect. Each such Authorization is valid and in full force and
effect and each of the Company and its Subsidiaries is in compliance with all
the terms and conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect thereto; and
no event has occurred (including, without limitation, the receipt of any notice
from any authority or governing body) which allows or, after notice or lapse of
time or both, would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its Subsidiaries; except, in both
circumstances, where such failure to be valid and in full force and effect or
to be in compliance, the occurrence of any such event or the presence of any
such restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(s) this Agreement has been duly authorized, executed and
delivered by the Company.
(t) Deloitte & Touche LLP are independent public accountants
with respect to the Company and its subsidiaries as required by the Act.
(u) The consolidated historical financial statements,
together with related schedules and notes forming part of the Registration
Statement and the Prospectus (and any amendment or supplement thereto), present
fairly in all material respects the consolidated historical financial position,
results of operations and changes in financial position of the Company and its
subsidiaries on the basis stated in the Registration Statement at the
respective dates or for the
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respective periods to which they apply; such historical statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; and the other historical financial information and
data set forth in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) are, in all material respects, accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of the Company, except as otherwise disclosed therein.
(v) The Company is not an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended.
(w) Except (a) as otherwise set forth in the Prospectus and
(b) for the registration rights agreement, dated as of January 27, 1994, among
Onset Corporation and the security holders party thereto, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company or to
require the Company to include such securities with the Notes registered
pursuant to the Registration Statement.
(x) Since the respective dates as of which information is
given in the Prospectus other than as set forth in the Prospectus (exclusive of
any amendments or supplements thereto subsequent to the date of this
Agreement), (i) there has not occurred any material adverse change or any
development involving a prospective material adverse change in the condition,
financial or otherwise, or the earnings, business, management or operations of
the Company and its subsidiaries, taken as a whole, (ii) there has not been any
material adverse change or any development involving a prospective material
adverse change in the capital stock or in the long-term debt of the Company or
any of its Subsidiaries and (iii) neither the Company nor any of its
Subsidiaries has incurred any material liability or obligation, direct or
contingent which are material to the Company and its Subsidiaries, taken as a
whole.
(y) The Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
(z) The pro forma financial statements of the Company and its
subsidiaries and the related notes thereto set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto) have
been prepared on a basis consistent with the historical financial statements of
the Company and its subsidiaries, give effect to the assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
in all material respects the historical and proposed transactions contemplated
by the Registration Statement and the Prospectus as and to the extent set forth
in the notes thereto. Such pro forma financial statements have been prepared in
accordance with the applicable requirements of Rule 11-02 of Regulation S-X
promulgated by the Commission. The other pro forma financial and statistical
information and data set forth in the Registration Statement and the Prospectus
(and any supplement or amendment thereto) are, in all material respects,
accurately presented and prepared on a basis consistent with the pro forma
financial statements, except as otherwise disclosed therein.
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(aa) There is no (i) material unfair labor practice
complaint, grievance or arbitration proceeding pending or threatened against
the Company or any of its Subsidiaries before the National Labor Relations
Board or any state or local labor relations board or (ii) strike, labor
dispute, slowdown or stoppage pending or threatened against the Company or any
of its Subsidiaries, except for such actions specified in clause (i) or (ii)
above, which, singly or in the aggregate, would not have a Material Adverse
Effect. To the best of the Company's knowledge, no collective bargaining
organizing activities are taking place with respect to the Company or any of
its Subsidiaries.
(ab) The Company and each of its Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(ac) Except as otherwise set forth in the Prospectus, the
Company and its subsidiaries own or possess, or can acquire on reasonabl terms,
all patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures), trademarks, service marks
and trade names ("intellectual property") currently employed by them in
connection with the business now operated by them except where the failure to
own or possess or otherwise be able to acquire such intellectual property would
not, singly or in the aggregate, have a Material Adverse Effect; and, to the
best of the Company's knowledge, neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of such intellectual property
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Material Adverse Effect.
(ad) Each certificate signed by any officer of the Company
and delivered to the Underwriter or counsel for the Underwriter shall be deemed
to be a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
SECTION 7. Indemnification. (a) The Company agrees to
indemnify and hold harmless the Underwriter, its directors, its officers and
each person, if any, who controls the Underwriter within the meaning of Section
15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), the Prospectus (or any amendment or supplement thereto) or
any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not
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misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged untrue
statement or omission (i) based upon information relating to the Underwriter
furnished in writing to the Company by the Underwriter expressly for use
therein or (ii) that is contained in that part of the Registration Statement
that constitutes the Statement of Eligibility (Form T-1) under the Trust
Indenture Act. The foregoing indemnity agreement with respect to any untrue
statement contained in or omission from a preliminary prospectus shall not
inure to the benefit of an Underwriter from whom the person asserting any such
losses, liabilities, claims, damages or expenses purchased Notes, or any
director or officer of or any person controlling such Underwriter, if a copy of
the Prospectus (as then amended or supplemented, if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if such is required by law, at or
prior to the written confirmation of the sale of such Notes to such person and
the untrue statement contained in or omission from such preliminary prospectus
was corrected in the Prospectus (or the Prospectus as amended or supplemented).
(b) The Underwriter agrees to indemnify and hold harmless the
Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to such Underwriter but only with
reference to information relating to such Underwriter furnished in writing to
the Company by or on behalf of the Underwriter expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any
person in respect of which indemnity may be sought pursuant to Section 7(a) or
7(b) (the "Indemnified Party"), the Indemnified Party shall promptly notify the
person against whom such indemnity may be sought (the "Indemnifying Party") in
writing and the Indemnifying Party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all reasonable fees and expenses of such counsel, as
incurred (except that in the case of any action in respect of which indemnity
may be sought pursuant to both Sections 7(a) and 7(b), the Underwriter shall
not be required to assume the defense of such action pursuant to this Section
7(c), but may employ separate counsel and participate in the defense thereof,
but the fees and expenses of such counsel, except as provided below, shall be
at the expense of the Underwriter) subject to repayment to the Indemnifying
Party if it is finally judicially determined by a court of competent
jurisdiction that such Indemnified Party is not entitled to indemnification.
Any Indemnified Party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of the Indemnified Party unless (i) the
employment of such counsel shall have been specifically authorized in writing
by the Indemnifying Party, (ii) the Indemnifying Party shall have failed to
assume the defense of such action or employ counsel reasonably satisfactory to
the Indemnified Party or (iii) the named parties to any such action (including
any impleaded parties) include both the Indemnified Party and the Indemnifying
Party, and the Indemnified Party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different
from or additional to those available to the Indemnifying Party (in which case
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the Indemnifying Party shall not have the right to assume the defense of such
action on behalf of the Indemnified Party). In any such case, the Indemnifying
Party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by
Donaldson, Lufkin & Jenrette Securities Corporation, in the case of parties
indemnified pursuant to Section 7(a), and by the Company, in the case of
parties indemnified pursuant to Section 7(b). The Indemnifying Party shall
indemnify and hold harmless the Indemnified Party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without
its written consent if the settlement is entered into more than twenty business
days after the Indemnifying Party shall have received a request from the
Indemnified Party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the Indemnifying
Party) and, prior to the date of such settlement, the Indemnifying Party shall
have failed to comply with such reimbursement request. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the Indemnified Party
is or could have been a party and indemnity or contribution may be or could
have been sought hereunder by the Indemnified Party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the Indemnified
Party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
Indemnified Party.
(d) To the extent the indemnification provided for in this
Section 7 is unavailable to an Indemnified Party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriter on the other hand from the offering
of the Notes or (ii) if the allocation provided by clause 7(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and the Underwriter on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriter on the other hand shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company, and the total underwriting
discounts and commissions received by the Underwriter, bear to the total price
to the public of the Notes, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company on the one hand and
the Underwriter on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriter and the parties'
relative intent,
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knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
incurred by such Indemnified Party in connection with investigating or
defending any matter, including any action, that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 7, the Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Notes underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which the Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The remedies provided for in this Section 7 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any Indemnified Party at law or in equity.
SECTION 8. Conditions of Underwriter's Obligations. The
obligation of the Underwriter to purchase the Notes under this Agreement is
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, such Rule
462(b) Registration Statement shall have become effective by 10:00 P.M., New
York City time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) On or after the date hereof there shall not have occurred
any downgrading, nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating of the Company, or
any securities of the Company or in the rating outlook for the Company
(including, without limitation, the placing of any of the foregoing ratings on
creditwatch with negative or developing implications or under review with an
uncertain direction) by any
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"nationally recognized statistical rating organization" as such term is defined
for purposes of Rule 436(g)(2) under the Act.
(d) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by Kenneth Draeger, Thomas J. Fitzpatrick and
Thomas M. Molchan, in their capacities as Chairman and Chief Executive Officer,
Vice President and Chief Financial Officer and General Counsel and Corporate
Secretary of the Company, confirming to the best of their respective knowledge
on behalf of the Company the matters set forth in Sections 8(a), 8(b), 8(c) and
8(e).
(e) Since the respective dates as of which information is
given in the Prospectus other than as set forth in the Prospectus (exclusive of
any amendments or supplements thereto subsequent to the date of this
Agreement), (i) there shall not have occurred any change or any development
involving a prospective change in the condition, financial or otherwise, or the
earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there shall not have been any change or
any development involving a prospective change in the capital stock or in the
long-term debt of the Company or any of its subsidiaries and (iii) neither the
Company nor any of its subsidiaries shall have incurred any liability or
obligation, direct or contingent, the effect of which, in any such case
described in clause 8(e)(i), 8(e)(ii) or 8(e)(iii), in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market
the Notes on the terms and in the manner contemplated in the Prospectus.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriter), dated the Closing Date,
of Davis Polk & Wardwell, counsel for the Company, to the effect that:
(i) each of the Company and its Subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as described in
the Prospectus and to own, lease and operate its properties;
(ii) the Notes have been duly authorized and, when executed
and authenticated in accordance with the provisions of the Indenture
and delivered to and paid for by the Underwriter in accordance with
the terms of this Agreement, will be entitled to the benefits of the
Indenture and will be valid and binding obligations of the Company,
enforceable in accordance with their terms except (a) as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights and remedies
generally and (b) as such enforcement may be limited by general
principles of equity, regardless of whether enforcement is sought in a
proceeding at law or in equity;
(iii) the Indenture has been duly qualified under the Trust
Indenture Act and has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement of the Company,
enforceable in accordance with its terms except (a) as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or
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similar laws affecting creditor's rights and remedies generally and
(b) as such enforcement may be limited by general principles of
equity, regardless of whether enforcement is sought in a proceeding at
law or in equity;
(iv) this Agreement has been duly authorized, executed and
delivered by the Company;
(v) each of the Operative Documents is the valid and legally
binding obligation of the Company enforceable against the Company, in
accordance with its respective terms, except as (a) as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditor's rights and remedies
generally, (b) as such enforcement may be limited by general
principles of equity, regardless of whether enforcement is sought in a
proceeding at law or in equity and (c) rights of acceleration and the
availability of equitable remedies may be limited by equitable
principles of general applicability;
(vi) such counsel has been advised by the Commission that the
Registration Statement has become effective under the Act, no stop
order suspending its effectiveness has been issued and no proceedings
for that purpose are, to the best of such counsel's knowledge after
due inquiry, pending before or contemplated by the Commission;
(vii) the statements under the captions "The Merger and
Merger Financing," "Risk Factors--Fraudulent Transfer Statutes," "Risk
Factors--Restrictions Imposed by Terms of the Company's Indebtedness,"
"Risk Factors--Subordination; Asset Encumbrance," "Certain
Relationships and Related Transactions," "Description of the New
Credit Facility," "Description of the Senior Subordinated Notes,"
"Underwriting" and the description of the existing employment and
severance agreements under the caption "Executive
Compensation--Existing Employment and Severance Agreements" in the
Prospectus and Items 14 and 15 of Part II of the Registration
Statement, insofar as such statements constitute a summary of the
legal matters, documents or proceedings referred to therein, fairly
present the information called for with respect to such legal matters,
documents and proceedings;
(viii) the execution, delivery and performance of this
Agreement, the Indenture and the Notes by the Company, will not (A)
require any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental
body (except as may be required under the Act or other securities or
Blue Sky laws of various states or by the National Association of
Security Dealers, Inc. ("NASD"); (B) conflict with or constitute a
breach of any of the terms or provisions of, or default under, the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries; (C) require any consent or approval (which has not been
obtained) of parties to, or conflict with or constitute a breach of
any of the terms or provisions of, or default under, any of the
agreements filed as an exhibit to the Registration Statement (which
has not been waived); (D) violate or conflict with any laws or rules
or regulations, rulings or court decrees as applicable to the Company
or any of its subsidiaries or their respective
17
<PAGE>
properties; or (E) result in the creation or imposition of any Lien on
any material asset of the Company or any of its subsidiaries under any
of its agreements filed as an exhibit to the Registration Statement,
except as, with respect to clauses (C) and (E) above, would not have a
Material Adverse Effect;
(ix) the Company is not and, after giving effect to the
Merger, the offering and sale of the Notes and the application of the
proceeds thereof and the other transactions contemplated by this
Agreement and the Operative Documents in each case, as described in
the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended; and
(x) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements
and other financial data included therein as to which no opinion need
be expressed) comply as to form with the Act, (B) such counsel has no
reason to believe that at the time the Registration Statement became
effective or on the date of this Agreement, the Registration Statement
and the prospectus included therein (except for the financial
statements and other financial data as to which such counsel need not
express any belief and except for that part of the Registration
Statement that constitutes the Statement of Eligibility (Form T-1)
under the Trust Indenture Act) contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading and (C) such counsel has no reason to believe that the
Prospectus, as amended or supplemented, if applicable (except for the
financial statements and other financial data and the Form T-1, as
aforesaid) contains any untrue statement of a material fact or omits
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. The opinion of Davis Polk & Wardwell described in
Section 8(f) above shall be rendered to you at the request of the
Company and shall so state therein.
(g) You shall have received on the Closing Date, an opinion
(satisfactory to you and counsel for the Underwriter), dated the Closing Date,
of Thomas M. Molchan, General Counsel and Corporate Secretary of the Company,
to the effect that:
(i) the entities listed on Schedule I hereto are the only
direct or indirect subsidiaries of the Company;
(ii) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is or could be a party or to which any of their
respective property is or could be subject that are required to be
described in the Registration Statement or the Prospectus and are not
so described;
(iii) to his knowledge, neither the Company nor any of its
subsidiaries has violated any Environmental Law or any provisions of
the Employee Retirement Income Security Act of 1974, as amended, or
the rules and regulations promulgated thereunder,
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<PAGE>
except for such violations which, singly or in the aggregate, would
not have a Material Adverse Effect or except as otherwise set forth in
the Prospectus;
(iv) to his knowledge: each of the Company and its
subsidiaries has such Authorizations of, and has made all filings with
and notices to, all governmental or regulatory authorities and
self-regulatory organizations and all courts and other tribunals,
including, without limitation, under any applicable Environmental
Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the
failure to have any such Authorization or to make any such filing or
notice would not, singly or in the aggregate, have a Material Adverse
Effect; each such Authorization is valid and in full force and effect
and each of the Company and its subsidiaries is in material compliance
with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred
(including, without limitation, the receipt of any notice from any
authority or governing body) which allows or, after notice or lapse of
time or both, would allow, revocation, suspension or termination of
any such Authorization or results or, after notice or lapse of time or
both, would result in any other impairment of the rights of the holder
of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company or any of its
subsidiaries; except where such failure to be valid and in full force
and effect or to be in compliance, the occurrence of any such event or
the presence of any such restriction would not, singly or in the
aggregate, have a Material Adverse Effect;
(v) each of the Company and its Subsidiaries is duly
qualified and is in good standing as a foreign corporation authorized
to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not
have a Material Adverse Effect;
(vi) all the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully
paid, non-assessable and not subject to any preemptive or similar
rights;
(vii) all of the outstanding shares of capital stock of each
of the Company's Subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable, and are owned by the
Company, directly or indirectly through one or more subsidiaries, free
and clear of any Lien;
(viii) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws and, to the best of
such counsel's knowledge, neither the Company nor any of its
subsidiaries is in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party
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or by which the Company or any of its subsidiaries or their respective
property is bound; and
(ix) to the best of such counsel's knowledge, except (a) as
otherwise set forth in the Prospectus and (b) for the registration
rights agreement, dated as of January 27, 1994, among Onset
Corporation and the security holders party thereto, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with
the Notes registered pursuant to the Registration Statement.
The opinion of Thomas M. Molchan described in Section 8(g)
above shall be rendered to you at the request of the Company and shall so state
therein.
In giving such opinions with respect to the matters covered
by Section 8(f)(xv), counsel for the Company and counsel for the Underwriters
may state that their opinion and belief are based upon their participation in
the preparation of the Registration Statement and Prospectus and any amendments
or supplements thereto and review and discussion of the contents thereof, but
are without independent check or verification except as specified.
(h) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Latham & Watkins, counsel for the Underwriter in
form and substance reasonably satisfactory to the Underwriter.
(i) You shall have received, on each of the date hereof and
the Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to you, from Deloitte & Touche
LLP, independent public accountants, containing the information and statements
of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(j) The Equity Investment shall have been consummated as
described in the Registration Statement and the Prospectus.
(k) The Company shall have entered into the Indenture and the
Underwriter shall have received counterparts, as executed, thereof.
(l) The Company shall have entered into each of the Operative
Documents (the form and substance of which shall be reasonably acceptable to
the Underwriter) and the Underwriter shall have received counterparts,
conformed as executed, of each thereof and of all other documents and
agreements entered into in connection therewith.
(m) Each condition to closing contemplated by the
underwriting agreement relating to the offering of the Units by Quaker (other
than the issuance and sale of the Notes pursuant hereto) shall have been
satisfied or waived. On the Closing Date, the closing under the
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underwriting agreement relating to the offering of the Units by Quaker shall
have been consummated on terms that conform in all material respects to the
description thereof in the Registration Statement and the Prospectus and the
Underwriter shall have received evidence satisfactory to it of the consummation
thereof.
(n) A registration statement on an appropriate form under the
Act containing a Market Making Prospectus in connection with sales of the
Securities shall have become effective under the Act, no stop order suspending
the effectiveness of such registration statement shall have been issued and no
proceedings for that purpose are, to the best of such counsel's knowledge after
due inquiry, pending before or contemplated by the Commission.
(o) Each condition to closing contemplated by the New Credit
Facility (other than the issuance and sale of the Notes pursuant hereto) shall
have been satisfied or waived. There shall exist at and as of the Closing Date
(after giving effect to the transactions contemplated by this Agreement and the
other Operative Documents) no conditions that would constitute a default (or an
event that with notice or the lapse of time, or both, would constitute a
default) under the New Credit Facility. On the Closing Date, the closing under
the New Credit Facility shall have been consummated on terms that conform in
all material respects to the description thereof in the Registration Statement
and the Prospectus and the Underwriter shall have received evidence
satisfactory to it of the consummation thereof.
(p) Each condition to closing contemplated by each of the
other Operative Documents (other than the issuance and sale of the Notes
pursuant hereto) shall have been satisfied or waived. There shall exist at and
as of the Closing Date (after giving effect to the transactions contemplated by
this Agreement and the other Operative Documents) no conditions that would
constitute a default (or an event that with notice or the lapse of time, or
both, would constitute a default), breach or violation of any of the Operative
Documents. On the Closing Date, each of the Operative Documents shall have been
entered into on terms that conform in all material respects to the description
thereof in the Registration Statement and the Prospectus and the Underwriter
shall have received evidence satisfactory to it of the execution thereof and
the consummation of the transactions contemplated thereby.
(q) Each condition to closing contemplated by the Merger
Agreement (other than the issuance and sale of the Notes pursuant hereto) shall
have been satisfied or waived. There shall exist at and as of the Closing Date
(after giving effect to the transactions contemplated by this Agreement and the
other Operative Documents) no conditions that would constitute a default (or an
event that with notice or the lapse of time, or both, would constitute a
default) under the Merger Agreement. On the Closing Date, the Merger shall have
been consummated on terms that conform in all material respects to the
description thereof in the Registration Statement and the Prospectus and the
Underwriter shall have received evidence satisfactory to it of the consummation
thereof. The Company shall deliver to the Underwriter copies of the certificate
of merger required under Delaware law to be filed in order to effect the
Merger, as certified by the Secretary of State of Delaware on the Closing Date.
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(r) On the Closing Date, you shall have received a copy of
the solvency opinion by an independent third party addressed to the Boards of
Directors of the Company and Holdings as to the solvency of the Company and its
subsidiaries following the consummation of the transactions contemplated herein
and by the Merger Agreement.
(s) On the Closing Date, the existing revolving credit
facility will be prepaid in full and the Underwriter shall have received
evidence of such repayment.
(t) The Company shall not have failed at or prior to the
Closing Date to perform or comply with any of the agreements herein contained
and required to be performed or complied with by the Company at or prior to the
Closing Date.
SECTION 9. Effectiveness of Agreement and Termination. This
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time prior to the
Closing Date by you by written notice to the Company if any of the following
has occurred: (1) any outbreak or escalation of hostilities or other national
or international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market
the Notes on the terms and in the manner contemplated in the Prospectus, (2)
the suspension or material limitation of trading in securities or other
instruments on the New York Stock Exchange, the American Stock Exchange, the
Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago
Board of Trade or the Nasdaq National Market or limitation on prices for
securities or other instruments on any such exchange or the Nasdaq National
Market, (3) the suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market, (4) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, (5) the declaration of a
banking moratorium by either federal or New York State authorities or (6) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in your opinion has a material
adverse effect on the financial markets in the United States.
SECTION 10. Miscellaneous. Notices given pursuant to any
provision of this Agreement shall be addressed as follows: (i) if to the
Company, to DecisionOne Corporation, 50 East Swedesford Road, Frazer, PA 19355,
Attention: General Counsel, with a copy to Davis Polk & Wardwell, 450 Lexington
Avenue, New York, NY 10017; Attention: Richard D. Truesdell, Esq. and (ii) if
to the Underwriter, to Donaldson, Lufkin & Jenrette Securities Corporation, 277
Park Avenue, New York, NY 10172, Attention: Syndicate Department, with a copy
to Latham & Watkins, 885 Third Avenue, New York, NY 10022; Attention: Marc D.
Jaffe, Esq., or in any case to such other address as the person to be notified
may have requested in writing.
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The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company and the
Underwriter set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and
payment for the Notes, regardless of (1) any investigation, or statement as to
the results thereof, made by or on behalf of the Underwriter, the officers or
directors of the Underwriter, any person controlling the Underwriter, the
Company, the officers or directors of the Company or any person controlling the
Company, (2) acceptance of the Notes and payment for them hereunder and (3)
termination of this Agreement.
If for any reason the Notes are not delivered by or on behalf
of the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10), the Company agrees to reimburse the
Underwriter for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by it. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has
agreed to pay pursuant to Section 5(i) hereof. The Company also agrees to
reimburse the Underwriter, its directors and officers and any persons
controlling the Underwriter for any and all fees and expenses (including,
without limitation, the fees disbursements of counsel) incurred by it in
connection with enforcing its rights hereunder (including, without limitation,
pursuant to Section 7 or 8 hereof).
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Underwriter, the Underwriter's directors and officers, any controlling persons
referred to herein, the Company's directors and the Company's officers who sign
the Registration Statement and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors
and assigns" shall not include a purchaser of any of the Notes from the
Underwriter merely because of such purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
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Please confirm that the foregoing correctly sets forth the
agreement between the Company and the Underwriter.
Very truly yours,
DECISIONONE CORPORATION
By:
-----------------------------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
--------------------------------
Name:
Title:
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SCHEDULE I
Subsidiaries of DecisionOne Corporation
Properties Holding Corporation
Properties Development Corporation
International Computers Properties Corporation
DecisionOne (Canada) Corporation
DecisionOne Supplies, Inc.
Decision Data Computer International, S.A.
Decision Data Investment Corporation
Decision Data International Corporation
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AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DECISIONONE CORPORATION
DecisionOne Corporation, a corporation duly organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: The name of the corporation is DecisionOne Corporation. The
corporation was originally incorporated as Bell Atlantic Ventures III, Inc. and
the corporation's original Certificate of Incorporation was filed with the
Secretary of State on October 5, 1984.
SECOND: This Amended and Restated Certificate of Incorporation
restates, integrates and further amends the Certificate of Incorporation of
this corporation.
THIRD: The text of the Certificate of Incorporation as amended or
supplemented heretofore is further amended hereby to read in full as set forth
in Exhibit A attached hereto.
FOURTH: This Amended and Restated Certificate of Incorporation was
duly adopted by the written consent of the sole the stockholder.
FIFTH: This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, DecisionOne Corporation has caused this
Certificate to be signed by its General Counsel and Corporate Secretary this
25th day of July, 1997.
DECISIONONE CORPORATION
By: /s/Thomas M. Molchan
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Thomas M. Molchan
General Counsel and Corporate Secretary
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EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DECISIONONE CORPORATION
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FIRST: The name of the Corporation is
DECISIONONE CORPORATION
SECOND: The address of the registered office of the Corporation in the
State of Delaware is No. 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of the Corporation's registered agent at such address
is The Corporation Trust Company.
THIRD: The purpose for which the Corporation is formed is to engage in
any lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1 share of Common Stock, without
par value (the "Common Stock").
The following is a statement of the powers, preferences and rights,
and the qualifications, limitations, or restrictions thereof, in respect of
each class of stock of the Corporation:
I. COMMON STOCK
1. Dividends. The holders of shares of Common Stock shall be entitled
to receive such dividends as from time to time may be declared by the Board of
Directors of the Corporation.
2. Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
Common Stock shall be entitled to share ratably according to the number of
shares of Common Stock held by them in all remaining assets of the Corporation
available for distribution to its shareholders.
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3. Voting. Except as otherwise provided by law or this Amended and
Restated Certificate of Incorporation, each holder of Common Stock shall be
entitled to one vote per share.
II. OTHER PROVISIONS
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive
rights to purchase or subscribe for any unissued stock of any class or series
or any additional shares of any class or series to be issued by reason of any
increase of the authorized capital stock of the Corporation of any class or
series, or bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of the Corporation of any class or
series, but any such unissued stock, additional authorized issue of shares of
any class or series of stock or securities convertible into or exchangeable for
stock, or carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons, firms,
corporations or associations, whether such holders or others, and upon such
terms as may be deemed advisable by the Board of Directors in the exercise of
its sole discretion.
FIFTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors of the Corporation is
expressly authorized and empowered to make, alter or repeal the By-laws of the
Corporation, subject to the power of the stockholders of the Corporation to
alter or repeal any By-law made by the Board of Directors.
SIXTH: The Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provisions contained in this Amended
and Restated Certificate of Incorporation; and other provisions authorized by
the laws of the State of Delaware at the time in force may be added or
inserted, in the manner now or hereafter prescribed by law; and all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Amended and
Restated Certificate of Incorporation in its present form or as hereafter
amended are granted subject to the right reserved in this Article.
SEVENTH: No person shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director; provided, however, that the foregoing shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware or (iv) for any transaction from which the director derived an
improper personal benefit.
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AMENDED AND RESTATED BYLAWS
OF
DECISIONONE CORPORATION
(a Delaware Corporation)
...oo0oo...
ARTICLE I
Offices and Fiscal Year
SECTION 1.01. Registered Office. The registered office of the
corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware until otherwise established by resolution of the board of directors,
and a certificate certifying the change is filed in the manner provided by
statute.
SECTION 1.02. Other Offices. The corporation may also have offices at
such other places within or without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation
requires.
SECTION 1.03. Fiscal Year. The fiscal year of the corporation shall
end on the 30th of June in each year.
ARTICLE II
Notice - Waivers - Meetings
SECTION 2.01. Notice, What Constitutes. Whenever, under the
provisions of the Delaware General Corporation Law ("GCL") or the certificate
of incorporation or of these bylaws, notice is required to be given to any
director or stockholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail or by telegram (with
messenger service specified), telex or TWX (with answerback received) or
courier service, charges prepaid, or by facsimile transmission to the address
(or to the telex, TWX, facsimile or telephone number) of the person appearing
on the books of the corporation, or in the case of directors, supplied to the
corporation for the purpose of notice. If the notice is sent by mail,
telegraph or courier service, it shall be deemed to be given when deposited in
the United States mail or with a telegraph office or courier service for
delivery to that person or, in the case of telex or TWX, when dispatched, or
in the case of facsimile transmission, when received.
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SECTION 2.02. Notice of Meetings of Board of Directors. Notice of a
regular meeting of the board of directors need not be given. Notice of every
special meeting of the board of directors shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone,
telex, TWX or facsimile transmission) or 48 hours (in the case of notice by
telegraph, courier service or express mail) or five days (in the case of
notice by first class mail) before the time at which the meeting is to be
held. Every such notice shall state the time and place of the meeting. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the board need be specified in a notice of the meeting.
SECTION 2.03. Notice of Meetings of Stockholders. Written notice of
the place, date and hour of every meeting of the stockholders, whether annual
or special, shall be given to each stockholder of record entitled to vote at
the meeting not less than ten nor more than 60 days before the date of the
meeting. Every notice of a special meeting shall state the purpose or purposes
thereof. If the notice is sent by mail, it shall be deemed to have been given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at the address of the stockholder as it appears on the records of
the corporation.
SECTION 2.04. Waivers of Notice.
(a) Written Waiver. Whenever notice is required to be given under any
provisions of the GCL or the certificate of incorporation or these bylaws, a
written waiver, signed by the person or persons entitled to the notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice of
such meeting.
(b) Waiver by Attendance. Attendance of a person at a meeting, either
in person or by proxy, shall constitute a waiver of notice of such meeting,
except where a person attends a meeting for the express purpose of objecting
at the beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened.
SECTION 2.05. Exception to Requirements of Notice.
(a) General Rule. Whenever notice is required to be given, under any
provision of the GCL or of the certificate of incorporation or these bylaws,
to any person with whom communication is unlawful, the giving of such notice
to such person shall not be required and there shall be no duty to apply to
any governmental authority or agency for a license or permit to give such
notice to such person. Any action or meeting which shall be taken or held
without notice to any such person with whom communication is unlawful shall
have the same force and effect as if such notice had been duly given.
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(b) Stockholders Without Forwarding Addresses. Whenever notice is
required to be given, under any provision of the GCL or the certificate of
incorporation or these bylaws, to any stockholder to whom (i) notice of two
consecutive annual meetings, and all notices of meetings or of the taking of
action by written consent without a meeting to such person during the period
between such two consecutive annual meetings, or (ii) all, and at least two,
payments (if sent by first class mail) of dividends or interest on securities
during a 12 month period, have been mailed addressed to such person at his
address as shown on the records of the corporation and have been returned
undeliverable, the giving of such notice to such person shall not be required.
Any action or meeting which shall be taken or held without notice to such
person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth the person's then current address, the requirement that notice
be given to such person shall be reinstated.
SECTION 2.06. Conference Telephone Meetings. One or more directors
may participate in a meeting of the board, or of a committee of the board, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this section shall constitute presence
in person at such meeting.
ARTICLE III
Meetings of Stockholders
SECTION 3.01. Place of Meeting. All meetings of the stockholders of
the corporation shall be held at the registered office of the corporation, or
at such other place within or without the State of Delaware as shall be
designated by the board of directors in the notice of such meeting.
SECTION 3.02. Annual Meeting. The board of directors may fix and
designate the date and time of the annual meeting of the stockholders. At said
meeting, the stockholders then entitled to vote shall elect directors and
shall transact such other business as may properly be brought before the
meeting.
SECTION 3.03. Special Meetings. Special meetings of the stockholders
of the corporation may be called at any time by the chairman of the board, a
majority of the board of directors, or at the request, in writing, of
stockholders entitled to cast at least a majority of the votes that all
stockholders are entitled to cast at the particular meeting. At any time, upon
the written request of any person or persons who have duly called a special
meeting, which written request shall state the purpose or purposes of the
meeting, it shall be the duty of the secretary to fix the date of the meeting
which shall be held at such date and time as the secretary may fix, not less
than ten nor more than 60 days after the receipt of the request, and to give
due notice thereof. If the secretary shall neglect or refuse to fix the time
and date of such meeting and give notice thereof, the person or persons
calling the meeting may do so.
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SECTION 3.04. Quorum, Manner of Acting and Adjournment.
(a) Quorum. The holders of a majority of the shares entitled to vote,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders except as otherwise provided by the GCL, by the
certificate of incorporation or by these bylaws. If a quorum is not present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present or represented. At any such
adjourned meeting at which a quorum is present or represented, the corporation
may transact any business which might have been transacted at the original
meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
(b) Manner of Acting. Directors shall be elected by a plurality of
the votes of the shares present in person or represented by proxy at the
meeting and entitled to vote on the election of directors. In all matters
other than the election of directors, the affirmative vote of the majority of
shares present in person or represented by proxy at the meeting and entitled
to vote thereon shall be the act of the stockholders, unless the question is
one upon which, by express provision of the applicable statute, the
certificate of incorporation or these bylaws, a different vote is required in
which case such express provision shall govern and control the decision of the
question. The stockholders present in person or by proxy at a duly organized
meeting can continue to do business until adjournment, notwithstanding
withdrawal of enough stockholders to leave less than a quorum.
SECTION 3.05. Organization. At every meeting of the stockholders, the
chairman of the board, if there be one, or in the case of a vacancy in the
office or absence of the chairman of the board, one of the following persons
present in the order stated: the vice chairman, if one has been appointed, the
president, the vice presidents in their order of rank or seniority, a chairman
designated by the board of directors or a chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as chairman, and the
secretary, or, in the absence of the secretary, an assistant secretary, or in
the absence of the secretary and the assistant secretaries, a person appointed
by the chairman, shall act as secretary.
SECTION 3.06. Voting.
(a) General Rule. Unless otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote, in person or by
proxy, for each share of capital stock having voting power held by such
stockholder.
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(b) Voting and Other Action by Proxy.
(1) A stockholder may execute a writing authorizing another person
or persons to act for the stockholder as proxy. Such execution may be
accomplished by the stockholder or the authorized officer, director,
employee or agent of the stockholder signing such writing or causing his
or her signature to be affixed to such writing by any reasonable means
including, but not limited to, by facsimile signature. A stockholder may
authorize another person or persons to act for the stockholder as proxy
by transmitting or authorizing the transmission of a telegram, cablegram,
or other means of electronic transmission to the person who will be the
holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will
be the holder of the proxy to receive such transmission if such telegram,
cablegram or other means of electronic transmission sets forth or is
submitted with information from which it can be determined that the
telegram, cablegram or other electronic transmission was authorized by
the stockholder.
(2) No proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
(3) A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only so long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is
coupled is an interest in the stock itself or an interest in the
corporation generally.
SECTION 3.07. Consent of Stockholders in Lieu of Meeting. Any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action
so taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer
or agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent shall bear the
date of signature of each stockholder who signs the consent and no written
consent shall be effective to take the corporate action referred to therein
unless, within 60 days of the earliest dated consent delivered in the manner
required in this section to the corporation, written consents signed by a
sufficient number of holders to take action are delivered to the corporation
by delivery to its registered office in Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made
to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
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SECTION 3.08. Voting Lists. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting. The list shall be arranged in alphabetical order, showing
the address of each stockholder and the number of shares registered in the
name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 3.09. Inspectors of Election.
(a) Appointment. All elections of directors shall be by written
ballot, unless otherwise provided in the certificate of incorporation; the
vote upon any other matter need not be by ballot. In advance of any meeting of
stockholders the board of directors may appoint one or more inspectors, who
need not be stockholders, to act at the meeting and to make a written report
thereof. The board of directors may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the person's best ability.
(b) Duties. The inspectors shall ascertain the number of shares
outstanding and the voting power of each, shall determine the shares
represented at the meeting and the validity of proxies and ballots, shall
count all votes and ballots, shall determine and retain for a reasonable
period a record of the disposition of any challenges made to any determination
by the inspectors, and shall certify their determination of the number of
shares represented at the meeting and their count of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
(c) Polls. The date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at a meeting shall
be announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) Reconciliation of Proxies and Ballots. In determining the
validity and counting of proxies and ballots, the inspectors shall be limited
to an examination of the proxies, any envelopes submitted with those proxies,
any information transmitted in accordance with section 2.07, ballots and the
regular books and records of the corporation, except that the inspectors may
consider other
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reliable information for the limited purpose of reconciling proxies and
ballots submitted by or on behalf of banks, brokers, their nominees or similar
persons which represent more votes than the holder of a proxy is authorized by
the record owner to cast or more votes than the stockholder holds of record.
If the inspectors consider other reliable information for the limited purpose
permitted herein, the inspectors at the time they make their certification
pursuant to subsection (b) shall specify the precise information considered by
them including the person or persons from whom they obtained the information,
when the information was obtained, the means by which the information was
obtained and the basis for the inspectors' belief that such information is
accurate and reliable.
ARTICLE IV
Board of Directors
SECTION 4.01. Powers. All powers vested by law in the corporation
shall be exercised by or under the authority of, and the business and affairs
of the corporation shall be managed under the direction of, the board of
directors.
SECTION 4.02. Number and Term of Office. The board of directors shall
consist of such number of directors, not less than one nor more than nine, as
may be determined from time to time by resolution of the board of directors.
Each director shall hold office until the expiration of the term for which he
or she was selected and until a successor shall have been elected and
qualified or until his or her earlier death, resignation or removal. Directors
need not be residents of Delaware or stockholders of the corporation.
SECTION 4.03. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors elected by
all of the stockholders having a right to vote as a single class may be filled
by a majority of the directors then in office, though less than a quorum, or
by a sole remaining director, and the directors so chosen shall hold office
until their successors are elected and qualified or until their earlier death,
resignation or removal. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. Whenever the
holders of any class or classes of stock or series thereof are entitled to
elect one or more directors by the provisions of the certificate of
incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected. If, at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than
a majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
SECTION 4.04. Resignations. Any director may resign at any time upon
written notice to
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the corporation. The resignation shall be effective upon receipt thereof by
the corporation or at such subsequent time as shall be specified in the notice
of resignation and, unless otherwise specified in the notice, the acceptance
of the resignation shall not be necessary to make it effective.
SECTION 4.05. Removal. Any director or the entire board of directors
may be removed, with or without cause, by the holders of shares entitled to
cast a majority of the votes which all stockholders are entitled to cast at an
election of directors.
SECTION 4.06. Organization. At every meeting of the board of
directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the vice chairman of the
board, if there be one, the president, the vice presidents in their order of
rank and seniority, or a chairman chosen by a majority of the directors
present, shall preside, and the secretary, or, in the absence of the
secretary, an assistant secretary, or in the absence of the secretary and the
assistant secretaries, any person appointed by the chairman of the meeting,
shall act as secretary.
SECTION 4.07. Place of Meeting. Meetings of the board of directors
shall be held at such place within or without the State of Delaware as the
board of directors may from time to time determine, or as may be designated in
the notice of the meeting.
SECTION 4.08. Regular Meetings. Regular meetings of the board of
directors shall be held without notice at such time and place as shall be
designated from time to time by resolution of the board of directors.
SECTION 4.09. Special Meetings. Special meetings of the board of
directors shall be held whenever called by the chairman of the board or by two
or more of the directors.
SECTION 4.10. Quorum, Manner of Acting and Adjournment.
(a) General Rule. At all meetings of the board a majority of the
total number of directors shall constitute a quorum for the transaction of
business. The vote of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors, except
as may be otherwise specifically provided by the GCL or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present.
(b) Unanimous Written Consent. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors may be taken without a meeting, if all
members of the board consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the board.
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SECTION 4.11. Executive and Other Committees.
(a) Establishment. The board of directors may, by resolution adopted
by a majority of the whole board, establish an Executive Committee and one or
more other committees, each committee to consist of one or more directors. The
board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee
and the alternate or alternates, if any, designated for such member, the
member or members of the committee present at any meeting and not disqualified
from voting, whether or not they constitute a quorum, may unanimously appoint
another director to act at the meeting in the place of any such absent or
disqualified member.
(b) Powers. The Executive Committee, if established, and any such
other committee to the extent provided in the resolution establishing such
committee shall have and may exercise all the power and authority of the board
of directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers
which may require it; but no such committee shall have the power or authority
in reference to amending the certificate of incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of
directors as provided in Section 151(a) of the GCL, fix the designation and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of shares of any series), adopting an
agreement of merger or consolidation under Section 251 or 252 of the GCL,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the bylaws of the corporation. The Executive
Committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock and to adopt a certificate of ownership and
merger pursuant to Section 253 of the GCL. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the board of directors. Each committee so formed shall keep regular
minutes of its meetings and report the same to the board of directors when
required.
(c) Committee Procedures. The term "board of directors" or "board,"
when used in any provision of these bylaws relating to the organization or
procedures of or the manner of taking action by the board of directors, shall
be construed to include and refer to the Executive Committee or other
committee of the board.
SECTION 4.12. Compensation of Directors. Unless otherwise restricted
by the certificate of incorporation, the board of directors shall have the
authority to fix the compensation of directors.
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ARTICLE V
Officers
SECTION 5.01. Number, Qualifications and Designation. The officers of
the corporation shall be chosen by the board of directors and shall be a
president, one or more vice presidents, a secretary, a treasurer, and such
other officers as may be elected in accordance with the provisions of section
5.03 of this Article. Any number of offices may be held by the same person.
Officers may, but need not, be directors or stockholders of the corporation.
The board of directors may elect from among the members of the board a
chairman of the board and a vice chairman of the board who shall be officers
of the corporation. The chairman of the board or the president, as designated
from time to time by the board of directors, shall be the chief executive
officer of the corporation.
SECTION 5.02. Election and Term of Office. The officers of the
corporation, except those elected by delegated authority pursuant to section
5.03 of this Article, shall be elected annually by the board of directors, and
each such officer shall hold office for a term of one year and until a
successor is elected and qualified, or until his or her earlier resignation or
removal. Any officer may resign at any time upon written notice to the
corporation.
SECTION 5.03. Subordinate Officers, Committees and Agents. The board
of directors may from time to time elect such other officers and appoint such
committees, employees or other agents as it deems necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as are provided in these bylaws, or as the board of directors may from
time to time determine. The board of directors may delegate to any officer or
committee the power to elect subordinate officers and to retain or appoint
employees or other agents, or committees thereof, and to prescribe the
authority and duties of such subordinate officers, committees, employees or
other agents.
SECTION 5.04. The Chairman and Vice Chairman of the Board. The
chairman of the board, if there be one, or in the absence of the chairman, the
vice chairman of the board, if there be one, shall preside at all meetings of
the stockholders and of the board of directors, and shall perform such other
duties as may from time to time be assigned to them by the board of directors.
SECTION 5.05. The President. The president shall have general
supervision over the business and operations of the corporation, subject,
however, to the control of the board of directors. The president shall, in
general, perform all duties incident to the office of president, and such
other duties as from time to time may be assigned by the board of directors
and, if the chairman of the board is the chief executive officer, the chairman
of the board.
SECTION 5.06. The Vice Presidents. The vice presidents shall perform
the duties of the president in the absence of the president and such other
duties as may from time to time be assigned to them by the board of directors
or by the president.
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SECTION 5.07. The Secretary. The secretary, or an assistant
secretary, shall attend all meetings of the stockholders and of the board of
directors and shall record the proceedings of the stockholders and of the
directors and of committees of the board in a book or books to be kept for
that purpose; shall see that notices are given and records and reports
properly kept and filed by the corporation as required by law; shall be the
custodian of the seal of the corporation and see that it is affixed to all
documents to be executed on behalf of the corporation under its seal; and, in
general, shall perform all duties incident to the office of secretary, and
such other duties as may from time to time be assigned by the board of
directors or the president.
SECTION 5.08. The Treasurer. The treasurer, or an assistant
treasurer, shall have or provide for the custody of the funds or other
property of the corporation; shall collect and receive or provide for the
collection and receipt of moneys earned by or in any manner due to or received
by the corporation; shall deposit all funds in his or her custody as treasurer
in such banks or other places of deposit as the board of directors may from
time to time designate; whenever so required by the board of directors, shall
render an account showing his or her transactions as treasurer and the
financial condition of the corporation; and, in general, shall discharge such
other duties as may from time to time be assigned by the board of directors or
the president.
SECTION 5.09. Officers' Bonds. No officer of the corporation need
provide a bond to guarantee the faithful discharge of the officer's duties
unless the board of directors shall by resolution so require a bond in which
event such officer shall give the corporation a bond (which shall be renewed
if and as required) in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of office.
SECTION 5.10. Salaries. The salaries of the officers and agents of
the corporation elected by the board of directors shall be fixed from time to
time by the board of directors.
ARTICLE VI
Certificates of Stock, Transfer, Etc.
SECTION 6.01. Form and Issuance.
(a) Issuance. The shares of the corporation shall be represented by
certificates unless the board of directors shall by resolution provide that
some or all of any class or series of stock shall be uncertificated shares.
Any such resolution shall not apply to shares represented by a certificate
until the certificate is surrendered to the corporation. Notwithstanding the
adoption of any resolution providing for uncertificated shares, every holder
of stock represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate signed by, or in
the name of the corporation by, the chairman or vice chairman of the board of
directors, or the president or vice president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary, representing
the number of shares registered in certificate form.
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(b) Form and Records. Stock certificates of the corporation shall be
in such form as approved by the board of directors. The stock record books and
the blank stock certificate books shall be kept by the secretary or by any
agency designated by the board of directors for that purpose. The stock
certificates of the corporation shall be numbered and registered in the stock
ledger and transfer books of the corporation as they are issued.
(c) Signatures. Any of or all the signatures upon the stock
certificates of the corporation may be a facsimile. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any share certificate shall have ceased to be such officer,
transfer agent or registrar, before the certificate is issued, it may be
issued with the same effect as if the signatory were such officer, transfer
agent or registrar at the date of its issue.
SECTION 6.02. Transfer. Transfers of shares shall be made on the
share register or transfer books of the corporation upon surrender of the
certificate therefor, endorsed by the person named in the certificate or by an
attorney lawfully constituted in writing. No transfer shall be made which
would be inconsistent with the provisions of Article 8, Title 6 of the
Delaware Uniform Commercial Code-Investment Securities.
SECTION 6.03. Lost, Stolen, Destroyed or Mutilated Certificates. The
board of directors may direct a new certificate of stock or uncertificated
shares to be issued in place of any certificate theretofore issued by the
corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate
or certificates, the board of directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or the legal representative
of the owner, to give the corporation a bond sufficient to indemnify against
any claim that may be made against the corporation on account of the alleged
loss, theft or destruction of such certificate or the issuance of such new
certificate or uncertificated shares.
SECTION 6.04. Record Holder of Shares. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
SECTION 6.05. Determination of Stockholders of Record.
(a) Meetings of Stockholders. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which record date shall not be more than 60 nor less than ten days before the
date of such meeting. If no record date is fixed
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by the board of directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting unless the board of directors fixes a
new record date for the adjourned meeting.
(b) Consent of Stockholders. In order that the corporation may
determine the stockholders entitled to consent to corporate action in writing
without a meeting, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record
date is adopted by the board of directors, and which date shall not be more
than ten days after the date upon which the resolution fixing the record date
is adopted by the board of directors. If no record date has been fixed by the
board of directors, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is required by the GCL, shall be the first date on
which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office
in Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by the GCL, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the board of
directors adopts the resolution taking such prior action.
(c) Dividends. In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights of the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the board of directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted, and which record date shall be not more than 60
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the resolution
relating thereto.
ARTICLE VII
Indemnification of Directors, Officers and
Other Authorized Representatives
SECTION 7.01. Indemnification of Authorized Representatives in Third
Party Proceedings. The corporation shall indemnify any person who was or is an
authorized representative of the corporation, and who was or is a party, or is
threatened to be made a party to any third party proceeding, by reason of the
fact that such person was or is an authorized representative of the
corporation, against expenses, judgments, fines and amounts paid in settlement
actually and
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reasonably incurred by such person in connection with such third party
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal third party proceeding, had no
reasonable cause to believe such conduct was unlawful. The termination of any
third party proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not of itself create a
presumption that the authorized representative did not act in good faith and
in a manner which such person reasonably believed to be in or not opposed to,
the best interests of the corporation, and, with respect to any criminal third
party proceeding, had reasonable cause to believe that such conduct was
unlawful.
SECTION 7.02. Indemnification of Authorized Representatives in
Corporate Proceedings. The corporation shall indemnify any person who was or
is an authorized representative of the corporation and who was or is a party
or is threatened to be made a party to any corporate proceeding, by reason of
the fact that such person was or is an authorized representative of the
corporation, against expenses actually and reasonably incurred by such person
in connection with the defense or settlement of such corporate proceeding if
such person acted in good faith and in a manner reasonably believed to be in,
or not opposed to, the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such corporate proceeding was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such authorized representative is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 7.03. Mandatory Indemnification of Authorized
Representatives. To the extent that an authorized representative or other
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any third party or corporate proceeding or in defense
of any claim, issue or matter therein, such person shall be indemnified
against expenses actually and reasonably incurred by such person in connection
therewith.
SECTION 7.04. Determination of Entitlement to Indemnification. Any
indemnification under section 7.01, 7.02 or 7.03 of this Article (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the authorized
representative or other employee or agent is proper in the circumstances
because such person has either met the applicable standard of conduct set
forth in section 7.01 or 7.02 or has been successful on the merits or
otherwise as set forth in section 7.03 and that the amount requested has been
actually and reasonably incurred. Such determination shall be made:
(1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such third party or
corporate proceeding; or
(2) if such a quorum is not obtainable, or even if obtainable,
a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion; or
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(3) by the stockholders.
SECTION 7.05. Advancing Expenses. Expenses actually and reasonably
incurred in defending a third party or corporate proceeding shall be paid on
behalf of an authorized representative by the corporation in advance of the
final disposition of such third party or corporate proceeding upon receipt of
an undertaking by or on behalf of the authorized representative to repay such
amount if it shall ultimately be determined that the authorized representative
is not entitled to be indemnified by the corporation as authorized in this
Article. The financial ability of any authorized representative to make a
repayment contemplated by this section shall not be a prerequisite to the
making of an advance. Expenses incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
SECTION 7.06. Definitions. For purposes of this Article:
(1) "authorized representative" shall mean any and all
directors and officers of the corporation and any person designated
as an authorized representative by the board of directors of the
corporation (which may, but need not, include any person serving at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise);
(2) "corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents,
so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position
under the provisions of this Article with respect to the resulting
or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had
continued;
(3) "corporate proceeding" shall mean any threatened, pending
or completed action or suit by or in the right of the corporation to
procure a judgment in its favor or investigative proceeding by the
corporation;
(4) "criminal third party proceeding" shall include any action
or investigation which could or does lead to a criminal third party
proceeding;
(5) "expenses" shall include attorneys' fees and disbursements;
(6) "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan;
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(7) "not opposed to the best interests of the corporation"
shall include actions taken in good faith and in a manner the
authorized representative reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan;
(8) "other enterprises" shall include employee benefit plans;
(9) "party" shall include the giving of testimony or similar
involvement;
(10) "serving at the request of the corporation" shall include
any service as a director, officer or employee of the corporation
which imposes duties on, or involves services by, such director,
officer or employee with respect to an employee benefit plan, its
participants, or beneficiaries; and
(11) "third party proceeding" shall mean any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by
or in the right of the corporation.
SECTION 7.07. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against the person and incurred by the person in any such capacity,
or arising out of his or her status as such, whether or not the corporation
would have the power or the obligation to indemnify such person against such
liability under the provisions of this Article.
SECTION 7.08. Scope of Article. The indemnification of authorized
representatives and advancement of expenses, as authorized by the preceding
provisions of this Article, shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in an official capacity and as to action in
another capacity while holding such office. The indemnification and
advancement of expenses provided by or granted pursuant to this Article shall,
unless otherwise provided when authorized or ratified, continue as to a person
who has ceased to be an authorized representative and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 7.09. Reliance on Provisions. Each person who shall act as an
authorized representative of the corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article.
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ARTICLE VIII
General Provisions
SECTION 8.01. Dividends. Subject to the restrictions contained in the
GCL and any restrictions contained in the certificate of incorporation, the
board of directors may declare and pay dividends upon the shares of capital
stock of the corporation.
SECTION 8.02. Contracts. Except as otherwise provided in these
bylaws, the board of directors may authorize any officer or officers including
the chairman and vice chairman of the board of directors, or any agent or
agents, to enter into any contract or to execute or deliver any instrument on
behalf of the corporation and such authority may be general or confined to
specific instances.
SECTION 8.03. Corporate Seal. The corporation shall have a corporate
seal, which shall have inscribed thereon the name of the corporation, the year
of its organization and the words "Corporate Seal, Delaware". The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
SECTION 8.04. Deposits. All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the board of directors may approve
or designate, and all such funds shall be withdrawn only upon checks signed by
such one or more officers or employees as the board of directors shall from
time to time determine.
SECTION 8.05. Corporate Records.
(a) Examination by Stockholders. Every stockholder shall, upon
written demand under oath stating the purpose thereof, have a right to
examine, in person or by agent or attorney, during the usual hours for
business, for any proper purpose, the stock ledger, list of stockholders,
books or records of account, and records of the proceedings of the
stockholders and directors of the corporation, and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or
other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at its
registered office in Delaware or at its principal place of business. Where the
stockholder seeks to inspect the books and records of the corporation, other
than its stock ledger or list of stockholders, the stockholder shall first
establish (1) that the stockholder has complied with the provisions of this
section respecting the form and manner of making demand for inspection of such
documents; and (2) that the inspection sought is for a proper purpose. Where
the stockholder seeks to inspect the stock ledger or list of stockholders of
the corporation and has complied with the provisions of this section
respecting the form and manner of making demand for inspection of such
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documents, the burden of proof shall be upon the corporation to establish that
the inspection sought is for an improper purpose.
(b) Examination by Directors. Any director shall have the right to
examine the corporation's stock ledger, a list of its stockholders and its
other books and records for a purpose reasonably related to the person's
position as a director.
SECTION 8.06. Amendment of Bylaws. These bylaws may be altered,
amended or repealed or new bylaws may be adopted either (1) by vote of the
stockholders at a duly organized annual or special meeting of stockholders, or
(2) by vote of a majority of the board of directors at any regular or special
meeting of directors if such power is conferred upon the board of directors by
the certificate of incorporation.
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L&W DRAFT 7/17/97
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DECISIONONE CORPORATION
___% SENIOR SUBORDINATED NOTES DUE 2007
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INDENTURE
Dated as of August ___, 1997
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FLEET NATIONAL BANK
TRUSTEE
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE.............................. 1
Section 1.01. Definitions............................................................. 1
Section 1.02. Other Definitions. ..................................................... 17
Section 1.03. Incorporation By Reference of Trust Indenture Act....................... 17
Section 1.04. Rules of Construction................................................... 18
Section 1.05. Compliance Certificates and Opinions.................................... 18
Section 1.06. Form of Documents Delivered To Trustee.................................. 19
Section 1.07. Acts of Holders......................................................... 20
ARTICLE 2 THE NOTES............................................................... 21
Section 2.01. Form and Dating......................................................... 21
Section 2.02. Execution and Authentication............................................ 21
Section 2.03. Registrar and Paying Agent.............................................. 21
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................................................... 22
Section 2.07. Replacement Notes....................................................... 23
Section 2.08. Outstanding Notes....................................................... 23
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........................... 33
Section 4.06. Payment of Taxes and Other Claims....................................... 33
Section 4.07 Stay, Extension and Usuary Laws..........................................34
Section 4.08. Corporate Existence..................................................... 34
Section 4.09. Offer to Repurchase Upon Change of Control.............................. 34
Section 4.10. Asset Sales............................................................. 36
Section 4.11. Limitation on Restricted Payments....................................... 37
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Section 4.12. Limitation on Incurrence of Indebtedness and Issuance of
Preferred Stock......................................................... 42
Section 4.13. Transactions with Affiliates............................................ 44
Section 4.14. Dividend and Other Payment Restrictions Affecting Subsidiaries.......... 45
Section 4.15. Limitations on Guarantees of Indebtedness by Restricted Subsidiaries.... 45
Section 4.17 Sale and Leaseback Transactions......................................... 46
Section 4.18 Anti-Layering........................................................... 46
Section 4.19 Sales of Accounts Receivables........................................... 47
ARTICLE 5 SUCCESSORS ..............................................................47
Section 5.01. Merger, Consolidation, or Sale of All or Substantially All Assets....... 47
Section 5.02. Successor Corporation Substituted....................................... 48
ARTICLE 6 DEFAULTS AND REMEDIES ...................................................48
Section 6.01. Events of Default and Notice Thereof.................................... 48
Section 6.02. Acceleration............................................................ 50
Section 6.03. Other Remedies.......................................................... 50
Section 6.04. Waiver of Past Defaults................................................. 50
Section 6.05. Control by Majority. ..................................... 51
Section 6.06. Limitation on Suits..................................................... 51
Section 6.07. Rights of Holders of Notes to Receive Payment........................... 51
Section 6.08. Collection Suit by Trustee.............................................. 51
Section 6.09. Trustee May File Proofs of Claim........................................ 51
Section 6.10. Priorities.............................................................. 52
Section 6.11. Undertaking for Costs................................................... 52
ARTICLE 7 TRUSTEE................................................................. 53
Section 7.01. Duties of Trustee....................................................... 53
Section 7.02. Rights of Trustee....................................................... 54
Section 7.03. Individual Rights of Trustee............................................ 54
Section 7.04. Trustee's Disclaimer.....................................................54
Section 7.05. Notice of Defaults...................................................... 55
Section 7.06. Reports by Trustee to Holders of the Notes.............................. 55
Section 7.07. Compensation and Indemnity.............................................. 55
Section 7.08. Replacement of Trustee.................................................. 56
Section 7.09. Successor Trustee by Merger, etc........................................ 57
Section 7.10. Eligibility; Disqualification........................................... 57
Section 7.11. Preferential Collection of Claims Against the Company................... 57
Section 7.12. Rights of Holders with Respect to Time Method and Place................. 57
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE................................ 57
Section 8.01. Option to Effect Defeasance or Covenant Defeasance...................... 57
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Section 8.02. Legal Defeasance and Discharge.......................................... 57
Section 8.03. Covenant Defeasance..................................................... 58
Section 8.04. Conditions to Defeasance or Covenant Defeasance......................... 58
Section 8.05. Deposited Money and U.S. Government Obligations to be Held in Trust; Other
Miscellaneous Provisions................................................ 59
Section 8.06. Repayment to Company.................................................... 60
Section 8.07. Reinstatement........................................................... 60
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes..................................... 61
Section 9.02. With Consent of Holders of Notes........................................ 61
Section 9.03. Compliance with TIA..................................................... 63
Section 9.04. Revocation and Effect of Consents....................................... 63
Section 9.05. Notation on or Exchange of Notes........................................ 63
ARTICLE 10 SUBORDINATION........................................................... 63
Section 10.01. Agreement to Subordinate................................................ 63
Section 10.02. Liquidation; Dissolution; Bankruptcy.................................... 64
Section 10.03. Default on Designated Senior Debt....................................... 64
Section 10.04. Acceleration of Securities.............................................. 65
Section 10.05. When Distribution Must Be Paid Over..................................... 65
Section 10.06. Notice by Company....................................................... 66
Section 10.07. Subrogation............................................................. 66
Section 10.08. Relative Rights......................................................... 66
Section 10.09. Subordination May Not Be Impaired by Company............................ 66
Section 10.10. Distribution or Notice to Representative................................ 66
Section 10.11. Rights of Trustee and Paying Agent...................................... 67
Section 10.12. Authorization to Effect Subordination................................... 67
Section 10.13. No Waiver of Subordination Provisions................................... 67
Section 10.14. Certain Definitions..................................................... 68
ARTICLE 11 SATISFACTION AND DISCHARGE ..............................................68
Section 11.01 Satisfaction and Discharge of Indenture................................. 68
Section 11.02 Application of Trust Money............................................. 69
ARTICLE 12 MISCELLANEOUS ...........................................................69
Section 12.01. Conflict of Any Provision of Indenture with TIA......................... 69
Section 12.02. Notices................................................................. 69
Section 12.03. Communication by Holders of Notes with Other Holders of Notes........... 70
Section 12.04. Certificate and Opinion as to Conditions Precedent...................... 70
Section 12.05. Legal Holidays.......................................................... 71
Section 12.06. No Personal Liability of Directors, Officers, Employees and Stockholders. 71
Section 12.07. Governing Law........................................................... 71
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Section 12.08. No Adverse Interpretation of Other Agreements........................... 71
Section 12.09. Successors and Assigns.................................................. 71
Section 12.10. Severability............................................................ 71
Section 12.11. Counterpart Originals................................................... 72
Section 12.12. Table of Contents, Headings, etc........................................ 72
EXHIBITS
A Form of Note
B Form of Supplemental Indenture to be Delivered by Guarantors
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CROSS-REFERENCE TABLE*
Trust Indenture Indenture
--------------- ---------
Section
-------
Act Section
-----------
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
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
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INDENTURE dated as of August ___, 1997 between DecisionOne
Corporation, a Delaware corporation (the "Company"), and Fleet National Bank,
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 __% Senior Subordinated Notes due 2007 (the "Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
Set forth below are certain defined terms used in this Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"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 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
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in the ordinary course of business in connection with sales of accounts
receivable in accordance with the covenant described in Section 4.20 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 4.20 hereof or (b) to maintain or preserve the solvency
or any balance sheet term, financial condition, level of income or results of
operations thereof.
"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 plus, with respect to
the Company, up to $25.0 million 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 less any tax benefit recorded
by such Person as a result of such amortization, (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, (iii) expenses and charges of the Company related to the Merger
which are paid, taken or otherwise accounted for within 90 days of the
consummation of the Merger and (iv) 100% of any loss realized in connection
with the extinguishment of Indebtedness pursuant to the Intercompany Loan.
"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
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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 4.20 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 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
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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 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
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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 "Holding Company"),
then the "beneficial owners" (as defined above) of the Voting Stock of such
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 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 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.
"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 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
related to the Merger which are
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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, (iii) the cumulative effect of a change in
accounting principles, shall be excluded, and (iv) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not, at the date of determination, permitted without any
prior governmental approval (which has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company or any Holding Company of the
Company who (i) was a member of such Board of Directors immediately after
consummation of the Merger, including
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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.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated 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.
"Designated Senior Debt" means (i) so long as Indebtedness is
outstanding pursuant to the New Credit Facility, all such Indebtedness
incurred under the New Credit Facility and, thereafter, (ii) any other Senior
Debt or Guarantor Senior Debt permitted under this Indenture the principal
amount of which is $50.0 million or more and that has been designated by the
Company as "Designated Senior Debt."
"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 _________,
2007; 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.
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"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 to Holdings and other than Disqualified
Stock) or Holdings (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 to Holdings and other than Disqualified Stock) or Holdings
(other than Disqualified Stock), excluding, in the case of clauses (i) and
(ii) above, issuances of common stock pursuant to employee benefit plans of
Holdings or the Company or otherwise as compensation to employees of the
Company or Holdings.
"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) 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 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 uch 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,
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(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 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
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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 and any Guarantor on any series of preferred stock of the Company or
such Guarantor 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.
"Guarantor" means any Restricted Subsidiary that shall have
guaranteed, pursuant to a supplemental indenture and the requirements therefor
set forth in this Indenture, the payment of all principal of, and interest and
premium, if any, on, the Notes and all other amounts payable under the Notes
or this Indenture, which guarantee shall be subordinate to all Senior Debt and
pari
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passu with or senior to all other Indebtedness of such Restricted Subsidiary.
"Guarantor Senior Debt" means, with respect to any Guarantor, (i) all
Obligations of such Guarantor outstanding under the New Credit Facility and
all Hedging Obligations payable to a lender under the New Credit Facility or
any of its affiliates, including, without limitation, in each case, interest
accruing subsequent to the filing of, or which would have accrued but for the
filing of, a petition in bankruptcy, whether or not such interest is an
allowable claim in such bankruptcy proceeding, (ii) any other Indebtedness
permitted to be incurred by such Guarantor under the terms of this Indenture,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to
the Subsidiary Guarantee of such Guarantor and (iii) all Obligations with
respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Guarantor Senior Debt will not include (a) any liability for
federal, state, local or other taxes owed or owing by such Guarantor or any of
its Subsidiaries, (b) any Indebtedness of such Guarantor to any of its
Subsidiaries or other Affiliates, (c) any accounts payable or trade
liabilities arising in the ordinary course of business (including instruments
evidencing such liabilities) other than obligations in respect of bankers'
acceptances and letters of credit under the New Credit Facility, (d) any
Indebtedness that is incurred in violation of this Indenture, (e) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to such Guarantor, (f)
any Indebtedness, guarantee or obligation of such Guarantor which is
subordinate or junior to any other Indebtedness, guarantee or obligation of
such Guarantor, (g) Indebtedness evidenced by the Subsidiary Guarantee of such
Guarantor and (h) Capital Stock of such Guarantor.
"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 the Company, or its successors.
"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
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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.
"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.
"Intercompany Note" means the note issued by Holdings to the Company
on the Closing Date to evidence the loan by the Company to Holdings of $_____
million of the proceeds of the Offerings which proceeds, together with
dividends to Holdings will fund the merger consideration and costs and
expenses in connection therewith.
"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
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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
___________, 1997, among DLJ Merchant Banking Partners II, L.P. and affiliated
funds, a limited number of institutional investors and certain members of
management of Holdings and 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 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 Holdings
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.
"Merger" means the merger of Quaker Holdings Corp., a Delaware
corporation, 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
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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) 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 ___________, 1997, by and among the Company, 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 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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"Notes" means the Company's ___% Senior Subordinated Notes due 2007
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 the Notes by the Company
pursuant to a prospectus, dated as of ________, 1997, contained or
incorporated in the Registration Statement.
"Offerings" means the Offering and the concurrent offering by Quaker
Holding Co., a Delaware corporation, of units consisting of ___% Senior
Discount Debentures due 2008 and warrants to purchase shares of common stock
of Holdings pursuant to a prospectus, dated as of _____________, 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 principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer 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. Each such
opinion shall include the statements provided for in TIA Section 314(e) to the
extent applicable.
"Other Qualified Notes" means any outstanding Indebtedness that ranks
pari passu in right of payment with the Notes issued pursuant to an indenture
or other agreement, in either case, having a provision substantially similar
to the provision contained in Section 4.10 hereof.
"Pari Passu Indebtedness" means Indebtedness of the Company or any
Guarantor that ranks pari passu in right of payment to the Notes or any
Subsidiary Guarantee.
"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
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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 Accounts Receivable Subsidiary or
received in consideration of sales of accounts receivable, in each case, in
accordance with Section 4.20 hereof, (ix) the Intercompany Note and (x) the
Management Loans.
"Permitted Junior Securities" means Equity Interests in the Company
or debt securities of the Company or relevant Guarantor that are subordinated
to all Senior Debt (and any debt securities issued in exchange for Senior
Debt) or Guarantor Senior Debt (and any debt securities issued in exchange for
Guarantor Senior Debt), as applicable, to substantially the same extent as, or
to a greater extent than, the Notes are subordinated to Senior Debt or the
Subsidiary Guarantees are subordinated to Guarantor Senior Debt, as
applicable, pursuant to this Indenture.
"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 favorable
to the Holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iv) if the Indebtedness being extended, refinanced,
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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 and (v) such
Indebtedness is incurred either by the Company or by the Restricted Subsidiary
who is the obligor on 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 First 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 4.20 hereof.
"Registration Statement" means the Registration Statement (No.
333-28411) on Form S-1 relating to the Notes filed with the Commission on June
3, 1997 and all exhibits, schedules and amendments thereto.
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"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 to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"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.
"Senior Debt" means (i) all Obligations of the Company outstanding
under the New Credit Facility and all Hedging Obligations payable to a lender
under the New Credit Facility or any of its affiliates, including, without
limitation, in each case, interest accruing subsequent to the filing of, or
which would have accrued but for the filing of, a petition for bankruptcy,
whether or not such interest is an allowable claim in such bankruptcy
proceeding, (ii) any other Indebtedness permitted to be incurred by the
Company under the terms of this Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on a parity with
or subordinated in right of payment to the Notes and (iii) all Obligations
with respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (a) any liability for federal, state,
local or other taxes owed or owing by the Company or any of its Subsidiaries,
(b) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (c) any accounts payable or trade liabilities arising in the
ordinary course of business (including instruments evidencing such
liabilities) other than obligations in respect of bankers' acceptances and
letters of credit under the New Credit Facility, (d) any Indebtedness that is
incurred in violation of this Indenture, (e) Indebtedness which, when incurred
and without respect to any election under Section 1111(b) of Title 11, United
States Code, is without recourse to the Company, (f) any Indebtedness,
guarantee or obligation of the Company which is subordinate or junior in right
of payment to any
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other Indebtedness, guarantee or obligation of the Company, (g) Indebtedness
evidenced by the Notes and (h) Capital Stock of the Company.
"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.
"Subordinated Indebtedness" means any Indebtedness of the Company or
any Guarantor which is expressly by its terms subordinated in right of payment
to the Notes or any Subsidiary Guarantee.
"Subordinated Note Obligations" means all Obligations with respect to
the Notes, including, without limitation, principal, premium (if any) and
interest payable pursuant to the terms of the Notes (including upon the
acceleration or redemption thereof), together with and including any amounts
received or receivable upon the exercise of rights of recision or other rights
of action (including claims for damages) or otherwise.
"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.
"Subsidiary Guarantee" means any guarantee of the obligations of the
Company under this Indenture and the Notes by any Person in accordance with
the provisions of this Indenture pursuant to a supplemental indenture
substantially in the form attached hereto as Exhibit B.
"Tax Sharing Agreement" means the tax sharing agreement, dated as of
______________, 1997, among the Company, Holdings and the Company'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. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
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"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 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 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).
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"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.
SECTION 1.02. OTHER DEFINITIONS.
Term Defined in
Section
"Act".......................................................... 1.07
"Affiliate Transaction"........................................ 4.13
"Asset Sale Offer"............................................. 3.09
"Change of Control Offer"...................................... 4.09
"Change of Control Payment".................................... 4.09
"Change of Control Payment Date"............................... 4.09
"Covenant Defeasance".......................................... 8.03
"distribution"................................................. 10.14
"Event of Default"............................................. 6.01
"Excess Proceeds".............................................. 4.10
"Financier".................................................... 4.19
"Guaranteed Debt".............................................. 4.15
"incur"........................................................ 4.12
"Legal Defeasance"............................................. 8.02
"Offer Amount"................................................. 3.09
"Offer Period"................................................. 3.09
"Paying Agent"................................................. 2.03
"payment"...................................................... 10.14
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"Payment Blockage Notice"...................................... 10.03
"Payment Default".............................................. 6.01
"Permitted Debt"............................................... 4.12
"Purchase Date................................................. 3.09
"Promissory Note".............................................. 4.19
"Registrar".................................................... 2.03
"Restricted Payments".......................................... 4.11
"Successor Company"............................................ 5.01
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;
"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
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(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;
(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
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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.
(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
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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.
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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 stated in the Notes. The aggregate principal amount
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.
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 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
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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 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 ss. 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 of the Notes held by each thereof,
and the Company shall otherwise comply with TIA ss. 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
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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.
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
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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 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 ss.
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.
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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.
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 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 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.
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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
default in payment of the redemption price)
interest thereon shall cease to accrue 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 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.
On or prior to 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
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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.
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 _____________, 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
_____________ of each of the years indicated below:
YEAR Redemption
Price
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2002................................................... [ ]%
2003................................................... [ ]%
2004................................................... [ ]%
2005 and thereafter.................................... 100.000%
In addition, prior to _________, 2000, the Company may, at its
option, on any one or more occasions, redeem up to 35% of the original
aggregate principal amount of Notes at a redemption price equal to ____% of
the principal amount thereof, plus accrued and unpaid interest thereon, to the
redemption date, with the net cash proceeds of one or more Equity Offerings by
(i) the Company or (ii) Holdings to the extent the net cash proceeds thereof
are contributed to the Company as a capital contribution to the common equity
of the Company; provided that at least 65% of the original aggregate principal
amount 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.
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 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.
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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 accrue interest 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;
(g) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the
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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.
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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 10:00 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 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.
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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.
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
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(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 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 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
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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.
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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.
SECTION 4.07. STAY, EXTENSION, USURY LAWS.
The Company and each Guarantor, if any, 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 and each Guarantor, if any, (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
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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 thereof
plus accrued and unpaid interest thereon to the date of purchase (the "Change
of Control Payment").
(b) Within 30 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");
(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;
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(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 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 to any
unpurchased portion of
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the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. 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 or any guarantee thereof) 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 365 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 under Senior Debt or Guarantor Senior Debt (and to
correspondingly reduce commitments
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with respect thereto), to permanently reduce Indebtedness of a Restricted
Subsidiary that is not a Guarantor or 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 the amount of Notes that would otherwise be redeemed or (b) 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 thereof plus accrued and unpaid interest thereon to the date of
purchase, in accordance with the procedures set forth in Section 3.10 hereof.
To the extent that the aggregate amount of Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Notes surrendered by holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis. Upon completion of such 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
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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 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 (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), (vii), (viii), (x), (xi), (xii), (xv) 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 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
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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 (ix) or (xvi) 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, plus (4) all
cash payments received after the date of this Indenture by the Company from
Holdings with respect to the Intercompany Note; 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 Subordinated
Indebtedness of the Company or any Guarantor 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 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
Holdings 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 and any dividend to
Holdings to fund any such
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repurchase, redemption or acquisition; 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 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 Holdings or the Company 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 or the making of loans or
advances by the Company to Holdings not to exceed $2.0 million in any
fiscal year for costs and expenses incurred by Holdings in its
capacity as a holding company or for services rendered by Holdings on
behalf of the Company;
(vi) 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;
(vii) 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;
(viii) payments to Holdings (A) pursuant to the Tax Sharing
Agreement as in effect on the date of this Indenture and (B) pursuant
to the Tax Sharing Agreement as amended from time to time; provided
however; that in no event shall the amount permitted to be paid
pursuant to this clause (viii) (B) exceed the amount the Company
would be required to pay for income taxes were it to file a
consolidated tax return for itself and its consolidated Restricted
Subsidiaries;
(ix) any other Restricted Investment made in a Permitted
Business which, together with all other Restricted Investments made
pursuant to this clause (ix) since the date of this Indenture, does
not exceed $30.0 million (in each case, after giving effect to all
subsequent reductions in the amount of any Restricted Investment made
pursuant to this clause (ix), either as a result of (A) the repayment
or disposition thereof for cash or (B) as a result of the
redesignation of an
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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 (ix);
provided that no Default or Event of Default shall have occurred and
be continuing immediately after making such Restricted Investment;
(x) the declaration and payment of dividends to holders of
any class or series of Disqualified Stock of the Company or any
Guarantor issued after the date of this Indenture in accordance with
the covenant described in Section 4.14 hereof; provided that no
Default or Event of Default shall have occurred and be continuing
immediately after such declaration or payment;
(xi) 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;
(xii) (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
Holdings in connection with the Merger and (C) dividends to Holdings
for any such payments referred to in clause (B);
(xiii) 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 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 (xiii) 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 (xiii) 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 (xiii) 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
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Default or Event of Default shall have occurred and be continuing
immediately after making such Restricted Payment;
(xiv) 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 (A) the net proceeds received by the Company from
such public offering of its common stock or (B) the net proceeds
received by the Company from such public offering of Holdings' common
stock as common equity or preferred equity (other than Disqualified
Stock), 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;
(xv) 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.
(xvi) 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 $20.0 million (in each
case, after giving effect to all subsequent reductions in the amount
of any Restricted Investment made pursuant to this clause (xvi)
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; and
(xvii) distributions or payments of Receivables Fees.
The Board of Directors may designate any Restricted Subsidiary 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
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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 neither the Company nor any Guarantor will issue any
Disqualified Stock and (iii) the Company will not permit any of the Company's
Restricted Subsidiaries that are not Guarantors to issue any shares of
preferred stock; provided, however, that the Company and any Guarantor may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
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 is issued would have been
at least 2.00 to 1.00 determined on a pro forma basis
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(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such quarter.
The foregoing provisions will not apply to (collectively, "Permitted
Debt"):
(i) the incurrence by the Company and the Guarantors 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 face amount thereunder) outstanding 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 the Company and any Guarantor of
Indebtedness represented by the Notes and the Subsidiary Guarantees;
(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 such Indebtedness is made pursuant to an
intercompany note and is subordinated in right of payment to the
Notes; provided further 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 (i)
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any such Indebtedness is made pursuant to an intercompany note and
(ii) if a Guarantor incurs such Indebtedness to a Restricted
Subsidiary that is not a Guarantor, such Indebtedness is subordinated
in right of payment to the Subsidiary Guarantee of such Guarantor;
provided further 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 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 $35.0 million;
(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
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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) any guarantee by a Restricted Subsidiary of the
Company of Senior Debt or Pari Passu Indebtedness of the Company that
was permitted to be incurred under this Indenture; provided that,
prior to or concurrently with the issuance of such guarantee such
Restricted Subsidiary complies with the terms described in Section
4.15 hereof.
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 accreted value 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
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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 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), (vii),
(viii), (xi), (xii) and (xvii) 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) Existing
Indebtedness, as in effect on the date of this Indenture; (b) the New Credit
Facility and any amendments, modifications, restatements, renewals, increases,
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supplements, refundings, replacements or refinancings thereof; provided that
such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more restrictive
with respect to such dividend and other payment restrictions in the aggregate
than those contained in the New Credit Facility, as in effect on the date of
this Indenture; (c) this Indenture and the Notes; (d) applicable law or any
applicable rule, regulation or order; (e) 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; (f) customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices; (g) 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; (h) 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; or (i) Permitted
Refinancing Indebtedness; provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive with respect to such dividend and other payment restrictions in
the aggregate than those contained in the agreements governing the
Indebtedness being refinanced.
SECTION 4.15. LIMITATIONS ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED
SUBSIDIARIES.
(a) The Company shall not permit any of its Restricted Subsidiaries
to guarantee the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary (in each case, the "Guaranteed
Debt") unless (i) if such Restricted Subsidiary is not a Guarantor, such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to this Indenture providing for a Subsidiary Guarantee of payment of
the Notes by such Restricted Subsidiary, (ii) if the Notes or the Subsidiary
Guarantee (if any) of such Restricted Subsidiary are subordinated in right of
payment to the Guaranteed Debt, the Subsidiary Guarantee under the
supplemental indenture shall be subordinated to such Restricted Subsidiary's
guarantee with respect to the Guaranteed Debt substantially to the same extent
as the Notes or the Subsidiary Guarantee are subordinated to the Guaranteed
Debt under this Indenture, (iii) if the Guaranteed Debt is by its express
terms subordinated in right of payment to the Notes or the Subsidiary
Guarantee (if any) of such Restricted Subsidiary, any such guarantee of such
Restricted Subsidiary with respect to the Guaranteed Debt shall be
subordinated in right of
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payment to such Restricted Subsidiary's Subsidiary Guarantee with respect to
the Notes substantially to the same extent as the Guaranteed Debt is
subordinated to the Notes or the Subsidiary Guarantee (if any) of such
Restricted Subsidiary, (iv) such Restricted Subsidiary waives and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee, and (v) such Restricted
Subsidiary shall deliver to the Trustee an Opinion of Counsel to the effect
that (A) such Subsidiary Guarantee of the Notes has been duly executed and
authorized and (B) such Subsidiary Guarantee of the Notes constitutes a valid,
binding and enforceable obligation of such Restricted Subsidiary, except
insofar as enforcement thereof may be limited by bankruptcy, insolvency or
similar laws (including, without limitation, all laws relating to fraudulent
transfers) and except insofar as enforcement thereof is subject to general
principles of equity.
(b) Notwithstanding the foregoing and the other provisions of this
Indenture, any Subsidiary Guarantee by a Restricted Subsidiary of the Notes
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer, to any Person
not an Affiliate of the Company, of all of the Company's Capital Stock in, or
all or substantially all the assets of, such Restricted Subsidiary (which
sale, exchange or transfer is not prohibited by this Indenture) or (ii) the
release or discharge of the guarantee which resulted in the creation of such
Subsidiary Guarantee, except a discharge or release by or as a result of
payment under such guarantee.
SECTION 4.16 LIMITATIONS ON LIENS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly create, incur, assume or suffer to
exist any Lien that secures obligations under any Pari Passu Indebtedness or
Subordinated Indebtedness of the Company or any asset or property now owned or
hereafter acquired by the Company or any of its Restricted Subsidiaries, or
any income or profits therefrom, or assign or convey any right to receive
income therefrom, unless the Notes or the Subsidiary Guarantees, as applicable
are equally and ratably secured with the Pari Passu Indebtedness or
Subordinated Indebtedness so secured or until such time as such Pari Passu
Indebtedness or Subordinated Indebtedness is no longer secured by a Lien;
provided, that in any case involving a Lien securing Subordinated
Indebtedness, such Lien is subordinated to the Lien securing the Notes or the
Subsidiary Guarantees, as applicable, to the same extent that such
Subordinated Indebtedness is subordinated to the Notes or the Subsidiary
Guarantees, as applicable.
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SECTION 4.17 SALE AND LEASEBACK TRANSACTIONS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company and any Guarantor may enter into a sale and leaseback transaction
if (i) the Company or such Guarantor could have (a) incurred Indebtedness in
an amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.12 hereof and (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described in Section 4.07 hereof, (ii)
the gross cash proceeds of such sale and leaseback transaction are at least
equal to the fair market value (as determined in good faith by the Board of
Directors and set forth in an Officers' Certificate delivered to the Trustee)
of the property that is the subject of such sale and leaseback transaction and
(iii) the transfer of assets in such sale and leaseback transaction is
permitted by, and the proceeds of such transaction are applied in compliance
with, Section 4.10 hereof.
SECTION 4.18 ANTI-LAYERING.
(i) The Company shall not directly or indirectly incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that
is subordinate or junior in right of payment to any Senior Debt and senior in
any respect in right of payment to the Notes and (ii) no Guarantor shall
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to its
Guarantor Senior Debt and senior in any respect in right of payment to such
Guarantor's Subsidiary Guarantee.
SECTION 4.19 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
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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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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; (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 and (v)
each Guarantor, if any, unless it is the other party to the transactions
described above, shall have by supplemental indenture confirmed that its
Subsidiary Guarantee shall apply to such Person's obligations under this
Indenture and the Notes. The foregoing clause (iv) will not prohibit (a) a
merger between the Company and a Wholly Owned Subsidiary of a Wholly Owned
Subsidiary of Holdings created 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
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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 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.
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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 for 30 days in the payment when due of interest
on the Notes (whether or not prohibited by Article 10 hereof);
(b) default in payment when due of principal or premium, if
any, on the Notes at maturity, upon redemption or otherwise (whether
or not prohibited by Article 10 hereof);
(c) failure by the Company or any Guarantor 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 or any Guarantor 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;
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(g) the Company or any of its Restricted Subsidiaries that
is a Significant Subsidiary pursuant to or within the meaning of the
Bankruptcy Law:
(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 the order or decree remains unstayed and in effect for 60
consecutive days; and
(i) the termination of any Subsidiary Guarantee for any
reason not permitted by this Indenture, or the denial of any
Guarantor or any Person acting on behalf of any Guarantor of such
Guarantor's obligations under its respective Subsidiary Guarantee.
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; provided, however,
that, so long as any Indebtedness
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permitted to be incurred pursuant to the New Credit Facility shall be
outstanding, no such acceleration shall be effective until the earlier of (i)
acceleration of any such Indebtedness under the New Credit Facility or (ii)
five business days after the giving of written notice to the Company and the
representative under the New Credit Facility of such acceleration.
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. 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 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 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 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
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Trustee, with respect to such proceeding and (iii) the Trustee shall not have
received from the Holders of a majority in aggregate principal amount 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 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
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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 Senior Debt and Guarantor Senior Debt to the
extent required by Article 10 hereof;
Third: 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;
Fourth: without duplication, to the Holders for any other Obligations
owing to the Holders under this Indenture and the Notes; and
Fifth: 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
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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;
(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.
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(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), and (c) of this Section 7.01.
(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 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
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security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with
such request or direction.
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 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 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 __________ beginning with the ___________
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 ss. 313(a) (but if no
event described in TIA ss. 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail
all reports as required by TIA ss. 313(c).
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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 ss.
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 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 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
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intended to constitute expenses of administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 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
(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,
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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 ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 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.
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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 and Subsidiary Guarantees 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 and the Guarantors, if any,
shall, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be deemed to have been discharged from their respective obligations
with respect to all Notes and Subsidiary Guarantees then outstanding on the
date the conditions set forth below are satisfied ("Legal Defeasance"). For
this purpose such defeasance means that the Company and any Guarantor shall be
deemed to have paid and discharged the entire indebtedness represented by the
Notes and any Subsidiary Guarantees 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,
Subsidiary Guarantees 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 of, premium, if any, and interest
on such Notes when such payments are due 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 Article 8.
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 and each Guarantor 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, 4.17, 4.18 and
4.19 with respect to the outstanding Notes and Subsidiary Guarantees, if any,
on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes and the
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Subsidiary Guarantees, if any, 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 and
Subsidiary Guarantees, if any, shall not be deemed outstanding for financial
accounting purposes). For this purpose, such Covenant Defeasance means that,
with respect to the outstanding Notes and Subsidiary Guarantees, if any, the
Company and any Guarantor 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 and Subsidiary Guarantees, if any, 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 and Subsidiary
Guarantees:
(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 of, 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
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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 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 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 a
Guarantor, if any, is a party or by which the Company or a Guarantor, if any,
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 a Guarantor, if any;
(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
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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.
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.
The Trustee shall promptly pay to the Company, after written request
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
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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 and any Guarantor's
obligations under this Indenture, the Notes and the Subsidiary Guarantees, if
any, 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 or any Guarantor makes any
payment of principal of (or premium, if any) or interest on any Note following
the reinstatement of its obligations, the Company or any Guarantor 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.
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, a Guarantor (with respect to a Subsidiary
Guarantee to which it is a party or this Indenture) and the Trustee may amend
or supplement this Indenture, or Notes or the Subsidiary Guarantees:
(a) to cure any ambiguity, defect or inconsistency;
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(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 or any
Guarantor'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;
(g) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under
the Trust Indenture Act; or
(h) to allow any Guarantor to guarantee the Notes.
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 and the
Guarantors, if any, 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, the
Notes and a Subsidiary Guarantee, if any, issued hereunder may be amended or
supplemented with the consent of the Holders of at least a majority in
principal amount of the Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for 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 or the Subsidiary Guarantees
may be waived with the consent of the Holders of a majority in principal
amount of the outstanding Notes (including consents obtained in connection
with a tender offer or exchange offer for the Notes).
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Upon the request of the Company accompanied by a Board of 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 and any Guarantor 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 of the Notes then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture, the Notes or the Subsidiary Guarantees, if
any. However, without the consent of each Holder affected, an amendment or
waiver may not (with respect to any Note or Subsidiary Guarantee 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 of or change the fixed maturity of any
Note or alter the provisions with respect to the redemption
of the Notes (other than provisions relating to Sections
4.09 and 4.10 hereof);
(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
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 or in any
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Subsidiary Guarantee 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) except as provided under Article 8 and the relevant
Subsidiary Guarantee, release a Guarantor from its
obligations under its Subsidiary Guarantee, or make any
change in a Subsidiary Guarantee that would adversely affect
the Holders; or
(ix) make any change in the foregoing amendment and waiver
provisions of this Article 9.
Notwithstanding the foregoing, any (i) amendment or waiver to Section
4.09 hereof and (ii) any amendment or waiver relating to Article 10 hereof or
the subordination provisions of the Subsidiary Guarantees will require the
consent of the Holders of at least two-thirds in aggregate principal amount 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.
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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 and the Guarantors, if any, in accordance with its
terms.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Note agrees, that
the payment of the Subordinated Note Obligations shall be subordinated in
right of payment, as set forth in this Article 10, to the prior payment in
full in cash or Cash Equivalents of all Senior Debt, whether outstanding on
the date hereof or thereafter incurred.
The provisions of this Article 10 shall constitute a continuing offer
to all Persons that, in reliance upon such provisions, become holders of, or
continue to hold Senior Debt; such provisions are made for the benefit of
holders of Senior Debt and they or each of them may enforce the rights of
holders of Senior Debt hereunder, subject to the terms and provisions hereof.
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy,
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reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of all
Obligations due in respect of such Senior Debt shall be entitled to receive
payment in full in cash or Cash Equivalents of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified
in the applicable Senior Debt) before the Holders of Notes will be entitled to
receive any payment with respect to Subordinated Note Obligations (except that
Holders of Notes may receive Permitted Junior Securities and payments made
from the trusts described in Article 8 hereof), and until all Obligations with
respect to Senior Debt are paid in full in cash or Cash Equivalents, any
distribution to which the Holders of Notes would be entitled shall be made to
the holders of Senior Debt (except that Holders of Notes may receive Permitted
Junior Securities and payments made from the trusts described in Article 8
hereof).
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company may not make any payment upon or in respect of the
Subordinated Note Obligations (except Permitted Junior Securities and payments
made from the trusts payments made described in Article 8 hereof) if:
(a) a default in the payment of the principal of (including
reimbursement obligations in respect of letters of credit),
premium, if any, or interest on, or commitment fees related
to, Designated Senior Debt occurs and is continuing beyond
any applicable period of grace, or
(b) any other default occurs and is continuing with respect to
Designated Senior Debt that permits holders of the
Designated Senior Debt as to which such default relates to
accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the Company
or the holders of any Designated Senior Debt (or their
representative). Payments on Notes may and shall be resumed
(a) in the case of a payment default, upon the date on which
such default is cured or waived and (b) in case of a
nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt
has been accelerated. No new period of payment blockage may
be commenced unless and until 360 days have elapsed since
the effectiveness of the immediately prior Payment Blockage
Notice. No nonpayment default that existed or was continuing
on the date of delivery of any Payment Blockage Notice to
the Trustee shall be, or be made, the basis for a subsequent
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Payment Blockage Notice unless such default shall have been
cured or waived for a period not less than 90 days.
The Company may and shall resume payments on the Notes (including any
missed payments):
(a) in the case of a payment default described in clause (i)
above, upon the date on which such default is cured or
waived or shall have ceased to exist or such Designated
Senior Debt shall have been discharged or paid in full in
cash or Cash Equivalents; and
(b) in the case of a nonpayment default described in clause (ii)
above, the earlier of (x) the date on which such nonpayment
default is cured or waived, (y) 179 days after the date on
which the applicable Payment Blockage Notice is received
(each such period, the "Payment Blockage Period") or (z) the
date such Payment Blockage Period shall be terminated by
written notice to the Trustee from the requisite holders of
such Designated Senior Debt necessary to terminate such
period or from their representative.
SECTION 10.04. ACCELERATION OF SECURITIES.
If the Company fails to make any payment on the Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure shall constitute an Event
of Default and shall entitle the holders of the Notes to accelerate the
maturity thereof. The Company shall promptly notify holders of Senior Debt if
payment of the Notes is accelerated because of an Event of Default.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any payment of
any Subordinated Note Obligations at a time when the Trustee or such Holder,
as applicable, has actual knowledge that such payment is prohibited by Section
10.02 or 10.03 hereof, such payment shall be held by the Trustee or such
Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Senior Debt as their
interests may appear or their representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent
necessary to pay such Obligations in full in accordance with their terms,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Debt.
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In the event that any Holder receives any payment of any Subordinated
Note Obligations at any time when such payment is prohibited by Section 10.02
or 10.03 hereof, such payment shall be held by such Holder, in trust for the
benefit of, and shall be paid forthwith over and delivered, upon written
request to, the Holders of Senior Debt as their interests may appear or their
representative under the indenture or other agreement (if any) pursuant to
which Senior Debt may have been issued, as their interest may appear, for the
application to the payment of all Obligations with respect to Senior Debt
remaining unpaid to the extend necessary to pay such Obligations in full
accordance with their terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically
set forth in this Article 10, and no implied covenants or obligations with
respect to the holders of Senior Debt shall be read into this Indenture
against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty
to the holders of Senior Debt, and shall not be liable to any such holders if
the Trustee shall pay over or distribute to or on behalf of Holders or the
Company or any other Person money or assets to which any holders of Senior
Debt shall be entitled by virtue of this Article 10, except if such payment is
made as a result of the willful misconduct or gross negligence of the Trustee.
SECTION 10.06. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Subordinated
Note Obligations to violate this Article 10, but failure to give such notice
shall not affect the subordination of the Notes to the Senior Debt as provided
in this Article 10.
SECTION 10.07. SUBROGATION.
After all Senior Debt is paid in full and until the Notes are paid in
full in cash, Holders of Notes shall be subrogated (equally and ratably with
all other Indebtedness pari passu with the Notes) to the rights of holders of
Senior Debt to receive distributions applicable to Senior Debt to the extent
that distributions otherwise payable to the Holders of Notes have been applied
to the payment of Senior Debt. A distribution made under this Article 10 to
holders of Senior Debt that otherwise would have been made to Holders of Notes
is not, as between the Company and Holders, a payment by the Company on the
Senior Debt.
SECTION 10.08. RELATIVE RIGHTS.
This Article 10 defines the relative rights of Holders of Notes and
holders of Senior Debt. Nothing in this Indenture shall:
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(a) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and
unconditional, to pay principal of, premium, if any, and
interest on the Notes in accordance with their terms;
(b) affect the relative rights of Holders of Notes and creditors
of the Company other than their rights in relation to
holders of Senior Debt; or
(c) prevent the Trustee or any Holder of Notes from exercising
its available remedies upon a Default or Event of Default,
subject to the rights of holders and owners of Senior Debt
to receive distributions and payments otherwise payable to
Holders of Notes.
If the Company fails because of this Article 10 to pay principal of,
premium, if any, or interest on a Note on the due date, the failure is
nevertheless a Default or an Event of Default.
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt to enforce the subordination of
the Indebtedness evidenced by the Notes shall be impaired by any act or
failure to act by the Company or any Holder or by the failure of the Company
or any Holder to comply with this Indenture.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders of Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Notes for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Debt and other Indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this
Article 10.
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge
of the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the
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Notes, unless the Trustee shall have received at its Corporate Trust Office at
least five Business Days prior to the date of such payment written notice of
facts that would cause the payment of any Subordinated Note Obligations to
violate this Article 10. Only the Company or a representative may give the
notice. Nothing in this Article 10 shall impair the claims of, or payments to,
the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may
do the same with like rights.
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of Notes, by the Holder's acceptance thereof, authorizes
and directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact
for any and all such purposes. If the Trustee does not file a proper proof of
claim or proof of debt in the form required in any proceeding referred to in
Section 6.09 hereof at least 30 days before the expiration of the time to file
such claim, a representative of Designated Senior is hereby authorized to file
an appropriate claim for and on behalf of the Holders of the Notes.
SECTION 10.13. NO WAIVER OF SUBORDINATION PROVISIONS.
(a) No right of any present or future holder of any Senior
Debt to enforce subordination as herein provided shall at any time in any way
be prejudiced or impaired by any act or failure to act, in good faith, by any
such holder.
(b) Without in any way limiting the generality of paragraph
(a) of this Section 10.14, the holders of Senior Debt may, at any time and
from time to time, without the consent of or notice to the Trustee or the
Holders, without incurring responsibility to the Holders of the Notes and
without impairing or releasing the subordination provided in this Article 10
or the obligations hereunder of the Holders to the holders of Senior Debt, do
any one or more of the following: (1) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, any Senior Debt
or any instrument evidencing the same or any agreement under which Senior Debt
is outstanding; (2) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Debt; (3) release any
Person liable in any manner for the collection of Senior Debt; and (4)
exercise or refrain from exercising any rights against the Company and any
other Person.
SECTION 10.14. CERTAIN DEFINITIONS.
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For purposes of this Section 10, the terms "distribution"
and "payment" include payments, distributions and other transfers of assets by
or on behalf of the Company (including redemptions, repurchases or other
acquisitions of the Notes) from any source, of any kind or character, whether
direct or indirect, by set-off or otherwise, whether in cash, property or
securities.
ARTICLE 11
SATISFACTION AND DISCHARGE
SECTION 11.01 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 or a
Guarantor, if any, 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 or a Guarantor, if any, is a
party or by which the Company or a Guarantor, if
any, is bound;
(iii) the Company or a Guarantor, if any, has paid or
caused to be paid all sums payable by it under this
Indenture; and
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(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 11.02 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.
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 12
MISCELLANEOUS
SECTION 12.01. CONFLICT OF ANY PROVISION OF INDENTURE WITH TIA.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by TIA ss. 318(c), the imposed duties shall control.
SECTION 12.02. NOTICES.
Any notice or communication by the Company, any Guarantor or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified,
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return receipt requested), telecopier or overnight air courier guaranteeing
next day delivery, to the others' address:
If to the Company or any Guarantor:
DecisionOne Corporation
50 East Swedesford Road
Frazer, Pennsylvania 19355
Attention: Thomas M. Molchan, Esq.
Facsimile: (610) 296-6000
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Richard D. Truesdell, Esq.
Facsimile: (212) 450-4800
If to the Trustee:
Fleet National Bank
Attention: Corporate Trust Department
Facsimile: ___________________
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
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the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA ss. 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 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA ss. 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
ss. 312(c).
SECTION 12.04. 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
(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 12.05. 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, the Notes or any
Subsidiary Guarantee) 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
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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 12.06. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company or a Guarantor, if any, shall have any liability for any obligations
of the Company or the Guarantors, if any, under the Notes, the Subsidiary
Guarantees, if any, 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 12.07. GOVERNING LAW.
THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES, IF ANY,
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 12.08. 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 12.09. 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.
SECTION 12.10. 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.
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SECTION 12.11. 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 12.12. 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.
DECISIONONE CORPORATION
Dated: August ___, 1997
By:_________________________________
Name:
Title:
FLEET NATIONAL BANK
Dated: August ___, 1997
By:_________________________________
Name:
Title:
<PAGE>
EXHIBIT A
(Face of Note)
_____% Senio Subordinated Notes due 2007
No. Cusip No:
DECISIONONE CORPORATION
promises to pay to Cede & Co. or registered assigns, the principal sum of
$_________________ (_______________________________ Dollars) on __________,
2007.
Interest Payment Dates: __________ and ___________
Record Dates: _________ and ___________
DECISIONONE CORPORATION
By:______________________________
Name:
Title:
This is one of the ____% Senior
Subordinated Notes due 2007
referred to in the within-mentioned Indenture:
FLEET NATIONAL BANK,
as Trustee
By: _____________________________
Authorized Signature
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(Back of Note)
___% Senior Subordinated Notes due 2007
Capitalized terms used herein shall have the meanings assigned to them in the
Indenture referred to below.
1. INTEREST. DecisionOne Corporation, a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at ____% per
annum from ___________, 1997 until ____ _____, 2007. The Company shall pay
interest semi-annually in arrears on ______ and ________ of each year, or if
any such day is not a Business Day, on the next succeeding Business Day (each
an "Interest Payment Date"). Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the Closing Date; provided that if there is no existing Default in the
payment of interest, and if this Note is authenticated between a record date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be ____________.
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) o the Persons who are registered Holders of Notes at the
close of business on ____________ and _____________ 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.
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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, Fleet National Bank, 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 ___, 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 Act of 1939, as amended
(15 U.S. Code ss.ss. 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
$150,000,000 in aggregate principal amount.
5. OPTIONAL REDEMPTION. Except as set forth in the next paragraph, the Notes
will not be redeemable at the Company's option prior to ________, 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 __________ of each of the years indicated
below:
YEAR REDEMPTION
PRICE
2002 ............................................... _______%
2003 ............................................... _______%
2004 ............................................... _______%
2005 and thereafter..................................... 100.000%
In addition, prior to _________, the Company may, at its option, on
any one or more occasions redeem up to 35% of the original aggregate principal
amount of Notes at a redemption price equal to ______% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the net cash proceeds of one or more Equity Offerings by (i) the Company or
(ii) Holding to the extent the net cash proceeds thereof are contributed to
the Company as a capital
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contribution to the common equity of the Company; provided that at least 65%
of the original aggregate principal amount of Notes remains outstanding
immediately after the occurrence of each such redemption; and provided,
further that any such redemption shall occurs 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 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 thereof plus accrued and unpaid interest, if any, to the date of
purchase (the "Change of Control Payment"). Within 30 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 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 365 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 under Senior Debt or Guarantor Senior Debt (and to
correspondingly reduce commitments with respect thereto), to permanently
reduce Indebtedness of a Restricted Subsidiary that is not a Guarantor or 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 the amount of Notes that
would otherwise be redeemed or (b) to an investment in property, capital
expenditures or assets that are used or useful in a Permitted
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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 thereof plus accrued and unpaid interest thereon to the date of
purchase, in accordance with the procedures set forth in Section 3.10 of the
Indenture. To the extent that the aggregate amount of Notes tendered pursuant
to an Asset Sale Offer is less than the Excess Proceeds, the Company may use
any remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such 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.
11. SUBORDINATION. Each Holder by accepting a Note agrees that the payment of
principal of, premium, if any, and interest on each Note is subordinated in
right of payment, to the extent and in the manner provided in Article 10 of
the Indenture, to the prior payment in full in cash or cash equivalents of all
Senior Debt (whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed or guaranteed; provided that such creation,
incurrence, assumption or guarantee is in accordance with the provisions
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set forth in the Indenture), and this subordination provision is for the
benefit of the holders of Senior Debt.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture, the Notes or any Subsidiary Guarantee may be amended or
supplemented with the consent of the Holders of at least a majority in
principal amount of the then outstanding Notes, and, subject to the terms of
the Indenture and any applicable Subsidiary Guarantee, 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, the
Notes or any Subsidiary Guarantee 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, the Notes and any Subsidiary
Guarantee 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 or any Guarantor'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, to add a
Guarantor under the Indenture, or to provide for the appointment of a
successor trustee in compliance with the requirements of Section 7.10 of the
Indenture.
13. 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 (whether or not prohibited by Article 10 of the Indenture); (b) default
in payment when due of principal or premium, if any, on the Notes at maturity,
upon redemption or otherwise (whether or not prohibited by Article 10 of the
Indenture); (c) failure by the Company or any Guarantor 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 or any Guarantor 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
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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; (g) certain
events of bankruptcy with respect to the Company or any of its Restricted
Subsidiaries that is a Significant Subsidiary; and (h) the termination of any
Subsidiary Guarantee for any reason not permitted by this Indenture, or the
denial of any Guarantor or any Person acting on behalf of any Guarantor of
such Guarantor's obligations under its respective Subsidiary Guarantee.
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;
provided, however, that, so long as any Indebtedness permitted to be incurred
pursuant to the New Credit Facility shall be outstanding, no such acceleration
shall be effective until the earlier of (i) acceleration of any such
Indebtedness under the New Credit Facility or (ii) five business days after
the giving of written notice to the Company and the representative under the
New Credit Facility of such acceleration. 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 become due and payable without
further action or notice. Holders of 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
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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.
14. 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.
15. 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.
16. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
17. 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).
18. 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
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reliance may be placed only on the other identification numbers placed
thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
DecisionOne Corporation
50 East Swedesford Road
Frazer, Pennsylvania 19355
Attention: General Counsel
Facsimile: (610) 408-3820
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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-10
<PAGE>
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-11
<PAGE>
EXHIBIT B
FORM OF SUPPLEMENTAL INDENTURE TO BE
DELIVERED BY GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of
____________________, between _____________________ (the "Guarantor"), a
subsidiary of DecisionOne Corporation (or its successor), a company
incorporated under the laws of the State of Delaware (the "Company"), and
Fleet National Bank, as trustee under the indenture referred to below (the
"Trustee").
W I T N E S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of August ___, 1997,
providing for the issuance of an aggregate principal amount at maturity of
$150,000,000 of ___% Senior Subordinated Notes due 2007 (the "Notes");
WHEREAS, Section 4.12 of the Indenture provides that the Company may
cause the Guarantor to execute and deliver to the Trustee a subsidiary
guarantee on the terms and conditions set forth herein;
WHEREAS, Section 4.15 of the Indenture provides that, under certain
circumstances, the Company is required to cause the Guarantor to execute and
deliver to the Trustee a Subsidiary Guarantee on the terms and conditions set
forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor and the Trustee mutually covenant and agree for the equal and
ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings as signed to them in the Indenture.
2. INDENTURE PROVISION PURSUANT TO WHICH GUARANTEE IS GIVEN. This
Supplemental Indenture is being executed and delivered pursuant to Sections
4.12 and 4.15 of the Indenture.
3. AGREEMENTS TO GUARANTEE. The Guarantor hereby agrees as follows:
B-1
<PAGE>
(a) The Guarantor, jointly and severally with all other Guarantors,
if any, unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
regardless of the validity and enforceability of the Indenture, the Notes and
the obligations of the Company under the Indenture and the Notes, that:
(i) the principal of, premium, if any, and interest on the
Notes shall be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal
of, premium, if any, and interest on the Notes, to the extent lawful, and all
other obligations of the Company to the Holders or the Trustee thereunder
shall be promptly paid in full, all in accordance with the terms thereof; and
(ii) in case of any extension of time for payment or renewal
of any Notes or any of such other obligations, that the same shall be promptly
paid in full when due in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise.
Notwithstanding the foregoing, in the event that this Subsidiary
Guarantee would constitute or result in a violation of any applicable
fraudulent conveyance or similar law of any relevant jurisdiction, the
liability of the Guarantor under this Supplemental Indenture and its
Subsidiary Guarantee shall be limited to such amount as will not, after giving
effect thereto, and to all other liabilities of the Guarantor, result in such
amount constituting a fraudulent transfer or conveyance.
4. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES
(a) To evidence its Subsidiary Guarantee set forth in this
Supplemental Indenture, the Guarantor hereby agrees that a notation of such
Subsidiary Guarantee substantially in the form of Annex A hereto shall be
endorsed by an officer of such Guarantor on each Note authenticated and
delivered by the Trustee after the date hereof.
(b) Notwithstanding the foregoing, the Guarantor hereby agrees that
its Subsidiary Guarantee set forth herein shall remain in full force and
effect notwithstanding any failure to endorse on each Note a notation of such
Subsidiary Guarantee.
(c) If an officer whose signature is on this Supplemental Indenture
or on the Subsidiary Guarantee no longer holds that office at the time the
Trustee authenticates
B-2
<PAGE>
the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee
shall be valid nevertheless.
(d) The delivery of the Note by the Trustee, after the
authentication thereof under the Inden ture, shall constitute due delivery of
the Subsidiary Guarantee set forth in this Supplemental Indenture on behalf of
the Guarantor.
(e) The Guarantor hereby agrees that its obligations hereof shall
be unconditional, regardless of the validity, regularity or enforceability of
the Notes or the Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgement against the Company, any
action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor.
(f) The Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that its
Subsidiary Guarantee made pursuant to this Supplemental Indenture will not be
discharged except by complete performance of the obligations contained in the
Notes and the Indenture or pursuant to Section 5(b) of this Supplemental
Indenture.
(g) If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Supplemental Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then, and in every such
case, subject to any determination in such proceeding, the Guarantor, the
Trustee and the Holders shall be restored severally and respectively to their
former positions hereof and thereafter all rights and remedies of the
Guarantor, the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
(h) The Guarantor hereby waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Guarantor as a result of any payment by such Guarantor
under its Subsidiary Guarantee. The Guarantor further agrees that, as between
the Guarantors, on the one hand, and the Holders and the Trustee, on the other
hand:
B-3
<PAGE>
(i) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six of the Indenture for the purposes of
the Subsidiary Guarantee made pursuant to this Supplemental Indenture,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby; and
(ii) in the event of any declaration of acceleration of such
obligations as provided in Article Six, such obligations (whether or not due
and payable) shall forthwith become due and payable by the Guarantor for the
purpose of the Subsidiary Guarantee made pursuant to this Supplemental
Indenture.
(i) The Guarantor shall have the right to seek contribution from
any other non-paying Guarantor, if any, so long as the exercise of such right
does not impair the rights of the Holders under the Subsidiary Guarantee made
pursuant to this Supplemental Indenture.
(j) The Guarantor covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of the Indenture or this Subsidiary
Guarantee; and the Guarantor (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that
it will not hinder, delay or impede the execution of any power herein granted
to the Trustee, but will suffer and permit the execution of every such power
as though no such law had been enacted.
5. GUARANTOR MAY CONSOLIDATE, ETC. ON CERTAIN TERMS
(a) Except as set forth in Articles Four and Five of the Indenture,
nothing contained in the Indenture, this Supplemental Indenture or in the
Notes shall prevent any consolidation or merger of the Guarantor with or into
the Company or any other Guarantor or shall prevent any transfer, sale or
conveyance of the property of the Guarantor as an entirety or substantially as
an entirety, to the Company or any other Guarantor.
(b) Except as set forth in Article Five of the Indenture, upon the
sale or disposition of all of the Capital Stock of the Guarantor by the
Company or the Subsidiary of the Company, or upon the consolidation or merger
of the Guarantor with or into any Person, or the sale of all or substantially
B-4
<PAGE>
all of the assets of the Guarantor (in each case, other than to an Affiliate
of the Company), such Guarantor shall be deemed automatically and
unconditionally released and discharged from all obligations under this
Subsidiary Guarantee without any further action required on the part of the
Trustee or any Holder if no Default shall have occurred and be continuing;
provided, that in the event of an Asset Sale, the Net Cash Proceeds therefrom
are treated in accordance with Section 4.10 of the Indenture. Except with
respect to transactions set forth in the preceding sentence, the Company and
the Guarantor covenant and agree that upon any such consolidation, merger or
transfer of assets, the performance of all covenants and conditions of this
Supplemental Indenture to be performed by such Guarantor shall be expressly
assumed by supplemental indenture satisfactory in form to the Trustee, by the
corporation formed by such consolidation, or into which the Guarantor shall
have merged, or by the corporation which shall have acquired such property.
Upon receipt of an Officers' Certificate of the Company or the Guarantor, as
the case may be, to the effect that the Company or such Guarantor has complied
with the first sentence of this Section 5(b), the Trustee shall execute any
documents reasonably requested by the Company or the Guarantor, at the cost of
the Company or such Guarantor, as the case may be, in order to evidence the
release of such Guarantor from its obligations under its Guarantee endorsed on
the Notes and under the Indenture and this Supplemental Indenture.
6. RELEASES UPON RELEASE OF GUARANTEE OF GUARANTEED INDEBTEDNESS.
Concurrently with the releasee or discharge of the Guarantor's guarantee of
the payment of [DESCRIBE INDEBTEDNESS THE GUARANTEE OF WHICH GAVE RISE TO THE
DELIVERY OF THIS SUPPLEMENTAL INDENTURE] ("Guaranteed Debt") (other than a
release or discharge by or as a result of payment under such guarantee of
Guaranteed Indebtedness), the Guarantor shall be automatically and
unconditionally released and relieved of its obligations under this
Supplemental Indenture and its Subsidiary Guarantee made pursuant to Section 4
of this Supplemental Indenture. Upon delivery by the Company to the Trustee of
an Officer's Certificate to the effect that such release or discharge has
occurred, the Trustee shall execute any documents reasonably required in order
to evidence the release of the Guarantor from its obligations under this
Supplemental Indenture and its Subsidiary Guarantee made pursuant hereto;
provided such documents shall not affect or impair the rights of the Trustee
and Paying Agent under Section 7.07 of the Indenture.]1
- -------------
1 To be included if the Supplemental Indenture is executed and
delivered pursuant to Section 4.15 of the Indenture.
B-5
<PAGE>
7. SUBORDINATION.
(a) AGREEMENT TO SUBORDINATE. The Guarantor agrees, and each Holder
by accepting this Subsidiary Guarantee agrees, that the payment of the
Subordinated Note Obligations by the Guarantor shall be subordinated in right
of payment, as set forth in this Section 7, to the prior payment in full in
cash or cash equivalents of all Guarantor Senior Debt of such Guarantor
whether outstanding on the date hereof or hereafter incurred.
(b) LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to
creditors of the Guarantor in a liquidation or dissolution of the Guarantor or
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Guarantor or its property, an assignment for the
benefit of creditors or any marshalling of the Guarantor's assets and
liabilities, the holders of Guarantor Senior Debt of the Guarantor shall be
entitled to receive payment in full in cash or cash equivalents of such
Guarantor Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Guarantor Senior Debt)
before the Holders will be entitled to receive any payment by the Guarantor
with respect to the Subordinated Note Obligations (except that holders of
Notes may receive Permitted Junior Indebtedness and payments made from the
trusts described in Article 8 of the Indenture), and until all Guarantor
Senior Debt of the Guarantor is paid in full in cash or cash equivalents, any
distribution to which the Holders of Notes would be entitled shall be made to
the holders of such Guarantor Senior Debt (except that holders of Notes may
receive Permitted Junior Securities and payments made from the trusts
described in Article 8 of the Indenture).
(c) DEFAULT ON DESIGNATED SENIOR DEBT. The Guarantor may not make any
payment upon or in respect of the Subordinated Note Obligations (except
Permitted Junior Securities and payments made from the trusts described in
Article 8 of the Indenture) if: (i) a default in the payment of the principal
of (including reimbursement obligations in respect of letters of credit),
premium, if any, or interest on, or commitment fees related to Designated
Senior Debt occurs and is continuing beyond any applicable period of grace, or
(ii) any other default occurs and is continuing with respect to Designated
Senior Debt of the Guarantor that permits holders of such Designated Senior
Debt as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from
the Company or the holders of any Designated Senior Debt (or their
representative). Payments on Notes may and shall be resumed (a) in the case of
a payment default, upon the date on which
B-6
<PAGE>
such default is cured or waived and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or 179
days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of payment blockage may be commenced unless and
until 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice. No nonpayment default that existed or was continuing
on the date of delivery of any Payment Blockage Notice unless such default
shall have been cured or waived for a period of not less than 90 days.
The Guarantor may and shall resume payments on the Notes (including any
missed payments): (a) in the case of a payment default described in clause (i)
above, upon the date on which such default is cured or waived or shall have
ceased to exist or such Designated Senior Debt shall have been discharged or
paid in full in cash or cash equivalents; and (b) in the case of a non-payment
default described in clause (ii) above, the earlier of (x) the date on which
such nonpayment default is cured or waived, (y) 179 days after the date on
which the applicable Payment Blockage Notice is received (each such period,
the "Payment Blockage Period") or (z) the date such Payment Blockage Period
shall be terminated by written notice to the Trustee from the requisite
holders of such Designated Senior Debt necessary to terminate such period or
from their representative.
(d) ACCELERATION OF SECURITIES. If the Guarantor fails to make any
payment on the Notes when due or within any applicable grace period, whether
or not on account of the payment blockage provision referred to above, such
failure shall constitute an Event of Default and shall entitle the holders of
the Notes to accelerate the maturity thereof. The Guarantor shall promptly
notify holders of Senior Debt if payment of the Notes is accelerated because
of an Event of Default.
(e) WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee
or any Holder receives any payment of any Subordinated Note Obligations at a
time when the Trustee or such Holder, as applicable, has actual knowledge that
such payment is prohibited by Section (b) or (c) above, such payment shall be
held by the Trustee or such Holder, in trust for the benefit of, and shall be
paid forthwith over and delivered, upon written request, to, the holders of
Guarantor Senior Debt of the Guarantor as their interests may appear or their
representative under the indenture or other agreement (if any) pursuant to
which such Guarantor Senior Debt may have been issued, as their respective
interests may appear, for
B-7
<PAGE>
application to the payment of all Obligations with respect to such Guarantor
Senior Debt remaining unpaid to the extent necessary to pay such Obligations
in full in accordance with their terms, after giving effect to any concurrent
payment or distribution to or for the holders of Guarantor Senior Debt of the
Guarantor.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically
set forth in Article 10 of the Indenture, and no implied covenants or
obligations with respect to the holders of Senior Debt. In the event that any
Holder receives any payment of any Subordinated Note Obligations at any time
when such payment is prohibited by Section (b) or (c) above, such payment
shall be held by such Holder, in trust for the benefit of, and shall be paid
forthwith over and delivered, upon written request to, the Holders of
Guarantor Senior Debt of the Guarantor as their interest may appear or their
representative under the indenture or other agreement (if any) pursuant to
which such Guarantor Senior Debt may have been issued, as their interest may
appear, for the application to the payment of all Obligations with respect to
such Guarantor Senior Debt remaining unpaid to the extend necessary to pay
such Obligations in full accordance with their terms, after giving effect to
any concurrent payment or distribution to or for the holders of Guarantor
Senior Debt of the Guarantor.
With respect to the holders of Guarantor Senior Debt, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Section 7, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Guarantor Senior Debt, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or
on behalf of Holders or the Guarantor or any other Person money or assets to
which any holders of Guarantor Senior Debt shall be entitled by virtue of this
Section 7, except if such payment is made as a result of the willful
misconduct or gross negligence of the Trustee.
(f) NOTICE BY GUARANTOR. The Guarantor shall promptly notify the Trustee
and the Paying Agent of any facts known to the Guarantor that would cause a
payment of any Subordinated Note Obligations to violate this Section 7, but
failure to give such notice shall not affect the subordination of this
Guarantor to Guarantor Senior Debt as provided in this Section 7.
B-8
<PAGE>
(g) SUBROGATION. After all Guarantor Senior Debt is paid in full and
until the Notes are paid in full in cash, Holders of Notes shall be subrogated
(equally and ratably with all other Indebtedness pari passu with the Notes) to
the rights of holders of Guarantor Senior Debt to receive distributions
applicable to Guarantor Senior Debt to the extent that distributions otherwise
payable to the Holders of Notes have been applied to the payment of Guarantor
Senior Debt. A distribution made under this Section 7 to holders of Guarantor
Senior Debt that otherwise would have been made to Holders of Notes is not, as
between the Guarantor and Holders, a payment by the Guarantor on the Guarantor
Senior Debt.
(h) RELATIVE RIGHTS. This Section 7 defines the relative rights of
Holders of Notes and holders of Guarantor Senior Debt. Nothing in this
Subsidiary Guarantee shall: (1) impair, as between the Guarantor and Holders
of Notes, the obligation of the Guarantor, which is absolute and
unconditional, to pay principal of, premium, if any, and interest on the Notes
in accordance with their terms; (2) affect the relative rights of Holders of
Notes and creditors of the Guarantor other than their rights in relation to
holders of Guarantor Senior Debt; or (3) prevent the Trustee or any Holder of
Notes from exercising its available remedies upon a Default or Event of
Default, subject to the rights of holders and owners of Guarantor Senior Debt
to receive distributions and payments otherwise payable to Holders of Notes.
If the Guarantor fails because of this Section 7 to pay principal of,
premium, if any, or interest on a Note on the due date, the failure is
nevertheless a Default or an Event of Default.
(i) SUBORDINATION MAY NOT BE IMPAIRED BY GUARANTOR. No right of any
holder of Guarantor Senior Debt to enforce the subordination of the
Indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by the Guarantor or any Holder or by the failure of the Guarantor or any
Holder to comply with this Indenture.
(j) DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is
to be made or a notice given to holders of Guarantor Senior Debt, the
distribution may be made and the notice given to their representative.
Upon any payment or distribution of assets of the Guarantor referred to
in this Section 7, the Trustee and the Holders of Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to
B-9
<PAGE>
the Holders of Notes for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Guarantor Senior Debt and
other Indebtedness of the Guarantor, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Section 7.
(k) RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions
of this Section 7 or any provision of the Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts that would prohibit the
making of any payment or distribution by the Trustee, and the Trustee and the
Paying Agent may continue to make payments on the Notes, unless the Trustee
shall have received at its Corporate Trust Office at least five Business Days
prior to the date of such payment written notice of facts that would cause the
payment of any Subordinated Note Obligations to violate this Section 7. Only
the Guarantor or a representative may give the notice. Nothing in this Section
7 shall impair the claims of, or payments to, the Trustee under or pursuant to
Section 7.07 of the Indenture.
The Trustee in its individual or any other capacity may hold Guarantor
Senior Debt with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
(l) AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of Notes, by
the Holder's acceptance thereof, authorizes and directs the Trustee on such
Holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Section 7, and appoints the
Trustee to act as such Holder's attorney-in-fact for any and all such
purposes. If the Trustee does not file a proper proof of claim or proof of
debt in the form required in any proceeding referred to in Section 6.09 of the
Indenture at least 30 days before the expiration of the time to file such
claim, a representative of Designated Senior Debt is hereby authorized to file
an appropriate claim for and on behalf of the Holders of the Notes.
8. NEW YORK LAW TO GOVERN. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
9. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
B-10
<PAGE>
10. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not effect the construction hereof.
[Signatures on following page]
B-11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated:_____________________, ____ [Guarantor]
By:_________________________________
Name:
Title:
Dated:_____________________, ____
as Trustee
By:_________________________________
Name:
Title:
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<PAGE>
ANNEX A TO SUPPLEMENTAL INDENTURE
FORM OF NOTATION OF SUBSIDIARY GUARANTEE ON NOTE
Each Guarantor (as defined in the Indenture) has jointly and severally
unconditionally guaranteed (a) the due and punctual payment of the principal
of, premium, if any, and interest on the Notes, whether at stated maturity or
an Interest Payment Date, by acceleration, call for redemption or otherwise,
(b) the due and punctual payment of interest on the overdue principal and
premium of, and interest, to the extent lawful, on the Notes and (c) that in
case of any extension of time of payment or renewal of any Notes or any of
such other obligations, the same will be promptly paid in full when due in
accordance with the terms of the extension of renewal, whether at stated
maturity, by acceleration or otherwise.
Notwithstanding the foregoing, in the event that the Subsidiary
Guarantee would constitute or result in a violation of any applicable
fraudulent conveyance or similar law of any relevant jurisdiction, the
liability of the Guarantor under its Subsidiary Guarantee shall be limited to
such amount as will not, after giving effect thereto, and to all other
liabilities of the Guarantor, result in such amount constituting a fraudulent
transfer or conveyance.
The Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Note upon which the
Subsidiary Guarantee is noted shall have been executed by the Trustee under
the Indenture by the manual or facsimile signature of one of its authorized
officers.
Dated:_____________________, ____ [Guarantor]
By:
Name:
Title:
B-13
</TABLE>
<PAGE>
U.S. $575,000,000
CREDIT AGREEMENT,
dated as of August __, 1997,
among
DECISIONONE CORPORATION
as the Borrower,
VARIOUS FINANCIAL INSTITUTIONS,
as the Lenders,
DLJ CAPITAL FUNDING, INC.,
as the Syndication Agent for the Lenders,
NATIONSBANK, N.A.
as the Administrative Agent for the Lenders,
and
BANKBOSTON, N.A.,
as the Documentation Agent for the Lenders.
ARRANGED BY
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms................................................................3
1.2. Use of Defined Terms........................................................37
1.3. Cross-References............................................................37
1.4. Accounting and Financial Determinations.....................................37
ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES,
NOTES AND LETTERS OF CREDIT
2.1. Commitments.................................................................38
2.1.1. Term Loan Commitments.......................................................38
2.1.2. Revolving Loan Commitment and Swing Line Loan Commitment....................39
2.1.3. Letter of Credit Commitment.................................................40
2.1.4. Lenders Not Permitted or Required to Make the Loans.........................41
2.1.5. Issuer Not Permitted or Required to Issue Letters of Credit.................41
2.2. Reduction of the Commitment Amounts.........................................41
2.2.1. Optional....................................................................41
2.2.2. Mandatory...................................................................42
2.3. Borrowing Procedures and Funding Maintenance................................42
2.3.1. Term Loans and Revolving Loans..............................................42
2.3.2. Swing Line Loans............................................................42
2.4. Continuation and Conversion Elections.......................................44
2.5. Funding.....................................................................44
2.6. Issuance Procedures.........................................................44
2.6.1. Other Lenders' Participation................................................45
2.6.2. Disbursements; Conversion to Revolving Loans................................45
2.6.3. Reimbursement...............................................................46
2.6.4. Deemed Disbursements........................................................46
2.6.5. Nature of Reimbursement Obligations.........................................47
2.7. Register; Notes.............................................................48
2.8. Registered Notes............................................................49
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<PAGE>
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
3.1. Repayments and Prepayments; Application.....................................50
3.1.1. Repayments and Prepayments..................................................50
3.1.2. Application.................................................................54
3.2. Interest Provisions.........................................................55
3.2.1. Rates.......................................................................55
3.2.2. Post-Maturity Rates.........................................................55
3.2.3. Payment Dates...............................................................55
3.3. Fees........................................................................56
3.3.1. Commitment Fee..............................................................56
3.3.2. Administrative Agent Fee....................................................56
3.3.3. Letter of Credit Fee........................................................57
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
4.1. LIBO Rate Lending Unlawful..................................................57
4.2. Deposits Unavailable........................................................57
4.3. Increased LIBO Rate Loan Costs, etc.........................................58
4.4. Funding Losses..............................................................58
4.5. Increased Capital Costs.....................................................58
4.6. Taxes.......................................................................59
4.7. Payments, Computations, etc.................................................61
4.8. Sharing of Payments.........................................................61
4.9. Setoff......................................................................62
4.10. Mitigation..................................................................62
4.11. Replacement of Lenders......................................................63
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
5.1. Initial Credit Extension....................................................63
5.1.1. Resolutions, etc............................................................63
5.1.2. Transaction Documents.......................................................64
5.1.3. Consummation of Merger......................................................64
5.1.4. Closing Date Certificate....................................................64
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5.1.5. Delivery of Notes...........................................................64
5.1.6. [Intentionally Omitted].....................................................64
5.1.7. Pledge Agreements...........................................................64
5.1.8. Security Agreement..........................................................65
5.1.9. Financial Information, etc..................................................65
5.1.10. Solvency, etc...............................................................66
5.1.11. Equity Issuance, Discount Debenture Issuance, Subordinated Debt
Issuance and Intercompany Loan...........................................66
5.1.12. Litigation..................................................................66
5.1.13. Material Adverse Change.....................................................66
5.1.14. Reliance Letters............................................................66
5.1.15. Opinions of Counsel.........................................................67
5.1.16. Insurance...................................................................67
5.1.17. Perfection Certificate......................................................67
5.1.18. Closing Fees, Expenses, etc.................................................67
5.1.19. Satisfactory Legal Form.....................................................67
5.2. All Credit Extensions.......................................................67
5.2.1. Compliance with Warranties, No Default, etc.................................67
5.2.2. Credit Extension Request....................................................68
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Organization, etc...........................................................68
6.2. Due Authorization, Non-Contravention, etc...................................69
6.3. Government Approval, Regulation, etc........................................69
6.4. Validity, etc...............................................................69
6.5. Financial Information.......................................................69
6.6. No Material Adverse Change..................................................70
6.7. Litigation, Labor Controversies, etc........................................70
6.8. Subsidiaries................................................................70
6.9. Ownership of Properties.....................................................70
6.10. Taxes.......................................................................70
6.11. Pension and Welfare Plans...................................................70
6.12. Environmental Matters.......................................................71
6.13. Regulations G, U and X......................................................72
6.14. Accuracy of Information.....................................................72
6.15. Solvency....................................................................72
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<PAGE>
ARTICLE VII
COVENANTS
7.1. Affirmative Covenants.......................................................73
7.1.1. Financial Information, Reports, Notices, etc................................73
7.1.2. Compliance with Laws, etc...................................................75
7.1.3. Maintenance of Properties...................................................75
7.1.4. Insurance...................................................................75
7.1.5. Books and Records...........................................................75
7.1.6. Environmental Covenant......................................................76
7.1.7. Future Subsidiaries; Material Subsidiaries..................................76
7.1.8. Future Leased Property and Future Acquisitions of Real Property;
Future Acquisition of Other Property.....................................77
7.1.9. Use of Proceeds, etc........................................................79
7.1.10. Hedging Obligations.........................................................79
7.1.11. Undertaking.................................................................79
7.2. Negative Covenants..........................................................79
7.2.1. Business Activities.........................................................79
7.2.2. Indebtedness................................................................80
7.2.3. Liens.......................................................................81
7.2.4. Financial Covenants.........................................................83
7.2.5. Investments.................................................................84
7.2.6. Restricted Payments, etc....................................................85
7.2.7. Capital Expenditures, etc...................................................88
7.2.8. Consolidation, Merger, etc..................................................89
7.2.9. Asset Dispositions, etc.....................................................90
7.2.10. Modification of Certain Agreements..........................................91
7.2.11. Transactions with Affiliates................................................91
7.2.12. Negative Pledges, Restrictive Agreements, etc...............................91
7.2.13. Stock of Subsidiaries.......................................................92
7.2.14. Sale and Leaseback..........................................................92
ARTICLE VIII
EVENTS OF DEFAULT
8.1. Listing of Events of Default................................................92
8.1.1. Non-Payment of Obligations..................................................92
8.1.2. Breach of Warranty..........................................................92
8.1.3. Non-Performance of Certain Covenants and Obligations........................93
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<PAGE>
8.1.4. Non-Performance of Other Covenants and Obligations..........................93
8.1.5. Default on Other Indebtedness...............................................93
8.1.6. Judgments...................................................................93
8.1.7. Pension Plans...............................................................93
8.1.8. Change in Control...........................................................93
8.1.9. Bankruptcy, Insolvency, etc.................................................93
8.1.10. Impairment of Security, etc.................................................94
8.1.11. Subordinated Notes..........................................................95
8.2. Action if Bankruptcy, etc...................................................95
8.3. Action if Other Event of Default............................................95
ARTICLE IX
THE AGENTS
9.1. Actions.....................................................................96
9.2. Funding Reliance, etc.......................................................96
9.3. Exculpation.................................................................97
9.4. Successor...................................................................97
9.5. Credit Extensions by each Agent.............................................98
9.6. Credit Decisions............................................................98
9.7. Copies, etc.................................................................98
9.8. The Syndication Agent, the Documentation Agent and the
Administrative Agent.....................................................98
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1. Waivers, Amendments, etc....................................................99
10.2. Notices....................................................................100
10.3. Payment of Costs and Expenses..............................................100
10.4. Indemnification............................................................101
10.5. Survival...................................................................103
10.6. Severability...............................................................103
10.7. Headings...................................................................103
10.8. Execution in Counterparts, Effectiveness, etc..............................103
10.9. Governing Law; Entire Agreement............................................103
10.10. Successors and Assigns.....................................................103
10.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes....104
10.11.1. Assignments................................................................104
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<PAGE>
10.11.2. Participations.............................................................106
10.11.3. Assignment of Registered Notes.............................................106
10.12. Other Transactions.........................................................107
10.13. Forum Selection and Consent to Jurisdiction................................107
10.14. Waiver of Jury Trial.......................................................108
10.15. Confidentiality............................................................108
</TABLE>
SCHEDULE I - Disclosure Schedule
SCHEDULE II - Percentages and Administrative Information
EXHIBIT A-1 - Form of Revolving Note
EXHIBIT A-2 - Form of Term-A Note
EXHIBIT A-3 - Form of Term-B Note
EXHIBIT A-4 - Form of Term-C Note
EXHIBIT A-5 - Form of Registered Note
EXHIBIT A-6 - Form of Swing Line Note
EXHIBIT B-1 - Form of Borrowing Request
EXHIBIT B-2 - Form of Borrowing Base Certificate
EXHIBIT B-3 - Form of Issuance Request
EXHIBIT C - Form of Continuation/Conversion Notice
EXHIBIT D - Form of Closing Date Certificate
EXHIBIT E - Form of Compliance Certificate
EXHIBIT F-1 - Form of Borrower Security Agreement
EXHIBIT F-2 - Form of Subsidiary Security Agreement
EXHIBIT G-1 - Form of Holdings Guaranty and Pledge Agreement
EXHIBIT G-2 - Form of Borrower Pledge Agreement
EXHIBIT G-3 - Form of Subsidiary Pledge Agreement
EXHIBIT H - Form of Subsidiary Guaranty
EXHIBIT I - Form of Perfection Certificate
EXHIBIT J - Form of Lender Assignment Agreement
EXHIBIT K-1 - Form of New York Counsel Opinion
EXHIBIT K-2 - Form of [Local] Counsel Opinion
EXHIBIT K-3 - Form of Assistant General Counsel Opinion
-vi-
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of August __, 1997, is among
DecisionOne Corporation, a Delaware corporation (the "Borrower" ), the various
financial institutions as are or may become parties hereto (collectively, the
"Lenders"), DLJ Capital Funding, Inc. ("DLJ"), as syndication agent (the
"Syndication Agent") for the Lenders, NationsBank, N.A., as administrative
agent (the "Administrative Agent") for the Lenders and BankBoston, N.A., as
documentation agent (the "Documentation Agent") for the Lenders (the
Syndication Agent and the Administrative Agent are sometimes referred to
herein as the "Agents" and each as an "Agent").
W I T N E S S E T H:
WHEREAS, DLJ Merchant Banking Partners II, L.P., DLJ Offshore
Partners II, C.V., DLJ Diversified Partners, L.P., DLJMB Funding II, Inc., UK
Investment Plan 1997 Partners and DLJ First ESC LLC own all of the issued and
outstanding capital stock of Quaker Holding Co., a newly-formed Delaware
corporation ("MergerSub");
WHEREAS, DLJ Merchant Banking Partners II, L.P., DLJ Offshore
Partners II, C.V., DLJ Diversified Partners. L.P., DLJMB Funding II, Inc., DLJ
Merchant Banking Partners II-A, L.P., DLJ Diversified Partners-A L.P., DLJ
Millennium Partners, L.P., DLJ Millennium Partners-A, L.P., UK Investment Plan
1997 Partners, DLJ EAB Partners, L.P. and DLJ First ESC LLC (collectively, the
"DLJMB Entities") and certain institutional investors (whose aggregate
investments will not cause the fully diluted holdings of Voting Stock in
MergerSub (each as defined below) of the DLJMB Entities to be less than 51%)
(such institutional investors, together with the DLJMB Entities, the "Equity
Investors") intend to consummate a merger and recapitalization of DecisionOne
Holdings Corp., a Delaware corporation ("DOH"), whereby, among other things,
MergerSub will be merged (the "Merger") with and into DOH (such
recapitalization, Merger and all transactions related thereto, including those
described in the recitals hereto, being herein collectively referred to as the
"Transaction"), with DOH being the surviving corporation;
WHEREAS, the Borrower is a wholly-owned Subsidiary of DOH and, after
giving effect to the Merger, will be a wholly-owned Subsidiary of the
corporation surviving such Merger (DOH, at all times prior to the consummation
of the Merger, and such surviving corporation, at all times after the
consummation of the Merger, being herein collectively referred to as
"Holdings");
<PAGE>
WHEREAS, in connection with the Transaction, and pursuant to the
Transaction Documents, the following capital-raising transactions will occur
prior to or contemporaneously with the consummation of the Merger and the
making of the initial Credit Extensions hereunder:
(a) MergerSub shall receive cash proceeds of approximately
$225,000,000 from the issuance of common stock (and warrants, if
warrants are issued, to purchase common stock (the "Warrants"))
representing in excess of 85% of the fully diluted Capital Stock of
Holdings (exclusive of management shares, incentives and options) to
the Equity Investors (the "Equity Issuance");
(b) MergerSub shall receive gross cash proceeds of not less
than $85,000,000 from the issuance of its senior discount debentures
and warrants to purchase common stock (the "Discount Debentures",
with the issuance thereof being herein referred to as the "Discount
Debenture Issuance"); and
(c) the Borrower will issue not more than $150,000,000 in
principal amount of its senior subordinated notes (the "Subordinated
Notes", with the issuance thereof being herein referred to as the
"Subordinated Debt Issuance");
WHEREAS, in connection with the Transaction and the ongoing working
capital and general corporate needs of the Borrower and its Subsidiaries, the
Borrower desires to obtain the following financing facilities from the
Lenders:
(a) a Term-A Loan Commitment, a Term-B Loan Commitment and a
Term-C Loan Commitment pursuant to which Borrowings of Term Loans
will be made to the Borrower on the Closing Date in a maximum,
original principal amount of $195,000,000 (in the case of Term-A
Loans), $150,000,000 (in the case of Term-B Loans) and $125,000,000
(in the case of Term-C Loans);
(b) a Revolving Loan Commitment (to include availability for
Revolving Loans, Swing Line Loans and Letters of Credit) pursuant to
which Borrowings of Revolving Loans, in a maximum aggregate principal
amount (together with all Swing Line Loans and Letter of Credit
Outstandings) not to exceed $105,000,000 will be made to the Borrower
from time to time on and subsequent to the Closing Date but prior to
the Revolving Loan Commitment Termination Date; provided, however,
that not more than $10,000,000 of the proceeds from Revolving Loans
may be used for purposes of consummating the Transaction, including
the payment of related costs and expenses;
(c) a Letter of Credit Commitment pursuant to which the
Issuer will issue Letters of Credit for the account of the Borrower
and its Subsidiaries from time to time on and subsequent to the
Closing Date but prior to the Revolving Loan Commitment Termination
Date in a maximum aggregate Stated Amount at any one time outstanding
2
<PAGE>
not to exceed $25,000,000 (provided, that the aggregate outstanding
principal amount of Revolving Loans, Swing Line Loans and Letter of
Credit Outstandings at any time shall not exceed the then existing
Revolving Loan Commitment Amount); and
(d) a Swing Line Loan Commitment pursuant to which Borrowings
of Swing Line Loans in an aggregate outstanding principal amount not
to exceed $10,000,000 will be made on and subsequent to the Closing
Date but prior to the Revolving Loan Commitment Termination Date
(provided, that the aggregate outstanding principal amount of such
Swing Line Loans, together with Revolving Loans and Letter of Credit
Outstandings, at any time shall not exceed the then existing
Revolving Loan Commitment Amount);
WHEREAS, on the Closing Date, contemporaneously with the consummation
of the Merger, the Discount Debenture Issuance, the Subordinated Debt Issuance
and the initial Borrowing of Term Loans and Revolving Loans hereunder, the
Borrower shall distribute to Holdings as a dividend (the "Closing Date
Dividend") and/or make an intercompany loan (the "Intercompany Loan") in an
amount equal to all of the net proceeds of the Subordinated Debt Issuance and
the initial Borrowing of Term Loans and Revolving Loans (other than any such
proceeds used by the Borrower to repay existing Indebtedness of the Borrower
and its Subsidiaries and to pay fees and expenses related to the Transaction)
for purposes of consummating the Merger, which Intercompany Loan shall be
evidenced by a promissory note issued by Holdings to the Borrower (the
"Intercompany Note");
WHEREAS, the Lenders are willing, on the terms and subject to the
conditions hereinafter set forth (including Article V), to extend the
Commitments and make the Loans described herein to the Borrower and issue (or
participate in) Letters of Credit for the account of the Borrower and its
Subsidiaries;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. Defined Terms. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following
meanings (such meanings to be equally applicable to the singular and plural
forms thereof):
3
<PAGE>
"Account" means any account (as that term is defined in Section 9-106
of the UCC) of the Borrower or any of its wholly-owned U.S. Subsidiaries
arising from the sale or lease of goods or the rendering of services.
"Account Debtor" is defined in clause (b) of the definition of
"Eligible Account".
"Adjusted EBITDA" means, for any applicable period, the sum (without
duplication) for the Borrower and its Restricted Subsidiaries on a
consolidated basis of
(a) Net Income,
plus
(b) the amount deducted in determining Net Income representing
non-cash charges or expenses, including depreciation and
amortization (excluding any non-cash charges representing (i) an
accrual of or reserve for cash charges in any future period, (ii)
amortization of a prepaid cash expense paid in a prior period or
(iii) amortization in respect of repairable parts which have been
capitalized in accordance with GAAP),
plus
(c) the amount deducted in determining Net Income representing
income taxes (whether paid or deferred),
plus
(d) the amount deducted in determining Net Income representing
Interest Expense and fees, expenses, management bonuses (to the
extent paid at or prior to the Closing Date), and financing costs,
plus
(e) the amount deducted in determining Net Income representing
any net loss realized in connection with any sale, lease, conveyance
or other disposition of any asset (other than in the ordinary course
of business or from the Borrower or any of its Restricted
Subsidiaries to the Borrower or any of its Restricted Subsidiaries)
or any extraordinary or non-recurring loss,
minus
(f) Restricted Payments of the type referred to in clause
(c)(i) of Section 7.2.6 made during such period.
4
<PAGE>
"Administrative Agent" is defined in the preamble and includes each
other Person as shall have subsequently been appointed as the successor
Administrative Agent pursuant to Section 9.4.
"Administrative Agent's Fee Letter" means ______________________.
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan). A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or indirectly, power (i)
to vote 10% or more of the securities (on a fully diluted basis) having
ordinary voting power for the election of directors or managing general
partners, or (ii) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Agents" means, collectively, the Administrative Agent and the
Syndication Agent.
"Agreement" means, on any date, this Credit Agreement as originally
in effect on the Closing Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on
such date.
*"Alternate Base Rate" means, for any day and with respect to all
Base Rate Loans, the higher of: (a) 0.50% per annum above the latest Federal
Funds Rate; and (b) the rate of interest in effect for such day as most
recently publicly announced or established by the Administrative Agent in
, , as its "[base] [reference] [prime] rate." (The "[base]
[reference] [prime] rate" is a rate set by the Administrative Agent based upon
various factors including the Administrative Agent's costs and desired return,
general economic conditions and other factors, and is used as a reference
point for pricing some loans, which may be priced at, above or below such
announced rate.) Any change in the reference rate established or announced by
the Administrative Agent shall take effect at the opening of business on the
day of such establishment or announcement.
"Annualized" means (i) with respect to the end of the first Fiscal
Quarter of the Borrower ending after the Closing Date, the applicable amount
for such Fiscal Quarter multiplied by four, (ii) with respect to the second
Fiscal Quarter of the Borrower ending after the Closing Date, the applicable
amount for such Fiscal Quarter and the immediately preceding Fiscal Quarter
multiplied by two, and (iii) with respect to the third Fiscal Quarter of the
Borrower ending after the Closing Date, the applicable amount for such Fiscal
Quarter and the immediately preceding two Fiscal Quarters multiplied by one
and one-third.
- --------
* NationsBank has been requested to provide details to complete this
definition.
5
<PAGE>
"Applicable Commitment Fee" means, (i) for each day from the Closing
Date through (but excluding) the last day of the second full Fiscal Quarter
ending after the Closing Date, a fee which shall accrue at a rate of 1/2 of 1%
per annum, and (ii) for each day thereafter, a fee which shall accrue at the
applicable rate per annum set forth below under the column entitled
"Applicable Commitment Fee", determined by reference to the applicable
Leverage Ratio referred to below:
APPLICABLE
LEVERAGE RATIO COMMITMENT FEE
-------------- --------------
GREATER THAN OR
EQUAL TO 5.0:1 0.500%
GREATER THAN OR
EQUAL TO 4.0:1 AND
LESS THAN 5.0:1 0.375%
GREATER THAN OR
EQUAL TO 3.0:1 AND
LESS THAN 4.0:1 0.300%
LESS THAN 3.0:1 0.250%
The Leverage Ratio used to compute the Applicable Commitment Fee for
any day referred to in clause (ii) above shall be the Leverage Ratio set forth
in the Compliance Certificate most recently delivered by the Borrower to the
Administrative Agent on or prior to such day pursuant to clause (c) of Section
7.1.1. Changes in the Applicable Commitment Fee (i) in respect of the period
set forth in clause (i) above or (ii) as a result of a change in the Leverage
Ratio used to compute the Applicable Commitment Fee for any day referred to in
clause (ii) above shall become effective (as of the first day following the
Fiscal Quarter in respect of which such Compliance Certificate was required to
be delivered) upon delivery by the Borrower to the Administrative Agent of a
Compliance Certificate pursuant to clause (c) of Section 7.1.1. In the event
such Compliance Certificate indicates a Leverage Ratio that would result in an
Applicable Commitment Fee which is greater or lesser than the Applicable
Commitment Fee theretofore in effect, then (A) such greater or lesser
Applicable Commitment Fee shall be deemed to have been in effect for all
purposes of this Agreement from the first day following the Fiscal Quarter in
respect of which such Compliance Certificate was required to be delivered by
the Borrower to the Administrative Agent pursuant to clause (c) of Section
7.1.1 and (B) if the Borrower shall have theretofore made any payment of
Commitment Fees in respect of the period from the first day following the
Fiscal Quarter in respect of which such Compliance Certificate was required to
be delivered to the actual date of delivery of such Compliance Certificate,
then, on the next Quarterly Payment Date, either (x) if the new Applicable
Commitment Fee rate is greater than the Applicable Commitment Fee rate
theretofore in effect, the Borrower shall pay, as a
6
<PAGE>
supplemental payment of Commitment Fees, an amount which equals the difference
between the amount of Commitment Fees that would otherwise have been paid
based on such new Leverage Ratio and the amount of such Commitment Fees
actually so paid, or, (y) if the new Applicable Commitment Fee rate is less
than the Applicable Commitment Fee rate theretofore in effect, an amount shall
be deducted from the interest on Revolving Loans and Commitment Fees and
Letter of Credit fees under the first sentence of Section 3.3.3 then otherwise
payable in an amount which equals the difference between the amount of
Commitment Fees so paid and the amount of Commitment Fees that would otherwise
have been paid based on such new Leverage Ratio (or, if no such payment is
owed by the Borrower to the Revolving Lenders on such next Quarterly Payment
Date, or if such amount owed by the Borrower is less than such difference, the
Revolving Lenders shall pay to the Borrower on such next Quarterly Payment
Date the amount of such difference less the amount, if any, owed by the
Borrower to such Lenders on such Quarterly Payment Date).
"Applicable Margin" means at all times during the applicable periods
set forth below,
(a) with respect to the unpaid principal amount of each
Term-B Loan maintained as a (i) Base Rate Loan, 1.50% per annum and
(ii) LIBO Rate Loan, 2.75% per annum;
(b) with respect to the unpaid principal amount of each
Term-C Loan maintained as a (i) Base Rate Loan, 1.75% per annum, and
(ii) LIBO Rate Loan, 3.0% per annum; and
(c) from the Closing Date through (but excluding) the last
day of the second full Fiscal Quarter ending after the Closing Date,
with respect to the unpaid principal amount of each (i) Swing Line
Loan (each of which shall be borrowed and maintained only as a Base
Rate Loan) and each Revolving Loan and Term-A Loan maintained as a
Base Rate Loan, 1.25% per annum, and (ii) Revolving Loan and Term-A
Loan maintained as a LIBO Rate Loan, 2.50% per annum; and
(d) at all times after the date of such delivery of the
Compliance Certificate described in clause (c) above, with respect to
the unpaid principal amount of each Swing Line Loan (each of which
shall be borrowed and maintained only as a Base Rate Loan) and each
Revolving Loan and Term-A Loan, by reference to the applicable
Leverage Ratio and at the applicable percentage per annum set forth
below under the column entitled "Applicable Margin for Base Rate
Loans", in the case of Base Rate Loans, or by reference to the
Leverage Ratio and at the applicable percentage per annum set forth
below under the column entitled "Applicable Margin for LIBO Rate
Loans" in the case of LIBO Rate Loans:
7
<PAGE>
APPLICABLE MARGIN FOR REVOLVING LOANS AND TERM-A LOANS
APPLICABLE APPLICABLE
MARGIN FOR BASE MARGIN FOR LIBO
LEVERAGE RATIO RATE LOANS RATE LOANS
-------------- ---------- ----------
GREATER THAN OR EQUAL TO 5.0:1 1.25% 2.50%
GREATER THAN OR EQUAL TO 4.0:1
AND LESS THAN 5.0:1 0.75% 2.00%
GREATER THAN OR EQUAL TO 3.0:1
AND LESS THAN 4.0:1 0.25% 1.50%
LESS THAN 3.0:1 0.00% 1.00%
The Leverage Ratio used to compute the Applicable Margin for Swing
Line Loans, Revolving Loans and Term-A Loans for any day referred to in clause
(d) above shall be the Leverage Ratio set forth in the Compliance Certificate
most recently delivered by the Borrower to the Administrative Agent on or
prior to such day pursuant to clause (c) of Section 7.1.1. Changes in the
Applicable Margin for Swing Line Loans, Revolving Loans and Term-A Loans (i)
in respect of the period set forth in clause (c) above or (ii) as a result of
a change in the Leverage Ratio used to compute the Applicable Margin for Swing
Line Loans, Revolving Loans and Term-A Loans for any day referred to in clause
(d) above shall become effective (as the first day following the Fiscal
Quarter in respect of which such Compliance Certificate was required to be
delivered) upon delivery by the Borrower to the Administrative Agent of a
Compliance Certificate pursuant to clause (c) of Section 7.1.1. In the event
such Compliance Certificate indicates a Leverage Ratio that would result in an
Applicable Margin which is greater or lesser than the Applicable Margin
theretofore in effect, then (A) such greater or lesser Applicable Margin shall
be deemed to be in effect for all purposes of this Agreement from the first
day following the Fiscal Quarter in respect of which such Compliance
Certificate was required to be delivered by the Borrower to the Administrative
Agent pursuant to clause (c) of Section 7.1.1 and (B) if the Borrower shall
have theretofore made any payment of interest in respect of Swing Line Loans,
Revolving Loans or Term-A Loans, or of Letter of Credit fees pursuant to the
first sentence of Section 3.3.3, in any such case in respect of the period
from the first day following the Fiscal Quarter in respect of which such
Compliance Certificate was required to be delivered to the actual date of
delivery of such Compliance Certificate, then, on the next Quarterly Payment
Date, either (x) if the new Applicable Margin rate is greater than the
Applicable Margin rate theretofore in effect, the Borrower shall pay as a
supplemental payment of interest and/or Letter of Credit fees, an amount which
equals the difference between the amount of interest and Letter of Credit fees
that would otherwise have been paid based on such new Leverage Ratio and the
amount of such interest and Letter of Credit fees actually so paid, or, (y) if
the new
8
<PAGE>
Applicable Margin rate is less than the Applicable Margin rate theretofore in
effect, an amount shall be deducted from the interest on Revolving Loans,
Commitment Fees and Letter of Credit fees (in the case of differences in
respect of interest on Revolving Loans and Letter of Credit fees) or from the
interest on Term-A Loans (in the case of differences in respect of interest on
Term-A Loans) thereafter payable by the Borrower in an amount which equals the
difference between the amount of interest and Letter of Credit fees so paid
and the amount of interest and Letter of Credit fees that would otherwise have
been paid based on such new Leverage Ratio (or, if no such payment by the
Borrower to the Revolving Lenders or Term-A Lenders, as the case may be, will
thereafter accrue hereunder, or if the amount that so accrues is less than
such difference, the Revolving Lenders or the Term-A Lenders, as the case may
be, will promptly pay to the Borrower an amount equal to such difference less
the amount, if any, of such accrued and unpaid payments).
"Arranger" means Donaldson, Lufkin & Jenrette Securities Corporation,
a Delaware corporation.
"Assignee Lender" is defined in Section 10.11.1.
"Assignor Lender" is defined in Section 10.11.1.
"Assumed Indebtedness" means Indebtedness of a Person which is (i) in
existence at the time such Person becomes a Restricted Subsidiary of the
Borrower or (ii) is assumed in connection with an Investment in or acquisition
of such Person, and has not been incurred or created by such Person in
connection with, or in anticipation or contemplation of, such Person becoming
a Restricted Subsidiary of the Borrower.
"Authorized Officer" means, relative to any Obligor, those of its
officers whose signatures and incumbency shall have been certified to the
Administrative Agent and the Lenders pursuant to Section 5.1.1.
"Base Financial Statements" is defined in clause (a) of Section
5.1.9.
"Base Rate Loan" means a Loan bearing interest at a fluctuating rate
determined by reference to the Alternate Base Rate.
"Borrower" is defined in the preamble.
"Borrower Pledge Agreement" means the Pledge Agreement executed and
delivered by an Authorized Officer of the Borrower pursuant to clause (b) of
Section 5.1.7, substantially in the form of Exhibit G-2 hereto, as amended,
supplemented, amended and restated or otherwise modified from time to time.
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"Borrower Security Agreement" means the Security Agreement executed
and delivered by an Authorized Officer of the Borrower pursuant to Section
5.1.8, substantially in the form of Exhibit F-1 hereto, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"Borrowing" means Loans of the same type and, in the case of LIBO
Rate Loans, having the same Interest Period made by the relevant Lenders on
the same Business Day and pursuant to the same Borrowing Request in accordance
with Section 2.1.
"Borrowing Base Amount" means, at any time, the Net Asset Value of
all Eligible Accounts and Eligible Inventory at such time as determined in
accordance with the definition of "Net Asset Value" and as certified by the
Borrower to the Lenders in the most recently delivered Borrowing Base
Certificate, including the Borrowing Base Certificate delivered on the Closing
Date pursuant to clause (c) of Section 5.1.9.
"Borrowing Base Certificate" means a certificate duly completed and
executed by the president, chief executive officer, treasurer, assistant
treasurer, controller or chief financial Authorized Officer of the Borrower,
substantially in the form of Exhibit B-2 hereto.
"Borrowing Request" means a loan request and certificate duly
executed by an Authorized Officer of the Borrower, substantially in the form
of Exhibit B-1 hereto.
"Business Day" means any day which is neither a Saturday or Sunday
nor a legal holiday on which banks are authorized or required to be closed in
New York City and, with respect to Borrowings of, Interest Periods with
respect to, payments of principal and interest in respect of, and conversions
of Base Rate Loans into, LIBO Rate Loans, on which dealings in Dollars are
carried on in the London interbank market.
"Capital Expenditures" means for any period, the sum, without
duplication, of (i) the aggregate amount of all expenditures of the Borrower
and its Restricted Subsidiaries for fixed or capital assets made during such
period which, in accordance with GAAP, would be classified as capital
expenditures, and (ii) the aggregate amount of the principal component of all
Capitalized Lease Liabilities incurred during such period by the Borrower and
its Restricted Subsidiaries.
"Capital Stock" means, (i) in the case of a corporation, any and all
capital or corporate stock, (ii) in the case of an association or business
entity, any and all shares, interests, participations, rights or other
equivalents (however designated) in respect of corporate stock, (iii) in the
case of a partnership or limited liability company, any and all 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.
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"Capitalized Lease Liabilities" 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.
"Cash Equivalent Investment" means, at any time:
(a) any evidence of Indebtedness issued directly by the
United States of America or any agency thereof or guaranteed by the
United States of America or any agency thereof;
(b) commercial paper, maturing not more than nine months
from the date of issue, which is issued by (i) a corporation (other
than an Affiliate of any Obligor) organized under the laws of any
state of the United States or of the District of Columbia and rated
at least A-l by S&P or P-l by Moody's, or (ii) any Lender (or its
holding company);
(c) any time deposit, certificate of deposit or bankers
acceptance, maturing not more than one year after such time,
maintained with or issued by either (i) a commercial banking
institution (including U.S. branches of foreign banking institutions)
that is a member of the Federal Reserve System and has a combined
capital and surplus and undivided profits of not less than
$500,000,000, or (ii) any Lender;
(d) short-term tax-exempt securities rated not lower than
MIG-1/1+ by either Moody's or S&P with provisions for liquidity or
maturity accommodations of 183 days or less;
(e) repurchase agreements which (i) are entered into with
any entity referred to in clause (b) or (c) above or any other
financial institution whose unsecured long-term debt (or the
unsecured long-term debt of whose holding company) is rated at least
A- or better by S&P or Baa1 or better by Moody's and maturing not
more than one year after such time, (ii) are secured by a fully
perfected security interest in securities of the type referred to in
clause (a) above and (iii) have a market value at the time of such
repurchase agreement is entered into of not less than 100% of the
repurchase obligation of such counterparty entity with whom such
repurchase agreement has been entered into; or
(f) any money market or similar fund the assets of which are
comprised exclusively of any of the items specified in clauses (a)
through (d) above and as to which withdrawals are permitted at least
every 90 days.
"Casualty Event" means the damage, destruction or condemnation, as
the case may be, of any property of the Borrower or any of its Subsidiaries.
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"Casualty Proceeds" means, with respect to any Casualty Event, the
amount of any insurance proceeds or condemnation awards received by the
Borrower or any of its Subsidiaries in connection therewith, but excluding any
proceeds or awards required to be paid to a creditor (other than the Lenders)
which holds a first-priority Lien permitted by Section 7.2.3 on the property
which is the subject of such Casualty Event.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
"Certificate of Merger" means the Certificate of Merger relating to
the Merger of DOH and MergerSub, as filed with the Secretary of State of
Delaware on August 7, 1997.
"Change in Control" means (i) the failure of Holdings at any time to
own, free and clear of all Liens and encumbrances (other than Liens permitted
to exist under clauses (b), (d) and (g) of Section 7.2.3), all right, title
and interest in 100% of the Capital Stock of the Borrower; (ii) the failure of
the DLJMB Entities at any time to own, free and clear of all Liens and
encumbrances (other than Liens arising under the Investor's Agreement) all
right, title and interest in at least 20% (on a fully diluted basis) of the
economic and voting interest in the Voting Stock of Holdings; or (iii) the
failure of the DLJMB Entities and their Affiliates at any time to have the
right to elect a majority of the Board of Directors of Holdings or the
Borrower.
"Charter Document" means, relative to any Obligor, its certificate of
incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements to which such Obligor is a party applicable to any of its
authorized shares of Capital Stock.
"Closing Date" means the date of the initial Borrowing, not to be
later than August 31, 1997.
"Closing Date Certificate" means a certificate of an Authorized
Officer of the Borrower substantially in the form of Exhibit D hereto,
delivered pursuant to Section 5.1.4.
"Closing Date Dividend" is defined in the sixth recital.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitment" means, as the context may require, (i) a Lender's Term-A
Loan Commitment, Term-B Loan Commitment, Term-C Loan Commitment, Revolving
Loan Commitment or Letter of Credit Commitment or (ii) the Swing Line Lender's
Swing Line Loan Commitment.
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"Commitment Amount" means, as the context may require, the Term-A
Loan Commitment Amount, the Term-B Loan Commitment Amount, the Term-C Loan
Commitment Amount, the Revolving Loan Commitment Amount, the Letter of Credit
Commitment Amount or the Swing Line Loan Commitment Amount.
"Commitment Letter" means the commitment letter, dated April 30,
1997, among DLJ Merchant Banking II, Inc., the Arranger and the Syndication
Agent, including all annexes and exhibits thereto.
"Commitment Termination Date" means, as the context may require, the
Revolving Loan Commitment Termination Date or any Term Loan Commitment
Termination Date.
"Commitment Termination Event" means (i) the occurrence of any Event
of Default described in clauses (b) through (d) of Section 8.1.9 with respect
to any Obligor (other than immaterial Subsidiaries), or (ii) the occurrence
and continuance of any other Event of Default and either (x) the declaration
of the Loans to be due and payable pursuant to Section 8.3, or (y) in the
absence of such declaration, the giving of notice to the Borrower by the
Administrative Agent, acting at the direction of the Required Lenders, that
the Commitments have been terminated.
"Compliance Certificate" means a certificate duly completed and
executed by the president, chief executive officer, treasurer, assistant
treasurer, controller or chief financial Authorized Officer of the Borrower,
substantially in the form of Exhibit E hereto.
"Contingent Liability" means any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise becomes or
is contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss) the
indebtedness, obligation or any other liability of any other Person (other
than by endorsements of instruments in the course of collection), or
guarantees the payment of dividends or other distributions upon the shares of
any other Person. The amount of any Person's obligation under any Contingent
Liability shall (subject to any limitation set forth therein) be deemed to be
the outstanding principal amount of the debt, obligation or other liability
guaranteed thereby.
"Continuation/Conversion Notice" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of Exhibit C hereto.
"Controlled Group" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under
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Section 414(b) or 414(c) of the Code or Section 4001 of ERISA, or for purposes
of Section 412 of the Code, Section 414(m) or Section 414(o) of the Code.
"Credit Extension" means, as the context may require, (i) the making
of a Loan by a Lender, or (ii) the issuance of any Letter of Credit, or the
extension of any Stated Expiry Date of any previously issued Letter of Credit,
by the Issuer.
"Credit Extension Request" means, as the context may require, any
Borrowing Request or Issuance Request.
"Current Assets" means, on any date, without duplication, all assets
which, in accordance with GAAP, would be included as current assets on a
consolidated balance sheet of the Borrower and its Restricted Subsidiaries at
such date as current assets (excluding, however, amounts due and to become due
from Affiliates of the Borrower which have arisen from transactions which are
other than arm's-length and in the ordinary course of its business).
"Current Liabilities" means, on any date, without duplication, all
amounts which, in accordance with GAAP, would be included as current
liabilities on a consolidated balance sheet of the Borrower and its Restricted
Subsidiaries at such date, excluding current maturities of Debt.
"Debt" means, without duplication, the outstanding principal amount
of all Indebtedness of the Borrower and its Restricted Subsidiaries that (i)
is of the type referred to in clause (a), (b) (other than undrawn commercial
letters of credit and undrawn letters of credit in respect of workers'
compensation, insurance, performance and surety bonds and similar obligations,
in each case incurred in the ordinary course of business) or (c) of the
definition of "Indebtedness" and (ii) any Contingent Liability in respect of
any of the foregoing types of Indebtedness.
"DecisionOne Business" is defined in Section 7.2.1.
"Default" means any Event of Default or any condition, occurrence or
event which, after notice or lapse of time or both, would, unless cured or
waived, constitute an Event of Default.
"Disbursement" is defined in Section 2.6.2.
"Disbursement Date" is defined in Section 2.6.2.
"Disbursement Due Date" is defined in Section 2.6.2.
"Disclosure Schedule" means the Disclosure Schedule attached hereto
as Schedule I, as it may be amended, supplemented or otherwise modified from
time to time by the Borrower with the written consent of the Required Lenders.
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"Discount Debenture" is defined in clause (b) of the fourth recital.
"Discount Debenture Issuance" is defined in clause (b) of the fourth
recital.
"DLJ" is defined in the preamble.
"DLJMB Entities" is defined in the second recital.
"Documentation Agent" is defined in the preamble and includes each
other Person as shall have subsequently been appointed as the successor
Documentation Agent pursuant to Section 9.4.
"DOH" is defined in the second recital.
"Dollar" and the sign "$" mean lawful money of the United States.
"Eligible Account" means, with respect to the Borrower and any of its
wholly-owned U.S. Subsidiaries that are Material Subsidiaries at time of
determination thereof, any Account as to which each of the following
requirements has been fulfilled to the reasonable satisfaction of the
Administrative Agent:
(a) the Borrower or such Subsidiary owns such Account free
and clear of all Liens other than any Lien permitted to exist under
clause (a), (c), (d) or (f) of Section 7.2.3;
(b) such Account is a legal, valid, binding and enforceable
obligation of the Person obligated under such Account (the "Account
Debtor");
(c) such Account is not, in the case of any Account in
excess of $250,000, subject to any bona fide dispute, setoff,
counterclaim or other right, claim or defense on the part of the
Account Debtor or any other Person denying liability under such
Account; provided, however, that any such Account shall constitute an
Eligible Account to the extent it is not subject to any such dispute,
setoff, counterclaim or other claim or defense;
(d) the Borrower or such Subsidiary has the full and
unqualified right to assign and grant a Lien on such Account to the
Administrative Agent, for its benefit and that of the Lenders, as
security for the Obligations (and the Administrative Agent shall have
a perfected, first-priority (other than inchoate statutory Liens
otherwise permitted by Section 7.2.3) Lien on such Account);;
(e) such Account is evidenced by an invoice rendered to the
Account Debtor (which shall include computer records) or is reflected
by computer records maintained by
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the Borrower or such Subsidiary evidencing such Account and is not
evidenced by any instrument or chattel paper (as the terms
"instrument" and "chattel paper" are defined in Section 9-105 of the
UCC), unless such instrument or chattel paper has been delivered to
the Administrative Agent;
(f) such Account arose from the sale of goods or services by
the Borrower or such Subsidiary in the ordinary course of the
Borrower's or such Subsidiary's business;
(g) with respect to such Account, no Account Debtor is (i) an
Affiliate of the Borrower or any of its Subsidiaries, or (ii) the
subject of any reorganization, bankruptcy, receivership,
custodianship, insolvency or other condition analogous with respect
to such Account Debtor to those described in clauses (a) through (d)
of Section 8.1.9;
(h) such Account is not outstanding more than 120 days from
the original invoice date for such Account;
(i) such Account is not, in the case of any Account in
excess of $250,000, an Account owing by an Account Debtor having, at
the time of any determination of Eligible Accounts, in excess of 10%
of the aggregate outstanding amount of all Accounts of such Account
Debtor (other than any Accounts which are the subject of bona fide
disputes between such Account Debtor and the Borrower or such
Subsidiary, as the case may be) outstanding more than 90 days past
the original date of shipment, in the case of goods, or, in the case
of services, from the date when such services have been rendered in
full, in each case for such Account; and
(j) the Account Debtor in respect of such Account is located
within the United States, Puerto Rico or Canada unless the
obligations (or that portion of such obligations which is acceptable
to the Administrative Agent) of an Account Debtor not located within
the United States, Puerto Rico or Canada are secured by a letter of
credit, guaranty or eligible bankers' acceptance having terms, and
from such issuers and confirmation banks, as are acceptable to the
Administrative Agent.
"Eligible Inventory" means, with respect to the Borrower and any of
its wholly-owned U.S. Subsidiaries that are Material Subsidiaries, at the time
of any determination thereof, any Inventory arising in the ordinary course of
business and as to which each of the following requirements has been fulfilled
to the reasonable satisfaction of the Agents:
(a) such Inventory is located in the United States
(including Puerto Rico);
(b) the Borrower or its wholly-owned U.S. Subsidiary that
is a Material Subsidiary owning such Inventory, as the case may
be, has full and unqualified right to
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assign and grant a Lien in such Inventory to the Administrative
Agent, for the benefit of the Agents and the Lenders, as
security for the Obligations;
(c) the Borrower or one of its wholly-owned U.S.
Subsidiaries that are Material Subsidiaries owns such Inventory
free and clear of all Liens in favor of any Person other than
any Lien permitted to exist under clause (a), (c), (d) or (f)
of Section 7.2.3; and
(d) none of such Inventory (in the case of Inventory other
than repairable parts) is obsolete, unsaleable, damaged,
otherwise unfit for sale or consumption or further processing
or unusable in support of customer maintenance contracts.
"Environmental Laws" means all applicable federal, state or local
statutes, laws, ordinances, codes, rules and regulations (including consent
decrees and administrative orders) relating to public health and safety and
protection of the environment.
"Equity Investors" is defined in the second recital.
"Equity Issuance" is defined in clause (a) of the fourth recital.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" is defined in Section 8.1.
"Excess Cash Flow" means, for any applicable period, the excess (if
any), of
(a) Adjusted EBITDA for such applicable period;
over
(b) the sum, without duplication (for such applicable period) of
(i) the cash portion of Interest Expense for such applicable
period;
plus
(ii) scheduled payments and mandatory prepayments, to the
extent actually made, of the principal amount of the Term Loans or
any other funded Debt (including Capitalized Lease Liabilities) and
mandatory prepayments of the principal amount of the Revolving Loans
pursuant to clause (b) or (g) of Section 3.1.1 in connection with a
reduction of the Revolving Loan Commitment Amount, in each case for
such applicable period;
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plus
(iii) all federal, state and foreign income taxes
actually paid in cash by the Borrower and its Restricted
Subsidiaries for such applicable period;
plus
(iv) Capital Expenditures actually made during such
applicable period pursuant to clause (a) of Section 7.2.7
(excluding Capital Expenditures constituting Capitalized
Lease Liabilities and by way of the incurrence of
Indebtedness permitted pursuant to Section 7.2.2(c) to a
vendor of any assets permitted to be acquired pursuant to
Section 7.2.7 to finance the acquisition of such assets);
plus
(v) the amount of the net increase (if any) of
Current Assets, other than cash and Cash Equivalent
Investments, over Current Liabilities of the Borrower and
its Restricted Subsidiaries for such applicable period;
plus
(vi) Investments permitted and actually made, in
cash, pursuant to clause (k) of Section 7.2.5 during such
applicable period;
plus
(vii) the amount of the net increase of Inventory
constituting repairable parts which are not classified as
Current Assets on the balance sheet of the Borrower and its
Restricted Subsidiaries for such applicable period;
plus
(viii) Restricted Payments of the type described in
clauses (c)(ii), (c)(iii) and (c)(iv) of Section 7.2.6 made
during such period;
plus
(ix) gains on sales of assets (other than sales
permitted under clause (a) of Section 7.2.9).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to (i) the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York, or (ii) if such rate is
not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by the Administrative
Agent from three federal funds brokers of recognized standing selected by it.
"Fee Letter" means the confidential fee letter, dated as of April 30,
1997, among DLJ Merchant Banking II, Inc., the Arranger and the Syndication
Agent.
"Fiscal Quarter" means any fiscal quarter of a Fiscal Year.
"Fiscal Year" means any twelve-month period ending on June 30 of any
calendar year.
"Fixed Charge Coverage Ratio" means, at the end of any Fiscal
Quarter, subject to clause (b) of Section 1.4, the ratio computed for the
period consisting of such Fiscal Quarter and each of the three immediately
prior Fiscal Quarters of
(a) Adjusted EBITDA for all such Fiscal Quarters
to
(b) the sum (without duplication) of
(i) Capital Expenditures actually made during all
such Fiscal Quarters pursuant to clause (a) of Section 7.2.7
(excluding Capital Expenditures constituting Capitalized
Lease Liabilities and by way of the incurrence of
Indebtedness permitted pursuant to Section 7.2.2(b)(ii) to a
vendor of any assets permitted to be acquired pursuant to
Section 7.2.7 to finance the acquisition of such assets);
plus
(ii) the cash portion of Interest Expense for all
such Fiscal Quarters, provided that for the first three
Fiscal Quarters ending after the Closing Date, Interest
Expense shall be determined on an Annualized basis;
plus
(iii) all scheduled payments of principal of the
Term Loans and other funded Debt (including the principal
portion of any Capitalized Lease Liabilities)
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during all such Fiscal Quarters, provided that for the
first three Fiscal Quarters ending after the Closing Date,
such payments shall be determined on an Annualized basis;
plus
(iv) Restricted Payments permitted pursuant to
clauses (c)(i) and (d) of Section 7.2.6 made during such
period;
plus
(v) all federal, state and foreign income taxes
actually paid in cash by the Borrower and its Restricted
Subsidiaries and Restricted Payments made by the Borrower
pursuant to clause (c)(ii) of Section 7.2.6 during such
period.
"F.R.S. Board" means the Board of Governors of the Federal Reserve
System or any successor thereto.
"GAAP" is defined in Section 1.4.
"Hazardous Material" means
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource
Conservation and Recovery Act, as amended;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous, dangerous or
toxic chemical, material or substance within the meaning of any other
applicable Environmental Law.
"Hedging Obligations" means, with respect to any Person, all
liabilities of such Person under interest rate swap agreements, interest rate
cap agreements and interest rate collar agreements, and all other agreements
or arrangements designed to protect such Person against fluctuations in
interest rates or currency exchange rates.
"herein", "hereof", "hereto", "hereunder" and similar terms contained
in this Agreement or any other Loan Document refer to this Agreement or such
other Loan Document, as the case may be, as a whole and not to any particular
Section, paragraph or provision of this Agreement or such other Loan Document.
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"Holdings" is defined in the third recital.
"Holdings Guaranty and Pledge Agreement" means the Guaranty and
Pledge Agreement executed and delivered by an Authorized Officer of Holdings
pursuant to clause (a) of Section 5.1.7, substantially in the form of Exhibit
G-1 hereto, as amended, supplemented, amended and restated or otherwise
modified from time to time.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial
statement of any Obligor, any qualification or exception to such opinion or
certification (i) which is of a "going concern" or similar nature, (ii) which
relates to the limited scope of examination of matters relevant to such
financial statement (except, in the case of matters relating to any acquired
business or assets, in respect of the period prior to the acquisition by such
Obligor of such business or assets), or (iii) which relates to the treatment
or classification of any item in such financial statement and which, as a
condition to its removal, would require an adjustment to such item the effect
of which would be to cause such Obligor to be in default of any of its
obligations under Section 7.2.4.
"including" means including without limiting the generality of any
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of ejusdem generis
shall not be applicable to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
"Indebtedness" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money or for
the deferred purchase price of property or services (exclusive of
deferred purchase price arrangements in the nature of open or other
accounts payable owed to suppliers on normal terms in connection with
the purchase of goods and services in the ordinary course of
business) and all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(b) all obligations, contingent or otherwise, relative to
the face amount of all letters of credit, whether or not drawn, and
banker's acceptances issued for the account of such Person;
(c) all Capitalized Lease Liabilities;
(d) net liabilities of such Person under all Hedging
Obligations;
(e) whether or not so included as liabilities in accordance
with GAAP, all Indebtedness of the types referred to in clauses (a)
through (d) above (excluding prepaid
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interest thereon) secured by a Lien on property owned or being
purchased by such Person (including Indebtedness arising under
conditional sales or other title retention agreements), whether or
not such Indebtedness shall have been assumed by such Person or is
limited in recourse; provided, however, that, to the extent such
Indebtedness is limited in recourse to the assets securing such
Indebtedness, the amount of such Indebtedness shall be limited to
the fair market value of such assets; and
(f) all Contingent Liabilities of such Person in respect of
any of the foregoing.
For all purposes of this Agreement, the Indebtedness of any Person shall
include the Indebtedness of any partnership or joint venture in which such
Person is a general partner or a joint venturer (to the extent such Person is
liable for such Indebtedness).
"Indemnified Liabilities" is defined in Section 10.4.
"Indemnified Parties" is defined in Section 10.4.
"Initial Public Offering" mean for any Person, any sale of the
Capital Stock of such Person to the public pursuant to an initial primary
offering registered under the Securities Act of 1933.
"Intercompany Loan" is defined in the sixth recital.
"Intercompany Note" is defined in the sixth recital.
"Interest Coverage Ratio" means, at the end of any Fiscal Quarter,
subject to clause (b) of Section 1.4, the ratio computed for the period
consisting of such Fiscal Quarter and each of the three immediately prior
Fiscal Quarters of:
(a) Adjusted EBITDA (for all such Fiscal Quarters)
to
(b) the cash portion of Interest Expense (for all such
Fiscal Quarters; provided that for the first three Fiscal Quarters
ending after the Closing Date, Interest Expense shall be determined
on an Annualized basis).
"Interest Expense" means, for any applicable period, the aggregate
consolidated interest expense of the Borrower and its Restricted Subsidiaries
for such applicable period, as determined in accordance with GAAP, including
the portion of any payments made in respect of Capitalized Lease Liabilities
allocable to interest expense, but excluding (to the extent included in
interest expense) up-front fees and expenses and the amortization of all
deferred financing costs.
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"Interest Period" means, as to any LIBO Rate Loan, the period
commencing on the Borrowing date of such Loan or on the date on which the Loan
is converted into or continued as a LIBO Rate Loan, and ending on the date
one, two, three, six or, if available in the Administrative Agent's reasonable
determination, nine or twelve months thereafter as selected by the Borrower in
its Borrowing Request or its Conversion/Continuation Notice; provided however
that:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be
to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period that begins on the last Business
Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period;
(iii) no Interest Period for any Loan shall extend beyond
the Stated Maturity Date for such Loan;
(iv) no Interest Period applicable to a Term Loan or portion
thereof shall extend beyond any date upon which is due any scheduled
principal payment in respect of the Term Loans unless the aggregate
principal amount of Term Loans represented by Base Rate Loans, or by
LIBO Rate Loans having Interest Periods that will expire on or
before such date, equals or exceeds the amount of such principal
payment; and
(v) there shall be no more than twenty Interest Periods in
effect at any one time;
provided that with respect to the initial Borrowing, Interest Period means the
period commencing on (and including) the Business Day on which the Borrowing
is made and ending on (and including) the last Business Day of the month
following the month in which such initial Borrowing is made.
"Inventory" means, any "inventory" (as that term is defined in
Section 9-109(4) of the UCC) of the Borrower or any of its wholly owned U.S.
Subsidiaries.
"Investment" means, relative to any Person, (i) any loan or advance
made by such Person to any other Person (excluding commission, travel and
similar advances to officers, directors and employees (or individuals acting
in similar capacities) made in the ordinary course of business), and (ii) any
ownership or similar interest (in the nature of Capital Stock) held by such
Person in any other Person. The amount of any Investment shall be the original
principal or capital amount thereof less all returns of principal or equity
thereon (and without adjustment by reason of the
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financial condition of such other Person) and shall, if made by the transfer
or exchange of property other than cash, be deemed to have been made in an
original principal or capital amount equal to the fair market value of such
property at the time of such transfer or exchange.
"Investor's Agreement" means the Investor's Agreement, dated as of
August __, 1997, among the DLJ Merchant Banking Partners II, L.P., DLJ
Merchant Banking Partners II-A, L.P., DLJ Offshore Partners, C.V., DLJ
Merchant Banking Funding, Inc., DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A. L.P., DLJ Millennium
Partners, L.P., DLJ Millennium-A, L.P., DLJMB Funding II, Inc., DLJ EAB
Partners, L.P., DLJ First ESC LLC, UK Investment Plan 1997 Partners, MergerSub
and certain other stockholders listed on the signature pages thereof (as
amended or otherwise modified from time to time in accordance with Section
7.2.10).
"IPO Subsidiary" means Properties Holding Corporation, a Delaware
corporation, a direct, wholly-owned Subsidiary of the Borrower.
"Issuance Request" means a Letter of Credit request and certificate
duly executed by an Authorized Officer of the Borrower, substantially in the
form of Exhibit B-3 hereto.
"Issuer" means the Administrative Agent in its capacity as issuer of
Letters of Credit and any Lender as may be designated by the Borrower (and
consented to by the Agents and such Lender, such consent by the Agents not to
be unreasonably withheld) in its capacity as issuer of Letters of Credit.
"Lender Assignment Agreement" means a Lender Assignment Agreement
substantially in the form of Exhibit J hereto.
"Lenders" is defined in the preamble.
"Letter of Credit" is defined in Section 2.1.3.
"Letter of Credit Commitment" means, with respect to the Issuer, the
Issuer's obligation to issue Letters of Credit pursuant to Section 2.1.3 and,
with respect to each of the other Lenders that has a Revolving Loan
Commitment, the obligation of each such Lender to participate in such Letters
of Credit pursuant to Section 2.6.1.
"Letter of Credit Commitment Amount" means, on any date, a maximum
amount of $25,000,000, as such amount may be reduced from time to time
pursuant to Section 2.2.
"Letter of Credit Outstandings" means, on any date, an amount equal
to the sum of
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(a) the then aggregate amount which is undrawn and available
under all issued and outstanding Letters of Credit,
plus
(b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations in respect of such Letters of Credit.
"Leverage Ratio" means, at the end of any Fiscal Quarter, subject to
clause (b) of Section 1.4, the ratio of
(a) total Debt less cash and Cash Equivalent Investments of the
Borrower and its Restricted Subsidiaries on a consolidated basis
outstanding at such time;
to
(b) Adjusted EBITDA for the period of four consecutive Fiscal
Quarters ended on such date.
"LIBO Rate" means, relative to any Interest Period for LIBO Rate
Loans, the rate of interest per annum determined by the Administrative Agent
to be the arithmetic mean (rounded upward to the next 1/100th of 1%) of the
rates of interest per annum at which dollar deposits in the approximate amount
of the Loan to be made or continued as, or converted into, a LIBO Rate Loan by
the Administrative Agent and having a maturity comparable to such Interest
Period would be offered to the Administrative Agent in the London interbank
market at its request at approximately 11:00 a.m. (London time) two Business
Days prior to the commencement of such Interest Period.
"LIBO Rate Loan" means a Loan bearing interest, at all times during
an Interest Period applicable to such Loan, at a fixed rate of interest
determined by reference to the LIBO Rate (Reserve Adjusted).
"LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be
made, continued or maintained as, or converted into, a LIBO Rate Loan for any
Interest Period, the rate of interest per annum (rounded upwards to the next
1/100th of 1%) determined by the Administrative Agent as follows:
LIBO Rate = LIBO Rate
(Reserve Adjusted) -------------------------------
1.00 - LIBOR Reserve Percentage
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The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO
Rate Loans will be adjusted automatically as to all LIBO Rate Loans then
outstanding as of the effective date of any change in the LIBOR Reserve
Percentage.
"LIBOR Office" means, relative to any Lender, the office of such
Lender designated as such on Schedule II hereto or designated in the Lender
Assignment Agreement pursuant to which such Lender became a Lender hereunder
or such other office of a Lender as shall be so designated from time to time
by notice from such Lender to the Borrower and the Administrative Agent, which
shall be making or maintaining LIBO Rate Loans of such Lender hereunder.
"LIBOR Reserve Percentage" means, relative to any Interest Period for
LIBO Rate Loans, the percentage (expressed as a decimal, rounded upward to the
next 1/100th of 1%) in effect on such day (whether or not applicable to any
Lender) under regulations issued from time to time by the F.R.S. Board for
determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to
Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the F.R.S. Board).
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property, or any filing or recording of any
instrument or document in respect of the foregoing, to secure payment of a
debt or performance of an obligation or any other priority or preferential
treatment of any kind or nature whatsoever that has the practical effect of
creating a security interest in property.
"Loan" means, as the context may require, a Revolving Loan, a Term-A
Loan, a Term-B Loan, a Term-C Loan or a Swing Line Loan, of any type.
"Loan Document" means this Agreement, the Notes, the Letters of
Credit, each Rate Protection Agreement under which the counterparty to such
agreement is (or at the time such Rate Protection Agreement was entered into,
was) a Lender or an Affiliate of a Lender relating to Hedging Obligations of
the Borrower or any of its Subsidiaries, each Borrowing Request, each Issuance
Request, each Borrowing Base Certificate, the Fee Letter, the Administrative
Agent's Fee Letter, each Pledge Agreement, the Subsidiary Guaranty, each
Mortgage (upon execution and delivery thereof), each Security Agreement and
each other agreement, document or instrument delivered in connection with this
Agreement or any other Loan Document, whether or not specifically mentioned
herein or therein.
"Material Adverse Effect" means (a) a material adverse effect on the
financial condition, operations, assets, business or properties of the
Borrower and its Restricted Subsidiaries, taken as a whole, (b) a material
impairment of the ability of the Borrower or any other Obligor to perform its
respective material obligations under the Loan Documents to which it is or
will be a party, or (c) an impairment of the validity or enforceability of, or
a material impairment of the rights,
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remedies or benefits available to the Issuer, the Agents, the Arranger or the
Lenders under, this Agreement or any other Loan Document.
["Material Documents" means the Merger Agreement, the Investor's
Agreement, the Tax Sharing Agreement and the Borrower's Articles of
Incorporation, each as amended or otherwise modified from time to time as
permitted in accordance with the terms hereof or of any other Loan Document.]
"Material Subsidiary" means (i) any direct or indirect Restricted
Subsidiary of the Borrower which holds, owns or contributes, as the case may
be, 5% or more of the gross revenues or assets of the Borrower and its
Restricted Subsidiaries, on a consolidated basis, and (ii) any Restricted
Subsidiary of the Borrower designated by the Borrower as a Material
Subsidiary. The Borrower shall designate one or more Restricted Subsidiaries
of the Borrower as Material Subsidiaries if, in the absence of such
designation, the aggregate gross revenues or assets of all Restricted
Subsidiaries of the Borrower that are not Material Subsidiaries would exceed
5% of the gross revenues or assets of the Borrower and its Restricted
Subsidiaries, on a consolidated basis.
"Merger" is defined in the second recital.
"Merger Agreement" means the Agreement and Plan of Merger, dated as
of May 4, 1997 and amended on July 15, 1997 (as amended, or otherwise modified
from time to time in accordance with Section 7.2.10) between DOH and
MergerSub.
"MergerSub" is defined in the first recital.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means, collectively, each Mortgage or Deed of Trust
executed and delivered pursuant to the terms of this Agreement, including
Section 7.1.8(b) or 7.1.12, in form and substance reasonably satisfactory to
the Agents.
"Net Asset Value" means, at any time of any determination, (i) with
respect to Eligible Accounts, 85% of an amount equal to (x) the book value of
all Eligible Accounts as reflected on the books of the Borrower and its
Material Subsidiaries in accordance with GAAP, net of (y) all credits,
discounts and allowances (and net of all unissued credits in the form of
competitive allowances or otherwise) in respect of such Eligible Accounts and
(ii) with respect to Eligible Inventory, an amount equal to (x) in the case of
Eligible Inventory that is classified as a Current Asset on the balance sheet
of the Borrower or applicable Material Subsidiary in accordance with GAAP, 50%
of, and (y) in the case of Eligible Inventory that is classified as repairable
parts on the balance sheet of the Borrower or applicable Material Subsidiary
in accordance with GAAP, 30% of, in each case net book value (determined on a
weighted average cost basis) of all such
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<PAGE>
Eligible Inventory as reflected on the books of the Borrower and its U.S.
Subsidiaries that are Material Subsidiaries as at such time, valued in
accordance with GAAP.
"Net Debt Proceeds" means, with respect to the incurrence, sale or
issuance by the Borrower or any of its Restricted Subsidiaries of any Debt
(other than Debt incurred as part of the Transaction and other Debt permitted
by Section 7.2.2 as in effect on the date hereof), the excess of:
(a) the gross cash proceeds received by the Borrower or any of
its Restricted Subsidiaries from such incurrence, sale or issuance,
over
(b) all reasonable and customary underwriting commissions and
legal, investment banking, brokerage and accounting and other
professional fees, sales commissions and disbursements and all other
reasonable fees, expenses and charges, in each case actually
incurred in connection with such incurrence, sale or issuance.
"Net Disposition Proceeds" means, with respect to any sale, transfer
or other disposition of any assets of the Borrower or any of its Restricted
Subsidiaries (other than transfers made as part of the Transaction and other
sales permitted pursuant to clause (a) or clause (b) of Section 7.2.9), the
excess of
(a) the gross cash proceeds received by the Borrower or any of
its Restricted Subsidiaries from any such sale, transfer or other
disposition and any cash payments received in respect of promissory
notes or other non-cash consideration delivered to the Borrower or
such Restricted Subsidiary in respect thereof,
less
(b) the sum (without duplication) of (i) all reasonable and
customary fees and expenses with respect to legal, investment
banking, brokerage, accounting and other professional fees, sales
commissions and disbursements and all other reasonable fees,
expenses and charges, in each case actually incurred in connection
with such sale, transfer or other disposition, (ii) all taxes and
other governmental costs and expenses actually paid or estimated by
the Borrower (in good faith) to be payable in cash in connection
with such sale, transfer or other disposition, and (iii) payments
made by the Borrower or any of its Restricted Subsidiaries to retire
Indebtedness (other than the Loans) of the Borrower or any of its
Restricted Subsidiaries where payment of such Indebtedness is
required in connection with such sale, transfer or other
disposition;
28
<PAGE>
provided, however, that if, after the payment of all taxes with respect to
such sale, transfer or other disposition, the amount of estimated taxes, if
any, pursuant to clause (b)(ii) above exceeded the tax amount actually paid in
cash in respect of such sale, transfer or other disposition, the aggregate
amount of such excess shall, at such time, constitute Net Disposition
Proceeds.
"Net Equity Proceeds" means with respect to the sale or issuance by
the Borrower or Holdings to any Person of any of its capital stock or any
warrants or options with respect to its capital stock or the exercise of any
such warrants or options after the Closing Date (other than pursuant to (i)
capital contributions or capital stock issuances (from other than one or more
public offerings of common stock of Holdings pursuant to an effective
registration statement under the Securities Act of 1933, as amended, or
widely-distributed private offerings exempted from the registration
requirements of Section 5 of the Securities Act of 1933, as amended ), (ii)
any subscription agreement, incentive plan or similar arrangement with any
officer, employee or director of Holdings, the Borrower or any Subsidiary of
the Borrower, (iii) any loan by the Borrower or Holdings, to such officer,
employee or director solely for the purpose of purchasing such shares pursuant
to clause (h) of Section 7.2.5, (iv) proceeds from the sale of any capital
stock to any officer, director or employee of Holdings, the Borrower or any
Subsidiary of the Borrower in an aggregate amount not to exceed $15,000,000
after the Closing Date or (v) the Equity Issuance or (vi) the exercise of the
Warrants, any warrants sold to the purchasers of Discount Debentures in
connection with the Discount Debenture Issuance or any options or warrants
issued to any officer, employee or director of Holdings, the Borrower or any
Subsidiary of the Borrower), the excess of:
(a) the gross cash proceeds received by Holdings, the
Borrower and the Borrower's Restricted Subsidiaries from such sale,
exercise or issuance,
over
(b) all reasonable and customary underwriting commissions
and legal, investment banking, brokerage, accounting and other
professional fees, sales commissions and disbursements and all other
reasonable fees, expenses and charges, in each case actually incurred
in connection with such sale or issuance.
"Net Income" means, for any period, the net income of the Borrower
and its Subsidiaries for such period on a consolidated basis, excluding
extraordinary or non-recurring gains; provided, however, that 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 Borrower or a Restricted
Subsidiary in cash.
"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
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<PAGE>
Indebtedness of the Borrower 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 or assets of the Borrower 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 Borrower or any of its
Restricted Subsidiaries if the Borrower or such Restricted Subsidiary was
otherwise permitted to incur such guarantee under this Agreement.
"Non-U.S. Lender" means any Lender (including each Assignee Lender)
that is not (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any state thereof, or (iii) an estate or trust
that is subject to U.S. Federal income taxation regardless of the source of
its income.
"Non-U.S. Subsidiary" means a Subsidiary of the Borrower that is not
a U.S. Subsidiary.
"Note" means, as the context may require, a Revolving Note, a
Registered Note, a Term-A Note, a Term-B Note, a Term-C Note or a Swing Line
Note.
"Obligations" means all obligations (monetary or otherwise) of the
Borrower and each other Obligor arising under or in connection with this
Agreement, any Rate Protection Agreement, the Notes, each Letter of Credit and
each other Loan Document.
"Obligor" means the Borrower or any other Person (other than any
Agent, the Documentation Agent, the Arranger, the Issuer, the Swing Line
Lender or any Lender) obligated under any Loan Document.
"Participant" is defined in Section 10.11.2.
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor entity.
"Pension Plan" means a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which
the Borrower or any corporation, trade or business that is, along with the
Borrower, a member of a Controlled Group, has or within the prior six years
has had any liability, including any liability by reason of having been a
substantial employer within the meaning of section 4063 of ERISA at any time
during the preceding five years, or by reason of being deemed to be a
contributing sponsor under section 4069 of ERISA.
"Percentage" means, relative to any Lender, the applicable percentage
relating to Term-A Loans, Term-B Loans, Term-C Loans or Revolving Loans, as
the case may be, as set forth opposite its name on Schedule II hereto under
the applicable column heading or set forth in
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Lender Assignment Agreement(s) under the applicable column heading, as such
percentage may be adjusted from time to time pursuant to Lender Assignment
Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered
pursuant to Section 10.11 or, in the case of a Lender's Percentage relating to
Revolving Loans, pursuant to clause (c) of Section 2.1.2. A Lender shall not
have any Commitment to make Revolving Loans, Term-A Loans, Term-B Loans or
Term-C Loans (as the case may be) if its percentage under the respective
column heading is zero.
"Perfection Certificate" means the Perfection Certificate executed
and delivered by an Authorized Officer of the Borrower pursuant to Section
5.1.18, substantially in the form of Exhibit I hereto, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency, limited liability company
or any other entity, whether acting in an individual, fiduciary or other
capacity.
"Plan" means any Pension Plan or Welfare Plan.
"Pledge Agreement" means, as the context may require, the Borrower
Pledge Agreement, the Holdings Guaranty and Pledge Agreement or the Subsidiary
Pledge Agreement.
"Principals" means the DLJ Entities and their respective controlled
affiliates.
"Pro Forma Balance Sheet" is defined in clause (b) of Section 5.1.9.
"Quarterly Payment Date" means the last day of each of March, June,
September and December, or, if any such day is not a Business Day, the next
succeeding Business Day, commencing with September 30, 1997.
"Rate Protection Agreement" means, collectively, any interest rate
swap, cap, collar or similar agreement entered into by the Borrower pursuant
to the terms of this Agreement under which the counterparty to such agreement
is (or at the time such Rate Protection Agreement was entered into, was) a
Lender or an Affiliate of a Lender.
"Refunded Swing Line Loans" is defined in clause (b) of Section 2.3.2.
"Register" is defined in clause (b) of Section 2.7.
"Registered Note" means a promissory note of the Borrower payable to
any Registered Noteholder, in the form of Exhibit A-5 hereto (as such
promissory note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of the
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<PAGE>
Borrower to such Lender resulting from outstanding Loans, and also means all
other promissory notes accepted from time to time in substitution therefor or
renewal thereof.
"Registered Noteholder" means any Lender that has been issued a
Registered Note.
"Reimbursement Obligation" is defined in Section 2.6.3.
"Release" means a "release", as such term is defined in CERCLA.
"Replacement Notice" is defined in Section 4.11.
"Replacement Lender" is defined in Section 4.11.
"Required Lenders" means, at any time, (i) prior to the date of the
making of the initial Credit Extension hereunder, Lenders having at least 51%
of the sum of the Revolving Loan Commitments, Term-A Loan Commitments, Term-B
Loan Commitments and Term-C Loan Commitments, and (ii) on and after the date
of the initial Credit Extension, Lenders holding at least 51% of the Total
Exposure Amount.
"Resource Conservation and Recovery Act" means the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect
from time to time.
"Restricted Payments" is defined in Section 7.2.6.
"Restricted Subsidiary" means any Subsidiary of the Borrower other
than an Unrestricted Subsidiary.
"Revolving Loan" is defined in Section 2.1.2.
"Revolving Loan Commitment" is defined in Section 2.1.2.
"Revolving Loan Commitment Amount" means, on any date, $105,000,000,
as such amount may be increased from time to time pursuant to clause (c) of
Section 2.1.2 or reduced from time to time pursuant to Section 2.2.
"Revolving Loan Commitment Termination Date" means the earliest of
(i) August 31, 1997 if the Term Loans have not been made on or prior to such
date, (ii) the sixth anniversary of the Closing Date, (iii) the date on which
the Revolving Loan Commitment Amount is terminated in full or reduced to zero
pursuant to Section 2.2, and (iv) the date on which any Commitment Termination
Event occurs.
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<PAGE>
"Revolving Note" means a promissory note of the Borrower payable to
any Lender, substantially in the form of Exhibit A-1 hereto (as such
promissory note may be amended, endorsed or otherwise modified from time to
time), evidencing the aggregate Indebtedness of the Borrower to such Lender
resulting from outstanding Revolving Loans, and also means all other
promissory notes accepted from time to time in substitution therefor or
renewal thereof.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc.
"Security Agreement" means, as the context may require, the Borrower
Security Agreement or the Subsidiary Security Agreement.
"Solvent" means, with respect to any Person on a particular date,
that on such date (a) the fair value of the property of such Person is greater
than the total amount of liabilities, including contingent liabilities, of
such Person, (b) the present fair salable value of the assets of such Person
is not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and matured, (c)
such Person does not intend to, and does not believe that it will, incur debts
or liabilities beyond such Person's ability to pay as such debts and
liabilities mature, and (d) such Person is not engaged in business or a
transaction, and such person is not about to engage in business or a
transaction, for which such Person's property would constitute an unreasonably
small capital. The amount of contingent liabilities at any time shall be
computed as the amount that, in light of all the facts and circumstances
existing at such time, can reasonably be expected to become an actual or
matured liability.
"Stated Amount" of each Letter of Credit means the total amount
available to be drawn under such Letter of Credit upon the issuance thereof.
"Stated Expiry Date" is defined in Section 2.6.
"Stated Maturity Date" means (i) in the case of any Revolving Loan,
the sixth anniversary of the Closing Date, (ii) in the case of any Term-A
Loan, the sixth anniversary of the Closing Date, (iii) in the case of any
Term-B Loan, the seventh anniversary of the Closing Date, and (iv) in the case
of any Term-C Loan, the eighth anniversary of the Closing Date or, in the case
of any such day that is not a Business Day, the first Business Day following
such day.
"Subordinated Debt Issuance" is defined in clause (c) of the fourth
recital.
"Subordinated Notes" is defined in clause (c) of the fourth recital.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other business entity of which more than 50% of the outstanding
Capital Stock (or other ownership interest) having ordinary voting power to
elect a majority of the board of directors, managers or other voting members
of the governing body of such entity (irrespective of whether at the time
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Capital Stock (or other ownership interests) of any other class or classes of
such entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by
such Person and one or more other Subsidiaries of such Person, or by one or
more other Subsidiaries of such Person.
"Subsidiary Guarantor" means each Material Subsidiary of the Borrower
that is a U.S. Subsidiary that is required, pursuant to clause (a) of Section
7.1.7, to execute and deliver a Subsidiary Guaranty.
"Subsidiary Guaranty" means the Guaranty, if any, executed and
delivered by an Authorized Officer of a Subsidiary Guarantor pursuant to
Section 7.1.7, substantially in the form of Exhibit H hereto, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"Subsidiary Pledge Agreement" means the Pledge Agreement, if any,
executed and delivered by an Authorized Officer of certain Material
Subsidiaries of the Borrower that are U.S. Subsidiaries pursuant to Section
7.1.7, substantially in the form of Exhibit G-3 hereto, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"Subsidiary Security Agreement" means the Security Agreement, if any,
executed and delivered by an Authorized Officer of certain Material
Subsidiaries of the Borrower that are U.S. Subsidiaries pursuant to Section
7.1.7, substantially in the form of Exhibit F-2 hereto, as amended,
supplemented, amended and restated or otherwise modified from time to time.
"Swing Line Lender" means the Administrative Agent in its capacity as
Swing Line Lender hereunder.
"Swing Line Loan" is defined in clause (b) of Section 2.1.2.
"Swing Line Loan Commitment" is defined in clause (b) of Section 2.1.2.
"Swing Line Loan Commitment Amount" means, on any date, $10,000,000,
as such amount may be reduced from time to time pursuant to Section 2.2.
"Swing Line Note" means a promissory note of the Borrower payable to
the Swing Line Lender, in the form of Exhibit A-6 hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrower to the Swing Line Lender
resulting from outstanding Swing Line Loans, and also means all other
promissory notes accepted from time to time in substitution therefor or
renewal thereof.
"Syndication Agent" is defined in the preamble and includes each
other Person as shall have subsequently been appointed as the successor
Syndication Agent pursuant to Section 9.4.
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"Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of
__________, 1997, among the Borrower, Holdings, DecisionOne Supplies, Inc.,
the IPO Subsidiary, IC Properties Corporation, the Trademark Subsidiary and
Decision Data Investment Corporation, as the same may be amended, supplemented
or otherwise modified from time to time in accordance with Section 7.2.10.
"Taxes" is defined in Section 4.6.
"Term-A Loan" is defined in clause (a) of Section 2.1.1.
"Term-A Loan Commitment" is defined in clause (a) of Section 2.1.1.
"Term-A Loan Commitment Amount" means $195,000,000.
"Term-A Loan Commitment Termination Date" means the earliest of (i)
August 31, 1997, if the Term-A Loans have not been made on or prior to such
date, (ii) the Closing Date (immediately after the making of the Term-A Loans
on such date), and (iii) the date on which any Commitment Termination Event
occurs.
"Term-A Note" means a promissory note of the Borrower payable to the
order of any Lender, in the form of Exhibit A-2 hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrower to such Lender resulting
from outstanding Term-A Loans, and also means all other promissory notes
accepted from time to time in substitution therefor or renewal thereof.
"Term-B Loan" is defined in clause (b) of Section 2.1.1.
"Term-B Loan Commitment" is defined in clause (b) of Section 2.1.1.
"Term-B Loan Commitment Amount" means $150,000,000.
"Term-B Loan Commitment Termination Date" means the earliest of (i)
August 31, 1997, if the Term-B Loans have not been made on or prior to such
date, (ii) the Closing Date (immediately after the making of the Term-B Loans
on such date), and (iii) the date on which any Commitment Termination Event
occurs.
"Term-B Note" means a promissory note of the Borrower payable to the
order of any Lender, in the form of Exhibit A-3 hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrower to such Lender resulting
from outstanding Term-B Loans, and also means all other promissory notes
accepted from time to time in substitution therefor or renewal thereof.
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"Term-C Loan" is defined in clause (c) of Section 2.1.1.
"Term-C Loan Commitment" is defined in clause (c) of Section 2.1.1.
"Term-C Loan Commitment Amount" means $125,000,000.
"Term-C Loan Commitment Termination Date" means the earliest of (i)
August 31, 1997, if the Term-C Loans have not been made on or prior to such
date, (ii) the Closing Date (immediately after the making of the Term-C Loans
on such date), and (iii) the date on which any Commitment Termination Event
occurs.
"Term-C Note" means a promissory note of the Borrower payable to the
order of any Lender, in the form of Exhibit A-4 hereto (as such promissory
note may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrower to such Lender resulting
from outstanding Term-C Loans, and also means all other promissory notes
accepted from time to time in substitution therefor or renewal thereof.
"Term Loan Commitment Termination Date" means, as the context may
require, the Term-A Loan Commitment Termination Date, the Term-B Loan
Commitment Termination Date or the Term-C Loan Commitment Termination Date.
"Term Loans" means collectively, the Term-A Loans, the Term-B Loans
and the Term-C Loans.
"Total Exposure Amount" means, on any date of determination, the then
outstanding principal amount of all Term Loans and the then effective
Revolving Loan Commitment Amount.
"Trademark Subsidiary" means Properties Development Corporation, a
Delaware corporation, which is a direct, wholly-owned Subsidiary of the
Borrower.
"Tranche" means, as the context may require, the Loans constituting
Term-A Loans, Term-B Loans, Term-C Loans, Revolving Loans or Swing Line Loans.
"Transaction" is defined in the second recital.
"Transaction Documents" means each of the Material Documents and all
other agreements, documents, instruments, certificates, filings, consents,
approvals, board of directors resolutions and opinions furnished pursuant to
or in connection with the Merger, the Equity Issuance, the Discount Debenture
Issuance, the Subordinated Debt Issuance, the Intercompany Loan and the
transactions contemplated hereby or thereby, each as amended, supplemented,
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amended and restated or otherwise modified from time to time as permitted in
accordance with the terms hereof or of any other Loan Document.
"type" means, relative to any Loan, the portion thereof, if any,
being maintained as a Base Rate Loan or a LIBO Rate Loan.
"UCC" means the Uniform Commercial Code as in effect from time to
time in the State of New York.
"United States" or "U.S." means the United States of America, its
fifty states and the District of Columbia.
"U.S. Subsidiary" means any Subsidiary of the Borrower that is
incorporated or organized in or under the laws of the United States or any
state thereof.
"Unrestricted Subsidiary" means any Subsidiary of the Borrower that
is designated by a resolution of the Board of Directors of the Borrower as an
Unrestricted Subsidiary, 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 Borrower or any
Restricted Subsidiary of the Borrower unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Borrower
or such Restricted Subsidiary than those that might be obtained at the time
from Persons who are not Affiliates of the Borrower; (iii) is a Person with
respect to which neither the Borrower nor any of its Restricted Subsidiaries
has any direct or indirect obligation (a) to subscribe for additional Capital
Stock or warrants, options or other rights to acquire Capital Stock 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 Borrower or any of its Restricted Subsidiaries. If, at any
time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes hereof. The Board of Directors of the
Borrower 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 Borrower of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if 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).
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"Waiver" means an agreement in favor of the Agents for the benefit of
the Lenders in form and substance reasonably satisfactory to the Agents.
"Warrants" is defined in clause (a) of the fourth recital.
"Welfare Plan" means a "welfare plan", as such term is defined in
section 3(1) of ERISA, and to which the Borrower has any liability.
"wholly-owned Subsidiary" shall mean, with respect to any Person, any
Subsidiary of such Person all of the Capital Stock (and all rights and options
to purchase such Capital Stock) of which, other than directors' qualifying
shares, are owned, beneficially and of record, by such Person and/or one or
more wholly-owned Subsidiaries of such Person.
SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Disclosure Schedule and in
each other Loan Document, notice and other communication delivered from time
to time in connection with this Agreement or any other Loan Document.
SECTION 1.3. Cross-References. Unless otherwise specified, references
in this Agreement and in each other Loan Document to any Article or Section
are references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in
any Article, Section or definition to any clause are references to such clause
of such Article, Section or definition.
SECTION 1.4. Accounting and Financial Determinations.
(a) Unless otherwise specified, all accounting terms used herein or
in any other Loan Document shall be interpreted, all accounting determinations
and computations hereunder or thereunder (including under Section 7.2.4) shall
be made, and all financial statements required to be delivered hereunder or
thereunder shall be prepared in accordance with, those generally accepted
accounting principles ("GAAP"), as in effect on June 30, 1996 and, unless
otherwise expressly provided herein, shall be computed or determined on a
consolidated basis and without duplication.
(b) For purposes of computing the Fixed Charge Coverage Ratio,
Interest Coverage Ratio and Leverage Ratio as of the end of any Fiscal
Quarter, (i) the Adjusted EBITDA (determined without regard to this clause
(b)) for the period of four Fiscal Quarters ending at the end of such Fiscal
Quarter shall include (a) Adjusted EBITDA for such period of four Fiscal
Quarters plus or minus (b) with respect to any business or assets that have
been acquired by the Borrower or any of its Restricted Subsidiaries, including
through mergers or consolidations, after the first day of such period of four
Fiscal Quarters and prior to the end of such period, the result of (1)
Adjusted
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EBITDA of such business or assets for the most recent three-month period prior
to such acquisition for which internal financial statements in respect of such
acquired business or assets are available times four multiplied by (2) a
fraction the numerator of which is 365 (or, in the case of a leap year, 366)
minus the number of days during the relevant period of four Fiscal Quarters
for which the results of operations of such business or assets were included
in clause (a) of this sentence and the denominator of which is 365 (or, in the
case of a leap year, 366), (ii) the acquisition of any business or assets that
has been made by the Borrower or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions after the first day of the applicable period of four Fiscal
Quarters and on or prior to the end of such period, shall give pro forma
effect to financing transactions (including the incurrence of Assumed Debt) in
connection with the acquisition of such business or assets, as if such
acquisition had occurred at the beginning of the applicable period of four
Fiscal Quarters and (iii) Adjusted EBITDA and expenses attributable to
discounted operations as determined in accordance with GAAP, and operations,
businesses and assets disposed of prior to the end of such period of four
Fiscal Quarters, shall be excluded. For purposes of the foregoing clause (i),
Adjusted EBITDA attributable to any business or assets acquired by the
Borrower or any Restricted Subsidiary shall be calculated utilizing the actual
revenues attributable to such business or assets for the applicable
three-month period and the expenses that would have been attributable to such
business or assets had the Borrower acquired such business or assets at the
beginning of the applicable three-month period, as determined in good faith by
the Borrower, taking into account the Borrower's historical expenses in
connection with the provision of similar services for similar equipment under
similar contracts. If since the beginning of the applicable period of four
Fiscal Quarters any Person (that subsequently becomes a Restricted Subsidiary
or was merged with or into the Borrower or any Restricted Subsidiary since the
beginning of such period) shall have made or engaged in any Investment,
disposition of operations, businesses or assets, or merger or consolidation,
or shall have discontinued any operations or acquired any business or assets
that would have required adjustment of the Fixed Charge Ratio, Interest
Coverage Ratio or Leverage Ratio pursuant to this subsection (b) had such
Person been a Restricted Subsidiary at the time of such Investment,
disposition, merger, consolidation, discontinued operation or acquisition,
then the Fixed Charge Coverage Ratio, Interest Coverage Ratio and Leverage
Rates 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 period
of four Fiscal Quarters.
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ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES,
NOTES AND LETTERS OF CREDIT
SECTION 2.1. Commitments. On the terms and subject to the conditions
of this Agreement (including Sections 2.1.5, 2.1.6 and Article V),
(a) each Lender severally agrees to make Loans (other than
Swing Line Loans) pursuant to the Commitments and the Swing Line
Lender agrees to make Swing Line Loans pursuant to the Swing Line
Loan Commitment, in each case as described in this Section 2.1; and
(b) each Issuer severally agrees that it will issue Letters
of Credit pursuant to Section 2.1.3, and each other Lender that has a
Revolving Loan Commitment severally agrees that it will purchase
participation interests in such Letters of Credit pursuant to Section
2.6.1.
SECTION 2.1.1. Term Loan Commitments. Subject to compliance by the
Borrower with the terms of Sections 2.1.5, 5.1 and 5.2, on (but solely on) the
Closing Date (which shall be a Business Day), each Lender that has a
Percentage in excess of zero of the Term-A Loan Commitment, the Term-B Loan
Commitment or the Term-C Loan Commitment, as applicable,
(a) will make loans (relative to such Lender, its "Term-A
Loans") to the Borrower equal to such Lender's Percentage of the
aggregate amount of the Borrowing or Borrowings of Term-A Loans
requested by the Borrower to be made on the Closing Date (with the
commitment of each such Lender described in this clause (a) herein
referred to as its "Term-A Loan Commitment");
(b) will make loans (relative to such Lender, its "Term-B
Loans") to the Borrower equal to such Lender's Percentage of the
aggregate amount of the Borrowing or Borrowings of Term-B Loans
requested by the Borrower to be made on the Closing Date (with the
commitment of each such Lender described in this clause (b) herein
referred to as its "Term-B Loan Commitment"); and
(c) will make loans (relative to such Lender, its "Term-C
Loans") to the Borrower equal to such Lender's Percentage of the
aggregate amount of the Borrowing or Borrowings of Term-C Loans
requested by the Borrower to be made on the Closing Date (with the
commitment of each such Lender described in this clause (c) herein
referred to as its "Term-C Loan Commitment").
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No amounts paid or prepaid with respect to Term-A Loans, Term-B Loans or
Term-C Loans may be reborrowed.
SECTION 2.1.2. Revolving Loan Commitment and Swing Line Loan
Commitment. Subject to compliance by the Borrower with the terms of Section
2.1.5, Section 5.1 and Section 5.2, from time to time on any Business Day
occurring concurrently with (or after) the making of the Term Loans but prior
to the Revolving Loan Commitment Termination Date,
(a) each Lender that has a Percentage of the Revolving Loan
Commitment in excess of zero will make loans (relative to such
Lender, its "Revolving Loans") to the Borrower equal to such Lender's
Percentage of the aggregate amount of the Borrowing or Borrowings of
Revolving Loans requested by the Borrower to be made on such day. The
Commitment of each Lender described in this Section 2.1.2 is herein
referred to as its "Revolving Loan Commitment". On the terms and
subject to the conditions hereof, the Borrower may from time to time
borrow, prepay and reborrow Revolving Loans.
(b) the Swing Line Lender will make a loan (a "Swing Line
Loan") to the Borrower equal to the principal amount of the Swing
Line Loan requested by the Borrower to be made on such day. The
Commitment of the Swing Line Lender described in this clause (b) is
herein referred to as its "Swing Line Loan Commitment". On the terms
and subject to the conditions hereof, the Borrower may from time to
time borrow, prepay and reborrow Swing Line Loans.
(c) At any time that no Default has occurred and is
continuing, the Borrower may notify the Agents that the Borrower is
requesting that, on the terms and subject to the conditions contained
in this Agreement, the Lenders and/or other lenders not then a party
to this Agreement provide up to an aggregate amount of $50,000,000 in
additional Revolving Loan Commitments. Upon receipt of such notice,
the Syndication Agent shall use its best commercially reasonable
efforts to arrange for the Lenders or other financial institutions to
provide such additional Revolving Loan Commitments; provided that the
Syndication Agent will first offer each of the Lenders that then has
a Percentage of the Revolving Loan Commitment a pro rata portion of
any such additional Revolving Loan Commitment. Alternatively, any
Lender may commit to provide the full amount of the requested
additional Revolving Loan Commitment and then offer portions of such
additional Revolving Loan Commitment to the other Lenders or other
financial institutions, subject to the proviso to the immediately
preceding sentence. Nothing contained in this clause (c) or otherwise
in this Agreement is intended to commit any Lender or any Agent to
provide any portion of any such additional Revolving Loan
Commitments. If and to the extent that any Lenders and/or other
lenders agree, in their sole discretion, to provide any such
additional Revolving Loan Commitments, (i) the Revolving Loan
Commitment Amount shall be increased by the amount of the additional
Revolving Loan Commitments agreed to be so provided, (ii) the
Percentages of the
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respective Lenders in respect of the Revolving Loan Commitment shall
be proportionally adjusted, (iii) at such time and in such manner as
the Borrower and the Syndication Agent shall agree (it being
understood that the Borrower and the Agents will use their best
commercially reasonable efforts to avoid the prepayment or
assignment of any LIBO Rate Loan on a day other than the last day of
the Interest Period applicable thereto), the Lenders shall assign
and assume outstanding Revolving Loans and participations in
outstanding Letters of Credit so as to cause the amounts of such
Revolving Loans and participations in Letters of Credit held by each
Lender to conform to the respective Percentages of the Revolving
Loan Commitment of the Lenders and (iv) the Borrower shall execute
and deliver any additional Notes or other amendments or
modifications to this Agreement or any other Loan Document as the
Agents may reasonably request.
SECTION 2.1.3. Letter of Credit Commitment. Subject to compliance by
the Borrower with the terms of Section 2.1.6, Section 5.1 and Section 5.2,
from time to time on any Business Day occurring concurrently with (or after)
the Closing Date but prior to the Revolving Loan Commitment Termination Date,
the Issuer will (i) issue one or more standby or commercial letters of credit
(each referred to as a "Letter of Credit") for the account of the Borrower in
the Stated Amount requested by the Borrower on such day, or (ii) extend the
Stated Expiry Date of an existing standby or commercial Letter of Credit
previously issued hereunder to a date not later than the earlier of (x) the
sixth anniversary of the Closing Date and (y) one year from the date of such
extension; provided that, notwithstanding the terms of clause (ii) above, a
Letter of Credit may, if required by the beneficiary thereof, contain
"evergreen" provisions pursuant to which the Stated Expiry Date shall be
automatically extended, unless notice to the contrary shall have been given to
the beneficiary by the Issuer or the account party more than a specified
period prior to the then existing Stated Expiry Date.
SECTION 2.1.4. Lenders Not Permitted or Required to Make the Loans.
No Lender shall be permitted or required to, and the Borrower shall not
request any Lender to, make
(a) any Term-A Loan, Term-B Loan or Term-C Loan (as the case
may be) if, after giving effect thereto, the aggregate original
principal amount of all the Term-A Loans, Term-B Loans or Term-C
Loans (as the case may be) of such Lender would exceed such Lender's
Percentage of the Term-A Loan Commitment Amount (in the case of
Term-A Loans), the Term-B Loan Commitment Amount (in the case of
Term-B Loans) or the Term-C Loan Commitment Amount (in the case of
Term-C Loans);
(b) any Revolving Loan if, after giving effect thereto, the
aggregate outstanding principal amount of all the Revolving Loans of
such Lender, together with such Lender's Percentage of the aggregate
amount of all Letter of Credit Outstandings, and such Lender's
Percentage of the outstanding principal amount of all Swing Line
Loans, would exceed such Lender's Percentage of the lesser of (x) the
Revolving Loan Commitment Amount and (y) the then applicable
Borrowing Base Amount; or
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(c) any Swing Line Loan if, after giving effect thereto, the
aggregate outstanding principal amount of all Swing Line Loans would
exceed the Swing Line Loan Commitment Amount.
SECTION 2.1.5. Issuer Not Permitted or Required to Issue Letters of
Credit. No Issuer shall be permitted or required to issue any Letter of Credit
if, after giving effect thereto, (a) the aggregate amount of all Letter of
Credit Outstandings would exceed the Letter of Credit Commitment Amount or (b)
the sum of the aggregate amount of all Letter of Credit Outstandings plus the
aggregate principal amount of all Revolving Loans and Swing Line Loans then
outstanding would exceed the lesser of (x) the Revolving Loan Commitment
Amount and (y) the then applicable Borrowing Base Amount.
SECTION 2.2. Reduction of the Commitment Amounts. The Commitment
Amounts are subject to reductions from time to time pursuant to this Section
2.2.
SECTION 2.2.1. Optional. The Borrower may, from time to time on any
Business Day occurring after the time of the initial Credit Extension
hereunder, voluntarily reduce the Revolving Loan Commitment Amount; provided,
however, that all such reductions shall require at least three Business Days'
prior notice to the Administrative Agent and be permanent, and any partial
reduction of any Commitment Amount shall be in an aggregate amount of $500,000
or any larger integral multiple of $100,000. Any such reduction of the
Revolving Loan Commitment Amount which reduces the Revolving Loan Commitment
Amount below the Letter of Credit Commitment Amount or the Swing Line Loan
Commitment Amount shall result in an automatic and corresponding reduction of
the Letter of Credit Commitment Amount or the Swing Line Loan Commitment
Amount, as the case may be, to an aggregate amount not in excess of the
Revolving Loan Commitment Amount, as so reduced, without any further action on
the part of the Issuer or the Swing Line Lender.
SECTION 2.2.2. Mandatory. Following the prepayment in full of the
Term Loans, the Revolving Loan Commitment Amount shall, without any further
action, automatically and permanently be reduced on the date the Term Loans
would otherwise have been required to be prepaid on account of any Net
Disposition Proceeds, Net Debt Proceeds, Excess Cash Flow, Net Equity Proceeds
or Casualty Proceeds, in an amount equal to the amount by which the Term Loans
would otherwise have been required to be prepaid if Term Loans had been
outstanding. Any such reduction of the Revolving Loan Commitment Amount which
reduces the Revolving Loan Commitment Amount below the Letter of Credit
Commitment Amount or the Swing Line Loan Commitment Amount shall result in an
automatic and corresponding reduction of the Letter of Credit Commitment
Amount or the Swing Line Loan Commitment Amount, as the case may be, to an
aggregate amount not in excess of the Revolving Loan Commitment Amount, as so
reduced, without any further action on the part of the Issuer or the Swing
Line Lender.
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SECTION 2.3. Borrowing Procedures and Funding Maintenance. Loans
(other than Swing Line Loans) shall be made by the Lenders in accordance with
Section 2.3.1, and Swing Line Loans shall be made by the Swing Line Lender in
accordance with Section 2.3.2.
SECTION 2.3.1. Term Loans and Revolving Loans. By delivering a
Borrowing Request to the Administrative Agent on or before 12:00 noon, New
York time, on a Business Day, the Borrower may from time to time irrevocably
request, on not less than one Business Day's notice (in the case of Base Rate
Loans) or three Business Days' notice (in the case of LIBO Rate Loans) nor
more than five Business Days' notice (in the case of any Loans), that a
Borrowing be made in an aggregate amount of $500,000 or any larger integral
multiple of $100,000, or in the unused amount of the applicable Commitment. No
Borrowing Request shall be required, and the minimum aggregate amounts
specified under this Section 2.3.1 shall not apply, in the case of Revolving
Loans made under clause (b) of Section 2.3.2 to refund Refunded Swing Line
Loans or deemed made under Section 2.6.2 in respect of unreimbursed
Disbursements. On the terms and subject to the conditions of this Agreement,
each Borrowing shall be comprised of the type of Loans, and shall be made on
the Business Day, specified in such Borrowing Request. On or before 11:00
a.m., New York time, on such Business Day each Lender shall deposit with the
Administrative Agent same day funds in an amount equal to such Lender's
Percentage of the requested Borrowing. Such deposit will be made to an account
which the Administrative Agent shall specify from time to time by notice to
the Lenders. To the extent funds are received from the Lenders, the
Administrative Agent shall make such funds available to the Borrower by wire
transfer to the accounts the Borrower shall have specified in its Borrowing
Request. No Lender's obligation to make any Loan shall be affected by any
other Lender's failure to make any Loan.
SECTION 2.3.2. Swing Line Loans. (a) By telephonic notice, promptly
followed (within one Business Day) by the delivery of a confirming Borrowing
Request, to the Swing Line Lender on or before 1:00 p.m., New York City time,
on the Business Day the proposed Swing Line Loan is to be made, the Borrower
may from time to time irrevocably request that a Swing Line Loan be made by
the Swing Line Lender in a minimum principal amount of $50,000 or any larger
integral multiple of $10,000. All Swing Line Loans shall be made as Base Rate
Loans and shall not be entitled to be converted into LIBO Rate Loans. The
proceeds of each Swing Line Loan shall be made available by the Swing Line
Lender, by 2:00 p.m., New York City time, on the Business Day telephonic
notice is received by it as provided in this clause (a), to the Borrower by
wire transfer to the account the Borrower shall have specified in its notice
therefor.
(b) If (i) any Swing Line Loan shall be outstanding for more than
four Business Days or (ii) any Default shall occur and be continuing, each
Lender with a Revolving Loan Commitment (other than the Swing Line Lender)
irrevocably agrees that it will, at the request of the Swing Line Lender and
upon notice from the Administrative Agent, unless such Swing Line Loan shall
have been earlier repaid in full, make a Revolving Loan (which shall initially
be funded as a Base Rate Loan) in an amount equal to such Lender's Percentage
of the aggregate principal amount of
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all such Swing Line Loans then outstanding (such outstanding Swing Line Loans
hereinafter referred to as the "Refunded Swing Line Loans"); provided, that
the Swing Line Lender shall not request, and no Lender with a Revolving Loan
Commitment shall make, any Refunded Swing Line Loan if, after giving effect to
the making of such Refunded Swing Line Loan, the sum of all Swing Line Loans
and Revolving Loans made by such Lender, plus such Lender's Percentage of the
aggregate amount of all Letter of Credit Outstandings, would exceed such
Lender's Percentage of the then existing Revolving Loan Commitment Amount. On
or before 12:00 noon (New York time) on the first Business Day following
receipt by each Lender of a request to make Revolving Loans as provided in the
preceding sentence, each such Lender with a Revolving Loan Commitment shall
deposit in an account specified by the Swing Line Lender the amount so
requested in same day funds and such funds shall be applied by the Swing Line
Lender to repay the Refunded Swing Line Loans. At the time the aforementioned
Lenders make the above referenced Revolving Loans, the Swing Line Lender shall
be deemed to have made, in consideration of the making of the Refunded Swing
Line Loans, a Revolving Loan in an amount equal to the Swing Line Lender's
Percentage of the aggregate principal amount of the Refunded Swing Line Loans.
Upon the making (or deemed making, in the case of the Swing Line Lender) of
any Revolving Loans pursuant to this clause (b), the amount so funded shall
become outstanding under such Lender's Revolving Note and shall no longer be
owed under the Swing Line Note. All interest payable with respect to any
Revolving Loans made (or deemed made, in the case of the Swing Line Lender)
pursuant to this clause (b) shall be appropriately adjusted to reflect the
period of time during which the Swing Line Lender had outstanding Swing Line
Loans in respect of which such Revolving Loans were made. Each Lender's
obligation (in the case of Lenders with a Revolving Loan Commitment) to make
the Revolving Loans referred to in this clause (b) shall be absolute and
unconditional and shall not be affected by any circumstance, including,
without limitation, (i) any set-off, counterclaim, recoupment, defense or
other right which such Lender may have against the Swing Line Lender, the
Borrower or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of any Default; (iii) any adverse change in the condition
(financial or otherwise) of the Borrower; (iv) the acceleration or maturity of
any Loans or the termination of any Commitment after the making of any Swing
Line Loan; (v) any breach of this Agreement or any other Loan Document by the
Borrower or any Lender; or (vi) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
SECTION 2.4. Continuation and Conversion Elections. By delivering a
Continuation/Conversion Notice to the Administrative Agent on or before 12:00
noon, New York time, on a Business Day, the Borrower may from time to time
irrevocably elect, on not less than one Business Day's notice (in the case of
a conversion of LIBO Rate Loans to Base Rate Loans) or three Business Days'
notice (in the case of a continuation of LIBO Rate Loans or a conversion of
Base Rate Loans into LIBO Rate Loans) nor more than five Business Days' notice
(in the case of any Loans) that all, or any portion in a minimum amount of
$500,000 or any larger integral multiple of $100,000, be, in the case of Base
Rate Loans, converted into LIBO Rate Loans or, in the case of LIBO Rate Loans,
converted into Base Rate Loans or continued as
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LIBO Rate Loans (in the absence of delivery of a Continuation/Conversion
Notice with respect to any LIBO Rate Loan at least three Business Days before
the last day of the then current Interest Period with respect thereto, such
LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate
Loan); provided, however, that (x) each such conversion or continuation shall
be pro rated among the applicable outstanding Loans of the relevant Lenders,
and (y) no portion of the outstanding principal amount of any Loans may be
continued as, or be converted into, LIBO Rate Loans when any Default has
occurred and is continuing.
SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its
obligation to make, continue or convert LIBO Rate Loans hereunder by causing
one of its foreign branches or Affiliates (or an international banking
facility created by such Lender) to make or maintain such LIBO Rate Loan, so
long as such action does not result in increased costs to the Borrower;
provided, however, that such LIBO Rate Loan shall nonetheless be deemed to
have been made and to be held by such Lender, and the obligation of the
Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for
the account of such foreign branch, Affiliate or international banking
facility; and provided, further, however, that, except for purposes of
determining whether any such increased costs are payable by the Borrower, such
Lender shall cause such foreign branch, Affiliate or international banking
facility to comply with the applicable provisions of clause (b) of Section 4.6
with respect to such LIBO Rate Loan. In addition, the Borrower hereby consents
and agrees that, for purposes of any determination to be made for purposes of
Section 4.1, 4.2, 4.3 or 4.4, it shall be conclusively assumed that each
Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in
its LIBOR Office's interbank Eurodollar market.
SECTION 2.6. Issuance Procedures. By delivering to the Administrative
Agent an Issuance Request on or before 12:00 noon, New York time, on a
Business Day, the Borrower may, from time to time irrevocably request, on not
less than three nor more than ten Business Days' notice (or such shorter or
longer notice as may be acceptable to the Issuer), in the case of an initial
issuance of a Letter of Credit, and not less than three nor more than ten
Business Days' notice (unless a shorter or longer notice period is acceptable
to the Issuer) prior to the then existing Stated Expiry Date of a Letter of
Credit, in the case of a request for the extension of the Stated Expiry Date
of a Letter of Credit, that the Issuer issue, or extend the Stated Expiry Date
of, as the case may be, an irrevocable Letter of Credit on behalf of the
Borrower (whether issued for the account of or on behalf of the Borrower or
any of its Subsidiaries) in such form as may be requested by the Borrower and
approved by the Issuer, for the purposes described in Section 7.1.9.
Notwithstanding anything to the contrary contained herein or in any separate
application for any Letter of Credit, the Borrower hereby acknowledges and
agrees that it shall be obligated to reimburse the Issuer upon each
Disbursement paid under a Letter of Credit, and it shall be deemed to be the
obligor for purposes of each such Letter of Credit issued hereunder (whether
the account party on such Letter of Credit is the Borrower or a Subsidiary of
the Borrower). Upon receipt of an Issuance Request, the Administrative Agent
shall promptly notify the Issuer and each Lender thereof. Each Letter of
Credit shall by its terms be stated to expire on
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a date (its "Stated Expiry Date") no later than the earlier to occur of (i)
the sixth anniversary of the Closing Date or (ii) one year from the date of
its issuance; provided that, notwithstanding the terms of clause (ii) above, a
Letter of Credit may, if required by the beneficiary thereof, contain
"evergreen" provisions pursuant to which the Stated Expiry Date shall be
automatically extended, unless notice to the contrary shall have been given to
the beneficiary by the Issuer or the account party more than a specified
period prior to the then existing Stated Expiry Date. The Issuer will make
available to the beneficiary thereof the original of each Letter of Credit
which it issues hereunder.
SECTION 2.6.1. Other Lenders' Participation. Upon the issuance of
each Letter of Credit issued by the Issuer pursuant hereto, and without
further action, each Lender (other than the Issuer) that has a Revolving Loan
Commitment shall be deemed to have irrevocably purchased from the Issuer, to
the extent of its Percentage in respect of Revolving Loans, and the Issuer
shall be deemed to have irrevocably granted and sold to such Lender a
participation interest in such Letter of Credit (including the Contingent
Liability and any Reimbursement Obligation and all rights with respect
thereto), and such Lender shall, to the extent of its Percentage in respect of
Revolving Loans, be responsible for reimbursing promptly (and in any event
within one Business Day) the Issuer for Reimbursement Obligations which have
not been reimbursed by the Borrower in accordance with Section 2.6.3. In
addition, such Lender shall, to the extent of its Percentage in respect of
Revolving Loans, be entitled to receive a ratable portion of the Letter of
Credit fees payable pursuant to Section 3.3.3 with respect to each Letter of
Credit and of interest payable pursuant to Section 3.2 with respect to any
Reimbursement Obligation. To the extent that any Lender has reimbursed the
Issuer for a Disbursement as required by this Section, such Lender shall be
entitled to receive its ratable portion of any amounts subsequently received
(from the Borrower or otherwise) in respect of such Disbursement.
SECTION 2.6.2. Disbursements; Conversion to Revolving Loans. The
Issuer will notify the Borrower and the Administrative Agent promptly of the
presentment for payment of any drawing under any Letter of Credit issued by
the Issuer, together with notice of the date (the "Disbursement Date") such
payment shall be made (each such payment, a "Disbursement"). Subject to the
terms and provisions of such Letter of Credit and this Agreement, the Issuer
shall make such payment to the beneficiary (or its designee) of such Letter of
Credit. Prior to 12:30 p.m., New York time, on the first Business Day
following the Disbursement Date (the "Disbursement Due Date"), the Borrower
will reimburse the Administrative Agent, for the account of the Issuer, for
all amounts which the Issuer has disbursed under such Letter of Credit,
together with interest thereon at the rate per annum otherwise applicable to
Revolving Loans (made as Base Rate Loans) from and including the Disbursement
Date to but excluding the Disbursement Due Date and, thereafter (unless such
Disbursement is converted into a Base Rate Loan on the Disbursement Due Date),
at a rate per annum equal to the rate per annum then in effect with respect to
overdue Revolving Loans (made as Base Rate Loans) pursuant to Section 3.2.2
for the period from the Disbursement Due Date through the date of such
reimbursement; provided, however, that, if no Default shall have then occurred
and be continuing, unless the
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Borrower has notified the Administrative Agent no later than one Business
Day prior to the Disbursement Due Date that it will reimburse the Issuer for
the applicable Disbursement, then the amount of the Disbursement shall be
deemed to be a Borrowing of Revolving Loans constituting Base Rate Loans and
following the giving of notice thereof by the Administrative Agent to the
Lenders, each Lender with a Revolving Loan Commitment (other than the Issuer)
will deliver to the Issuer on the Disbursement Due Date immediately available
funds in an amount equal to such Lender's Percentage of such Borrowing. Each
conversion of Disbursement amounts into Revolving Loans shall constitute a
representation and warranty by the Borrower that on the date of the making of
such Revolving Loans all of the statements set forth in Section 5.2.1 are true
and correct.
SECTION 2.6.3. Reimbursement. The obligation (a "Reimbursement
Obligation") of the Borrower under Section 2.6.2 to reimburse the Issuer with
respect to each Disbursement (including interest thereon) not converted into a
Base Rate Loan pursuant to Section 2.6.2, and, upon the Borrower failing or
electing not to reimburse the Issuer and the giving of notice thereof by the
Administrative Agent to the Lenders, each Lender's (to the extent it has a
Revolving Loan Commitment) obligation under Section 2.6.1 to reimburse the
Issuer or fund its Percentage of any Disbursement converted into a Base Rate
Loan, shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment which the
Borrower or such Lender, as the case may be, may have or have had against the
Issuer or any such Lender, including any defense based upon the failure of any
Disbursement to conform to the terms of the applicable Letter of Credit (if,
in the Issuer's good faith opinion, such Disbursement is determined to be
appropriate) or any non-application or misapplication by the beneficiary of
the proceeds of such Letter of Credit; provided, however, that after paying in
full its Reimbursement Obligation hereunder, nothing herein shall adversely
affect the right of the Borrower or such Lender, as the case may be, to
commence any proceeding against the Issuer for any wrongful Disbursement made
by the Issuer under a Letter of Credit as a result of acts or omissions
constituting gross negligence or willful misconduct on the part of the Issuer.
SECTION 2.6.4. Deemed Disbursements. Upon the occurrence and during
the continuation of any Event of Default of the type described in clauses (b)
through (d) of Section 8.1.9 with respect to any Obligor (other than
immaterial Subsidiaries) or, with notice from the Administrative Agent acting
at the direction of the Required Lenders, upon the occurrence and during the
continuation of any other Event of Default,
(a) an amount equal to that portion of all Letter of Credit
Outstandings attributable to the then aggregate amount which is
undrawn and available under all Letters of Credit issued and
outstanding shall, without demand upon or notice to the Borrower or
any other Person, be deemed to have been paid or disbursed by the
Issuer under such Letters of Credit (notwithstanding that such
amount may not in fact have been so paid or disbursed); and
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(b) upon notification by the Administrative Agent to the
Borrower of its obligations under this Section, the Borrower shall
be immediately obligated to reimburse the Issuer for the amount
deemed to have been so paid or disbursed by the Issuer.
Any amounts so payable by the Borrower pursuant to this Section shall be
deposited in cash with the Administrative Agent and held as collateral
security for the Obligations in connection with the Letters of Credit issued
by the Issuer. At such time as the Events of Default giving rise to the deemed
disbursements hereunder shall have been cured or waived, the Administrative
Agent shall return to the Borrower all amounts then on deposit with the
Administrative Agent pursuant to this Section, together with accrued interest
at the Federal Funds Rate, which have not been applied to the satisfaction of
such Obligations.
SECTION 2.6.5. Nature of Reimbursement Obligations. The Borrower and,
to the extent set forth in Section 2.6.1, each Lender with a Revolving Loan
Commitment, shall assume all risks of the acts, omissions or misuse of any
Letter of Credit by the beneficiary thereof. The Issuer (except to the extent
of its own gross negligence or willful misconduct) shall not be responsible
for:
(a) the form, validity, sufficiency, accuracy, genuineness
or legal effect of any Letter of Credit or any document submitted by
any party in connection with the application for and issuance of a
Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged;
(b) the form, validity, sufficiency, accuracy, genuineness
or legal effect of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or
benefits thereunder or the proceeds thereof in whole or in part,
which may prove to be invalid or ineffective for any reason;
(c) failure of the beneficiary to comply fully with conditions
required in order to demand payment under a Letter of Credit;
(d) errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable, telegraph, telex or
otherwise; or
(e) any loss or delay in the transmission or otherwise of
any document or draft required in order to make a Disbursement under
a Letter of Credit.
None of the foregoing shall affect, impair or prevent the vesting of any of
the rights or powers granted to the Issuer or any Lender with a Revolving Loan
Commitment hereunder. In furtherance and extension and not in limitation or
derogation of any of the foregoing, any action taken or omitted to be taken by
the Issuer in good faith (and not constituting gross negligence or willful
misconduct) shall be binding upon the Borrower, each Obligor and each such
Lender, and
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shall not put the Issuer under any resulting liability to the Borrower, any
Obligor or any such Lender, as the case may be.
SECTION 2.7. Register; Notes.
(a) Each Lender may maintain in accordance with its usual
practice an account or accounts evidencing the Indebtedness of the
Borrower to such Lender resulting from each Loan made by such Lender,
including the amounts of principal and interest payable and paid to
such Lender from time to time hereunder. In the case of a Lender that
does not request, pursuant to clause (b)(ii) below, execution and
delivery of a Note evidencing the Loans made by such Lender to the
Borrower, such account or accounts shall, to the extent not
inconsistent with the notations made by the Administrative Agent in
the Register, be conclusive and binding on the Borrower absent
manifest error; provided, however, that the failure of any Lender to
maintain such account or accounts shall not limit or otherwise affect
any Obligations of the Borrower or any other Obligor.
(b)(i) The Borrower hereby designates the Administrative
Agent to serve as the Borrower's agent, solely for the purpose of
this clause (b), to maintain a register (the "Register") on which the
Administrative Agent will record each Administrative Lender's
Commitment, the Loans made by each Lender and each repayment in
respect of the principal amount of the Loans of each Lender and
annexed to which the Administrative Agent shall retain a copy of each
Lender Assignment Agreement delivered to the Administrative Agent
pursuant to Section 10.11.1. Failure to make any recordation, or any
error in such recordation, shall not affect the Borrower's obligation
in respect of such Loans. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, the
Administrative Agent and the Lenders shall treat each Person in whose
name a Loan (and as provided in clause (ii) the Note evidencing such
Loan, if any) is registered as the owner thereof for all purposes of
this Agreement, notwithstanding notice or any provision herein to the
contrary. A Lender's Commitment and the Loans made pursuant thereto
may be assigned or otherwise transferred in whole or in part only by
registration of such assignment or transfer in the Register. Any
assignment or transfer of a Lender's Commitment or the Loans made
pursuant thereto shall be registered in the Register only upon
delivery to the Administrative Agent of a Lender Assignment Agreement
duly executed by the assignor thereof. No assignment or transfer of a
Lender's Commitment or the Loans made pursuant thereto shall be
effective unless such assignment or transfer shall have been recorded
in the Register by the Administrative Agent as provided in this
Section.
(ii) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and
deliver to such Lender, as applicable, a Revolving Note, a Term-A
Note, a Term-B Note, a Term-C Note and a Swing Line Note evidencing
the Loans made by such Lender. The Borrower hereby irrevocably
authorizes
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each Lender to make (or cause to be made) appropriate notations on
the grid attached to such Lender's Notes (or on any continuation of
such grid), which notations, if made, shall evidence, inter alia,
the date of, the outstanding principal amount of, and the interest
rate and Interest Period applicable to the Loans evidenced thereby.
Such notations shall, to the extent not inconsistent with the
notations made by the Administrative Agent in the Register, be
conclusive and binding on the Borrower absent manifest error;
provided, however, that the failure of any Lender to make any such
notations shall not limit or otherwise affect any Obligations of the
Borrower or any other Obligor. The Loans evidenced by any such Note
and interest thereon shall at all times (including after assignment
pursuant to Section 10.11.1) be represented by one or more Notes
payable to the order of the payee named therein and its registered
assigns. A Note and the obligation evidenced thereby may be assigned
or otherwise transferred in whole or in part only by registration of
such assignment or transfer of such Note and the obligation
evidenced thereby in the Register (and each Note shall expressly so
provide). Any assignment or transfer of all or part of an obligation
evidenced by a Note shall be registered in the Register only upon
surrender for registration of assignment or transfer of the Note
evidencing such obligation, accompanied by a Lender Assignment
Agreement duly executed by the assignor thereof, and thereupon, if
requested by the assignee, one or more new Notes shall be issued to
the designated assignee and the old Note shall be returned by the
Administrative Agent to the Borrower marked "exchanged". No
assignment of a Note and the obligation evidenced thereby shall be
effective unless it shall have been recorded in the Register by the
Administrative Agent as provided in this Section.
SECTION 2.8. Registered Notes. (a) Any Non-U.S. Lender that could
become completely exempt from withholding of any Taxes in respect of payment
of any interest due to such Non-U.S. Lender under this Agreement if the Notes
held by such Lender were in registered form for U.S. Federal income tax
purposes may request the Borrower (through the Administrative Agent), and the
Borrower agrees (i) to exchange for any Notes held by such Lender, or (ii) to
issue to such Lender on the date it becomes a Lender, promissory notes(s)
registered as provided in clause (b) of this Section 2.8 (each, a "Registered
Note", to be in substantially the form of Exhibit A-6 hereto). Registered
Notes may not be exchanged for Notes that are not Registered Notes.
(b) The Administrative Agent shall enter in the Register the name of
the registered owner of the Non-U.S. Lender's Obligation(s) evidenced by a
Registered Note.
(c) The Register shall be available for inspection by the Borrower
and any Lender at any reasonable time upon reasonable prior notice.
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ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. Repayments and Prepayments; Application.
SECTION 3.1.1. Repayments and Prepayments. The Borrower shall repay
in full the unpaid principal amount of each Loan upon the Stated Maturity Date
therefor. Prior thereto, the Borrower
(a) may, from time to time on any Business Day, make a
voluntary prepayment, in whole or in part, of the outstanding
principal amount of any
(i) Loans (other than Swing Line Loans); provided,
however, that
(A) any such prepayment of the Term-A Loans, Term-B
Loans or Term-C Loans shall be made pro rata among Term-A
Loans, Term-B Loans and Term-C Loans, as applicable, of
the same type and, if applicable, having the same Interest
Period of all Lenders that have made such Term-A Loans,
Term-B Loans or Term-C Loans, and any such prepayment of
Revolving Loans shall be made pro rata among the Revolving
Loans of the same type and, if applicable, having the same
Interest Period of all Lenders that have made such
Revolving Loans;
(B) the Borrower shall comply with Section 4.4 in the
event that any LIBO Rate Loan is prepaid on any day other
than the last day of the Interest Period for such Loan;
(C) all such voluntary prepayments shall require at
least one Business Day's notice in the case of Base Rate
Loans, three Business Days' notice in the case of LIBO
Rate Loans, but no more than five Business Days' notice in
the case of any Loans, in each case in writing to the
Administrative Agent; and
(D) all such voluntary partial prepayments shall be
in an aggregate amount of $500,000 or any larger integral
multiple of $100,000 or in the aggregate principal amount
of all Loans of the applicable Tranche and type then
outstanding; or
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(ii) Swing Line Loans, provided that
(A) all such voluntary prepayments shall require
prior telephonic notice to the Swing Line Lender on or
before 1:00 p.m., New York City time, on the day of such
prepayment (such notice to be confirmed in writing by the
Borrower within 24 hours thereafter); and
(B) all such voluntary partial prepayments shall be
in an aggregate amount of $50,000 and an integral multiple
of $10,000 or in the aggregate principal amount of all
Swing Line Loans then outstanding;
(b) shall, on each date when any reduction in the then
applicable Borrowing Base Amount shall become effective, make a
mandatory prepayment of Revolving Loans or all Swing Line Loans (or
both) and (if necessary) deposit with the Administrative Agent cash
collateral for Letter of Credit Outstandings, in an aggregate amount
equal to the excess, if any, of the sum of (i) the aggregate
outstanding principal amount of all Revolving Loans and Swing Line
Loans and (ii) the aggregate amount of all Letter of Credit
Outstandings over the then applicable Borrowing Base Amount;
(c) shall, no later than five Business Days following the
delivery by the Borrower of its annual audited financial reports
required pursuant to clause (b) of Section 7.1.1 (beginning with the
financial reports delivered in respect of the 1998 Fiscal Year),
deliver to the Administrative Agent a calculation of the Excess Cash
Flow for the Fiscal Year (or, in the case of the 1998 Fiscal Year,
the period from August 31, 1997 through June 30, 1998) last ended
and, no later than five Business Days following the delivery of such
calculation, make a mandatory prepayment of the Term Loans in an
amount equal to (i) 50% of the Excess Cash Flow (if any) for such
Fiscal Year (or period) less (ii) the aggregate amount of all
voluntary prepayments of the principal of the Term Loans actually
made in such Fiscal Year pursuant to clause (a) of Section 3.1.1, to
be applied as set forth in Section 3.1.2; provided, however, that no
such prepayment shall be required to be made to the extent that the
Leverage Ratio is less than 3.50:1 as of the end of the immediately
preceding Fiscal Quarter;
(d) shall, not later than one Business Day following the
receipt of any Net Disposition Proceeds or Net Debt Proceeds by the
Borrower or any of its Restricted Subsidiaries, deliver to the
Administrative Agent a calculation of the amount of such Net
Disposition Proceeds or Net Debt Proceeds, as the case may be, and,
to the extent the amount of such Net Disposition Proceeds or Net Debt
Proceeds, as the case may be, exceeds $2,500,000, make a mandatory
prepayment of the Term Loans in an amount equal to 100% of such Net
Disposition Proceeds or Net Debt Proceeds, as the case may be, to be
applied as set forth in Section 3.1.2; provided, that no mandatory
prepayment on account of such Net Disposition Proceeds shall be
required under this clause if the
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Borrower informs the Agents no later than 30 days following the
receipt of any Net Disposition Proceeds of its or its Restricted
Subsidiary's good faith intention to apply such Net Disposition
Proceeds to the acquisition of other assets or property consistent
with the DecisionOne Business (including by way of merger or
investment) within 365 days following the receipt of such Net
Disposition Proceeds, with the amount of such Net Disposition
Proceeds unused after such 365 day period being applied to the Loans
as set forth in Section 3.1.2;
(e) shall, concurrently with the receipt of any Net Equity
Proceeds by the Borrower or any of its Restricted Subsidiaries,
deliver to the Administrative Agent a calculation of the amount of
such Net Equity Proceeds, and no later than five Business Days
following the delivery of such calculation, and, to the extent that
the amount of such Net Equity Proceeds exceeds $2,500,000, make a
mandatory prepayment of the Term Loans in an amount equal to 50% of
such Net Equity Proceeds to be applied as set forth in Section 3.1.2;
(f) shall, concurrently with the receipt by the Borrower or
any of its Restricted Subsidiaries of any Casualty Proceeds in excess
of $2,500,000 (individually or in the aggregate over the course of a
Fiscal Year), deposit such Casualty Proceeds in an account maintained
with the Administrative Agent and within 60 days following the
receipt by the Borrower or any of its Restricted Subsidiaries of such
Casualty Proceeds, direct the Administrative Agent to apply such
Casualty Proceeds to prepay the Term Loans in an amount equal to 100%
of such Casualty Proceeds, to be applied as set forth in Section
3.1.2; provided, that no mandatory prepayment on account of Casualty
Proceeds shall be required under this clause if the Borrower informs
the Agents no later than 60 days following the occurrence of the
Casualty Event resulting in such Casualty Proceeds of its or its
Restricted Subsidiary's good faith intention to apply such Casualty
Proceeds to the rebuilding or replacement of the damaged, destroyed
or condemned assets or property and in fact uses such Casualty
Proceeds to rebuild or replace the damaged, destroyed or condemned
assets or property within 365 days following the receipt of such
Casualty Proceeds, with the amount of such Casualty Proceeds unused
after such 365 day period being applied to the Loans pursuant to
Section 3.1.2;
(g) shall, on each date when any reduction in the Revolving
Loan Commitment Amount shall become effective, including pursuant to
Section 3.1.2, make a mandatory prepayment of Revolving Loans and (if
necessary) deposit with the Administrative Agent cash collateral for
Letter of Credit Outstandings in an aggregate amount equal to the
excess, if any, of the sum of (i) the aggregate outstanding principal
amount of all Revolving Loans and Swing Line Loans and (ii) the
aggregate amount of all Letter of Credit Outstandings over the
Revolving Loan Commitment Amount as so reduced;
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(h) shall, on the Stated Maturity Date and on each Quarterly
Payment Date occurring during any period set forth below, make a
scheduled repayment of the outstanding principal amount, if any, of
Term-A Loans in an aggregate amount equal to the amount set forth
below opposite such Stated Maturity Date or period, as applicable (as
such amounts may have otherwise been reduced pursuant to this
Agreement):
SCHEDULED
PRINCIPAL
PERIOD REPAYMENT
- ------------------------------------- --------------------------
7/1/98 to 9/30/99 $1,950,000
- ------------------------------------- --------------------------
10/1/99 to 9/30/00 $4,875,000
- ------------------------------------- --------------------------
10/1/00 to 9/30/01 $9,750,000
- ------------------------------------- --------------------------
10/1/01 to 9/30/02 $12,187,500
- ------------------------------------- --------------------------
10/1/02 to the Sixth
Anniversary of the Closing
Date $19,500,000
- ------------------------------------- --------------------------
(i) shall, on the Stated Maturity Date and on each Quarterly
Payment Date occurring during any period set forth below, make a
scheduled repayment of the outstanding principal amount, if any, of
Term-B Loans in an aggregate amount equal to the amount set forth
below opposite such Stated Maturity Date or period, as applicable (as
such amounts may have otherwise been reduced pursuant to this
Agreement):
SCHEDULED
PRINCIPAL
PERIOD REPAYMENT
10/1/97 to 9/30/03 $375,000
- -------------------------------------- -------------------
10/1/03 to the Seventh
Anniversary of the
Closing Date $35,250,000
- -------------------------------------- -------------------
(j) shall on the Stated Maturity Date and on each Quarterly
Payment Date occurring during any period set forth below, make a
scheduled repayment of the outstanding principal amount, if any, of
Term-C Loans in an aggregate amount equal to
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the amount set forth below opposite such Stated Maturity Date or
period, as applicable (as such amounts may have otherwise been
reduced pursuant to this Agreement):
SCHEDULED
PRINCIPAL
PERIOD REPAYMENT
- -------------------------------- ------------------------------
10/1/97 to 9/30/04 $312,500
- -------------------------------- ------------------------------
10/1/04 to the Eighth $29,062,500
Anniversary of the
Closing Date
- -------------------------------- ------------------------------
(k) shall, immediately upon any acceleration of the Stated
Maturity Date of any Loans or Obligations pursuant to Section 8.2 or
Section 8.3, repay all outstanding Loans and other Obligations,
unless, pursuant to Section 8.3, only a portion of all Loans and
other Obligations are so accelerated (in which case the portion so
accelerated shall be so prepaid).
Each prepayment of any Loans made pursuant to this Section shall be
without premium or penalty, except as may be required by Section 4.4. No
prepayment of principal of any Revolving Loans or Swing Line Loans pursuant to
clause (a), (b) or (k) of this Section 3.1.1 shall cause a reduction in the
Revolving Loan Commitment Amount or the Swing Line Loan Commitment Amount, as
the case may be.
SECTION 3.1.2. Application. (a) Subject to clause (b) below, each
prepayment or repayment of principal of the Loans of any Tranche shall be
applied, to the extent of such prepayment or repayment, first, to the
principal amount thereof being maintained as Base Rate Loans, and second, to
the principal amount thereof being maintained as LIBO Rate Loans.
(b) Each prepayment of Term Loans made pursuant to clauses (a), (c),
(d), (e), and (f) of Section 3.1.1 shall be applied, (i) on a pro rata basis,
to the outstanding principal amount of all remaining Term-A Loans, Term-B
Loans and Term-C Loans and (ii) in respect of each Tranche of Term Loans, in
direct order of maturity of the remaining scheduled quarterly amortization
payments in respect thereof, until all such Term-A Loans, Term-B Loans and
Term-C Loans have been paid in full; provided, however, that if the Borrower
at any time elects in writing, in its sole discretion, to permit any Lender
that has Term-B Loans or Term-C Loans to decline to have such Loans prepaid,
then any Lender having Term-B Loans or Term-C Loans outstanding may, by
delivering a notice to the Agents at least one Business Day prior to the date
that such prepayment is to be made, decline to have such Loans prepaid with
the amounts set forth above, in which case 50% of the amounts that would have
been applied to a prepayment of such Lender's Term-B Loans or Term-C Loans, as
the case may be, shall instead be applied to a
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prepayment of the Term-A Loans (until paid in full), with the balance being
retained by the Borrower.
SECTION 3.2. Interest Provisions. Interest on the outstanding
principal amount of the Loans shall accrue and be payable in accordance with
this Section 3.2.
SECTION 3.2.1. Rates.
(a) Each Base Rate Loan shall accrue interest on the unpaid
principal amount thereof for each day from and including the day upon which
such Loan was made or converted to a Base Rate Loan to but excluding the date
such Loan is repaid or converted to a LIBO Rate Loan at a rate per annum equal
to the sum of the Alternate Base Rate for such day plus the Applicable Margin
for such Loan on such day.
(b) Each LIBO Rate Loan shall accrue interest on the unpaid principal
amount thereof for each day during each Interest Period applicable thereto at
a rate per annum equal to the sum of the LIBO Rate (Reserve Adjusted) for such
Interest Period plus the Applicable Margin for such Loan on such day.
All LIBO Rate Loans shall bear interest from and including the first day of
the applicable Interest Period to (but not including) the last day of such
Interest Period at the interest rate determined as applicable to such LIBO
Rate Loan.
SECTION 3.2.2. Post-Maturity Rates. After the date any principal
amount of any Loan shall have become due and payable (whether on the
applicable Stated Maturity Date, upon acceleration or otherwise), or any other
monetary Obligation (other than overdue Reimbursement Obligations which shall
bear interest as provided in Section 2.6.2) of the Borrower shall have become
due and payable, the Borrower shall pay, but only to the extent permitted by
law, interest (after as well as before judgment) on such amounts at a rate per
annum equal to (a) in the case of any overdue principal of Loans, overdue
interest thereon, overdue commitment fees or other overdue amounts in respect
of Loans or other obligations (or the related Commitments) under a particular
Tranche, the rate that would otherwise be applicable to Base Rate Loans under
such Tranche pursuant to Section 3.2.1 plus 2% and (b) in the case of other
overdue monetary Obligations, the rate that would otherwise be applicable to
Revolving Loans that were Base Rate Loans plus 2%.
SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall be
payable, without duplication:
(a) on the Stated Maturity Date therefor;
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(b) in the case of a LIBO Rate Loan, on the date of any
payment or prepayment, in whole or in part, of principal outstanding
on such Loan, to the extent of the unpaid interest accrued through
such date on the principal so paid or prepaid;
(c) with respect to Base Rate Loans, on each Quarterly
Payment Date occurring after the date of the initial Borrowing
hereunder;
(d) with respect to LIBO Rate Loans, on the last day of each
applicable Interest Period (and, if such Interest Period shall exceed
three months, at intervals of three months after the first day of
such Interest Period);
(e) with respect to the principal amount of any Base Rate
Loans converted into LIBO Rate Loans on a day when interest would not
otherwise have been payable pursuant to clause (c), on the date of
such conversion; and
(f) on that portion of any Loans the Stated Maturity Date of
which is accelerated pursuant to Section 8.2 or Section 8.3,
immediately upon such acceleration.
Interest accrued on Loans, Reimbursement Obligations or other monetary
Obligations arising under this Agreement or any other Loan Document after the
date such amount is due and payable (whether on the Stated Maturity Date, upon
acceleration or otherwise) shall be payable upon demand.
SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth in
this Section 3.3. All such fees shall be non-refundable.
SECTION 3.3.1. Commitment Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender that has a Revolving Loan
Commitment, for each day during the period (including any portion thereof when
any of the Lenders' Revolving Loan Commitments are suspended by reason of the
Borrower's inability to satisfy any condition of Article V) commencing on the
Closing Date and continuing to but excluding the Revolving Loan Commitment
Termination Date, a commitment fee on such Lender's Percentage of the unused
portion, whether or not then available, of the Revolving Loan Commitment
Amount (net of Letter of Credit Outstandings) for such day at a rate per annum
equal to the Applicable Commitment Fee for such day. Such commitment fee shall
be payable by the Borrower in arrears on each Quarterly Payment Date,
commencing with the first such day following the Closing Date, and on the
Revolving Loan Commitment Termination Date. The making of Swing Line Loans
shall not constitute usage of the Revolving Loan Commitment with respect to
the calculation of commitment fees to be paid by the Borrower to the Lenders.
Any term or provision hereof to the contrary notwithstanding, commitment fees
payable for any period prior to the Closing Date shall be payable in
accordance with the Fee Letter. Payments by the Borrower to the Swing Line
Lender in respect of accrued interest on Swing Line Loans shall be
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net of the commitment fee payable in respect of the Swing Line Lender's
Revolving Loan Commitment.
SECTION 3.3.2. Administrative Agent Fee. The Borrower agrees to pay
an annual administration fee to the Administrative Agent, for its own account,
in the amount set forth in the Administrative Agent's Fee Letter, payable in
advance on the Closing Date and quarterly thereafter.
SECTION 3.3.3. Letter of Credit Fee. The Borrower agrees to pay to
the Administrative Agent, for the pro rata account of the Issuer and each
other Lender that has a Revolving Loan Commitment, a Letter of Credit fee for
each day on which there shall be any Letters of Credit outstanding in an
amount equal to (i) with respect to each standby Letter of Credit, a rate per
annum equal to the then Applicable Margin for Revolving Loans maintained as
LIBO Rate Loans, minus 1/8 of 1% per annum, multiplied by the Stated Amount of
each such Letter of Credit; and (ii) with respect to each documentary Letter
of Credit, 1.25% per annum multiplied by the Stated Amount of each such Letter
of Credit, such fees being payable quarterly in arrears on each Quarterly
Payment Date. The Borrower further agrees to pay to the Issuer quarterly in
arrears on each Quarterly Payment Date, an issuance fee as specified in the
Administrative Agent's Fee Letter.
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
SECTION 4.1. LIBO Rate Lending Unlawful. If any Lender shall
determine (which determination shall, upon notice thereof to the Borrower and
the Lenders, be conclusive and binding on the Borrower) that the introduction
of or any change in or in the interpretation of any law, in each case after
the date upon which such Lender shall have become a Lender hereunder, makes it
unlawful, or any central bank or other governmental authority asserts, after
such date, that it is unlawful, for such Lender to make, continue or maintain
any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of
such Lender to make, continue, maintain or convert any Loans as or to LIBO
Rate Loans shall, upon such determination, forthwith be suspended until such
Lender shall notify the Administrative Agent that the circumstances causing
such suspension no longer exist (with the date of such notice being the
"Reinstatement Date"), and (i) all LIBO Rate Loans previously made by such
Lender shall automatically convert into Base Rate Loans at the end of the then
current Interest Periods with respect thereto or sooner, if required by such
law or assertion and (ii) all Loans thereafter made by such Lender and
outstanding prior to the Reinstatement Date shall be made as Base Rate Loans,
with interest thereon being payable on the same date that interest is payable
with respect to the corresponding Borrowing of LIBO Rate Loans made by Lenders
not so affected.
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SECTION 4.2. Deposits Unavailable. If the Administrative Agent shall
have determined that (i) Dollar deposits in the relevant amount and for the
relevant Interest Period are not available to the Administrative Agent in its
relevant market, or (ii) by reason of circumstances affecting the
Administrative Agent's relevant market, adequate means do not exist for
ascertaining the interest rate applicable hereunder to LIBO Rate Loans, then,
upon notice from the Administrative Agent to the Borrower and the Lenders, the
obligations of all Lenders under Section 2.3 and Section 2.4 to make or
continue any Loans as, or to convert any Loans into, LIBO Rate Loans shall
forthwith be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist.
SECTION 4.3. Increased LIBO Rate Loan Costs, etc. The Borrower agrees
to reimburse each Lender for any increase in the cost to such Lender of, or
any reduction in the amount of any sum receivable by such Lender in respect
of, making, continuing or maintaining (or of its obligation to make, continue
or maintain) any Loans as, or of converting (or of its obligation to convert)
any Loans into, LIBO Rate Loans (excluding any amounts, whether or not
constituting Taxes, referred to in Section 4.6) arising as a result of any
change in, or the introduction, adoption, effectiveness, interpretation,
reinterpretation or phase-in of, any law or regulation, directive, guideline,
decision or request (whether or not having the force of law) of any court,
central bank, regulator or other governmental authority that occurs after the
date upon which such Lender became a Lender hereunder. Such Lender shall
promptly notify the Administrative Agent and the Borrower in writing of the
occurrence of any such event, such notice to state, in reasonable detail, the
reasons therefor and the additional amount required fully to compensate such
Lender for such increased cost or reduced amount. Such additional amounts
shall be payable by the Borrower directly to such Lender within five days of
its receipt of such notice, and such notice shall, in the absence of manifest
error, be conclusive and binding on the Borrower.
SECTION 4.4. Funding Losses. In the event any Lender shall incur any
loss or expense (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to make, continue or maintain any portion of the principal amount of any Loan
as, or to convert any portion of the principal amount of any Loan into, a LIBO
Rate Loan, but excluding any loss of margin after the date of any such
conversion, repayment, prepayment or failure to borrow, continue or convert)
as a result of (i) any conversion or repayment or prepayment of the principal
amount of any LIBO Rate Loans on a date other than the scheduled last day of
the Interest Period applicable thereto, whether pursuant to Section 3.1 or
otherwise, (ii) any Loans not being borrowed as LIBO Rate Loans in accordance
with the Borrowing Request therefor, or (iii) any Loans not being continued
as, or converted into, LIBO Rate Loans in accordance with the Continuation/
Conversion Notice therefor, then, upon the written notice of such Lender to
the Borrower (with a copy to the Administrative Agent), the Borrower shall,
within five days of its receipt thereof, pay directly to such Lender such
amount as will (in the reasonable determination of such Lender) reimburse such
Lender for such loss or
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expense. Such written notice (which shall include calculations in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
the Borrower.
SECTION 4.5. Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority, in each case occurring after the applicable
Lender becomes a Lender hereunder, affects or would affect the amount of
capital required or expected to be maintained by any Lender or any Person
controlling such Lender, and such Lender determines (in its sole and absolute
discretion) that the rate of return on its or such controlling Person's
capital as a consequence of its Commitments, participation in Letters of
Credit or the Loans made by such Lender is reduced to a level below that which
such Lender or such controlling Person could have achieved but for the
occurrence of any such circumstance, then, in any such case upon notice from
time to time by such Lender to the Borrower, the Borrower shall immediately
pay directly to such Lender additional amounts sufficient to compensate such
Lender or such controlling Person for such reduction in rate of return. A
statement of such Lender as to any such additional amount or amounts
(including calculations thereof in reasonable detail) shall, in the absence of
manifest error, be conclusive and binding on the Borrower. In determining such
amount, such Lender may use any method of averaging and attribution that it
(in its sole and absolute discretion) shall deem applicable; provided, that
such Lender may not impose materially greater costs on the Borrower than on
other similarly situated borrowers by virtue of any such averaging or
attribution method.
SECTION 4.6. Taxes. (a) All payments by the Borrower of principal of,
and interest on, the Loans and all other amounts payable hereunder (including
Reimbursement Obligations, fees and expenses) shall be made free and clear of
and without deduction for any present or future income, excise, stamp or
franchise taxes and other taxes, fees, duties, withholdings or other charges
of any nature whatsoever imposed by any taxing authority, but excluding (i)
any income, excise, stamp or franchise taxes and other similar taxes, fees,
duties, withholdings or other charges imposed on either of the Agents as a
result of a present or former connection between the applicable lending office
(or office through which it performs any of its actions as Agent) of such
Agent, and any income, excise, stamp or franchise taxes and other similar
taxes, fees, duties, withholdings or other charges imposed on any Lender as a
result of a present or former connection between the applicable lending office
of such Lender, in each case, and the jurisdiction of the governmental
authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from such
Agent or such Lender having executed, delivered or performed its obligations
or received a payment under, or taken any action to enforce, this Agreement
and any Note) or (ii) any income, excise, stamp or franchise taxes and other
similar taxes, fees, duties, withholdings or other charges to the extent that
they are in effect and would apply as of the date any Person becomes a Lender
or Assignee Lender, or as of the date that any Lender changes its applicable
lending office, to the extent such taxes become applicable as a result of such
change (other than a change
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in an applicable lending office made pursuant to Section 4.10 below) (such
non-excluded items being called "Taxes"). In the event that any withholding or
deduction from any payment to be made by the Borrower hereunder is required in
respect of any Taxes pursuant to any applicable law, rule or regulation, then
the Borrower will (i) pay directly to the relevant taxing authority the full
amount required to be so withheld or deducted, (ii) promptly forward to the
Administrative Agent an official receipt or other documentation available to
the Borrower reasonably satisfactory to the Administrative Agent evidencing
such payment to such authority, and (iii) pay to the Administrative Agent for
the account of the Lenders such additional amount or amounts as is necessary
to ensure that the net amount actually received by each Lender will equal the
full amount such Lender would have received had no such withholding or
deduction been required, provided, however, that the Borrower shall not be
required to pay any such additional amounts in respect of amounts payable to
any Lender that is not organized under the laws of the United States or a
state thereof if such Lender fails to comply with the requirements of clause
(b) of Section 4.6.
Moreover, if any Taxes are directly asserted against either of the
Agents or any Lender with respect to any payment received by such Agents or
such Lender hereunder, such Agents or such Lender may pay such Taxes and the
Borrower will promptly pay to such Person such additional amount (including
any penalties, interest or expenses) as is necessary in order that the net
amount received by such Person (including any Taxes on such additional amount)
shall equal the amount of such Taxes paid by such Person; provided, however,
that the Borrower shall not be obligated to make payment to the Lenders or the
Agents (as the case may be) pursuant to this sentence in respect of penalties
or interest attributable to any Taxes, if written demand therefor has not been
made by such Lenders or the Agents within 60 days from the date on which such
Lenders or the Agents knew of the imposition of Taxes by the relevant taxing
authority or for any additional imposition which may arise from the failure of
the Lenders or the Agents to apply payments in accordance with the tax law
after the Borrower has made the payments required hereunder; provided,
further, that the Borrower shall not be required to pay any such additional
amounts in respect of any amounts payable to any Lender or the Agent (as the
case may be) that is not organized under the laws of the United States or a
state thereof to the extent the related Tax is imposed as a result of such
Lender failing to comply with the requirements of clause (b) of Section 4.6.
After the Lenders or the Agents (as the case may be) learn of the imposition
of Taxes, such Lenders and the Agents will act in good faith to notify the
Borrower of its obligations hereunder as soon as reasonably possible.
If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Administrative Agent, for the
account of the respective Lenders, the required receipts or other required
documentary evidence, the Borrower shall indemnify the Lenders for any
incremental Taxes, interest or penalties that may become payable by any Lender
as a result of any such failure.
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(b) Each Non-U.S. Lender shall, (i) on or prior to the date of the
execution and delivery of this Agreement, in the case of each Lender listed on
the signature pages hereof, or, in the case of an Assignee Lender, on or prior
to the date it becomes a Lender, execute and deliver to the Borrower and the
Administrative Agent, two or more (as the Borrower or the Agents may
reasonably request) United States Internal Revenue Service Forms 4224 or Forms
1001 or, solely if such Lender is claiming exemption from United States
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", United States Internal Revenue Service Forms
W-8 and a certificate signed by a duly authorized officer of such Lender
representing that such Lender is not a "bank" within the meaning of Section
881(c)(3)(A) of the Code, or such other forms or documents (or successor forms
or documents), appropriately completed, establishing that payments to such
Lender are exempt from withholding or deduction of Taxes; and (ii) deliver to
the Borrower and the Administrative Agent two further copies of any such form
or documents on or before the date that any such form or document expires or
becomes obsolete and after the occurrence of any event requiring a change in
the most recent such form or document previously delivered by it to the
Borrower.
(c) If the Borrower determines in good faith that a reasonable basis
exists for contesting the imposition of a Tax with respect to a Lender or
either of the Agents, the relevant Lender or Agent, as the case may be, shall
cooperate with the Borrower in challenging such Tax at the Borrower's expense
if requested by the Borrower.
(d) If a Lender or an Agent shall receive a refund (including any
offset or credits from a taxing authority (as a result of any error in the
imposition of Taxes by such taxing authority)) of any Taxes paid by the
Borrower pursuant to subsection 4.6(a) above, such Lender or the Agent (as the
case may be) shall promptly pay the Borrower the amount so received, with
interest from the taxing authority with respect to such refund.
(e) Each Lender and each Agent agrees, to the extent reasonable and
without material cost to it, to cooperate with the Borrower to minimize any
amounts payable by the Borrower under this Section 4.6.
SECTION 4.7. Payments, Computations, etc. Unless otherwise expressly
provided, all payments by or on behalf of the Borrower pursuant to this
Agreement, the Notes or any other Loan Document shall be made by the Borrower
to the Administrative Agent for the pro rata account of the Lenders, Agents or
Arranger, as applicable, entitled to receive such payment. All such payments
required to be made to the Administrative Agent shall be made, without setoff,
deduction or counterclaim, not later than 1:00 p.m., New York time, on the
date due, in same day or immediately available funds, to such account as the
Administrative Agent shall specify from time to time by notice to the
Borrower. Funds received after that time shall be deemed to have been received
by the Administrative Agent on the next succeeding Business Day. The
Administrative Agent shall promptly remit in same day funds to each Lender,
Agent or Arranger, as the case may be, its share, if any, of such payments
received by the Administrative Agent for
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the account of such Lender, Agent or Arranger, as the case may be. All
interest and fees shall be computed on the basis of the actual number of days
(including the first day but excluding the last day) occurring during the
period for which such interest or fee is payable over a year comprised of 360
days (or, in the case of interest on a Base Rate Loan, 365 days or, if
appropriate, 366 days). Whenever any payment to be made shall otherwise be due
on a day which is not a Business Day, such payment shall (except as otherwise
required by clause (i) of the definition of the term "Interest Period") be
made on the next succeeding Business Day and such extension of time shall be
included in computing interest and fees, if any, in connection with such
payment.
SECTION 4.8. Sharing of Payments. If any Lender shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of
setoff or otherwise) on account of any Loan or Reimbursement Obligations
(other than pursuant to the terms of Sections 4.3, 4.4 and 4.5) in excess of
its pro rata share of payments then or therewith obtained by all Lenders
entitled thereto, such Lender shall purchase from the other Lenders such
participation in the Credit Extensions made by them as shall be necessary to
cause such purchasing Lender to share the excess payment or other recovery
ratably with each of them; provided, however, that if all or any portion of
the excess payment or other recovery is thereafter recovered from such
purchasing Lender, the purchase shall be rescinded and each Lender which has
sold a participation to the purchasing Lender shall repay to the purchasing
Lender the purchase price to the ratable extent of such recovery together with
an amount equal to such selling Lender's ratable share (according to the
proportion of (i) the amount of such selling Lender's required repayment to
the purchasing Lender in respect of such recovery, to (ii) the total amount so
recovered from the purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect of the total amount so recovered.
The Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section may, to the fullest extent permitted by law,
exercise all its rights of payment (including pursuant to Section 4.9) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a setoff to which this Section applies, such Lender
shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders entitled
under this Section to share in the benefits of any recovery on such secured
claim.
SECTION 4.9. Setoff. Each Lender shall, upon the occurrence of any
Event of Default described in clauses (b) through (d) of Section 8.1.9 with
respect to any Obligor (other than immaterial Subsidiaries) or, with the
consent of the Required Lenders, upon the occurrence of any other Event of
Default, to the fullest extent permitted by law, have the right to appropriate
and apply to the payment of the Obligations then due to it, and (as security
for such Obligations) the Borrower hereby grants to each Lender a continuing
security interest in, any and all balances, credits, deposits, accounts or
moneys of the Borrower then or thereafter maintained with or otherwise held by
such Lender; provided, however, that any such appropriation and application
shall be subject to the provisions of Section 4.8. Each Lender agrees promptly
to notify the
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Borrower and the Administrative Agent after any such setoff and application
made by such Lender; provided, however, that the failure to give such notice
shall not affect the validity of such setoff and application. The rights of
each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff under applicable law or otherwise) which
such Lender may have.
SECTION 4.10. Mitigation. Each Lender agrees that if it makes any
demand for payment under Sections 4.3, 4.4, 4.5, or 4.6, or if any adoption or
change of the type described in Section 4.1 shall occur with respect to it, it
will use reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions and so long as such efforts would not be
disadvantageous to it, as determined in its sole discretion) to designate a
different lending office if the making of such a designation would reduce or
obviate the need for the Borrower to make payments under Section 4.3, 4.4,
4.5, or 4.6, or would eliminate or reduce the effect of any adoption or change
described in Section 4.1.
SECTION 4.11. Replacement of Lenders. Each Lender hereby severally
agrees as set forth in this Section. If any Lender (a "Subject Lender") makes
demand upon the Borrower for (or if the Borrower is otherwise required to pay)
amounts pursuant to Section 4.3, 4.5 or 4.6, or gives notice pursuant to
Section 4.1 requiring a conversion of such Subject Lender's LIBO Rate Loans to
Base Rate Loans or suspending such Lender's obligation to make Loans as, or to
convert Loans into, LIBO Rate Loans, the Borrower may, within 90 days of
receipt by the Borrower of such demand or notice (or the occurrence of such
other event causing the Borrower to be required to pay such compensation), as
the case may be, give notice (a "Replacement Notice") in writing to the Agents
and such Subject Lender of its intention to replace such Subject Lender with a
financial institution (a "Replacement Lender") designated in such Replacement
Notice. If the Agents shall, in the exercise of their reasonable discretion
and within 30 days of their receipt of such Replacement Notice, notify the
Borrower and such Subject Lender in writing that the designated financial
institution is satisfactory to the Agents (such consent not being required
where the Replacement Lender is already a Lender), then such Subject Lender
shall, subject to the payment of any amounts due pursuant to Section 4.4,
assign, in accordance with Section 10.11.1, all of its Commitments, Loans,
Notes and other rights and obligations under this Agreement and all other Loan
Documents (including, without limitation, Reimbursement Obligations) to such
designated financial institution; provided, however, that (i) such assignment
shall be without recourse, representation or warranty and shall be on terms
and conditions reasonably satisfactory to such Subject Lender and such
designated financial institution and (ii) the purchase price paid by such
designated financial institution shall be in the amount of such Subject
Lender's Loans and its Percentage of outstanding Reimbursement Obligations,
together with all accrued and unpaid interest and fees in respect thereof,
plus all other amounts (including the amounts demanded and unreimbursed under
Sections 4.3, 4.5 and 4.6), owing to such Subject Lender hereunder. Upon the
effective date of an assignment described above, the Borrower shall issue a
replacement Note or Notes, as the case may be, to
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such designated financial institution or Replacement Lender, as applicable,
and such institution shall become a "Lender" for all purposes under this
Agreement and the other Loan Documents.
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
SECTION 5.1. Initial Credit Extension. The obligations of the Lenders
and, if applicable, the Issuer to fund the initial Credit Extension shall be
subject to the prior or concurrent satisfaction of each of the conditions
precedent set forth in this Section 5.1.
SECTION 5.1.1. Resolutions, etc. The Agents shall have received from
each Obligor a certificate, dated the date of the initial Credit Extension, of
its Secretary or Assistant Secretary as to (i) resolutions of its Board of
Directors then in full force and effect authorizing the execution, delivery
and performance of each Loan Document to be executed by it, and (ii) the
incumbency and signatures of those of its officers authorized to act with
respect to each Loan Document executed by it, upon which certificate each
Agent and each Lender may conclusively rely until it shall have received a
further certificate of the Secretary or Assistant Secretary of such Obligor
canceling or amending such prior certificate.
SECTION 5.1.2. Transaction Documents. The Agents shall have received
(with copies for each Lender that shall have expressly requested copies
thereof) copies of fully executed versions of the Transaction Documents,
certified to be true and complete copies thereof by an Authorized Officer of
the Borrower. The Merger Agreement shall be in full force and effect and shall
not have been modified or waived in any material respect, nor shall there have
been any forbearance to exercise any material rights with respect to any of
the terms or provisions relating to the conditions to the consummation of the
Merger set forth in the Merger Agreement unless otherwise agreed to by the
Required Lenders.
SECTION 5.1.3. Consummation of Merger. The Agents shall have received
evidence satisfactory to each of them that all actions necessary to consummate
the Merger (including the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware) shall have been taken in
accordance with Section 251 of the Delaware General Corporation Law.
SECTION 5.1.4. Closing Date Certificate. Each of the Agents shall
have received, with counterparts for each Lender, the Closing Date
Certificate, substantially in the form of Exhibit D hereto, dated the date of
the initial Credit Extension and duly executed and delivered by the chief
executive, financial or accounting (or equivalent) Authorized Officer of the
Borrower, in which certificate the Borrower shall agree and acknowledge that
the statements made therein shall be deemed to be true and correct
representations and warranties of the Borrower made as of such
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date under this Agreement, and, at the time such certificate is delivered,
such statements shall in fact be true and correct.
SECTION 5.1.5. Delivery of Notes. The Agents shall have received, for
the account of each Lender, a Note of each applicable Tranche duly executed
and delivered by the Borrower.
SECTION 5.1.6. [Intentionally Omitted].
SECTION 5.1.7. Pledge Agreements. The Agents shall have received
executed counterparts of
(a) the Holdings Guaranty and Pledge Agreement, dated as of
the date hereof, duly executed by an Authorized Officer of Holdings,
together with the certificates evidencing all of the issued and
outstanding shares of Capital Stock of the Borrower which shall be
pledged pursuant to the Holdings Guaranty and Pledge Agreement, which
certificates shall in each case be accompanied by undated stock
powers duly executed in blank; and
(b) the Borrower Pledge Agreement, dated as of the date
hereof, duly executed by the Borrower together with (i) the
certificates evidencing all of the issued and outstanding shares of
Capital Stock of each Material Subsidiary of the Borrower which
shall be pledged pursuant to the Borrower Pledge Agreement, which
certificates shall in each case be accompanied by undated stock
powers duly executed in blank and (ii) the Intercompany Note duly
indorsed to the order of the Administrative Agent;
provided, however, that neither the Borrower nor any of its Subsidiaries shall
be required to pledge in excess of 65% of the outstanding voting stock of any
Non-U.S. Subsidiary. If any securities pledged pursuant to a Pledge Agreement
are uncertificated securities or are held through a financial intermediary,
the Administrative Agent shall have received confirmation and evidence
satisfactory to it that appropriate book entries have been made in the
relevant books or records of a financial intermediary or the issuer of such
securities, as the case may be, or other appropriate steps have been taken
under applicable law resulting in the perfection of the security interest
granted in favor of the Administrative Agent in such securities pursuant to
the terms of the applicable Pledge Agreement.
SECTION 5.1.8. Security Agreement. The Agents shall have received
executed counterparts of the Borrower Security Agreement, dated as of the date
hereof, duly executed by the Borrower or the relevant Material Subsidiaries of
the Borrower, together with
(a) executed Uniform Commercial Code financing statements
(Form UCC-1) naming the Borrower as the debtor and the Administrative
Agent as the secured party, or other similar instruments or
documents, to be filed under the Uniform Commercial Code
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of all jurisdictions as may be necessary or, in the opinion of the
Administrative Agent, desirable to perfect the security interest of
the Administrative Agent pursuant to the Security Agreements
(provided that perfection of security interests in (i) motor vehicles
shall not be required and (ii) certain intellectual property
collateral owned as of the Closing Date by the Borrower or any of its
Subsidiaries shall be completed in accordance with Section 7.1.11);
and
(b) certified copies of Uniform Commercial Code Requests for
Information or Copies (Form UCC-11), or a similar search report
certified by a party acceptable to the Agents, dated a date
reasonably near to the date of the initial Credit Extension, listing
all effective financing statements which name the Borrower (under its
present name and any previous names) as the debtor and which are
filed in the jurisdictions in which filings were made pursuant to
clause (a) above, together with copies of such financing statements.
SECTION 5.1.9. Financial Information, etc. The Agents shall have
received, with counterparts for each Lender,
(a) the (i) audited consolidated balance sheets of DOH and its
Subsidiaries as at June 30, 1995 and June 30, 1996 and the audited
consolidated statements of operations, cash flows and stockholders'
equity for the fiscal years ended June 30, 1994, June 30, 1995 and
June 30, 1996 and (ii) unaudited consolidated balance sheet of DOH
and its Subsidiaries as at March 31, 1997 and unaudited consolidated
statements of operations, cash flows and stockholders' equity for
the nine months then ended (collectively, the "Base Financial
Statements");
(b) a pro forma consolidated balance sheet of the Borrower and
its Subsidiaries, as of March 31, 1997 (the "Pro Forma Balance
Sheet"), certified by the chief financial or accounting Authorized
Officer of the Borrower, giving effect to the consummation of the
Transaction and the contribution by Holdings of certain of its
Subsidiaries to the Borrower on May 29, 1997 and reflecting the
proposed legal and capital structure of the Borrower, which legal
and capital structure shall be satisfactory in all respects to the
Arranger and the Syndication Agent; and
(c) a Borrowing Base Certificate, dated the date of the initial
Credit Extension and calculated as of June 30, 1997, duly executed
(with all schedules thereto completed) and delivered by an
Authorized Officer of the Borrower.
SECTION 5.1.10. Solvency, etc. The Agents shall have received a
solvency certificate from the chief financial Authorized Officer of the
Borrower, dated the date of the initial Borrowing, in form and substance
satisfactory to the Agents.
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SECTION 5.1.11. Equity Issuance, Discount Debenture Issuance,
Subordinated Debt Issuance and Intercompany Loan. The Agents shall have
received evidence satisfactory to each of them that (i) the Equity Issuance
shall have been effected as described in clause (a) of the fourth recital,
(ii) MergerSub received not less than $85,000,000 in gross cash proceeds from
the Discount Debenture Issuance, (iii) the Borrower received not less than
$150,000,000 in gross cash proceeds from the Subordinated Debt Issuance, (iv)
the Borrower made Closing Date Dividend and/or the Intercompany Loan to
Holdings and (v) Holdings shall have applied the proceeds of the Equity
Issuance, the Discount Debenture Issuance and the Closing Date Dividend and/or
the Intercompany Loan to pay the cash portion of the consideration payable to
existing shareholders of DOH in connection with the Merger and related fees
and expenses or, in each case, that arrangements satisfactory to the Agents
for the making and receipt of such payments shall have been made.
SECTION 5.1.12. Litigation. There shall exist no pending or
threatened material litigation, proceedings or investigations which (x)
contests the consummation of the Transaction or (y) could reasonably be
expected to have a material adverse effect on the financial condition,
operations, assets, businesses, properties or prospects of Holdings, the
Borrower, or any of their respective Subsidiaries, taken as a whole.
SECTION 5.1.13. Material Adverse Change. There shall have occurred no
material adverse change in the financial condition, operations, assets,
business, properties or prospects of Holdings and its Subsidiaries, taken as a
whole, since June 30, 1996.
SECTION 5.1.14. Reliance Letters. The Agents shall, unless otherwise
agreed, have received reliance letters, dated the date of the making of the
initial Credit Extension and addressed to each Lender and each Agent, in
respect of each of the legal opinions (other than "disclosure" and other
similar opinions) delivered in connection with the Transaction.
SECTION 5.1.15. Opinions of Counsel. The Agents shall have received
opinions, dated the date of the initial Credit Extension and addressed to the
Agents and all Lenders from
(a) Davis Polk & Wardwell, special New York counsel to each of
the Obligors, in substantially the form of Exhibit K-1 hereto;
(b) _________________________, special [local] counsel to the
Obligors, in substantially the form of Exhibit K-2 hereto; and
(c) __________________________, [Assistant] General Counsel of
the Borrower, in substantially the form of Exhibit K-3 hereto.
SECTION 5.1.16. Insurance. The Agents shall have received
satisfactory evidence of the existence of insurance in compliance with Section
7.1.4 (including all endorsements included
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therein), and the Administrative Agent shall be named additional insured or
loss payee, on behalf of the Lenders, pursuant to documentation reasonably
satisfactory to the Agents and the Borrower.
SECTION 5.1.17. Perfection Certificate. The Administrative Agent
shall have received the Perfection Certificate, dated as of the date of the
initial Credit Extension, duly executed and delivered by an Authorized Officer
of the Borrower.
SECTION 5.1.18. Closing Fees, Expenses, etc. The Agents and the
Arranger shall have received, each for its own respective account, or, in the
case of the Administrative Agent, for the account of each Lender, as the case
may be, all fees, costs and expenses due and payable pursuant to Sections 3.3
and 10.3, if then invoiced.
SECTION 5.1.19. Satisfactory Legal Form. All documents executed or
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries or any other Obligors shall be reasonably satisfactory in form
and substance to the Agents and their counsel; the Agents and their counsel
shall have received all information, approvals, opinions, documents or
instruments as the Agents or their counsel may reasonably request.
SECTION 5.2. All Credit Extensions. The obligation of each Lender
and, if applicable, the Issuer, to make any Credit Extension (including its
initial Credit Extension) shall be subject to the satisfaction of each of the
conditions precedent set forth in this Section 5.2.
SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both
before and after giving effect to any Credit Extension the following
statements shall be true and correct:
(a) the representations and warranties set forth in Article
VI and in each other Loan Document shall, in each case, be true and
correct in all material respects with the same effect as if then made
(unless stated to relate solely to an earlier date, in which case
such representations and warranties shall be true and correct in all
material respects as of such earlier date);
(b) the sum of (i) the aggregate outstanding principal
amount of all Revolving Loans and Swing Line Loans, plus (ii) the
aggregate amount of all Letter of Credit Outstandings, does not
exceed the lesser of (x) the then existing Revolving Loan Commitment
Amount and (y) the then applicable Borrowing Base Amount; and
(c) no Default shall have then occurred and be continuing.
SECTION 5.2.2. Credit Extension Request. The Agents shall have
received a Borrowing Request if Loans are being requested, or an Issuance
Request if a Letter of Credit is being requested or extended. Each of the
delivery of a Borrowing Request or Issuance Request and the
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acceptance by the Borrower of proceeds of any Credit Extension shall
constitute a representation and warranty by the Borrower that on the date of
such Credit Extension (both immediately before and after giving effect thereto
and the application of the proceeds thereof) the statements made in Section
5.2.1 are true and correct.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders, the Issuer and the Agents to enter
into this Agreement and to make Credit Extensions hereunder, the Borrower
represents and warrants unto the Agents, the Issuer and each Lender as set
forth in this Article VI.
SECTION 6.1. Organization, etc. The Borrower and each of its
Subsidiaries (a) is a corporation validly organized and existing and in good
standing to the extent required under the laws of the jurisdiction of its
incorporation, is duly qualified to do business and is in good standing as a
foreign corporation to the extent required under the laws of each jurisdiction
where the nature of its business requires such qualification, except to the
extent that the failure to qualify would not reasonably be expected to result
in a Material Adverse Effect, and (b) has full power and authority and holds
all requisite governmental licenses, permits and other approvals to (i) enter
into and perform its Obligations in connection with the Transaction and under
this Agreement, the Notes and each other Loan Document to which it is a party
and (ii) own and hold under lease its property and to conduct its business
substantially as currently conducted by it except, in the case of this clause
(b)(ii), where the failure to do so could not reasonably be expected to result
in a Material Adverse Effect.
SECTION 6.2. Due Authorization, Non-Contravention, etc. The
execution, delivery and performance by the Borrower of this Agreement, the
Notes and each other Loan Document executed or to be executed by it, and the
execution, delivery and performance by each other Obligor of each Loan
Document executed or to be executed by it and the Borrower's and, where
applicable, each such other Obligor's participation in the consummation of the
Transaction, are within the Borrower's and each such Obligor's corporate
powers, have been duly authorized by all necessary corporate action, and do
not (i) contravene the Borrower's or any such Obligor's Charter Documents,
(ii) contravene any contractual restriction, law or governmental regulation or
court decree or order binding on or affecting the Borrower or any such
Obligor, where such contravention, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, or (iii) result in,
or require the creation or imposition of, any Lien on any of the Borrower's or
any other Obligor's properties, except pursuant to the terms of a Loan
Document.
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SECTION 6.3. Government Approval, Regulation, etc. No authorization
or approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body or other Person, is required for the
due execution, delivery or performance by the Borrower or any other Obligor of
this Agreement, the Notes or any other Loan Document to which it is a party,
or for the Borrower's and each such other Obligor's participation in the
consummation of the Transaction, except as have been duly obtained or made and
are in full force and effect or those which the failure to obtain or make
could not reasonably be expected to have a Material Adverse Effect. None of
the Borrower or any other Obligor, or any of the Borrower's Subsidiaries is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
SECTION 6.4. Validity, etc. This Agreement constitutes, and the Notes
and each other Loan Document executed by the Borrower will, on the due
execution and delivery thereof, constitute, the legal, valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms; and each Loan Document executed pursuant hereto by each other Obligor
will, on the due execution and delivery thereof by such Obligor, be the legal,
valid and binding obligation of such Obligor enforceable in accordance with
its terms, in each case with respect to this Section 6.4 subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
SECTION 6.5. Financial Information. The Borrower has delivered to the
Agents and each Lender copies of each of (i) the Base Financial Statements,
and (ii) a Pro Forma Balance Sheet. Each of the financial statements described
above has been prepared (in the case of clause (i) in accordance with GAAP
consistently applied) and, in the case of clause (ii), on a basis
substantially consistent with the basis used to prepare the financial
statements referred to in clause (i), and (in the case of clause (i)) present
fairly the consolidated financial condition of the corporations covered
thereby as at the date thereof and the results of their operations for the
periods then ended and (in the case of clause (ii)) include appropriate pro
forma adjustments to give pro forma effect to the Transaction.
SECTION 6.6. No Material Adverse Change. Since June 30, 1996, there
has been no material adverse change in the financial condition, operations,
assets, business, properties or prospects of the Borrower and its Restricted
Subsidiaries, taken as a whole.
SECTION 6.7. Litigation, Labor Controversies, etc. There is no
pending or, to the knowledge of the Borrower, threatened litigation, action,
proceeding, labor controversy, arbitration or governmental investigation
affecting any Obligor, or any of their respective properties, businesses,
assets or revenues, which could reasonably be expected to result in a
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Material Adverse Effect except as disclosed in Item 6.7 ("Litigation") of the
Disclosure Schedule. No material adverse development has occurred in any
litigation, action, labor controversy, arbitration or governmental
investigation or other proceeding disclosed in Item 6.7 ("Litigation") of the
Disclosure Schedule.
SECTION 6.8. Subsidiaries. The Borrower has only those Subsidiaries
(i) which are identified in Item 6.8 ("Existing Subsidiaries") of the
Disclosure Schedule, or (ii) which are permitted to have been acquired in
accordance with Section 7.2.5 or 7.2.8.
SECTION 6.9. Ownership of Properties. Except to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse
Effect, the Borrower and each of its Subsidiaries owns good title to, or
leasehold interests in, all of its properties and assets (other than
insignificant properties and assets), real and personal, tangible and
intangible, of any nature whatsoever (including patents, trademarks, trade
names, service marks and copyrights), free and clear of all Liens or material
claims (including material infringement claims with respect to patents,
trademarks, copyrights and the like), except as permitted pursuant to Section
7.2.3.
SECTION 6.10. Taxes. Each of Holdings, the Borrower and each of the
Borrower's Restricted Subsidiaries has filed all Federal, State and other
material tax returns required by law to have been filed by it and has paid all
taxes and governmental charges thereby shown to be owing, except any such
taxes or charges which are being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books.
SECTION 6.11. Pension and Welfare Plans. During the
twelve-consecutive-month period prior to the date of the execution and
delivery of this Agreement, no steps have been taken to terminate any Pension
Plan, and no contribution failure has occurred with respect to any Pension
Plan sufficient to give rise to a Lien under section 302(f) of ERISA, which,
in either case, is reasonably expected to lead to a liability to such Pension
Plan in excess of $10,000,000. No condition exists or event or transaction has
occurred with respect to any Pension Plan which could reasonably be expected
to result in the incurrence by the Borrower or any member of the Controlled
Group of any material liability, fine or penalty other than such condition,
event or transaction which would not reasonably be expected to have a Material
Adverse Effect. Except as disclosed in Item 6.11 ("Employee Benefit Plans") of
the Disclosure Schedule or otherwise approved by the Agents (such approval not
to be unreasonably withheld or delayed), since the date of the last financial
statement the Borrower has not increased any contingent liability with respect
to any post-retirement benefit under a Welfare Plan, other than liability for
continuation coverage described in Part 6 of Subtitle B of Title I of ERISA,
except as would not have Material Adverse Effect.
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SECTION 6.12. Environmental Matters. Except as set forth in Item 6.12
("Environmental Matters") of the Disclosure Schedule or as, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect:
(a) all facilities and property (including underlying
groundwater) owned or leased by the Borrower or any of its
Subsidiaries are, and continue to be, owned or leased by the Borrower
and its Subsidiaries in compliance with all Environmental Laws;
(b) there have been no past, and there are no pending or
threatened (i) written claims, complaints, notices or requests for
information received by the Borrower or any of its Subsidiaries with
respect to any alleged violation of any Environmental Law, or (ii)
written complaints, notices or inquiries to the Borrower or any of
its Subsidiaries regarding potential liability under any
Environmental Law;
(c) to the best knowledge of the Borrower, there have been
no Releases of Hazardous Materials at, on or under any property now
or previously owned or leased by the Borrower or any of its
Subsidiaries;
(d) the Borrower and its Subsidiaries have been issued and
are in compliance with all permits, certificates, approvals, licenses
and other authorizations relating to environmental matters and
necessary or desirable for their businesses;
(e) no property now or, to the best knowledge of the
Borrower, previously owned or leased by the Borrower or any of its
Subsidiaries is listed or, to the knowledge of the Borrower or any of
its Subsidiaries, proposed for listing (with respect to owned
property only) on the National Priorities List pursuant to CERCLA, on
the CERCLIS or on any similar state list of sites requiring
investigation or clean-up;
(f) to the best knowledge of the Borrower, there are no
underground storage tanks, active or abandoned, including petroleum
storage tanks, on or under any property now or previously owned or
leased by the Borrower or any of its Subsidiaries;
(g) to the best knowledge of the Borrower, the Borrower and
its Subsidiaries have not directly transported or directly arranged
for the transportation of any Hazardous Material to any location
which is listed or to the knowledge of the Borrower or any of its
Subsidiaries, proposed for listing on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any similar state list;
(h) to the best knowledge of the Borrower, there are no
polychlorinated biphenyls or friable asbestos present in a manner or
condition at any property now or previously owned or leased by the
Borrower or any Subsidiary of the Borrower; and
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(i) to the best knowledge of the Borrower, no conditions
exist at, on or under any property now or previously owned or leased
by the Borrower or any of its Subsidiaries which, with the passage of
time, or the giving of notice or both, would give rise to liability
to the Borrower or any of its Subsidiaries under any Environmental
Law.
SECTION 6.13. Regulations G, U and X. Neither the Borrower nor
Holdings is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock, and no proceeds of any Credit Extension
will be used to acquire any "margin stock". Terms for which meanings are
provided in F.R.S. Board Regulation G, U or X or any regulations substituted
therefor, as from time to time in effect, are used in this Section with such
meanings.
SECTION 6.14. Accuracy of Information. All material factual
information concerning the financial condition, operations or prospects of
Holdings, the Borrower, and the Borrower's Restricted Subsidiaries heretofore
or contemporaneously furnished by or on behalf of the Borrower in writing to
the Agents, the Arranger, the Issuer or any Lender for purposes of or in
connection with this Agreement or any transaction contemplated hereby or with
respect to the Transaction is, and all other such factual information
hereafter furnished by or on behalf of the Borrower, or any of its Restricted
Subsidiaries to the Agents, the Arranger, the Issuer or any Lender will be,
taken as a whole, true and accurate in every material respect on the date as
of which such information is dated or certified and such information is not,
or shall not be, taken as a whole, as the case may be, incomplete by omitting
to state any material fact necessary to make such information not misleading.
Any term or provision of this Section to the contrary
notwithstanding, insofar as any of the factual information described above
includes assumptions, estimates, projections or opinions, no representation or
warranty is made herein with respect thereto; provided, however, that to the
extent any such assumptions, estimates, projections or opinions are based on
factual matters, the Borrower has reviewed such factual matters and nothing
has come to its attention in the context of such review which would lead it to
believe that such factual matters were not or are not true and correct in all
material respects or that such factual matters omit to state any material fact
necessary to make such assumptions, estimates, projections or opinions not
misleading in any material respect.
SECTION 6.15. Solvency. The Transaction (including, among other
things, the incurrence of the initial Credit Extension hereunder, the
incurrence by the Borrower of the Indebtedness represented by the Notes and
the Subordinated Notes, the execution and delivery by the Subsidiary
Guarantors, if any, of a Subsidiary Guaranty, the consummation of the Discount
Debenture Issuance and the application of the proceeds of the Credit
Extensions), will not involve or result in any fraudulent transfer or
fraudulent conveyance under the provisions of Section 548 of the Bankruptcy
Code (11 U.S.C. ss.101 et seq., as from time to time hereafter amended, and
any successor or similar statute) or any applicable state law respecting
fraudulent
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transfers or fraudulent conveyances. On the Closing Date, after giving effect
to the Transaction, the Borrower is Solvent.
ARTICLE VII
COVENANTS
SECTION 7.1. Affirmative Covenants. The Borrower agrees with the
Agents, the Issuer and each Lender that, until all Commitments have terminated
and all Obligations have been paid and performed in full, the Borrower will
perform the obligations set forth in this Section 7.1.
SECTION 7.1.1. Financial Information, Reports, Notices, etc. The
Borrower will furnish, or will cause to be furnished, to each Lender and each
Agent copies of the following financial statements, reports, notices and
information:
(a) as soon as available and in any event within 60 days after
the end of each of the first three Fiscal Quarters of each Fiscal
Year of the Borrower (or, if the Borrower is required to file such
information on a Form 10-Q with the Securities and Exchange
Commission, promptly following such filing), a consolidated balance
sheet of the Borrower and its Subsidiaries as of the end of such
Fiscal Quarter, together with the related consolidated statements of
operations and cash flows for such Fiscal Quarter and for the period
commencing at the end of the previous Fiscal Year and ending with
the end of such Fiscal Quarter (it being understood that the
foregoing requirement may be satisfied by delivery of the Borrower's
report to the Securities and Exchange Commission on Form 10-Q, if
any), certified by the president, chief executive officer,
treasurer, assistant treasurer, controller or chief financial
Authorized Officer of the Borrower;
(b) as soon as available and in any event within 105 days after
the end of each Fiscal Year of the Borrower (or, if the Borrower is
required to file such information on a Form 10-K with the Securities
and Exchange Commission, promptly following such filing), a copy of
the annual audit report for such Fiscal Year for the Borrower and
its Subsidiaries, including therein a consolidated balance sheet for
the Borrower and its Subsidiaries as of the end of such Fiscal Year,
together with the related consolidated statements of operations and
cash flows for such Fiscal Year (it being understood that the
foregoing requirement may be satisfied by delivery of the Borrower's
report to the Securities and Exchange Commission on Form 10-K, if
any), in each case certified (without any Impermissible
Qualification) by Deloitte & Touche LLP or another "Big Six" firm of
independent public accountants, together with a certificate from
such accountants as to whether, in making the examination necessary
for the signing of such annual report by such accountants, they have
not become aware of any Default that has
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occurred and is continuing or, if in the opinion of such accounting
firm such a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof;
(c) together with the delivery of the financial information
required pursuant to clauses (a) and (b), a Compliance Certificate,
in substantially the form of Exhibit E, executed by the president,
chief executive officer, treasurer, assistant treasurer, controller
or chief financial Authorized Officer of the Borrower, showing (in
reasonable detail and with appropriate calculations and computations
in all respects satisfactory to the Agents) compliance with the
financial covenants set forth in Section 7.2.4;
(d) as soon as possible and in any event within five
Business Days after obtaining knowledge of the occurrence of any
Default, if such Default is then continuing, a statement of the
president, chief executive officer, treasurer, assistant treasurer,
controller or chief financial Authorized Officer of the Borrower
setting forth details of such Default and the action which the
Borrower has taken or proposes to take with respect thereto;
(e) as soon as possible and in any event within ten Business
Days after (x) the occurrence of any material adverse development
with respect to any litigation, action, proceeding or labor
controversy described in Section 6.7 or (y) the commencement of any
labor controversy, litigation, action, proceeding of the type
described in Section 6.7, notice thereof and of the action which the
Borrower has taken or proposes to take with respect thereto;
(f) promptly after the sending or filing thereof, copies of
all reports and registration statements (other than exhibits thereto
and any registration statement on Form S-8 or its equivalent) which
the Borrower or any of its Subsidiaries files with the Securities and
Exchange Commission or any national securities exchange;
(g) as soon as practicable after the chief financial officer
or the chief executive officer of the Borrower or a member of the
Borrower's Controlled Group becomes aware of (i) formal steps in
writing to terminate any Pension Plan or (ii) the occurrence of any
event with respect to a Pension Plan which, in the case of (i) or
(ii), could reasonably be expected to result in a contribution to
such Pension Plan by (or a liability to) the Borrower or a member of
the Borrower's Controlled Group in excess of $10,000,000, (iii) the
failure to make a required contribution to any Pension Plan if such
failure is sufficient to give rise to a Lien under section 302(f) of
ERISA in an amount in excess of $10,000,000, (iv) the taking of any
action with respect to a Pension Plan which could reasonably be
expected to result in the requirement that the Borrower furnish a
bond to the PBGC or such Pension Plan in an amount in excess of
$10,000,000 or (v) any material increase in the contingent liability
of the Borrower with respect to any post-retirement Welfare Plan
benefit, notice thereof and copies of all documentation relating
thereto;
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(h) within 25 days after the end of each calendar month, a
Borrowing Base Certificate that is calculated as of the last day of
such calendar month; and
(i) such other information respecting the condition or
operations, financial or otherwise, of the Borrower or any of its
Subsidiaries as any Lender through the Administrative Agent may from
time to time reasonably request.
SECTION 7.1.2. Compliance with Laws, etc. The Borrower will, and will
cause each of its Subsidiaries to, comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include
(without limitation) (i) except as permitted under Section 7.2.8, the
maintenance and preservation of its corporate existence and qualification as a
foreign corporation, except where the failure to so qualify could not
reasonably be expected to have a Material Adverse Effect, and (ii) the
payment, before the same become delinquent, of all material taxes, assessments
and governmental charges imposed upon it or upon its property except to the
extent being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books.
SECTION 7.1.3. Maintenance of Properties. Except to the extent that
the failure to do so could not reasonably be expected to have a Material
Adverse Effect, the Borrower will, and will cause each of its Subsidiaries to,
maintain, preserve, protect and keep its properties (other than insignificant
properties) in good repair, working order and condition (ordinary wear and
tear excepted), and make necessary and proper repairs, renewals and
replacements so that its business carried on in connection therewith may be
properly conducted at all times unless the Borrower determines in good faith
that the continued maintenance of any of its properties is no longer
economically desirable.
SECTION 7.1.4. Insurance. The Borrower will, and will cause each of
its Restricted Subsidiaries to, maintain or cause to be maintained with
responsible insurance companies insurance with respect to its properties and
business against such casualties and contingencies and of such types and in
such amounts as is customary in the case of similar businesses and with such
provisions and endorsements as the Agents may reasonably request and will,
upon request of the Agents, furnish to the Agents and each Lender a
certificate of an Authorized Officer of the Borrower setting forth the nature
and extent of all insurance maintained by the Borrower and its Restricted
Subsidiaries in accordance with this Section.
SECTION 7.1.5. Books and Records. The Borrower will, and will cause
each of its Restricted Subsidiaries to, keep books and records which
accurately reflect in all material respects all of its business affairs and
transactions and permit the Agents, the Issuer and each Lender or any of their
respective representatives, at reasonable times and intervals, and upon
reasonable notice, but, unless an Event of Default shall have occurred and be
continuing, not more frequently than once in each Fiscal Year, to visit its
corporate offices, to discuss its financial matters with its officers and,
only in the presence of a representative of the Borrower
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(whose attendance at such discussion cannot be unreasonably refused), its
independent public accountants (and the Borrower hereby authorizes such
independent public accountants to discuss the Borrower's financial matters
with the Issuer and each Lender or its representatives, so long as a
representative of the Borrower is present) and to examine any of its books or
other financial records. The cost and expense of each such visit shall be
borne by the applicable Agent or Lender.
SECTION 7.1.6. Environmental Covenant. The Borrower will and will
cause each of its Subsidiaries to,
(a) use and operate all of its facilities and properties in
compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating
to environmental matters in effect and remain in compliance
therewith, and handle all Hazardous Materials in compliance with all
applicable Environmental Laws, in each case except where the failure
to comply with the terms of this clause could not reasonably be
expected to have a Material Adverse Effect;
(b) promptly notify the Agents and provide copies of all
written claims, complaints, notices or inquiries relating to the
condition of its facilities and properties or compliance with
Environmental Laws which would have, or would reasonably be expected
to have, a Material Adverse Effect, and promptly cure and have
dismissed with prejudice any material actions and proceedings
relating to compliance with Environmental Laws, except to the extent
being diligently contested in good faith by appropriate proceedings
and for which adequate reserves in accordance with GAAP have been set
aside on its books; and
(c) provide such information and certifications which the
Agents may reasonably request from time to time to evidence
compliance with this Section 7.1.6.
SECTION 7.1.7. Future Subsidiaries; Material Subsidiaries. The
Borrower hereby covenants and agrees as follows:
(a) Upon any Person (other than the Trademark Subsidiary and
the IPO Subsidiary) becoming, after the Closing Date, a Material
Subsidiary of the Borrower that is a U.S. Subsidiary, or (in the case
of clause (a)(ii) below only) upon the Borrower or any Material
Subsidiary of the Borrower that is a U.S. Subsidiary (other than the
Trademark Subsidiary and the IPO Subsidiary) acquiring additional
Capital Stock of any existing Subsidiary (other than the Trademark
Subsidiary and the IPO Subsidiary), the Borrower shall notify the
Agents of such acquisition, and
(i) the Borrower shall promptly cause such Material
Subsidiary to execute and deliver to the Administrative
Agent, with counterparts for each Lender, a
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Subsidiary Security Agreement (or a supplement thereto) (and, if
such Material Subsidiary owns any real property, a Mortgage),
together with Uniform Commercial Code financing statements (form
UCC-1) executed and delivered by the Material Subsidiary naming the
Material Subsidiary as the debtor and the Administrative Agent as
the secured party, or other similar instruments or documents, in
appropriate form for filing under the Uniform Commercial Code and
any other applicable recording statutes, in the case of real
property, of all jurisdictions as may be necessary or, in the
opinion of the Administrative Agent, desirable to perfect the
security interest of the Administrative Agent pursuant to the
Subsidiary Security Agreement or a Mortgage, as the case may be
(other than the perfection of security interests in motor vehicles);
and
(ii) the Borrower shall promptly deliver, or cause to be
delivered, to the Administrative Agent under a Pledge Agreement (or
a supplement thereto) certificates (if any) representing all of the
issued and outstanding shares of Capital Stock of such Subsidiary
(other than the Trademark Subsidiary and the IPO Subsidiary) owned
by the Borrower or any Material Subsidiary of the Borrower that is a
U.S. Subsidiary, as the case may be, along with undated stock powers
for such certificates, executed in blank, or, if any securities
subject thereto are uncertificated securities or are held through a
financial intermediary, confirmation and evidence satisfactory to
the Agents that appropriate book entries have been made in the
relevant books or records of a financial intermediary or the issuer
of such securities, as the case may be, or other appropriate steps
shall have been taken under applicable law resulting in the
perfection of the security interest granted in favor of the
Administrative Agent pursuant to the terms of a Pledge Agreement;
together, in each case, with such opinions, in form and substance and from
counsel satisfactory to the Agents, as the Agents may reasonably require;
provided, however, that notwithstanding the foregoing, no Non-U.S. Subsidiary
shall be required to execute and deliver a Mortgage or a Subsidiary Security
Agreement (or a supplement thereto), nor will the Borrower or any Subsidiary
of the Borrower be required to deliver in pledge pursuant to a Pledge
Agreement in excess of 65% of the total combined voting power of all classes
of Capital Stock of a Non-U.S. Subsidiary entitled to vote.
(b) Upon any Person (other than the Trademark Subsidiary and the IPO
Subsidiary) becoming, after the Closing Date, a Material Subsidiary of the
Borrower that is a U.S. Subsidiary, the Borrower shall notify the Agents of
such event, and the Borrower shall promptly cause such Material Subsidiary to
execute and deliver to the Administrative Agent, with counterparts for each
Lender, a Subsidiary Guaranty together with such opinions, in form and
substance and from counsel satisfactory to the Agents, as the Agents may
reasonably require.
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SECTION 7.1.8. Future Leased Property and Future Acquisitions of Real
Property; Future Acquisition of Other Property.
(a) Prior to entering into any new lease of real property or
renewing any existing lease of real property following the Closing
Date, the Borrower shall, and shall cause each of its U.S.
Subsidiaries (other than the Trademark Subsidiary and the IPO
Subsidiary) that is a Restricted Subsidiary to, use its (and their)
best efforts (which shall not require the expenditure of cash or the
making of any material concessions under the relevant lease) to
deliver to the Administrative Agent a Waiver executed by the lessor
of any real property that is to be leased by the Borrower or such
U.S. Subsidiary for a term in excess of one year in any state which
by statute grants such lessor a "landlord's" (or similar) Lien which
is superior to the Administrative Agent's, to the extent the value
of any personal property of the Borrower or its U.S. Subsidiaries to
be held at such leased property exceeds (or it is anticipated that
the value of such personal property will, at any point in time
during the term of such leasehold term, exceed) $10,000,000.
(b) In the event that the Borrower or any of its U.S.
Subsidiaries that is a Restricted Subsidiary shall acquire any real
property having a value as determined in good faith by the
Administrative Agent in excess of $5,000,000 in the aggregate, the
Borrower or the applicable U.S. Subsidiary shall, promptly after
such acquisition, execute a Mortgage and provide the Administrative
Agent with (i) evidence of the completion (or satisfactory
arrangements for the completion) of all recordings and filings of
such Mortgage as may be necessary or, in the reasonable opinion of
the Administrative Agent, desirable effectively to create a valid,
perfected, first priority Lien, subject to Liens permitted by
Section 7.2.3, against the properties purported to be covered
thereby, (ii) mortgagee's title insurance policies in favor of the
Agents and the Lenders in amounts and in form and substance and
issued by insurers, reasonably satisfactory to the Agents, with
respect to the property purported to be covered by such Mortgage,
insuring that title to such property is marketable and that the
interests created by the Mortgage constitute valid first Liens
thereon free and clear of all defects and encumbrances other than as
approved by the Agents, and such policies shall also include a
revolving credit endorsement and such other endorsements as the
Agents shall request and shall be accompanied by evidence of the
payment in full of all premiums thereon, and (iii) such other
approvals, opinions, or documents as the Agents may reasonably
request.
(c) In accordance with the terms and provisions of the Security
Documents, the Borrower and each Material Subsidiary that is a U.S.
Subsidiary (other than the Trademark Subsidiary and the IPO
Subsidiary) shall provide the Agents with evidence of all recordings
and filings as may be necessary or, in the reasonable opinion of the
Administrative Agent, desirable to create a valid, perfected first
priority Lien, subject to the Liens permitted by Section 7.2.3,
against all property acquired after the Closing Date (excluding
motor vehicles
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and (except to the extent required under clause (b) of Section
7.1.8) fee interests in real property).
SECTION 7.1.9. Use of Proceeds, etc. The Borrower shall
(a) apply the proceeds of the Loans
(i) to pay, in part, through the Closing Date
Dividend and/or the Intercompany Loan to Holdings, the cash
portion of the obligations of Holdings in connection with
the Transaction and to pay the transaction fees and expenses
associated with the Transaction; provided, that not more
than $10,000,000 of the proceeds from Revolving Loans may be
used to finance the consummation of Transaction (including
reasonably related transaction fees and expenses); and
(ii) in the case of Revolving Loans and Swing Line
Loans, for working capital and general corporate purposes of
the Borrower and its Subsidiaries; and
(b) use Letters of Credit only for purposes of supporting
working capital and general corporate purposes of the Borrower and
its Subsidiaries.
SECTION 7.1.10. Hedging Obligations. Within six months following the
Closing Date, the Administrative Agent shall have received evidence
satisfactory to it that the Borrower has entered into interest rate swap, cap,
collar or similar arrangements designed to protect the Borrower against
fluctuations in interest rates with respect to at least 50% of the aggregate
principal amount of the Term Loans for a period of at least three years from
the date the initial interest rate protection arrangement was obtained, with
terms reasonably satisfactory to the Borrower and the Agents.
SECTION 7.1.11. Undertaking. The Borrower will deliver to the Agents
no later than 60 days after the Closing Date instruments or documents, in
appropriate form for filing with the United States Patent and Trademark
Office, sufficient to create and perfect a security interest in intellectual
property owned as of the Closing Date by the Borrower or any of its
Subsidiaries..
SECTION 7.2. Negative Covenants. The Borrower agrees with the Agents
and each Lender that, until all Commitments have terminated, and all
Obligations have been paid and performed in full, the Borrower will perform
the obligations set forth in this Section 7.2.
SECTION 7.2.1. Business Activities. The Borrower will not, and will
not permit any of its Restricted Subsidiaries to, engage in any business
activity, except the equipment maintenance and support services businesses and
any businesses reasonably ancillary or related thereto (the "DecisionOne
Business"); provided, however, that, any term or provision hereof (including
this Section 7.2) to the contrary notwithstanding, (i) the Trademark
Subsidiary shall conduct no
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business activity other than that directly connected with the ownership or
licensing of trademarks, trade names, trade secrets, trade dress, service
marks, patents, copyrights, mask works and other intellectual property
associated with the DecisionOne Business and the licensing of such trademarks,
trade names, trade secrets, trade dress, service marks, patents, copyrights,
mask works and other intellectual property associated with the DecisionOne
Business to Holdings and its Restricted Subsidiaries and the lending of the
proceeds thereof to the Borrower and its Restricted Subsidiaries and (ii) the
IPO Subsidiary shall conduct no business activity other than holding the
promissory note issued by the Borrower to the IPO Subsidiary in the amount of
$106,000,000, representing proceeds received from the April, 1996 Initial
Public Offering, plus accrued interest thereon (including interest added to
the principal thereof).
SECTION 7.2.2. Indebtedness. The Borrower will not, and will not
permit any of its Restricted Subsidiaries to, create, incur, assume or suffer
to exist or otherwise become or be liable in respect of any Indebtedness,
other than, without duplication, the following:
(a) Indebtedness outstanding on the Closing Date and identified
in Item 7.2.2(a) ("Ongoing Indebtedness") of the Disclosure
Schedule, and refinancings and replacements thereof in a principal
amount not exceeding the principal amount of the Indebtedness so
refinanced or replaced and with an average life to maturity of not
less than the then average life to maturity of the Indebtedness so
refinanced or replaced;
(b) Indebtedness in respect of the Credit Extensions and other
Obligations;
(c) Indebtedness incurred by the Borrower or any of its
Restricted Subsidiaries that is represented by Capitalized Lease
Liabilities, mortgage financings or purchase money obligations (but
only to the extent otherwise permitted by Section 7.2.7); provided,
that the maximum aggregate amount of all Indebtedness permitted
under this clause (c) shall not at any time exceed $25,000,000;
(d) Hedging Obligations of the Borrower or any of its
Restricted Subsidiaries in respect of the Credit Extensions;
(e) intercompany Indebtedness of (x) any Restricted Subsidiary
of the Borrower owing to the Borrower or any of its Restricted
Subsidiaries or (y) the Borrower to any of its Restricted
Subsidiaries, which Indebtedness (i) shall be evidenced by one or
more promissory notes in form and substance satisfactory to the
Agents which (except in the case of any such notes held by a
Non-U.S. Subsidiary, a Subsidiary that is not a Material Subsidiary,
the Trademark Subsidiary or the IPO Subsidiary) have been duly
executed and delivered to (and indorsed to the order of) the
Administrative Agent in pledge pursuant to a Pledge Agreement, and
(ii) shall not be forgiven or otherwise discharged for any
consideration other than payment (Dollar for Dollar) in cash unless
the Agents otherwise consent;
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(f) Indebtedness evidenced by any Subordinated Note and
guarantees thereof in an aggregate outstanding principal amount not
to exceed $150,000,000;
(g) Assumed Indebtedness of the Borrower and its Restricted
Subsidiaries in an aggregate principal amount not to exceed
$25,000,000 at any time outstanding;
(h) unsecured Indebtedness of the Borrower and its Restricted
Subsidiaries in an aggregate amount not to exceed $25,000,000
incurred in connection with any acquisition;
(i) Indebtedness of Non-U.S. Subsidiaries of the Borrower in an
aggregate principal amount not to exceed $5,000,000 at any time
outstanding; and
(j) other unsecured Indebtedness of the Borrower and its
Restricted Subsidiaries in an aggregate amount at any time
outstanding not to exceed $50,000,000 plus the unutilized and
available amounts under clause (h) above plus the difference between
the maximum amount of additional Revolving Loan Commitments provided
under clause (c) of Section 2.1.2 and the then outstanding amount of
additional Revolving Loans made pursuant to clause (c) of Section
2.1.2;
provided, however, that (i) no Indebtedness otherwise permitted hereunder
(other than Indebtedness permitted under clause (e)) may be incurred by the
Trademark Subsidiary or the IPO Subsidiary, (ii) no Indebtedness otherwise
permitted by clause (c), (e), (g), (h) or (j) may be incurred if, after giving
effect to the incurrence thereof, any Default shall have occurred and be
continuing, and (iii) that all such Indebtedness of the type described in
clause (e)(y) above that is owed to Subsidiaries which are not party to a
Subsidiary Guaranty shall be subordinated, in writing, to the Obligations upon
terms satisfactory to the Agents.
SECTION 7.2.3. Liens. The Borrower will not, and will not permit any
of its Restricted Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any of its property, revenues or assets, whether now owned or
hereafter acquired, except:
(a) Liens existing on the Closing Date and identified in Item
7.2.2(b) ("Ongoing Liens") of the Disclosure Schedule;
(b) Liens securing payment of the Obligations or any obligation
under any Rate Protection Agreement, granted pursuant to any Loan
Document;
(c) Liens granted to secure payment of Indebtedness of the type
permitted and described in clause (c) of Section 7.2.2;
(d) Liens for taxes, assessments or other governmental charges
or levies, including Liens pursuant to Section 107(l) of CERCLA or
other similar law, not at the
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time delinquent or thereafter payable without penalty or being
contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside
on its books;
(e) Liens of carriers, warehousemen, mechanics, repairmen,
materialmen, contractors, laborers and landlords or other like Liens
incurred in the ordinary course of business for sums not overdue for
a period of more than 30 days or being diligently contested in good
faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books;
(f) Liens incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance or
other forms of governmental insurance or benefits, or to secure
performance of tenders, bids, statutory or regulatory obligations,
insurance obligations, leases and contracts (other than for borrowed
money) entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds;
(g) judgment Liens in existence less than 30 days after the
entry thereof or with respect to which execution has been stayed or
the payment of which is covered in full by a bond or (subject to a
customary deductible) by insurance maintained with responsible
insurance companies;
(h) Liens with respect to minor imperfections of title and
easements, rights-of-way, restrictions, reservations, permits,
servitudes and other similar encumbrances on real property and
fixtures which do not materially detract from the value or materially
impair the use by the Borrower or any such Restricted Subsidiary in
the ordinary course of their business of the property subject
thereto;
(i) leases or subleases granted by the Borrower or any of its
Restricted Subsidiaries to any other Person in the ordinary course
of business;
(j) Liens in the nature of trustees' Liens granted pursuant to
any indenture governing any Indebtedness permitted by Section 7.2.2,
in each case in favor of the trustee under such indenture and
securing only obligations to pay compensation to such trustee, to
reimburse its expenses and to indemnify it under the terms thereof;
(k) Liens of sellers of goods to the Borrower and its
Restricted Subsidiaries arising under Article 2 of the U.C.C. or
similar provisions of applicable law in the ordinary course of
business, covering only the goods sold and securing only the unpaid
purchase price for such goods and related expenses;
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(l) Liens securing Assumed Indebtedness of the Borrower and its
Subsidiaries permitted pursuant to clause (g) of Section 7.2.2;
provided, however, that (i) any such Liens attach only to the
property of the Subsidiary acquired, or the property acquired, in
connection with such Assumed Indebtedness and shall not attach to
any assets of the Borrower or any of its Restricted Subsidiaries
theretofore existing or which arise after the date thereof and (ii)
the Assumed Indebtedness and other secured Indebtedness of the
Borrower and its Restricted Subsidiaries secured by any such Lien
shall not exceed 100% of the fair market value of the assets being
acquired in connection with such Assumed Indebtedness; and
(m) Liens on assets of Non-U.S. Subsidiaries of the Borrower
securing Indebtedness permitted pursuant to clause (i) of Section
7.2.2;
provided, however, that no Liens otherwise permitted by clause (c), (e), (f),
(h), (i), (j), (k), (l) or (m) may be created, incurred, assumed or otherwise
permitted to exist upon any property, revenues or assets of the Trademark
Subsidiary or the IPO Subsidiary.
SECTION 7.2.4. Financial Covenants.
(a) Adjusted EBITDA. The Borrower will not permit Adjusted
EBITDA for the period of four consecutive Fiscal Quarters ending on
the last day of any Fiscal Quarter occurring during any period set
forth below to be less than the amount set forth opposite such
period:
Period Adjusted EBITDA
Closing Date to 6/30/98 $105,000,000
7/1/98 to 6/30/99 $110,000,000
7/1/99 to 6/30/00 $120,000,000
7/1/00 to 6/30/01 $135,000,000
7/1/01 to 6/30/02 $160,000,000
7/1/02 to 6/30/03 $180,000,000
7/1/03 and thereafter $200,000,000
(b) Leverage Ratio. The Borrower will not permit the
Leverage Ratio as of the end of any Fiscal Quarter occurring during
any period set forth below to be greater than the ratio set forth
opposite such period:
Period Leverage Ratio
------ --------------
Closing Date to 6/30/98 6.00:1
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7/1/98 to 6/30/99 5.50:1
7/1/99 to 6/30/00 5.00:1
7/1/00 to 6/30/01 4.50:1
7/1/01 to 6/30/02 3.50:1
7/1/02 and thereafter 3.00:1
(c) Interest Coverage Ratio. The Borrower will not permit
the Interest Coverage Ratio as of the end of any Fiscal Quarter
ending after the Closing Date and occurring during any period set
forth below to be less than the ratio set forth opposite such period:
Interest Coverage
Period Ratio
------ -----
Closing Date to 6/30/98 1.75:1
7/1/98 to 6/30/99 1.85:1
7/1/99 to 6/30/00 2.00:1
7/1/00 to 6/30/01 2.25:1
7/1/01 to 6/30/02 2.50:1
7/1/02 to 6/30/03 3.00:1
7/1/03 and thereafter 3.50:1
(d) Fixed Charge Coverage Ratio. The Borrower will not
permit the Fixed Charge Coverage Ratio as of the end of any Fiscal
Quarter ending after the Closing Date to be less than 1.10:1.
SECTION 7.2.5. Investments. The Borrower will not, and will not
permit any of its Restricted Subsidiaries to, make, incur, assume or suffer to
exist any Investment in any other Person, except:
(a) Investments existing on the Closing Date and identified in
Item 7.2.5(a) ("Ongoing Investments") of the Disclosure Schedule;
(b) Cash Equivalent Investments;
(c) without duplication, Investments permitted as Indebtedness
pursuant to Section 7.2.2;
(d) without duplication, Investments permitted as Capital
Expenditures pursuant to Section 7.2.7;
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(e) Investments by the Borrower in any of its Restricted
Subsidiaries, or by any such Restricted Subsidiary in any Restricted
Subsidiary of the Borrower, by way of contributions to capital;
(f) additional Investments by the Borrower or any of its
Restricted Subsidiaries from capital contributions by Holdings to
the Borrower, sales of Capital Stock by the Borrower to Holdings or
repayments of the Intercompany Loan by Holdings to the Borrower, in
each case after the Closing Date for the purpose of making an
Investment identified in a notice to the Agents on or prior to the
date such contribution, sale or repayment is made, which Investments
shall result in the Borrower or such Restricted Subsidiary acquiring
a majority controlling interest in the Person in which such
Investment was made or increasing any such controlling interest
already maintained by it;
(g) Investments to the extent the consideration received
pursuant to clause (d)(i) of Section 7.2.9 is not all cash;
(h) Investments in the form of loans to officers, directors and
employees of the Borrower and its Restricted Subsidiaries for the
sole purpose of purchasing Holdings common stock (or purchases of
such loans made by others) in an aggregate amount at any time
outstanding not to exceed $5,000,000;
(i) the Intercompany Loan;
(j) Investments in Unrestricted Subsidiaries of the Borrower in
an aggregate amount at any time outstanding not to exceed
$15,000,000; or
(k) other Investments (including Assumed Indebtedness) made by
the Borrower or any of its Restricted Subsidiaries in an aggregate
amount not to exceed $50,000,000 in any single transaction or series
of related transactions or $150,000,000 in the aggregate, which
Investments shall result in the Borrower or the relevant Subsidiary
acquiring (subject to Section 7.2.1) a majority controlling interest
in the Person in which such Investment was made or increasing any
such controlling interest maintained by it in such Person;
provided, however, that
(l) any Investment which when made complies with the
requirements of the definition of the term "Cash Equivalent
Investment" may continue to be held notwithstanding that such
Investment if made thereafter would not comply with such
requirements;
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(m) no Investment otherwise permitted (i) hereunder (other
than Investments consisting of Indebtedness permitted under clause
(e) of Section 7.2.2) shall be permitted to be made by the Trademark
Subsidiary or the IPO Subsidiary or (ii) by clause (c) (except to the
extent permitted under Section 7.2.2), (e), (f), (h), (j) or (k))
shall be permitted to be made if, immediately before or after giving
effect thereto, any Default shall have occurred and be continuing.
SECTION 7.2.6. Restricted Payments, etc. On and at all times after
the date hereof:
(a) the Borrower will not, and will not permit any of its
Restricted Subsidiaries to, declare, pay or make any payment,
dividend, distribution or exchange (in cash, property or
obligations) on or in respect of any shares of any class of Capital
Stock (now or hereafter outstanding) of the Borrower or on any
warrants, options or other rights with respect to any shares of any
class of Capital Stock (now or hereafter outstanding) of the
Borrower (other than (i) dividends or distributions payable in its
common stock or warrants to purchase its common stock and (ii)
splits or reclassifications of its stock into additional or other
shares of its common stock) or apply, or permit any of its
Restricted Subsidiaries to apply, any of its funds, property or
assets to the purchase, redemption, exchange, sinking fund or other
retirement of, or agree or permit any of its Restricted Subsidiaries
to purchase, redeem or exchange, any shares of any class of Capital
Stock (now or hereafter outstanding) of the Borrower, warrants,
options or other rights with respect to any shares of any class of
Capital Stock (now or hereafter outstanding) of the Borrower;
(b) the Borrower will not, and will not permit any of its
Restricted Subsidiaries to, (i) make any payment or prepayment of
principal of, or make any payment of interest on, any Subordinated
Note or Discount Debenture on any day other than the stated,
scheduled date for such payment or prepayment set forth in the
documents and instruments memorializing such Subordinated Note or
Discount Debenture, or which would violate the subordination
provisions of such Subordinated Note or Discount Debenture, or (ii)
redeem, purchase or defease any Subordinated Note or Discount
Debenture (the foregoing prohibited acts referred to in clauses (a)
and (b) above are herein collectively referred to as "Restricted
Payments");
provided, however, that
(c) notwithstanding the provisions of clause (a) above, the
Borrower shall be permitted to make Restricted Payments to Holdings
to the extent necessary to enable Holdings to
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(i) pay its overhead expenses in an amount not to exceed
$2,000,000 in the aggregate in any Fiscal Year (exclusive of
advisory fees in an amount not to exceed $500,000 in the aggregate
in any Fiscal Year);
(ii) pay taxes in an amount not to exceed the amount provided
in the Tax Sharing Agreement; provided, however, that in no event
shall the amount permitted to be paid by the Borrower to Holdings
pursuant to this clause (c)(ii) in respect of the Borrower's
obligations under the Tax Sharing Agreement in any Fiscal Year
exceed the amount of federal, state and local taxes that the
Borrower and its Subsidiaries (on a consolidated basis) would be
required to pay for such Fiscal Year if they did not file a
consolidated income tax return with Holdings for such Fiscal Year;
(iii) make payments in respect of statutory appraisal rights
(and any settlement thereof) exercised by holders of outstanding
Capital Stock of DOH in connection with the Merger; and
(iv) so long as (A) no Default shall have occurred and be
continuing on the date such Restricted Payment is declared or to be
made, nor would a Default result from the making of such Restricted
Payment, (B) after giving effect to the making of such Restricted
Payment, the Borrower shall be in pro forma compliance with the
covenants set forth in Section 7.2.4 for the most recent full Fiscal
Quarter immediately preceding the date of the making of such
Restricted Payment for which the relevant financial information has
been delivered pursuant to clause (a) or clause (b) of Section
7.1.1, and (C) an Authorized Officer of the Borrower shall have
delivered a certificate to the Administrative Agent in form and
substance satisfactory to the Administrative Agent (including a
calculation of the Borrower's compliance with the covenants set
forth in Section 7.2.4 in reasonable detail) certifying as to the
accuracy of clauses (c)(iv)(A) and (c)(iv)(B) above,
(x) repurchase, redeem or otherwise acquire or retire for
value any Capital Stock of Holdings, or any warrant, option or
other right to acquire Capital Stock of Holdings, held by any
member of the Borrower's or any of the Borrower'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 Capital Stock, warrants, options
and other rights shall not exceed (I) $5,000,000 in any
calendar year (with unused amounts in any calendar year being
carried forward to succeeding calendar years subject to a
maximum (without giving effect to the following clause (II)) of
$10,000,000 in any calendar year) plus (II) the aggregate cash
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proceeds received by the Borrower during such calendar year
from any reissuance of Capital Stock of Holdings, and warrants,
options and other rights to acquire Capital Stock of Holdings,
by Holdings or the Borrower to members of management of the
Borrower and its Restricted Subsidiaries and (B) no Default or
Event of Default shall have occurred and be continuing
immediately after such transaction; or
(y) pay for the repurchase, retirement or other
acquisition or retirement for value of Capital Stock of
Holdings or options, warrants or other rights to acquire
Capital Stock of Holdings outstanding on the date of this
Agreement and which are not held by the Equity Investors or any
member of management of Holdings or any of its Subsidiaries on
the date of this Agreement (including any Capital Stock,
options, warrants or rights issued in respect of such Capital
Stock, options, warrants or rights as a result of a stock
split, recapitalization, merger, combination, consolidation or
otherwise, but excluding any Capital Stock, options, warrants
or rights issued pursuant to any management equity plan or
stock option plan or similar agreement) in an aggregate amount
not to exceed (I) $10,000,000 and (II) an incremental
$20,000,000 in each succeeding calendar year so long as (A)
after giving effect to the making of such Restricted Payment,
the Leverage Ratio shall be less than 4.0:1.0 on a pro forma
basis for the most recent full Fiscal Quarter immediately
preceding the date of the making of such Restricted Payment for
which the relevant financial information has been delivered
pursuant to clause (a) or clause (b) of Section 7.1.1, (B) an
Authorized Officer of the Borrower shall have delivered a
certificate to the Administrative Agent in form and substance
satisfactory to the Administrative Agent (including a
calculation of the Leverage Ratio in reasonable detail)
certifying to the accuracy of clause (A) above and certifying
that no Default shall have occurred and be continuing on the
date such Restricted Payment is made, nor would a Default
result from the making of such Restricted Payment, and (C) the
amount of such Restricted Payment shall not exceed 25% of the
Excess Cash Flow for the period from August 31, 1997 through
the most recently ended Fiscal Quarter;
(d) notwithstanding the provisions of clauses (a) and (b)
above, the Borrower and its Restricted Subsidiaries shall be
permitted to pay dividends to Holdings to enable Holdings to
pay cash interest on Indebtedness of Holdings in accordance
with the terms of each of such Indebtedness in an aggregate
amount not to exceed 25% of Excess Cash Flow for the period
from August 31, 1997 through the most recently ended Fiscal
Quarter (net of amounts in respect of clause (c)(iv)(y) above)
so long as (A) after giving effect to the making of such
Restricted Payment, (i) the Leverage Ratio shall be less than
4.0:1.0
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on a pro forma basis and (ii) the Borrower shall be in pro
forma compliance with the Fixed Charge Coverage Ratio covenant set
forth in clause (d) of Section 7.2.4, in each case for the most
recent full Fiscal Quarter immediately preceding the date of the
making of such Restricted Payment for which the relevant financial
information has been delivered pursuant to clause (a) or clause (b)
of Section 7.1.1 and (B) an Authorized Officer of the Borrower shall
have delivered a certificate to the Administrative Agent in form and
substance satisfactory to the Administrative Agent (including a
calculation of the Leverage Ratio and Fixed Charge Coverage Ratio in
reasonable detail) certifying to the accuracy of clause (A) above
and certifying that no Default shall have occurred and be continuing
on the date such Restricted Payment is made, nor would a Default
result from the making of such Restricted Payment;
(e) notwithstanding the provisions of clauses (a) and (b)
above, the Borrower and its Subsidiaries shall be permitted to make
the Restricted Payments included in the Transaction; and
(f) notwithstanding the provisions of clauses (a) and (b)
above, the Borrower may pay a dividend to Holdings consisting solely
of a transfer of all or a portion of the Intercompany Loan.
SECTION 7.2.7. Capital Expenditures, etc. With respect to Capital
Expenditures, the parties covenant and agree as follows:
(a) The Borrower will not, and will not permit any of its
Restricted Subsidiaries to, make or commit to make Capital
Expenditures in any Fiscal Year, except Capital Expenditures of the
Borrower and its Restricted Subsidiaries (other than the Trademark
Subsidiary and the IPO Subsidiary) which do not aggregate in excess
of (x) in the case of Fiscal Years ending on or prior to June 30,
2000, $20,000,000 in such Fiscal Year or (y) in the case of any
Fiscal Year thereafter, $25,000,000 in such Fiscal Year; provided,
however, that, to the extent the amount of Capital Expenditures
permitted to be made in any Fiscal Year pursuant to this Section
exceeds the aggregate amount of Capital Expenditures actually made
during such Fiscal Year, such excess amount (up to an aggregate of
50% of the amount of Capital Expenditures permitted for such Fiscal
Year, without giving effect to this proviso) may be carried forward
to (but only to) the next succeeding Fiscal Year (any such amount to
be certified by the Borrower to the Agents in the Compliance
Certificate delivered for the last Fiscal Quarter of such Fiscal
Year, and any such amount carried forward to a succeeding Fiscal
Year shall be deemed to be used prior to the Borrower and its
Subsidiaries using the amount of Capital Expenditures permitted by
this Section in such succeeding Fiscal Year, without giving effect
to such carry-forward).
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(b) The parties acknowledge and agree that the permitted
Capital Expenditure level set forth in clause (a) above shall be
exclusive of (i) the amount of Capital Expenditures actually made
with cash capital contributions made, directly or indirectly, to the
Borrower or any of its Restricted Subsidiaries by Holdings, the
proceeds of equity issuances made by the Borrower or any of its
Restricted Subsidiaries, directly or indirectly, to Holdings, and
repayments by Holdings of the Intercompany Loan, in each case after
the Closing Date and specifically identified in a certificate
delivered by an Authorized Office of the Borrower to the Agents on or
about the time such capital contribution or equity issuance is made
and (ii) that portion of any acquisition that is permitted under
Section 7.2.5 (other than pursuant to clause (d) thereof) that is
accounted for as a Capital Expenditure.
SECTION 7.2.8. Consolidation, Merger, etc. The Borrower will not, and
will not permit any of its Restricted Subsidiaries to, liquidate or dissolve,
consolidate with, or merge into or with, any other corporation, or purchase or
otherwise acquire all or substantially all of the assets of any Person (or of
any division thereof) except
(a) any such Restricted Subsidiary may liquidate or dissolve
voluntarily into, and may merge with and into, the Borrower (so long
as the Borrower is the surviving corporation of such combination or
merger) or any other Subsidiary, and the assets or stock of any
Restricted Subsidiary may be purchased or otherwise acquired by the
Borrower or any other Restricted Subsidiary; provided, that
notwithstanding the above, a Restricted Subsidiary may only
liquidate or dissolve into, or merge with and into, another
Restricted Subsidiary of the Borrower if, after giving effect to
such combination or merger, the Borrower continues to own (directly
or indirectly), and the Administrative Agent continues to have
pledged to it pursuant to a Pledge Agreement, a percentage of the
issued and outstanding shares of Capital Stock (on a fully diluted
basis) of the Restricted Subsidiary surviving such combination or
merger that is equal to or in excess of the percentage of the issued
and outstanding shares of Capital Stock (on a fully diluted basis)
of the Restricted Subsidiary that does not survive such combination
or merger that was (immediately prior to the combination or merger)
owned by the Borrower or pledged to the Administrative Agent;
(b) so long as no Default has occurred and is continuing or
would occur after giving effect thereto, the Borrower or any of its
Restricted Subsidiaries (other than the Trademark Subsidiary and the
IPO Subsidiary) may purchase all or substantially all of the assets
of any Person (or any division thereof) not then a Subsidiary, or
acquire such Person by merger, if permitted (without duplication)
pursuant to Section 7.2.7 or clause (f), (j) or (k) of Section
7.2.5;
(c) the Borrower and its Restricted Subsidiaries may consummate
the Transaction.
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SECTION 7.2.9. Asset Dispositions, etc. The Borrower will not, and
will not permit any of its Restricted Subsidiaries to, sell, transfer, lease,
contribute or otherwise convey, or grant options, warrants or other rights
with respect to, all or any part of its assets, whether now owned or hereafter
acquired (including accounts receivable and Capital Stock of Restricted
Subsidiaries) to any Person, unless (with respect to the Borrower and each
Restricted Subsidiary other than the Trademark Subsidiary, as to intellectual
property acquired after the Closing Date, and the IPO Subsidiary):
(a) such sale, transfer, lease, contribution or conveyance
of such assets is (i) in the ordinary course of its business (and
does not constitute a sale, transfer, lease, contribution or other
conveyance of all or a substantial part of the Borrower's and its
Restricted Subsidiaries' assets, taken as a whole) or is of obsolete
or worn out property, (ii) permitted by Section 7.2.8, or (iii)
between the Borrower and one of its Subsidiaries or between
Subsidiaries of the Borrower;
(b) such sale, transfer, lease, contribution or conveyance
constitutes (i) an Investment permitted under Section 7.2.5, (ii) a
Lien permitted under Section 7.2.3, or (iii) a Restricted Payment
permitted under Section 7.2.6;
(c) (i) such sale, transfer, lease, contribution or conveyance
of such assets is for fair market value and the consideration
consists of no less than 75% in cash, (ii) the Net Disposition
Proceeds received from such assets, together with the Net
Disposition Proceeds of all other assets sold, transferred, leased,
contributed or conveyed pursuant to this clause (c) since the
Closing Date, does not exceed (individually or in the aggregate)
$75,000,000 over the term of this Agreement and (iii) an amount
equal to the Net Disposition Proceeds generated from such sale,
transfer, lease, contribution or conveyance is reinvested in the
business of the Borrower and its Restricted Subsidiaries, or, to the
extent required thereunder, is applied to prepay the Loans pursuant
to the terms of Section 3.1.1 and Section 3.1.2.
SECTION 7.2.10. Modification of Certain Agreements. Without the prior
written consent of the Required Lenders, the Borrower will not, and will not
permit any of its Restricted Subsidiaries to, consent to any amendment,
supplement, amendment and restatement, waiver or other modification of any of
the terms or provisions contained in, or applicable to, the Discount
Debentures, any Subordinated Note (including any agreement or indenture
related thereto or to the Subordinated Debt Issuance) or any Material Document
or any schedules, exhibits or agreements related thereto, in each case which
would materially adversely affect the rights or remedies of the Lenders, or
the Borrower's or any other Obligor's ability to perform hereunder or under
any Loan Document or which would increase the cash consideration payable in
respect of the Merger or, in the case of the Merger Agreement, which would
increase the Borrower's or any of its Restricted Subsidiaries' obligations or
liabilities, contingent or otherwise (other than
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adjustments to the cash consideration payable in respect of the Merger made
pursuant to the terms of the Merger Agreement).
SECTION 7.2.11. Transactions with Affiliates. The Borrower will not,
and will not permit any of its Restricted Subsidiaries to, enter into, or
cause, suffer or permit to exist any arrangement or contract with any of its
other Affiliates (other than any Obligor or any other Restricted Subsidiary of
the Borrower) unless such arrangement or contract is fair and equitable to the
Borrower or such Restricted Subsidiary and is an arrangement or contract of
the kind which would be entered into by a prudent Person in the position of
the Borrower or such Subsidiary with a Person which is not one of its
Affiliates; provided, however that the Borrower and its Restricted
Subsidiaries shall be permitted to (i) enter into and perform their
obligations, or take any other actions contemplated under the Transaction
Documents, (ii) make any Restricted Payment permitted under Section 7.2.6 and
(iii) enter into and perform their obligations under arrangements with DLJ and
its Affiliates for underwriting, investment banking and advisory services
referred to in Section 7.2.6 on usual and customary terms.
SECTION 7.2.12. Negative Pledges, Restrictive Agreements, etc. The
Borrower will not, and will not permit any of its Restricted Subsidiaries to,
enter into any agreement prohibiting
(a) the (i) creation or assumption of any Lien upon its
properties, revenues or assets, whether now owned or hereafter
acquired (other than, in the case of any assets acquired with the
proceeds of any Indebtedness permitted under Section 7.2.2(c),
customary limitations and prohibitions contained in such Indebtedness
and in the case of any Indebtedness permitted under clause (h) of
Section 7.2.2, customary limitations in respect of the Non-U.S.
Subsidiaries of the Borrower that shall have incurred such
Indebtedness and their assets), or (ii) ability of the Borrower or
any other Obligor to amend or otherwise modify this Agreement or any
other Loan Document; or
(b) any Restricted Subsidiary from making any payments,
directly or indirectly, to the Borrower by way of dividends,
advances, repayments of loans or advances, reimbursements of
management and other intercompany charges, expenses and accruals or
other returns on investments, or any other agreement or arrangement
which restricts the ability of any such Restricted Subsidiary to make
any payment, directly or indirectly, to the Borrower (other than any
limitations or prohibitions existing in any Indebtedness permitted
under clause (a) of Section 7.2.2 or any Lien permitted under clause
(a) of Section 7.2.3 or customary limitations and prohibitions in any
Indebtedness permitted under clause (h) of Section 7.2.2 that are
applicable to the Non-U.S. Subsidiaries of the Borrower that have
incurred such Indebtedness and their assets).
SECTION 7.2.13. Stock of Subsidiaries. The Borrower will not permit
any Restricted Subsidiary to issue any Capital Stock (whether for value or
otherwise) to any Person other than the Borrower or another wholly-owned
Subsidiary of the Borrower.
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SECTION 7.2.14. Sale and Leaseback. The Borrower will not, and will
not permit any of its Restricted Subsidiaries to, enter into any agreement or
arrangement with any other Person providing for the leasing by the Borrower or
any of its Restricted Subsidiaries of real or personal property which has been
or is to be sold or transferred by the Borrower or any of its Restricted
Subsidiaries to such other Person or to any other Person to whom funds have
been or are to be advanced by such Person on the security of such property or
rental obligations of the Borrower or any of its Restricted Subsidiaries.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Listing of Events of Default. Each of the following
events or occurrences described in this Section 8.1 shall constitute an "Event
of Default".
SECTION 8.1.1. Non-Payment of Obligations. (a) The Borrower shall
default in the payment or prepayment of any principal of any Loan when due or
any Reimbursement Obligations or any deposit of cash for collateral purposes
pursuant to Section 2.6.2 or Section 2.6.4, as the case may be, or (b) any
Obligor (including the Borrower) shall default (and such default shall
continue unremedied for a period of three Business Days) in the payment when
due of any interest or commitment fee with respect to the Loans or Commitments
or of any other monetary Obligation.
SECTION 8.1.2. Breach of Warranty. Any representation or warranty of
the Borrower or any other Obligor made or deemed to be made hereunder or in
any other Loan Document executed by it or any other writing or certificate
(including the Closing Date Certificate) furnished by or on behalf of the
Borrower or any other Obligor to the Agents, the Issuer, the Arranger or any
Lender for the purposes of or in connection with this Agreement or any such
other Loan Document (including any certificates delivered pursuant to Article
V) is or shall be incorrect when made in any material respect.
SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations.
The Borrower shall default in the due performance and observance of any of its
obligations under Sections 7.1.9, 7.1.10 or 7.2 (other than Section 7.2.1).
SECTION 8.1.4. Non-Performance of Other Covenants and Obligations.
Any Obligor shall default in the due performance and observance of any other
agreement contained herein or in any other Loan Document executed by it, and
such default shall continue unremedied for a period of 30 days after notice
thereof shall have been given to the Borrower by the Administrative Agent at
the direction of the Required Lenders.
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SECTION 8.1.5. Default on Other Indebtedness. A default shall occur
(i) in the payment when due (subject to any applicable grace period), whether
by acceleration or otherwise, of any Indebtedness, other than Indebtedness
described in Section 8.1.1, of the Borrower or any of its Restricted
Subsidiaries or Holdings having a principal amount, individually or in the
aggregate, in excess of $10,000,000, or (ii) a default shall occur in the
performance or observance of any obligation or condition with respect to such
Indebtedness having a principal amount, individually or in the aggregate, in
excess of $10,000,000 if the effect of such default is to accelerate the
maturity of any such Indebtedness or such default shall continue unremedied
for any applicable period of time sufficient to permit the holder or holders
of such Indebtedness, or any trustee or agent for such holders, to cause such
Indebtedness to become due and payable prior to its expressed maturity.
SECTION 8.1.6. Judgments. Any judgment or order for the payment of
money in excess of $10,000,000 (not covered by insurance from a responsible
insurance company that is not denying its liability with respect thereto)
shall be rendered against the Borrower or any of its Restricted Subsidiaries
or Holdings and remain unpaid and either (i) enforcement proceedings shall
have been commenced by any creditor upon such judgment or order, or (ii) there
shall be any period of 30 consecutive days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect.
SECTION 8.1.7. Pension Plans. Any of the following events shall occur
with respect to any Pension Plan (i) the termination of any Pension Plan if,
as a result of such termination, the Borrower would be required to make a
contribution to such Pension Plan, or would reasonably expect to incur a
liability or obligation to such Pension Plan, in excess of $10,000,000, or
(ii) a contribution failure occurs with respect to any Pension Plan sufficient
to give rise to a Lien under section 302(f) of ERISA in an amount in excess of
$10,000,000.
SECTION 8.1.8. Change in Control. Any Change in Control shall occur.
SECTION 8.1.9. Bankruptcy, Insolvency, etc. The Borrower or any of
its Restricted Subsidiaries (other than immaterial Subsidiaries) or any other
Obligor shall
(a) become insolvent or generally fail to pay, or admit in
writing its inability or unwillingness to pay, its debts as they
become due;
(b) apply for, consent to, or acquiesce in, the appointment
of a trustee, receiver, sequestrator or other custodian for the
Borrower or any of such Restricted Subsidiaries or any other Obligor
or any property of any thereof, or make a general assignment for the
benefit of creditors;
(c) in the absence of such application, consent,
acquiescence or assignment, permit or suffer to exist the appointment
of a trustee, receiver, sequestrator or other
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custodian for the Borrower or any of its Restricted Subsidiaries (other
than immaterial Subsidiaries) or any other Obligor or for a substantial
part of the property of any thereof, and such trustee, receiver,
sequestrator or other custodian shall not be discharged within 60 days,
provided that the Borrower, each such Restricted Subsidiary and each
other Obligor hereby expressly authorizes the Agents, the Issuer and each
Lender to appear in any court conducting any relevant proceeding during
such 60-day period to preserve, protect and defend their rights under the
Loan Documents;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution, winding up or
liquidation proceeding, in respect of the Borrower or any of its
Restricted Subsidiaries (other than immaterial Subsidiaries) or any other
Obligor, and, if any such case or proceeding is not commenced by the
Borrower or such Restricted Subsidiary or such other Obligor, such case
or proceeding shall be consented to or acquiesced in by the Borrower or
such Restricted Subsidiary or such other Obligor or shall result in the
entry of an order for relief or shall remain for 60 days undismissed,
provided that the Borrower, each such Restricted Subsidiary and each
other Obligor hereby expressly authorizes the Agents, the Issuer and each
Lender to appear in any court conducting any such case or proceeding
during such 60-day period to preserve, protect and defend their rights
under the Loan Documents; or
(e) take any action (corporate or otherwise) authorizing, or in
furtherance of, any of the foregoing.
SECTION 8.1.10. Impairment of Security, etc. Any Loan Document, or
any Lien granted thereunder, shall (except in accordance with its terms), in
whole or in part, terminate, cease to be in full force and effect or cease to
be the legally valid, binding and enforceable obligation of any Obligor party
thereto; the Borrower or any other Obligor shall, directly or indirectly,
contest in any manner the effectiveness, validity, binding nature or
enforceability thereof; or any Lien securing any Obligation shall, in whole or
in part, cease to be a perfected first priority Lien, subject only to those
exceptions expressly permitted by the Loan Documents, except to the extent any
event referred to above (a) relates to assets of the Borrower or any of its
Subsidiaries which are immaterial, (b) results from the failure of the
Administrative Agent to maintain possession of certificates representing
securities pledged under any Pledge Agreement or to file continuation
statements under the Uniform Commercial Code of any applicable jurisdiction or
(c) is covered by a lender's title insurance policy and the relevant insurer
promptly after the occurrence thereof shall have acknowledged in writing that
the same is covered by such title insurance policy.
SECTION 8.1.11. Subordinated Notes. The subordination provisions
relating to the Subordinated Notes (the "Subordination Provisions") shall fail
to be enforceable by the Lenders (which have not effectively waived the
benefits thereof) in accordance with the terms thereof, or
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the principal or interest on any Loan, Reimbursement Obligation or other
Obligations shall fail to constitute "Senior Debt" (as defined in any
Subordinated Note) or "senior indebtedness" (or any other similar term)); or
the Borrower or any of its Subsidiaries shall, directly or indirectly, disavow
or contest in any manner (i) the effectiveness, validity or enforceability of
any of the Subordination Provisions, or (ii) that any of such Subordination
Provisions exist for the benefit of the Agents and the Lenders.
SECTION 8.2. Action if Bankruptcy, etc. If any Event of Default
described in clauses (b), (c) and (d) of Section 8.1.9 shall occur with
respect to any Obligor (other than immaterial Subsidiaries) the Commitments
(if not theretofore terminated) shall automatically terminate and the
outstanding principal amount of all outstanding Loans and all other
Obligations (including Reimbursement Obligations) shall automatically be and
become immediately due and payable, without notice or demand and the Borrower
shall automatically and immediately be obligated to deposit with the
Administrative Agent cash collateral in an amount equal to all Letter of
Credit Outstandings.
SECTION 8.3. Action if Other Event of Default. If any Event of
Default (other than an Event of Default described in clauses (b), (c) and (d)
of Section 8.1.9 with respect to any Obligor (other than immaterial
Subsidiaries)) shall occur for any reason, whether voluntary or involuntary,
and be continuing, the Administrative Agent, upon the direction of the
Required Lenders, shall by notice to the Borrower declare all or any portion
of the outstanding principal amount of the Loans and other Obligations
(including Reimbursement Obligations) to be due and payable, require the
Borrower to provide cash collateral to be deposited with the Administrative
Agent in an amount equal to the undrawn amount of all Letters of Credit
outstanding and/or declare the Commitments (if not theretofore terminated) to
be terminated, whereupon the full unpaid amount of such Loans and other
Obligations which shall be so declared due and payable shall be and become
immediately due and payable, without further notice, demand or presentment,
and/or, as the case may be, the Commitments shall terminate and the Borrower
shall deposit with the Administrative Agent cash collateral in an amount equal
to all Letters of Credit Outstandings.
ARTICLE IX
THE AGENTS
SECTION 9.1. Actions. Each Lender hereby appoints DLJ as its
Syndication Agent and NationsBank as its Administrative Agent under and for
purposes of this Agreement, the Notes and each other Loan Document. Each
Lender authorizes the Agents to act on behalf of such Lender under this
Agreement, the Notes and each other Loan Document and, in the absence of other
written instructions from the Required Lenders received from time to time by
the Agents (with respect to which each of the Agents agrees that it will
comply, except as otherwise
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provided in this Section or as otherwise advised by counsel), to exercise such
powers hereunder and thereunder as are specifically delegated to or required
of the Agents by the terms hereof and thereof, together with such powers as
may be reasonably incidental thereto. Each Lender hereby indemnifies (which
indemnity shall survive any termination of this Agreement) the Agents, ratably
in accordance with their respective Term Loans outstanding and Commitments
(or, if no Term Loans or Commitments are at the time outstanding and in
effect, then ratably in accordance with the principal amount of Term Loans
held by such Lender, and their respective Commitments as in effect in each
case on the date of the termination of this Agreement), from and against any
and all liabilities, obligations, losses, damages, claims, costs or expenses
of any kind or nature whatsoever which may at any time be imposed on, incurred
by, or asserted against, either of the Agents in any way relating to or
arising out of this Agreement, the Notes and any other Loan Document,
including reasonable attorneys' fees, and as to which any Agent is not
reimbursed by the Borrower or any other Obligor (and without limiting the
obligation of the Borrower or any other Obligor to do so); provided, however,
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, claims, costs or expenses which are
determined by a court of competent jurisdiction in a final proceeding to have
resulted solely from such Agent's gross negligence or willful misconduct. The
Agents shall not be required to take any action hereunder, under the Notes or
under any other Loan Document, or to prosecute or defend any suit in respect
of this Agreement, the Notes or any other Loan Document, unless it is
indemnified hereunder to its satisfaction. If any indemnity in favor of either
of the Agents shall be or become, in such Agent's determination, inadequate,
the Agent may call for additional indemnification from the Lenders and cease
to do the acts indemnified against hereunder until such additional indemnity
is given.
SECTION 9.2. Funding Reliance, etc. Unless the Administrative Agent
shall have been notified by telephone, confirmed in writing, by any Lender by
5:00 p.m., New York time, on the day prior to a Borrowing or disbursement with
respect to a Letter of Credit pursuant to Section 2.6.2 that such Lender will
not make available the amount which would constitute its Percentage of such
Borrowing on the date specified therefor, the Administrative Agent may assume
that such Lender has made such amount available to the Administrative Agent
and, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If and to the extent that such Lender shall not have
made such amount available to the Administrative Agent, such Lender severally
agrees and the Borrower agrees to repay the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date the Administrative Agent made such amount available to the
Borrower to the date such amount is repaid to the Administrative Agent, at the
interest rate applicable at the time to Loans comprising such Borrowing.
SECTION 9.3. Exculpation. None of the Agents or the Arranger nor any
of their respective directors, officers, employees or agents shall be liable
to any Lender for any action taken or omitted to be taken by it under this
Agreement or any other Loan Document, or in connection herewith or therewith,
except for its own willful misconduct or gross negligence, nor
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responsible for any recitals or warranties herein or therein, nor for the
effectiveness, enforceability, validity or due execution of this Agreement or
any other Loan Document, nor for the creation, perfection or priority of any
Liens purported to be created by any of the Loan Documents, or the validity,
genuineness, enforceability, existence, value or sufficiency of any collateral
security, nor to make any inquiry respecting the performance by the Borrower
of its obligations hereunder or under any other Loan Document. Any such
inquiry which may be made by any Agent or the Issuer shall not obligate it to
make any further inquiry or to take any action. The Agents and the Issuer
shall be entitled to rely upon advice of counsel concerning legal matters and
upon any notice, consent, certificate, statement or writing which the Agents
or the Issuer, as applicable, believe to be genuine and to have been presented
by a proper Person.
SECTION 9.4. Successor. The Syndication Agent may resign as such upon
one Business Day's notice to the Borrower and the Administrative Agent. The
Administrative Agent may resign as such at any time upon at least 30 days'
prior notice to the Borrower and all Lenders. If the Administrative Agent at
any time shall resign, the Required Lenders may, with the prior consent of the
Borrower (which consent shall not be unreasonably withheld), appoint another
Lender as a successor Administrative Agent which shall thereupon become the
Administrative Agent hereunder. If no successor Administrative Agent shall
have been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent's giving
notice of resignation, then the retiring Administrative Agent may, on behalf
of the Lenders, appoint a successor Administrative Agent, which shall be one
of the Lenders or a commercial banking institution organized under the laws of
the United States or a United States branch or agency of a commercial banking
institution, and having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall be entitled to receive from the retiring Administrative Agent such
documents of transfer and assignment as such successor Administrative Agent
may reasonably request, and shall thereupon succeed to and become vested with
all rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its
duties and obligations under this Agreement. After any retiring Administrative
Agent's resignation hereunder as the Administrative Agent, the provisions of
(i) this Article IX shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was the Administrative Agent under this
Agreement, and (ii) Section 10.3 and Section 10.4 shall continue to inure to
its benefit.
SECTION 9.5. Credit Extensions by each Agent. Each Agent and the
Issuer shall have the same rights and powers with respect to (x) (i) in the
case of the Agents, the Credit Extensions made by it or any of its Affiliates
and (ii) in the case of the Issuer, the Loans made by it or any of its
Affiliates, and (y) the Notes held by it or any of its Affiliates as any other
Lender and may exercise the same as if it were not an Agent or the Issuer.
Each Agent, the Issuer and each and each of their respective Affiliates may
accept deposits from, lend money to, and
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generally engage in any kind of business with the Borrower or any Subsidiary
or Affiliate of the Borrower as if such Agent or Issuer were not an Agent or
Issuer hereunder.
SECTION 9.6. Credit Decisions. Each Lender acknowledges that it has,
independently of each Agent, the Documentation Agent, the Arranger, the Issuer
and each other Lender, and based on such Lender's review of the financial
information of the Borrower, this Agreement, the other Loan Documents (the
terms and provisions of which being satisfactory to such Lender) and such
other documents, information and investigations as such Lender has deemed
appropriate, made its own credit decision to extend its Commitments. Each
Lender also acknowledges that it will, independently of each Agent, the
Documentation Agent, the Arranger, the Issuer and each other Lender, and based
on such other documents, information and investigations as it shall deem
appropriate at any time, continue to make its own credit decisions as to
exercising or not exercising from time to time any rights and privileges
available to it under this Agreement or any other Loan Document.
SECTION 9.7. Copies, etc. The Administrative Agent shall give prompt
notice to each Lender of each notice or request required or permitted to be
given to the Administrative Agent by the Borrower pursuant to the terms of
this Agreement (unless concurrently delivered to the Lenders by the Borrower).
The Administrative Agent will distribute to each Lender each document or
instrument received for such Lender's account and copies of all other
communications received by the Administrative Agent from the Borrower for
distribution to the Lenders by the Administrative Agent in accordance with the
terms of this Agreement.
SECTION 9.8. The Syndication Agent, the Documentation Agent and the
Administrative Agent. Notwithstanding anything else to the contrary contained
in this Agreement or any other Loan Document, the Agents and the Documentation
Agent, in their respective capacities as such, each in such capacity, shall
have no duties or responsibilities under this Agreement or any other Loan
Document nor any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or otherwise exist against either Agent or
the Documentation Agent, as applicable, in such capacity except as are
explicitly set forth herein or in the other Loan Documents.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Waivers, Amendments, etc. The provisions of this
Agreement and of each other Loan Document may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing
and consented to by the Borrower and each Obligor party thereto and by the
Required Lenders; provided, however, that no such amendment, modification or
waiver which would:
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(a) modify any requirement hereunder that any particular
action be taken by all the Lenders or by the Required Lenders shall
be effective unless consented to by each Lender;
(b) modify this Section 10.1, or clause (i) of Section
10.10, change the definition of "Required Lenders", increase any
Commitment Amount or the Percentage of any Lender (other than
pursuant to clause (c) of Section 2.1.2), reduce any fees described
in Section 3.3 (other than the administration fee referred to in
Section 3.3.2), release any Subsidiary Guarantor from its obligations
under the Subsidiary Guaranty, if any, release all or substantially
all of the collateral security (except in each case as otherwise
specifically provided in this Agreement, any such Subsidiary
Guaranty, a Security Agreement or a Pledge Agreement) or extend any
Commitment Termination Date, shall be made without the consent of
each Lender adversely affected thereby;
(c) extend the due date for, or reduce the amount of, any
scheduled repayment of principal of or interest on or fees payable in
respect of any Loan or reduce the principal amount of or rate of
interest on or fees payable in respect of any Loan or any
Reimbursement Obligations (which shall in each case include the
conversion of all or any part of the Obligations into equity of any
Obligor), shall be made without the consent of the holder of the Note
evidencing such Loan or, in the case of a Reimbursement Obligation,
the Issuer owed, and those Lenders participating in, such
Reimbursement Obligation;
(d) affect adversely the interests, rights or obligations of
any Agent, Issuer or Arranger (in its capacity as Agent, Issuer or
Arranger), unless consented to by such Agent, Issuer or Arranger, as
the case may be;
(e) (i) change the definition of "Borrowing Base Amount",
"Eligible Account" or "Net Asset Value" (in each case if the effect
of such change would be to require a Lender to make or participate in
a Credit Extension in an amount that is greater than such Lender
would have had to make or participate in immediately prior to such
change), (ii) amend, modify or waive Section 3.1.1(b) or (iii) have
the effect (either immediately or at some later time) of enabling the
Borrower to satisfy a condition precedent to the making of a
Revolving Loan or the issuance of a Letter of Credit without the
consent of Lenders holding at least 51% of the Revolving Loan
Commitments; or
(f) amend, modify or waive the provisions of clause (a)(i)
of Section 3.1.1 or clause (b) of Section 3.1.2 or effect any
amendment, modification or waiver that by its terms adversely affects
the rights of Lenders participating in any Tranche differently from
those of Lenders participating in other Tranches, without the consent
of the holders of the Notes evidencing at least 51% of the aggregate
amount of Loans outstanding under the Tranche or Tranches affected by
such modification, or, in the case of a modification
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affecting the Revolving Loan Commitment Amount, the Lenders
holding at least 51% of the Revolving Loan Commitments.
No failure or delay on the part of any Agent, the Issuer, any Lender or the
holder of any Note in exercising any power or right under this Agreement or
any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No
notice to or demand on the Borrower in any case shall entitle it to any notice
or demand in similar or other circumstances. No waiver or approval by any
Agent, the Issuer, any Lender or the holder of any Note under this Agreement
or any other Loan Document shall, except as may be otherwise stated in such
waiver or approval, be applicable to subsequent transactions. No waiver or
approval hereunder shall require any similar or dissimilar waiver or approval
thereafter to be granted hereunder.
SECTION 10.2. Notices. All notices and other communications provided
to any party hereto under this Agreement or any other Loan Document shall be
in writing or by facsimile and addressed, delivered or transmitted to such
party at its address or facsimile number set forth on Schedule II hereto or,
in the case of a Lender that becomes a party hereto after the date hereof, as
set forth in the Lender Assignment Agreement pursuant to which such Lender
becomes a Lender hereunder or at such other address or facsimile number as may
be designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid or if properly addressed
and sent by pre-paid courier service, shall be deemed given when received; any
notice, if transmitted by facsimile, shall be deemed given when transmitted
(and telephonic confirmation of receipt thereof has been received).
SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to
pay on demand all reasonable expenses of each of the Agents (including the
reasonable fees and out-of-pocket expenses of a single counsel to the Agents
and of local or foreign counsel, if any, who may be retained by counsel to the
Agents) in connection with
(a) the syndication by the Syndication Agent and the Arranger
of the Loans, the negotiation, preparation, execution and delivery
of this Agreement and of each other Loan Document, including
schedules and exhibits, and any amendments, waivers, consents,
supplements or other modifications to this Agreement or any other
Loan Document as may from time to time hereafter be required,
whether or not the transactions contemplated hereby are consummated;
(b) the filing, recording, refiling or rerecording of each
Mortgage, each Pledge Agreement and each Security Agreement and/or
any Uniform Commercial Code financing statements relating thereto
and all amendments, supplements and modifications to any thereof and
any and all other documents or instruments of further assurance
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required to be filed or recorded or refiled or rerecorded by the
terms hereof or of such Mortgage, Pledge Agreement or Security
Agreement; and
(c) the preparation and review of the form of any document
or instrument relevant to this Agreement or any other Loan Document.
The Borrower further agrees to pay, and to save the Agents, the Issuer and the
Lenders harmless from all liability for, any stamp or other similar taxes
which may be payable in connection with the execution or delivery of this
Agreement, the Credit Extensions made hereunder or the issuance of the Notes
or Letters of Credit or any other Loan Documents. The Borrower also agrees to
reimburse each Agent, the Issuer and each Lender upon demand for all
reasonable out-of-pocket expenses (including reasonable attorneys' fees and
legal expenses) incurred by such Agent, the Issuer or such Lender in
connection with (x) the negotiation of any restructuring or "work-out",
whether or not consummated, of any Obligations and (y) the enforcement of any
Obligations.
SECTION 10.4. Indemnification. In consideration of the execution and
delivery of this Agreement by each Lender and the extension of the
Commitments, the Borrower hereby, to the fullest extent permitted under
applicable law, indemnifies, exonerates and holds each Agent, the
Documentation Agent, the Issuer, the Arranger and each Lender and each of
their respective Affiliates, and each of their respective partners, officers,
directors, employees and agents, and each other Person controlling any of the
foregoing within the meaning of either Section 15 of the Securities Act of
1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as
amended (collectively, the "Indemnified Parties"), free and harmless from and
against any and all actions, causes of action, suits, losses, costs,
liabilities and damages, and expenses actually incurred in connection
therewith (irrespective of whether any such Indemnified Party is a party to
the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnified Parties or any of them as a result
of, or arising out of, or relating to
(a) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Credit
Extension;
(b) the entering into and performance of this Agreement and any
other Loan Document by any of the Indemnified Parties (excluding any
successful action brought by or on behalf of the Borrower as the
result of any failure by any Lender to make any Credit Extension
hereunder);
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrower or any of its
Subsidiaries of all or any portion of the stock or assets of any
Person, whether or not such Agent, such Documentation Agent, such
Issuer, such Arranger or such Lender is party thereto;
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(d) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to
the Borrower's or any of its Subsidiaries' compliance with or
liability under Environmental Law or the Release by the Borrower or
any of its Subsidiaries of any Hazardous Material; or
(e) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission or release from, any real property
owned or operated by the Borrower or any Subsidiary thereof of any
Hazardous Material present on or under such property in a manner
giving rise to liability at or prior to the time the Borrower or
such Subsidiary owned or operated such property (including any
losses, liabilities, damages, injuries, costs, expenses or claims
asserted or arising under any Environmental Law), regardless of
whether caused by, or within the control of, the Borrower or such
Subsidiary,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's
gross negligence or willful misconduct or any Hazardous Materials that are
first manufactured, emitted, generated, treated, released, stored or disposed
of on any real property of the Borrower or any of its Subsidiaries or any
violation of Environmental Law that first occurs on or with respect to any
real property of the Borrower or any of its Subsidiaries after such real
property is transferred to any Indemnified Person or its successor by
foreclosure sale, deed in lieu of foreclosure, or similar transfer, except to
the extent such manufacture, emission, release, generation, treatment, storage
or disposal or violation is actually caused by Holdings, the Borrower or any
of the Borrower's Subsidiaries. The Borrower and its permitted successors and
assigns hereby waive, release and agree not to make any claim, or bring any
cost recovery action against, any Agent, the Issuer, the Documentation Agent,
the Arranger or any Lender under CERCLA or any state equivalent, or any
similar law now existing or hereafter enacted, except to the extent arising
out of the gross negligence or willful misconduct of any Indemnified Party. It
is expressly understood and agreed that to the extent that any of such Persons
is strictly liable under any Environmental Laws, the Borrower's obligation to
such Person under this indemnity shall likewise be without regard to fault on
the part of the Borrower, to the extent permitted under applicable law, with
respect to the violation or condition which results in liability of such
Person. Notwithstanding anything to the contrary herein, each Agent, the
Documentation Agent, the Issuer, the Arranger and each Lender shall be
responsible with respect to any Hazardous Materials that are first
manufactured, emitted, generated, treated, released, stored or disposed of on
any real property of the Borrower or any of its Subsidiaries or any violation
of Environmental Law that first occurs on or with respect to any such real
property after such real property is transferred to any Agent, Documentation
Agent, Issuer, Arranger or Lender to its successor by foreclosure sale, deed
in lieu of foreclosure, or similar transfer, except to the extent such
manufacture, emission, release, generation, treatment, storage or disposal or
violation is actually caused by Holdings, the Borrower or any of the
Borrower's Subsidiaries. If and to the extent that the foregoing undertaking
may be unenforceable for any reason, the Borrower hereby agrees to make the
maximum contribution to
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the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
SECTION 10.5. Survival. The obligations of the Borrower under
Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders
under Sections 4.8 and 9.1, shall in each case survive any termination of this
Agreement, the payment in full of all Obligations and the termination of all
Commitments. The representations and warranties made by the Borrower and each
other Obligor in this Agreement and in each other Loan Document shall survive
the execution and delivery of this Agreement and each such other Loan
Document.
SECTION 10.6. Severability. Any provision of this Agreement or any
other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such provision and such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or such Loan Document or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 10.7. Headings. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not
affect the meaning or interpretation of this Agreement or such other Loan
Document or any provisions hereof or thereof.
SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed by the parties hereto in several counterparts, each
of which shall be deemed to be an original and all of which shall constitute
together but one and the same agreement.
SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE
NOTES AND, EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED THEREIN, EACH
OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement, the
Notes and the other Loan Documents constitute the entire understanding among
the parties hereto with respect to the subject matter hereof and supersede any
prior agreements, written or oral, with respect thereto. Upon the execution
and delivery of this Agreement by the parties hereto, all obligations and
liabilities of DLJ Merchant Banking II, Inc. under or relating or with respect
to the Commitment Letter shall be terminated and of no further force or
effect.
SECTION 10.10. Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that (i) the Borrower
may not assign or transfer its rights or obligations hereunder without the
prior written consent of each of the Agents and all Lenders, and (ii) the
rights of sale, assignment and transfer of the Lenders are subject to Section
10.11.
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SECTION 10.11. Sale and Transfer of Loans and Notes; Participations
in Loans and Notes. Each Lender may assign, or sell participations in, its
Loans and Commitments to one or more other Persons, on a non pro rata basis
(except as provided below), in accordance with this Section 10.11.
SECTION 10.11.1. Assignments. Any Lender (the "Assignor Lender"),
(a) with the written consents of the Borrower, the Agents
and (in the case of any assignment of participations in Letters of
Credit or Revolving Loan Commitments) the Issuer (which consents
shall not be unreasonably delayed or withheld and which consents of
the Agents and the Issuer shall not be required in the case of
assignments made by DLJ or any of its Affiliates), may at any time
assign and delegate to one or more commercial banks or other
financial institutions, and
(b) with notice to the Borrower, the Agents, and (in the
case of any assignment of participations in Letters of Credit or
Revolving Loan Commitments) the Issuer, but without the consent of
the Borrower, the Agents or the Issuer, may assign and delegate to
any of its Affiliates or to any other Lender
(each Person described in either of the foregoing clauses as being the Person
to whom such assignment and delegation is to be made, being hereinafter
referred to as an "Assignee Lender"), all or any fraction of such Lender's
total Loans, participations in Letters of Credit and Letter of Credit
Outstandings with respect thereto and Commitments (which assignment and
delegation shall be, as among Revolving Loan Commitments, Revolving Loans and
participations in Letters of Credit, of a constant, and not a varying,
percentage) in a minimum aggregate amount of (i) $5,000,000 or (ii) the then
remaining amount of such Lender's Loans and Commitments; provided, however,
that any such Assignee Lender will comply, if applicable, with the provisions
contained in Section 4.6 and the Borrower, each other Obligor and the Agents
shall be entitled to continue to deal solely and directly with such Lender in
connection with the interests so assigned and delegated to an Assignee Lender
until
(c) written notice of such assignment and delegation,
together with payment instructions, addresses and related information
with respect to such Assignee Lender, shall have been given to the
Borrower and the Agents by such Lender and such Assignee Lender;
(d) such Assignee Lender shall have executed and delivered
to the Borrower and the Agents a Lender Assignment Agreement,
accepted by the Agents; and
(e) the processing fees described below shall have been paid.
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From and after the date that the Agents accept such Lender Assignment
Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to
have become a party hereto and to the extent that rights and obligations
hereunder have been assigned and delegated to such Assignee Lender in
connection with such Lender Assignment Agreement, shall have the rights and
obligations of a Lender hereunder and under the other Loan Documents, and (y)
the Assignor Lender, to the extent that rights and obligations hereunder have
been assigned and delegated by it in connection with such Lender Assignment
Agreement, shall be released from its obligations hereunder and under the
other Loan Documents. Within ten Business Days after its receipt of notice
that the Administrative Agent has received an executed Lender Assignment
Agreement, the Borrower shall execute and deliver to the Administrative Agent
(for delivery to the relevant Assignee Lender) new Notes evidencing such
Assignee Lender's assigned Loans and Commitments and, if the Assignor Lender
has retained Loans and Commitments hereunder, replacement Notes in the
principal amount of the Loans and Commitments retained by the Assignor Lender
hereunder (such Notes to be in exchange for, but not in payment of, those
Notes then held by such Assignor Lender). Each such Note shall be dated the
date of the predecessor Notes. The Assignor Lender shall mark the predecessor
Notes "exchanged" and deliver them to the Borrower. Accrued interest on that
part of the predecessor Notes evidenced by the new Notes, and accrued fees,
shall be paid as provided in the Lender Assignment Agreement. Accrued interest
on that part of the predecessor Notes evidenced by the replacement Notes shall
be paid to the Assignor Lender. Accrued interest and accrued fees shall be
paid at the same time or times provided in the predecessor Notes and in this
Agreement. Such Assignor Lender or such Assignee Lender (unless the Assignor
Lender or the Assignee Lender is DLJ or one of its Affiliates) must also pay a
processing fee to the Administrative Agent upon delivery of any Lender
Assignment Agreement in the amount of $1,500, unless such assignment and
delegation is by a Lender to its Affiliate or if such assignment and
delegation is by a Lender to a Federal Reserve Bank, as provided below or is
otherwise consented to by the Administration Agent. Any attempted assignment
and delegation not made in accordance with this Section 10.11.1 shall be null
and void. Nothing contained in this Section 10.11.1 shall prevent or prohibit
any Lender from pledging its rights (but not its obligations to make Loans or
participate in Letters of Credit of Letter of Credit Outstandings) under this
Agreement and/or its Loans and/or its Notes hereunder to a Federal Reserve
Bank in support of borrowings made by such Lender from such Federal Reserve
Bank. In the event that S&P, Moody's or Thompson's BankWatch (or
InsuranceWatch Ratings Service, in the case of Lenders that are insurance
companies (or Best's Insurance Reports, if such insurance company is not rated
by Insurance Watch Ratings Service)) shall, after the date that any Lender
with a Commitment to make Revolving Loans or participate in Letters of Credit
becomes a Lender, downgrade the long-term certificate of deposit rating or
long-term senior unsecured debt rating of such Lender, and the resulting
rating shall be below BBB-, Baa3 or C (or BB, in the case of Lender that is an
insurance company (or B, in the case of an insurance company not rated by
InsuranceWatch Ratings Service)) respectively, then the Issuer or the Borrower
(with the consent of the Agents and the Issuer) shall have the right, but not
the obligation, upon notice to such Lender and the Agents, to replace such
Lender with an Assignee Lender in accordance with and subject to the
restrictions contained in this Section, and
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such Lender hereby agrees to transfer and assign without recourse (in
accordance with and subject to the restrictions contained in this Section) all
its interests, rights and obligations in respect of its Revolving Loan
Commitment under this Agreement to such Assignee Lender; provided, however,
that (i) no such assignment shall conflict with any law, rule, regulation or
order of any governmental authority and (ii) such Assignee Lender shall pay to
such Lender in immediately available funds on the date of such assignment the
principal of and interest and fees (if any) accrued to the date of payment on
the Loans made, and Letters of Credit participated in, by such Lender
hereunder and all other amounts accrued for such Lender's account or owed to
it hereunder.
SECTION 10.11.2. Participations. Any Lender may at any time sell to
one or more commercial banks or other Persons (each such commercial bank and
other Person being herein called a "Participant") participating interests in
any of the Loans, Commitments, participations in Letters of Credit and Letters
of Credit Outstandings or other interests of such Lender hereunder; provided,
however, that
(a) no participation contemplated in this Section shall relieve
such Lender from its Commitments or its other obligations hereunder
or under any other Loan Document;
(b) such Lender shall remain solely responsible for the
performance of its Commitments and such other obligations;
(c) the Borrower and each other Obligor and the Agents shall
continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement and
each of the other Loan Documents;
(d) no Participant, unless such Participant is an Affiliate of
such Lender, or is itself a Lender, shall be entitled to require
such Lender to take or refrain from taking any action hereunder or
under any other Loan Document, except that such Lender may agree
with any Participant that such Lender will not, without such
Participant's consent, agree to (i) any reduction in the interest
rate or amount of fees that such Participant is otherwise entitled
to, (ii) a decrease in the principal amount, or an extension of the
final Stated Maturity Date, of any Loan in which such Participant
has purchased a participating interest or (iii) a release of all or
substantially all of the collateral security under the Loan
Documents or any Subsidiary Guarantor under any Subsidiary Guaranty,
if any, in each case except as otherwise specifically provided in a
Loan Document; and
(e) the Borrower shall not be required to pay any amount under
Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4 that is greater than the
amount which it would have been required to pay had no participating
interest been sold.
110
<PAGE>
The Borrower acknowledges and agrees, subject to clause (e) above, that, to
the fullest extent permitted under applicable law, each Participant, for
purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4, shall be
considered a Lender.
SECTION 10.11.3. Assignment of Registered Notes. A Registered Note
and the Obligations evidenced thereby may be assigned or otherwise transferred
in whole or in part pursuant to the terms of Section 10.11.1 and only by
registration of such assignment or transfer of such Registered Note and the
Obligations evidenced thereby on the Register (and each Registered Note shall
expressly so provide). Any assignment or transfer of all or part of such
Obligations and the Registered Note(s) evidencing the same shall be registered
on the Register only upon surrender for registration of assignment or transfer
of the Registered Note(s) evidencing such Obligations, duly endorsed by (or
accompanied by a written instrument of assignment or transfer duly executed
by) the Registered Noteholder thereof, and thereupon one or more new
Registered Note(s) in the same aggregate principal amount shall be issued to
the designated Assignee Lender, and the old Registered Note(s) shall be
returned by the Administrative Agent to the Borrower marked "canceled." Prior
to the due presentment for registration of assignment or transfer of any
Registered Note, the Borrower and the Agents shall treat the Person in whose
name such Obligations and the Registered Note(s) evidencing the same is
registered as the owner thereof for the purpose of receiving all payments
thereon and for all other purposes, notwithstanding any notice to the
contrary.
SECTION 10.12. Other Transactions. Nothing contained herein shall
preclude any Agent or any other Lender from engaging in any transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Affiliates in which the Borrower or such
Affiliate is not restricted hereby from engaging with any other Person.
SECTION 10.13. Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE
LENDERS, THE ISSUER OR THE BORROWER RELATING THERETO SHALL BE BROUGHT AND
MAINTAINED EXCLUSIVELY (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) IN THE
COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY, OR IN THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT
ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY
JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK, NEW
111
<PAGE>
YORK COUNTY, AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE
AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH SUCH LITIGATION. THE BORROWER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE
WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY
SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT
THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF
ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE,
ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE)
WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES
(TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 10.14. Waiver of Jury Trial. THE AGENTS, THE ISSUER, THE
LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS OR THE
BORROWER RELATING THERETO. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS
RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER
PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS AND THE LENDERS ENTERING
INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
SECTION 10.15. Confidentiality. The Agents, the Issuer, the Arranger
and the Lenders shall hold all non-public information obtained pursuant to or
in connection with this Agreement or obtained by them based on a review of the
books and records of the Borrower or any of its Subsidiaries in accordance
with their customary procedures for handling confidential information of this
nature, but may make disclosure to any of their examiners, Affiliates, outside
auditors,
112
<PAGE>
counsel and other professional advisors in connection with this Agreement or
as reasonably required by any potential bona fide transferee, participant or
assignee, or in connection with the exercise of remedies under a Loan
Document, or as requested by any governmental agency or representative thereof
or pursuant to legal process; provided, however, that
(a) unless specifically prohibited by applicable law or
court order, each Agent, the Arranger and each Lender shall notify
the Borrower of any request by any governmental agency or
representative thereof (other than any such request in connection
with an examination of the financial condition of such Agent, the
Issuer, Arranger and Lender by such governmental agency) for
disclosure of any such non-public information prior to disclosure of
such information;
(b) prior to any such disclosure pursuant to this Section
10.15, each Agent, the Issuer, the Arranger and each Lender shall
require any such bona fide transferee, participant and assignee
receiving a disclosure of non-public information to agree in writing
(i) to be bound by this Section 10.15; and
(ii) to require such Person to require any other
Person to whom such Person discloses such non-public
information to be similarly bound by this Section 10.15; and
(c) except as may be required by an order of a court of
competent jurisdiction and to the extent set forth therein, no Lender
shall be obligated or required to return any materials furnished by
the Borrower or any Subsidiary.
113
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
day and year first above written.
DECISIONONE CORPORATION
By:________________________________
Title:
DLJ CAPITAL FUNDING, INC.,
as the Syndication Agent and as
Lender
By:________________________________
Title:
NATIONSBANK, N.A.,
as the Administrative Agent
and as Lender
By: ________________________________
Title:
BANKBOSTON, N.A.,
as the Documentation Agent
and as Lender
By: _________________________________
Title:
114
<PAGE>
SCHEDULE I
DISCLOSURE SCHEDULE
ITEM 6.7 Litigation.
Description of Proceeding Action or Claim Sought
ITEM 6.8 Existing Subsidiaries.
ITEM 6.11 Employee Benefit Plans.
ITEM 6.12 Environmental Matters.
ITEM 7.1.11 Mortgaged Properties.
ITEM 7.2.2(a) Ongoing Indebtedness.
ITEM 7.2.2 (b) Ongoing Liens.
<PAGE>
ITEM 7.2.5(a) Ongoing Investments.
I-2
<PAGE>
SCHEDULE II to
Credit Agreement
PERCENTAGES
REVOLVING Term-A Term-B Term-C
LOAN Loan Loan Loan
COMMITMENT Commitment Commitment Commitment
---------- ---------- ---------- ----------
% % % %
[LENDER] % % % %
ADMINISTRATIVE INFORMATION
Notice Information
Lenders' Domestic and LIBOR Offices
DLJ Capital Funding, Inc.
525 Washington Blvd.
Jersey City, New Jersey 07310
Contact: ____________
Fax: 201-610-1965
<PAGE>
July 28, 1997
DecisionOne Holdings Corp.
DecisionOne Corporation
50 East Swedesford Road
Frazer, Pennsylvania 19355
Quaker Holdings Co.
277 Park Avenue
New York, New York 10172
Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Re: Agreement to Act as "Qualified Independent Underwriter"
Ladies and Gentlemen:
You have advised us that (i) DecisionOne Corporation
("DecisionOne"), a Delaware corporation, has filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(Reg. No. 333-28411) (the "DecisionOne S-1"), relating to the offering by
DecisionOne of $150,000,000 principal amount of % Senior Subordinated Notes due
2007 (the "Notes"), or such other principal amount of Notes as you may
determine, and (ii) Quaker Holding Co. ("Quaker"), a Delaware corporation, has
filed with the Commission a registration statement on Form S-1 (Reg. No.
333-28539) (the "Quaker S-1"), relating to the offering by Quaker of units (the
"Units"), each consisting of $1,000 principal amount of its ____% Senior
Discount Debentures due 2008 (the "Debentures") and warrants (the "Warrants")
to purchase shares of the common stock, par value $.01 per share, of Quaker
(the "Quaker Common Stock"). We understand that the number of Units offered and
the number of shares of Common Stock included in each Debenture Warrant will be
determined based on market conditions. Upon consummation of the merger (the
"Merger") between Quaker and DecisionOne Holdings Corp. ("Holdings"), a
Delaware corporation, Holdings will succeed
<PAGE>
Page 2
to the obligations of Quaker with respect to the Debentures and the Warrants,
and the Warrants will become exercisable for an equal number of shares of
common stock, par value $.01 per share, of Holdings (the "Holdings Common
Stock"). The term "Unit Issuer" means Quaker before the Merger and Holdings
after the Merger, the term "Note Issuer" means DecisionOne and the term
"Issuers" means the Unit Issuer and the Note Issuer. The Notes will be issued
pursuant to an Indenture by and between DecisionOne and Fleet National Bank, as
Trustee. The Debentures will be issued pursuant to an Indenture by and between
the Unit Issuer and Fleet National Bank, as Trustee.
In connection with the public offerings of the Notes and
Units (the "Offerings"), Donaldson, Lufkin & Jenrette Securities Corporation
(the "Underwriter") will be the underwriter. Subject to the terms and
conditions of the underwriting agreement to be entered into between DecisionOne
and the Underwriter (the "Note Underwriting Agreement"), the Underwriter will
agree to purchase from DecisionOne, and DecisionOne will agree to sell to the
Underwriter, all of the Notes. Subject to the terms and conditions of the
underwriting agreement to be entered into between the Unit Issuer and the
Underwriter (the "Unit Underwriting Agreement"), the Underwriter will agree to
purchase from the Unit Issuer, and the Unit Issuer will agree to sell to the
Underwriter, all of the Units. The Note Underwriting Agreement and the Unit
Underwriting Agreement are sometimes collectively referred to as the
Underwriting Agreements. The Notes, Units, Debentures and Warrants are
sometimes collectively referred to as the "Securities."
We understand that, as a member of the National Association
of Securities Dealers, Inc. ("NASD"), the Underwriter may participate in the
Offerings only if the yield at which the Notes are to be offered to the public
in its Offering is no lower than the yield, and if the price of each Unit to be
offered to the public in its Offering is no higher than the price, recommended
by a "Qualified Independent Underwriter" (as such term is defined in Rule
2720(b)(15) of the NASD Conduct Rules) and such Qualified Independent
Underwriter participates in the preparation of the registration statement and
prospectus relating to each of the Offerings and exercises the usual standards
of due diligence with respect thereto. This Agreement describes the terms on
which Ladenburg Thalmann & Co. Inc. ("Ladenburg") agrees to serve as such a
Qualified Independent Underwriter in connection with each of the Offerings. In
connection with the services to be provided by Ladenburg hereunder and based
upon the several representations and warranties of, and subject to the
performance of the several covenants by, the Issuers herein set forth and
Ladenburg's satisfaction with the results of its due diligence review,
Ladenburg agrees to deliver to the Issuers and the Underwriter, and file with
the NASD, a letter (the "Letter"), substantially in the form of Appendix A
hereto, on the date
<PAGE>
Page 3
each Registration Statement (as hereinafter defined) is first declared
effective by the Commission (the "Effective Date") or, if the Offerings are not
priced on the Effective Date, on the date of the pricing of the Offerings (the
"Pricing Date"). As a condition to the delivery of the Letter, each
Registration Statement and each amendment thereto will include any revisions
that in the reasonable judgment of Ladenburg and its legal counsel are required
to enable Ladenburg to deliver the Letter.
As herein used, except as the context may otherwise require,
the term "Registration Statement" means either the DecisionOne S-1 or the
Quaker S-1 (including the related prospectuses, financial statements, exhibits,
schedules, term sheets and all other documents filed as parts thereof or
incorporated therein) for the registration of the respective Securities under
the Securities Act of 1933, as amended (the "1933 Act"), in the form declared
effective, filed with the Commission and any amendments thereto. The term
"Prospectus" with respect to each Offering means the prospectus, including any
preliminary or final prospectus (including the form of prospectus or term sheet
first filed with the Commission pursuant to Rule 424(b) or 430A under the 1933
Act after the Registration Statement with respect to such Offering becomes
effective or, if no such filing is required, each prospectus in the form
included in the Registration Statement with respect to such Offering at the
time it is first declared effective), and any amendment or supplement thereto
(including any form of prospectus or term sheet filed with the Commission
pursuant to Rule 424(b) under the 1933 Act), to be used in connection with such
Offering.
1. NASD Requirement. Ladenburg hereby confirms its agreement
to act in connection with the Offerings as a "Qualified Independent
Underwriter" within the meaning of Rule 2720 of the NASD Conduct Rules and
represents that Ladenburg satisfies or will satisfy at the times designated in
Rule 2720(b)(15) the requirements set forth therein.
2. Consent. Ladenburg hereby consents to be named in the
Registration Statement and Prospectus with respect to each Offering as having
acted as the Qualified Independent Underwriter and to the filing of this
Agreement as an exhibit to the Registration Statement with respect to each
Offering. All references to Ladenburg in the Registration Statement or
Prospectus with respect to each Offering or in any other filing, report,
document, release or other communication prepared, issued or transmitted in
connection with the Offerings by the Issuers or the Underwriter or any entity
controlling, controlled by or under common control with, or by any of them,
shall be subject to Ladenburg's prior consent with respect to form and
substance. Ladenburg's obligation to act as a Qualified Independent Underwriter
<PAGE>
Page 4
hereunder shall terminate if the Issuers shall breach in any material respect
any representation, warranty or covenant hereunder and such breach shall not be
cured within 10 days of written notice thereof to the Issuers, provided such
breach would adversely affect Ladenburg's ability to meet its obligations
hereunder or impose, in Ladenburg's reasonable judgment, additional liability
on Ladenburg.
3. Fee and Expenses. The Issuers agree to pay Ladenburg an
aggregate fee of $125,000 (the "Fee") for its services hereunder, of which
$45,000 (the "Initial Payment") shall be earned upon the execution of this
Agreement. The Initial Payment, together with the balance of the Fee, shall be
payable on the date on which payment for and delivery of any of the Securities
are made (the "Closing Date"). The Issuers also agree to reimburse Ladenburg
for all reasonable out-of-pocket expenses, including all reasonable fees and
expenses of Ladenburg's counsel, incurred by Ladenburg in connection with this
Agreement and the Offerings; provided, however, that the obligation of the
Issuers to reimburse Ladenburg for fees and expenses shall be limited to
$25,000. The limitation on fees and expenses set forth in the immediately
preceding sentence is subject to there being no (i) material change in the
nature of the Offerings as described in the draft DecisionOne S-1 and Quaker
S-1 heretofore provided to Ladenburg, (ii) material delay in the consummation
of the Offerings which causes an unexpected and material number of revisions in
either S-1 or (iii) unusual number of refilings with the Commission as a result
of the Commission's comments with respect to either S-1. Ladenburg will be
entitled to retain the full amount of such fee and receive payment of such
expenses regardless of the yield of the Notes or the price of the Units that
Ladenburg recommends pursuant to this Agreement. If, for whatsoever reason, it
is determined that the Offerings shall not commence or will not be consummated,
Ladenburg shall be entitled to be paid in full for the above-mentioned
expenses, promptly following such determination, and shall continue to be
entitled to any amount payable to Ladenburg under Section 6.
4. Representations, Warranties and Covenants of the Issuers.
(a) Each of the Issuers agrees that all of its
representations and warranties contained in the Underwriting
Agreements, when made, shall be deemed to be incorporated by
reference herein and made to Ladenburg hereunder. Each of the
Issuers agrees that its execution of an Underwriting
Agreement shall constitute confirmation to Ladenburg that, on
such date, the representations and warranties of such Issuer
included in the Underwriting Agreements are true, correct and
complete in all material respects.
<PAGE>
Page 5
(b) Each of the Issuers represents and warrants that
this Agreement has been duly authorized, executed and
delivered by such Issuer; the performance of this Agreement
and the consummation of the transactions contemplated hereby
will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of such Issuer
pursuant to the terms or provisions of, or result in a breach
or violation of any of the terms or provisions of or
constitute a default under, any indenture, mortgage, deed of
trust, voting trust agreement, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness,
lease, contract or other agreement or instrument to which
such Issuer or any of its properties is bound, or under the
certificate of incorporation or by-laws of such Issuer or
under any statute or under any order, rule or regulation of
any court or governmental body applicable to the business or
properties of such Issuer; and no consent, approval,
authorization or order of any court or governmental agency or
body is required for the consummation by such Issuer of the
transactions on its part herein contemplated which has not
been duly obtained.
(c) Each of the Issuers agrees that all of its
covenants and other agreements contained in the Underwriting
Agreements, when made, shall be deemed to be incorporated by
reference herein and made with Ladenburg hereunder. Each of
the Issuers agrees that its execution of an Underwriting
Agreement shall constitute confirmation to Ladenburg of such
Issuer's performance in all material respects of its
covenants and other agreements contained in the Underwriting
Agreements.
5. Availability of Information.
(a) Each of the Issuers hereby agrees to provide
Ladenburg, at such Issuer's sole cost and expense, with all
information and documentation with respect to its business,
financial condition and other matters as Ladenburg may deem
relevant and shall reasonably request in connection with its
performance under this Agreement, including, without
limitation, copies of all correspondence with the Commission
or the NASD, certificates of its officers, opinions of its
counsel and comfort letters from its auditors. The
above-mentioned certificates, opinions of counsel and comfort
letters shall be provided to Ladenburg, as Ladenburg may
request on or prior to the Effective Date, on or prior to the
<PAGE>
Page 6
Pricing Date and on or prior to the Closing Date, if then
required to be provided under either Underwriting Agreement.
Each of the Issuers will make reasonably available to
Ladenburg its auditors, counsel and officers and directors to
discuss with Ladenburg any aspect of such Issuer which
Ladenburg may deem relevant. In addition, each of the Issuers
will cause to be delivered to Ladenburg, when delivered to
the Underwriter, copies of all certificates, opinions,
comfort letters, reports and other documents delivered to the
Underwriter pursuant to the Underwriting Agreements and shall
cause the person issuing such certificate, opinion, comfort
letter, report or other document to authorize Ladenburg to
rely thereon to the same extent as if addressed directly to
Ladenburg. In addition, the Underwriter and each of the
Issuers will promptly advise Ladenburg of all telephone
conversations with the NASD or the Commission which relate to
or may affect the Offerings, the DecisionOne S-1 or the
Quaker S-1.
(b) Latham & Watkins will provide, at the
Underwriter's expense, to Ladenburg the opinions said counsel
shall deliver to the Underwriter as underwriter under the
Underwriting Agreements, which opinions shall be addressed to
Ladenburg and shall be dated the Closing Date (or any other
date on which an opinion is delivered by such counsel
pursuant to the Underwriting Agreements).
(c) Ladenburg hereby agrees to cooperate in all
reasonable respects with the Underwriter and its counsel in
responding to any comments made by the NASD with respect to
the Offerings, this Agreement or Ladenburg's role as
"Qualified Independent Underwriter".
6. Indemnification and Contribution.
(a) The Issuers severally agree to indemnify and
hold harmless Ladenburg and its directors, its officers and
each person, if any, who controls Ladenburg within the
meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act") from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any
legal or other expenses incurred in connection with
investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages,
liabilities or judgments and any amount paid in
<PAGE>
Page 7
settlement of, any action, suit or proceeding commenced or
any claim asserted), to which Ladenburg may become subject
under the 1933 Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or
otherwise, related to, based upon or arising out of (i) an
untrue statement or alleged untrue statement of a material
fact contained in the applicable Registration Statement, any
preliminary prospectus, either Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading,
(ii) any breach or alleged breach by the applicable Issuer of
its representations, warranties and agreements contained in
this Agreement or (iii) Ladenburg's performance of its duties
under this Agreement; provided, however, that the applicable
Issuer will have no obligation under this Section 6(a) to the
extent that any such loss, claim, damage, liability or action
pursuant to clause (iii) above shall have been determined in
a final judgment of a court of competent jurisdiction to have
been due to the willful misconduct or gross negligence of
Ladenburg.
Ladenburg agrees to indemnify and hold harmless each
of the Issuers, its directors and officers, and each person,
if any, who controls any of the Issuers within the meaning of
either Section 15 of the 1933 Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity
from the Issuers to Ladenburg, but only with respect to
information relating to Ladenburg furnished in writing by
Ladenburg expressly for use in the applicable Registration
Statement, the applicable Prospectus, or any amendment or
supplement thereto, or any preliminary prospectus; provided,
however, that the foregoing indemnity by Ladenburg shall not
apply to any untrue statement or omission contained in any
preliminary prospectus which is not contained in the related
Prospectus.
(b) In case any action shall be comenced involving
any person in respect of which indemnity may be sought under
this Section 6, such person shall promptly notify each
indemnifying party in writing and such indemnifying party
shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such indemnified party,
and the payment of all fees and expenses of such counsel, as
incurred (except that in the case of any action in respect of
which indemnity may be sought pursuant to the first and
second paragraphs of Section 6(a), Ladenburg shall not be
required to assume the defense thereof, but
<PAGE>
Page 8
may employ separate counsel and participate in the defense
thereof, but the fees and expenses of such counsel, except as
provided below, shall be at the expense of Ladenburg). Any
indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the
employment of such counsel by such indemnified party shall
have been specifically authorized in writing by the
indemnifying parties, (ii) the indemnified party shall have
failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party, or (iii)
the named parties to any such action (including any impleaded
parties) include both the indemnified party and the
indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal
defenses available to it which are different from or
additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to
assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but
substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more
than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm
shall be designated in writing by Ladenburg, in the case of
parties indemnified pursuant to the first paragraph of
Section 6(a), and by the applicable Issuer, in the case of
the parties indemnified pursuant to the second paragraph of
Section 6(a). The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason
of any settlement of any action (i) effected with its written
consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days
after the indemnifying party shall have received a request
from the indemnified party for reimbursement for the fees and
expense of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to
the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any
pending or threatened action in respect of which the
indemnified party is or could have been a party and
<PAGE>
Page 9
indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release
of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and
(ii) does not include a statement as to or an admission of
fault, culpability or a failure to act, by or on behalf of
the indemnified party.
(c) To the extent the indemnification provided for
in Section 6(a) is unavailable to, or insufficient to hold
harmless any indemnified party under Section 6(a), in respect
of any loss, claim, damage, liability or judgment referred to
therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments
(i) in such proportion as is appropriate to reflect the
relative benefits received by the Issuers, on the one hand,
and Ladenburg, on the other, from the Offerings or (ii) if
the allocation provided by clause (i) above is not permitted
by applicable law, or if the indemnified party failed to give
the notice required under Section 6(b), in such proportion as
is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault
of the Issuers, on the one hand, and Ladenburg, on the other,
in connection with Ladenburg's activities under this
Agreement or the statements or omissions that resulted in
such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The
relative benefits received by the Issuers, on the one hand,
and Ladenburg, on the other, shall be deemed to be in the
same proportion as the total net proceeds from the Offerings
(before deducting expenses) bear to the total fee paid to
Ladenburg pursuant to Section 3. The relative fault of the
Issuers, on the one hand, and of Ladenburg, on the other,
shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material
fact relates to information supplied by the Issuers or by
Ladenburg, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent
such statement or omission.
The Issuers and Ladenburg agree that it would not be
just and equitable if contribution pursuant to this Section
6(c) were determined by pro rata allocation or by any other
method of allocation which does not take account of the
equitable
<PAGE>
Page 10
considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or
defending any matter, including any action that could have
given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 6,
Ladenburg shall not be required to contribute any amount in
excess of the amount by which the fee paid to Ladenburg
pursuant to Section 3 exceeds the amount of any damages
Ladenburg has otherwise been required to pay by reason of
such activities under this Agreement or such untrue or
alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled
to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(d) The remedies provided for in this Section 6 are
not exclusive and shall not limit any rights or remedies
which may otherwise be available to any indemnified party at
law or in equity.
(e) The statements with respect to Ladenburg in the
last paragraph under the caption "Underwriting" in the
Prospectus with respect to each Offering constitute the only
information furnished to the applicable Issuer in writing on
behalf of Ladenburg expressly for use in the applicable
Registration Statement, the applicable Prospectus or any
amendment or supplement thereto, or any applicable
preliminary prospectus.
(f) The indemnity and contribution agreements
contained in this Section 6, and the covenants,
representations and warranties of the Issuers set forth in
this Agreement, shall remain operative and in full force and
effect regardless of (i) any investigation made by Ladenburg
or on its behalf or by or on behalf of any person who
controls Ladenburg or (ii) any termination of this Agreement
or the Offerings.
7. Successors and Assigns. The benefits of this Agreement
shall inure to the respective successors and assigns of the parties hereto and
the obligations and liabilities assumed
<PAGE>
Page 11
in this Agreement by the parties hereto shall be binding upon their respective
successors and assigns. Ladenburg expressly acknowledges and agrees that this
Agreement shall be binding upon and inure to the benefit of Holdings only upon
consummation of the Merger.
8. Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented unless the Issuers, the
Underwriter and Ladenburg consent in writing to such amendment, modification or
supplement.
9. Notice. Whenever notice is required to be given pursuant
to this Agreement, such notice shall be in writing and shall be delivered by
hand or by commercial messenger service or mailed by first class mail, postage
prepaid, addressed (a) if to Ladenburg, at the address set forth at the head of
this Agreement, Attention: Ronald Kramer, (b) if to the Issuers, at 50 East
Swedesford Road, Frazer, Pennsylvania 19355, Attention: Kenneth Draeger, (c) if
to Quaker, prior to the Merger, at 277 Park Avenue, New York, New York 10172,
Attention, Peter T. Grauer, or (d) if to the Underwriter, at 277 Park Avenue,
New York, New York 10172, Attention: Maureen Block, Legal Department, or such
other address as to which any party shall notify the other parties hereto in
writing.
10. Governing Law. This Agreement shall be construed (both as
to validity and performance) and enforced in accordance with and governed by
the laws of the State of New York applicable to agreements made and to be
performed wholly within such jurisdiction. Each of the Issuers irrevocably
consents that any legal action or proceeding against it under, arising out of
or in any manner relating to this Agreement may be brought in any court of the
State of New York, County of New York, or in the United States District Court
for the Southern District of New York. Each of the Issuers, by the execution
and delivery of this Agreement, expressly and irrevocably assents and submits
to the personal jurisdiction of any of such courts in any such action or
proceeding. Each of the Issuers irrevocably consents to the service of any
complaint, summons, notice or other process relating to any such action or
proceeding by delivery thereof to it in the manner provided for in Section 9
hereof.
11. Counterparts. This Agreement may be signed in two or more
counterparts with the same force and effect as if the signatures thereto and
hereto were upon the same instrument.
12. Obligations. After the Merger, all several
representations and warranties, covenants, agreements and obligations of the
Issuers contained in this Agreement shall become
<PAGE>
Page 12
joint and several representations and warranties, covenants, agreements and
obligations of the Issuers.
If the above terms are in accordance with your understanding
of our agreement, please sign the enclosed copy of this Agreement and return
such copy to us.
Very truly yours,
LADENBURG THALMANN & CO. INC.
By:
-----------------------------
Managing Director
CONFIRMED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN:
DECISIONONE HOLDINGS CORP.
By:
----------------------------------------
Name:
Title:
DECISIONONE CORPORATION
By:
----------------------------------------
Name:
Title:
QUAKER HOLDING CO.
By:
----------------------------------------
Name:
Title:
<PAGE>
Page 13
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By:
----------------------------------------
Name:
Title:
<PAGE>
APPENDIX A
July , 1997
DecisionOne Holdings Corp.
DecisionOne Corporation
50 East Swedesford Road
Frazer, Pennsylvania 19355
Quaker Holdings Co.
277 Park Avenue
New York, New York 10172
Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Re: Agreement to Act as "Qualified Independent Underwriter"
-------------------------------------------------------
Ladies and Gentlemen:
You have advised us that (i) DecisionOne Corporation ("DecisionOne"),
a Delaware corporation, has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (Reg. No. 333-28411),
relating to the offering by DecisionOne of $150,000,000 principal amount of %
Senior Subordinated Notes due 2007 (the "Notes"), or such other principal
amount of Notes as you may determine, and (ii) Quaker Holding Co. ("Quaker"), a
Delaware corporation, has filed with the Commission a registration statement on
Form S-1 (Reg. No. 333- 28539), relating to the offering by Quaker of ________
units (the "Units"), each consisting of $1,000 principal amount of its ____%
Senior Discount Debentures due 2008 (the "Debentures") and warrants (the
"Warrants") to purchase _________ shares of the common stock, par value $.01
per share, of Quaker (the "Quaker Common Stock") at a price of $____ per share.
Upon consummation of the merger (the "Merger") between Quaker and DecisionOne
Holdings Corp. ("Holdings"), a Delaware corporation, Holdings will succeed to
the obligations of Quaker with respect to the Debentures and the Warrants, and
the Warrants will become exercisable for an equal number of shares of common
stock, par value $.01 per share, of Holdings (the "Holdings Common Stock"). The
<PAGE>
July , 1997
Page 2
term "Unit Issuer" means Quaker before the Merger and Holdings after the
Merger. The Notes will be issued pursuant to an Indenture by and between
DecisionOne and Fleet National Bank, as Trustee. The Debentures will be issued
pursuant to an Indenture by and between the Unit Issuer and Fleet National
Bank, as Trustee. DecisionOne, Quaker and Holdings are sometimes collectively
referred to as the "Corporations". The Notes, Units, Debentures and Warrants
are sometimes collectively referred to as the "Securities."
We understand that, as a member of the National Association of
Securities Dealers, Inc. (the "NASD"), the Underwriter may participate in the
Offerings only if the yield at which the Notes are offered to the public is no
lower than the yield, and if the price of each Unit offered to the public is no
higher than the price, recommended by a "Qualified Independent Underwriter."
Pursuant to a letter agreement, dated July 28, 1997, among the Corporations,
the Underwriter and us (the "Retention Agreement"), we have been retained as a
"Qualified Independent Underwriter" (as such term is defined in Rule
2720(b)(15) of the NASD Conduct Rules) to recommend to you the minimum yield
for the Notes, and the maximum price for the Units, to be sold to the public.
We have participated in the preparation of the Registration Statement
and the Prospectus (as such terms are defined in the Retention Agreement) with
respect to each of the Offerings, and have exercised the usual standards of due
diligence with respect thereto. Assuming that the Offerings are each commenced
on July , 1997, and further assuming compliance by the Corporations and the
Underwriter with their representations, warranties and covenants in Sections 4
and 5 of the Retention Agreement, we recommend that (a) the yield of the Notes
be no lower than % and (b) the price of the Units be no higher than $ ,
each of which should in no event be considered or relied upon as an indication
of the actual value of any of the Securities.
Very truly yours,
LADENBURG THALMANN & CO. INC.
By:_________________________________
Managing Director
<PAGE>
July 30, 1997
Re: Registration Statement on Form S-1
(Registration No. 333-28411)
DecisionOne Corporation
50 East Swedesford Road
Frazer, Pennsylvania 19355
Ladies and Gentlemen:
We have acted as counsel to DecisionOne Corporation (the "Company") in
connection with the Company's Registration Statement on Form S-1 (No.
333-28411) (the "Registration Statement"), as amended, filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended, for the registration of $150,000,000 aggregate principal amount
of Senior Subordinated Notes due 2007 of the Company (the "Senior Subordinated
Notes"). The Senior Subordinated Notes are to be issued pursuant to an
Indenture (the "Indenture") between the Company and the State Street Bank and
Trust Company, as Trustee (the "Trustee").
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary or advisable for the purpose of rendering this opinion, including
the form of resolutions (the "Resolutions") to be adopted by the Board of
Directors of the Company relating to the Senior Subordinated Notes and the
Indenture.
Upon the basis of the foregoing, we are of the opinion that when the
Resolutions are duly adopted by the Board of Directors of the Company,
the Senior Subordinated Notes will be duly authorized and, assuming the
Indenture is duly executed and delivered by the Company and the Trustee, and
the Senior Subordinated Notes are duly executed and authenticated in
accordance with the Indenture, and duly delivered against payment of the
agreed consideration therefor in accordance with the Underwriting Agreement
referred to in the prospectus that is part of the Registration Statement, will
be valid and binding obligations of the Company.
<PAGE>
DecisionOne Corporation 2 July 30, 1997
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of
the United States of America and the General Corporation Law of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the reference to us under the
caption "Legal Matters" in the prospectus contained in such Registration
Statement.
Very truly yours,
<PAGE>
TAX SHARING AGREEMENT
This Tax Sharing Agreement dated as of [ ] is between DecisionOne
Holdings Corporation, a Delaware corporation ("PARENT"), DecisionOne
Corporation, a Delaware corporation ("SUB") and five directly and indirectly
wholly-owned Delaware subsidiaries of Sub, Decision One Supplies, Inc.
("SUB1"), Properties Holding Corporation ("SUB2"), IC Properties Corporation
("SUB3"), Properties Development Corporation ("SUB4") and Decision Data
Investment Corporation ("SUB5"). Sub, Sub1, Sub2, Sub3, Sub4 and Sub5 are each
also referred herein as "SUBSIDIARY".
WHEREAS, PARENT is the common parent corporation of an affiliated
group of corporations (the "PARENT GROUP") within the meaning of Section
1504(a) of the Internal Revenue Code of 1986, as amended (the "CODE"); and
WHEREAS, Sub is a 100% subsidiary of Parent, and Sub1, Sub2, Sub3,
Sub4 and Sub5 are 100% subsidiaries of Sub;
WHEREAS, except as provided below, PARENT and each SUBSIDIARY files
its own tax returns and pays the corresponding tax liabilities;
WHEREAS, the PARENT Group has filed and intends to file consolidated
income tax returns as permitted by Section 1501 of the Code and similar laws of
other jurisdictions; and
WHEREAS, PARENT and each SUBSIDIARY desire to agree upon a method for
determining the financial consequences to each party resulting from the filing
of a consolidated income tax return;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the terms set forth
below shall have the following meanings.
"COMBINED STATE TAX" means, with respect to each state or local taxing
jurisdiction, any income or franchise tax payable to such state or local taxing
jurisdiction in which a SUBSIDIARY files tax returns with PARENT on a
consolidated, combined or unitary basis for purposes of such income or
franchise tax.
<PAGE>
"FEDERAL TAX" means any tax imposed under Subtitle A of the Code.
"FINAL DETERMINATION" shall mean (i) with respect to Federal Taxes, a
"determination" as defined in Section 1313 (a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to taxes other than
Federal Taxes, any final determination of liability in respect of a tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise (including the expiration of a statute of
limitations or a period for the filing of claims for refunds, amended returns
or appeals from adverse determinations) or (ii) the payment of tax by PARENT
with respect to any item disallowed or adjusted by a Taxing Authority (as
hereinafter defined), provided that PARENT determines that no action should be
taken to recoup such payment.
"SUBSIDIARY FEDERAL TAX LIABILITY" shall mean, with respect to any
taxable year and with respect to each SUBSIDIARY, the sum of such SUBSIDIARY's
Federal Tax liability and any interest, penalties and other additions to such
taxes for such taxable year, computed as if such SUBSIDIARY were not and never
were part of the PARENT Group, but rather were a separate corporation filing a
separate United States federal income tax return. Such computation shall be
made with respect to each SUBSIDIARY (A) without regard to the income,
deductions (including net operating loss and capital loss deductions) and
credits in any year of PARENT or any other SUBSIDIARY, (B) by taking account of
any Tax Asset of such SUBSIDIARY in accordance with Section 2(c)(ii) hereof,
(C) with regard to net operating loss and capital loss carryforwards and
carrybacks and minimum tax credits from earlier years of such SUBSIDIARY, (D)
as though the highest rate of tax specified in subsection (b) of Section 11 of
the Code were the only rate set forth in that subsection and (E) reflecting the
positions, elections and accounting methods used by PARENT in preparing the
consolidated federal income tax return for the PARENT Group.
"SUBSIDIARY COMBINED STATE TAX LIABILITY" shall mean, with respect to
any taxable year and with respect to each SUBSIDIARY, an amount of Combined
State Taxes determined in accordance with the principles set forth in the
definition of such SUBSIDIARY's SUBSIDIARY Federal Tax Liability and comparable
provisions under applicable law.
"TAX ASSET" means any net operating loss, net capital loss, investment
tax credit, foreign tax credit, charitable deduction or any other deduction,
credit or tax attribute which could reduce taxes (including without limitation
deductions and credits related to alternative minimum taxes).
2
<PAGE>
"TAX AUTHORITY" means any governmental authority, including the United
States or any state, province, municipality or other political subdivision
thereof, responsible for the imposition of federal, state or local taxes
covered by this Tax Sharing Agreement.
2. TAX SHARING. (a) General. For each taxable year of the PARENT
Group during which income, losses, or credits against tax of the SUBSIDIARIES
are includible in the consolidated Federal Tax return of the PARENT Group, each
SUBSIDIARY shall pay to PARENT an amount equal to the sum of its
SUBSIDIARY Federal Tax Liability and its SUBSIDIARY Combined State Tax
Liability for such taxable year as determined in paragraph (c) below.
(b) Estimated Payments. Not later than [10] days prior to each date
on which an estimated Federal Tax installment is due (a "FEDERAL TAX PAYMENT
DATE"), PARENT shall determine under Code Section 6655 the estimated amount of
the related installment of each SUBSIDIARY's SUBSIDIARY Federal Tax Liability,
as determined under the principles of Section 2(a) of this Agreement. Each
SUBSIDIARY shall then pay to PARENT not later than each Federal Tax Payment
Date the amount of its SUBSIDIARY Federal Tax Liability thus determined. Not
later than [10] days prior to each date on which an estimated Combined State
Tax installment is due (a "COMBINED STATE TAX PAYMENT DATE"), PARENT shall
determine under provisions of applicable law comparable to Code Section 6655
the estimated amount of the related installment of each SUBSIDIARY's SUBSIDIARY
Combined State Tax Liability, as determined under the principles of Section
2(a) of this Agreement. Each SUBSIDIARY shall then pay to PARENT not later than
each Combined State Tax Payment Date the amount of its SUBSIDIARY Combined
State Tax Liability thus determined.
(c) Payment of Taxes Shown on Return.
(i) On or before the date PARENT files its consolidated Federal Tax
return for any year for which payments are to be made under this
Agreement, with respect to each SUBSIDIARY, SUBSIDIARY shall pay to
PARENT, or PARENT shall pay to SUBSIDIARY, as appropriate, an amount
equal to the difference, if any, between the SUBSIDIARY's SUBSIDIARY
Federal Tax Liability for such year as determined by PARENT and the
aggregate amount of the estimated installments of such SUBSIDIARY's
SUBSIDIARY Federal Tax Liability for such year made pursuant to
Section 2(b). On or before the date PARENT files a Combined State Tax
return for any year for which payments are to be made under this
Agreement with respect to each SUBSIDIARY, SUBSIDIARY shall pay to
PARENT, or PARENT shall pay to
3
<PAGE>
SUBSIDIARY, as appropriate, an amount equal to the difference, if any,
between such SUBSIDIARY's SUBSIDIARY Combined State Tax Liability for
such year as determined by PARENT and the aggregate amount of the
estimated installments paid with respect to such SUBSIDIARY's
SUBSIDIARY Combined State Tax Liability pursuant to
Section 2(b).
(ii) If PARENT determines, that a SUBSIDIARY has a Tax Asset that may
under applicable law be used to reduce a Federal Tax or Combined State
Tax liability of the PARENT Group for any taxable period, PARENT shall
pay to such SUBSIDIARY an amount equal to the actual tax saving
produced by such Tax Asset at the time such tax saving is realized by
the PARENT Group. The future calculations of such SUBSIDIARY's
SUBSIDIARY Federal Tax Liability or combined State Tax Liability, as
appropriate, shall be adjusted to reflect such use. The amount of any
such tax saving for any taxable period shall be the amount of any
refund actually received from a Taxing Authority with respect to such
tax period or the reduction in taxes payable to a Taxing Authority
with respect to such tax period as compared to the taxes that would
have been payable to a Taxing Authority by the PARENT Group with
respect to such tax period in the absence of such Tax Asset.
(d) Treatment of Adjustments. If any adjustment is made on a tax
return of the PARENT Group, after the filing thereof, in which income or loss
of a SUBSIDIARY is included, then at the time of a Final Determination of the
adjustment, such SUBSIDIARY shall pay to PARENT or PARENT shall pay to such
SUBSIDIARY, as the case may be, the difference between all payments actually
made under Section 2(a) with respect to the taxable year covered by such tax
return and all payments that would have been made under Section 2(a) taking
such adjustment into account, together with any penalties actually paid and
interest for each day until the date of Final Determination calculated at the
rate determined, in the case of a payment by such SUBSIDIARY, under Section
6621(a)(2) of the Code and, in the case of a payment by PARENT, under Section
6621(a)(1) of the Code.
(e) Preparation of Returns. So long as the PARENT Group elects to
file consolidated Federal Tax returns as permitted by Section 1501 of the Code
or any Combined State Tax Return, PARENT shall prepare and file such returns
and any other returns, documents or statements required to be filed with the
Internal Revenue Service with respect to the determination of the Federal Tax
liability of the PARENT Group and with the appropriate Taxing Authorities with
respect to the determination of the Combined State Tax liability of the PARENT
Group.
4
<PAGE>
PARENT shall have the right with respect to any consolidated Federal Tax
returns or Combined State Tax Returns that it has filed or will file to
determine (i) the manner in which such returns, documents or statements shall
be prepared and filed, including, without limitation, the manner in which any
item of income, gain, loss, deduction or credit shall be reported, (ii) whether
any extensions should be requested, and (iii) the elections that will be made
by any member of the PARENT Group. In addition, PARENT shall have the right to
(i) contest, compromise or settle any adjustment or deficiency proposed,
asserted or assessed as a result of any audit of any consolidated or Combined
State Tax return filed by the PARENT Group, (ii) file, prosecute, compromise or
settle any claim for refund, and (iii) determine whether any refunds to which
the PARENT Group may be entitled shall be received by way of refund or credited
against the tax liability of the PARENT Group. Each SUBSIDIARY hereby
irrevocably appoints PARENT as its agent and attorney-in-fact to take any
action (including the execution of documents) as PARENT may deem necessary or
appropriate to effect this Section 2(e). The delegation of powers to PARENT in
this Section 2(e) is in no way intended to limit the agency powers otherwise
provided to the common parent by Treas. Reg. ss. 1.1502-77. In addition, PARENT
shall treat all SUBSIDIARIES equally with respect to the matters covered in
Section 2(e).
(f) Reimbursement for Certain Services and Expenses. PARENT shall
provide services in connection with this Agreement, including but not limited
to, (i) those services relating to the preparation of returns described in
Section 2(b), 2(c) and 2(e) and (ii) services relating to the other activities
(including services relating to audits and contests) described in Section 2(e).
As compensation for these services, each SUBSIDIARY shall pay PARENT a fee
calculated on a basis such that PARENT is reimbursed for all direct and
indirect costs and expenses incurred with respect to each respective
SUBSIDIARY's share of the overall costs and expenses incurred by PARENT with
respect to tax related services, including outside legal and accounting
expenses incurred in the course of the conduct of any audit or contest
regarding the tax liability of the PARENT Group, and any other expenses
incurred in the course of any litigation relating thereto, to the extent such
costs are reasonably attributable to a SUBSIDIARY issue. PARENT shall calculate
the fee payable, invoice each SUBSIDIARY and each SUBSIDIARY will pay the
invoiced amount within [30] days of receipt of such invoice.
3. TERM. This Agreement shall survive until terminated by the parties
hereto.
4. EFFECTIVE DATE. This Agreement shall be effective for all taxable
years ending after the date hereof, and shall supersede all prior agreements as
to
5
<PAGE>
the allocation of Federal Tax liability and Combined State Tax liability
between the parties to this Agreement for all such taxable years.
5. COOPERATION. PARENT and each SUBSIDIARY shall cooperate fully in
the implementation of this Agreement, including but not limited to, providing
promptly to the requesting party such assistance and documentation as may be
reasonably requested by such party in connection with any of the activities
described in Sections 2 and 3 of this Agreement. In addition, PARENT and each
SUBSIDIARY shall retain all relevant tax records for relevant open periods in
accordance with past practice.
6. SUCCESSORS. This agreement shall be binding on and inure to the
benefit of any successor, by merger, acquisition of assets or otherwise, to any
of the parties hereto (including but not limited to any successor of PARENT and
SUBSIDIARIES succeeding to the tax attributes of such party under Section 381
of the Code), to the same extent as if such successor had been an original
party hereto.
7. AUTHORIZATION, ETC. Each of the parties hereto hereby represents
and warrants that it has the power and authority to execute, deliver and
perform this Agreement, that this Agreement has been duly authorized by all
necessary corporate action on the part of such party that this Agreement
constitutes a legal, valid and binding obligation of each such party and that
the execution, delivery and performance of this Agreement by such party does
not contravene or conflict with any provision of law or of its charter or
bylaws or any agreement, instrument or order binding on such party.
8. SECTION CAPTIONS. Section captions used in this Agreement are for
convenience and reference only and shall not affect the construction of this
Agreement.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF [DELAWARE] WITHOUT GIVING EFFECT TO
LAWS AND PRINCIPLES RELATING TO CONFLICTS OF LAW.
10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
11. WAIVERS AND AMENDMENTS; FUTURE SUBSIDIARIES. This Agreement
shall not be waived, amended or otherwise modified except in writing, duly
6
<PAGE>
executed by all of the parties hereto. PARENT and each SUBSIDIARY agree to
cause any corporation that in the future becomes a member of the PARENT Group
or that files tax returns with PARENT on a consolidated, combined or unitary
basis to become a party to this agreement as an additional "SUBSIDIARY"
hereunder.
7
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
agreement to be executed by a duly authorized officer as of the date first
above written.
DecisionOne Holding Corp.
By:
------------------------------------
Name:
Title:
DecisionOne Corp.
By:
------------------------------------
Name:
Title:
DecisionOne Corp.
By:
------------------------------------
Name:
Title:
DecisionOne Supplies, Inc.
By:
------------------------------------
Name:
Title:
Properties Holding Corporation
By:
------------------------------------
Name:
8
<PAGE>
Title:
IC Properties Corporation
By:
------------------------------------
Name:
Title:
Properties Development Corporation
By:
------------------------------------
Name:
Title:
Decision Data Investment Corporation
By:
------------------------------------
Name:
Title:
9
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
DecisionOne Corporation:
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-28411 of DecisionOne Corporation (a wholly owned subsidiary of
DecisionOne Holdings Corp.) and subsidiaries on Form S-1 of our report dated
May 30, 1997 and our report dated December 29, 1995 on DecisionOne
Corporation (formerly Bell Atlantic Business Systems Services, Inc. (the
"Predecessor")) and subsidiary which are part of this Registration Statement,
and of our reports dated May 30, 1997 and December 29, 1995 relating to the
financial statement schedules appearing elsewhere in this Registration
Statement, and to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
July 29, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF PETER T. GRAUER
I hereby consent to the reference in the Prospectus constituting part of
Amendment No. 3 to the Registration Statement on Form S-1 of DecisionOne
Corporation to my name as a person about to become a director of DecisionOne
Corporation.
/s/ Peter T. Grauer
-----------------------------
Peter T. Grauer
July 29, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF KIRK B. WORTMAN
I hereby consent to the reference in the Prospectus constituting part of
Amendment No. 3 to the Registration Statement on Form S-1 of DecisionOne
Corporation to my name as a person about to become a director of DecisionOne
Corporation.
/s/ Kirk B. Wortman
----------------------------
Kirk B. Wortman
July 29, 1997
<PAGE>
CONFORMED
COPY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
---------------------
DECISIONONE CORPORATION
(Exact name of obligor as specified in its charter)
DELAWARE 23-2328680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
KENNETH DRAEGER
DECISIONONE CORPORATION
50 EAST SWEDESFORD ROAD
FRAZER, PA 19355
(Address of principal executive offices) (Zip Code)
% SENIOR SUBORDINATED NOTES DUE 2007
(Title of indenture securities)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on
file with the Securities and Exchange Commission as Exhibit 2
to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED
IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by
reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
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<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter
for the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Hartford and State
of Connecticut, on the 25th day of July, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Elizabeth C. Hammer
------------------------------------
NAME: ELIZABETH C. HAMMER
TITLE: VICE PRESIDENT
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<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by
DecisionOne Corporation of its % SENIOR SUBORDINATED NOTES DUE 2007, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Elizabeth C. Hammer
------------------------------------
NAME: ELIZABETH C. HAMMER
TITLE: VICE PRESIDENT
DATED: JULY 25, 1997
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<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this
commonwealth and a member of the Federal Reserve System, at the close of
business March 31, 1997, published in accordance with a call made by the
Federal Reserve Bank of this District pursuant to the provisions of the
Federal Reserve Act and in accordance with a call made by the Commissioner of
Banks under General Laws, Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
Dollars
--------------
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .... 1,665,142
Interest-bearing balances.............................. 8,193,292
Securities................................................ 10,238,113
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and its Edge subsidiary ................................. 5,853,144
Loans and lease financing receivables:
Loans and leases, net of unearned
income................................ 4,936,454
Allowance for loan and lease losses ..... 70,307
Allocated transfer risk reserve.......... 0
Loans and leases, net of unearned income and
allowances........................................... 4,866,147
Assets held in trading accounts........................... 957,478
Premises and fixed assets................................. 380,117
Other real estate owned................................... 884
Investments in unconsolidated subsidiaries................ 25,835
Customers' liability to this bank on acceptances
outstanding.............................................. 45,548
Intangible assets......................................... 158,080
Other assets.............................................. 1,066,957
--------------
Total assets.............................................. 33,450,737
==============
LIABILITIES
Deposits:
In domestic offices................................... 8,270,845
Noninterest-bearing.................. 6,318,360
Interest-bearing..................... 1,952,485
In foreign offices and Edge subsidiary................ 12,760,086
Noninterest-bearing.................. 53,052
Interest-bearing..................... 12,707,034
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the
bank and of its
Edge subsidiary.......................................... 8,216,641
Demand notes issued to the U.S. Treasury and Trading
Liabilities.............................................. 926,821
Other borrowed money...................................... 671,164
Subordinated notes and debentures......................... 0
Bank's liability on acceptances executed and outstanding . 46,137
Other liabilities......................................... 745,529
Total liabilities......................................... 31,637,223
--------------
EQUITY CAPITAL
Perpetual preferred stock and related surplus............. 0
Common stock.............................................. 29,931
Surplus................................................... 360,717
Undivided profits and capital reserves/Net unrealized
holding gains (losses)................................... 1,426,881
Cumulative foreign currency translation adjustments ...... (4,015)
Total equity capital...................................... 1,813,514
--------------
Total liabilities and equity capital...................... 33,450,737
==============
</TABLE>
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<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
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