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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
DECISIONONE HOLDINGS CORP.
(exact name of registrant as specified in its charter)
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DELAWARE 0-28090 13-3435409
(State or other jurisdiction of (Commission file #) (I.R.S. Employer
incorporation or organization) Identification No.)
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DECISIONONE CORPORATION
(exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 333-28411 23-2328680
(State or other jurisdiction of (Commission file #) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
50 EAST SWEDESFORD ROAD
FRAZER, PENNSYLVANIA 19355
(610) 296-6000
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
PRINCIPAL EXECUTIVE OFFICES OF REGISTRANTS)
SECURITIES REGISTERED PURSUANT TO THE SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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DECISIONONE HOLDINGS CORP.:
9 3/4 SENIOR SUBORDINATED NOTES DUE 2007 NONE
DECISIONONE CORPORATION:
11 1/2 SENIOR DISCOUNT DEBENTURES DUE 2009 NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF
THE ACT:
DECISIONONE HOLDINGS CORP.:
COMMON STOCK, $.01 PAR VALUE NONE
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Indicate by check mark whether DecisionOne Holdings Corp. (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [CHECK] No_______
Indicate by check mark whether DecisionOne Corporation (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes__________ No [CHECK]
The aggregate market value of the voting stock of DecisionOne Holdings
Corp. held by non-affiliates, based upon the closing price of Common Stock on
September 11, 1997, as reported by the Nasdaq National Market System, was
approximately $44,170,728. In making such calculation, registrant is not making
a determination of the affiliate or non-affiliate status of any holders of
shares of Common Stock. All of the voting stock of DecisionOne Corporation is
held by DecisionOne Holdings Corp.
At September 11, 1997, 12,499,978 shares of DecisionOne Holdings Corp.
common stock were outstanding and one share of DecisionOne Corporation common
stock was outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [CHECKED BOX]
DecisionOne Corporation meets the conditions set forth in General
Instruction I(1) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of DecisionOne Holdings Corp.'s Proxy Statement prepared in
connection with its 1997 Annual Meeting of Stockholders (Part III)
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PART I
ITEM 1. BUSINESS
Item 1. is presented with respect to both registrants submitting this
filing, DecisionOne Holdings Corp. and DecisionOne Corporation.
GENERAL
DecisionOne Holdings Corp., through its wholly owned operating subsidiary
DecisionOne Corporation and its subsidiaries (collectively, the "Company") is
the largest independent provider of multivendor computer maintenance and
technology support services in the United States, based on Dataquest
Incorporated ("Dataquest") estimates for calendar year 1996. The Company offers
its customers a single source solution for virtually all of their computer
maintenance and technology support requirements, including hardware maintenance
services, software support, end-user/help desk services, network support and
other technology support services. The Company believes it is the most
comprehensive independent (i.e., not affiliated with an original equipment
manufacturer, or OEM) provider of these services across a broad range of
computing environments, including mainframes, midrange and distributed systems,
work groups, PCs and related peripherals. The Company provides support for over
15,000 hardware products manufactured by more than 1,000 OEMs. The Company also
supports most major operating systems and over 150 off-the-shelf software
applications. The Company delivers its services through an extensive field
service organization of approximately 4,000 field technicians in over 150
service locations throughout the United States and Canada and strategic
alliances in selected international markets.
The Company services over 51,000 customers at over 182,000 sites across the
United States and Canada. The Company's customers include a diverse group of
national and multinational corporations, including SABRE Group, Inc. (an
affiliate of American Airlines, Inc.), Sun Microsystems, Inc. ("Sun"), Compaq
Computer Corporation ("Compaq"), NationsBank, DuPont Company ("DuPont"), Chevron
Corporation and Netscape Communications Corporation ("Netscape").
COMPANY HISTORY
Founded in 1969, the Company began operations as a provider of key punch
machines under the tradename "Decision Data". During the 1980s, its operations
expanded to include the sale of midrange computer hardware and related
maintenance services. During fiscal 1993, the Company decided to focus
principally on providing computer maintenance and support services and sold its
computer hardware products business.
From the beginning of fiscal 1993 through fiscal 1997, the Company has
established a major presence in the computer maintenance and technology support
services industry through the acquisition and integration of 36 complementary
businesses. The most significant of these were IDEA Servcom, Inc. ("Servcom"),
certain assets and liabilities of which were acquired in August 1994 for cash
consideration of $29.5 million; Bell Atlantic Business Systems Services, Inc.
("BABSS") which was acquired in October 1995 for approximately $250.0 million,
and certain assets of the U.S. computer service business of Memorex Telex
("Memorex Telex"), which were acquired in November 1996 for cash consideration
of approximately $24.4 million after certain purchase price adjustments.
BABSS was established in the mid-1950s under the name Sorbus Inc. and was
acquired by Bell Atlantic Corporation in 1985. In January 1990, BABSS acquired
the assets of the third-party service business of Control Data Corporation
("CDC"), expanding its presence in the maintenance of large systems. After the
CDC acquisition, BABSS focused significant resources on the development of, and
experienced significant growth in, its customer and revenue bases, and by
mid-1995 had grown to be among the largest independent providers of multivendor
computer maintenance and technology support services in the United States.
The BABSS acquisition provided the Company with a major presence in the
servicing of large mainframe systems and in other service areas, such as
software and network support, in which the Company had not
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previously competed in a significant fashion. Moreover, the acquisition further
enhanced the Company's presence in its traditional midrange business. As a
result of the acquisition, BABSS became a wholly-owned subsidiary of the Company
and the name of the Company's principal operating subsidiary was changed to
DecisionOne Corporation.
MERGER AND RESTRUCTURING
On August 7, 1997, the Company consummated a merger (the "Merger") with an
affiliate of DLJ Merchant Banking Partners II, L.P. ("DLJ"). Pursuant to the
Merger, DLJ, certain funds affiliated with DLJ (collectively, with DLJ, the "DLJ
Funds"), and third-party investors who have entered into an agreement (the
"Investors' Agreement") with DLJ in respect of the voting and disposition of
shares acquired by them (collectively, the "DLJ Group"), acquired approximately
10.9 million shares, or 87.4% of the Company's outstanding common stock in
exchange for approximately $225 million. Such equity proceeds, along with $145.5
million of net proceeds from the sale of 9 3/4% Senior Subordinated Notes due
2007 (the "9 3/4% Notes"), $81.6 million of net proceeds from the sale of units
consisting of 11 1/2% Senior Discount Debentures due 2008 and 148,400 Warrants
to purchase 281,960 shares of Company common stock exercisable at $23 per share
(the "Units"), and borrowings of $470.0 million under a $575 million senior
secured loan facility were used to repurchase approximately 26.5 million shares
for approximately $609.7 million, cash out existing options and warrants, repay
the Company's then-existing revolving credit facility, and pay fees and expenses
incurred in connection with the Merger. See "Merger and Recapitalization"
included in Item 7 herein.
INDUSTRY BACKGROUND
The United States market for computer hardware maintenance and technology
support services is large and growing. According to Dataquest projections, the
hardware maintenance and technology support services market was approximately
$40.5 billion in 1996 and is projected to grow at a compound annual rate of 5.6%
to $50.3 billion by the year 2000. Within the market surveyed by Dataquest,
Dataquest estimates that the independent, multivendor segment was approximately
$8.8 billion in 1996 and projects the segment to grow at a 14% compound annual
rate to $14.8 billion by the year 2000. According to Dataquest, independent,
multivendor service providers such as the Company are taking market share from
the OEM service providers faster than OEMs are contracting new business. The
Company believes that this is occurring for several reasons including: (i)
customers are looking for single source providers who support multiple computer
hardware and software platforms, (ii) independent service providers are viewed
as being unbiased toward computer purchase decisions and (iii) OEMs are
increasingly outsourcing customer maintenance service (including warranty and
post warranty services) and technical customer support such as help desk
services to independents in order to focus on their core design, technology and
marketing competencies. According to Dataquest, within the independent,
multivendor segment, hardware maintenance was the dominant service, accounting
for approximately 71% of 1996 revenues, with technology support services,
including software support, network support and end-user training, comprising
the remaining 29% of 1996 revenues.
The independent, multivendor segment is also fragmented and consolidating.
Participants in the independent multivendor segment include: (i) several large
independent service providers, (ii) the multivendor segments of OEM service
organizations and (iii) hundreds of smaller independent companies servicing
either product niches or limited geographical areas of the United States. The
significant market position of OEMs is due largely to their traditional role of
servicing their own installed base of equipment and their customers' former
reliance on centralized, single vendor solutions (i.e. mainframe systems).
COMPANY SERVICES
The Company provides a comprehensive range of core technology support
services to customers across a broad range of computing environments, including
mainframes, midrange and distributed systems, work groups, PCs and related
peripherals. The Company customizes its service offerings to the individual
customer's needs in response to the nature of the customer's requirements, the
term of the contract and the combination of services that are provided. Services
are bundled to match the support requirements of
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customers and include hardware support, end-user and software support, network
support, management information services, program management, planning support
and ancillary support services.
Hardware Support
Hardware support services consist of remedial and preventive maintenance
for computers and computer peripheral devices. The Company supports over 15,000
different hardware products manufactured by more than 1,000 OEMs. The Company's
customer support centers ("CSCs") handle over 330,000 calls per month regarding
hardware support. The Company maintains and manages an inventory of over 3.5
million parts representing more than 300,000 part numbers. The Company also has
access to a network of computer equipment vendors, brokers and highly skilled
repair suppliers, as well as access to certain IBM Designated Parts Sales
Locations.
In addition to its on site diagnostic tools, the Company uses industry and
proprietary software diagnostic capabilities to monitor system performance on a
remote basis. Also, large customers are provided remote, on line access to
certain of the Company's systems to log service requests and track service
delivery.
The Company prices its products and services on either a fixed fee or per
incident basis. Pricing is based on various factors including equipment failure
rates, cost of repairable parts and labor expenses.
End-user and Software Support
The Company's CSCs handle over 90,000 calls per month for help desk and
software support. Levels of support range from basic and network support for
corporate end-users to advanced operating system support for systems
administrators. Customized support also is available for vertical market
applications and OEM accounts. Operational services are available seven days per
week, twenty-four hours a day.
The Company currently provides support for PC/workstation operating systems
such as Windows95(R), Windows(R), MS DOS(R), and Sun Microsystems' Solaris(R),
as well as support on network operating systems such as Novell Netware(R) and
Windows NT(R). Groupware products like Lotus Notes and Internet browsers such as
Netscape also are fully supported. Additionally, over 100 PC software products
ranging from spreadsheets and word processing to communications and graphics are
supported, as are numerous on-line services.
The Company is a Microsoft Authorized Support Center, providing help desk
support for a broad range of Microsoft business software applications and
operating systems. Technical support is delivered through the Company's network
of CSCs and ranges from basic end-user software support to second level
professional support, and work in conjunction with Microsoft desktop
applications and operating systems, like Microsoft Windows(R)95 and
Windows(R)NT.
Network Support
The Company provides support services for networked computing environments,
including management, administration, and operations support for both local area
networks and wide area networks ("WANs"). Network support services are designed
to reduce the cost of ownership of networked computing, improve productivity of
network users, and supplement customers' internal support staffs. The Company's
remote network management services provide monitoring of fault and performance
data in customers' networks and problem resolution from the Company's network
management center. The Company also provides on site network services to assist
customers with network administration, operations, and remedial support. Network
specialists may be resident at the customer site or dispatched as necessary.
Logistics Services
The Company also repairs and refurbishes computer parts and assemblies at
seven depot repair centers in the United States. In addition to supporting its
own business, these services are provided primarily for OEMs, distributors and
other third party maintenance companies. Subassemblies repaired include system
logic boards, hard disk drive assemblies, peripherals, power supplies and
related equipment. The Company's depot
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repair facilities located in Malvern, Pennsylvania; Boston, Massachusetts;
Milwaukee, Wisconsin; and San Francisco, California are certified to ISO-9002
standards.
The Company also provides logistics services, including the planning and
forecasting of parts requirements and parts sourcing, inventory and warranty
management, for Compaq and other manufacturers. Under terms of the Compaq
logistics service contract, the Company handles orders from customers, dealers
and distributors in North America for parts that are no longer produced by
Compaq. The parts are used to repair Compaq desktops, laptops and servers and
include such components as flat panels (LCDs), motherboards, monitors, power
supplies and related parts. In addition to repair and replacement work, the
Company manages the program's logistics requirements and parts warranty
reimbursement activities.
Program Management
The Company provides ongoing management services for companies that wish to
outsource all or a portion of their services management requirements. Typical
services include third party vendor management, on site personnel support and
program evaluation, as well as a variety of support capabilities required to
prepare a system for operation and improve its efficiency. These support
capabilities include support for system installation, de-installation, moves,
upgrades, reconfigurations, system configuration audits, inventory tracking
services and data restoration assistance.
Planning Support
The Company assists customers in defining their enterprise service
requirements, establishing service delivery benchmarks, recommending process
improvements and auditing the results of implemented programs over time. The
objective of these consulting services is to assist customers in reducing the
total cost of ownership and improving operating efficiency in their service
environments.
Information Services
The Company makes service improvement recommendations to customers based on
information accumulated from its hardware, network and end-user support
services. Management information services allow customers to make informed
decisions relating to hardware and software procurements as well as the need for
increased employee training. The Company believes these services differentiate
it from OEMs and software developers that may favor their own products.
The Company's AssetOne(TM) service tracks customers' desktop assets and
provides information on hardware configuration, software utilization, warranty
status, equipment location and user profiles. This information can then be used
to improve the way customers' assets are deployed, serviced, and used in order
to reduce costs and increase end-user productivity.
SUPPORT PARTNER PROGRAMS
The Company maintains strategic alliances with several prominent companies
in order to provide customers with comprehensive technology support solutions.
The Company does not receive revenues for services provided by its strategic
partners. Key relationships include: General Electric Computer Leasing Corp.,
which provides computer acquisition, disposition and financing services; SunGard
Recovery Services Inc., which provides disaster recovery services; and MicroAge,
Inc., which supplies hardware products such as personal computers, peripherals,
network products and related devices.
SALES AND MARKETING
The Company's core product capabilities are bundled to match the support
requirements of customers. Individual service portfolios exist for data center,
mid range and desktop environments. In addition, a product portfolio exists for
OEMs who seek support for parts sourcing and repair, inventory management and
related logistics services.
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The Company sells its services through both direct and indirect sales
channels. The Company's direct sales force consists of approximately 275 sales
professionals who are organized into a general commercial sales group as well as
into several dedicated groups including: a Federal Group, which sells to the
Federal Government; a National Accounts Group, which focuses on large and
multinational corporate customers; and a Telesales Group, which focuses on small
accounts.
The Company also sells its services through its indirect sales force
comprised of approximately 25 sales professionals. Product support relationships
exist with OEMs such as Sequent Computer Corporation, EMC(2) Corporation
("EMC"), Sun and Compaq, and software developers such as Netscape, Novell, Inc.,
Microsoft Corporation and SunSoft, Inc.
INTERNATIONAL BUSINESS PARTNERS
In order to provide international service to its multinational customers,
the Company supplements its broad North American infrastructure with strategic
alliances in selected international markets. The Company maintains relationships
with International Computers Limited ("ICL") and FBA Computer Technology
Services ("FBA"). The Company licenses many of its proprietary multivendor
support tools to FBA and to ICL Sorbus Ltd. ("ICL Sorbus"), which is ICL's
multivendor services group in Western Europe. As a result, the Company is able
to offer its multinational customers service in Western Europe, Asia and
Australia.
ICL is a leading information technology company that has approximately
23,000 employees operating in about 80 countries around the world. In Western
Europe, the ICL Sorbus companies provide multivendor services in 17 countries
with approximately 250 service locations and about 5,000 employees. Several of
the Company's major customers, including SABRE Group, Inc. and DuPont, benefit
from the agreement between the Company and ICL Sorbus, whereby ICL Sorbus agrees
to provide services at the European locations of the Company's multinational
customers. Through ICL Sorbus, the Company utilizes the service branches of both
ICL and ICL's parent company, Fujitsu Ltd., to provide worldwide multivendor
support throughout Asia, the Pacific Rim, the Middle East and Africa.
FBA, an affiliate of Fujitsu Ltd., provides multivendor services in
Australia and New Zealand from 21 locations with 150 employees. In addition to
providing technical support to FBA, the Company has supplied various management
and sales support personnel to FBA. FBA also provides services to certain of the
Company's multinational customers, including Sun.
SERVICE INFRASTRUCTURE
Centralized Dispatch
When a customer places a call for remedial maintenance, the Company uses
its Dispatch Data Gathering system ("DDG") to manage the process. When a
customer is identified, the DDG system displays the customer's service level
requirements and covered equipment. Specific information on the symptoms of the
problem and the products that are malfunctioning are entered into the system to
begin tracking the service event. The Company's Customer Support Representative
("CSR") selects, based upon the requirements of the service event, the
appropriate Customer Service Engineer ("CSE") from a list of pre-assigned
primary and back-up personnel and passes this information to the selected CSE.
The Company maintains three CSCs in Malvern, Pennsylvania; Bloomington,
Minnesota; and Tulsa, Oklahoma. Customers can reach the CSCs by calling one toll
free telephone number. The CSCs currently are staffed with over 575 CSRs and 29
staff/operations managers. There is a duty manager on call in each center at all
times. CSCs are available on a 24 hour, 7 day per week basis. Redundancy for
disaster recovery purposes is designed into the CSC system through the three
locations' use of automatic telecommunications switching.
Parts Logistics
In order to meet customer computer repair requirements, the Company
maintains a tiered approach to management of its consumable and repairable spare
parts inventory. Parts or assemblies with low failure rates are stocked in
either the Company's central distribution center located in Malvern,
Pennsylvania or in its
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critical parts center in Dallas, Texas. The Company also maintains six regional
distribution centers in Atlanta, Georgia; Newark, New Jersey; Los Angeles,
California; San Francisco, California; Chicago, Illinois; and Wilmington, Ohio
for critical parts needed more frequently throughout the United States. In order
to service customers whose response time requirements are two to four hours,
higher usage parts are maintained at the Company's branch offices or local
attended stocking locations. Customer site parts storage is arranged when
customer response time requirements are two hours or less.
The Company's field inventory system ("FIS") is a real time system which
tracks the consumable and repairable parts assigned to its field workforce and
located at seven distribution centers, field offices or at customer sites. Parts
information processed through FIS is integrated with the Company's other key
systems, including DDG and International Support Information System ("ISIS").
Service Technology
The Company has developed several proprietary technologies for use in
service planning, support and delivery. These service tools include proprietary
databases, remote diagnostic and system monitoring software, and instructional
documentation. These technical support tools not only provide remote and on site
predictive and remedial service support, but also enable the Company to collect
extensive, objective systems performance measurement information (on the
customer's environment as well as benchmarking against the Company's database)
which its customers can use to identify potential efficiencies, evaluate
competing products and technologies, and determine whether its requirements are
being met.
The Company's proprietary service technologies include ISIS, SERVICE EDGE
and MAXwatch(R). The Company licenses certain of these technologies and provides
other technical support to certain foreign multivendor service providers,
including ICL Sorbus in Europe, FBA in Australia and New Zealand, and PT
Metrodata Electronics in Indonesia.
International Support Information Systems. ISIS is a database accessible
to the Company's customer service engineers that is comprised of diagnostic and
symptom fix data for thousands of products, service updates, and service
planning information, such as machine performance and parts usage information,
and remote support capabilities for large IBM systems, including automatic "call
home" to the Company. The Company believes that ISIS is the most comprehensive
service related database of any independent computer service organization.
SERVICE EDGE. SERVICE EDGE is a PC based system installed at the
customer's site which monitors error messages and collects and reports service
data to help customers predict potential system failures and provide customers
with system performance information.
MAXwatch(R). MAXwatch(R) is an on-site program for products of Digital
Equipment Corporation ("Digital") which monitors system integrity, proactively
detects and corrects certain system errors, and automatically "calls home" for
remote technical support when pre defined error thresholds are exceeded. A
similar product, MAX400, is available for IBM AS/400 systems.
DecisionOne, AssetOne(TM), ISIS, Service Edge and MAXwatch(R) are service
marks or trademarks owned by the Company. All other brand names, service marks
or trademarks appearing herein are the property of their respective owners.
Training
The Company maintains the technical expertise of its engineers through
training programs designed to teach the various techniques for determining the
status of a customer's total computer operations. The Company's training offers
support professionals a broad exposure to various computer system technologies.
The Company's training facilities include 26 classrooms, 23,000 square feet
of hands-on lab space, 26 full-time instructors and video specialists and a
curriculum of over 80 courses. The Company has five training centers and labs
located in Frazer, Pennsylvania; Malvern, Pennsylvania; Bloomington, Minnesota;
Milwau-
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kee, Wisconsin; and Phoenix, Arizona. Six months following course work, the
Company surveys the engineers to gauge the effectiveness and applicability of
its training curriculum.
CUSTOMERS
The Company services over 51,000 customers at over 182,000 sites across the
United States and Canada. The Company sells services primarily to five types of
customers: large businesses that have complex computing support needs and
typically maintain a data center, distributed computing and work group
environments; medium sized businesses that rely primarily on distributed systems
for their computing needs; small businesses that principally use LANs and WANs
for computing; individuals who use stand alone computing systems; and OEMs and
software developers that contract with the Company for warranty services,
logistic support services or help desk support. A significant portion of the
Company's revenues are attributable to large businesses with complex computing
support needs.
COMPETITION
Competition among computer support service providers, both OEM and
independent service organizations, is intense. The Company believes that
approximately 80% of that portion of the hardware maintenance services market
that is related to mainframes and stand alone midrange systems is currently
serviced by OEM service organizations. In addition, the Company believes that
OEM service organizations provide a smaller, but still significant, portion of
the computer maintenance services related to distributed systems, work groups
and PCs. The remainder of the market is serviced by a small number of larger,
independent companies, such as the Company, offering a broader range of service
capabilities, as well as numerous small companies focusing on narrower areas of
expertise.
The Company considers its principal competitors to include: IBM and its
affiliate Technology Service Solutions, Digital, and Wang Laboratories, Inc.,
the multivendor service divisions of certain other OEMs, other national
independent service organizations that are not affiliated with OEMs such as
Vanstar Corporation, Entex Corporation and Stream International, Inc., and
various regional service providers.
The Company believes that the primary competitive factors in the computer
services industry are the quality of a company's services, the ability to
service a wide range of products supplied by a variety of vendors, the
geographic coverage of a company's services and the cost to the customer of
those services. The Company believes that customers are increasingly looking for
service providers capable of providing a single source solution for their
increasingly complex multivendor systems. See "Risk Factors -- Competition;
Competitive Advantages of OEMs."
EMPLOYEES
As of June 30, 1997, the Company had approximately 6,500 full-time and 60
part-time employees. None of the Company's employees is currently covered by
collective bargaining agreements. Management considers employee relations to be
good.
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RISK FACTORS
Cautionary Statement Concerning Forward-Looking Statements
The information herein contains forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Company, or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. These factors include,
but are not limited to, the competitive environment in the computer maintenance
and technology support services industry in general and in the Company's
specific market areas; changes in prevailing interest rates and the availability
of and terms of financing to fund the anticipated growth of the Company's
business; inflation; changes in costs of goods and services; economic conditions
in general and in the Company's specific market areas; demographic changes;
changes in or failure to comply with federal, state and/or local government
regulations; liability and other claims asserted against the Company; changes in
operating strategy or development plans; the ability to attract and retain
qualified personnel; the significant indebtedness of the Company; labor
disturbances; changes in the Company's acquisition and capital expenditure
plans; and other factors referenced herein. In addition, such forward looking
statements are necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown risks uncertainties
and other factors. Accordingly, any forward looking statements included herein
do not purport to be predictions of future events or circumstances and may not
be realized. Forward looking statements can be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "pro forma," "anticipates," or "intends" or
the negative of any thereof, or other variations thereon or comparable
terminology, or by discussions of strategy or intentions. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward looking statements. The Company disclaims any obligations to
update any such factors or to publicly announce the results of any revisions to
any of the forward looking statements contained herein to reflect future events
or developments.
LOSS OF CONTRACT-BASED REVENUE; FIXED FEE CONTRACTS
Over 85% of the Company's revenues during fiscal 1997 were contract based.
As is customary in the computer services industry, the Company experiences
reductions in its contract based revenue as customers may eliminate certain
equipment or services from coverage under the contracts, typically upon 30 days'
notice, or either cancel or elect not to renew their contracts upon 30, 60 or 90
days' notice. The Company believes the principal reasons for the loss of
contract based revenue are the replacement of the equipment being serviced with
new equipment covered under a manufacturer's warranty, the discontinuance of the
use of equipment being serviced for a customer due to obsolescence or a
customer's determination to utilize a competitor's services or to move technical
support services in house. While the Company historically has been able to
offset the reduction of contract based revenue and maintain revenue growth
through acquisitions and new contracts, notwithstanding the reduction in
contract based revenue, there can be no assurance it will continue to do so in
the future, and any failure to consummate acquisitions, enter into new contracts
or add additional services and equipment to existing contracts could have a
material adverse effect on the Company's profitability.
Under many of the Company's contracts, the customer pays a fixed fee for
customized bundled services which are priced by the Company based on its best
estimates of various factors, including estimated future equipment failure
rates, cost of spare parts and labor expenses. While the Company believes it has
historically been able to estimate these factors accurately enough to be able to
price these fixed fee contracts on terms favorable to the Company, there can be
no assurance the Company will be able to continue to do so in the future.
SUBSTANTIAL LEVERAGE; STOCKHOLDERS' DEFICIT; LIQUIDITY
In connection with the Merger, the Company entered into financings (the
"Merger Financing") including a new revolving credit facility (the "New Credit
Facility"), the terms of which include significant operating and financial
restrictions, such as limits on the Company's ability to incur indebtedness,
create liens,
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<PAGE> 10
sell assets, engage in mergers or consolidations, make investments and pay
dividends. In addition, the New Credit Facility requires the Company to maintain
certain debt to equity and other financial ratios.
As of June 30, 1997, after giving pro forma effect to the Merger, including
the Merger Financing and the application of the proceeds thereof, the Company
would have had (i) total consolidated indebtedness of approximately $724.5
million and (ii) a stockholder's deficit of $243.1 million. In addition, subject
to the restrictions in the New Credit Facility and other agreements relating to
the Merger Financing, the Company may incur additional indebtedness from time to
time.
The level of the Company's indebtedness could have important consequences
to the Company, including: (i) limiting cash flow available for general
corporate purposes, including acquisitions, because a substantial portion of the
Company's cash flow from operations must be dedicated to debt service; (ii)
limiting the Company's ability to obtain additional debt financing in the future
for working capital, repairable parts purchases, capital expenditures or
acquisitions; (iii) limiting the Company's flexibility in reacting to
competitive and other changes in the industry and economic conditions generally;
and (iv) exposing the Company to risks inherent in interest rate fluctuations
because certain of the Company's borrowings are at variable rates of interest,
which could result in higher interest expense in the event of increases in
interest rates.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance its indebtedness and to satisfy its other debt
obligations will depend upon its future operating performance, which will be
affected by general economic, financial, competitive, legislative, regulatory,
business and other factors beyond its control. The Company anticipates that its
operating cash flow, together with borrowings under the New Credit Facility,
will be sufficient to meet its anticipated future operating expenses and capital
expenditures and to service its debt requirements as they become due. However,
if the Company's future operating cash flows are less than currently anticipated
it may be forced, in order to meet its debt service obligations, to reduce or
delay acquisitions, purchases of repairable parts or capital expenditures, sell
assets or reduce operating expenses, including, but not limited to, investment
spending such as selling and marketing expenses, expenditures on management
information on systems and expenditures on new products. If the Company were
unable to meet its debt service obligations, it could attempt to restructure or
refinance its indebtedness or to seek additional equity capital. There can be no
assurance that the Company will be able to effect any of the foregoing on
satisfactory terms, if at all. In addition, subject to the restrictions and
limitations contained in the agreements relating to the Merger Financing, the
Company may incur significant additional indebtedness to finance future
acquisitions, which could adversely affect the Company's operating cash flows
and its ability to service its indebtedness. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations: Liquidity and Capital
Resources."
MANAGEMENT AND FUNDING OF GROWTH
Any future growth of the Company will require the Company to manage its
expanding domestic operations and international affiliations and to adapt its
operational and financial systems to respond to changes in its business
environment, while maintaining a competitive cost structure. The acquisition
strategy of the Company and the expansion of the Company's service offerings
have placed and will continue to place significant demands on the Company and
its management to improve the Company's operational, financial and management
information systems, to develop further the management skills of the Company's
managers and supervisors, and to continue to retain, train, motivate and
effectively manage the Company's employees. For example, the Company's
acquisition and integration of BABSS resulted in the loss of certain members of
its finance and accounting organization which resulted in a difficulty in the
timely performance of certain internal reconciliations and account analyses. In
response to these difficulties, the Company has taken various personnel and
procedural actions including, among other things, increasing the size of, and
restructuring its accounting staff, instituting an internal audit function and
enhancing its accounting systems, policies and procedures. The failure of the
Company to manage its prior or any future growth effectively could have a
material adverse effect on the Company.
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<PAGE> 11
Additionally, the Company's ability to maintain and increase its revenue
base and to respond to shifts in customer demand and changes in industry trends
will be partially dependent on its ability to generate sufficient cash flow or
obtain sufficient capital for the purpose of, among other things, financing
acquisitions, satisfying customer contractual requirements and financing
infrastructure growth, including a significant investment in repairable parts,
which are classified as non current assets. There can be no assurance the
Company will be able to generate sufficient cash flow or that financing will be
available on acceptable terms (or permitted to be incurred under the terms of
the Merger Financing and any future indebtedness) to fund the Company's future
growth.
ACQUISITION GROWTH STRATEGY
The Company has historically pursued an aggressive acquisition strategy,
acquiring certain contracts and assets in 36 transactions from the beginning of
fiscal 1993 through June 30, 1997. Future acquisitions and/or internal revenue
growth will be necessary to offset expected declines in contract based revenues.
As a result, the Company expects to continue to evaluate acquisitions that can
provide meaningful benefits by expanding the Company's existing and future
hardware maintenance and technology support capabilities and leveraging its
existing and future infrastructure. However, there are various risks associated
with pursuing an acquisition strategy of this nature. The risks include problems
inherent in integrating new businesses, including potential loss of customers
and key personnel and potential disruption of operations. There can be no
assurance that contracts acquired by the Company will generate significant
revenues or that customers covered by such acquired contracts will not choose to
terminate such contracts. The rate at which any such contracts are terminated
may be higher than the rates at which the Company's contracts have historically
been terminated. There also can be no assurance that suitable acquisition
candidates will be available, that acquisitions can be completed on reasonable
terms, that the Company will successfully integrate the operations of any
acquired entities or that the Company will have access to adequate funds to
effect any desired acquisitions. Future acquisitions may be limited by
restrictions in the Company's indebtedness.
COMPETITION; COMPETITIVE ADVANTAGES OF OEMS
Competition among computer support service providers, both original
equipment manufacturer and independent service organizations, is intense. The
Company believes approximately 80% of that portion of industry hardware
maintenance services related to mainframes and stand alone midrange systems is
currently serviced by OEM service organizations. In addition, the Company
believes that OEM service organizations provide a smaller, but still
significant, portion of the computer maintenance services related to distributed
systems, work groups and PCs. The remainder of the market is serviced by a small
number of larger, independent companies, such as the Company, offering a broader
range of service capabilities, as well as numerous small companies focusing on
narrower areas of expertise or serving limited geographic areas.
In many instances, OEM service organizations have greater resources than
the Company, and, because of their access to the OEM's engineering data, may be
able to respond more quickly to servicing equipment that incorporates new or
emerging technologies. Moreover, some OEMs, especially in the mainframe
environment, do not make available to end-users or independent service
organizations the technical information, repairable parts, diagnostics,
engineering changes and other support items required to service their products,
and design and sell their products in a manner so as to make it virtually
impossible for a third party to perform maintenance services without potentially
infringing upon certain proprietary rights of the OEM. In addition OEMs are
sometimes able to develop proprietary remote diagnostic or monitoring systems
which the Company may not be able to offer. Therefore, OEM service organizations
sometimes have a cost and timing advantage over the Company because the Company
must first develop or acquire from another party the required support items
before the Company can provide services for that equipment. An OEM's cost
advantage, the unavailability of required support items or various proprietary
rights of the OEM may preclude the Company from servicing certain products.
Furthermore, OEMs usually provide warranty coverage for new equipment for
specified periods, during which it is not economically feasible for the Company
to compete for the provision of maintenance services. To the extent OEMs choose,
for marketing reasons or otherwise, to expand their warranty periods or terms,
the Company's business may be adversely affected.
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<PAGE> 12
In June 1994, International Business Machines Corporation ("IBM") filed in
the United States District Court for the Southern District of New York (the
"Court") a motion to terminate a 1956 consent decree (the "IBM Consent Decree")
that, among other things, requires IBM to provide repairable parts,
documentation and other support items for IBM electronic data processing systems
to third parties on reasonable terms and places other restrictions on IBM's
conduct. On January 18, 1996, the Court entered an order approving a
modification of the IBM Consent Decree that, among other things, terminated the
IBM Consent Decree except insofar as it applies to the System 360/370/390
(mainframes) and AS/400 (midrange) families of IBM products. In July 1996, IBM
and the U.S. Department of Justice ("DOJ") reached an agreement in tentative
settlement of the remainder of IBM's motion and jointly moved to terminate on a
phased basis, the remaining provisions of the IBM Consent Decree (the "Joint
Motion"). On May 1, 1997 the Court granted the Joint Motion. Portions of the
order granting the Joint Motion have been appealed. Consequently, certain of the
remaining provisions of the IBM Consent Decree (primarily relating to sales and
marketing restrictions on IBM) terminate either immediately upon, or within six
months of, entry of the Court order; all of the other remaining provisions
(including those requiring IBM to provide parts and other support items to third
parties) terminate on July 2, 2000 with respect to AS/400 systems and on July 2,
2001 with respect to System 360/370/390 mainframes. The impact, if any, upon the
Company of the termination of such sales and marketing restrictions is
impossible to predict because it depends upon what changes, if any, IBM will
make in its sales and marketing policies and practices. As a result of the
termination of the IBM Consent Decree, the Company's ability to service midrange
and mainframe products may be adversely affected. Furthermore, as the Company's
business is highly dependent upon its ability to service a wide variety of
equipment in a multivendor environment, the inability to compete effectively for
the service of IBM mainframes and midrange products could cause the loss of a
substantial portion of the Company's customer base to IBM or an IBM affiliate,
which would have a material adverse effect on the Company's business.
CONSUMABLE AND REPAIRABLE PARTS MANAGEMENT
In order to service its customers, the Company is required to maintain a
high level of consumable and repairable parts for extended periods of time. Any
decrease in the demand for the Company's maintenance services could result in a
substantial portion of the Company's consumable and repairable parts becoming
excess, obsolete or otherwise unusable. In addition, rapid changes in technology
could render significant portions of the Company's consumable and repairable
parts obsolete, thereby giving rise to write-offs and a reduction in
profitability. The inability of the Company to manage its consumable and
repairable parts or the need to write them off in the future could have a
material adverse effect on the Company's business, financial results and results
of operations.
Consumable and repairable parts purchases are made from OEMs and other
vendors. The Company typically has more than a single source of supply for each
part and component, but from time to time it will have only a single supplier
for a particular part. In some cases, the Company's OEM customer may be the only
source of supply for a repair part or component. Should a supplier be unwilling
or unable to supply any part or component in a timely manner, the Company's
business could be adversely affected. In addition, the Company is dependent upon
IBM for obtaining certain parts that are critical to the maintenance of certain
IBM mainframe and midrange systems that IBM is currently required to make
available to third parties pursuant to the IBM Consent Decree. There can no
assurance that IBM will continue to make parts available for AS/400 Systems
after July 2, 2000 and for System 360/370/390 mainframes after July 2, 2001.
Even if such parts or components are available, a shortage of supply could
result in an increase in procurement costs which, if not passed on to the
customer, may adversely affect the Company's profitability.
COPYRIGHT ISSUES
In connection with the Company's performance of most hardware maintenance,
the computer system which is being serviced must be turned on for the purpose of
service or repair. When the computer is turned on, the resident operating system
software and, in some cases diagnostic software, is transferred from a
peripheral storage device or a hard disk drive into the computer's random access
memory. Within the past several years, several OEMs have been involved in
litigation with independent service organizations, including
11
<PAGE> 13
the Company, in which they have claimed such transfer constitutes the making of
an unauthorized "copy" of such software by the independent service organization
which infringes on the software copyrights held by the OEMs. The Company is
aware of three cases in this area which have been decided in favor of the OEM.
Although the Company was not a party in any of these cases, three similar claims
have been asserted against the Company, each of which has been resolved.
Litigation of this nature can be time consuming and expensive, and there can be
no assurance the Company will not be a party to similar litigation in the
future, or that such litigation would be resolved on terms that do not have a
material adverse effect on the Company.
DEPENDENCE ON COMPUTER INDUSTRY TRENDS; RISK OF TECHNOLOGICAL CHANGE
The Company's future success is dependent upon the continuation of a number
of trends in the computer industry, including the migration by information
technology end-users to multivendor and multisystem computing environments, the
overall increase in the sophistication and interdependency of computing
technology, and a focus by information technology managers on cost efficient
management. The Company believes these trends have resulted in a movement by
both end-users and OEMs towards outsourcing and an increased demand for support
service providers that have the ability to provide a broad range of multivendor
support services. There can be no assurance these trends will continue into the
future.
Additionally, rapid technological change and compressed product life cycles
are prevalent in the computer industry, which may lead to the development of
improved or lower cost technologies, higher quality hardware with significantly
reduced failure rates and maintenance needs, or customer decisions to replace
rather than continue to maintain aging hardware, and which could result in a
reduced need for the Company's services in the future. Moreover, such rapid
technological changes could adversely affect the Company's ability to predict
equipment failure rates, and, therefore, to establish prices that provide
adequate profitability. Similarly, new computer systems could be built based
upon proprietary, as opposed to open, systems that could not be serviced by the
Company.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success depends, to a large extent, upon the
efforts and abilities of key managerial employees, particularly the Company's
executive officers. There are not currently any employment contracts which would
ensure the continued employment of any executive officer. Competition for
qualified management personnel in the industry is intense. The loss of the
services of certain of these key employees or the failure to retain qualified
employees when needed could have a material adverse effect on the Company's
business. The Company does not currently maintain key man insurance.
CONTROL BY DLJ
Approximately 87.4% of the outstanding shares of the Company's common stock
are currently held by the DLJ Group. As a result of its stock ownership and the
Investors' Agreement (which includes members of management to the extent their
shares are acquired through the Company's Direct Investment Program), the DLJ
Funds control the Company and have the power to elect a majority of the
Company's directors, appoint new management and approve any action requiring the
approval of the holders of the Company's common stock, including adoption of
certain amendments to the Company's certificate of incorporation and approving
mergers or sales of all or substantially all of the Company's assets. The
directors elected by the DLJ Funds have the authority to effect decisions
affecting the capital structure of the Company, including the issuance of
additional capital stock, the implementation of stock repurchase programs and
the declaration of dividends.
DILUTION
The Company has granted approximately 1,179,000 options to purchase shares
of Company Common Stock to members of the Company's management, and may grant
additional options in the future. The aggregate number of shares of Company
Common Stock reserved for issuance pursuant to the Company's Management
Incentive Plan is 1,698,280, which includes approximately 251,000 shares to
accommodate options rolled over from the Company's previous stock option plan.
The exercise price of any options granted
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<PAGE> 14
pursuant to the Management Incentive Plan may be less than the fair market value
of the shares of Company Common Stock. Any such grant or exercise of any stock
option, will dilute the equity ownership percentage of Company stockholders and
the DLJMB Funds (and the Institutional Investors) and may result in a decrease
of the book value of the Company Common Stock per share. In addition, pursuant
to the Company's Direct Investment Program, certain members of management
purchased approximately 97,520 shares of Company Common Stock at the time of the
Merger. The aggregate number of shares reserved for issuance pursuant to the
Direct Investment Plan is 238,095. These purchases, and any future purchases
under the plan, would also dilute the equity ownership percentage of the DLJMB
Funds (and the Institutional Investors) and the Company stockholders.
POTENTIAL DELISTING AND LOSS OF LIQUIDITY
As a result of the Merger, the Company's common stock no longer meets
certain maintenance requirements of The NASDAQ National Market System
("NASDAQ"). While NASDAQ has granted the Company a dispensation from such
maintenance requirements, there can be no assurance that in the future NASDAQ
will not unilaterally act to delist the Company's common stock. Following the
Merger, there has been a limited market for the Company's common stock because
of the significant ownership of the DLJ Group. In the event that a delisting
occurs stockholders may experience difficulty selling shares or obtaining prices
that reflect the value thereof.
ITEM 2. PROPERTIES
Item 2 is presented with respect to both registrants submitting this
filing, DecisionOne Holdings Corp. and DecisionOne Corporation.
FACILITIES
The Company leases certain office and warehouse facilities under operating
leases and subleases that expire at various dates through November 30, 2005. The
Company's executive offices are located at the Frazer, Pennsylvania facilities
listed below. The principal facilities currently leased or subleased by the
Company are as follows:
<TABLE>
<CAPTION>
SQUARE LEASE
FOOTAGE EXPIRATION
------- --------------
<S> <C> <C>
Frazer, Pennsylvania (Office)............................ 109,800 November 2005
Frazer, Pennsylvania (Office)............................ 35,968 April 2003
Malvern, Pennsylvania (Depot/Call Center)................ 200,000 May 2000
Horsham, Pennsylvania (Warehouse)........................ 100,000 December 1999
Bloomington, Minnesota (Call Center)..................... 66,000 March 1998
Hayward, California (Depot).............................. 91,000 September 1999
Northborough, Massachusetts (Depot)...................... 52,778 July 1998
Wilmington, Ohio (Warehouse)............................. 83,000 January 2001
Grove City, Ohio (Depot)................................. 118,500 January 2002
</TABLE>
In addition, the Company owns two facilities located in Tulsa, Oklahoma
(multipurpose) and the suburbs of Milwaukee, Wisconsin (logistics services). The
Company's management believes that its current facilities will be adequate to
meet its projected growth for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Item 3 is presented with respect to both registrants submitting this
filing, DecisionOne Holdings Corp. and DecisionOne Corporation.
The Company is a party, from time to time, to lawsuits arising in the
ordinary course of business. The Company believes it is not currently a party to
any material legal proceedings. However, within the past several years, several
OEMs have been involved in litigation with independent service organizations,
including
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<PAGE> 15
the Company, in which such OEMs have claimed infringement of software copyrights
held by the OEMs. The Company currently is not involved in any such litigation.
See "Risk Factors -- Copyright Issues."
The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible parties
in respect of four waste disposal sites that have been identified by the United
States Environmental Protection Agency as Superfund Sites: (i) PAS Irwin Dump
Site, Oswego, New York (and six satellite sites, including the Fulton Terminals
Site, Fulton, New York); (ii) North Penn Area 6 Site, Lansdale, Pennsylvania;
(iii) Revere Chemical Site, Nockamixon, Pennsylvania; and (iv) Malvern TCE site,
Malvern, Pennsylvania. In addition, the Company received a notice several years
ago that it may be a potentially responsible party with respect to the Boarhead
Farms Site, Bridgeton, Pennsylvania, at a site related to the Revere Chemical
site, but has not received any additional communication with respect to that
site. Under applicable law, all parties responsible for disposal of hazardous
substances at those sites are jointly and severally liable for clean up costs.
The Company has estimated that its share of the costs of the clean up of one of
the sites will be approximately $500,000, which has been provided for in
liabilities related to the discontinued products division in the accompanying
consolidated balance sheets as of June 30, 1997, 1996 and 1995. Complete
information as to the scope of required clean up at these sites is not yet
available and, therefore, management's evaluation may be affected as further
information becomes available. However, in light of information currently
available to management, including information regarding assessments of the
sites to date and the nature of involvement of the Company's predecessor at the
sites, it is management's opinion that the Company's potential additional
liability, if any, for the cost of clean up of these sites will not be material
to the consolidated financial position, results of operations or liquidity of
the Company. See Note 16 to the Company's Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE OF THE COMMON STOCK
The Common Stock of DecisionOne Holdings Corp. is quoted on the NASDAQ
National Market System under the symbol "DOCI". As of September 15, 1997, there
were 472 stockholders of record. The following table shows, for the periods
indicated, the high and low sale prices of a share of the Company Common Stock
as reported by Bloomberg Financial Markets.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
Second Quarter*....................................................... 29 3/4 19 1/2
Third Quarter......................................................... 26 1/2 12 1/2
Fourth Quarter........................................................ 29 3/4 19 1/2
1997
First Quarter......................................................... 26 1/2 12 1/2
Second Quarter........................................................ 16 3/4 13 1/4
Third Quarter**....................................................... 30 22 3/8
</TABLE>
- ---------------
* The Common Stock has been quoted and traded on the NASDAQ National Market
System since April 4, 1996.
** Through September 11, 1997.
Since its initial public offering in 1996, the Company has not paid any
cash dividends on its Common Stock and it does not have any present intention to
commence payment of any cash dividends. The Company intends to retain earnings
to provide funds for the operation and expansion of the Company's business and
to repay outstanding indebtedness. The Company's debt agreements and other
agreements to which it is a party contain certain covenants restricting the
payment of dividends on, or repurchases of, Company Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data sets forth, for the
periods and the dates indicated, selected consolidated financial data of the
Company, derived from the historical consolidated financial statements of the
Company. The consolidated financial data of the Company for the years ended June
30, 1997, 1996 and 1995 and as of June 30, 1997 and 1996 are derived from the
Company's audited consolidated financial statements included elsewhere herein.
The information set forth below is qualified by reference to and should be read
in conjunction with the Company's and DecisionOne Corporation and Subsidiaries'
Consolidated Financial Statements and Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations". The
following selected financial data (except for per share data, presented only for
DecisionOne Holdings Corp.) is presented for both registrants submitting this
filing, DecisionOne Holdings Corp. and DecisionOne Corporation.
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<PAGE> 17
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------------------------------
THE COMPANY 1997 1996 1995 1994 1993
- ------------------------------------ -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PRO FORMA LOSS PER COMMON SHARE)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Revenues............................ $785,950 $540,191 $163,020 $108,416.. $114,060
Income (loss) before discounted
operations and extraordinary
item.............................. 31,084 20,789 41,415 10,112 (5,234)
Net income (loss)(2)................ 31,084 18,862 42,528 10,112 (10,590)
Pro forma net loss (unaudited)(3)... (183)
Pro forma loss per common share
(unaudited)(3).................... (0.01)
BALANCE SHEET DATA:(1)
Consumable parts.................... $ 34,518 $ 29,770 $ 3,455 $ 3,584 $ 5,528
Repairable parts.................... 199,900 154,970 27,360 9,473... 13,545
Total assets........................ 623,105 514,510 135,553 35,469 44,721
Long-term debt, less current
portion........................... 232,721 188,582 6,157 2,366 44,769
Redeemable preferred stock.......... -- -- 6,811 6,436 --
Total shareholders' equity
(deficiency)...................... 214,888 180,793 14,677 (27,627) (58,146)
</TABLE>
- ---------------
(1) The Selected Financial Data presented includes the results of operations and
balance sheet data of the Company, including the following acquisitions:
Servcom from September 1, 1994, BABSS from October 20, 1995 and certain
assets of the U.S. computer service business of Memorex Telex from November
15, 1996.
(2) The years ended June 30, 1993 and 1994 include income taxes based on an
effective tax rate substantially less than the 40% effective tax rate for
the year ended June 30, 1996 and the 41% effective tax rate for the year
ended June 30, 1997. The year ended June 30, 1995 includes a $23.1 million
net benefit arising from the recognition of future tax benefits of tax loss
carryforwards and temporary timing differences. See Note 9 to the Company's
Consolidated Financial Statements.
(3) Pro forma net loss and loss per common share information for the fiscal year
ended June 30, 1997 is presented to reflect the Merger and related
transactions as if these had occurred on July 1, 1996. Historical per share
data is not presented as this would not be meaningful. See Note 3 to the
Company's Consolidated Financial Statements for additional information.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements, DecisionOne Corporation and Subsidiaries'
Consolidated Financial Statements and the respective Notes thereto, as included
in Item 8 herein. Item 7 is presented with respect to both registrants
submitting this filing, DecisionOne Holdings Corp. and DecisionOne Corporation.
(As used in this Item 7, the term "Company" refers to DecisionOne Holdings Corp.
and its wholly-owned subsidiaries, including DecisionOne Corporation and the
term "Holdings" refers to DecisionOne Holdings Corp.)
This discussion contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" in Item 1.
COMPANY HISTORY
Founded in 1969, the Company began operations as a provider of key punch
machines under the tradename "Decision Data." During the 1980s, its operations
expanded to include the sale of midrange computer hardware and related
maintenance services. During fiscal 1993, the Company decided to focus on
providing computer maintenance and support services and sold its computer
hardware products business.
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<PAGE> 18
Since the beginning of fiscal 1993, the Company established a major
presence in the computer maintenance and technology support services industry
through the acquisition and integration of assets and contracts of 36
complementary businesses. Significant acquisitions included IDEA Servcom, Inc.
("Servcom"), certain assets and liabilities of which were acquired in August
1994 for cash consideration of approximately $29.5 million and BABSS, which was
acquired in October 1995 for cash consideration of approximately $250.0 million.
In addition, certain assets of the U.S. computer service business of Memorex
Telex were acquired in November 1996 for cash consideration of approximately
$24.4 million after certain purchase price adjustments. These acquisitions were
accounted for as purchase transactions.
At the time of its acquisition by the Company, BABSS was among the largest
independent, multivendor service organizations servicing end-user organizations
and OEMs. Prior to the acquisition of BABSS, the Company had higher gross
margins than BABSS principally because approximately 30% of the Company's
revenues in fiscal 1995 were attributable to higher margin contracts involving
systems that can be serviced by a limited number of service providers
("proprietary systems"), whereas BABSS had limited revenues from proprietary
systems.
The Company's primary source of revenues is contracted services for
multivendor computer maintenance and technology support services, including
hardware support, end-user and software support, network support and other
support services. Approximately 85% of the Company's revenues are derived from
maintenance contracts covering a broad spectrum of computer hardware. These
contracts typically have a stipulated monthly fee over a fixed initial term
(typically one year) and continue thereafter unless canceled by either party.
Such contracts generally provide that customers may eliminate certain equipment
and services from the contract upon notice to the Company. In addition, the
Company enters into per-incident arrangements with its customers. Per incident
contracts can cover a range of bundled services for computer maintenance or
support services or for a specific service, such as network support or equipment
relocation services. Another form of per incident service revenues includes time
and material billings for services as needed, principally maintenance and
repair, provided by the Company.
Furthermore, the Company derives additional revenues from the repair of
hardware and components at the Company's logistics services and depot repair
facilities. Pricing of the Company's services is based on various factors
including equipment failure rates, cost of repairable parts and labor expenses.
The Company customizes its contracts to the individual customer based generally
on the nature of the customer's requirements, the term of the contract and the
services that are provided.
The Company experiences reductions in revenue when customers replace
equipment being serviced with new equipment covered under a manufacturer's
warranty, discontinue the use of equipment being serviced due to obsolescence,
choose to use a competitor's services or move technical support services
in-house. The Company must more than offset this revenue "reduction" to grow its
revenues and seeks revenue growth from two principal sources: internally
generated sales from its direct and indirect sales force and the acquisition of
contracts and assets of other service providers. While the Company historically
has been able to offset the erosion of contract-based revenue and maintain
revenue growth through acquisitions and new contracts, notwithstanding the
reduction in contract based revenue, there can be no assurance it will continue
to do so in the future, and any failure to consummate acquisitions, enter into
new contracts or add additional services and equipment to existing contracts
could have a material adverse effect on the Company's profitability.
Cost of revenues is comprised principally of personnel-related costs
(including fringe benefits), consumable parts cost recognition, amortization and
repair costs for repairable parts, and facilities costs and related expenses.
The acquisition of contracts and assets has generally provided the Company
with an opportunity to realize economies of scale because the Company generally
does not increase its costs related to facilities, personnel and consumable and
repairable parts in the same proportion as increases in acquired revenues.
17
<PAGE> 19
MERGER AND RECAPITALIZATION
On August 7, 1997, the Company consummated the Merger with Quaker Holding
Co. ("Quaker"), an affiliate of DLJ Merchant Banking Partners II. The Merger,
which has been recorded as a recapitalization as of the consummation date for
accounting purposes, occurred pursuant to an Agreement and Plan of Merger among
the Company and Quaker dated May 4, 1997, as amended (the "Merger Agreement").
The respective Consolidated Financial Statements of DecisionOne Holdings Corp.
and DecisionOne Corporation and their respective subsidiaries as of and for the
year ended June 30, 1997, included herein, do not reflect transactions related
to the consummation of the merger.
In accordance with the terms of the Merger Agreement, which was approved by
the Company's shareholders on August 7, 1997, Quaker merged with and into the
Company, and the holders of approximately 94.7% of shares of DecisionOne
Holdings Corp. common stock outstanding immediately prior to the Merger received
$23 in cash in exchange for these shares. Holders of approximately 5.3% of
shares of DecisionOne Holdings Corp. common stock outstanding immediately prior
to the Merger retained such shares in the merged Company, as determined based
upon shareholder elections and stock proration factors specified in the Merger
Agreement. The aggregate value of the Merger was approximately $940 million,
including refinancing of DecisionOne Corporation's revolving credit facility
(See Note 3 to the Company's Consolidated Financial Statements).
As a result of the Merger, the Company incurred various expenses,
aggregating approximately $71 million on a pretax basis (approximately $64
million after related tax benefit), subject to adjustment, in connection with
consummating the transaction. These costs consisted primarily of compensation
costs, underwriting discounts and commissions, professional and advisory fees
and other expenses. The Company will report this one-time charge during the
first quarter of fiscal 1998. In addition to these expenses, the Company also
incurred approximately $22.3 million of capitalized debt issuance costs
associated with the Merger Financing. These costs will be charged to expense
over the terms of the related debt instruments (see "Liquidity and Capital
Resources").
As a result of the foregoing, the Company expects to record a significant
net loss in the first quarter of fiscal 1998. Because this loss will result
directly from the one-time charge incurred in connection with the merger, and
this charge will be funded entirely through the proceeds of the Merger
Financing, the Company does not expect this loss to materially impact its
liquidity, ongoing operations or market position. For a discussion of the
consequences of the incurrence of indebtedness in connection with the Merger
Financing, see "Liquidity and Capital Resources."
RESULTS OF OPERATIONS
The following discussion of results of operations is presented for the
fiscal years ended June 30, 1997, 1996 and 1995. The results of operations of
the Company include the operations of Memorex Telex from November 15, 1996,
BABSS from October 20, 1995 and Servcom from September 1, 1994.
18
<PAGE> 20
The following table sets forth, for the periods indicated, certain
operating data expressed in dollar amounts and as a percentage of revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------
1997 1996 1995
--------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 785,950 $ 540,191 $163,020
Cost of Revenues......................................... 581,860 402,316 113,483
-------- -------- --------
Gross Profit............................................. 204,090 137,875 49,537
Selling, general and administrative expenses............. 108,570 69,137 21,982
Employee severance and unutilized lease costs............ 4,300 3,692 --
Amortization of intangibles.............................. 23,470 15,673 6,776
-------- -------- --------
Total operating expenses................................. 136,340 88,502 28,758
Operating income....................................... 67,750 49,373 20,779
Interest expense, net of interest income................. 14,698 14,714 2,468
Provision (benefit) for income taxes..................... 21,968 13,870 (23,104)
Gain from discontinued operations........................ -- -- 1,113
Extraordinary item -- loss on early extinguishment of
debt................................................... -- (1,927) --
-------- -------- --------
Net income..................................... $ 31,084 $ 18,862 $ 42,528
======== ======== ========
OTHER DATA:
EBITDA(1)................................................ $ 172,939 $ 114,816 $ 37,021
Less: Amortization of repairable parts................. (63,870) (37,869) (7,688)
-------- -------- --------
Adjusted EBITDA(1)....................................... 109,069 76,947 29,333
======== ======== ========
Net cash provided by operating activities................ 88,974 51,894 38,415
Net cash (used in) investing activities.................. (129,244) (346,354) (54,271)
Net cash provided by financing activities................ 42,926 300,022 17,537
</TABLE>
- ---------------
(1) Adjusted EBITDA represents income (loss) from continuing operations before
interest expense, interest income, income taxes, depreciation, amortization
of intangibles, amortization of repairable parts, amortization of discounts
and capitalized expenditures related to indebtedness, and non-recurring
employee severance charges and provisions for unutilized leases. ("EBITDA"
represents Adjusted EBITDA, increased by the amortization of repairable
parts). Adjusted EBITDA is presented because it is relevant to certain
covenants contained in debt agreements entered by the Company in connection
with the merger, and because the Company believes that Adjusted EBITDA is a
more-consistent indicator of the Company's ability to meet its debt service,
capital expenditure and working capital requirements than EBITDA.
19
<PAGE> 21
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE
30,
-------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................ 100.0% 100.0% 100.0%
Cost of Revenues.................................................... 74.0% 74.5% 69.6%
----- ----- -----
Gross Profit........................................................ 26.0% 25.5% 30.4%
Selling, general & administrative expenses.......................... 13.8% 12.8% 13.5%
Employee severance and unutilized lease costs....................... 0.5% 0.7% --
Amortization of intangibles......................................... 3.0% 2.9% 4.2%
----- ----- -----
Total operating expenses............................................ 17.3% 16.4% 17.7%
Operating income.................................................. 8.7% 9.1% 12.7%
Interest expense, net of interest income............................ 1.9% 2.7% 1.5%
Provision (benefit) for income taxes................................ 2.8% 2.6% (14.2)%
Gain from discontinued operations................................... -- -- (0.7)%
Extraordinary item -- loss on early extinguishment of debt.......... -- (0.3)% --
----- ----- -----
Net income................................................ 4.0% 3.5% 26.1%
===== ===== =====
</TABLE>
Overview
The Company reported income from continuing operations before income taxes
of $53.1 million, $34.7 million, and $18.3 million in fiscal 1997, 1996 and 1995
respectively. Excluding pre-tax charges for employee severance and unutilized
lease costs in fiscal 1997 and 1996, income from continuing operations before
income taxes was $57.4 million and $38.4 million. Adjusted EBITDA was $109.1
million, $76.9 million, and $29.3 million in fiscal 1997, 1996 and 1995
respectively.
Growth in Adjusted EBITDA and in income from continuing operations before
taxes in fiscal 1997 are primarily a result of certain strategic initiatives,
including the acquisition of complementary contracts and assets, enhancement of
the efficiency of the Company's field technician service force and renegotiation
of certain vendor contracts on more-favorable terms and related increases in
operating leverage.
Fiscal 1997 Compared to Fiscal 1996
Revenues: Revenues increased by $245.8 million, or 45.5%, to $786.0
million for the fiscal year ended June 30, 1997 from $540.2 million for the
fiscal year ended June 30, 1996. This increase is attributable primarily to the
full period effect of the BABSS acquisition, which occurred on October 20, 1995.
To a lesser degree, this increase is attributable to the acquisition of the
service contracts of several complementary businesses, principally Memorex Telex
on November 15, 1996.
Revenues for the quarter ended June 30, 1997 reflected strong growth in
per-incident and other non-contract revenues, compared to the previous quarter.
This revenue is subject to fluctuation depending upon customer demand for the
types and levels of such services. The Company currently expects a decline in
such revenues in the first quarter of fiscal 1998 compared to the fourth quarter
of fiscal 1997.
Gross Profit: Gross profit increased by $66.2 million, or 48.0%, from
$137.9 million for the fiscal year ended June 30, 1996 to $204.1 million for the
fiscal year ended June 30, 1997. This increase is due primarily to the
acquisition of BABSS in October, 1995, and to a lesser degree, the acquisition
of Memorex Telex in November, 1996.
As a percentage of revenues, gross profit increased from 25.5% for the
fiscal year ended June 30, 1996 to 26.0% for the fiscal year ended June 30,
1997. This improvement in gross profit margin is primarily attributable to (i)
increased revenues, both from acquisitions during the fiscal year ended June 30,
1997 and internal sales growth without a proportionate increase in personnel and
other operating expenses, (ii) head count reductions in the Company's field
technician force effected in November 1996 and (iii) more efficient
20
<PAGE> 22
utilization of the Company's field service personnel and resources to service
the increased revenues referred to above.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses, exclusive of employee severance and unutilized lease
costs, increased by $39.4 million, or 56.9%, to $108.6 million for the fiscal
year ended June 30, 1997 from $69.2 million for the fiscal year ended June 30,
1996. This increase is primarily attributable to the full period effect in
fiscal 1997 of the BABSS acquisition, and to a lesser degree, to the acquisition
of Memorex Telex in fiscal 1996. As a percentage of revenues, exclusive of
employee severance and unutilized lease costs, selling, general and
administrative expenses increased to 13.8% for the fiscal year ended June 30,
1997 from 12.8% for the fiscal year ended June 30, 1996.
Employee severance and unutilized lease costs: During the fiscal year
ended June 30, 1997, the Company recorded $4.3 million in employee severance and
unutilized lease/contract costs, in connection with specific acquisitions. These
costs are included in Selling, general and administrative expenses in the
Company's Consolidated Statement of Operations. During fiscal 1996, the Company
recorded $3.6 million in employee severance and unutilized lease costs. These
costs were related principally to future rent obligations and related costs for
facilities of the Company that the Company determined were no longer required as
a result of the acquisition of BABSS. (See Note 15 to the Company's Consolidated
Financial Statements for additional information).
Amortization of Intangibles: Amortization of intangible assets increased
by $7.8 million, or 49.7%, from $15.7 million for the fiscal year ended June 30,
1996 to $23.5 million for the fiscal year ended June 30, 1997. This increase was
attributable principally to the amortization of intangibles resulting from the
BABSS and Memorex Telex acquisitions.
Interest Expense: Interest expense, net of interest income, equaled
approximately $14.7 million for each of the fiscal years ended June 30, 1997 and
1996. This was the result of two offsetting factors, as the Company's reduced
average borrowing rate on long-term indebtedness, (approximately 6.4% for the
fiscal year ended June 30, 1997 as compared to 9.0% for the fiscal year ended
June 30, 1996) substantially offset the increase in average borrowings during
the fiscal year ended June 30, 1997. The reduced average borrowing rate resulted
from the refinancing of the Company's revolving credit facility in April, 1996.
The increased average borrowings during fiscal 1997 were attributable primarily
to the funding requirements of several acquisitions, principally Memorex Telex.
Income Taxes: The Company's income tax provision for the fiscal year ended
June 30, 1997 reflects an estimated effective income tax rate of approximately
41%, while the effective income tax rate for the fiscal year ended June 30, 1996
was approximately 40%. This increase in the Company's anticipated effective
income tax rate was due primarily to the prior-year impact of certain
non-recurring foreign income tax benefits relating to net operating loss
carryforwards.
Fiscal 1996 Compared to Fiscal 1995
Revenues: Revenues increased by $377.2 million, or 231.4%, from $163.0
million for the fiscal year ended June 30, 1995 to $540.2 million for the fiscal
year ended June 30, 1996. The increase is largely a result of acquisitions,
principally the BABSS acquisition in October 1995 which accounted for
approximately $350 million of the increase.
Gross profit: Gross profit increased by $88.4 million, or 178.6%, from
$49.5 million during the fiscal year ended June 30, 1995 to $137.9 million for
the fiscal year ended June 30, 1996. As a percentage of revenues, gross profit
decreased from 30.4% to 25.5%, reflecting the change in mix of services
resulting from the acquisition of BABSS. As a result of that acquisition, a
smaller portion of revenues was derived from proprietary systems which typically
generate higher profit margins than services for nonproprietary systems.
Selling, general and administrative expenses: Selling, general and
administrative expenses, exclusive of employee severance and unutilized lease
costs, increased by $47.2 million, from $22.0 million for the fiscal year ended
June 30, 1995 to $69.2 million for the fiscal year ended June 30, 1996,
principally as a result of the
21
<PAGE> 23
additional expenses relating to the revenue growth discussed above. As a
percentage of revenues, selling, general and administrative decreased from 13.5%
to 12.8%, respectively, reflecting economies of scale.
Employee severance and unutilized lease costs: During fiscal 1996, the
Company recorded $3.6 million in employee severance and unutilized lease costs.
These costs were related principally to future rent obligations and related
costs for facilities of the Company that the Company determined were no longer
required as a result of the acquisition of BABSS. These costs are included in
Selling, general and administrative expenses in the Company's Consolidated
Statement of Operations. (See Note 15 to the Company's Consolidated Financial
Statements for additional information).
Amortization and write-off of intangibles: Amortization of intangibles
increased by $8.9 million, from $6.8 million for the fiscal year ended June 30,
1995 to $15.7 million for the fiscal year ended June 30, 1996, principally due
to the amortization of intangibles arising from the BABSS acquisition.
Interest expense: Interest expense increased by $12.2 million, from $2.5
million for the fiscal year ended June 30, 1995 to $14.7 million for the fiscal
year ended June 30, 1996, principally as a result of the indebtedness incurred
to finance the acquisition of BABSS. See Note 8 to the Company's Consolidated
Financial Statements.
Provision for income taxes: The income tax provision for the fiscal year
ended June 30, 1996 was based on an effective tax rate of approximately 40%. For
the fiscal year ended June 30, 1995, the Company reported an income tax benefit
equivalent of approximately 126%, arising primarily from the recognition of
future tax benefits of tax loss carry-forwards and temporary timing differences.
See Note 9 to the Company's Consolidated Financial Statements.
Extraordinary item -- early extinguishment of debt: Upon consummation of
its initial public offering in April 1996, the Company was required to pay the
total outstanding principal amount of its $30 million of 10.101% subordinated
debentures due October 20, 2001. This prepayment resulted in the write-off of
unamortized original issue discount of approximately $1.9 million, net of income
tax effect of $1.3 million, related to warrants issued with the debentures.
Discontinued operations: During fiscal 1995, the Company revised its
estimates of certain accruals created as a result of the disposal of its
computer products division during fiscal 1993. The reversal of certain accruals
resulted in $1.1 million in additional net income in fiscal 1995.
LIMITATION ON USE OF NET OPERATING LOSS CARRYFORWARDS AND OTHER TAX CREDITS
As of June 30, 1997, the Company had tax loss carryforwards of
approximately $12.9 million and $8.7 million for Federal and state income tax
purposes, respectively, which are scheduled to expire between 1998 and 2008. The
Company also had minimum tax credits of approximately $1.5 million as of June
30, 1997, with no applicable expiration period. These carryforwards and credits
may be utilized, as applicable, to reduce future taxable income. The Company's
initial public offering in April, 1996 resulted in an "ownership change"
pursuant to Section 382 of the Code, which in turn resulted in the usage, for
U.S. federal income tax purposes, of these carryforwards and credits during any
future period being limited to approximately $20 million per annum.
In addition, the Company's merger with Quaker in August, 1997 represents
another "ownership change" under Section 382 of the Code, and the Company,
therefore, estimates that, for U.S. federal income tax purposes, the limitation
on its use of tax loss carryforwards and other credits in any post-merger period
will be reduced to approximately $9.0 million per annum. The Company anticipates
that fees and expenses incurred in connection with the merger will result in
additional tax loss carryforwards arising in fiscal 1998. For financial
reporting purposes, the anticipated tax benefit associated with these
carryforwards will be limited due primarily to the length of the period during
which the anticipated tax benefit is expected to be realized. See Note 9 to the
Company's Consolidated Financial Statements.
22
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
Post-Merger
The Company's principal sources of liquidity will be cash flow from
operations and borrowings under its new $105 million revolving credit facility,
which was entered into in connection with the Merger. The Company's principal
uses of cash will be debt service requirements, capital expenditures, purchases
of repairable parts and acquisitions, and working capital. The Company expects
that ongoing requirements for debt service, capital expenditures, repairable
parts and working capital will be funded from operating cash flow and borrowing
under the new revolving credit facility. To finance future acquisitions, the
Company may require additional funding which may be provided in the form of
additional debt, equity financing or a combination thereof.
The Company incurred substantial indebtedness in connection with the Merger
on August 7, 1997. On a pro forma basis, after giving effect to the Merger,
including the Merger financing and the application of the proceeds thereof, the
Company would have had approximately $724.5 million of indebtedness outstanding
as of June 30, 1997 as compared to actual $237.5 million of indebtedness
outstanding as of June 30, 1997. In addition, on the same pro forma basis, the
Company would have a stockholders' deficit of $243.1 million at June 30, 1997 as
compared to actual stockholders' equity of $214.9 million as of June 30, 1997.
The Company's significant debt service obligations following the Merger could,
under certain circumstances, have material consequences to security holders of
the Company. See "Risk Factors", included herein under Item 1.
In connection with the Merger, Holdings issued $85 million of 11 1/2% Notes
due 2008 (the "11 1/2% Notes"). DecisionOne Corporation issued $150 million of
9 3/4% Notes due 2007 (the "9 3/4% Notes"). DecisionOne Corporation also entered
into a new syndicated credit facility providing for term loans of $470 million
and revolving loans of up to $105 million. The proceeds of the 11 1/2% Notes
(which were issued with attached warrants), 9 3/4% Notes, the initial borrowings
under the new credit facility and the purchase of approximately $225 million of
Holdings common stock by the DLJ Group have been used to finance the payments of
cash to cash-electing shareholders, to pay the holders of stock options and
stock warrants canceled or converted, as applicable, in connection with the
merger, to repay DecisionOne Corporation's existing revolving credit facility
and to pay expenses incurred in connection with the merger. See Note 3 to the
Company's and DecisionOne Corporation's Consolidated Financial Statements for
additional information.
The Company has budgeted approximately $10 million in incremental
expenditures for information systems and related re-engineering initiatives to
be incurred in fiscal 1998. The initiatives to be funded include the following:
(i) enhancements to the Company's service entitlement process which will further
ensure that customers are billed for all work performed; (ii) improvements to
the Company's dispatch system and field engineer data collection and technical
support tools which are designed to increase productivity; (iii) enhancements to
the Company's help desk and central dispatch systems to provide an integrated
support solution to the customer base, and (iv) improvements to the Company's
field inventory tracking system which will facilitate increased transfer of
consumable and repairable parts among field locations and reduce purchases of
repairable parts. There can be no assurance that these amounts will be so
expended by the Company, nor when these amounts will be so expended. These
planned expenditures are expected to negatively impact income during fiscal year
1998.
The Company anticipates that its operating cash flow, together with
borrowings under the new credit facility, will be sufficient to meet its
anticipated future operating expenses and capital expenditures and to service
its debt requirements as they become due. However, the Company's ability to make
scheduled payments of principal of, to pay interest on or to refinance its
indebtedness and to satisfy its other debt obligations will depend upon its
future operating performance, which will be affected by general economic,
financial, competitive, legislative, regulatory, business and other factors
beyond its control. See "Risk Factors", included herein under Item 1.
23
<PAGE> 25
Historical
Financing: Until its initial public offering in April 1996, the Company's
principal sources of capital had been borrowings from banks (primarily to
finance acquisitions), private placements of equity and debt securities with
principal stockholders and cash flow generated by operations. In April 1996, the
Company (i) completed an initial public offering, which raised approximately
$106 million and (ii) refinanced its bank debt, each of which is more fully
discussed below.
The Company has relied on banks as the primary source of funds required for
larger acquisitions, such as the August 1994 acquisition of certain assets and
liabilities of Servcom and the October 1995 acquisition of BABSS. Since July
1993, the Company's smaller acquisitions have been funded primarily through a
combination of seller financing, cash and the assumption of liabilities under
acquired prepaid service contracts.
In April 1996, the Company completed an initial public offering raising
$106 million through the issuance of 6.3 million shares of common stock. The
Company used the proceeds to repay approximately $70 million of its then
existing term loan (the "1995 Term Loan") and the Affiliate Notes. Concurrent
with the initial public offering, the Company's Preferred Stock (Series A, B and
C) was converted into common stock in accordance with the terms thereof.
In April 1996, the Company converted the 1995 Term Loan and an existing $30
million revolving credit facility into a $225 million variable rate, unsecured
revolving credit facility (the "Facility"). During November 1996, in connection
with the acquisition of certain assets of the U.S. computer service business of
Memorex Telex, the Company's lender approved a $75 million increase to the
Facility, raising the total loan commitment to $300 million. See Note 8 to the
Company's Consolidated Financial Statements.
The Facility provides for revolving borrowings up to $300 million. The
commitments thereunder terminate on April 26, 2001. The interest rate applicable
to the Facility varies, at the Company's option, based upon LIBOR (plus an
applicable margin not to exceed 1%) or the prime rate. The Company had entered
into interest rate swap agreements resulting in fixed Euro dollar interest rates
of 5.4% on $40.0 million through December 1997 and 5.5% on another $40.0 million
through December 1998. During fiscal 1997, the Company terminated these interest
rate swap agreements, resulting in an insignificant gain. See Notes 1 and 8 to
the Company's Consolidated Financial Statements.
As of June 30, 1997, the interest rate applicable to loans under the
Facility was LIBOR plus .75%, or an effective rate of approximately 6.5%, and
available borrowings under the Facility were $65.7 million. Borrowings incurred
during fiscal 1997 included substantially all of the funding required with
respect to the Memorex Telex acquisition. See Note 4 to the Company's
Consolidated Financial Statements.
The borrower under the Facility is DecisionOne Corporation, a wholly-owned
and the principal operating subsidiary of the Company. The obligations of
DecisionOne Corporation thereunder are guaranteed by the Company and certain
subsidiaries, except for its Canadian subsidiary. In connection with the merger
in August, 1997, all indebtedness outstanding under the Facility was repaid.
Financial Condition: Cash flow from operating activities for the fiscal
year ended June 30, 1997 was approximately $89.0 million. These funds, together
with borrowings under the Facility, provided the required capital to fund
repairable part purchases and capital expenditures of approximately $97.0
million, as well as the acquisition of contracts and assets of complementary
businesses for approximately $32.3 million.
Reducing cash flow from operating activities for the fiscal year ended June
30, 1997 was a $1.8 million payment to the Internal Revenue Service in full
satisfaction of certain interest liabilities related to prior tax periods. See
Note 7 to the Company's Consolidated Financial Statements. The Company had
adequately accrued for this liability prior to payment, and no further amounts
are due with regard to these matters.
In fiscal years 1996 and 1995, the Company generated net cash flow from
operating activities of $51.9 million and $38.4 million, respectively. Cash
required to fund the purchase of repairable parts and for capital expenditures
totaled $70.8 million and $14.9 million, during fiscal years 1996 and 1995,
respectively.
24
<PAGE> 26
The Company maintains a significant inventory of consumable and repairable
parts. Expendable parts are expensed as they are used in the operations of the
business. Repairable parts are recorded at cost at the time of their acquisition
and amortized over three to five years. The Company maintains a high level of
parts due to the wide range of products serviced, ranging from mainframe to
personal computers. At June 30, 1997, the Company had no material commitments
for purchases of spare parts or for other capital expenditures.
The Company provides for obsolescence when accounting for consumable parts
and reviews obsolescence as it applies to its repairable parts. The Company
believes it has provided adequate reserves for obsolescence for consumable
parts. The Company believes that accumulated amortization on repairable parts
renders the need for an obsolescence reserve with respect to repairable parts
unnecessary.
The most significant of the Company's acquisitions during the fiscal year
ended June 30, 1997 was the Memorex Telex acquisition on November 15, 1996. The
adjusted purchase price was $52.7 million, comprised of the Company's assumption
of $28.3 million of liabilities under acquired customer maintenance contracts,
and $24.4 million in cash, excluding transactions and closing costs, after
taking into account certain purchase price adjustments.
The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible parties
in respect of four waste disposal sites that have been identified by the U.S.
Environmental Protection Agency as Superfund sites. In addition, the Company
received a notice several years ago that it may be a potentially responsible
party in respect of a fifth site, but has not received any other communication
in respect of that site. The Company has estimated that its share of the costs
of the cleanup of one of the sites will be approximately $500,000, which has
been provided for in liabilities related to the discontinued products division
in the Company's financial statements. Complete information as to the scope of
required cleanup at these sites is not yet available and, therefore,
management's evaluation may be affected as further information becomes
available. However, in light of information currently available to management,
including information regarding assessments of the sites to date and the nature
of involvement of the Company's predecessor at the sites, it is management's
opinion that the Company's potential additional liability, if any, for the cost
of cleanup of these sites will not be material to the consolidated financial
position, results of operations or liquidity of the Company. See Note 16 to the
Company's Consolidated Financial Statements.
EFFECT OF INFLATION; SEASONALITY
Inflation has not been a material factor affecting the Company's business.
In recent years, the cost of electronic components has remained relatively
stable due to competitive pressures within the industry, which has enabled the
Company to contain its service costs. The Company's general operating expenses,
such as salaries, employee benefits, and facilities costs, are subject to normal
inflationary pressures.
The operations of the Company are generally not subject to seasonal
fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and a part of this report are financial statements and
supplementary data for DecisionOne Holdings Corp. and DecisionOne Corporation
listed in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE> 27
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF REGISTRANT
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be
filed by the Company with the Securities and Exchange Commission on or before
October 28, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be
filed by the Company with the Securities and Exchange Commission on or before
October 28, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be
filed by the Company with the Securities and Exchange Commission on or before
October 28, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be
filed by the Company with the Securities and Exchange Commission on or before
October 28, 1997.
26
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
See Index to Financial Statements appearing on Page F-1.
(2) Financial Statement Schedules
Schedule I -- Condensed Financial Information of Registrant
(DecisionOne Holdings Corp. only)
Schedule II -- Valuation and Qualifying Accounts
(3) Exhibits
DECISIONONE HOLDINGS CORP.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated May 4, 1997 between the Company and Quaker
Holding Co.(5) (appears as Annex A)
2.2 Amendment No. 1 to the Agreement and Plan of Merger, dated as of July 15, 1997(5)
(appears as Annex A-1)
3.1 Amended and Restated Certificate of Incorporation (Exhibit 3.1)(1)
3.2 Amended and Restated Bylaws (Exhibit 3.2)(1)
4.1* Specimen of DecisionOne Corporation's 9 3/4% Senior Subordinated Notes due 2007
(included in Exhibit 4.2)(6)
4.2* 9 3/4% Senior Subordinated Note Indenture dated as of August 7, 1997 between
DecisionOne Corporation and State Street Bank and Trust Company as Trustee(6)
4.3* Specimen of the Company's 11 1/2% Senior Discount Debenture due 2008 (included in
Exhibit 4.4)
4.4* 11 1/2% Senior Discount Debenture Indenture dated as of August 7, 1997 by and
between Quaker Holding Co. and State Street Bank and Trust as Trustee
4.5* Form of Warrant (included in Exhibit 4.6)
4.6* Warrant Agreement dated as of August 7, 1997 between Quaker Holding Co. and State
Street Bank and Trust as Warrant Agent
4.7* Debenture Agreement dated as of August 7, 1997 between the Company and State Street
Bank and Trust as Trustee (included in Exhibit 4.4)
4.8* Warrant Assumption dated as of August 7, 1997 between the Company and State Street
Bank and Trust as Warrant Agent (included in Exhibit 4.6)
10.1+* Management Incentive Plan
10.2+* Direct Investment Program
10.3* (intentionally omitted)
10.4* U.S. $575,000,000 Credit Agreement dated as of August 7, 1997 by and among
DecisionOne Corporation, various financial institutions, DLJ Capital Funding Inc.
(as Syndication Agent), Nations Bank of Texas, N.A. (as Administrative Agent) and
BankBoston, N.A. (as Documentation Agent)(6)
10.5 Employment Agreement with Kenneth Draeger (Exhibit 10.7)(1)
10.6+ Employment Letter with Stephen J. Felice (Exhibit 10.8)(1)
10.7+ Employment Letter with James J. Greenwell (Exhibit 10.10)(1)
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C>
10.8 Amended and Restated Registration Rights Agreement (Exhibit 10.11)(1)
10.9 First Amendment to Amended and Restated Registration Rights Agreement (Exhibit
10.12)(1)
10.10 Lease for Frazer, Pennsylvania executive offices (East)(Exhibit 10.14)(1)
10.11 Lease for Frazer, Pennsylvania executive offices (West)(Exhibit 10.15)(1)
10.12 Lease for Malvern, Pennsylvania depot and call center (Exhibit 10.16)(1)
10.13+ Employment Letter with Joseph S. Giordano (Exhibit 10.17)(2)
10.14 Lease for Bloomington, Minnesota call center (Exhibit 10.18)(2)
10.15 Lease for Haywood, California depot (Exhibit 10.19)(2)
10.16 Lease for Northborough, Massachusetts depot (Exhibit 10.20)(2)
10.17+ Employment Letter with Thomas J. Fitzpatrick (Exhibit 10.22)(3)
10.18 Employment Letter with Thomas M. Molchan(4)
10.19 Employment Letter with Dwight T. Wilson(4)
10.20* Intercompany Note made by the Company in favor of DecisionOne Corporation dated as
of August 7, 1997
12 Computation of Ratios of Earnings to Fixed Charges(5)
21 Subsidiaries of the Registrant (Exhibit 21)(1)
23.1* Consent of Deloitte & Touche LLP
27* Financial Data Schedule
</TABLE>
- ---------------
(1) Filed as an Exhibit to Registration Statement No. 333-1256 on Form S-1 filed
with the Securities and Exchange Commission on February 9, 1996.
+ Compensation plans and arrangements for executives and others.
* Filed herewith
(2) Filed as an Exhibit to Pre-Effective Amendment No. 1 to Registration
Statement No. 333-1256 on Form S-1 filed with the Securities and Exchange
Commission on March 14, 1996.
(3) Filed as an Exhibit to the Annual Report on Form 10-K filed with the
Securities and Exchange Commission on September 30, 1996.
(4) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on May 15, 1997.
(5) Previously filed as an Exhibit to Registration Statement No. 333-28265 on
Form S-4 filed with the Securities and Exchange Commission on June 2, 1997.
(6) Filed as an Exhibit to the Annual Report on Form 10-K for DecisionOne
Corporation filed with the Securities and Exchange Commission on September
29, 1997.
DECISIONONE CORPORATION
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company, as amended.(1)
3.2 Amended and Restated Bylaws of the Company.(1)
4.1* Specimen of the Company's 9 3/4 Senior Subordinated Notes due 2007 (included in
Exhibit 4.2).
4.2* 9 3/4% Senior Subordinated Note Indenture dated as of August 7, 1997 between the
Company and State Street Bank and Trust as Trustee.
10.1+ Employment Agreement with Kenneth Draeger.(2)
10.2+ Employment Letter with Stephen J. Felice.(2)
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.3 Lease for Frazer, Pennsylvania executive offices (East).(2)
10.4 Lease for Frazer, Pennsylvania executive offices (West).(2)
10.5 Lease for Malvern, Pennsylvania depot and call center.(2)
10.6 Lease for Bloomington, Minnesota call center.(3)
10.7 Lease for Hayward, California depot.(3)
10.8 Lease for Northborough, Massachusetts depot.(3)
10.9 Form of Tax Sharing Agreement.(1)
10.10* U.S. $575,000,000 Credit Agreement dated as of August 7, 1997 by and among the
Company, various finance institutions, DLJ Capital Funding Inc. (as Syndication
Agent), NationsBank of Texas, N.A. (as Administrative Agent) and BankBoston, N.A.
(as Documentation Agent).
10.11* Intercompany Note made by the DecisionOne Holdings Corp. in favor of the Company
dated as of August 7, 1997.(6)
12.1 Statement Regarding Computation of Ratios.(1)
23* Consent of Deloitte & Touche LLP
27* Financial Data Schedule.
</TABLE>
- ---------------
(1) Filed as an Exhibit to Registration Statement No. 333-28411 on Form S-1
filed with the Securities and Exchange Commission on June 3, 1997.
+ Compensation plans and arrangements for executives and others.
* Filed herewith
(2) Filed as an Exhibit to Registration Statement No. 333-1256 on Form S-1 filed
with the Securities and Exchange Commission on February 9, 1996.
(3) Filed as an Exhibit to Pre-Effective Amendment No. 1 to Registration
Statement No. 333-1256 on Form S-1 filed with the Securities and Exchange
Commission on March 14, 1996.
(4) Filed as an Exhibit to the Annual Report on Form 10-K filed by DecisionOne
Holdings Corp. with the Securities and Exchange Commission on September 30,
1996.
(5) Filed as an Exhibit to the Quarterly Report on Form 10-Q filed by
DecisionOne Holdings Corp. with the Securities and Exchange Commission on
May 15, 1997.
(6) Filed as an Exhibit to the Annual Report on Form 10-K filed by DecisionOne
Holdings Corp. with the Securities and Exchange Commission on September 29,
1997.
(b) Current Reports on Form 8-K filed during the quarter ended June 30,
1997:
A Current Report on Form 8-K, dated May 5, 1997, was filed regarding i.)
the Company's Agreement and Plan of Merger with Quaker Holding Co. ("Quaker")
dated May 4, 1997 (the "Merger Agreement"), and ii.) the Voting Agreement by and
among the Company, Quaker and certain partnerships affiliated with Welsh,
Carson, Anderson and Stowe and J.H. Whitney & Co., with respect to the Merger
Agreement.
29
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in Frazer, Pennsylvania
on September 29, 1997.
DECISIONONE CORPORATION
By: /s/ KENNETH DRAEGER
------------------------------------
Kenneth Draeger
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the indicated persons. Each person whose
signature appears below in so signing also makes, constitutes and appoints
Kenneth Draeger and Thomas J. Fitzpatrick, and each of them acting for him and
in his name, place and stead in any and all capacities, to execute and cause to
be filed with the Securities and Exchange Commission any and all amendments to
this report, and in each case to file the same, with all exhibits thereto and
other documents in connection therewith, and hereby ratifies and confirms all
that said attorney-in-fact or his substitute or substitutes may do or cause to
be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- --------------------------------------- ------------------
<C> <S> <C>
/s/ KENNETH DRAEGER Chairman of the Board and Chief September 29, 1997
- -------------------------------------- Executive Officer (Principal
Kenneth Draeger Executive Officer)
/s/ THOMAS J. FITZPATRICK Vice President and Chief Financial September 29, 1997
- -------------------------------------- Officer (Principal Financial and
Thomas J. Fitzpatrick Accounting Officer)
/s/ PETER T. GRAUER Director September 29, 1997
- --------------------------------------
Peter T. Grauer
/s/ KIRK B. WORTMAN Director September 29, 1997
- --------------------------------------
Kirk B. Wortman
</TABLE>
31
<PAGE> 32
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENT OF DECISIONONE HOLDINGS CORP.:
<TABLE>
<S> <C>
Independent Auditors' Report...................................................... F-2
Consolidated Balance Sheets as of June 30, 1997 and 1996.......................... F-3
Consolidated Statements of Operations for the Years Ended June 30, 1997, 1996 and
1995........................................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 1997,
1996 and 1995.................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1997 and
1995........................................................................... F-6
Notes to Consolidated Financial Statements........................................ F-7
CONSOLIDATED FINANCIAL STATEMENTS OF DECISIONONE CORPORATION:
Independent Auditors' Report...................................................... F-26
Consolidated Balance Sheets as of June 30, 1997 and 1996.......................... F-27
Consolidated Statements of Operations for the Years Ended June 30, 1997, 1996 and
1995........................................................................... F-28
Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 1997,
1996 and 1995.................................................................. F-29
Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1997 and
1995........................................................................... F-30
Notes to Consolidated Financial Statements........................................ F-31
FINANCIAL STATEMENT SCHEDULES:
Schedule I -- Condensed Financial Information of Registrant (DecisionOne Holdings
Corp. only).................................................................... S-1
Schedule II -- Valuation and Qualifying Accounts.................................. S-5
</TABLE>
F-1
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of DecisionOne Holdings Corp.:
We have audited the accompanying consolidated balance sheets of DecisionOne
Holdings Corp. and subsidiaries (the "Company") as of June 30, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended June 30, 1997. Our
audits also included the financial statement schedules listed in the Index at
Item 14. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DecisionOne Holdings Corp. and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
August 15, 1997
F-2
<PAGE> 34
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT NUMBER OF SHARES OF COMMON STOCK)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 10,877 $ 8,221
Accounts receivable, net of allowances of $14,869 and $9,580......... 127,462 92,650
Consumable parts, net of allowances of $17,889 and $19,537........... 34,518 29,770
Prepaid expenses and other assets.................................... 4,542 5,112
Deferred tax asset................................................... 5,236 8,018
-------- --------
Total current assets......................................... 182,635 143,771
REPAIRABLE PARTS, Net of accumulated amortization of $154,555 and
$105,462............................................................. 199,900 154,970
PROPERTY AND EQUIPMENT................................................. 34,227 32,430
INTANGIBLES............................................................ 191,366 164,659
OTHER ASSETS........................................................... 14,977 18,680
-------- --------
TOTAL ASSETS........................................................... $623,105 $514,510
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................................... $ 4,788 $ 2,321
Accounts payable and accrued expenses................................ 95,516 89,564
Deferred revenues.................................................... 56,600 38,485
Income taxes and other liabilities................................... 4,664 479
-------- --------
Total current liabilities.................................... 161,568 130,849
REVOLVING CREDIT LOAN AND LONG-TERM DEBT............................... 232,721 188,582
OTHER LIABILITIES...................................................... 13,928 14,286
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; authorized 5,000,000 shares; none
outstanding
Common stock, $.01 par value; authorized 100,000,000 shares; issued
and outstanding 27,817,832 shares in 1997 and 27,340,288 shares in
1996.............................................................. 278 273
Additional paid-in capital........................................... 258,331 255,262
Accumulated deficit.................................................. (42,432) (73,516)
Other................................................................ (1,289) (1,226)
-------- --------
Total shareholders' equity................................... 214,888 180,793
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $623,105 $514,510
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 35
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES................................................... $785,950 $540,191 $163,020
COST OF REVENUES........................................... 581,860 402,316 113,483
-------- -------- --------
GROSS PROFIT............................................... 204,090 137,875 49,537
OPERATING EXPENSES:
Selling, general and administrative expenses............. 112,870 72,829 21,982
Amortization of intangibles.............................. 23,470 15,673 6,776
-------- -------- --------
OPERATING INCOME........................................... 67,750 49,373 20,779
INTEREST EXPENSE, Net of interest income of $197 in 1997,
$239 in 1996 and $53 in 1995............................. 14,698 14,714 2,468
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(BENEFIT), DISCONTINUED OPERATIONS AND EXTRAORDINARY
ITEM..................................................... 53,052 34,659 18,311
PROVISION (BENEFIT) FOR INCOME TAXES....................... 21,968 13,870 (23,104)
-------- -------- --------
INCOME BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY
ITEM..................................................... 31,084 20,789 41,415
DISCONTINUED OPERATIONS -- Income from operations of
discontinued products division........................... 1,113
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM........................... 31,084 20,789 42,528
EXTRAORDINARY ITEM, NET OF TAX BENEFIT OF $1,284........... 1,927
-------- -------- --------
NET INCOME................................................. $ 31,084 $ 18,862 $ 42,528
======== ======== ========
PRO FORMA INFORMATION (UNAUDITED):
Net income before interest expense adjustment............ $ 31,084
Interest expense adjustment, net of tax.................. (31,267)
--------
Pro forma net loss....................................... $ (183)
========
Pro forma loss per share................................. $ (.01)
========
Pro forma weighted average number of common and common
equivalent shares outstanding......................... 14,200
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 36
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT NUMBER OF SHARES OF COMMON STOCK)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN TOTAL
------------------- ADDITIONAL CURRENCY PENSION SHAREHOLDERS'
NUMBER OF PAID-IN ACCUMULATED TRANSLATION LIABILITY (DEFICIENCY)
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT ADJUSTMENT EQUITY
---------- ------ ---------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994................ 8,920,348 $ 89 $108,358 $(134,906) $ 457 $ (1,625) $ (27,627)
Net income.......................... 42,528 42,528
Adjustment to pension liability..... (80) (80)
Foreign currency translation
adjustment........................ 223 223
Accrued dividends on Series A and B
Redeemable Preferred Stock........ (375) (375)
Exercise of stock options........... 15,000 8 8
----------- ---- -------- --------- ---- ------- --------
BALANCE, JUNE 30, 1995................ 8,935,348 89 107,991 (92,378) 680 (1,705) 14,677
Net income.......................... 18,862 18,862
Adjustment to pension liability..... (143) (143)
Common Stock issued:
Exercise of preemptive rights..... 384,502 4 1,526 1,530
Public offering................... 6,300,000 63 106,250 106,313
Exercise of stock options......... 329,850 3 300 303
Exercise of warrants.............. 118,664 1 598 599
Conversion of Redeemable Preferred
Stock........................... 11,271,924 113 37,529 37,642
Stock issuance costs................ (1,573) (1,573)
Issuance of warrants................ 126 126
Issuance of warrants attached to
Subordinated Debentures........... 3,400 3,400
Foreign currency translation
adjustment........................ (58) (58)
Accrued dividends on Redeemable
Preferred Stock................... (885) (885)
----------- ---- -------- --------- ---- ------- --------
BALANCE, JUNE 30, 1996................ 27,340,288 273 255,262 (73,516) 622 (1,848) 180,793
Net income.......................... 31,084 31,084
Adjustment to pension liability..... (25) (25)
Tax benefit -- disqualifying stock
disposition....................... 2,635 2,635
Foreign currency translation
adjustment........................ (38) (38)
Exercise of stock options........... 477,544 5 434 439
----------- ---- -------- --------- ---- ------- --------
BALANCE, JUNE 30, 1997................ 27,817,832 $278 $258,331 $ (42,432) $ 584 $ (1,873) $ 214,888
=========== ==== ======== ========= ==== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 37
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................... $ 31,084 $ 18,862 $ 42,528
Adjustments to reconcile net income to net cash provided
by operating activities:
Income from discontinued operations................... (1,113)
Depreciation.......................................... 13,549 8,309 1,779
Amortization of repairable parts...................... 63,870 37,869 7,688
Amortization of intangibles........................... 23,470 15,673 6,775
Provision for losses on accounts receivable........... 7,849 3,434 1,930
Provision for consumable parts obsolescence........... 2,554 1,171 1,995
Extraordinary item.................................... 1,927
Changes in operating assets and liabilities, net of
effects from companies acquired, which provided
(used) cash:
Accounts receivable................................. (38,365) (1,900) (8,836)
Consumable parts.................................... (6,038) (1,248) 931
Accounts payable and accrued expenses............... 3,885 256 (1,171)
Deferred revenues................................... (25,427) (33,928) 6,811
Net changes in other assets and liabilities......... 12,543 1,469 (20,902)
--------- --------- --------
Net cash provided by operating activities........ 88,974 51,894 38,415
--------- --------- --------
INVESTING ACTIVITIES:
Capital expenditures..................................... (10,540) (7,278) (2,786)
Repairable spare parts purchases, net.................... (86,446) (63,514) (12,154)
Acquisitions of companies and contracts.................. (32,258) (275,562) (39,331)
--------- --------- --------
Net cash used in investing activities............ (129,244) (346,354) (54,271)
--------- --------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock................ 31,392
Proceeds from issuance of subordinated debentures........ 30,000
Proceeds from issuance of common stock................... 439 106,313
Payment of subordinated debentures....................... (30,000)
Net proceeds from borrowings............................. 43,625 165,711 17,537
Principal payments under capital leases.................. (1,075) (3,423)
Other.................................................... (63) 29
--------- --------- --------
Net cash provided by financing activities........ 42,926 300,022 17,537
--------- --------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................. 2,656 5,562 1,681
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............... 8,221 2,659 978
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR..................... $ 10,877 $ 8,221 $ 2,659
========= ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid during the year for:
Interest.............................................. $ 15,640 $ 14,838 $ 2,065
Income taxes.......................................... 8,381 5,344 1,009
Noncash investing/financing activities:
Issuance of seller notes in connection with
acquisitions........................................ 2,224 587 2,866
Issuance of seller notes in exchange for repairable
parts............................................... 1,855
Repairable parts received in lieu of cash for accounts
receivable.......................................... 1,124
Accretion of accrued dividends........................ 885 375
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 38
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1. NATURE OF BUSINESS
DecisionOne Holdings Corp. and its wholly-owned subsidiaries (the
"Company") are providers of multivendor computer maintenance and technology
support services. The Company offers its customers a single-source, independent
(i.e., not affiliated with an original equipment manufacturer, or "OEM")
solution for computer maintenance and technology support requirements, including
hardware maintenance services, software support, end-user/help desk services,
network support and other technology support services. These services are
provided by the Company across a broad range of computing environments,
including mainframes, midrange and distributed systems, workgroups, personal
computers ("PCs") and related peripherals. In addition, the Company provides
outsourcing services for OEMs, software publishers, system integrators and other
independent service organizations. The Company delivers its services through an
extensive field service organization of approximately 4,000 field technicians in
over 150 service locations throughout North America and through strategic
alliances in selected international markets.
Through June 30, 1995, the Company's services predominantly involved the
provision of maintenance services to the midrange computer market. On October
20, 1995, the Company acquired Bell Atlantic Business Systems Services, Inc.
("BABSS") (see Note 4). BABSS provided computer maintenance and technology
support services for computer systems ranging from the data center, which
includes both mainframe and midrange systems, to desk top. Subsequent to the
acquisition, the Company's principal operating subsidiary, Decision Servcom,
Inc., was merged into BABSS, which had changed its name to DecisionOne
Corporation. As a result, DecisionOne Corporation is the principal operating
subsidiary of the Company.
The Company's wholly owned, direct international subsidiaries are not
significant to the Company's consolidated financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts
of DecisionOne Holdings Corp. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Pro Forma Information (Unaudited) -- The pro forma information included in
the accompanying statement of operations and in Note 3 has been prepared to
reflect the Company's recapitalization and merger with Quaker Holding Co.
("Quaker") and related transactions as if these had occurred on July 1, 1996.
Historical earnings per share data for the fiscal years ended June 30, 1997,
1996 and 1995 is not presented as this would not be meaningful.
Cash and Cash Equivalents -- Cash and cash equivalents are highly liquid
investments with remaining maturities of three months or less at the time of
purchase. Cash equivalents, consisting primarily of repurchase agreements with
banks, are stated at cost, which approximates fair market value.
Consumable Parts and Repairable Parts -- In order to provide maintenance
and repair services to its customers, the Company is required to maintain
significant levels of computer parts. These parts are classified as consumable
parts or as repairable parts. Consumable parts, which are utilized during the
repair process, are stated at cost, principally determined using the weighted
average method, less an accumulated allowance for obsolescence and shrinkage.
Consumable parts are reflected in cost of revenues during the period utilized.
Repairable (rotable) parts, which can be refurbished and reused, are stated
at original cost less accumulated amortization. Amortization of repairable parts
is reflected in cost of revenues. Costs of refurbishing repairable parts are
also included in cost of revenues as these costs are incurred. Amortization of
repairable parts is based principally on the composite group method, using
straight-line composite rates.
F-7
<PAGE> 39
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Repairable parts generally have an economic life which corresponds to the normal
life cycle of the related products, currently estimated to be three to five
years.
As consumable and repairable parts are retired, the weighted average gross
amounts at which such parts have been carried are removed from the respective
assets accounts, and charged to the accumulated allowance or accumulated
amortization accounts, as applicable. Periodic revisions to amortization and
allowance estimates are required, based upon the evaluation of several factors,
including changes in product life cycles, usage levels and technology changes.
Changes in these estimates are reflected on a prospective basis unless such
changes result from an extraordinary retirement or from other events or
circumstances which indicate that impairment may exist. Impairment is recognized
when the net carrying value of the parts exceeds the estimated current and
anticipated undiscounted net cash flows. Measurement of the amount of
impairment, if any, is calculated based upon the difference between carrying
value and fair value.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is provided for using the straight-line method over the estimated
useful lives of the depreciable assets. Capitalized equipment leases and
leasehold improvements are amortized over the shorter of the related lease terms
or asset lives. Maintenance and repairs are charged to expense as incurred. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is charged to operations.
Business and Contract Acquisitions -- Business and contract acquisitions
have been accounted for as purchase transactions, with the purchase price of
each acquisition allocated to the assets acquired and liabilities assumed based
upon their respective estimated fair values at the dates of acquisition.
Consistent with the Company's parts retirement accounting methods, the gross
value of parts acquired is generally stated at weighted average cost. Fair value
adjustments, if any, are reflected as adjustments to the respective accumulated
amortization or allowance accounts. The excess of the purchase price over
identified net assets acquired is amortized, on a straight-line basis, over the
expected period of future benefit (see Note 6).
Typical contract acquisitions are comprised primarily of customer
maintenance and support contracts of complementary entities, along with the
accompanying consumable and repairable parts required to support these contracts
and other identifiable intangibles, such as noncompete agreements. Liabilities
assumed in business and contract acquisitions consist primarily of prepaid
amounts related to multi-period customer maintenance and support contracts.
These liabilities are recorded as deferred revenues at acquisition dates and are
recognized as revenues when earned in accordance with the terms of the
respective contracts.
Intangible Assets -- Intangible assets are comprised of excess purchase
price over the fair value of net assets acquired, acquired customer lists and
other intangible assets, including the fair value of contractual profit
participation rights and amounts assigned to noncompete agreements.
Intangible assets, which arise principally from acquisitions, are generally
amortized on a straight-line basis over their respective estimated useful lives
(see Note 6). The Company evaluates the carrying value of intangible assets
whenever events or changes in circumstances indicate that these carrying values
may not be recoverable within the amortization period. Impairment is recognized
when the net carrying value of the intangible asset exceeds the estimated
current and anticipated discounted future net cash flows. Measurement of the
amount of impairment, if any, is calculated based upon the difference between
carrying value and fair value.
Revenue -- The Company enters into maintenance contracts whereby it
services various manufacturers' equipment. Revenues from these contracts are
recognized ratably over the terms of such contracts. Prepaid revenues from
multi-period contracts are recorded as deferred revenues and are recognized
ratably over the term of the contracts.
F-8
<PAGE> 40
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues derived from the maintenance of equipment not under contract are
recognized as the service is performed. Revenues derived from other technology
support services are recognized as the service is performed or ratably over the
term of the contract.
Foreign Currency Translation -- Gains and losses resulting from foreign
currency translation are accumulated as a separate component of shareholders'
equity. Gains and losses resulting from foreign currency transactions are
included in operations.
Credit Risk -- Concentration of credit risk with respect to trade
receivables is limited due to the large number of customers comprising the
Company's customer base and their dispersion across many industries.
Fair Value of Financial Instruments -- The following disclosures of the
estimated fair value of financial instruments were made in accordance with the
requirements of SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies.
Cash and Cash Equivalents, Accounts Receivable, and Accounts
Payable -- The carrying amount of these items are a reasonable estimate of
their fair value.
Short-Term Debt and Long-Term Debt -- As more fully described in Note
8, under its revolving borrowing facility the Company incurs interest at
variable rates based upon market conditions (i.e., based upon the prime
rate or LIBOR). Rates applicable to other debt instruments, which consist
primarily of short-term notes payable in connection with certain
acquisitions, are comparable to those of similar instruments currently
available to the Company. Accordingly, the carrying amount of debt is a
reasonable estimate of its fair value.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates and
assumptions.
Discontinued Operations -- During fiscal 1993, in connection with the sale
of its products division, the Company established estimated liabilities relating
to the settlement of the remaining assets and liabilities of this division. In
1995, the Company revised its estimates as a result of settlement of these
liabilities, and the consolidated statement of operations for 1995 reflects an
increase in net income of $1,113,000 for the change in estimate.
Stock-Based Compensation -- Effective July 1, 1996, the Company adopted the
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123 encourages, but does not require, companies to record compensation cost for
stock-based compensation plans at fair value. The Company has elected to
continue to account for stock-based compensation in accordance with Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, as permitted by SFAS 123. Compensation
expense for stock options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock (see Note 11).
Derivative Financial Instruments -- Derivative financial instruments, which
constitute interest rate swap agreements (see Note 8), are periodically used by
the Company in the management of its variable interest rate exposure. Amounts to
be paid or received under interest rate swap agreements are recognized as
interest expense or interest income during the period in which these accrue.
Gains realized, if any, on the early termination of interest rate swap contracts
are deferred, to be recognized upon the termination of the related asset or
liability or expiration of the original term of the swap contract, whichever is
earlier. The Company does not hold any derivative financial instruments for
trading purposes.
F-9
<PAGE> 41
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Recent Accounting Pronouncement -- In February 1997, the Financial
Accounting Standards Board issued SFAS No. 128, Earnings Per Share. SFAS No.
128, which supersedes APB No. 15, Earnings Per Share, requires a dual
presentation of basic and diluted earnings per share as well as disclosures
including a reconciliation of the computation of basic earnings per share to
diluted earnings per share. Basic earnings per share excludes the dilutive
impact of common stock equivalents and is computed by dividing net income by the
weighted average number of shares of common stock outstanding for the period.
Diluted earnings per share, which will approximate the Company's currently
reported pro forma earnings (loss) per share, includes the effect of potential
dilution from the exercise of outstanding common stock equivalents into common
stock, using the treasury stock method at the average market price of the
Company's common stock for the period.
SFAS No. 128 is effective for interim and annual financial reporting
periods ending after December 15, 1997, and early adoption is not permitted.
When adopted by the Company, as required, for the fiscal quarter ending December
31, 1997, all prior quarters' earnings (loss) per share information will be
required to be restated on a comparable basis.
Assuming that SFAS No. 128 had been implemented, supplemental pro forma
basic loss per share and supplemental pro forma diluted loss per share would not
have differed from the pro forma loss per share presented in the accompanying
consolidated statements of operations for the fiscal year ended June 30, 1997.
Reclassifications -- Certain reclassifications have been made to the 1996
balances in order to conform with the 1997 presentation.
3. MERGER, RECAPITALIZATION AND PRO FORMA INFORMATION
On August 7, 1997, the Company consummated a merger with Quaker Holding Co.
("Quaker"), an affiliate of DLJ Merchant Banking Partners II. The merger, which
will be recorded as a recapitalization for accounting purposes as of the
consummation date, occurred pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") between the Company and Quaker dated May 4, 1997. The
accompanying historical consolidated financial statements do not include any
adjustments with respect to the consummation of the merger.
In accordance with the terms of the Merger Agreement, which was formally
approved by the Company's shareholders on August 7, 1997, Quaker merged with and
into the Company, and the holders of approximately 94.7% of shares of Company
common stock outstanding immediately prior to the merger received $23 in cash in
exchange for each of these shares. Holders of approximately 5.3% of shares of
Company common stock outstanding immediately prior to the merger retained such
shares in the merged Company, as determined based upon shareholder elections and
stock proration factors specified in the Merger Agreement. Immediately following
the merger, continuing shareholders owned approximately 11.9% of shares of
outstanding Company common stock. The aggregate value of the merger transaction
was approximately $940 million, including refinancing of the Company's revolving
credit facility (see Note 8).
In connection with the merger, the Company raised $85 million through the
public issuance of discount debentures, in addition to publicly-issued
subordinated notes for approximately $150 million. The Company also entered into
a new syndicated credit facility providing for term loans of $470 million and
revolving loans of up to $105 million. The proceeds of the discount notes,
subordinated notes, the initial borrowings under the new credit facility and the
purchase of approximately $225 million of Company common stock by Quaker have
been used to finance the payments of cash to cash-electing shareholders, to pay
the holders of stock options and stock warrants canceled or converted, as
applicable, in connection with the merger, to repay the Company's existing
revolving credit facility and to pay expenses incurred in connection with the
merger.
As a result of the merger, the Company incurred various expenses,
aggregating approximately $71 million on a pretax basis (approximately $64
million after related tax benefit), subject to adjustment, in connection with
consummating the transaction. These costs consisted primarily of compensation
costs, underwriting
F-10
<PAGE> 42
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discounts and commissions, professional and advisory fees and other expenses.
The Company will report this one-time charge during the first quarter of fiscal
1998. In addition to these expenses, the Company also incurred approximately
$22.3 million of capitalized debt issuance costs associated with the merger
financing. These costs will be charged to expense over the terms of the related
debt instruments.
The following summarized unaudited pro forma information as of and for the
year ended June 30, 1997 assumes that the merger had occurred on July 1, 1996.
The pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the financial condition or of the results of
operations which actually would have resulted had the merger occurred as of July
1, 1996 or which may result in the future.
<TABLE>
<CAPTION>
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
PRO FORMA BALANCE SHEET INFORMATION:
Total assets................................................................... $652,085
Long term indebtedness (including current portion)............................. 724,500
Other liabilities.............................................................. 170,708
Shareholders' (deficit)........................................................ (243,123)
PRO FORMA INCOME STATEMENT INFORMATION:
Revenues....................................................................... $785,950
Operating income............................................................... 67,750
Loss from continuing operations before income tax benefit...................... (312)
Net loss....................................................................... (183)
Loss per common share.......................................................... $ (0.01)
Weighted average common and common equivalent shares outstanding............... 14,200
</TABLE>
The pro forma net loss reflects a net increase in interest expense of
approximately $53.4 million ($31.3 million after related pro forma tax effect),
attributable to additional financing incurred in connection with the merger, net
of repayment of the Company's existing revolving credit facility. Pro forma
weighted average common and common equivalent shares outstanding include
12,499,978 shares outstanding immediately subsequent to the merger on August 7,
1997 and dilutive common stock warrants and stock options (convertible into
281,960 and 1,418,530 shares of common stock, respectively) issued in connection
with or immediately subsequent to the merger.
4. BUSINESS AND CONTRACT ACQUISITIONS
During the years ended June 30, 1997, 1996 and 1995, the Company acquired
certain net assets of other service companies as follows (in thousands):
<TABLE>
<CAPTION>
EXCESS
CONSIDERATION PURCHASE
----------------------------------------------------------- PRICE OVER
TOTAL FAIR VALUE
NUMBER OF PURCHASE OTHER OF NET ASSETS
YEARS ENDED ACQUISITIONS CASH NOTES PRICE INTANGIBLES ACQUIRED
- -------------------------------- ------------ -------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Significant business acquisitions:
June 30, 1995................. 1 $ 27,413 $ 2,094 $ 29,507 $15,600 $ 7,394
June 30, 1996................. 1 250,549 250,549 72,581 60,533
Nonsignificant business or maintenance contract acquisitions:
June 30, 1995................. 5 9,327 255 9,582 4,577 8,680
June 30, 1996................. 5 14,853 578 15,431 6,522 6,318
June 30, 1997................. 9 31,749 2,224 33,973 231 47,200
</TABLE>
F-11
<PAGE> 43
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 31, 1994, the Company purchased certain net assets and
liabilities of IDEA/Servcom, Inc. for approximately $29,500,000. This
acquisition was funded by cash and the issuance of a $2,600,000 noninterest-
bearing note to the seller. See seller notes payable section of Note 8. The
excess of asset purchase price over the fair value of net assets acquired at the
date of purchase was approximately $7,400,000.
On October 20, 1995, the Company acquired all of the outstanding common
stock of BABSS, a subsidiary of Bell Atlantic Corporation ("BAC") for
approximately $250,549,000. The acquisition was funded with the proceeds from
the issuance of $30,000,000 of Series C preferred stock, $30,000,000 of
subordinated debentures and the balance from additional bank borrowings (see
Notes 8 and 13). The excess of asset purchase price over the fair value of net
assets acquired at the date of purchase was initially recorded as approximately
$58,796,000. Subsequent to the acquisition, the Company recorded a net
adjustment increasing the initial amount by $1,737,000 and adjusted other
balance sheet accounts principally by the same amount. This resulted from the
adjustment and reclassification of certain tax accruals offset by favorable
negotiations on certain leased facilities (see Note 7). As part of the
acquisition, the Company purchased from BAC contractual profit participation
rights whereby the Company will receive a fixed percentage of the annual
operating profits (3.2% or 3.5%, depending upon the level of profits) earned by
a former foreign affiliate of BAC which provides computer maintenance and
technology support services in Europe. The estimated value of the discounted
estimated future cash flows over a twenty-year period from the acquisition date
from these contractual profit participation rights is $25,000,000.
Included in nonsignificant maintenance contract acquisitions is the
acquisition of substantially all of the contracts and related assets, including
spare parts of the U.S. computer service business of Memorex Telex Corporation
and certain of its affiliates (collectively, "Memorex Telex"). Memorex Telex had
filed a petition in bankruptcy in the United States Bankruptcy Court (the
"Court") in the District of Delaware on October 15, 1996; the Court approved the
sale to the Company on November 1, 1996. The adjusted purchase price was $52.7
million, comprised of the assumption of certain liabilities under contracts of
the service business, which were valued at $28.3 million, and base cash
consideration of approximately $24.4 million, after certain purchase price
adjustments, excluding transaction and closing costs.
The estimated fair market values of certain assets acquired, as well as
liabilities assumed, are subject to further adjustment as additional information
becomes available to the Company. During the third quarter of fiscal 1997, the
Company recorded an adjustment increasing the deferred revenues assumed in the
Memorex Telex acquisition by approximately $2,300,000, to revise the estimated
fair value of certain contract liabilities of the business assumed by the
Company.
The following summarized unaudited pro forma information for significant
acquisitions that have a material effect on the Company's results of operations
for the years ended June 30, 1996 and 1995 assumes that the acquisitions
occurred as of July 1, 1994. The nonsignificant business and maintenance
contract acquisitions are not considered material individually or in the
aggregate. The pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the significant acquisitions been in effect on
the dates indicated or which may result in the future.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Revenues....................................................... $697,676 $679,284
Income from continuing operations before extraordinary item.... 31,080 20,153
Net income..................................................... 29,153 21,266
</TABLE>
F-12
<PAGE> 44
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and buildings............................................. $ 6,318 $ 2,055
Equipment...................................................... 16,248 13,858
Computer hardware and software................................. 35,030 27,277
Furniture and fixtures......................................... 8,308 8,051
Leasehold improvements......................................... 4,628 4,125
-------- --------
70,532 55,366
Accumulated depreciation and amortization...................... (36,305) (22,936)
-------- --------
$ 34,227 $ 32,430
======== ========
</TABLE>
The principal lives (in years) used in determining depreciation and
amortization rates of various assets are: buildings (20-40); equipment (3-10);
computer hardware and software (3-5); furniture and fixtures (5-10) and
leasehold improvements (term of related leases).
Depreciation and amortization expense was approximately $13,549,000,
$8,309,000 and $1,779,000 for the fiscal years ended 1997, 1996 and 1995,
respectively.
6. INTANGIBLES
Intangibles consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Excess purchase price over fair value of net assets acquired... $130,548 $ 82,355
Customer lists................................................. 64,688 64,758
Contractual profit participation rights........................ 25,000 25,000
Noncompete agreements.......................................... 4,631 4,500
Other intangibles.............................................. 9,131 7,671
-------- --------
233,998 184,284
Accumulated amortization....................................... (42,632) (19,625)
-------- --------
$191,366 $164,659
======== ========
</TABLE>
The periods (in years) used in determining the amortization rates of
intangible assets are: excess purchase price over fair value of net assets
acquired (4-20); customer lists (3-8); contractual profit participation rights
(20); noncompete agreements (3-5) and other (1-6).
Amortization expense relating to intangibles was approximately $23,470,000,
$15,673,000 and $6,775,000, for the fiscal years ended 1997, 1996 and 1995,
respectively.
F-13
<PAGE> 45
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable................................................. $55,723 $53,347
Compensation and benefits........................................ 22,706 22,115
Interest......................................................... 563 1,505
Unused leases.................................................... 878 3,485
Pension accrual.................................................. 1,371 1,258
Accrued accounting and legal fees................................ 1,435 1,073
Non-income taxes and other....................................... 12,840 6,781
------ ------
$95,516 $89,564
====== ======
</TABLE>
Prior to 1994, the Company received $2,600,000 in tax bills (primarily
interest) from the Internal Revenue Service ("IRS") related to claims for tax
and interest for the years 1981 through 1987. The Company paid approximately
$500,000 of the claims upon receipt of the bills. Although the Company disputed
the tax bills, an IRS mandated payment of $828,000 was made in 1996. As of June
30, 1996, the Company had an accrued liability of $1,883,000 related to this
assessment. During fiscal 1997, the Company paid $1,729,000 in full settlement
of these tax and interest bills.
In connection with the acquisition of BABSS, which has been accounted for
using the purchase method of accounting (see Note 4), the Company recorded
approximately $11,000,000 in liabilities resulting from planned actions with
respect to BABSS, which included the costs to exit certain leased facilities and
to involuntarily terminate employees. The provision of approximately $3,500,000
for the costs to exit certain leased facilities principally relates to future
lease payments on a warehouse in California which has been made idle.
Approximately $4,000,000 was provided for severance and termination benefits of
approximately 210 employees in the field, operations support, sales and
administration. Approximately $3,000,000 was provided in connection with the
exit plan for write-downs of spare parts and equipment at two California
facilities which will not be utilized in future operations. The provision for
various other charges of approximately $500,000 consisted of costs to complete
the exit plan. As of June 30, 1996, the Company had settled all of these
liabilities, except for the lease liabilities on idle facilities for which
payments were scheduled to continue through 1999 (see Note 15). At June 30, 1997
and 1996 remaining amounts due under these leases were $0 and $1,200,000,
respectively.
As a result of successful negotiations of unutilized leased facilities,
during 1996, the Company recorded a reduction of approximately $975,000 to both
the provisions for leased facilities and excess purchase price over fair value
of net assets acquired.
F-14
<PAGE> 46
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. REVOLVING CREDIT LOAN AND LONG-TERM DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit loans......................................... $231,671 $186,400
Seller noninterest-bearing notes payable....................... 2,922 2,118
Seller note payable -- purchase spare parts.................... 1,608
Capitalized lease obligations, payable in varying installments
at interest rates ranging from 7.25% to 13.01% at June 30,
1997......................................................... 1,308 2,385
------- -------
237,509 190,903
Less current portion........................................... 4,788 2,321
------- -------
$232,721 $188,582
======= =======
</TABLE>
REVOLVING CREDIT LOANS
On October 20, 1995, in connection with the BABSS acquisition (see Note 4)
the Company entered into a Credit Agreement which provided for a term loan (the
"1995 Term Loan") of $230,000,000 and a revolving credit facility of up to a
maximum of $30,000,000. The 1995 Term Loan provided for 19 equal quarterly
principal payments of $10,000,000 to be due and payable on the last day of each
calendar quarter commencing December 31, 1995 with a final payment due on
September 30, 2000. Loans under the revolving credit facility were to mature on
September 30, 2000. Interest on the 1995 Term Loan and the revolving credit
facility were at varying rates based, at the Company's option, on the Eurodollar
rate or the Alternative Base Rate (NationsBanc prime rate), plus the Applicable
Margins. Margins were based on the ratio of Total Funded Debt to EBITDA; the
Eurodollar Margin ranged from 1.75% to 2.5%, while the Alternative Base Rate
Margin ranged from 0.5% to 1.25%.
In April 1996, the Company completed an initial public offering (see Note
13). The Company used a portion of the proceeds to repay approximately $70
million of the 1995 Term Loan.
Also in April 1996, the Company converted the 1995 Term Loan and the
existing $30 million Revolving Credit Facility into a $225 million variable
rate, unsecured revolving credit facility ("the 1996 Revolving Credit
Facility"). During fiscal 1997, the 1996 Revolving Credit Facility commitment
was increased to $300 million, in connection with the acquisition of certain
contracts and assets. The 1996 Revolving Credit Facility is at floating interest
rates, based either on the LIBOR or prime rate, in either case plus an
Applicable Margin, at the Company's option. As of June 30, 1997, the applicable
rate was LIBOR plus .75% or approximately 6.5%. The 1996 Revolving Credit
Facility enables the Company to borrow up to $300 million in the form of
revolving credit loans with a maturity date of April 26, 2001 and with interest
periods determined principally on a quarterly basis. To offset the variable rate
characteristics of the borrowings, the Company entered into interest rate swap
agreements with two banks resulting in fixed interest rates of 5.4% on $40.0
million notional principal amount through December 1997 and 5.5% on another
$40.0 million notional principal amount through December 1998.
During fiscal 1997, the Company terminated these swap agreements, resulting
in an insignificant gain which has been deferred to the first quarter of fiscal
1998.
Under the terms of the 1996 Revolving Credit Facility, the Company may use
up to $25,000,000 for letters of credit, subject to the limitation of
$300,000,000 in total credit. As of June 30, 1997, letters of credit in the face
amount of $3,067,000 were outstanding.
F-15
<PAGE> 47
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The loan agreement relating to the 1996 Revolving Credit Facility contains
various terms and covenants which provide for certain restrictions on the
Company's indebtedness, liens, investments, disposition of assets and mergers
and acquisitions and require the Company, among other things, to maintain
minimum levels of consolidated net worth and certain minimum financial ratios.
The borrower under the 1996 Revolving Credit Facility is DecisionOne
Corporation. Repayment of the debt is guaranteed by the Company and its other
subsidiaries except for its Canadian subsidiary.
The Company's debt agreements and other agreements to which it is a party
contain certain covenants restricting the payment of dividends on, or
repurchases of, Company common stock.
The Company had average borrowings of $221,069,000 and $172,065,000 during
1997 and 1996, respectively, at an average interest rate of 6.4% and 8.69%,
respectively. Maximum borrowings during 1997 and 1996 were $243,350,000 and
$268,748,000, respectively.
Subsequent to June 30, 1997, in connection with the Company's merger with
Quaker (see Note 3), the 1996 Revolving Credit Facility was repaid in full,
including all interest due thereon. This refinancing was accomplished, in part,
through the issuance of certain new debt instruments, consisting of senior
discount notes, senior subordinated notes and a term loan/revolving credit
facility which, in the aggregate, provide financing of approximately $810
million, subject to certain conditions. The new revolving credit facility
provides the Company with $105 million of available financing, subject to a
borrowing base, for working capital purposes subsequent to the merger.
The Company's Canadian subsidiary has available a $1.5 million (Canadian)
revolving line of credit agreement with a local financial institution. At June
30, 1997, approximately $471,000 (in U.S. dollars) was outstanding under this
agreement. There were no amounts outstanding at June 30, 1996.
SELLER NOTES PAYABLE
In connection with certain acquisitions (see Note 4), the Company issued
noninterest-bearing notes, the principal of which is primarily due upon
settlement of contingent portions of the acquisition purchase price within a
specified period subsequent to closing, generally not exceeding one year from
the acquisition date. Contingencies typically pertain to actual amounts of
monthly maintenance contract revenues acquired and prepaid contract liabilities
assumed in comparison to amounts estimated in acquisition agreements. The
Company imputes interest, based upon market rates, for long-term,
non-interest-bearing obligations.
During 1997, the Company issued a secured note payable to the seller for
the purchase of repairable parts in the original amount of $1,854,000. The note
accrues interest at an interest rate of approximately 8%, and requires quarterly
payments of principal and interest of approximately $273,000 until maturity in
December 1998.
SUBORDINATED DEBENTURES
In connection with the BABSS acquisition (see Note 4) on October 20, 1995,
the Company issued and sold to its principal shareholders, an aggregate
$30,000,000 principal amount of 10.101% Debentures (the "Affiliate Notes") due
on October 20, 2001. The Affiliate Notes were subordinated to the 1995 Term Loan
and the revolving credit facility. Interest on the Affiliate Notes was payable
semiannually on the last business day of June and December of each year
commencing on December 31, 1995.
In connection with the issuance of the debentures, the Company issued
468,750 Common Stock Purchase Warrants (the "Warrants"). Each Warrant initially
entitled the owner to buy one share of Common Stock for $0.10. The number of
shares that can be purchased per Warrant steps up over 24 months in conjunction
with the increasing conversion privilege applicable to the Preferred Stock such
that, at the end of 24 months, each Warrant entitled the holder to buy
approximately 1.21 shares of Common Stock at a price of
F-16
<PAGE> 48
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$0.10 per share. The Warrants were exercisable from October 20, 1997 until
October 20, 2001, provided that if the Company had a public offering of its
Common Stock meeting certain requirements before October 20, 1997, the Warrants
became exercisable at the time of the public offering and the number of shares
that could be purchased on exercise was fixed at that time and no longer
increased in steps. The Warrants also became exercisable upon retirement of the
Debentures. Each Warrant had an assigned value of $7.25333 which resulted in an
original issue discount of $3,400,000 which was being amortized over the term of
the Affiliate Notes. Upon consummation of its initial public offering in April
1996, the Company was required to pay up to the total amount outstanding under
the Affiliate Notes and, accordingly, the Company used $30,000,000 of the
proceeds to retire the Affiliate Notes. As a result, in 1996 the Company
recorded an extraordinary loss in the amount of $3,211,000, net of taxes of
$1,284,000, due to the acceleration of the amortization of original issue
discount. In connection with the Company's merger with Quaker in August 1997
(see Note 3), the Warrants were converted into cash, with warrant holders
receiving an amount equal to $23 less the exercise price for each Warrant.
In connection with previous credit agreements, the Company issued warrants
to purchase shares of the Company's common stock. At June 30, 1997, warrants to
purchase 134,478 shares at an exercise price of $5.90 per share remained
outstanding. In connection with the Company's merger with Quaker, these warrants
were also converted into cash, with warrant holders receiving an amount equal to
$23 less the exercise price for each warrant.
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $10,909 $ 2,892 $ 16,065
State.............................................. 3,616 1,595 4,599
Foreign............................................ 1,080 548 (1,272)
Deferred:
Federal............................................ 6,460 8,945 (29,897)
State.............................................. 16 641 (3,617)
Foreign............................................ (113) (499)
Benefit of operating loss carryforwards:
Federal............................................ (7,729)
State.............................................. (1,253)
Foreign............................................ (252)
------- ------- --------
Provision (benefit) for income taxes................. $21,968 $13,870 $(23,104)
======= ======= ========
</TABLE>
F-17
<PAGE> 49
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred tax assets:
Accounts receivable............................................ $ 4,771 $ 1,341
Inventory...................................................... 2,195 2,586
Accrued expenses............................................... 7,000 6,378
Unused leases.................................................. 390
Fixed assets................................................... 299
Intangibles.................................................... 6,196 5,670
Operating loss carryforwards................................... 4,868 14,252
Tax credit carryforwards....................................... 1,670 1,170
------- -------
Gross deferred tax assets........................................ 27,090 31,696
Gross deferred tax liabilities:
Repairable spare parts......................................... (8,918) (7,273)
Fixed assets................................................... (108)
------- -------
Gross deferred tax liabilities................................... (9,026) (7,273)
------- -------
Net deferred tax asset........................................... $18,064 $24,423
======= =======
</TABLE>
Net operating loss and minimum tax credit carryforwards available at June
30, 1997 expire in the following years:
<TABLE>
<CAPTION>
YEAR OF
EXPIRATION
AMOUNT ----------
--------------
(IN THOUSANDS)
<S> <C> <C>
Federal operating losses............................... $ 12,877 2006-2008
State operating losses................................. 8,669 1998-2008
Investment tax credit.................................. 134 2004
Minimum tax credit..................................... 1,536 INDEFINITE
</TABLE>
As a result of the Company's initial public offering in April, 1996, an
"ownership change" occurred pursuant to Section 382 of the Internal Revenue
Code. Accordingly, for Federal income tax purposes, net operating loss and tax
credit carryforwards arising prior to the ownership change are limited during
any future period to the Section 382 "limitation amount" of approximately $20.0
million per annum. In addition, the Company's merger with Quaker on August 7,
1997 (see Note 3) represents another such "ownership change" pursuant to Section
382. The Company estimates that the limitation on the use of tax loss
carryforwards and other credits, for Federal income tax purposes, in any
post-merger period will be reduced to approximately $9.0 million per annum.
F-18
<PAGE> 50
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the provision (benefit) for income taxes, computed
by applying the statutory federal income tax rate of 35% for 1997, 1996 and 1995
to income before income taxes, and the actual provision (benefit) for income
taxes follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ------
<S> <C> <C> <C>
Federal income tax provision at statutory tax rate........... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax provision...... 5.0 4.6 3.5
Foreign income taxes......................................... 0.4 (6.9)
Unused lease credit.......................................... (0.1)
Benefit of operating loss carryforward....................... (0.8) (49.1)
Change in valuation allowance................................ (1.4) (108.9)
Other........................................................ 1.0 2.6 0.3
---- ---- ------
Actual income tax provision (benefit) effective tax rate..... 41.4% 40.0% (126.2)%
==== ==== ======
</TABLE>
The Company has recorded a deferred tax asset of $4,868,000 reflecting the
benefit of federal and state net operating loss carryforwards, which expire in
varying amounts between 1998 and 2008. Realization depends on generating
sufficient taxable income before expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax asset will ultimately be realized.
The valuation allowance for deferred tax assets as of July 1, 1994 was
$44,160,000. The net changes in the valuation allowance for the years ended June
30, 1996 and 1995 were decreases of $686,000 and $43,474,000, respectively. Of
these amounts, $252,000 and $8,982,000 resulted from the realization of net
operating loss carryforwards. The remaining decreases of $434,000 and
$34,492,000 for 1996 and 1995, respectively, resulted from the Company's
expected future taxable income.
10. OTHER LIABILITIES
Other (noncurrent) liabilities consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued severance and unutilized lease losses.................... $ 4,532 $ 2,227
Other noncurrent liabilities..................................... 9,396 12,059
------- -------
$ 13,928 $ 14,286
======= =======
</TABLE>
As more fully described in Note 15, accrued severance and unutilized lease
losses represent remaining liabilities for estimated future employee severance
costs and for lease/contract losses associated with duplicate facilities to be
closed. These liabilities were recorded by the Company in connection with the
Memorex Telex and BABSS acquisitions in November 1996 and October 1995,
respectively.
Other noncurrent liabilities include deferred operating lease liabilities
related to scheduled rent increases, recorded in accordance with the provisions
of SFAS No. 13, Accounting for Leases. Also included in other noncurrent
liabilities are provisions relating to various tax matters.
11. STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
Under the 1988 Stock Option and Restricted Stock Purchase Plan, the name of
which was subsequently changed to DecisionOne Stock Option and Restricted Stock
Purchase Plan (the "Plan"), the Company, at the discretion of the Board of
Directors, may issue restricted stock, incentive stock options and non-qualified
F-19
<PAGE> 51
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options for shares of the Company's common stock. Vesting of the restricted
stock and stock options is at the discretion of the Board of Directors and
generally occurs at a rate of 25% per year.
During 1994, the Board of Directors amended the Plan increasing the total
number of shares issuable to approximately 2,350,000. Additionally, in November
1995 the Board of Directors amended the Plan increasing the total number of
shares issuable to approximately 3,350,000, and in December 1996 to 5,350,000.
The price of the incentive stock options issued to employees under the Plan
is not less than 100% of the fair market value of the common shares at the date
of issuance. The option price for nonqualified options is determined by the
Board of Directors at the time of grant and may be less than the fair market
value of the common shares at the time of grant. However, no such options were
granted at prices less then 100% of the fair value of common shares at the date
of issuance.
Options expire through February 2007. Restricted shares which are not
vested upon an employee's termination are subject to a repurchase right of the
Company at a price equal to the amount paid by the employee.
Presented below is the activity in the Plan for the years ended June 30,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
OPTIONS PRICE RANGE
--------- ---------------
<S> <C> <C>
Balance, June 30, 1994................................. 1,943,595 $.50 - $100.00
Options exercised.................................... (15,000) $.50
Options granted...................................... 410,000 $1.25 - $6.00
Options cancelled.................................... (75,275) $.50 - $100.00
---------
Balance, June 30, 1995................................. 2,263,320 $.50 - $6.00
Options exercised.................................... (329,850) $.50 - $6.00
Options granted...................................... 803,000 $8.00 - $27.50
Options cancelled.................................... (125,000) $1.25 - $8.00
---------
Balance, June 30, 1996................................. 2,611,470 $.50 - $27.50
Options exercised.................................... (477,544) $.50 - $8.00
Options granted...................................... 1,254,000 $14.00 - $22.13
Options cancelled.................................... (532,579) $1.25 - $27.50
---------
Balance, June 30, 1997................................. 2,855,347 $.50 - $26.75
=========
</TABLE>
In connection with the Company's merger with Quaker on August 7, 1997 (see
Note 3), all vested and unvested options then outstanding under the Plan were
cancelled, and the holders of these options received the right to receive cash
payments equal to the excess, if any, of $23.00 over the exercise price of each
option. Certain option holders were afforded the opportunity to convert these
options into options to purchase common stock of the merged Company, in lieu of
cash payments.
Pursuant to the 1997 Management Incentive Plan approved subsequent to the
Merger, the Company granted 1,179,000 options at a weighted average exercise
price of approximately $20.61 with a weighted average fair market value of
$11.23.
Because the Company accounts for the Plan under APB No. 25, no compensation
cost has been recognized for stock options. Had compensation expense for the
Plan been determined based on the fair value at the grant dates under the
provisions of SFAS No. 123, the Company's pro forma net loss and pro forma loss
F-20
<PAGE> 52
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
per share (see Note 3) would have been increased to the following adjusted pro
forma amounts (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Pro forma net loss -- as reported.......................................... $ (183)
Pro forma net loss -- as adjusted.......................................... $(2,741)
Pro forma loss per share -- as reported.................................... $ (0.01)
Pro forma loss per share -- as adjusted.................................... $ (0.19)
</TABLE>
The fair value of options was estimated using the Black-Scholes option
pricing model based on the following assumptions:
<TABLE>
<CAPTION>
EXPECTED LIVES
RISK-FREE INTEREST RATE EXPECTED VOLATILITY (YRS)
------------------------ -------------------- ---------------
<S> <C> <C> <C>
Grant issued in 1996.... 5.85%-6.85% 26.9%
Grants issued in 1997... 6.47% 2
</TABLE>
12. LEASE COMMITMENTS
The Company conducts its operations primarily from leased warehouses and
office facilities and uses certain computer, data processing and other equipment
under operating lease agreements expiring on various dates through 2005. The
future minimum lease payments for operating leases having initial or remaining
noncancelable terms in excess of one year for the five years succeeding June 30,
1997 and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................................... $18,415
1999............................................................... 15,224
2000............................................................... 11,406
2001............................................................... 5,815
2002............................................................... 2,879
Thereafter......................................................... 4,757
-------
$58,496
=======
</TABLE>
Rental expense amounted to approximately $17,367,000, $13,149,000 and
$5,878,000, for the fiscal years ended 1997, 1996 and 1995, respectively.
13. SHAREHOLDERS' EQUITY
During fiscal 1994 and 1996, the Company issued three classes of redeemable
preferred stock (Series A, Series B and Series C preferred stock; collectively,
the "Preferred Stock"), aggregating 376,416 preferred stock shares, in exchange
for cash or in settlement of certain debt obligations. The Preferred Stock,
which was valued at $100 per share, accrued dividends at rates ranging between
$4 per share per annum and $6 per share per annum, to be paid as declared by the
Company's Board of Directors. Additionally, the Preferred Stock was to be
automatically converted into Company common stock if the Company were to
complete a public offering of common stock which met certain specified criteria.
On February 9, 1996, the Company amended its Certificate of Incorporation
to increase the number of authorized shares of common stock to 100,000,000
shares and to authorize 5,000,000 shares of Preferred Stock.
F-21
<PAGE> 53
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1996, the Company completed a public offering of 6,300,000 shares
of common stock at $18.00 per share (the "Offering"). Prior to the Offering,
there was no public market for the Company's common stock. The common stock is
listed on the Nasdaq National Market under the symbol "DOCI".
The net proceeds of the offering, after deducting applicable issuance costs
and expenses were $104,740,000. The proceeds were used to repay approximately
$70,000,000 of the 1995 Term Loan, $30,000,000 in Affiliate Notes, approximately
$1,446,000 in accrued and declared dividends to holders of the Preferred Stock
and for other general corporate purposes. In connection with the offering, the
Preferred Stock was automatically converted into 11,271,924 shares of common
stock.
During the year ended June 30, 1996, certain shareholders exercised their
preemptive right to subscribe for and purchase additional shares of common stock
or other securities so issued at the same price as originally issued on certain
occasions from 1992 through 1995. On December 4, 1995, the following securities
were purchased: (a) 382,578 shares of common stock at a price of $4 per share;
(b) 999 shares of Series A Preferred Stock, at a price of $100 per share; (c)
1,776 shares of Series B Preferred Stock, at a price of $100 per share; (d)
1,924 shares of common stock at a price of $.50 per share; (e) 311,141 shares of
Series C Preferred Stock, at a price of $100 per share; and (f) 17,407 Common
Stock Purchase Warrants at a price of $7.25333 per warrant which entitles the
holder to purchase 17,407 shares of common stock at an exercise price of $.10
per share. The 17,407 Common Stock Purchase Warrants were exercised in 1996.
In consideration of his service as a director and Chairman of the Board,
the Company, in a prior year, granted an individual warrants to purchase an
aggregate of 66,667 shares of common stock at an exercise price of $4.00 per
share. In connection with the Company's merger with Quaker in August 1997 (see
Note 3), these warrants were converted into cash, with the holder receiving an
amount equal to $23 less the exercise price.
As more fully described in Note 3, the Company merged with Quaker on August
7, 1997. In accordance with the terms of the Merger Agreement, which was
formally approved by the Company's shareholders on August 7, 1997, Quaker merged
with and into the Company, and the holders of approximately 94.7% of shares of
Company common stock outstanding immediately prior to the merger received $23 in
cash in exchange for these shares. Holders of approximately 5.3% of shares of
Company common stock outstanding immediately prior to the merger retained such
shares in the merged Company, as determined based upon shareholder elections and
stock proration factors specified in the Merger Agreement. Immediately following
the merger, continuing shareholders owned approximately 11.9% of shares of
outstanding Company common stock. The aggregate value of the merger transaction
was approximately $940 million, including refinancing of the Company's revolving
credit facility (see Note 8).
14. RETIREMENT PLANS
The Company maintains a 401(k) plan for its employees which is funded
through the contributions of its participants. A similar plan exists for former
employees of an acquired company for which eligibility and additional
contributions were frozen in September 1988.
In addition, the Company assumed the liability of the defined benefit
pension plan applicable to employees of a company acquired in 1986. The
eligibility and benefits were frozen as of the date of the acquisition.
F-22
<PAGE> 54
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension expense for the defined benefit pension plan was computed as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------
1997 1996 1995
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest cost.............................................. $ 521 $ 495 $ 482
Actual return on plan assets............................... (409) (449) (312)
Net amortization and deferral.............................. 9 72 (42)
----- ----- -----
Periodic pension costs..................................... $ 121 $ 118 $ 128
===== ===== =====
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% and the expected long-term rate of return
on assets was 8.5% for 1997, 1996 and 1995.
The following table sets forth the funded status of the frozen pension plan
as of May 1, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefits (100% vested)............................... $ 7,290 $ 7,116
Fair value of plan assets........................................ 6,128 5,800
------- -------
Unfunded projected benefit obligation.................. 1,162 1,316
Unrecognized net loss............................................ 1,873 1,848
Unrecognized net transition obligation........................... 470 504
Adjustment to recognized minimum liability....................... (2,343) (2,352)
------- -------
Accrued pension costs............................................ $ 1,162 $ 1,316
======= =======
</TABLE>
15. EMPLOYEE SEVERANCE AND UNUTILIZED LEASE COSTS
During the second quarter of fiscal 1997, in connection with the Memorex
Telex acquisition (see Note 4), the Company recorded a $3.4 million pre-tax
charge for estimated future employee severance costs, and a $0.9 million pre-tax
charge for unutilized lease/contract losses ("exit costs"), primarily associated
with duplicate facilities to be closed. The $3.4 million charge, recorded in
accordance with SFAS No. 112, Employers' Accounting for Postemployment Benefits,
reflects the actuarially determined benefit costs for the separation of
employees who are entitled to benefits under pre-existing separation pay plans.
These costs are included in selling, general and administrative expenses in the
accompanying consolidated statement of operations for the year ended June 30,
1997.
In the second quarter of fiscal 1996, in connection with the acquisition of
BABSS, the Company recorded pre-tax charges for exit costs of $6.9 million, and
estimated future employee severance costs of $0.1 million. During the fourth
quarter of fiscal 1996, the Company reversed $3.4 million of these employee
severance and exit cost liabilities. The reversal was primarily the result of
the Company's ability to utilize and sublease various facilities identified in
the original $7.0 million combined liability. Such information was unknown to
the Company when the original liability was recorded.
See Note 10 for further information regarding accrued severance and
unutilized lease losses.
16. COMMITMENTS AND CONTINGENT LIABILITIES
The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible parties
in respect to four waste disposal sites that have been identified by the United
States Environmental Protection Agency as Superfund sites. In addition, the
Company received a notice several years ago that it may be a potentially
responsible party with respect to a fifth, related site, but
F-23
<PAGE> 55
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has not received any other communication with respect to that site. Under
applicable law, all parties responsible for disposal of hazardous substances at
those sites are jointly and severally liable for clean-up costs. The Company
originally estimated that its share of the costs of the clean-up of one of these
sites would be approximately $500,000 which is provided for in liabilities
related to the discontinued products division in the accompanying consolidated
balance sheets as of June 30, 1997 and 1996. Complete information as to the
scope of required clean-up at these sites is not yet available and, therefore,
management's evaluation may be affected as further information becomes
available. However, in light of information currently available to management,
including information regarding assessments of the sites to date and the nature
of involvement of the Company's predecessor at the sites, it is management's
opinion that the Company's potential additional liability, if any, for the cost
of clean-up of these sites will not be material to the consolidated financial
position, results of operations or liquidity of the Company.
The Company is also party to various legal proceedings incidental to its
business. Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company. In the opinion of
management, these actions can be successfully defended or resolved without a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
During the fourth quarter of fiscal 1997, the Company received $2.0 million
in full settlement of a claim against its former insurance carrier, related to
unreimbursed losses. This settlement was reflected as a reduction of selling,
general and administrative costs in the accompanying statement of operations.
17. RELATED PARTY TRANSACTIONS
Prior to 1994, the Company entered into an agreement to purchase printer
products from Genicom Corporation (Genicom). The Company and Genicom are under
common ownership. The initial term of the agreement is for five years with an
option to extend based on mutual agreement of the parties. Purchases from
Genicom for the years ended June 30, 1997, 1996 and 1995 were approximately
$472,000, $1,512,000 and $1,972,000, respectively. Accounts payable to Genicom
amounted to approximately $30,000 and $14,000 as of June 30, 1997 and 1996,
respectively.
During the year ended June 30, 1996, the Company paid approximately
$125,000 for expense reimbursements to certain shareholders for services
rendered in connection with an acquisition in 1988. The amount was accrued for
in prior years.
In connection with the Company's financing of the BABSS acquisition on
October 20, 1995, the Company issued subordinated debentures and redeemable
preferred stock to certain related parties (see Notes 8 and 13).
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information
for the fiscal years ended 1997 and 1996:
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
MARCH
SEPTEMBER 30, DECEMBER 31,(1) 31, JUNE 30,
------------- --------------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997
Revenues................................. $ 176,426 $ 191,253 $205,070 $213,201
Gross profit............................. 41,861 48,221 54,698 59,310
Net income............................... 5,455 4,954 9,507 11,168
Pro forma net income (loss) (Note 3)..... (2,306) (2,813) 1,787 3,149
Pro forma earnings (loss) per share (Note
3)..................................... (0.16) (0.20) 0.13 0.22
</TABLE>
F-24
<PAGE> 56
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
MARCH
SEPTEMBER 30, DECEMBER 31, 31, JUNE 30,(2)
------------- --------------- -------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996
Revenues................................. $ 46,791 $ 149,703 $172,673 $ 171,024
Gross profit............................. 15,524 38,224 42,711 41,416
Income before extraordinary item......... 4,386 638 5,842 9,923
Net income............................... 4,386 638 5,842 7,996
</TABLE>
- ---------------
(1) Net income for the second quarter of 1997 includes a $3.4 million pre-tax
charge for estimated future employee severance costs, and a $.9 million
pre-tax charge for unutilized lease/contract losses, primarily associated
with duplicate facilities to be closed in connection with the Memorex Telex
acquisition (see Note 15).
(2) Net income for the fourth quarter of 1996 includes (a) a $3.4 million
reversal of the previously recorded restructuring charge for unutilized
leases (Note 15); and (b) a $1.5 million adjustment related to recoveries of
previously reserved receivables.
* * * * * *
F-25
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder
of DecisionOne Corporation:
We have audited the accompanying consolidated balance sheets of DecisionOne
Corporation (a wholly-owned subsidiary of DecisionOne Holdings Corp.) and
subsidiaries (the "Company") as of June 30, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1997. Our audits also
included the related financial statement schedule listed in the Index at Item
14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DecisionOne Corporation and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, on May 29,
1997, DecisionOne Holdings Corp. completed a restructuring of the legal
organization of certain of its subsidiaries. The Company's consolidated
financial statements have been presented giving effect to the reorganization for
all periods presented in a manner similar to a pooling of interests.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
August 15, 1997
F-26
<PAGE> 58
DECISIONONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 10,877 $ 8,221
Accounts receivable, net of allowances of $14,869 and $9,580......... 127,462 92,650
Consumable parts, net of allowances of $17,889 and $19,537........... 34,518 29,770
Prepaid expenses and other assets.................................... 4,542 5,112
Deferred tax asset................................................... 5,236 8,018
-------- --------
Total current assets......................................... 182,635 143,771
REPAIRABLE PARTS, Net of accumulated amortization of $154,555 and
$105,462............................................................. 199,900 154,970
PROPERTY AND EQUIPMENT................................................. 34,227 32,430
INTANGIBLES............................................................ 191,366 164,659
OTHER ASSETS........................................................... 14,977 18,680
-------- --------
TOTAL ASSETS........................................................... $623,105 $514,510
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................................... $ 4,788 $ 2,321
Accounts payable and accrued expenses................................ 95,516 89,564
Deferred revenues.................................................... 56,600 38,485
Income taxes and other liabilities................................... 4,664 479
-------- --------
Total current liabilities.................................... 161,568 130,849
REVOLVING CREDIT LOAN AND LONG-TERM DEBT............................... 232,721 188,582
OTHER LIABILITIES...................................................... 13,928 14,286
SHAREHOLDERS' EQUITY:
Common stock, no par value; one share authorized, issued and
outstanding in 1997 and 1996...................................... -- --
Additional paid-in capital........................................... 258,609 255,535
Accumulated deficit.................................................. (42,432) (73,516)
Other................................................................ (1,289) (1,226)
-------- --------
Total shareholder's equity................................... 214,888 180,793
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............................. $623,105 $514,510
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 59
DECISIONONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES................................................... $785,950 $540,191 $163,020
COST OF REVENUES........................................... 581,860 402,316 113,483
-------- -------- --------
GROSS PROFIT............................................... 204,090 137,875 49,537
OPERATING EXPENSES:
Selling, general and administrative expenses............. 112,870 72,829 21,982
Amortization of intangibles.............................. 23,470 15,673 6,776
-------- -------- --------
OPERATING INCOME........................................... 67,750 49,373 20,779
INTEREST EXPENSE, Net of interest income of $197 in 1997,
$239 in 1996 and $53 in 1995............................. 14,698 14,714 2,468
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(BENEFIT), DISCONTINUED OPERATIONS AND EXTRAORDINARY
ITEM..................................................... 53,052 34,659 18,311
PROVISION (BENEFIT) FOR INCOME TAXES....................... 21,968 13,870 (23,104)
-------- -------- --------
INCOME BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY
ITEM..................................................... 31,084 20,789 41,415
DISCONTINUED OPERATIONS -- Income from operations of
discontinued products division........................... 1,113
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM........................... 31,084 20,789 42,528
EXTRAORDINARY ITEM, NET OF TAX BENEFIT OF $1,284........... 1,927
-------- -------- --------
NET INCOME................................................. $ 31,084 $ 18,862 $ 42,528
======== ======== ========
PRO FORMA INFORMATION (UNAUDITED):
Net income before interest expense adjustment............ $ 31,084
Interest expense adjustment, net of tax.................. (25,358)
--------
Pro forma net income..................................... $ 5,726
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 60
DECISIONONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT NUMBER OF SHARES OF COMMON STOCK)
<TABLE>
<CAPTION>
FOREIGN TOTAL
ADDITIONAL CURRENCY PENSION SHAREHOLDER'S
PAID-IN ACCUMULATED TRANSLATION LIABILITY (DEFICIENCY)
CAPITAL DEFICIT ADJUSTMENT ADJUSTMENT EQUITY
---------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994...................................... $114,883 $(134,906) $ 457 $ (1,625) $ (21,191)
Net income................................................ 42,528 42,528
Adjustment to pension liability........................... (80) (80)
Foreign currency translation adjustment................... 223 223
Contributed capital....................................... 8 8
-------- --------- ---- ------- --------
BALANCE, JUNE 30, 1995...................................... 114,891 (92,378) 680 (1,705) 21,488
Net income................................................ 18,862 18,862
Adjustment to pension liability........................... (143) (143)
Contributed capital....................................... 142,090 142,090
Foreign currency translation adjustment................... (58) (58)
Dividends declared........................................ (1,446) (1,446)
-------- --------- ---- ------- --------
BALANCE, JUNE 30, 1996...................................... 255,535 (73,516) 622 (1,848) 180,793
Net income................................................ 31,084 31,084
Adjustment to pension liability........................... (25) (25)
Foreign currency translation adjustment................... (38) (38)
Contributed capital....................................... 3,074 3,074
-------- --------- ---- ------- --------
BALANCE, JUNE 30, 1997...................................... $258,609 $ (42,432) $ 584 $ (1,873) $ 214,888
======== ========= ==== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 61
DECISIONONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................... $ 31,084 $ 18,862 $ 42,528
Adjustments to reconcile net income to net cash provided
by operating activities:
Income from discontinued operations................... (1,113)
Depreciation.......................................... 13,549 8,309 1,779
Amortization of repairable parts...................... 63,870 37,869 7,688
Amortization of intangibles........................... 23,470 15,673 6,775
Provision for losses on accounts receivable........... 7,849 3,434 1,930
Provision for consumable parts obsolescence........... 2,554 1,171 1,995
Extraordinary item.................................... 1,927
Changes in operating assets and liabilities, net of
effects from companies acquired, which provided
(used) cash:
Accounts receivable................................. (38,365) (1,900) (8,836)
Consumable parts.................................... (6,038) (1,248) 931
Accounts payable and accrued expenses............... 3,885 256 (1,171)
Deferred revenues................................... (25,427) (33,928) 6,811
Net changes in other assets and liabilities......... 12,543 1,469 (20,902)
--------- --------- --------
Net cash provided by operating activities........ 88,974 51,894 38,415
--------- --------- --------
INVESTING ACTIVITIES:
Capital expenditures..................................... (10,540) (7,278) (2,786)
Repairable spare parts purchases, net.................... (86,446) (63,514) (12,154)
Acquisitions of companies and contracts.................. (32,258) (275,562) (39,331)
--------- --------- --------
Net cash used in investing activities............ (129,244) (346,354) (54,271)
--------- --------- --------
FINANCING ACTIVITIES:
Capital contributions.................................... 439 142,090
Proceeds from issuance of subordinated debentures........ 30,000
Payment of dividends..................................... (1,446)
Payment of subordinated debentures....................... (30,000)
Net proceeds from borrowings............................. 43,625 162,772 17,537
Principal payments under capital leases.................. (1,075) (3,423)
Other.................................................... (63) 29
--------- --------- --------
Net cash provided by financing activities........ 42,926 300,022 17,537
--------- --------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................. 2,656 5,562 1,681
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............... 8,221 2,659 978
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR..................... $ 10,877 $ 8,221 $ 2,659
========= ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Net cash paid during the year for:
Interest.............................................. $ 15,640 $ 14,838 $ 2,065
Income taxes.......................................... 8,381 5,344 1,009
Noncash investing/financing activities:
Issuance of seller notes in connection with
acquisitions........................................ 2,224 587 2,866
Issuance of seller notes in exchange for repairable
parts............................................... 1,855
Repairable parts received in lieu of cash for accounts
receivable.......................................... 1,124
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 62
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1. NATURE OF BUSINESS
DecisionOne Corporation (a wholly-owned subsidiary of DecisionOne Holdings
Corp., herein called "Holdings") and its wholly-owned subsidiaries (the
"Company") are providers of multivendor computer maintenance and technology
support services. The Company offers its customers a single-source, independent
(i.e., not affiliated with an original equipment manufacturer, or "OEM")
solution for computer maintenance and technology support requirements, including
hardware maintenance services, software support, end-user/ help desk services,
network support and other technology support services. These services are
provided by the Company across a broad range of computing environments,
including mainframes, midrange and distributed systems, workgroups, personal
computers ("PCs") and related peripherals. In addition, the Company provides
outsourcing services for OEMs, software publishers, system integrators and other
independent service organizations. The Company delivers its services through an
extensive field service organization of approximately 4,000 field technicians in
over 150 service locations throughout North America and through strategic
alliances in selected international markets.
Through June 30, 1995, the Company's services predominantly involved the
provision of maintenance services to the midrange computer market. On October
20, 1995, the Company acquired Bell Atlantic Business Systems Services, Inc.
("BABSS") (see Note 4). BABSS provided computer maintenance and technology
support services for computer systems ranging from the data center, which
includes both mainframe and midrange systems, to desk top. Subsequent to the
acquisition, Holding's principal operating subsidiary, Decision Servcom, Inc.,
was merged into BABSS, which had changed its name to DecisionOne Corporation. As
a result, DecisionOne Corporation is the principal operating subsidiary of the
Holdings.
On May 29, 1997, DecisionOne Holdings Corp. Holdings Corp. ("Holdings")
completed a restructuring of the legal organization of its subsidiaries (the
"Corporate Reorganization"). The Corporate Reorganization involved Holdings'
contribution to DecisionOne Corporation of ownership interests in its
subsidiaries, all of which were under Holdings' control (the "Contributed
Subsidiaries"). The Corporate Reorganization has been accounted for in a manner
similar to a pooling of interests. Accordingly, the Company's consolidated
financial statements include the accounts of the Contributed Subsidiaries for
all periods presented.
The Company's wholly owned, direct international subsidiaries are not
significant to the Company's consolidated financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts
of DecisionOne Corporation and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Pro Forma Information (Unaudited) -- The pro forma information included in
the accompanying statement of operations and in Note 3 has been prepared to
reflect the Company's and Holding's recapitalization and merger with Quaker
Holding Co. ("Quaker") and related transactions as if these had occurred on July
1, 1996.
Cash and Cash Equivalents -- Cash and cash equivalents are highly liquid
investments with remaining maturities of three months or less at the time of
purchase. Cash equivalents, consisting primarily of repurchase agreements with
banks, are stated at cost, which approximates fair market value.
Consumable Parts and Repairable Parts -- In order to provide maintenance
and repair services to its customers, the Company is required to maintain
significant levels of computer parts. These parts are classified as consumable
parts or as repairable parts. Consumable parts, which are utilized during the
repair process, are
F-31
<PAGE> 63
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stated at cost, principally determined using the weighted average method, less
an accumulated allowance for obsolescence and shrinkage. Consumable parts are
reflected in cost of revenues during the period utilized.
Repairable (rotable) parts, which can be refurbished and reused, are stated
at original cost less accumulated amortization. Amortization of repairable parts
is reflected in cost of revenues. Costs of refurbishing repairable parts are
also included in cost of revenues as these costs are incurred. Amortization of
repairable parts is based principally on the composite group method, using
straight-line composite rates. Repairable parts generally have an economic life
which corresponds to the normal life cycle of the related products, currently
estimated to be three to five years.
As consumable and repairable parts are retired, the weighted average gross
amounts at which such parts have been carried are removed from the respective
assets accounts, and charged to the accumulated allowance or accumulated
amortization accounts, as applicable. Periodic revisions to amortization and
allowance estimates are required, based upon the evaluation of several factors,
including changes in product life cycles, usage levels and technology changes.
Changes in these estimates are reflected on a prospective basis unless such
changes result from an extraordinary retirement or from other events or
circumstances which indicate that impairment may exist. Impairment is recognized
when the net carrying value of the parts exceeds the estimated current and
anticipated undiscounted net cash flows. Measurement of the amount of
impairment, if any, is calculated based upon the difference between carrying
value and fair value.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is provided for using the straight-line method over the estimated
useful lives of the depreciable assets. Capitalized equipment leases and
leasehold improvements are amortized over the shorter of the related lease terms
or asset lives. Maintenance and repairs are charged to expense as incurred. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is charged to operations.
Business and Contract Acquisitions -- Business and contract acquisitions
have been accounted for as purchase transactions, with the purchase price of
each acquisition allocated to the assets acquired and liabilities assumed based
upon their respective estimated fair values at the dates of acquisition.
Consistent with the Company's parts retirement accounting methods, the gross
value of parts acquired is generally stated at weighted average cost. Fair value
adjustments, if any, are reflected as adjustments to the respective accumulated
amortization or allowance accounts. The excess of the purchase price over
identified net assets acquired is amortized, on a straight-line basis, over the
expected period of future benefit (see Note 6).
Typical contract acquisitions are comprised primarily of customer
maintenance and support contracts of complementary entities, along with the
accompanying consumable and repairable parts required to support these contracts
and other identifiable intangibles, such as noncompete agreements. Liabilities
assumed in business and contract acquisitions consist primarily of prepaid
amounts related to multi-period customer maintenance and support contracts.
These liabilities are recorded as deferred revenues at acquisition dates and are
recognized as revenues when earned in accordance with the terms of the
respective contracts.
Intangible Assets -- Intangible assets are comprised of excess purchase
price over the fair value of net assets acquired, acquired customer lists and
other intangible assets, including the fair value of contractual profit
participation rights and amounts assigned to noncompete agreements.
Intangible assets, which arise principally from acquisitions, are generally
amortized on a straight-line basis over their respective estimated useful lives
(see Note 6). The Company evaluates the carrying value of intangible assets
whenever events or changes in circumstances indicate that these carrying values
may not be recoverable within the amortization period. Impairment is recognized
when the net carrying value of the intangible asset exceeds the estimated
current and anticipated discounted future net cash flows. Measurement of the
amount of impairment, if any, is calculated based upon the difference between
carrying value and fair value.
F-32
<PAGE> 64
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue -- The Company enters into maintenance contracts whereby it
services various manufacturers' equipment. Revenues from these contracts are
recognized ratably over the terms of such contracts. Prepaid revenues from
multi-period contracts are recorded as deferred revenues and are recognized
ratably over the term of the contracts.
Revenues derived from the maintenance of equipment not under contract are
recognized as the service is performed. Revenues derived from other technology
support services are recognized as the service is performed or ratably over the
term of the contract.
Foreign Currency Translation -- Gains and losses resulting from foreign
currency translation are accumulated as a separate component of shareholders'
equity. Gains and losses resulting from foreign currency transactions are
included in operations.
Credit Risk -- Concentration of credit risk with respect to trade
receivables is limited due to the large number of customers comprising the
Company's customer base and their dispersion across many industries.
Fair Value of Financial Instruments -- The following disclosures of the
estimated fair value of financial instruments were made in accordance with the
requirements of SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies.
Cash and Cash Equivalents, Accounts Receivable, and Accounts
Payable -- The carrying amount of these items are a reasonable estimate of
their fair value.
Short-Term Debt and Long-Term Debt -- As more fully described in Note
8, under its revolving borrowing facility the Company incurs interest at
variable rates based upon market conditions (i.e., based upon the prime
rate or LIBOR). Rates applicable to other debt instruments, which consist
primarily of short-term notes payable in connection with certain
acquisitions, are comparable to those of similar instruments currently
available to the Company. Accordingly, the carrying amount of debt is a
reasonable estimate of its fair value.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates and
assumptions.
Discontinued Operations -- During fiscal 1993, in connection with the sale
of its products division, the Company established estimated liabilities relating
to the settlement of the remaining assets and liabilities of this division. In
1995, the Company revised its estimates as a result of settlement of these
liabilities, and the consolidated statement of operations for 1995 reflects an
increase in net income of $1,113,000 for the change in estimate.
Derivative Financial Instruments -- Derivative financial instruments, which
constitute interest rate swap agreements (see Note 8), are periodically used by
the Company in the management of its variable interest rate exposure. Amounts to
be paid or received under interest rate swap agreements are recognized as
interest expense or interest income during the period in which these accrue.
Gains realized, if any, on the early termination of interest rate swap contracts
are deferred, to be recognized upon the termination of the related asset or
liability or expiration of the original term of the swap contract, whichever is
earlier. The Company does not hold any derivative financial instruments for
trading purposes.
Reclassifications -- Certain reclassifications have been made to the 1996
balances in order to conform with the 1997 presentation.
F-33
<PAGE> 65
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. MERGER, RECAPITALIZATION AND PRO FORMA INFORMATION
On August 7, 1997, the Company and Holdings consummated a merger with
Quaker Holding Co. ("Quaker"), an affiliate of DLJ Merchant Banking Partners II.
The merger, which will be recorded as a recapitalization for accounting purposes
as of the consummation date, occurred pursuant to an Agreement and Plan of
Merger (the "Merger Agreement") by and among the Company, Holdings and Quaker
dated May 4, 1997. The accompanying historical consolidated financial statements
do not include any adjustments with respect to the consummation of the merger.
In accordance with the terms of the Merger Agreement, which was formally
approved by the Company's shareholders on August 7, 1997, Quaker merged with and
into Holdings, and the holders of approximately 94.7% of shares of Holdings
common stock outstanding immediately prior to the merger received $23 in cash in
exchange for each of these shares. Holders of approximately 5.3% of shares of
Holdings common stock outstanding immediately prior to the merger retained such
shares in the merged Holdings, as determined based upon shareholder elections
and stock proration factors specified in the Merger Agreement. Immediately
following the merger, continuing shareholders owned approximately 11.9% of
shares of outstanding Holdings common stock. The aggregate value of the merger
transaction was approximately $940 million, including refinancing of the
Company's revolving credit facility (see Note 8).
In connection with the merger, Holdings raised $85 million through the
public issuance of discount debentures, and the Company issued publicly-held
subordinated notes for approximately $150 million. The Company also entered into
a new syndicated credit facility providing for term loans of $470 million and
revolving loans of up to $105 million. The proceeds of the discount notes,
subordinated notes and the initial borrowings under the new credit facility
along with a loan of approximately $59.1 million from the Company to Holdings
and the purchase of approximately $225 million of Holdings common stock by
Quaker have been used to finance the payments of cash to cash-electing Holdings
shareholders, to pay the holders of Holdings stock options and stock warrants
canceled or converted, as applicable, in connection with the merger, to repay
the Company's existing revolving credit facility and to pay expenses incurred in
connection with the merger.
As a result of the merger, the Company and Holdings incurred various
expenses, aggregating approximately $71 million on a pretax basis (approximately
$64 million after related tax benefit), subject to adjustment, in connection
with consummating the transaction. These costs consisted primarily of
compensation costs, underwriting discounts and commissions, professional and
advisory fees and other expenses. The Company will report this one-time charge
during the first quarter of fiscal 1998. In addition to these expenses, the
Company and Holdings also incurred approximately $22.3 million of capitalized
debt issuance costs associated with the merger financing. These costs will be
charged to expense over the terms of the related debt instruments.
The following summarized unaudited pro forma information of the Company as
of and for the year ended June 30, 1997 assumes that the merger had occurred on
July 1, 1996. The pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the financial condition or of the
results of operations which actually would have resulted had the merger occurred
as of July 1, 1996 or which may result in the future.
F-34
<PAGE> 66
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
PRO FORMA BALANCE SHEET INFORMATION:
Total assets................................................................... $707,785
Long term indebtedness (including current portion)............................. 641,376
Other liabilities.............................................................. 170,708
Shareholders' (deficit)........................................................ (104,299)
PRO FORMA INCOME STATEMENT INFORMATION:
Revenues....................................................................... $785,950
Operating income............................................................... 67,750
Income from continuing operations before income taxes.......................... 9,772
Net income..................................................................... 5,726
</TABLE>
The pro forma net loss reflects a net increase in interest expense of
approximately $43.3 million ($25.4 million after related pro forma tax effect),
attributable to additional financing incurred in connection with the merger, net
of repayment of the Company's existing revolving credit facility.
4. BUSINESS AND CONTRACT ACQUISITIONS
During the years ended June 30, 1997, 1996 and 1995, the Company acquired
certain net assets of other service companies as follows (in thousands):
<TABLE>
<CAPTION>
EXCESS
CONSIDERATION PURCHASE
--------------------------------------------------------- PRICE OVER
TOTAL FAIR VALUE
NUMBER OF PURCHASE OTHER OF NET ASSETS
YEARS ENDED ACQUISITIONS CASH NOTES PRICE INTANGIBLES ACQUIRED
- ---------------------------------- ------------ -------- ------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Significant business acquisitions:
June 30, 1995................... 1 $ 27,413 $2,094 $ 29,507 $15,600 $ 7,394
June 30, 1996................... 1 250,549 250,549 72,581 60,533
Nonsignificant business or maintenance contract acquisitions:
June 30, 1995................... 5 9,327 255 9,582 4,577 8,680
June 30, 1996................... 5 14,853 578 15,431 6,522 6,318
June 30, 1997................... 9 31,749 2,224 33,973 231 47,200
</TABLE>
On August 31, 1994, the Company purchased certain net assets and
liabilities of IDEA/Servcom, Inc. for approximately $29,500,000. This
acquisition was funded by cash and the issuance of a $2,600,000 noninterest-
bearing note to the seller. See seller notes payable section of Note 8. The
excess of asset purchase price over the fair value of net assets acquired at the
date of purchase was approximately $7,400,000.
On October 20, 1995, the Company acquired all of the outstanding common
stock of BABSS, a subsidiary of Bell Atlantic Corporation ("BAC") for
approximately $250,549,000. The acquisition was funded with the proceeds from
the issuance of $30,000,000 of Series C preferred stock, $30,000,000 of
subordinated debentures and the balance from additional bank borrowings (see
Notes 8 and 13). The excess of asset purchase price over the fair value of net
assets acquired at the date of purchase was initially recorded as approximately
$58,796,000. Subsequent to the acquisition, the Company recorded a net
adjustment increasing the initial amount by $1,737,000 and adjusted other
balance sheet accounts principally by the same amount. This resulted from the
adjustment and reclassification of certain tax accruals offset by favorable
negotiations on certain leased facilities (see Note 7). As part of the
acquisition, the Company purchased from BAC contractual profit participation
rights whereby the Company will receive a fixed percentage of the annual
operating profits (3.2% or 3.5%, depending upon the level of profits) earned by
a former foreign affiliate of
F-35
<PAGE> 67
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BAC which provides computer maintenance and technology support services in
Europe. The estimated value of the discounted estimated future cash flows over a
twenty-year period from these contractual profit participation rights is
$25,000,000.
Included in nonsignificant maintenance contract acquisitions is the
acquisition of substantially all of the contracts and related assets, including
spare parts of the U.S. computer service business of Memorex Telex Corporation
and certain of its affiliates (collectively, "Memorex Telex"). Memorex Telex had
filed a petition in bankruptcy in the United States Bankruptcy Court (the
"Court") in the District of Delaware on October 15, 1996; the Court approved the
sale to the Company on November 1, 1996. The adjusted purchase price was $52.7
million, comprised of the assumption of certain liabilities under contracts of
the service business, which were valued at $28.3 million, and base cash
consideration of approximately $24.4 million, after certain purchase price
adjustments, excluding transaction and closing costs.
The estimated fair market values of certain assets acquired, as well as
liabilities assumed, are subject to further adjustment as additional information
becomes available to the Company. During the third quarter of fiscal 1997, the
Company recorded an adjustment increasing the deferred revenues assumed in the
Memorex Telex acquisition by approximately $2,300,000, to revise the estimated
fair value of certain contract liabilities of the business assumed by the
Company.
The following summarized unaudited pro forma information for significant
acquisitions that have a material effect on the Company's results of operations
for the years ended June 30, 1996 and 1995 assumes that the acquisitions
occurred as of July 1, 1994. The nonsignificant business and maintenance
contract acquisitions are not considered material individually or in the
aggregate. The pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the significant acquisitions been in effect on
the dates indicated or which may result in the future.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Revenues....................................................... $697,676 $679,284
Income from continuing operations before extraordinary item.... 31,080 20,153
Net income..................................................... 29,153 21,266
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and buildings............................................. $ 6,318 $ 2,055
Equipment...................................................... 16,248 13,858
Computer hardware and software................................. 35,030 27,277
Furniture and fixtures......................................... 8,308 8,051
Leasehold improvements......................................... 4,628 4,125
-------- --------
70,532 55,366
Accumulated depreciation and amortization...................... (36,305) (22,936)
-------- --------
$ 34,227 $ 32,430
======== ========
</TABLE>
F-36
<PAGE> 68
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The principal lives (in years) used in determining depreciation and
amortization rates of various assets are: buildings (20-40); equipment (3-10);
computer hardware and software (3-5); furniture and fixtures (5-10) and
leasehold improvements (term of related leases).
Depreciation and amortization expense was approximately $13,549,000,
$8,309,000 and $1,779,000 for the fiscal years ended 1997, 1996 and 1995,
respectively.
6. INTANGIBLES
Intangibles consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Excess purchase price over fair value of net assets acquired... $130,548 $ 82,355
Customer lists................................................. 64,688 64,758
Contractual profit participation rights........................ 25,000 25,000
Noncompete agreements.......................................... 4,631 4,500
Other intangibles.............................................. 9,131 7,671
-------- --------
233,998 184,284
Accumulated amortization....................................... (42,632) (19,625)
-------- --------
$191,366 $164,659
======== ========
</TABLE>
The periods (in years) used in determining the amortization rates of
intangible assets are: excess purchase price over fair value of net assets
acquired (4-20); customer lists (3-8); contractual profit participation rights
(20); noncompete agreements (3-5) and other (1-6).
Amortization expense relating to intangibles was approximately $23,470,000,
$15,673,000 and $6,775,000, for the fiscal years ended 1997, 1996 and 1995,
respectively.
7. ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable................................................. $55,723 $53,347
Compensation and benefits........................................ 22,706 22,115
Interest......................................................... 563 1,505
Unused leases.................................................... 878 3,485
Pension accrual.................................................. 1,371 1,258
Accrued accounting and legal fees................................ 1,435 1,073
Non-income taxes and other....................................... 12,840 6,781
------ ------
$95,516 $89,564
====== ======
</TABLE>
Prior to 1994, the Company received $2,600,000 in tax bills (primarily
interest) from the Internal Revenue Service ("IRS") related to claims for tax
and interest for the years 1981 through 1987. The Company paid approximately
$500,000 of the claims upon receipt of the bills. Although the Company disputed
the tax bills, an IRS mandated payment of $828,000 was made in 1996. As of June
30, 1996, the
F-37
<PAGE> 69
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company had an accrued liability of $1,883,000 related to this assessment.
During fiscal 1997, the Company paid $1,729,000 in full settlement of these tax
and interest bills.
In connection with the acquisition of BABSS, which has been accounted for
using the purchase method of accounting (see Note 4), the Company recorded
approximately $11,000,000 in liabilities resulting from planned actions with
respect to BABSS, which included the costs to exit certain leased facilities and
to involuntarily terminate employees. The provision of approximately $3,500,000
for the costs to exit certain leased facilities principally relates to future
lease payments on a warehouse in California which has been made idle.
Approximately $4,000,000 was provided for severance and termination benefits of
approximately 210 employees in the field, operations support, sales and
administration. Approximately $3,000,000 was provided in connection with the
exit plan for write-downs of spare parts and equipment at two California
facilities which will not be utilized in future operations. The provision for
various other charges of approximately $500,000 consisted of costs to complete
the exit plan. As of June 30, 1996, the Company had settled all of these
liabilities, except for the lease liabilities on idle facilities for which
payments were scheduled to continue through 1999 (see Note 15). At June 30, 1997
and 1996 remaining amounts due under these leases were $0 and $1,200,000,
respectively.
As a result of successful negotiations of unutilized leased facilities,
during 1996, the Company recorded a reduction of approximately $975,000 to both
the provisions for leased facilities and excess purchase price over fair value
of net assets acquired.
8. REVOLVING CREDIT LOAN AND LONG-TERM DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit loans......................................... $231,671 $186,400
Seller noninterest-bearing notes payable....................... 2,922 2,118
Seller note payable -- purchase spare parts.................... 1,608
Capitalized lease obligations, payable in varying installments
at interest rates ranging from 7.25% to 13.01% at June 30,
1997......................................................... 1,308 2,385
------- -------
237,509 190,903
Less current portion........................................... 4,788 2,321
------- -------
$232,721 $188,582
======= =======
</TABLE>
REVOLVING CREDIT LOANS
On October 20, 1995, in connection with the BABSS acquisition (see Note 4)
the Company entered into a Credit Agreement which provided for a term loan (the
"1995 Term Loan") of $230,000,000 and a revolving credit facility of up to a
maximum of $30,000,000. The 1995 Term Loan provided for 19 equal quarterly
principal payments of $10,000,000 to be due and payable on the last day of each
calendar quarter commencing December 31, 1995 with a final payment due on
September 30, 2000. Loans under the revolving credit facility were to mature on
September 30, 2000. Interest on the 1995 Term Loan and the revolving credit
facility were at varying rates based, at the Company's option, on the Eurodollar
rate or the Alternative Base Rate (NationsBanc prime rate), plus the Applicable
Margins. Margins were based on the ratio of Total Funded Debt to EBITDA; the
Eurodollar Margin ranged from 1.75% to 2.5%, while the Alternative Base Rate
Margin ranged from 0.5% to 1.25%.
F-38
<PAGE> 70
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1996, the Company completed an initial public offering. The
Company used a portion of the proceeds to repay approximately $70 million of the
1995 Term Loan.
Also in April 1996, the Company converted the 1995 Term Loan and the
existing $30 million Revolving Credit Facility into a $225 million variable
rate, unsecured revolving credit facility ("the 1996 Revolving Credit
Facility"). During fiscal 1997, the 1996 Revolving Credit Facility commitment
was increased to $300 million, in connection with the acquisition of certain
contracts and assets. The 1996 Revolving Credit Facility is at floating interest
rates, based either on the LIBOR or prime rate, in either case plus an
Applicable Margin, at the Company's option. As of June 30, 1997, the applicable
rate was LIBOR plus .75% or approximately 6.5%. The 1996 Revolving Credit
Facility enables the Company to borrow up to $300 million in the form of
revolving credit loans with a maturity date of April 26, 2001 and with interest
periods determined principally on a quarterly basis. To offset the variable rate
characteristics of the borrowings, the Company entered into interest rate swap
agreements with two banks resulting in fixed interest rates of 5.4% on $40.0
million notional principal amount through December 1997 and 5.5% on another
$40.0 million notional principal amount through December 1998.
During fiscal 1997, the Company terminated these swap agreements, resulting
in an insignificant gain which has been deferred to the first quarter of fiscal
1998.
Under the terms of the 1996 Revolving Credit Facility, the Company may use
up to $25,000,000 for letters of credit, subject to the limitation of
$300,000,000 in total credit. As of June 30, 1997, letters of credit in the face
amount of $3,067,000 were outstanding.
The loan agreement relating to the 1996 Revolving Credit Facility contains
various terms and covenants which provide for certain restrictions on the
Company's indebtedness, liens, investments, disposition of assets and mergers
and acquisitions and require the Company, among other things, to maintain
minimum levels of consolidated net worth and certain minimum financial ratios.
The borrower under the 1996 Revolving Credit Facility is DecisionOne
Corporation. Repayment of the debt is guaranteed by the Company, Holdings and
the Company's other subsidiaries except for its Canadian subsidiary.
The Company's debt agreements and other agreements to which it is a party
contain certain covenants restricting the payment of dividends on, or
repurchases of, Holdings common stock.
The Company had average borrowings of $221,069,000 and $172,065,000 during
1997 and 1996, respectively, at an average interest rate of 6.4% and 8.69%,
respectively. Maximum borrowings during 1997 and 1996 were $243,350,000 and
$268,748,000, respectively.
Subsequent to June 30, 1997, in connection with the Company's and Holdings'
merger with Quaker (see Note 3), the 1996 Revolving Credit Facility was repaid
in full, including all interest due thereon. This refinancing was accomplished,
in part, through the issuance of certain new debt instruments, consisting of
senior discount notes, senior subordinated notes and a term loan/revolving
credit facility which, in the aggregate, provide financing of approximately $810
million (including financing obtained by Holdings), subject to certain
conditions. The new revolving credit facility provides the Company with $105
million of available financing, subject to a borrowing base, for working capital
purposes subsequent to the merger.
The Company's Canadian subsidiary has available a $1.5 million (Canadian)
revolving line of credit agreement with a local financial institution. At June
30, 1997, approximately $471,000 (in U.S. dollars) was outstanding under this
agreement. There were no amounts outstanding at June 30, 1996.
SELLER NOTES PAYABLE
In connection with certain acquisitions (see Note 4), the Company issued
noninterest-bearing notes, the principal of which is primarily due upon
settlement of contingent portions of the acquisition purchase price within a
specified period subsequent to closing, generally not exceeding one year from
the acquisition date.
F-39
<PAGE> 71
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contingencies typically pertain to actual amounts of monthly maintenance
contract revenues acquired and prepaid contract liabilities assumed in
comparison to amounts estimated in acquisition agreements. The Company imputes
interest, based upon market rates, for long-term, non-interest-bearing
obligations.
During 1997, the Company issued a secured note payable to the seller for
the purchase of repairable parts in the original amount of $1,854,000. The note
accrues interest at an interest rate of approximately 8%, and requires quarterly
payments of principal and interest of approximately $273,000 until maturity in
December 1998.
SUBORDINATED DEBENTURES
In connection with the BABSS acquisition (see Note 4) on October 20, 1995,
the Company issued and sold to Holdings principal shareholders, an aggregate
$30,000,000 principal amount of 10.101% Debentures (the "Affiliate Notes") due
on October 20, 2001. The Affiliate Notes were subordinated to the 1995 Term Loan
and the revolving credit facility. Interest on the Affiliate Notes was payable
semiannually on the last business day of June and December of each year
commencing on December 31, 1995.
In connection with the issuance of the debentures, Holdings issued 468,750
Common Stock Purchase Warrants (the "Warrants"). Each Warrant initially entitled
the owner to buy one share of Common Stock for $0.10. The number of shares that
can be purchased per Warrant steps up over 24 months in conjunction with the
increasing conversion privilege applicable to the Preferred Stock such that, at
the end of 24 months, each Warrant entitled the holder to buy approximately 1.21
shares of Common Stock at a price of $0.10 per share. The Warrants were
exercisable from October 20, 1997 until October 20, 2001, provided that if
Holdings had a public offering of its Common Stock meeting certain requirements
before October 20, 1997, the Warrants became exercisable at the time of the
public offering and the number of shares that could be purchased on exercise was
fixed at that time and no longer increased in steps. The Warrants also became
exercisable upon retirement of the Debentures. Each Warrant had an assigned
value of $7.25333 which resulted in an original issue discount of $3,400,000
which was being amortized over the term of the Affiliate Notes. Upon
consummation of Holdings initial public offering in April 1996, the Company was
required to pay up to the total amount outstanding under the Affiliate Notes
and, accordingly, the Company used $30,000,000 of the proceeds to retire the
Affiliate Notes. As a result, in 1996 the Company recorded an extraordinary loss
in the amount of $3,211,000, net of taxes of $1,284,000, due to the acceleration
of the amortization of original issue discount.
F-40
<PAGE> 72
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $10,909 $ 2,892 $ 16,065
State.............................................. 3,616 1,595 4,599
Foreign............................................ 1,080 548 (1,272)
Deferred:
Federal............................................ 6,460 8,945 (29,897)
State.............................................. 16 641 (3,617)
Foreign............................................ (113) (499)
Benefit of operating loss carryforwards:
Federal............................................ (7,729)
State.............................................. (1,253)
Foreign............................................ (252)
------- ------- --------
Provision (benefit) for income taxes................. $21,968 $13,870 $(23,104)
======= ======= ========
</TABLE>
The tax effects of temporary differences consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred tax assets:
Accounts receivable............................................ $ 4,771 $ 1,341
Inventory...................................................... 2,195 2,586
Accrued expenses............................................... 7,000 6,378
Unused leases.................................................. 390
Fixed assets................................................... 299
Intangibles.................................................... 6,196 5,670
Operating loss carryforwards................................... 4,868 14,252
Tax credit carryforwards....................................... 1,670 1,170
------- -------
Gross deferred tax assets........................................ 27,090 31,696
Gross deferred tax liabilities:
Repairable spare parts......................................... (8,918) (7,273)
Fixed assets................................................... (108)
------- -------
Gross deferred tax liabilities................................... (9,026) (7,273)
------- -------
Net deferred tax asset........................................... $18,064 $24,423
======= =======
</TABLE>
F-41
<PAGE> 73
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net operating loss and minimum tax credit carryforwards available at June
30, 1997 expire in the following years:
<TABLE>
<CAPTION>
YEAR OF
EXPIRATION
AMOUNT ----------
--------------
(IN THOUSANDS)
<S> <C> <C>
Federal operating losses............................... $ 12,877 2006-2008
State operating losses................................. 8,669 1998-2008
Investment tax credit.................................. 134 2004
Minimum tax credit..................................... 1,536 INDEFINITE
</TABLE>
As a result of the Company's initial public offering in April, 1996, an
"ownership change" occurred pursuant to Section 382 of the Internal Revenue
Code. Accordingly, for Federal income tax purposes, net operating loss and tax
credit carryforwards arising prior to the ownership change are limited during
any future period to the Section 382 "limitation amount" of approximately $20.0
million per annum. In addition, the Company's merger with Quaker on August 7,
1997 (see Note 3) represents another such "ownership change" pursuant to Section
382. The Company estimates that the limitation on the use of tax loss
carryforwards and other credits, for Federal income tax purposes, in any
post-merger period will be reduced to approximately $9.0 million per annum.
A reconciliation between the provision (benefit) for income taxes, computed
by applying the statutory federal income tax rate of 35% for 1997, 1996 and 1995
to income before income taxes, and the actual provision (benefit) for income
taxes follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ------
<S> <C> <C> <C>
Federal income tax provision at statutory tax rate........... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax provision...... 5.0 4.6 3.5
Foreign income taxes......................................... 0.4 (6.9)
Unused lease credit.......................................... (0.1)
Benefit of operating loss carryforward....................... (0.8) (49.1)
Change in valuation allowance................................ (1.4) (108.9)
Other........................................................ 1.0 2.6 0.3
---- ---- ------
Actual income tax provision (benefit) effective tax rate..... 41.4% 40.0% (126.2)%
==== ==== ======
</TABLE>
The Company has recorded a deferred tax asset of $4,868,000 reflecting the
benefit of federal and state net operating loss carryforwards, which expire in
varying amounts between 1998 and 2008. Realization depends on generating
sufficient taxable income before expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax asset will be realized.
The valuation allowance for deferred tax assets as of July 1, 1994 was
$44,160,000. The net changes in the valuation allowance for the years ended June
30, 1996 and 1995 were decreases of $686,000 and $43,474,000, respectively. Of
these amounts, $252,000 and $8,982,000 resulted from the realization of net
operating loss carryforwards. The remaining decrease of $434,000 and $34,492,000
for 1996 and 1995, respectively, resulted from the Company's expected future
taxable income.
F-42
<PAGE> 74
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. OTHER LIABILITIES
Other (noncurrent) liabilities consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued severance and unutilized lease losses.................... $ 4,532 $ 2,227
Other noncurrent liabilities..................................... 9,396 12,059
------- -------
$ 13,928 $ 14,286
======= =======
</TABLE>
As more fully described in Note 15, accrued severance and unutilized lease
losses represent remaining liabilities for estimated future employee severance
costs and for lease/contract losses associated with duplicate facilities to be
closed. These liabilities were recorded by the Company in connection with the
Memorex Telex and BABSS acquisitions in November 1996 and October 1995,
respectively.
Other noncurrent liabilities include deferred operating lease liabilities
related to scheduled rent increases, recorded in accordance with the provisions
of SFAS No. 13, Accounting for Leases. Also included in other noncurrent
liabilities are provisions relating to various tax matters.
11. LEASE COMMITMENTS
The Company conducts its operations primarily from leased warehouses and
office facilities and uses certain computer, data processing and other equipment
under operating lease agreements expiring on various dates through 2005. The
future minimum lease payments for operating leases having initial or remaining
noncancelable terms in excess of one year for the five years succeeding June 30,
1997 and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................................... $18,415
1999............................................................... 15,224
2000............................................................... 11,406
2001............................................................... 5,815
2002............................................................... 2,879
Thereafter......................................................... 4,757
-------
$58,496
=======
</TABLE>
Rental expense amounted to approximately $17,367,000, $13,149,000 and
$5,878,000, for the fiscal years ended 1997, 1996 and 1995, respectively.
12. RETIREMENT PLANS
The Company maintains a 401(k) plan for its employees which is funded
through the contributions of its participants. A similar plan exists for former
employees of an acquired company for which eligibility and additional
contributions were frozen in September 1988.
In addition, the Company assumed the liability of the defined benefit
pension plan applicable to employees of a company acquired in 1986. The
eligibility and benefits were frozen as of the date of the acquisition.
F-43
<PAGE> 75
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension expense for the defined benefit pension plan was computed as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------
1997 1996 1995
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest cost.............................................. $ 521 $ 495 $ 482
Actual return on plan assets............................... (409) (449) (312)
Net amortization and deferral.............................. 9 72 (42)
----- ----- -----
Periodic pension costs..................................... $ 121 $ 118 $ 128
===== ===== =====
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% and the expected long-term rate of return
on assets was 8.5% for 1997, 1996 and 1995.
The following table sets forth the funded status of the frozen pension plan
as of May 1, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefits (100% vested)............................... $ 7,290 $ 7,116
Fair value of plan assets........................................ 6,128 5,800
------- -------
Unfunded projected benefit obligation.................. 1,162 1,316
Unrecognized net loss............................................ 1,873 1,848
Unrecognized net transition obligation........................... 470 504
Adjustment to recognized minimum liability....................... (2,343) (2,352)
------- -------
Accrued pension costs............................................ $ 1,162 $ 1,316
======= =======
</TABLE>
13. EMPLOYEE SEVERANCE AND UNUTILIZED LEASE COSTS
During the second quarter of fiscal 1997, in connection with the Memorex
Telex acquisition (see Note 4), the Company recorded a $3.4 million pre-tax
charge for estimated future employee severance costs, and a $0.9 million pre-tax
charge for unutilized lease/contract losses ("exit costs"), primarily associated
with duplicate facilities to be closed. The $3.4 million charge, recorded in
accordance with SFAS No. 112, Employers' Accounting for Postemployment Benefits,
reflects the actuarially determined benefit costs for the separation of
employees who are entitled to benefits under pre-existing separation pay plans.
These costs are included in selling, general and administrative expenses in the
accompanying consolidated statement of operations for the year ended June 30,
1997.
In the second quarter of fiscal 1996, in connection with the acquisition of
BABSS, the Company recorded pre-tax charges for exit costs of $6.9 million, and
estimated future employee severance costs of $0.1 million. During the fourth
quarter of fiscal 1996, the Company reversed $3.4 million of these employee
severance and exit cost liabilities. The reversal was primarily the result of
the Company's ability to utilize and sublease various facilities identified in
the original $7.0 million combined liability. Such information was unknown to
the Company when the original liability was recorded.
See Note 10 for further information regarding accrued severance and
unutilized lease losses.
14. COMMITMENTS AND CONTINGENT LIABILITIES
The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible parties
in respect to four waste disposal sites that have been identified by the United
States Environmental Protection Agency as Superfund sites. In addition, the
Company received a notice several years ago that it may be a potentially
responsible party with respect to a fifth, related site, but
F-44
<PAGE> 76
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has not received any other communication with respect to that site. Under
applicable law, all parties responsible for disposal of hazardous substances at
those sites are jointly and severally liable for clean-up costs. The Company
originally estimated that its share of the costs of the clean-up of one of these
sites would be approximately $500,000 which is provided for in liabilities
related to the discontinued products division in the accompanying consolidated
balance sheets as of June 30, 1997 and 1996. Complete information as to the
scope of required clean-up at these sites is not yet available and, therefore,
management's evaluation may be affected as further information becomes
available. However, in light of information currently available to management,
including information regarding assessments of the sites to date and the nature
of involvement of the Company's predecessor at the sites, it is management's
opinion that the Company's potential additional liability, if any, for the cost
of clean-up of these sites will not be material to the consolidated financial
position, results of operations or liquidity of the Company.
The Company is also party to various legal proceedings incidental to its
business. Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company. In the opinion of
management, these actions can be successfully defended or resolved without a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
During the fourth quarter of fiscal 1997, the Company received $2.0 million
in full settlement of a claim against its former insurance carrier, related to
unreimbursed losses. This settlement was reflected as a reduction of selling,
general and administrative costs in the accompanying statement of operations.
15. RELATED PARTY TRANSACTIONS
Prior to 1994, the Company entered into an agreement to purchase printer
products from Genicom Corporation (Genicom). The Company and Genicom are under
common ownership. The initial term of the agreement is for five years with an
option to extend based on mutual agreement of the parties. Purchases from
Genicom for the years ended June 30, 1997, 1996 and 1995 were approximately
$472,000, $1,512,000 and $1,972,000, respectively. Accounts payable to Genicom
amounted to approximately $30,000 and $14,000 as of June 30, 1997 and 1996,
respectively.
During the year ended June 30, 1996, the Company paid approximately
$125,000 for expense reimbursements to certain shareholders for services
rendered in connection with an acquisition in 1988. The amount was accrued for
in prior years.
F-45
<PAGE> 77
SCHEDULE II
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
DECISIONONE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGES TO CHARGES TO BALANCE AT
BEGINNING OF CORP. AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------ ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1995:
Accounts Receivable --
Allowance for uncollectable
accounts................. $ 1,461 $1,930 $ 3,225 $ 6,616
Consumable parts --
Allowance for
Obsolescence............. $ 8,370 $1,995 $ 1,423(b) $ 11,788
Year Ended June 30, 1996:
Allowance for uncollectable
accounts.................... $ 6,616 $ 3,434 $ (470)(a) $ 9,580
Consumable parts --
Allowance for
Obsolescence............. $ 11,788 $1,171 $ 10,193(b) $ (3,615) $ 19,537
Year Ended June 30, 1997:
Accounts Receivable --
Allowance for Uncollectable
Accounts.................... $ 9,580 $7,848 $ 1,593(b) $ (4,152)(a) $ 14,869
Consumable parts --
Allowance for Obsolescence.... $ 19,537 $2,554 $ 3,849(b) $ (8,051) $ 17,889
</TABLE>
- ---------------
(a) Amount primarily represents net recoveries (write-offs) during the year.
(b) Amount primarily represents allowance recorded as a result of acquisitions
during the year.
S-5
<PAGE> 78
DECISIONONE CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
4.1 Specimen of the Company's 9 3/4 Senior Subordinated Notes due 2007 (included in
Exhibit 4.2).
4.2 9 3/4% Senior Subordinated Note Indenture dated as of August 7, 1997 between the
Company and State Street Bank and Trust as Trustee.
10.10 U.S. $575,000,000 Credit Agreement dated as of August 7, 1997 by and among the
Company, various financial institutions, DLJ Capital Funding Inc. (as Syndication
Agent), NationsBank of Texas, N.A. (as Administrative Agent) and BankBoston, N.A.
(as Documentation Agent).
23 Consent of Deloitte & Touche LLP
</TABLE>
<PAGE> 1
EXHIBIT 4.2
EXECUTION COPY
================================================================================
DECISIONONE CORPORATION
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
------------------------------------
INDENTURE
Dated as of August 7, 1997
------------------------------------
------------------------------------
STATE STREET BANK AND TRUST COMPANY
TRUSTEE
------------------------------------
================================================================================
<PAGE> 2
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
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.11. Limitation on Restricted Payments................................................ 37
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 4.16 Limitation on Liens...............................................................44
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
</TABLE>
ii
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<TABLE>
<S> <C> <C>
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
Section 12.08. No Adverse Interpretation of Other Agreements.................................... 71
</TABLE>
iii
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<TABLE>
<S> <C> <C>
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
</TABLE>
EXHIBITS
A Form of Note
B Form of Supplemental Indenture to be Delivered by Guarantors
iv
<PAGE> 6
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Indenture Section
Act Section
<S> <C>
310(a)(1)...........................................................7.10
(a)(2).........................................................7.10
(a)(3).........................................................N.A.
(a)(4).........................................................N.A.
(a)(5).........................................................7.10
(b)............................................................7.10
(c)............................................................N.A.
311(a)..............................................................7.11
(b)............................................................7.11
(c)............................................................N.A.
312(a)..............................................................11.03
(b)............................................................11.03
(c)............................................................11.03
313(a)..............................................................7.06
(b)(1).........................................................N.A.
(b)(2).........................................................7.06; 7.07
(c)............................................................7.06; 10.02
(d)............................................................7.06
314(a)..............................................................4.04; 11.02
(b)............................................................N.A.
(c)(1).........................................................11.04
(c)(2).........................................................11.04
(c)(3).........................................................N.A.
(d)............................................................N.A.
(f)............................................................N.A.
315(a)..............................................................7.01
(b)............................................................7.05; 11.02
(c)............................................................7.01
(d)............................................................7.01
(e)............................................................6.11
316(a)(last sentence)...............................................2.09
(a)(1)(A)......................................................6.05
(a)(1)(B)......................................................6.04
(a)(2).........................................................N.A.
(b)............................................................6.07
317(a)(1)...........................................................6.08
(a)(2).........................................................6.09
(b)............................................................2.04
318(a)..............................................................11.01
(b)............................................................N.A.
(c)............................................................11.01
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
v
<PAGE> 7
INDENTURE dated as of August 7, 1997 between DecisionOne Corporation, a
Delaware corporation (the "Company"), and State Street Bank and Trust Company,
as trustee (the "Trustee"). The Company and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the 9 3/4% 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.
"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 in the ordinary course
of business in connection with sales of accounts receivable in accordance with
the covenant described in Section 4.19 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 4.19 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
<PAGE> 8
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 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
4.19 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
2
<PAGE> 9
term of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar foreign,
federal or state law for the relief of debtors.
"Board of Directors" means the board of directors of the Company or any
duly authorized committee of such board of directors.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Business" shall have the meaning assigned to such term in Article 11,
Rule 11-01(d) of Regulation S-X, promulgated pursuant to the Securities Act, as
such regulation is in effect on the date of this Indenture.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means, (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) Government Securities, (ii) any
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution or any lender
under the New Credit Facility, (iii) commercial paper maturing not more than 365
days after the date of acquisition of an issuer (other than an Affiliate of the
Company) with a rating, at the time as of which any investment therein is made,
of "A-3" (or higher) according to S&P or "P-2" (or higher) according to Moody's
or carrying an equivalent rating by a nationally recognized rating agency if
both of the two named rating agencies cease publishing ratings of investments,
(iv) any bankers acceptances 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
3
<PAGE> 10
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.
"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 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,
4
<PAGE> 11
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 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 11.02 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."
5
<PAGE> 12
"Disqualified Stock" means, with respect to any Person, any Capital
Stock that, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, is exchangeable for Indebtedness (except to the extent
exchangeable at the option of such Person subject to the terms of any debt
instrument to which such Person is a party), or is redeemable at the option of
the Holder thereof, in whole or in part, on or prior to August 1, 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.
"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 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
6
<PAGE> 13
Company and its Restricted Subsidiaries for the latest four-quarter period for
which consolidated internal financial statements of the Company are available as
derived from such financial statements plus or minus (b) with respect to any
Business or Qualified Contracts that have been acquired by the Company or any of
its Restricted Subsidiaries, including through mergers or consolidations, after
the first day of the applicable four-quarter period and prior to the Calculation
Date, the result of (1) the Consolidated Cash Flow of such Business or Qualified
Contracts for the most recent three-month period prior to such acquisition for
which internal financial statements in respect of such acquired Business or
Qualified Contracts are available times four multiplied by (2) a fraction the
numerator of which is 365 minus the number of days during the relevant
four-quarter period for which the results of operations of such Business or
Qualified Contracts were included in clause (a) of this sentence and the
denominator of which is 365, (ii) the acquisition of any Business or Qualified
Contracts that has been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions after the first day of the applicable
four-quarter period and on or prior to the Calculation Date shall give pro forma
effect to financing transactions (including the incurrence of Acquired Debt) in
connection with the acquisition of such Business or Qualified Contracts, as if
such acquisition had occurred at the beginning of the applicable reference
period, and (iii) the Consolidated Cash Flow and expenses attributable to
discontinued operations as determined in accordance with GAAP, and operations,
Businesses and Qualified Contracts disposed of prior to the Calculation Date
shall be excluded. For purposes of the foregoing clause (i), the Consolidated
Cash Flow attributable to any Business or Qualified Contracts acquired by the
Company or any Restricted Subsidiary of the Company shall be calculated
utilizing the actual revenues attributable to such Business or Qualified
Contracts for the applicable period and the expenses that would have been
attributable to such Business or Qualified Contracts had the Company acquired
such Business or Qualified Contracts at the beginning of the applicable
three-month period, as determined in good faith by the Company, taking into
account the Company's historical expenses in connection with the provision of
similar services for similar equipment under similar contracts. If since the
beginning of the applicable four-quarter period any Person (that subsequently
becomes a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made or
engaged in any Investment, disposition of operations, Businesses or Qualified
Contracts, or merger or consolidation, or shall have discontinued any operations
or acquired any Business or Qualified Contracts that would have required
adjustment pursuant to this definition had such Person been a Restricted
Subsidiary at the time of such Investment, disposition, merger, consolidation,
discontinued operation or acquisition, then "Consolidated Cash Flow" shall be
calculated giving pro forma effect thereto for such period as if such
Investment, acquisition, disposition, merger, consolidation or discontinued
operation had occurred at the beginning of the applicable four-quarter period.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the Consolidated Interest Expense of such
Person for such period and (ii) any interest expense on Indebtedness of another
Person that is guaranteed by the referent Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such guarantee or Lien is called upon)
and (iii) the product of (a) all cash dividend payments of the Company 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
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<PAGE> 14
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
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.
8
<PAGE> 15
"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 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.
"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 $59,100,000
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 Section 4.11 hereof.
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<PAGE> 16
"Investors' Agreement" means the investors' agreement, dated as of
August 7, 1997, among Holdings, 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, the city where the principal office of the
Trustee is located, or at a place of payment are authorized by law, regulation
or executive order to remain closed. If a payment date is a Legal Holiday at a
place of payment, payment may be made at that place on the next succeeding day
that is not a Legal Holiday.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest).
"Management Loans" means one or more loans by the Company or 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 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.
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<PAGE> 17
"New Credit Facility" means that certain credit agreement, dated as of
August 7, 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 or shortening
the maturity of or refinancing or refunding all or any portion of the
Indebtedness thereunder or increasing the amount that may be borrowed under such
agreement or any successor agreement, whether or not among the same parties.
"Non-Recourse Debt" means Indebtedness (i) no default with respect to,
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (ii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock (other than the stock
of an Unrestricted Subsidiary pledged by the Company to secure debt of such
Unrestricted Subsidiary) or assets of the Company or any of its Restricted
Subsidiaries; provided, however, that in no event shall Indebtedness of any
Unrestricted Subsidiary fail to be Non-Recourse Debt solely as a result of any
default provisions contained in a guarantee thereof by the Company or any of its
Restricted Subsidiaries if the Company or such Restricted Subsidiary was
otherwise permitted to incur such guarantee pursuant to this Indenture.
"Notes" means the Company's 9 3/4% 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 July 30, 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 11 1/2% Senior
Discount Debentures due 2008 and warrants to purchase shares of common stock of
Holdings pursuant to a prospectus, dated as of July 30, 1997, contained or
incorporated in a Registration Statement on Form S-1 (No. 333-28539) filed with
the Commission on June 3, 1997 and all exhibits, schedules and amendments
thereto.
"Officer" means the Chairman of the Board, the President, any Vice
President or the Secretary of the Company.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two officers of the Company, one of whom must be the Chairman of the
Board, the President, a Vice President or the Secretary of the Company that
meets the requirements set forth in Section 1.05 hereof.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company and who shall be acceptable to the Trustee, in form and
substance satisfactory to the Trustee. Each such opinion shall include the
statements provided for in TIA Section 314(e) to the extent applicable.
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<PAGE> 18
"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 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 4.19 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 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 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, renewed, replaced, defeased or refunded is Pari Passu Indebtedness,
such Permitted
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<PAGE> 19
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 4.19 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.
"Related Party" means, with respect to the Principals, (i) any
controlling stockholder or partner of any Principal on the date of this
Indenture, or (ii) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
(directly or through one or more Subsidiaries) a 51% or more controlling
interest of which consist of the Principals and/or such other Persons referred
to in the immediately preceding clauses (i) or (ii).
"Responsible Officer," when used with respect to the Trustee, means any
officer in the Corporate Trust Office of the Trustee and also means, with
respect to a particular corporate trust matter, any other officer or employee to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
13
<PAGE> 20
"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 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 and this Indenture
(including upon the acceleration or redemption thereof), together with and
including any amounts received or receivable upon the exercise of rights of
rescission 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
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<PAGE> 21
(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
August 7, 1997, between the Company and Holdings, as amended from time to time.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. SectionSection
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Trustee" means the party named as such above unless and until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means such successor.
"Unrestricted Subsidiary" means any Subsidiary 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 or
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
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<PAGE> 22
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.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Term Defined in
Section
<S> <C>
"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
</TABLE>
16
<PAGE> 23
<TABLE>
<S> <C>
"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
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"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
17
<PAGE> 24
(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 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
18
<PAGE> 25
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 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
19
<PAGE> 26
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.
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
20
<PAGE> 27
immediately available funds to the account of the Depository Trust Company or
any successor thereto. The Registrar shall keep a register of the Notes and of
their transfer and exchange. The Company may appoint one or more co-Registrars
and one or more additional paying agents. The term "Paying Agent" includes any
additional paying agent. The Company may change any Paying Agent, Registrar or
co-Registrar without prior notice to any Holder. The Company shall notify the
Trustee in writing and the Trustee shall notify the Holders of the name and
address of any Agent not a party to this Indenture. The Company may act as
Paying Agent, Registrar or co-Registrar. The Company shall enter into an
appropriate agency agreement with any Agent not a party to this Indenture, which
shall be subject to any obligations imposed by the provisions of the TIA. The
agreement shall implement the provisions of this Indenture that relate to such
Agent. The Company shall notify the Trustee of the name and address of any such
Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to
give the foregoing notice, the Trustee shall act as such, and shall be entitled
to appropriate compensation in accordance with Section 7.07 hereof.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands in connection with the Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, premium, if any, and interest on the Notes, and shall notify the
Trustee of any Default by the Company in making any such payment. While any such
Default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee and to account for any funds disbursed. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than the Company) shall
have no further liability for the money delivered to the Trustee. If the Company
acts as Paying Agent, it shall segregate and hold in a separate trust fund for
the benefit of the Holders all money held by it as Paying Agent.
SECTION 2.05. LISTS OF HOLDERS OF THE NOTES.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven (7)
Business Days before each interest payment date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, including
the aggregate principal amount of the Notes held by each thereof, and the
Company shall otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
When Notes are presented to the Registrar with a request to register
the transfer or to exchange them for an equal principal amount of Notes of other
denominations, the Registrar shall register the transfer or make the exchange if
its requirements for such transactions are met; provided, however, that any Note
presented or surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar and the Trustee duly executed by the Holder
thereof or by his attorney duly authorized in writing. To permit registrations
of
21
<PAGE> 28
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 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.
22
<PAGE> 29
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or any Affiliate of the Company shall be considered as though not
outstanding, except that for purposes of determining whether the Trustee shall
be protected in relying on any such direction, waiver or consent, only Notes
which a Responsible Officer of the Trustee knows to be so owned shall be so
considered. Notwithstanding the foregoing, Notes that are to be acquired by the
Company or an Affiliate of the Company pursuant to an exchange offer, tender
offer or other agreement shall not be deemed to be owned by such entity until
legal title to such Notes passes to such entity.
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may prepare
and upon the written order of the Company signed by an Officer of the Company
the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company and the Trustee consider appropriate for temporary Notes. Without
unreasonable delay, the Company shall prepare and the Trustee, upon receipt of
the written order of the Company signed by an Officer of the Company, shall
authenticate definitive Notes in exchange for temporary Notes. Until such
exchange, temporary Notes shall be entitled to the same rights, benefits and
privileges as definitive Notes.
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.
23
<PAGE> 30
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of Holders
entitled to vote or consent to any action by vote or consent authorized or
permitted under this Indenture shall be determined as provided for in TIA
Section 316(c).
SECTION 2.14. CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number and, if it
does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company will
promptly notify the Trustee of any change in the CUSIP number.
SECTION 2.15. COMPUTATION OF INTEREST.
Interest on the Notes will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
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.
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<PAGE> 31
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.10 hereof, notice of redemption
shall be mailed by first class mail, postage prepaid, at least 30 but not more
than 60 days before the redemption date to each Holder of Notes to be redeemed
at its registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed.
All notices of redemption shall state:
(a) the redemption date;
(b) the redemption price;
(c) if less than all Notes then outstanding are to be
redeemed, the identification (and, in the case of a
Note to be redeemed in part, the principal amount) of
the particular Notes to be redeemed;
(d) that on the redemption date the redemption price will
become due and payable upon each such Note or portion
thereof, and that (unless the Company shall 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.
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<PAGE> 32
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Sections 3.03,
3.10 or 4.09 hereof, Notes called for redemption become irrevocably due and
payable on the redemption date at the redemption price. A notice of redemption
may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
Prior to 11:00 a.m. on any redemption date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 4.03 hereof) an
amount of money in same day funds (or New York Clearing House funds if such
deposit is made prior to the applicable redemption date) sufficient to pay the
redemption price of, and accrued interest on, all the Notes or portions thereof
which are to be redeemed on that date.
SECTION 3.06. NOTES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Notes so to be
redeemed shall, on the redemption date, become due and payable at the redemption
price therein specified and from and after such date (unless the Company shall
default in the payment of the redemption price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
redemption price together with accrued interest to the redemption date.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal thereof (and premium, if any, thereon)
shall, until paid, bear interest from the redemption date at the rate borne by
such Note.
SECTION 3.07. NOTES REDEEMED IN PART.
Any Note which is to be redeemed only in part shall be surrendered at
the office or agency of the Company maintained for such purpose pursuant to
Section 4.02 hereof (with, if the Company, the Registrar or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company, the Registrar or the Trustee duly executed by, the
Holder thereof or his attorney duly authorized in writing), and a new Note in
principal amount equal to the unpurchased or unredeemed portion will be issued
in the name of the Holder thereof upon cancellation of the original Note. On and
after the purchase or redemption date, unless the Company defaults in payment of
the purchase or redemption price, interest shall cease to accrue on Notes or
portions thereof purchased or called for redemption.
SECTION 3.08. OPTIONAL REDEMPTION.
(a) Except as described in this Section 3.08, the Notes will not
be redeemable at the Company's option prior to August 1, 2002. Thereafter, the
Notes will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' written notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, together with accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the
26
<PAGE> 33
twelve-month period beginning on August 1 of each of the years indicated below:
<TABLE>
<CAPTION>
YEAR Redemption
- ---- Price
----------
<S> <C>
2002................................................................... 104.875%
2003................................................................... 103.250%
2004................................................................... 101.625%
2005 and thereafter.................................................... 100.000%
</TABLE>
In addition, prior to August 1, 2000, the Company may, at its option,
on any one or more occasions, redeem up to 35% of the original aggregate
principal amount of Notes at a redemption price equal to 109.750% 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.
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
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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 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
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Section 3.10. The Company, the depositary or the Paying Agent, as the case may
be, shall promptly (but in any case not later than three Business Days after the
Purchase Date) mail or deliver to each tendering Holder an amount equal to the
purchase price of the Notes tendered by such Holder and accepted by the Company
for purchase, plus any accrued and unpaid interest, thereon to the Purchase
Date, and the Company shall promptly issue a new Note, and the Trustee, upon
written request from the Company shall authenticate and mail or deliver such new
Note to such Holder, equal in principal amount to any unpurchased portion of the
Note surrendered. Any Note not so accepted shall be promptly mailed or delivered
by the Company to the Holder thereof. The Company shall send a notice to each
Holder stating the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.10, any purchase
pursuant to this Section 3.10 shall be made pursuant to the provisions of
Sections 3.01 through 3.07 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 11:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable 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
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or agency in The City of New York for such purposes. The Company will give
prompt written notice to the Trustee of any such designation or recession and
any change in the location of any such office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.03
hereof.
SECTION 4.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of, premium, if any, or interest on
any of the Notes, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal, premium, if any, or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided, and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal of, premium, if any,
or interest on any Notes, deposit with a Paying Agent a sum in same day funds
(or New York Clearing House funds if such deposit is made prior to the date on
which such deposit is required to be made) sufficient to pay the principal,
premium, if any, or interest so becoming due (or at the option of the Company,
payment of interest may be mailed by check to the Holders of the Notes at their
respective addresses set forth in the register of Holders of Notes; provided
that all payments with respect to Notes represented by one or more permanent
global Notes will be paid by wire transfer of immediately available funds to the
account of the Depository Trust Company or any successor thereto) such sum to be
held in trust for the benefit of the Persons entitled to such principal, premium
or interest and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of such action or any failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Notes in trust for the benefit
of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of
principal, premium, if any, or interest;
(c) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all respects with
the provisions of this Indenture relating to the duties,
rights and obligations of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by the Company or such Paying
Agent; and, upon such
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payment by any Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company at the request of the Company or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, shall at the
expense of the Company cause notice to be promptly sent to each Holder that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 4.04. REPORTS.
Whether or not required by the rules and regulations of the Commission,
so long as any Notes are outstanding, the Company will furnish to the Trustee
and the Holders of Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its Restricted Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports. In
addition whether or not required by the rules and regulations of the Commission,
the Company will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request.
SECTION 4.05. STATEMENT AS TO COMPLIANCE; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year ending after the date of this Indenture, an
Officers' Certificate stating whether, to such Officers' knowledge, the Company
is in compliance with all covenants and conditions to be complied with by it
under this Indenture (including with respect to any Restricted Payments made
during such year, the basis upon which the calculations required by Section 4.07
hereof were computed, which calculations may be based on the Company's latest
financial statements), and further stating, as to each Officer signing such
certificate, that to the best of his or her knowledge each entity is not in
default in the performance or observance of any terms, provisions and conditions
of this Indenture (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge and what action the Company is taking or proposes to take with respect
thereto) and that to the best of his or her knowledge no event has occurred and
remains in existence by reason of which payments on account of the principal of
or interest or premium, if any, on the Notes is prohibited or if such event has
occurred, a description of the event and what action the Company is taking or
proposes to take with respect thereto. For purposes of this Section 4.05, such
compliance shall be determined without regard to any period of grace or
requirement of notice under this Indenture.
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(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the annual reports
delivered pursuant to Section 4.04(a) hereof shall be accompanied by a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary for
certification of such financial statements, nothing has come to their attention
that would lead them to believe that the Company has violated any provisions of
Article Four or Article Five hereof or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being understood that
such accountants shall not be liable directly or indirectly to any Person for
any failure to obtain knowledge of any such violation.
(c) The Company shall, within five Business Days, upon becoming
aware of any Default or Event of Default or any default under any document,
instrument or agreement representing Indebtedness of the Company or any
Restricted Subsidiary, deliver to the Trustee an Officers' Certificate
specifying such Default or Event of Default.
SECTION 4.06. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon it or any Subsidiary or upon the
income, profits or property of the Company or any of its Subsidiaries and (b)
all material lawful claims for labor, materials and supplies, which, if unpaid,
might by law become a lien upon the property of the Company or any of its
Subsidiaries that could produce a material adverse effect on the consolidated
financial condition of the Company; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and in respect of which
appropriate reserves (in the good faith judgment of management of the Company)
are being maintained in accordance with GAAP.
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
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if the Board of Directors of the Company shall determine and deliver to the
Trustee an Officers' Certificate to the effect that the preservation thereof is
no longer desirable in the conduct of the business of the Company or such
Subsidiary and that the loss thereof is not disadvantageous in any material
respect to the Holders.
SECTION 4.09. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of
Notes shall have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount 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;
(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
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(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
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
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
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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 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
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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
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),
(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 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
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
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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 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;
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(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 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;
(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.
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 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
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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.
(i) 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 (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 amount thereunder available to be drawn) 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
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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) 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
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.
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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 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 4.19 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
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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, 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 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 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 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
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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 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 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 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.
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 4.16 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
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all accounts receivable of the Company and/or its Restricted Subsidiaries that
are party to such arrangements that constitute eligible receivables under such
arrangements, (iii) the cash proceeds received from the Initial Sale less
reasonable and customary transaction costs will be deemed to be Net Proceeds and
will be applied in accordance with the second paragraph of Section 4.10 hereof,
and (iv) the Company and its Restricted Subsidiaries will sell all accounts
receivable that constitute eligible receivables under such arrangements to the
Accounts Receivable Subsidiary no less frequently than on a weekly basis.
The Company (i) will not permit any Accounts Receivable Subsidiary to
sell any accounts receivable purchased from the Company or any of its Restricted
Subsidiaries to any other person except on an arm's-length basis and solely for
consideration in the form of cash or Cash Equivalents, (ii) will not permit the
Accounts Receivable Subsidiary to engage in any business or transaction other
than the purchase, financing and sale of accounts receivable of the Company and
its Restricted Subsidiaries and activities incidental thereto, (iii) will not
permit any Accounts Receivable Subsidiary to incur Indebtedness in an amount in
excess of 97% of the book value of such Accounts Receivable Subsidiary's total
assets, as determined in accordance with GAAP, (iv) will, at least as frequently
as monthly, cause the Accounts Receivable Subsidiary to remit to the Company as
payment for additional receivables or on the Promissory Notes or as a dividend,
all available cash or Cash Equivalents not held in a collection account pledged
to a Financier, to the extent not applied to pay or maintain reserves for
reasonable operating expenses of the Accounts Receivable Subsidiary or to
satisfy reasonable minimum capital requirements based on then current market
practices of rating agencies in similar transactions involving receivables of a
similar type and quality, as determined by the Board of Directors of the Company
in good faith and (v) will not, and will not permit any of its Subsidiaries to,
sell accounts receivable to any Accounts Receivable Subsidiary upon (1) the
occurrence of an Event of Default with respect to the Company and its Restricted
Subsidiaries and (2) the occurrence of certain events of bankruptcy or
insolvency with respect to such Accounts Receivable Subsidiary.
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
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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 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.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT AND NOTICE THEREOF.
Each of the following constitutes an "Event of Default":
(a) default which continues for 30 days in the payment
when due of interest on the Notes (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, 4.17 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
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provided in such Indebtedness) (a "Payment Default") or (ii) results in
the acceleration of such Indebtedness prior to its stated final
maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $20.0 million or
more;
(f) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $20.0
million (net of any amounts with respect to which a reputable and
creditworthy insurance company has acknowledged liability in writing),
which judgments are not paid, discharged or stayed within 60 days after
their entry;
(g) the Company or any of its Restricted Subsidiaries
that is a Significant Subsidiary pursuant to or within the meaning of
the Bankruptcy Law:
(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 permitted to be incurred pursuant to the New
Credit Facility shall be outstanding, no such acceleration shall be effective
until the earlier of
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(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.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding, by notice to the Trustee, may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its consequences
under this Indenture, except a continuing Default or Event of Default in the
payment of interest or premium on, or principal of, the Notes. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal, premium, if any, or interest) if it determines that withholding
notice is in such Holders' interest.
SECTION 6.05. CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal amount 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
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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 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 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:
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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 or any Subsidiary Guarantee;
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 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
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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.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), (c), (e) and (f) of this Section 7.01 and Section 7.02
hereof.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture
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.
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(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders unless such Holders
shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities that
might be incurred by it in compliance with such request or
direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company with the same
rights it would have if it were not Trustee. However, in the event that the
Trustee acquires any conflicting interest it must eliminate such conflict within
90 days, apply to the Commission for permission to continue as trustee or
resign. Any Agent may do the same with like rights and duties. The Trustee is
also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the direction of the Company under any provision of
this Indenture, it shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document furnished or issued in connection with the sale of the Notes
or pursuant to this Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
actually known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs. Except
in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Note, the Trustee may withhold the notice if
and so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA Section 313(a) (but if no event described
in TIA Section 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports
as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Notes are listed
on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee, from time to time as may be
agreed upon between them, reasonable compensation for its acceptance of this
Indenture and services hereof. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The
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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 and hold harmless the Trustee against any
and all losses, liabilities or expenses incurred by it arising out of or in
connection with the acceptance or administration of its duties under this
Indenture, including the costs and expenses of enforcing this Indenture against
the Company (including this Section 7.07) and defending itself against any claim
(whether asserted by the Company or any Holder or any other person) or liability
in connection with the exercise or performance of any of its powers or duties
hereof, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereof. The Company shall defend the claim and the Trustee shall
reasonably cooperate in the defense. The Trustee may have separate counsel and
the Company shall pay the reasonable fees and expenses of such counsel. The
Company need not pay for any settlement made without its consent, which consent
shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in Section 6.01(g) or (h) hereof,
the expenses and the compensation for the services (including the fees and
expenses of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of a majority
in principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof,
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10 hereof, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereof have been paid and subject to the Lien provided for
in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to
this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business (including the trust
created by this Indenture) to, another corporation, the successor corporation
without any further act shall be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereof that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has, or is a wholly owned subsidiary of a bank holding
company that has, a combined capital and surplus of at least $100 million as set
forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
SECTION 7.12. RIGHTS OF HOLDERS WITH RESPECT TO TIME METHOD AND PLACE
Subject to the limitations of this Article 7, a majority in principal
amount of the outstanding Notes issued hereof shall have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy
available to the Trustee.
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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 or on the redemption date, as the case may be, solely from
amounts deposited with the Trustee as provided in Section 8.04 hereof, (ii) the
Company's obligations with respect to the Notes under Sections 2.03, 2.04, 2.05,
2.06, 2.07, 2.10, 4.02 and 4.03 hereof, (iii) the rights, powers, trusts,
duties, indemnities and immunities of the Trustee and the Company's obligations
in connection therewith and (iv) this Section 8.02.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company 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, 4.16, 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 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.
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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 loss for U.S. federal income tax purposes as a
result of such Legal Defeasance and will be subject to U.S. federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions and
exclusions, the Holders of the outstanding Notes will not recognize income, gain
or loss for U.S. federal income tax purposes as a result of such Covenant
Defeasance and will be subject to such U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or, insofar
as Events of Default set forth in Section 6.01(g) and (h), at any time in the
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
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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 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.
Subject to Section 7.07 hereof the Trustee shall promptly pay to the
Company, after written request by the Company therefor, any money held at such
time in excess of the amounts required to pay any of the Company's Obligations
then owing with respect to the Notes.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest, if any, on any Note and remaining unclaimed for one year after such
principal, and premium, if any, or interest, if any, have become due and payable
shall be paid to the Company on its request or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in The New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and
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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;
(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
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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, without limitation, consents
obtained in connection with a purchase of, or a tender offer or exchange offer
for, the Notes), and, subject to Sections 6.02, 6.04 and 6.07 hereof, any
existing default or compliance with any provision of this Indenture, the Notes
or the Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the outstanding Notes (including, without
limitation, consents obtained in connection with a purchase of, or a tender
offer or exchange offer for, the Notes).
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of
an Officers' Certificate and an Opinion of Counsel, the Trustee shall join with
the Company 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
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provision contained herein or in any 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.
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
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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. For purposes of this Article 10, "cash
equivalents" means Government Securities maturing not more than 90 days from the
date of determination.
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, 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 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
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Blockage Notice") from the Company or the holders of any
Designated Senior Debt (or their representative). Payments on
the 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 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, subject to the terms of Section 6.02 hereof. 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.
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
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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 in cash or cash equivalents 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:
(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.
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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 Notes, unless the Trustee shall have received at its
Corporate Trust Office at least two 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 relating to any
Bankruptcy Law 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.
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 10.13, 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
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<PAGE> 71
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.
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
(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.
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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 Section 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, 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
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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:
State Street Bank and Trust Company
777 Main Street, 11th Floor
Hartford, Connecticut 06115
Attention: Corporate Trust Department
Facsimile: (860) 986-7920
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
SECTION 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
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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 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 any 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.
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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.
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 7, 1997 By:_________________________________
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
Dated: August 7, 1997 By:_________________________________
Name:
Title:
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EXHIBIT A
(Face of Note)
[Unless and until it is exchanged in whole or in part for Notes in definitive
form, this Note may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. The Depository
Trust Company shall act as the Depositary until a successor shall be appointed
by the Company. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the Company or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.(1)
9 3/4% Senior Subordinated Notes due 2007
No. Cusip No:
DECISIONONE CORPORATION
promises to pay to Cede & Co. or registered assigns, the principal sum of
$_________________ (_______________________________ Dollars) on August 1, 2007.
Interest Payment Dates: February 1 and August 1
Record Dates: January 15 and July 15
DECISIONONE CORPORATION
By:______________________________
Name:
Title:
- ----------
(1) This paragraph should be included only if the Note is issued in global
form.
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<PAGE> 78
This is one of the 9 3/4% Senior
Subordinated Notes due 2007
referred to in the within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: _____________________________
Authorized Signature
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<PAGE> 79
(Back of Note)
9 3/4% 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 9 3/4% per
annum from August 7, 1997 until August 1, 2007. The Company shall pay interest
semi-annually in arrears on February 1 and August 1 of each year, or if any such
day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from 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 February 1, 1998. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate equal to the per annum rate on the Notes then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) to the Persons who are registered Holders of Notes at the
close of business on January 15 and July 15 next preceding the Interest Payment
Date, even if such Notes are cancelled after such record date and on or before
such Interest Payment Date, except as provided in Section 2.12 of the Indenture
with respect to defaulted interest. The Notes will be payable as to principal,
premium, if any, and interest at the office or agency of the Company maintained
for such purpose within or without the City and State of New York, or, at the
option of the Company, payment of interest may be made by check mailed to the
Holders at their addresses set forth in the register of Holders; provided that
all payments with respect to Notes represented by one or more permanent global
Notes will be paid by wire transfer of immediately available funds to the
account of the Depository Trust Company or any successor thereto. Such payment
shall be in such coin or currency of the United Sates of America as at the time
of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust Company,
the Trustee under the Indenture, will act as Paying Agent and Registrar. The
Notes may be presented for registration of transfer and exchange at the offices
of the Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as of August
7, 1997 (the "Indenture") between the Company and the Trustee. The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code
SectionSection 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. The
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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 August 1, 2002.
Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
written notice, at the redemption prices (expressed as a percentage of principal
amount) set forth below, together with accrued and unpaid interest thereon, to
the applicable redemption date, if redeemed during the twelve-month period
beginning on August 1 of each of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION
PRICE
<S> <C>
2002 ................................................. 104.875%
2003 ................................................. 103.250%
2004 ................................................. 101.625%
2005 and thereafter .................................. 100.000%
</TABLE>
In addition, prior to August 1, 2000, the Company may, at its option,
on any one or more occasions redeem up to 35% of the original aggregate
principal amount of Notes at a redemption price equal to 109.750% 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 closing of each such Equity Offering.
6. MANDATORY REDEMPTION. Other than as set forth in paragraph 8, the Company
shall not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days
but not more than 60 days before the redemption date to each Holder whose Notes
are to be redeemed at its registered address. Notes may be redeemed in part but
only in whole multiples of $1,000. On and after the redemption date interest
ceases to accrue on Notes or portions thereof called for redemption.
8. REPURCHASE AT OPTION OF HOLDERS. (a) Upon the occurrence of a Change of
Control, the Company shall make an offer (a "Change of Control Offer") to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
the Notes at a price in cash equal to 101% of the aggregate principal amount
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
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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
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 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
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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 7.08 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 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
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action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided under the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. In the event of a
declaration of acceleration of the Notes because an Event of Default has
occurred and is continuing as a result of the acceleration of any Indebtedness
described in clause (e) of Section 6.01 of the Indenture, the declaration of
acceleration of the Notes shall be automatically annulled if the holders of any
Indebtedness described in clause (e) of Section 6.01 of the Indenture have
rescinded the declaration of acceleration in respect of such Indebtedness within
30 days of the date of such declaration and if (y) the annulment of the
acceleration of the Notes would not conflict with any judgment or decree of a
court of competent jurisdiction and (z) all existing Events of Default, except
nonpayment of principal or interest on the Notes that became due solely because
of the acceleration of the Notes, have been cured or waived. The Trustee may
withhold from Holders of Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal, premium, if any, or interest) if it determines that withholding
notice is in their interest. In addition, the Trustee shall have no obligation
to accelerate the Notes if in the best judgment of the Trustee acceleration is
not in the best interest of the Holders of such Notes.
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 reliance may be placed only on the other identification
numbers placed thereon.
19. GOVERNING LAW. The internal law of the State of New York shall govern and be
used to construe the terms of this Note.
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
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Attention: General Counsel
Facsimile: (610) 408-3820
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<PAGE> 85
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.
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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.
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<PAGE> 87
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES(2)
The following exchanges of a part of this global Note for Notes in
definitive form have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized
Principal Amount of Principal Amount of following such decrease officer of
Date of Exchange this Global Note this Global Note (or increase) Trustee
- ---------------------- ----------------------- ------------------------ ------------------------ ------------
<S> <C> <C> <C> <C>
</TABLE>
- --------
(2) This should be included only if the Note is issued in global form.
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<PAGE> 88
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 State Street Bank
and Trust Company, 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 7, 1997, providing for the
issuance of an aggregate principal amount at maturity of $150,000,000 of 9 3/4%
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 assigned 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:
(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
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(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 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 Indenture, 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.
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(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:
(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 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 (including a sale of the Capital Stock of the Guarantor), 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
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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.(3)
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. For purposes of this Section 7, "cash
equivalents" means Government Securities maturing not more than 90 days from the
date of determination.
(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
- --------
(3) To be included if the Supplemental Indenture is executed and delivered
pursuant to Section 4.15 of the Indenture.
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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 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, subject to the terms of Section 6.02 of the
Indenture. 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 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
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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.
(g) SUBROGATION. After all Guarantor Senior Debt is paid in full in cash
or cash equivalents 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
B-6
<PAGE> 94
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 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 two 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 relating to any Bankruptcy Law 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.
(m) NO WAIVER OF SUBORDINATION PROVISIONS. No right of any present or
future holder of any Guarantor 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. Without in any way limiting
the generality of the foregoing sentence of this Section 7(m), the holders of
Guarantor 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 Section 7 or the obligations hereunder of the
Holders to the holders of Guarantor 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 Guarantor Senior Debt or any instrument
evidencing the same or any agreement under which Guarantor Senior Debt is
outstanding; (2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Guarantor Senior Debt; (3) release any
Person liable in any manner for the collection of Guarantor Senior Debt; and (4)
exercise or refrain from exercising any rights against the Company or any
Guarantor and any other Person.
(n) CERTAIN DEFINITIONS. For purposes of this Section 7, the terms
"distribution" and "payment" include payments, distributions and other transfers
of assets by or on behalf of the Guarantor (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.
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-7
<PAGE> 95
10. EFFECT OF HEADINGS. The Section headings herein are for convenience only
and shall not effect the construction hereof.
[Signatures on following page]
B-8
<PAGE> 96
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:
B-9
<PAGE> 97
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-10
<PAGE> 1
EXHIBIT 10.15
U.S. $575,000,000
CREDIT AGREEMENT,
dated as of August 7, 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 OF TEXAS, 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> 2
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms......................................................3
1.2. Use of Defined Terms..............................................36
1.3. Cross-References..................................................36
1.4. Accounting and Financial Determinations...........................36
ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES,
NOTES AND LETTERS OF CREDIT
2.1. Commitments.......................................................37
2.1.1. Term Loan Commitments.............................................38
2.1.2. Revolving Loan Commitment and Swing Line Loan Commitment..........38
2.1.3. Letter of Credit Commitment.......................................39
2.1.4. Lenders Not Permitted or Required to Make the Loans...............40
2.1.5. Issuer Not Permitted or Required to Issue Letters of Credit.......40
2.2. Reduction of the Commitment Amounts...............................40
2.2.1. Optional..........................................................40
2.2.2. Mandatory.........................................................41
2.3. Borrowing Procedures and Funding Maintenance......................41
2.3.1. Term Loans and Revolving Loans....................................41
2.3.2. Swing Line Loans..................................................42
2.4. Continuation and Conversion Elections.............................43
2.5. Funding...........................................................43
2.6. Issuance Procedures...............................................44
2.6.1. Other Lenders' Participation......................................44
2.6.2. Disbursements; Conversion to Revolving Loans......................45
2.6.3. Reimbursement.....................................................45
2.6.4. Deemed Disbursements..............................................46
2.6.5. Nature of Reimbursement Obligations...............................46
2.7. Register; Notes...................................................47
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ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
3.1. Repayments and Prepayments; Application...........................48
3.1.1. Repayments and Prepayments........................................48
3.1.2. Application.......................................................52
3.2. Interest Provisions...............................................53
3.2.1. Rates.............................................................53
3.2.2. Post-Maturity Rates...............................................53
3.2.3. Payment Dates.....................................................54
3.3. Fees..............................................................54
3.3.1. Commitment Fee....................................................54
3.3.2. Administrative Agent Fee..........................................55
3.3.3. Letter of Credit Fee..............................................55
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
4.1. LIBO Rate Lending Unlawful........................................55
4.2. Deposits Unavailable..............................................56
4.3. Increased LIBO Rate Loan Costs, etc...............................56
4.4. Funding Losses....................................................56
4.5. Increased Capital Costs...........................................57
4.6. Taxes.............................................................57
4.7. Payments, Computations, etc.......................................59
4.8. Sharing of Payments...............................................60
4.9. Setoff............................................................60
4.10. Mitigation........................................................61
4.11. Replacement of Lenders............................................61
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
5.1. Initial Credit Extension..........................................62
5.1.1. Resolutions, etc..................................................62
5.1.2. Transaction Documents.............................................62
5.1.3. Consummation of Merger............................................62
5.1.4. Closing Date Certificate..........................................62
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<PAGE> 4
5.1.5. Delivery of Notes.................................................62
5.1.6. [Intentionally Omitted]...........................................63
5.1.7. Pledge Agreements.................................................63
5.1.8. Security Agreement................................................63
5.1.9. Financial Information, etc........................................64
5.1.10. Solvency, etc.....................................................64
5.1.11. Equity Issuance, Discount Debenture Issuance, Subordinated Debt
Issuance, Closing Date Dividend and Intercompany Loan...........64
5.1.12. Litigation........................................................65
5.1.13. Material Adverse Change...........................................65
5.1.14. Reliance Letters..................................................65
5.1.15. Opinions of Counsel...............................................65
5.1.16. Insurance.........................................................65
5.1.17. Perfection Certificate............................................65
5.1.18. Closing Fees, Expenses, etc.......................................65
5.1.19. Satisfactory Legal Form...........................................66
5.2. All Credit Extensions.............................................66
5.2.1. Compliance with Warranties, No Default, etc.......................66
5.2.2. Credit Extension Request..........................................66
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Organization, etc.................................................67
6.2. Due Authorization, Non-Contravention, etc.........................67
6.3. Government Approval, Regulation, etc..............................67
6.4. Validity, etc.....................................................67
6.5. Financial Information.............................................68
6.6. No Material Adverse Change........................................68
6.7. Litigation, Labor Controversies, etc..............................68
6.8. Subsidiaries......................................................68
6.9. Ownership of Properties...........................................68
6.10. Taxes.............................................................68
6.11. Pension and Welfare Plans.........................................69
6.12. Environmental Matters.............................................69
6.13. Regulations G, U and X............................................70
6.14. Accuracy of Information...........................................70
6.15. Solvency..........................................................71
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ARTICLE VII
COVENANTS
7.1. Affirmative Covenants.............................................71
7.1.1. Financial Information, Reports, Notices, etc......................71
7.1.2. Compliance with Laws, etc.........................................73
7.1.3. Maintenance of Properties.........................................73
7.1.4. Insurance.........................................................73
7.1.5. Books and Records.................................................74
7.1.6. Environmental Covenant............................................74
7.1.7. Future Subsidiaries; Material Subsidiaries........................75
7.1.8. Future Leased Property and Future Acquisitions of Real Property;
Future Acquisition of Other Property............................76
7.1.9. Use of Proceeds, etc..............................................77
7.1.10. Hedging Obligations...............................................77
7.1.11. Undertaking.......................................................77
7.2. Negative Covenants................................................78
7.2.1. Business Activities...............................................78
7.2.2. Indebtedness......................................................78
7.2.3. Liens.............................................................79
7.2.4. Financial Covenants...............................................81
7.2.5. Investments.......................................................82
7.2.6. Restricted Payments, etc..........................................84
7.2.7. Capital Expenditures, etc.........................................87
7.2.8. Consolidation, Merger, etc........................................88
7.2.9. Asset Dispositions, etc...........................................88
7.2.10. Modification of Certain Agreements................................89
7.2.11. Transactions with Affiliates......................................89
7.2.12. Negative Pledges, Restrictive Agreements, etc.....................90
7.2.13. Stock of Subsidiaries.............................................90
7.2.14. Sale and Leaseback................................................90
ARTICLE VIII
EVENTS OF DEFAULT
8.1. Listing of Events of Default......................................90
8.1.1. Non-Payment of Obligations........................................91
8.1.2. Breach of Warranty................................................91
8.1.3. Non-Performance of Certain Covenants and Obligations..............91
8.1.4. Non-Performance of Other Covenants and Obligations................91
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8.1.5. Default on Other Indebtedness.....................................91
8.1.6. Judgments.........................................................91
8.1.7. Pension Plans.....................................................92
8.1.8. Change in Control.................................................92
8.1.9. Bankruptcy, Insolvency, etc.......................................92
8.1.10. Impairment of Security, etc.......................................93
8.1.11. Subordinated Notes................................................93
8.2. Action if Bankruptcy, etc.........................................93
8.3. Action if Other Event of Default..................................93
ARTICLE IX
THE AGENTS
9.1. Actions...........................................................94
9.2. Funding Reliance, etc.............................................95
9.3. Exculpation.......................................................95
9.4. Successor.........................................................95
9.5. Credit Extensions by each Agent...................................96
9.6. Credit Decisions..................................................96
9.7. Copies, etc.......................................................96
9.8. The Syndication Agent, the Documentation Agent and the
Administrative Agent............................................96
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1. Waivers, Amendments, etc..........................................97
10.2. Notices...........................................................98
10.3. Payment of Costs and Expenses.....................................98
10.4. Indemnification...................................................99
10.5. Survival.........................................................101
10.6. Severability.....................................................101
10.7. Headings.........................................................101
10.8. Execution in Counterparts, Effectiveness, etc....................101
10.9. Governing Law; Entire Agreement..................................101
10.10. Successors and Assigns...........................................102
10.11. Sale and Transfer of Loans and Notes; Participations in Loans
and Notes........................................................102
10.11.1. Assignments......................................................102
10.11.2. Participations...................................................104
10.12. Other Transactions...............................................105
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10.13. Forum Selection and Consent to Jurisdiction......................105
10.14. Waiver of Jury Trial.............................................106
10.15. Confidentiality..................................................106
SCHEDULE I - Disclosure Schedule
SCHEDULE II - Percentages and Administrative Information
SCHEDULE III - Existing Letters of Credit
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 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 Pennsylvania Counsel Opinion
EXHIBIT K-3 - Form of Associate General Counsel Opinion
EXHIBIT L - Form of Restricted Payments Compliance Certificate
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<PAGE> 8
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of August 7, 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 of Texas, N.A. ("NationsBank"), 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");
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:
<PAGE> 9
(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 and a Term-B 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) and $275,000,000 (in the case of Term-B 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 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
2
<PAGE> 10
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):
"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,
3
<PAGE> 11
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 and management bonuses (to the extent,
in the case of management bonuses, paid at or prior to the Closing Date)
incurred in connection with the Transaction, 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.
"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 the confidential fee letter,
dated July 17, 1997, between the Borrower and the Administrative Agent.
"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)
4
<PAGE> 12
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 Dallas, Texas, as its
"base rate." (The "base 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 base 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.
"Applicable Commitment Fee" means, (i) for each day from the Closing Date
through (but excluding) the date upon which the Compliance Certificate for the
second full Fiscal Quarter ending after the Closing Date is delivered or
required to be delivered by the Borrower to the Administrative Agent pursuant to
clause (c) of Section 7.1.1, 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:
5
<PAGE> 13
<TABLE>
<CAPTION>
APPLICABLE
LEVERAGE RATIO COMMITMENT FEE
-------------- --------------
<S> <C>
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%
</TABLE>
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 resulting from a change in the
Leverage Ratio 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 new
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 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
6
<PAGE> 14
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; and
(b) from the Closing Date through (but excluding) the date upon
which the Compliance Certificate for the second full Fiscal Quarter ending
after the Closing Date is delivered by the Borrower to the Administrative
Agent pursuant to clause (c) of Section 7.1.1, 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
(c) at all times after the date of such delivery of the Compliance
Certificate described in clause (b) 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:
APPLICABLE MARGIN FOR REVOLVING LOANS AND TERM-A LOANS
<TABLE>
<CAPTION>
APPLICABLE APPLICABLE
MARGIN FOR BASE MARGIN FOR LIBO
LEVERAGE RATIO RATE LOANS RATE LOANS
-------------- ---------- ----------
<S> <C> <C>
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%
</TABLE>
7
<PAGE> 15
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 (c)
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 resulting from a
change in the Leverage Ratio 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 new 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 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.
8
<PAGE> 16
"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.
"BankBoston" means BankBoston, N.A. in its capacity as issuer of the
Existing Letters of Credit.
"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.
"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.
9
<PAGE> 17
"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.
"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;
10
<PAGE> 18
(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.
"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 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 designate or nominate no less than 51% of the Board of Directors of Holdings
or the Borrower.
11
<PAGE> 19
"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, Revolving Loan Commitment or Letter of
Credit Commitment or (ii) the Swing Line Lender's Swing Line Loan Commitment.
"Commitment Amount" means, as the context may require, the Term-A Loan
Commitment Amount, the Term-B 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
12
<PAGE> 20
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 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.
13
<PAGE> 21
"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.
"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;
14
<PAGE> 22
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 right, 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 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 invoice date 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.
15
<PAGE> 23
"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 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;
16
<PAGE> 24
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;
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;
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<PAGE> 25
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.
"Existing Credit Agreement" means the Revolving Credit Agreement, dated as
of April 26, 1996, among Holdings, the Borrower, the lenders and the agents
parties thereto.
"Existing Letters of Credit" means those letters of credit issued under
the Existing Credit Agreement prior to the Closing Date and which remain
outstanding on the Closing Date, as disclosed on Schedule III hereto.
"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(c) to a vendor of any assets
18
<PAGE> 26
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) 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 clause (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.
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<PAGE> 27
"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.
"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;
20
<PAGE> 28
(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 interest thereon) secured by a Lien (other than a
Lien on Capital Stock of an Unrestricted Subsidiary) 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)
21
<PAGE> 29
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.
"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.
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<PAGE> 30
"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 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
7, 1997, among DLJ Merchant Banking Partners II, L.P., DLJ Merchant Banking
Partners II-A, L.P., DLJ Offshore Partners, C.V., DLJ Offshore Partners II,
C.V., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A., L.P., DLJ
Millennium Partners, L.P., DLJ Millennium Partners-A, L.P., DLJMB Funding II,
Inc., 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, and
solely for purposes of the Existing Letters of Credit, BankBoston as issuer of
the Existing 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
23
<PAGE> 31
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
(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
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<PAGE> 32
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
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 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.
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<PAGE> 33
"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, 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.
"NationsBank" is defined in the preamble.
"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
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<PAGE> 34
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 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
27
<PAGE> 35
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;
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.
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<PAGE> 36
"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
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 (other than stock of
Unrestricted Subsidiaries pledged by the Borrower to secure Debt of such
Unrestricted Subsidiary); 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 Term-A Note,
a Term-B 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.
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"Percentage" means, relative to any Lender, the applicable percentage
relating to Term-A Loans, Term-B 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 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 or
Term-B 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.
"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.
"Reimbursement Obligation" is defined in Section 2.6.3.
"Release" means a "release", as such term is defined in CERCLA.
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"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 and Term-B 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.
"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.
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"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 and (iii) in the case of any Term-B 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 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.
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"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-5 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.
"Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of
August 7, 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.
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"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 $275,000,000.
"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.
"Term Loan Commitment Termination Date" means, as the context may require,
the Term-A Loan Commitment Termination Date or the Term-B Loan Commitment
Termination Date.
"Term Loans" means collectively, the Term-A Loans and the Term-B 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 or, if no Revolving Loan Commitment is outstanding, the
then outstanding principal amount of all Revolving Loans, Swing Line Loans and
Letter of Credit Outstandings.
"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, Revolving Loans or Swing Line Loans.
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"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,
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.
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"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).
"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 for the period of four Fiscal Quarters ending at the end of such
Fiscal Quarter shall include (a) Adjusted
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EBITDA for such period of four Fiscal Quarters (determined without regard to
this clause (b)) 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 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 Indebtedness) 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
discontinued 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 2.1.4, 2.1.5 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 2.1.4, 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 or the Term-B 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"); and
(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").
No amounts paid or prepaid with respect to Term-A Loans or Term-B 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 2.1.4, 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
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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 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.
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SECTION 2.1.3. Letter of Credit Commitment.
(a) 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 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.
(b) Each Existing Letter of Credit shall for all purposes of this
Agreement be deemed to be a "Letter of Credit" issued hereunder on the
Closing 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 or Term-B Loan (as the case may be) if, after
giving effect thereto, the aggregate original principal amount of all the
Term-A Loans or Term-B 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) or the Term-B Loan Commitment Amount (in the
case of Term-B 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 then existing Revolving Loan
Commitment Amount and (y) the then applicable Borrowing Base Amount; or
(c) any Swing Line Loan if, after giving effect thereto, the
aggregate outstanding principal amount of all Swing Line Loans would
exceed the lesser of (x) the then existing Swing Line Loan Commitment
Amount and (y) an amount equal to (i) the lesser of (A) the then
applicable Borrowing Base Amount and (B) the then existing Revolving Loan
Commitment Amount less (ii) the sum of the aggregate outstanding principal
amount of all Revolving Loans and Letter of Credit Outstandings.
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SECTION 2.1.5. Issuer Not Permitted or Required to Issue Letters of
Credit. No Issuer shall be permitted or required to issue, extend or renew 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.
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
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(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 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
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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 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
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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 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
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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
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,
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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
(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
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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 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.
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(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 and a
Term-B Note and a Swing Line Note evidencing the Loans made by such
Lender. The Borrower hereby irrevocably authorizes 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,
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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.
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 or Term-B
Loans shall be made pro rata among Term-A Loans and Term-B
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 or Term-B 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
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aggregate principal amount of all Loans of the applicable
Tranche and type then outstanding; or
(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 amount of Debt as reduced by giving effect to such prepayment would
result in a Leverage Ratio of 3.50:1 or less 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, with
respect to any single transaction or series of related transactions,
exceeds $2,500,000, make a mandatory prepayment of the Term Loans in an
amount equal to 100% of such
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<PAGE> 58
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 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 with respect to any single transaction or series of related
transactions 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 Swing Line 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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<PAGE> 59
(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):
<TABLE>
<CAPTION>
SCHEDULED
PRINCIPAL
PERIOD REPAYMENT
--------------------------------------------
<S> <C>
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 $19,500,000
Anniversary of the Closing
Date
--------------------------------------------
</TABLE>
(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):
<TABLE>
<CAPTION>
SCHEDULED
PRINCIPAL
PERIOD REPAYMENT
--------------------------------------------
<S> <C>
10/1/97 to 9/30/03 $ 687,500
--------------------------------------------
10/1/03 to 9/30/04 $35,562,500
--------------------------------------------
10/1/04 to the Eighth $29,062,500
Anniversary of the
Closing Date
--------------------------------------------
</TABLE>
(j) 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).
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<PAGE> 60
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 (j) 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 and Term-B 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 and Term-B 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 to decline to have such
Loans prepaid, then any Lender having Term-B 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 shall instead be applied
to a 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.
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<PAGE> 61
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;
(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.
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<PAGE> 62
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 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
55
<PAGE> 63
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.
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
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<PAGE> 64
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 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,
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<PAGE> 65
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 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.
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<PAGE> 66
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.
(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; provided, however, that nothing in this Section 4.6 shall
require any Lender to submit to the Borrower or any other Person any tax returns
or any part thereof, or to prepare or file any tax returns other than as such
Lender in its sole discretion shall determine.
(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
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<PAGE> 67
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 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
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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 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
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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 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 that shall have requested a Note not less than two
Business Days prior to the Closing Date, 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, if any, 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, 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 of all jurisdictions as may be necessary
or, in the opinion of the Administrative Agent,
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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 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.
SECTION 5.1.11. Equity Issuance, Discount Debenture Issuance, Subordinated
Debt Issuance, Closing Date Dividend 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
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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) Morgan, Lewis & Bokius LLP, special Pennsylvania counsel, in
substantially the form of Exhibit K-2 hereto; and
(c) Vincent Dadamo, Esq., Associate 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 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.
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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. Except with respect to the deemed
issuance of the Existing Letters of Credit on the Closing Date, 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 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.
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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 Restricted
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.
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
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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 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
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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.
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;
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(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
(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 in
violation of F.R.S. Board Regulation G, U or X. 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
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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. Section 101 et seq., as from
time to time hereafter amended, and any successor or similar statute) or any
applicable state law respecting fraudulent 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
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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 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,
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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;
(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
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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 (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
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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 Material
Subsidiary (other than an Unrestricted Subsidiary, 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 Subsidiary Security Agreement (or a
supplement thereto) (and, if such Material Subsidiary owns any real
property, to the extent required by clause (b) of Section 7.1.8, 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 an Unrestricted Subsidiary, 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
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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.
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,
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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 and (except to the extent
required under clause (b) of Section 7.1.8) leases of and 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.
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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.
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 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;
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(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;
(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 that have been or could be 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:
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(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 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
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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;
(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;
(m) Liens on assets of Non-U.S. Subsidiaries of the Borrower
securing Indebtedness permitted pursuant to clause (i) of Section 7.2.2;
and
(n) Liens on the Capital Stock of Unrestricted Subsidiaries;
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:
<TABLE>
<CAPTION>
Period Adjusted EBITDA
------ ---------------
<S> <C>
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
</TABLE>
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<TABLE>
<S> <C>
7/1/03 and thereafter $200,000,000
</TABLE>
(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:
<TABLE>
<CAPTION>
Period Leverage Ratio
------ --------------
<S> <C>
Closing Date to 6/30/98 6.00:1
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
</TABLE>
(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:
<TABLE>
<CAPTION>
Interest Coverage
Period Ratio
------ -----
<S> <C>
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
</TABLE>
(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;
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(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;
(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 (c)(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
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notwithstanding that such Investment if made thereafter would not comply
with such requirements;
(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) of this Section
7.2.5 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 proceeds received by the Borrower
during such calendar year from any reissuance of Capital Stock
of Holdings, and warrants,
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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 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 substantially in the form of Exhibit L
hereto (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 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) (II) 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 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
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<PAGE> 94
Borrower shall have delivered a certificate to the Administrative Agent
substantially in the form of Exhibit L hereto (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).
(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 Officer of the Borrower to the
Agents on or about the time such capital
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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.
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):
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(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; or
(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 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,
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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 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.
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.
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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.
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.
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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 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
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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 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.
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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 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
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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 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
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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 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.
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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:
(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;
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(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", "Eligible Inventory" 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 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).
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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 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'
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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;
(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
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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 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
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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.
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 or funds which are
regularly engaged in making, purchasing or investing in loans or
securities, 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
102
<PAGE> 110
(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;
(e) the processing fees described below shall have been paid; and
(f) the Agent shall have registered such assignment and delegation
in the Register pursuant to clause (b) of Section 2.7.
From and after the date that the Agents accept such Lender Assignment Agreement
and such assignment and delegation is registered in the Register pursuant to
clause (b) of Section 2.7, (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 $3,000, 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
Administrative 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
103
<PAGE> 111
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 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
104
<PAGE> 112
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.
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 10.12. 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 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
105
<PAGE> 113
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, regulators (including,
without limitation, the National Association of Insurance Commissioners),
Affiliates, outside auditors, 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 promptly 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
106
<PAGE> 114
Lender by such governmental agency) for disclosure of any such non-public
information and, where practicable, 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;
(c) disclosure may, with the consent of the Agents and the Borrower,
be made by any Lender to any direct or indirect contractual counterparties
of such Lender in swap agreements or such contractual counterparties'
professional advisors; provided that such contractual counterparty or
professional advisor agrees in writing to keep such information
confidential to the same extent required of the Lenders hereunder; and
(d) 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.
<PAGE> 115
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 OF TEXAS, N.A.,
as the Administrative Agent
and as Lender
By:________________________________
Title:
BANKBOSTON, N.A.,
as the Documentation Agent
and as Lender
By:___________________________
Title:
<PAGE> 116
LENDERS:
ALLSTATE INSURANCE COMPANY
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
109
<PAGE> 117
BANKBOSTON, N.A.
By: _________________________________
Name:
Title:
110
<PAGE> 118
BANK OF MONTREAL
By: _________________________________
Name:
Title:
111
<PAGE> 119
THE BANK OF NOVA SCOTIA
By: _________________________________
Name:
Title:
112
<PAGE> 120
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By: _________________________________
Name:
Title:
113
<PAGE> 121
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By: _________________________________
Name:
Title:
114
<PAGE> 122
BDC FINANCE L.L.C.
By: _________________________________
Name:
Title:
115
<PAGE> 123
CITIBANK, N.A.
By: _________________________________
Name:
Title:
116
<PAGE> 124
CORESTATES BANK, N.A.
By: _________________________________
Name:
Title:
117
<PAGE> 125
CREDIT LYONNAIS NEW YORK BRANCH
By: _________________________________
Name:
Title:
118
<PAGE> 126
CYPRESSTREE INVESTMENT MANAGEMENT
COMPANY
By: _________________________________
Name:
Title:
119
<PAGE> 127
DEBT STRATEGIES FUND, INC.
By: _________________________________
Name:
Title:
120
<PAGE> 128
DEEPROCK & COMPANY
By: Eaton Vance Management, as
Investment Advisor
By: _________________________________
Name:
Title:
121
<PAGE> 129
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By: _________________________________
Name:
Title:
122
<PAGE> 130
THE FIRST NATIONAL BANK OF CHICAGO
By: _________________________________
Name:
Title:
123
<PAGE> 131
FLEET NATIONAL BANK
By: _________________________________
Name:
Title:
124
<PAGE> 132
FLOATING RATE PORTFOLIO
By: Chancellor LGT Senior Secured
Management, Inc., as Attorney-in-Fact
By: _________________________________
Name:
Title:
125
<PAGE> 133
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By: _________________________________
Name:
Title:
126
<PAGE> 134
HARCH CAPITAL MANAGEMENT, INC.,
as Agent for HCN Offshore Trust
By: _________________________________
Name:
Title:
127
<PAGE> 135
IMPERIAL BANK, A CALIFORNIA BANKING
CORPORATION
By: _________________________________
Name:
Title:
128
<PAGE> 136
INDOSUEZ CAPITAL FUNDING III, LIMITED
By: Indosuez Capital Luxembourg,
as Collateral Manager
By: _________________________________
Name:
Title:
129
<PAGE> 137
THE ING CAPITAL SENIOR SECURED HIGH
INCOME FUND, L.P.
By: _________________________________
Name:
Title:
130
<PAGE> 138
KZH HOLDING CORPORATION III
By:_________________________________
Name:
Title:
131
<PAGE> 139
KZH-SOLEIL CORPORATION
By: _________________________________
Name:
Title:
132
<PAGE> 140
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By: _________________________________
Name:
Title:
133
<PAGE> 141
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: _________________________________
Name:
Title:
134
<PAGE> 142
MERITA BANK LTD. - NEW YORK BRANCH
By: _________________________________
Name:
Title:
135
<PAGE> 143
MELLON BANK, N.A.
By: _________________________________
Name:
Title:
136
<PAGE> 144
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By: _________________________________
Name:
Title:
137
<PAGE> 145
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: _________________________________
Name:
Title:
138
<PAGE> 146
NEW YORK LIFE INSURANCE COMPANY
By: _________________________________
Name:
Title:
139
<PAGE> 147
OCTAGON CREDIT INVESTORS LOAN PORTFOLIO
(a Unit of The Chase Manhattan Bank)
By: _________________________________
Name:
Title:
140
<PAGE> 148
PNC BANK, NATIONAL ASSOCIATION
By: _________________________________
Name:
Title:
141
<PAGE> 149
BY: PPM AMERICA, INC., as attorney in
fact, on behalf of Jackson National
Life Insurance Company
By: _________________________________
Name:
Title:
142
<PAGE> 150
PRIME INCOME TRUST
By: _________________________________
Name:
Title:
143
<PAGE> 151
ROYAL BANK OF CANADA
By: _________________________________
Name:
Title:
144
<PAGE> 152
ROYALTON COMPANY
By: Pacific Investment Management
Company, as its Investment Advisor
By: _________________________________
Name:
Title:
145
<PAGE> 153
THE SAKURA BANK, LTD.
By: _________________________________
Name:
Title:
146
<PAGE> 154
SHENKMAN CAPITAL MANAGEMENT, INC.
By: _________________________________
Name:
Title:
147
<PAGE> 155
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH
By: _________________________________
Name:
Title:
148
<PAGE> 156
THOROUGHBRED LIMITED PARTNERSHIP I
By: Appaloosa Management L.P.
Its General Partner
By: Appaloosa Partners Inc.
Its General Partner
By: _________________________________
Name:
Title:
149
<PAGE> 157
KZH - CRESCENT CORPORATION
By: _________________________________
Name:
Title:
150
<PAGE> 158
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By: _________________________________
Name:
Title:
151
<PAGE> 159
WELLS FARGO BANK, N.A.
By: _________________________________
Name:
Title:
152
<PAGE> 160
KZH - ING-1 CORPORATION
By:_____________________________________
Name:
Title:
153
<PAGE> 161
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
By: NEW YORK LIFE INSURANCE
COMPANY
By: _____________________________
Name:
Title:
154
<PAGE> 162
CANADIAN IMPERIAL BANK OF COMMERCE
By:_____________________________________
Name:
Title:
<PAGE> 163
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company
Its Investment Manager
By:_____________________________________
Name:
Title:
<PAGE> 164
CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (E)
By: TCW Asset Management Company
as Attorney-in-Fact
By:_____________________________________
Name: Mark L. Gold
Title: Managing Director
By:_____________________________________
Name: Justin L. Driscoll
Title: Senior Vice President
<PAGE> 165
SCHEDULE I
DISCLOSURE SCHEDULE
ITEM 6.7 Litigation.
1. On April 30, 1997, the United States District Court for the Southern
District of New York granted the joint motion of the U.S. Department
of Justice and IBM, approving the proposed settlement of the IBM
Consent Decree litigation. As summary of the terms of the
settlement, and the possible effects on the Borrower's business, is
set forth on pages 8-9 of the Holdings' 10-K filed with the
Securities and Exchange Commission for the Fiscal Year ended June
30, 1996.
2. In Data Study, Inc. v. DecisionOne, the plaintiff filed suit against
the Borrower for unpaid invoices in the amount of approximately
$450,000 relating to a software development contract; the Borrower
counterclaimed, alleging failure of performance by Data Study.
ITEM 6.8 Existing Subsidiaries.
IC Properties Corporation (Delaware)
Properties Development Corporation (Delaware)
Properties Holding Corporation (Delaware)
Decision Data Investment Corporation (Delaware)
DecisionOne Supplies, Inc. (Delaware)
Decision Data International Corporation (Delaware)
Decision Data Computer International S.A. (Switzerland)
DecisionOne Corporation (Canada)
ITEM 6.11 Employee Benefit Plans.
Underfunded Pension Plan
In 1988 the Borrower assumed the liability of a defined benefit
pension plan applicable to employees of a company acquired in 1988. The
eligibility and benefits were frozen in 1988. The Plan is underfunded as
the projected benefit obligations exceed the fair value of the Plan assets
by approximately $1.3 million as of June 30, 1996. For a further
discussion, see footnote 16 to the Notes to the Consolidated Financial
Statements
<PAGE> 166
of the Borrower appearing in the Holdings' 10-K filed with the Securities
and Exchange and Exchange Commission for the Fiscal Year ended June 30,
1996.
ITEM 6.12 Environmental Matters.
The Borrower, or certain businesses as to which it is alleged that
the Borrower is a successor, have been identified as potentially
responsible parties in respect of four waste disposal sites that have been
identified by the United States Environmental Protection Agency as
Superfund sites. In addition, the Borrower received a notice several years
ago that it may be a potentially responsible party with respect to a fifth
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 Borrower originally estimated that its share of the
costs of the clean-up of one of these sites would be approximately
$500,000 which is provided for in liabilities related to the discontinued
products division in the Holdings 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, the
Borrower's evaluation may be affected as further information becomes
available.
ITEM 7.2.2(a) Ongoing Indebtedness.
TYPE OF INDEBTEDNESS AMOUNT
Acquisition Related Non-Interest = $4,517,302
Bearing Obligations
Capitalized Lease Obligations = $1,308,071
Outstanding Letters of Credit = $3,254,803
Obligations
ITEM 7.2.2 (b) Ongoing Liens.
NONE
ITEM 7.2.5(a) Ongoing Investments.
NONE
I-2
<PAGE> 167
SCHEDULE II to
Credit Agreement
PERCENTAGES
||
REVOLVING
LOAN Term-A Loan Term-B Loan
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> 168
SCHEDULE III
EXISTING LETTERS OF CREDIT
III-2
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-03267, 333-19095, 333-33043, 333-33045 on Form S-8 and 333-33057, 333-33061
on Form S-3 of DecisionOne Holdings Corp. of our reports dated August 15, 1997
appearing in this Annual Report on Form 10-K of DecisionOne Holdings
Corp. and DecisionOne Corporation for the year ended June 30, 1997.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
September 29, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF DECISIONONE CORPORATION AND SUBSIDIARIES AS
OF JUNE 30, 1997 AND THE YEAR THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 10,877
<SECURITIES> 0
<RECEIVABLES> 142,331
<ALLOWANCES> 14,869
<INVENTORY> 34,518
<CURRENT-ASSETS> 182,635
<PP&E> 70,532
<DEPRECIATION> 36,305
<TOTAL-ASSETS> 623,105
<CURRENT-LIABILITIES> 161,568
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 214,888
<TOTAL-LIABILITY-AND-EQUITY> 623,105
<SALES> 785,950
<TOTAL-REVENUES> 785,950
<CGS> 581,860
<TOTAL-COSTS> 581,860
<OTHER-EXPENSES> 128,491
<LOSS-PROVISION> 7,849
<INTEREST-EXPENSE> 14,698
<INCOME-PRETAX> 53,052
<INCOME-TAX> 21,698
<INCOME-CONTINUING> 31,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,084
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
