<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF SECURITIES EXCHANGE ACT OF 1934
For the transition period ended
DECISIONONE HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
Commission File Number 0-28090
Delaware 13-3435409
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
DECISIONONE CORPORATION
(Exact name of registrant as specified in its charter)
Commission File Number 333-28411
Delaware 23-2328680
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
50 East Swedesford Road, Frazer, Pennsylvania 19355
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (610) 296-6000
Indicate by check mark whether registrants (1) have 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 registrants were
required to file such reports), and (2) have been subject of such filing
requirements for the past 90 days. Yes [ ] No [X]
As of October 22, 1997, 12,503,326 shares of DecisionOne Holdings Corp. common
stock were outstanding and one share of DecisionOne Corporation was
outstanding.
DecisionOne Corporation meets the conditions set forth in General Instruction
H(1) of form 10-Q and is therefore filing this form with the reduced disclosure
format.
<PAGE> 2
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
AND
DECISIONONE CORPORATION AND SUBSIDIARIES
FORM 10-Q NOVEMBER 14, 1997
CONTENTS
--------
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
of DecisionOne Holdings Corp:
Condensed Consolidated Balance Sheets -
September 30, 1997 and June 30, 1997
(unaudited) 2
Condensed Consolidated Statements of
Operations - Three Months Ended
September 30, 1997 and 1996 (unaudited) 3
Condensed Consolidated Statements of
Cash Flows - Three Months Ended
September 30, 1997 and 1996 (unaudited) 4
Notes to Condensed Consolidated Financial
Statements (unaudited) 5
Condensed Consolidated Financial Statements
of DecisionOne Corporation:
Condensed Consolidated Balance Sheets -
September 30, 1997 and June 30, 1997
(unaudited) 9
Condensed Consolidated Statements of
Operations - Three Months Ended September 30,
1997 and 1996 (unaudited) 10
Condensed Consolidated Statements of
Cash Flows - Three Months Ended September 30,
1997 and 1996 (unaudited) 11
Notes to Condensed Consolidated
Financial Statements (unaudited) 12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 15
PART II. OTHER INFORMATION 26
<PAGE> 3
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
ASSETS 1997 1997
------------ ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 10,811 $ 10,877
Accounts receivable, net of allowances of $10,854 and $14,869 140,034 127,462
Consumable parts, net of allowances of $13,941 and $15,976 27,944 29,052
Other 17,547 9,778
--------- ---------
Total current assets 196,336 177,169
Repairable Parts, Net of Accumulated Amortization of $156,288 and $156,468 207,875 205,366
Intangibles, Net of Accumulated Amortization of $49,049 and $42,632 184,329 191,366
Property and Equipment, Net of Accumulated Depreciation
of $42,249 and $36,305 33,378 34,227
Other 40,563 14,977
--------- ---------
Total Assets $ 662,481 $ 623,105
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Current portion of long-term debt $ 9,987 $ 4,788
Accounts payable and accrued expenses 97,194 96,516
Deferred revenues 58,251 56,600
Other 8,774 11,513
--------- ---------
Total current liabilities 174,206 169,417
Revolving Credit Loan and Long-term Debt 717,843 232,721
Other Liabilities 5,077 6,079
Shareholders' Equity (Deficiency):
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 12,499,978 and 27,817,832 shares 125 278
Additional paid-in capital (133,422) 258,331
Accumulated deficit (100,059) (42,432)
Other (1,289) (1,289)
--------- ---------
Total Shareholders' Equity (Deficiency) (234,645) 214,888
--------- ---------
Total Liabilities and Shareholders' Equity (Deficiency) $ 662,481 $ 623,105
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 4
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
--------- ----------
<S> <C> <C>
Revenues $ 202,264 $ 176,426
Cost of Revenues 157,445 134,565
--------- ---------
Gross Profit 44,819 41,861
Operating Expenses:
Selling, general and administrative expenses 26,922 24,269
Merger expenses 69,046 --
Amortization of intangibles 6,521 4,919
--------- ---------
Total operating expenses 102,489 29,188
--------- ---------
Operating Income (Loss) (57,670) 12,673
Interest expense, Net of Interest Income 11,733 3,268
--------- ---------
Income (Loss) Before Income Taxes (69,403) 9,405
Provision (Benefit) for Income Taxes (11,776) 3,950
--------- ---------
Net Income (Loss) $ (57,627) $ 5,455
========= =========
Pro forma Information:
Pro forma Net Income $ 1,237
Pro forma Net Income Per Common Share $ 0.09
Pro forma Weighted Average Number of Common Shares
and Equivalent Shares Outstanding 14,200
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 5
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
--------- --------
<S> <C> <C>
Operating Activities:
Net income (loss) $ (57,627) $ 5,455
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Amortization of repairable parts 18,425 14,195
Amortization of intangibles 6,521 4,919
Depreciation 3,987 2,997
Changes in assets and liabilities, net of effects of business acquisitions (24,707) (20,843)
--------- --------
Net cash provided by (used in) operating activities (53,401) 6,723
Investing Activities:
Business acquistions -- (1,566)
Capital expenditures, net of retirements (3,138) (2,055)
Repairable spare parts purchases, net (20,526) (17,035)
--------- --------
Net cash used in investing activities (23,664) (20,656)
Financing Activities:
Proceeds from issuance of common stock 228,622 97
Cash paid to redeem common stock (609,391) --
Cash paid to cancel common stock warrants (12,158) --
Issuance of common stock warrants 1,880 --
Net proceeds from borrowings 468,071 15,035
Net principal payments under capital leases (25) (394)
--------- --------
Net cash provided by financing activities 76,999 14,738
Effect of exchange rates on cash -- 2
--------- --------
Net change in cash and cash equivalents (66) 807
Cash and cash equivalents beginning of period 10,877 8,221
--------- --------
Cash and cash equivalents end of period $ 10,811 $ 9,028
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 6
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996)
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
DecisionOne Holdings Corp. and Subsidiaries (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
and, therefore, do not include all information and footnotes necessary for
presentation of financial position, results of operations and cash flows
required by generally accepted accounting principles. The June 30, 1997 balance
sheet was derived from the Company's audited consolidated financial statements.
The information furnished reflects all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair summary of the financial position, results of operations and cash flows.
The results of operations for the three-month periods ended September 30, 1997
and 1996 are not necessarily indicative of operating results to be expected for
the full fiscal year. The financial statements should be read in conjunction
with the audited historical consolidated financial statements of the Company
and notes thereto filed with the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997, as amended.
Certain reclassifications have been made to the June 30, 1997 balances in order
to conform with the September 30, 1997 presentation.
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENT
In February, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128, which supersedes Accounting Principles Board Opinion 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 net income (loss) per share, which will
approximate the Company's currently-reported pro forma net income per
common 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 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' pro forma net income (loss) per share information will be
required to be restated on a comparable basis.
Assuming that SFAS 128 had been implemented, supplemental pro forma basic
net income per share would have been $0.10 for the three month period ended
September 30, 1997. Under SFAS 128, supplemental pro forma diluted earnings per
share would not have differed from pro forma earnings per common share for the
period presented in the accompanying unaudited condensed consolidated
statements of operations.
5
<PAGE> 7
NOTE 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, L.P.. The merger,
which was 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.
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 there 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.
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, totaling $69
million on a pre-tax basis, in connection with consummating the merger. These
costs consisted primarily of compensation costs, professional and advisory fees
and other expenses. In addition to these expenses, the Company also incurred
approximately $22.3 million of capitalized debt issuance costs associated with
the merger financing. The capitalized debt issuance costs are amortized to
expense over the terms of the related debt instruments.
The following summarized unaudited pro forma information as of June 30, 1997 and
for the three month period ended September 30, 1997, assumes that the
merger had occurred on July 1, 1997. 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, 1997 or which may result in the
future.
6
<PAGE> 8
<TABLE>
<CAPTION>
(IN THOUSANDS)
PRO FORMA BALANCE SHEET INFORMATION: JUNE 30, 1997
-------------
<S> <C>
Total Assets ............................................. $ 652,085
Long Term Indebtedness (including current portion) ....... 724,500
Other Liabilities ........................................ 170,708
Shareholders (deficiency) ................................ (243,123)
</TABLE>
<TABLE>
<CAPTION>
IN THOUSANDS EXCEPT PER
SHARE AMOUNTS
THREE MONTHS ENDED
SEPTEMBER 30,
PRO FORMA INCOME STATEMENT INFORMATION: 1997
---------
<S> <C>
Revenues ........................................................... $ 202,264
Operating Income ................................................... 11,376
Loss from Continuing Operations before Income Tax Benefit .......... (5,467)
Net Income ......................................................... 1,237
Net income per Common Share ........................................ $ 0.09
Weighted Average Common and Common Equivalent Shares outstanding ... 14,200
</TABLE>
The pro forma net income for the three-month period ended September 30, 1997
reflects (1) a net increase in interest expense of approximately $5.1 million
attributable to additional financing incurred in connection with the merger, net
of the repayment of the Company's existing revolving credit facility, (2) the
elimination of the non-recurring merger expenses of approximately $69 million
and (3) the net tax expense related to these adjustments of approximately $5.1
million, calculated at an effective rate of approximately 123%, including the
effects of valuation allowances against certain deferred tax assets (see Note
4).
Pro forma weighted average common and common equivalent shares outstanding
includes 12,499,978 common stock 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.
NOTE 4: INCOME TAXES
The Company expects that the Merger will result in significant additional tax
loss carryforwards arising in fiscal 1998, due principally to $69.0 million of
non-recurring
7
<PAGE> 9
expenses incurred in consummating the Merger (see Note 3). Net anticipated tax
benefits and corresponding net deferred tax assets of approximately $11.3
million attributable to the Merger have been fully reflected in the three-month
period ended September 30, 1997. For financial reporting purposes, the
anticipated net deferred tax assets have been limited due primarily to
the length of the period during which the anticipated tax benefits are expected
to be realized.
The Company expects that its tax provision in future periods will reflect
effective tax rates significantly greater than enacted statutory tax rates and
the effective tax rate of 41.4% for fiscal 1997. Quarterly effective tax rates
in excess of 100% are currently anticipated during fiscal 1998, principally as a
result of unrecognized tax benefits on newly-arising net deferred tax assets,
due primarily to the length of the period during which associated tax benefits
are expected to be realized. Future effective tax rates may be subject to
significant volatility as a result of differences between management's
projections of future taxable income, newly-arising net deferred tax assets and
reversals of net deferred tax assets and corresponding actual results.
8
<PAGE> 10
DECISIONONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
ASSETS 1997 1997
------------ ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,651 $ 10,877
Accounts receivable, net of allowances of $10,854 and $14,869 139,534 127,462
Consumable parts, net of allowances of $13,941 and $15,976 27,944 29,052
Other 17,973 9,778
--------- ---------
Total current assets 192,102 177,169
Repairable Parts, Net of Accumulated Amortization of $156,288 and $156,468 207,875 205,366
Intangibles, Net of Accumulated Amortization of $49,049 and $42,632 184,329 191,366
Property and Equipment, Net of Accumulated Depreciation
of $42,249 and $36,305 33,378 34,227
Loan receivable from parent company 59,100 --
Other 46,908 14,977
--------- ---------
Total Assets $ 723,692 $ 623,105
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIENCY)
Current Liabilities:
Current portion of long-term debt $ 9,987 $ 4,788
Accounts payable and accrued expenses 93,673 96,516
Deferred revenues 58,251 56,600
Other 12,723 11,513
--------- ---------
Total current liabilities 174,634 169,417
Revolving Credit Loan and Long-term Debt 632,543 232,721
Other Liabilities 5,077 6,079
Shareholder's Equity (Deficiency):
Common stock, no par value; one share authorized, issued
and outstanding in 1997 and 1996 -- --
Additional paid-in capital 12,276 258,609
Accumulated deficit (99,549) (42,432)
Other (1,289) (1,289)
--------- ---------
Total Shareholder's Equity (Deficiency) (88,562) 214,888
--------- ---------
Total Liabilities and Shareholder's Equity (Deficiency) $ 723,692 $ 623,105
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
9
<PAGE> 11
DECISIONONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenues $ 202,264 $ 176,426
Cost of Revenues 157,445 134,565
--------- ---------
Gross Profit 44,819 41,861
Operating Expenses:
Selling, general and administrative expenses 26,922 24,269
Merger expenses 69,046 --
Amortization of intangibles 6,521 4,919
--------- ---------
Total operating expenses 102,489 29,188
--------- ---------
Operating Income (Loss) (57,670) 12,673
Interest expense, Net of Interest Income 9,909 3,268
--------- ---------
Income (Loss) Before Income Taxes (67,579) 9,405
Provision (Benefit) for Income Taxes (10,462) 3,950
--------- ---------
Net Income (Loss) $ (57,117) $ 5,455
========= =========
Pro forma Information:
Pro forma Net Loss $ (824)
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
10
<PAGE> 12
DECISIONONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
--------- --------
<S> <C> <C>
Operating Activities:
Net income (loss) $ (57,117) $ 5,455
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Amortization of repairable parts 18,425 14,195
Amortization of intangibles 6,521 4,919
Depreciation 3,987 2,997
Changes in assets and liabilities, net of effects of business acquisitions (35,726) (20,843)
--------- --------
Net cash provided by (used in) operating activities (63,910) 6,723
Investing Activities:
Business acquistions -- (1,566)
Capital expenditures, net of retirements (3,138) (2,055)
Repairable spare parts purchases, net (20,526) (17,035)
--------- --------
Net cash used in investing activities (23,664) (20,656)
Financing Activities:
Capital contributions 302 97
Payment of dividend to parent company (244,000) --
Loan made to parent company (59,100) --
Net proceeds from borrowings 385,962 15,035
Net proceeds (payments) under capital lease obligations 184 (394)
--------- --------
Net cash provided by financing activities 83,348 14,738
Effect of exchange rates on cash -- 2
--------- --------
Net change in cash and cash equivalents (4,226) 807
Cash and cash equivalents beginning of period 10,877 8,221
--------- --------
Cash and cash equivalents end of period $ 6,651 $ 9,028
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
11
<PAGE> 13
DECISIONONE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of DecisionOne Corporation (a wholly-owned subsidiary of DecisionOne Holdings
Corp.; "Holdings") and Subsidiaries (the "Company") have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission and,
therefore, do not include all information and footnotes necessary for
presentation of financial position, results of operations and cash flows
required by generally accepted accounting principles. The June 30, 1997 balance
sheet was derived from the Company's audited financial statements. The
information furnished reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
summary of the financial position, results of operations and cash flows. The
results of operations for the three month periods ended September 30, 1997 and
1996 are not necessarily indicative of the operating results to be expected for
the full fiscal year. The financial statements should be reviewed in conjunction
with the audited financial statements of the Company and roles thereto filed
with the Company's Annual Report on form 10-K for the fiscal year ended June 30,
1997, as amended.
Certain reclassifications have been made to the June 30, 1997 balances in order
to conform with the September 30, 1997 presentation.
NOTE 2. 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 L.P. The
merger, which was 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, Holdings and Quaker dated May 4, 1997,
as amended.
In accordance with the terms of the Merger Agreement, which was formally
approved by Holdings' 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 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 Holdings common stock. The aggregate value of the merger transaction
was approximately $940 million, including refinancing of DecisionOne
Corporation's revolving credit facility.
In connection with the merger, Holdings raised $85 million through the public
issuance of discount debentures, in addition to subordinated notes for
approximately $150 million issued publicly by the Company. The Company also
entered into a new syndicated credit facility
12
<PAGE> 14
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 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 shareholders, to pay the holders of stock
options and stock warrants canceled or converted, as applicable, in connection
with the merger to repay the DecisionOne Corporation'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 $69 million on a pre-tax basis, in connection with consummating the
merger. These costs consisted primarily of compensation costs, professional and
advisory fees and other expenses. In addition to these expenses, the Company
and Holdings also incurred approximately $22.3 million of capitalized debt
issuance costs (of which approximately $18.9 million were incurred by the
Company) associated with the merger financing. The capitalized debt issuance
costs are amortized to expense over the terms of the related debt instruments.
The following summarized unaudited pro forma information as of June 30, 1997 and
for the three-month period ended September 30, 1997, assumes that the
merger had occurred on July 1, 1997. 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, 1997 or which may result in the
future.
<TABLE>
<CAPTION>
(IN THOUSANDS)
PRO FORMA BALANCE SHEET INFORMATION: JUNE 30, 1997
-------------
<S> <C>
Total Assets .............................................. $ 707,785
Long Term Indebtedness (including current portion) ........ 641,376
Other Liabilities ......................................... 170,708
Shareholders (deficiency) .................................... (104,299)
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
PRO FORMA INCOME STATEMENT INFORMATION: 1997
---------
<S> <C>
Revenues .................................................. $ 202,264
Operating Income .......................................... 11,376
Loss from Continuing Operations before Income
Tax benefit .......................................... (2,124)
Net Loss .................................................. $ (824)
</TABLE>
The pro forma net loss for the three-month period ended September 30, 1997
reflects (1) a net increase in interest expense of approximately $3.6 million
attributable to additional financing incurred in connection with the merger, net
of the repayment of the Company's existing revolving credit facility, (2)
13
<PAGE> 15
the elimination of the non-recurring merger expenses of approximately $69
million and (3) the net tax expense related to these adjustments of
approximately $9.2 million, at an effective rate of approximately 61%,
including the effect of valuation allowances against certain deferred tax
assets (see Note 3).
NOTE 3: INCOME TAXES:
The Company expects that the Merger will result in significant additional tax
loss carryforwards arising in fiscal 1998, due principally to $69.0 million of
non-recurring expenses incurred in consummating the Merger (see Note 3). Net
anticipated tax benefits and corresponding net deferred tax assets of
approximately $11.3 million attributable to the Merger have been fully
reflected in the three-month period ended September 30, 1997. For financial
reporting purposes, the anticipated net deferred tax assets have been limited
due primarily to the length of the period during which the anticipated tax
benefits are expected to be realized.
The Company expects that its tax provision in future periods will
reflect effective tax rates significantly greater than enacted statutory tax
rates and the effective tax rate of 41.4% for fiscal 1997. Quarterly effective
tax rates in excess of 50% are currently anticipated during fiscal 1998,
principally as a result of unrecognized tax benefits on newly-arising net
deferred tax assets, due primarily to the length of the period during which
associated tax benefits are expected to be realized. Future effective tax
rates may be subject to significant volatility as a result of differences
between management's projections of future taxable income, newly-arising net
deferred tax assets and reversals of net deferred tax assets and corresponding
actual results.
14
<PAGE> 16
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997
The following discussion should be read in conjunction with the audited
Consolidated Financial Statements of DecisionOne Holdings Corp. and
Subsidiaries, the audited Consolidated Financial Statements of DecisionOne
Corporation and Subsidiaries, and the respective Notes thereto, filed with these
registrants' Annual Report on Form 10-K for the year ended June 30, 1997, as
amended. Item 2 Is presented with respect to both registrants noted above. (As
used within this Item 2, 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.)
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 in "Risk Factors" in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997, as amended. In
addition, such forward looking statements are necessarily dependent upon
assumptions, estimates and dates that may be incorrect or imprecise and involve
known and unknown risks uncertainties and other factors. Accordingly, any
forward looking statements included herein do not purport to be predictions of
future events or circumstances and may not be realized. Forward looking
statements can be identified by, among other things, the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," "seeks,"
"pro forma" or "anticipates," "intends" or the negative of any thereof, or other
variations thereon or comparable terminology, or by discussions of strategy or
intentions. Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward looking
15
<PAGE> 17
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.
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.
Since the beginning of fiscal 1993, the Company established a major
presence in the computer maintenance and technology support services industry
through the acquisition and integration of assets and contracts of over 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, and Bell Atlantic Business Systems
Services ("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 Corporation and certain of its affiliates
(collectively, "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
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<PAGE> 18
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.
MERGER AND RECAPITALIZATION
On August 7, 1997, the Company consummated a merger with Quaker Holding Co.
("Quaker"), an affiliate of DLJ Merchant Banking Partners II, L.P. (the
"Merger"). 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 between the Company and Quaker dated May 4, 1997, as amended
(the "Merger Agreement"). The respective accompanying unaudited Consolidated
Financial Statements of DecisionOne Holdings Corp. and DecisionOne Corporation
and their respective subsidiaries as of and for the three months ended
September 30, 1997, included herein, 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
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<PAGE> 19
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
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
Company, as determined based upon shareholder elections and stock proration
factors specified in the Merger Agreement. The aggregate value of the Merger
transaction was approximately $940 million, including refinancing of DecisionOne
Corporation's revolving credit facility.
The Company incurred various expenses, aggregating $69.0 million on a
pretax basis, in connection with consummating the Merger transaction.
These costs consisted primarily of compensation costs, professional and
advisory fees and other expenses. This one-time charge is reflected in the
accompanying unaudited consolidated statements of operations of the Company and
of DecisionOne Corporation for the three months ended September 30, 1997. In
addition to these expenses, the Company also incurred $22.3 million of
capitalized debt issuance costs associated with financing incurred in
connection with the Merger (the "Merger Financing"). The capitalized debt
issuance costs are amortized to expense over the terms of the related debt
instruments (see "Liquidity and Capital Resources").
As a result of the foregoing, including increased debt service
requirements resulting from the Merger Financing, the Company has recorded a net
loss of approximately $57.6 million for the three months ended September 30,
1997. Because this loss results primarily from the one - time charge incurred in
connection with the merger, and this charge has been 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 consolidated results of operations is
presented with respect to the Company and with respect to DecisionOne
Corporation for the fiscal quarters ended September 30, 1997 and September 30,
1996. These results of operations include the acquisition of Memorex Telex from
November 15, 1996.
The following table sets forth, for the three month periods ended
September 30, 1997 and 1996, respectively, certain consolidated operating data
of the Company and of DecisionOne Corporation:
18
<PAGE> 20
<TABLE>
<CAPTION>
DECISIONONE DECISIONONE
HOLDINGS CORP. CORPORATION
------------------------ ------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 202,264 $ 176,426 $ 202,264 $ 176,426
Gross Profit 44,819 41,861 44,819 41,861
Operating Income excluding
Merger expenses 11,376 12,673 11,376 12,673
Operating Income (Loss) (57,670) 12,673 (57,670) 12,673
Net Income (Loss) $ (57,627) $ 5,455 $ (57,117) $ 5,455
========= ========= ========= =========
OTHER DATA:
EBITDA (1) $ 40,309 $ 34,784 $ 40,309 $ 34,784
Less: Amortization of
repairable parts (18,425) (14,195) (18,425) (14,195)
--------- --------- --------- ---------
Adjusted EBITDA (1) 21,884 20,589 21,884 20,589
Net cash provided (used) by
operating activities (53,401) 6,723 (63,910) 6,723
Net cash used in investing
activities (23,664) (20,656) (23,664) (20,656)
Net cash provided by financing
activities 76,999 14,738 83,348 14,738
</TABLE>
(1) "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 charges for
Merger expenses. "Adjusted EBITDA" represents EBITDA reduced by the amortization
of repairable parts. Adjusted EBITDA is presented because it is relevant to
certain covenants contained in debt agreements entered into 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.
Overview
The Company reported gross profit of $44.8 million and $41.9 million
for the three months ended September 30, 1997 and 1996, respectively. Excluding
pre-tax charges for Merger expenses during the three months ended September 30,
1997, operating income was $11.4 million and $12.7 million for the three
months ended September 30, 1997 and 1996, respectively. Adjusted EBITDA was
$21.9
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<PAGE> 21
million and $20.6 million for the three months ended September 30, 1997 and
1996, respectively.
First Quarter of Fiscal 1998 Compared to First Quarter of Fiscal 1997
Revenues: Revenues increased by $25.9 million, or 14.7%, to $202.3
million for the three months ended September 30, 1997 from $176.4 million for
the three months ended September 30, 1996. This increase is attributable
primarily to the acquisition of the service contracts of several complementary
businesses, principally those of Memorex Telex on November 15, 1996.
Revenues for the quarter ended September 30, 1997 reflected a decline
of $10.9 million in comparison to the previous quarter, due primarily to a
decline in per-incident and other revenues. Per-incident and other revenues are
subject to periodic fluctuation, depending upon customer demand for the types
and levels of such services.
Gross Profit: Gross profit increased by $2.9 million, or 7.0%, from
$41.9 million for the three months ended September 30, 1996 to $44.8 million for
the three months ended September 30, 1997. This increase is also due primarily
to the acquisition of the service contracts of several complementary businesses,
principally those of Memorex Telex.
Gross profit as a percentage of revenues decreased from 23.7% for the
three months ended September 30, 1996 to 22.2% for the three months ended
September 30, 1997. This reduction is principally attributable to the
aforementioned decline in per-incident and other revenues during the quarter
ended September 30, 1997 versus the previous quarter without a proportionate
reduction in related cost of revenues. While the Company generally can reduce
its cost structure in response to declines in these revenues, these cost
structure reductions typically trail the revenue declines.
Selling, General and Administrative Expenses: Selling, general
and administrative expenses increased by $2.6 million, or 10.7%, to $26.9
million for the three months ended September 30, 1997 from $24.3 million for the
three months ended September 30, 1996. This increase is primarily attributable
to the acquisition of the service contracts of several complementary businesses,
principally Memorex Telex, as noted above. Also, during the quarter ended
September 30, 1997, the Company incurred approximately $1.0 million of
incremental expenditures for information systems and related re-engineering
initiatives. See "Liquidity and Capital Resources" for additional information
with respect to these expenditures.
Merger Expenses: In connection with the Merger, which was consummated
on August 7, 1997, the Company incurred a one-time pre-tax charge of $69.0
million, comprised of expenses directly related to the Merger transaction. See
"Merger and Recapitalization" for additional information with respect to these
Merger expenses.
Amortization of Intangibles: Amortization of intangible assets
increased by $1.6 million, or 32.7%, from $4.9 million for the three months
ended September 30, 1996 to $6.5 million for the three months ended September
30, 1997. This increase was attributable principally to the amortization of
intangibles resulting from the Memorex Telex acquisition in November, 1996.
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<PAGE> 22
Interest Expense: The Company's interest expense, net of interest
income, increased to $11.7 million for the three months ended September 30, 1997
from $3.3 million for the three months ended September 30, 1996, an increase of
254.5%. As more fully described in Note 3 to the Company's unaudited Condensed
Consolidated Financial Statements for the three months ended September 30, 1997,
this increase is due to the Company's significantly-increased average borrowings
as a result of the Merger, which was consummated on August 7, 1997. These
increased average borrowings of approximately $527.8 million for the three
months ended September 30, 1997, as compared to approximately $198.5 million for
the three months ended September 30, 1996, coupled with higher average debt
interest rates ( 9.0% and 6.4% for the respective periods), resulted in the
significant increase in net interest expense during the first quarter of fiscal
1998.
Consolidated interest expense, net of interest income, for DecisionOne
Corporation increased to $9.9 million for the three months ended September 30,
1997 from $3.3 million for the three months ended September 30, 1996, an
increase of 200.0%. This increase was similarly attributable to
significantly-increased average borrowings as a result of the Merger, as
described above. The increase in consolidated net interest expense for
DecisionOne Corporation during the three months ended September 30, 1997 was
lower than the aforementioned increase for the Company, primarily due to
interest incurred with respect to approximately $85.0 million of 11-1/2% Senior
Discount Debentures issued by Holdings in connection with the Merger (see
"Liquidity and Capital Resources").
Income Taxes: The Company expects that the Merger will result in
significant additional tax loss carryforwards arising in fiscal 1998,
due principally to $69.0 million of non-recurring expenses incurred in
consummating the Merger (see Note 3 to the Company's accompanying unaudited
condensed consolidated financial statements). Net anticipated tax benefits and
corresponding net deferred tax assets of approximately $11.3 million
attributable to the Merger have been fully reflected in the three-month period
ended September 30, 1997. For financial reporting purposes, the anticipated
net deferred tax assets have been limited due primarily to the length of the
period during which the anticipated tax benefits are expected to be realized.
The Company expects that its tax provision in future periods will
reflect effective tax rates significantly greater than enacted statutory tax
rates and the effective tax rate of 41.4% for fiscal 1997. Quarterly effective
tax rates in excess of 100% (in excess of 50% for DecisionOne Corporation and
Subsidiaries) are currently anticipated during fiscal 1998, principally as a
result of unrecognized tax benefits on newly-arising net deferred tax assets,
due primarily to the length of the period during which associated tax benefits
are expected to be realized. Future effective tax rates may be subject to
significant volatility as a result of differences between management's
projections of future taxable income, newly-arising net deferred tax assets and
reversals of net deferred tax assets and corresponding actual results.
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<PAGE> 23
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 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 the pre-existing carryforwards as well as certain carryforwards arising
during fiscal 1998 will be reduced to approximately $9.0 million per annum for
any post-Merger period. The Company anticipates that expenses incurred in
connection with the Merger during the three months ended September 30, 1997,
partially offset by anticipated taxable income from continuing operations during
fiscal 1998 (excluding Merger expenses) will result in additional tax loss
carryforwards arising in fiscal 1998. The Company expects that a significant
portion of the tax loss carryforward arising in fiscal 1998 will not be subject
to future limitation pursuant to Section 382.
For financial reporting purposes, the anticipated tax benefit
associated with these carryforwards is limited due primarily to the length of
the period during which the anticipated tax benefit is expected to be realized.
See Note 4 to the Company's unaudited Condensed Consolidated Financial
Statements for the three months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Financing and Leverage
Current (Post-Merger) : The Company's principal sources of liquidity
are 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 are debt service requirements, capital
expenditures, purchases of repairable parts, 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. As of September 30, 1997, the Company had outstanding approximately
$727.8 million of long-term indebtedness, as compared to approximately $237.5
million as of June 30, 1997. (See
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<PAGE> 24
Note 2 to the Company's unaudited Condensed Consolidated Financial Statements
for the three months ended September 30, 1997). The Company's significant debt
service obligations could, under certain circumstances, have material
consequences to security holders of the Company. See "Risk Factors", included in
the Company's Annual Report on Form 10-K for the year ended June 30, 1997, as
amended.
In connection with the merger, Holdings raised $85 million of 11-1/2%
Senior Discount Debentures due 2008 (the "11-1/2% Notes"), and DecisionOne
Corporation issued $150 million of 9-3/4% Senior Subordinated 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), the 9-3/4% Notes, the initial borrowings under the new
credit facility 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 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
unaudited Condensed Consolidated Financial Statements for the three months ended
September 30, 1997 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
inventory among field locations and reduce purchases of repairable parts. There
can be no assurance that these amounts will be so expended by the Company, nor
when these amounts will be so expended. The Company incurred approximately
$1.3 million of these incremental expenditures during the three months
ended September 30, 1997.
The Company anticipates that its operating cash flow, together with
borrowings under the new credit facility, will be sufficient to meet its
anticipated future operating expenses, capital expenditures and to service its
debt requirements as they become due. However, the Company's ability to make
scheduled payments of principal of, to pay interest on or to refinance its
indebtedness and to satisfy its other debt obligations will depend upon its
future operating performance, which will be affected by general economic,
financial, competitive, legislative, regulatory, business and other factors
beyond its control.
Historical: Until its initial public offering in April 1996, the
Company's principal sources of capital had been borrowings from banks (primarily
to finance acquisitions),
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<PAGE> 25
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 historically 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 (the
"Offering"), raising $106 million through the issuance of 6.3 million shares of
common stock. Subsequent to the Offering, the Company converted its
then-existing term loan as well as its $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.
The commitments under the Facility were scheduled to terminate on April
26, 2001. The interest rate applicable to the Facility varied, at the Company's
option, based upon LIBOR (plus an applicable margin not to exceed 1%) or the
prime rate. 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.
The borrower under the Facility was DecisionOne Corporation. The
obligations of DecisionOne Corporation thereunder were 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, exclusive of non-recurring Merger
expenses, for the three months ended September 30, 1997 was approximately $15.6
million, as compared to $6.7 million for the three months ended September 30,
1996. These funds, together with borrowings under the Company's new credit
facility, provided the required capital to fund repairable part purchases and
capital expenditures of approximately $23.7 million during the three months
ended September 30, 1997.
The Company maintains a significant inventory of consumable and
repairable parts. Consumable 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 are generally 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 September 30, 1997,
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<PAGE> 26
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 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.
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<PAGE> 27
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
DECISIONONE CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On August 7, 1997 a special meeting of shareholders
of DecisionOne Holdings Corp. was held to
consider and vote on a proposal to approve and adopt
an Agreement and Plan of Merger, dated as of May 4,
1997, as amended, among DecisionOne Holdings Corp.
and Subsidiaries and Quaker Holding Co., an
affiliate of DLJ Merchant Banking Partners II, L.P.
21,204,312 shares were voted in favor of approving
the Agreement, 561,304 shares voted against approval
and 1,700 shares abstained.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(A) EXHIBITS:
Number Description of Documents
10.1 Employment Agreement,
dated as of August 7, 1997
between DecisionOne
Holdings Corp.,
DecisionOne Corporation
and Kenneth Draeger
10.2 Employment Agreement,
dated as of August 7, 1997
among DecisionOne Holdings
Corp., DecisionOne
Corporation and Stephen J.
Felice
27 Financial data schedules
(B) REPORTS ON FORM 8-K:
None.
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<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrants have duly caused this report to be signed on their
behalf by the undersigned thereunto duly authorized.
DecisionOne Holdings Corp.
/s/ Thomas J. Fitzpatrick
-------------------------------------
Thomas J. Fitzpatrick
Duly Authorized and Chief Financial Officer
DATE: November 14, 1997
DecisionOne Corporation
/s/ Thomas J. Fitzpatrick
-------------------------------------
Thomas J. Fitzpatrick
Duly Authorized and Chief Financial Officer
DATE: November 14, 1997
<PAGE> 1
EXECUTIVE
EMPLOYMENT AGREEMENT
AGREEMENT between DECISIONONE HOLDINGS CORP. ("Holdings"),
DECISIONONE CORPORATION (the "Company"), and KENNETH DRAEGER ( "Executive"),
dated as of August 7, 1997.
BACKGROUND
Executive currently serves as the Chairman and Chief Executive
Officer of Holdings and the Company. Holdings and the Company are the subject of
a recapitalization, and in connection therewith, the Board of Directors of each
of Holdings and the Company desire to retain Executive as the Chairman and Chief
Executive Officer of Holdings and the Company on the terms and conditions set
forth in this Agreement. Executive desires to continue to be so employed.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained in this Agreement, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Employment. Holdings and the Company each hereby employ
Executive as Chairman of the Board and Chief Executive Officer, to perform such
duties as may be assigned to Executive by the Board of Directors, consistent
with this Agreement and with Executive's duties on the date hereof. Executive
shall report solely to the Boards of Directors of Holdings and the Company,
respectively. Executive's power and authority shall be superior to those of any
other officer or employee of Holdings or the Company. All officers and
employees reporting to Executive on the date hereof shall continue to report to
Executive during the term of this Agreement, and Executive's responsibilities
shall include strategic guidance, acquisitions and investor relations. Holdings
and the Company shall cause Executive to be elected as a director of Holdings
and the Company during the period of Executive's employment. Executive accepts,
and shall perform, the duties of such offices and of such directorships of
Holdings and the Company.
2. Term. The initial term of this Agreement ("Initial Term")
shall commence on August 7, 1997, (the "Effective Date") and end on August 7,
1999, unless such term is earlier terminated in accordance with the provisions
of this Agreement. The term of Executive's employment under this Agreement
shall automatically continue for two consecutive periods of one year each
unless either party shall have given written notice of non-renewal at least one
hundred eighty (180) days prior to the end of the then current term.
<PAGE> 2
3. Compensation.
(a) Base Salary. Holdings shall pay or shall cause the
Company to pay Executive a base salary for the first year of employment at the
annual rate of Four Hundred Fifty Thousand Dollars ($450,000) (such amount, as
the same may be increased from time to time, is referred to as the "Base
Salary"). The Base Salary shall thereafter be reviewed by the Board of Directors
of Holdings at least annually and shall be increased by the Board of Directors
of Holdings at any time and from time to time in the discretion of such Board of
Directors. The Base Salary shall never be decreased. The Base Salary shall be
payable in installments at such times as Holdings customarily pays its other
executive officers and key employees.
(b) Annual Cash Bonus. Prior to July 31 of each year,
Holdings shall pay or shall cause the Company to pay Executive, for each fiscal
year of his employment, beginning with the fiscal year ending in 1998, a cash
bonus in an amount established by the Board of Directors of Holdings or the
Company in accordance with this Agreement. The Holdings Board of Directors
shall establish or cause the Company's Board of Directors to establish the
amount of Executive's annual bonus based on the consolidated operating
performance of Holdings and the Company for the relevant year compared to its
annual operating plan, which plan shall be approved in advance each year by
Executive and the Holdings Board of Directors following consultation and
discussion between the Board and Executive. The Holdings Board of Directors
shall establish or cause the Company's Board of Directors to establish an
incremental scale, in advance and following consultation with, and approval by,
Executive, which will provide for adjustments to Executive's bonus amount on an
equitable basis so as to fairly reward Executive in the event that target
levels are approached but not met. If for any fiscal year the target levels are
substantially satisfied, then Executive's cash bonus for such fiscal year shall
be in an amount which would place Executive in at least the 75th percentile for
total cash compensation (less base compensation) received by the highest paid
executives indicated by the Peer Group Comparison as described in Exhibit A.
(c) Incentive Plan. Holdings shall include Executive as a
participant in its Management Stock Incentive Plan pursuant to which shares of
the common stock of Holdings (the "Common Stock") will be issued. Holdings will
grant options to Executive pursuant to the Management Stock Incentive Plan
which are exercisable for 290,000 shares of Common Stock issuable under such
plan. Such options shall be subject to the terms and conditions of such
Management Stock Incentive Plan, provided, however, that:
(i) in any case where there is discretion in setting the
terms applicable to an option, Holdings shall (or shall cause the plan
administrator to) grant options to Executive on terms no less favorable than
the terms granted to members of the most senior level executives of Holdings
and/or the Company;
(ii) the exercise period for options granted to Executive
shall terminate not earlier than 180 days after the termination of Executive's
employment; and
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<PAGE> 3
(iii) 50% of such options shall vest at the rate of 7.5% on
the date of grant and an additional 1.18% on the first day of every month for
the 36 months beginning the month following the date of grant and the remaining
50% of such options shall vest based upon the vesting and performance
provisions of the Management Stock Incentive Plan as applicable to the most
senior level executives of Holdings and/ or the Company.
(d) Other Benefits.
(1) Executive shall be eligible to participate in any
retirement, group insurance, life insurance, medical, disability, dental,
vacation and any other plans or programs made available to the senior executive
employees of Holdings or the Company. Executive shall be entitled to five (5)
weeks paid vacation for each twelve month period following the Effective Date.
Following termination of Executive's employment for any reason, Holdings shall
continue or cause the Company to continue to provide Executive and his spouse
with health insurance (or cash sufficient to acquire health insurance) which is
equivalent in coverage to the health insurance in effect on the Date of
Termination, until the earlier of Executive reaching the age of 65 or Executive
becoming a full time paid employee at another company.
(2) Holdings shall provide or cause the Company to provide
Executive with the exclusive use (for business and personal needs) of a luxury
automobile that is equivalent to the automobile provided to Executive on the
date hereof in terms of quality, cost, features, size and prestige. Holdings
shall be responsible for or cause the Company to be responsible for the payment
or reimbursement of all costs incurred with respect to the automobile provided
to Executive including, but not limited to, maintenance, insurance, repairs and
fuel.
(3) Holdings shall provide or cause the Company to provide
Executive with membership to two country clubs of Executive's choice, and shall
either pay or reimburse Executive for all initial and periodic fees, expenses,
dues and assessments incurred in connection with such memberships.
(4) Holdings shall reimburse or cause the Company to
reimburse Executive, upon request, for all business expenses, such as travel,
entertainment, lodging and meals, incurred by Executive in furtherance of his
duties under this Agreement. Executive shall be entitled to first class air and
ground transportation in connection with Executive's business travel.
(5) Holdings shall provide or cause the Company to provide
Executive with telephone service, including mobile telephone service,
as requested by Executive in furtherance of his duties under this Agreement.
(6) Holdings shall provide or reimburse or cause the
Company to either provide, or, if requested by Executive, reimburse
Executive for the costs of, a complete annual physical examination for both
Executive and Executive's spouse.
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<PAGE> 4
(7) Holdings shall enable or cause the Company to
enable Executive to participate in, and to receive all benefits and perquisites
under, any other compensation, employee benefit, employee welfare and fringe
benefit plans or programs now or hereinafter established by Holdings or Company
for executive officers.
(e) Special Bonus
To the extent a change of control (as defined in the
Investors' Agreement dated as of August 7, 1997, among DecisionOne Holdings
Corp., DLJ Merchant Banking Partners II, L.P., DLJ Merchant Banking Partners
II-A,L.P., DLJ Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ
Diversified Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ Millennium
Partners-A, L.P., DLJJMB Funding II, Inc., UK Investment Plan 1997 Partners, DLJ
EAB Partners, L. P., DLJ First ESC, LLC, and Certain Other Persons Named therein
(the "Investor Agreement")) event occurs on or before Executive's employment
terminates or at any time thereafter if prior to the termination of Executive's
employment, the Company, Holdings, DLJ Merchant Banking Partners II, L.P.
("DLJMBII"), any affiliates of DLJMBII, or any authorized representative of such
parties engages in substantive discussions concerning the possible change of
control and DLJMBII generates an internal rate of return on its original
investment in excess of 40% per annum, Executive will be paid a Special Bonus by
Holdings. The Special Bonus will be paid in cash within ten (10) days of the
Special Bonus event occurring. If the internal rate of return is greater than
40% the Special Bonus shall be $5,000,000. For each 1% increase above 40%,
Executive shall receive an additional $500,000 but in no event shall the Special
Bonus exceed $15,000,000. The Special Bonus, together with any other similar
bonuses awarded to Mr. Felice, shall be taken into account in calculating the
internal rate of return.
4. Termination of Employment.
(a) Disability. The Executive's employment shall terminate
upon the occurrence of Disability. "Disability" means the inability of Executive
to perform services hereunder, substantially as performed on the date hereof, on
a full time basis by reason of physical or mental incapacity, sickness or
infirmity which continues for more than three (3) consecutive months or for
periods aggregating more than six (6) months during any twenty-four (24) month
period. Executive shall continue to receive all Base Salary, cash bonuses and
other benefits to which he is entitled during such three (3) month or
twenty-four (24) month period, as the case may be, pending a determination of
Disability.
(b) Death. If Executive dies during the term of this
Agreement, his employment shall terminate as of the date of death.
(c) Termination for Cause. The Company and Holdings may
terminate Executive's employment at any time for Cause. "Cause" means that at
duly convened meetings of the Boards of Directors of Holdings and the Company of
which Executive was given reasonable advance notice and at which Executive and
his counsel had the opportunity to be heard, a resolution
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<PAGE> 5
was adopted by the affirmative vote of not less than two-thirds of the entire
membership of such Boards (including the affirmative votes of at least one
outside member of each of such Boards) finding that, in the good faith judgment
of each of such Boards, any of the following had occurred:
(A) Executive's willful and continued failure
substantially to perform his duties under the Agreement (other than as a result
of total or partial incapacity due to physical or mental illness);
(B) the conviction of Executive or the plea of
guilty by Executive for a felony under the laws of the United States or any
state thereof or any other jurisdiction in which the Company or Holdings
conducts business;
(C) Executive's repeatedly being under the
influence of illegal drugs or alcohol while performing his duties hereunder;
(D) any other act or omission which is materially
injurious to the financial condition or business reputation of the Company,
Holdings or any of their affiliates; or
(E) Executive's breach of the provisions of
Section 8.
Provided that, in the case of any action or omission described in clause (A),
(C), (D) or (E) above (a "Deficiency"), the Company must first provide Executive
thirty (30) days written notice of the Deficiency and the opportunity to cure
such Deficiency, and provided further, that Cause shall not be deemed to exist
with respect to any act or omission which Executive in good faith believed to
have been in, or not opposed to, the best interest of the Company.
(d) Termination Without Cause. Holdings and the Company
may terminate Executive's employment under this Agreement, without Cause
(as defined above), at any time upon written notice to Executive given at least
one hundred eighty (180) days in advance. Likewise, Executive may terminate
employment under this Agreement at any time upon written notice to Holdings and
the Company given at least one hundred eighty (180) days in advance. In each
case, Holdings shall pay or shall cause the Company to pay Executive his full
compensation hereunder and continue to provide Executive his full benefits
during such period.
5. Obligations Upon Termination.
(a) Disability. If Executive's employment is terminated
due to Disability, then Holdings thereafter shall continue to pay or cause the
Company to continue to pay Executive the Base Salary then in effect until the
earlier of the date on which Executive begins to receive benefits under each of
the disability plans of Holdings and Company in which Executive is a
participant or the date of Executive's death. Such amount shall be paid in the
same installments as salary is paid to the senior executives of Holdings. In
addition, Holdings shall provide or cause the Company to provide the benefits
required by Section 5(d).
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<PAGE> 6
(b) Death or Termination for Cause. If Executive's
employment terminates due to his death or upon termination for Cause, Holdings
shall provide or cause the Company to provide Executive or his executor or
personal representative with the benefits required by Section 5(d) hereof, and
shall have no further obligations under this Agreement.
(c) Termination Without Cause.
(i) if at any time Holdings or the Company
terminates Executive's employment without Cause, then Holdings in addition to
providing the compensation and benefits during the period referred to in Section
4(d) and the benefits required by Section 5(d), shall pay or cause the Company
to pay to Executive the aggregate of the following amounts, 50% in a lump sum in
cash, within thirty (30) days after the Date of Termination, and the balance in
eighteen (18) equal consecutive monthly installments commencing sixty (60) days
after the Date of Termination.
(x) an amount equal to the Base Salary
received by Executive for the eighteen (18) month period immediately
preceding the Date of Termination, or, if termination occurs during the first
eighteen (18) months of the Initial Term, $675,000, plus,
(y) an amount equal to 150% of the annual
cash bonus received by Executive with respect to the preceding fiscal
year, or, if termination occurs during the first year of the Initial Term,
$750,000.
(ii) if at any time Executive voluntarily
terminates his employment, then Holdings in addition to providing the
compensation and benefits during the period referred to in Section 4(d) and the
benefits required by Section 5(d), shall pay or shall cause the Company to pay
to Executive in six (6) equal consecutive monthly installments commencing thirty
(30) days after the Date of Termination an amount equal to the base salary
received by Executive for the six months immediately preceding the Date of
Termination.
"Date of Termination" means: in the event of termination as a result of:
(s) Disability, the date Executive's
employment is terminated pursuant to
Section 4(a);
(t) Death, the date of death;
(u) Cause, the date Executive's employment
is terminated pursuant to Section 4(c);
(v) No Cause, (i) the date of termination
specified in the notice of termination of employment from Holdings or the
Company, or (ii) the date of termination specified in Executive's letter of
resignation to Holdings and the Company.
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<PAGE> 7
(d) Additional Obligations. If Executive's employment
terminates for any reason, then in addition to all amounts payable under this
Agreement or otherwise including, but not limited to, the health insurance
benefits referred to in Section 3(d)(i) hereof, Holdings shall or shall cause
the Company to:
(i) Unpaid Obligations. Pay to Executive or his
executor or legal representative, as the case may be, within thirty (30) days
after the Date of Termination, any unpaid portion of Executive's Base Salary,
any unpaid portion of Executive's cash bonus for the year preceding the year in
which the Date of Termination shall occur, and benefits (including, without
limitation, reimbursable business expenses) up to the date of Executive's Date
of Termination;
(ii) Prorated Bonus. Pay to Executive or his
executor or legal representative, as the case may be, within thirty (30) days
after the Date of Termination, the higher of (a) an amount equal to the
prorated portion of the annual cash bonus for the fiscal year preceding the
fiscal year in which termination occurs or (b) the prorated portion of the
annual cash bonus for the fiscal year in which termination occurs (i.e., the
cash bonus amount that Executive would have received if he had been employed by
the Company for the full fiscal year multiplied by a fraction, of which the
numerator shall be the number of calendar days that Executive was an employee
of the Company during such year ,and the numerator of which shall be 365). For
purposes of determining the bonus that would have been received for the fiscal
year in which termination occurs the financial results for the partial year
completed shall be extrapolated to full year results.
6. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any benefit,
bonus, incentive or other plans, programs, policies or practices provided by
Holdings or the Company and for which Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as Executive may have under any
stock option or other agreements with Holdings or the Company. Except as
otherwise provided herein, amounts which are vested benefits or which Executive
is otherwise entitled to receive under any plan, policy, practice or program of
Holdings or the Company at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program.
7. No Mitigation. In no event shall Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to Executive under any of the provisions of this Agreement. The
obligations of Holdings and the Company to make the payments provided for in
this Agreement subject to Section 8(a) and otherwise to perform their
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which Holdings or the
Company may have against Executive or others.
8. Confidential Information; Competition.
(a) Except as advisable to comply with law or a court or
regulatory agency order, Executive shall not disclose any secret or confidential
information, knowledge, or data of Holdings or the Company, and their respective
businesses, which shall have been obtained by Executive
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<PAGE> 8
during Executive's employment by Holdings and the Company and which shall not be
or have become public knowledge (other than by acts by Executive or his
representatives in violation of this Agreement). In no event shall an asserted
violation of the provisions of this Section constitute a basis for deferring or
withholding any amounts otherwise payable to Executive under this Agreement
unless at duly convened meetings of the Boards of Directors of Holdings and the
Company of which Executive was given reasonable advance notice and at which
Executive and his counsel had the opportunity to be heard, a resolution was
adopted by the affirmative vote of not less than two-thirds of the entire
membership of such Boards (including the votes of at least one outside member of
each such Boards) finding that, in the good faith judgment of each of such
Boards Executive has violated the provisions of this Section 8.
(b) So long as Executive is employed under this Agreement
and for the one year period following the Date of Termination, Executive will
not conduct or participate in any business whose principal business is computer
maintenance. Holdings and the Company may, extend the period of Executive's
non-competition for one additional year. If Holdings and the Company elect to
so extend such period, they shall notify Executive of such one-year extension
within five days after the notice of Executive's termination and shall then pay
to Executive the full Base Salary in effect as of the Date of Termination for
the entire additional one-year period. For a two-year period following
termination of his employment under this Agreement, Executive shall not
directly solicit for employment any of Holdings' or the Company's officers or
employees. Executive may hire, however, employees or officers who, without
solicitation by Executive, approach Executive regarding employment or
consulting.
9. Executive Investment/Stock Ownership.
(a) Executive is the holder of a number of options to
acquire pre-recapitalization Common Stock (the "Existing Options"). Executive
has designated for conversion Existing Options to acquire 86,111 shares of
Common Stock. Immediately upon effectiveness of the recapitalization
contemplated by the Merger Agreement, the Existing Options designated by
Executive shall automatically be deemed canceled and Holdings shall be deemed to
have substituted and delivered to Executive identical options (the "Substitute
Options") to acquire Holdings' post-recapitalization Common Stock. The excess of
the aggregate fair market value of the Common Stock subject to the Substitute
Options immediately after the substitution over the aggregate option exercise
price for such Common Stock shall equal the excess of the aggregate fair market
value of the Common Stock subject to the designated Existing Options immediately
before such substitution over the aggregate option exercise price for such
Common Stock, and all other terms shall remain unchanged from those applicable
to the Existing Options, except that Executive may exercise and transfer
Substitute Options to the extent specified in Section 9(b) below.
(b) The Substitute Options created pursuant to this
Section 9, if and to the extent that they are Non-Qualified Stock Options, may
be transferred by Executive, and exercised by Executive, through: (i) transfer
at any time to Executive's family or relatives, (ii) transfer at any time to any
other persons or trusts for estate planning purposes, (iii) transfer or exercise
at any time
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following the death or Disability of Executive, (iv) transfer or exercise, after
the first year of the Initial Term, of Substitute Options covering up to 50% of
the Common Stock which could be acquired pursuant to all of the Substitute
Options in the aggregate, (v) transfer or exercise at any time after DLJMBII,
and any affiliates of DLJMBILI in the aggregate, sell, pledge, transfer or
otherwise dispose of more than 50% of the Common Stock which was acquired by
them on the Effective Date, (vi) transfer or exercise of all of such Substitute
Options at any time after expiration of the Initial Term, or (vii) transfer or
exercise after Executive's employment is terminated. Holdings shall register the
Substitute Options on a Form S-8.
(c) Notwithstanding any provision of this Agreement, the
Investor Agreement, or any other agreement respecting options granted to
Executive or Common Stock now owned or hereafter acquired by Executive pursuant
to the exercise of options or otherwise, Executive shall be free of any
restrictions with respect to the sale, gift, transfer or any other disposition
of the Common Stock upon the earlier of two years from the Effective Date or
Executive's termination of employment hereunder for any reason.
10. Successors.
(a) This Agreement is personal to Executive and without
the prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the law of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon Holdings, the Company and their respective successors and assigns.
(c) Holdings and the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of either Holdings or
the Company (whether such assets are held directly or indirectly), by agreement
in form and substance reasonably satisfactory to Executive, to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that Holdings and the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a material breach of
this Agreement.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
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<PAGE> 10
(b) The parties agree that all disputes under or in
connection with this Agreement will be submitted to arbitration in the County
of Philadelphia, Commonwealth of Pennsylvania, to the American Arbitration
Association ("AAA") under its rules then prevailing for the type of claim in
issue, provided that there shall be a panel of no less than three arbitrators.
In any action or proceeding relating to this Agreement, the parties agree that
no damages, other than compensatory damages, shall be sought or claimed by
either party and each party waives any claim, right or entitlement to punitive,
exemplary, statutory or consequential damages, or any other damages, and each
relevant arbitral panel is specifically divested of any power to award any
damages in the nature of punitive, exemplary, statutory or consequential
damages, or any other damages of any kind or nature in excess of compensatory
damages.
(c) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other parties, or by
overnight express courier, or registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to Executive:
Kenneth Draeger
1232 Denbigh Lane
Radnor, Pennsylvania 19087
If to Holdings or the Company:
DecisionOne Holdings, Corp.
50 East Swedesford Road
Frazer, PA 19355
Attention: Secretary
cc: Peter Grauer, Esquire
Donaldson, Lufkin, Jenrette Merchant
Banking Partners II, L.P.
277 Park Avenue
New York, New York 10172
or to such other address as any party shall have furnished to the others in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(d) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(e) Any party's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of such provision
or any other provision hereof.
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(f) This Agreement contains the entire understanding of
Holdings, the Company and Executive with respect to the subject matter hereof.
(g) Holdings shall promptly reimburse or shall cause the
Company to promptly reimburse Executive for the attorney's fees and expenses
incurred by Executive (i) in the negotiation and preparation of this Agreement
and any ancillary agreements or documents, (ii) as a result of any contest or
dispute by Holdings, the Company or others of the validity or enforceability
of, or liability under, any provision of this Agreement or any guarantee of
performance thereof if Executive is the prevailing party, and (iii) in
connection with Executive's defense of any claims or actions brought by
Holdings or the Company arising out or relating to this Agreement or
Executive's employment with Holdings and/or the Company if Executive is the
prevailing party. Upon any material breach of this Agreement by Holdings or the
Company, all amounts payable to Executive by Holdings and the Company hereunder
shall automatically vest, mature and become immediately due and payable.
IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant
to the authorization from their respective Boards of Directors, Holdings and the
Company have caused this Agreement to be executed in their name and on their
behalf, all as of the day and year first above written.
---------------------------------
Kenneth Draeger
DECISIONONE HOLDINGS CORP.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
DECISIONONE CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
11
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EXHIBIT A
PEER PERFORMANCE COMPARISON
The Peer Group Comparison will be derived from the then
current proxy statements of the following companies:
AMS
Banctec
BDM International
Compucom
DST Systems
Fiserv
Inacom
SMS
SunGard
Vanstar
Wang
Annually, during the term of this Agreement, the parties shall
determine whether these companies continue to be appropriate peer comparisons
for Holding and the Company. If the parties determine that one or more of the
above companies is no longer appropriate for peer comparison purposes, the
parties shall mutually agree upon another company or companies as a substitute
or shall determine that no additional company shall be added to the list.
12
<PAGE> 1
EXECUTION COPY
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of August 7, 1997 among
DecisionOne Holdings Corp., a Delaware corporation ("HOLDINGS"), DecisionOne
Corporation, a Delaware corporation (the "COMPANY"), and Stephen J. Felice
("EXECUTIVE").
WHEREAS, each of Holdings and the Company desires to employ
Executive as President and Chief Operating Officer;
WHEREAS, Holdings, the Company and Executive desire to enter
into an agreement (the "AGREEMENT") embodying the terms of such employment;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
1. Employment Term. Executive's employment by the Company and
Holdings shall be for a period which shall commence on the date hereof and
shall terminate on the second anniversary of the date hereof (the "INITIAL
TERM"); provided that the employment term shall be automatically extended upon
the terms hereof for successive one year periods unless not later than six
months prior to the date of automatic extension, Holdings, the Company or
Executive shall have given notice to the contrary. The period commencing as
of the date hereof and ending on the scheduled expiration (the "EXPIRATION
DATE") pursuant to the foregoing provisions of Executive's employment hereunder
is referred to as the "EMPLOYMENT TERM". Notwithstanding the foregoing, the
Employment Term shall terminate in any and all events upon the termination of
Executive's employment hereunder.
2. Positions. During the Employment Term, Executive shall
serve as President and Chief Operating Officer of the Company and Holdings.
Executive shall report directly to the Chief Executive Officer of Holdings and
shall have such duties and authority commensurate with such position as shall
be determined from time to time by the Board of Directors of Holdings (the
"BOARD") and the Chief Executive Officer. Executive shall devote
substantially all of his business time and best efforts to the performance of
his duties hereunder and shall not engage in any other business, profession or
occupation for compensation or otherwise. Notwithstanding the foregoing,
Executive may serve on boards of directors (with the prior approval of the
Chief Executive Officer of the Company), participate in civic associations,
charities and similar activities so long as such activities do not materially
detract from his ability to carry out
<PAGE> 2
his duties hereunder.
3. Base Salary. During the Employment Term, the Company
shall pay Executive a base salary (the "BASE SALARY") at the annual rate of
$250,000, payable in arrears, in accordance with the usual payment practices of
the Company. Executive's Base Salary shall be subject to periodic review by
the Compensation Committee of Holdings, not less frequently than annually, and
shall be adjusted on or before each anniversary date of this Agreement in order
to place Executive in at least the 40th percentile for base cash compensation
received by the highest paid executives in Holdings' industry. Holdings'
industry peer group and the classification of compensation for purposes of
computing such comparison and establishing such increases in Base Salary shall
be as specified on Exhibit A attached to this Agreement (as such data shall be
updated from time to time, the "PEER GROUP COMPARISON"). Any such adjusted
rate will thereafter be the Base Salary for all purposes of this Agreement. In
no event shall Executive's Base Salary in any year be adjusted below the Base
Salary for the prior year.
4. Annual Cash Bonus. The Company shall pay Executive, for
each fiscal year of his employment, beginning with the fiscal year ending in
1998, a cash bonus (the "BONUS") in an amount established by the Board based
upon the achievement of certain levels of performance. If for any fiscal year
the target levels are achieved, then Executive's cash bonus for such fiscal
year shall be in an amount which would place Executive in at least the 75th
percentile for total cash compensation (less base compensation) received by the
highest paid executives indicated by the Peer Group Comparison. In no event
shall Executive's target Bonus for any fiscal year be less than 100% of Base
Salary. The timing of the payment of the Bonus shall be in accordance with the
Company's normal procedures.
5. To the extent a Change of Control (as defined in the
Investors' Agreement dated as of August 7, 1997, among the Company, DLJ
Merchant Banking II, L.P. ("DLJMBII"), DLJ Merchant Banking Partners II-A,
L.P., DLJ Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ
Diversified Partners-A, L.P., DLJ Millenium Partners, L.P., DLJ Millenium
Partners-A, L.P., DLJMB Funding II, Inc., UK Investment Plan 1997 Partners, DLJ
EAB Partners, L.P., DLJ First ESC, LLC, and certain other shareholders listed
on the signature pages thereto) event occurs on or before Executive's
employment terminates or at any time thereafter if prior to the termination of
Executive's employment, the Company, Holdings, DLJMBII, any affiliates of
DLJMBII, or any authorized representative of such parties engages in
substantive discussions concerning the possible change of control and DLJMBII
generates an internal rate of return on its original investment in excess of
40% per annum, Executive will be paid a special bonus (the "SPECIAL BONUS") by
Holdings. The Special Bonus will be paid in cash within 10 days of the Special
Bonus event occurring. If the internal rate of return is in excess of 40%, the
Special Bonus shall be $2.5 million. For each 1% increase above 40%, Executive
shall receive an additional $250,000 but in no event shall the Special
2
<PAGE> 3
Bonus exceed $7.5 million. The Special Bonus, together with any special bonus
awarded to Mr. Draeger, shall be taken into account in calculating internal
rate of return.
6. Employee Benefits. (a) During the Employment Term,
Executive shall be entitled to participate on a basis no less favorable than
other senior executives of the Company and Holdings in all retirement, welfare
benefit, incentive compensation, perquisite and other plans and arrangements of
the Company applicable to senior executives of the Company and Holdings, as in
effect from time to time.
(b) Executive shall be entitled to participate in the
Management Stock Incentive Plan of Holdings (the "MSIP").
(c) Executive shall have the use of a Company automobile and
shall be reimbursed for (i) the reasonable costs of one country club
membership, (ii) the establishment and use of telephone lines in Pennsylvania
and Executive's automobile, (iii) an annual physical examination for Executive
and his spouse and (iv) first class air travel.
(d) Executive shall be entitled to five weeks of vacation for
each 12 month period that Executive is employed hereunder.
(e) Executive shall be entitled to reimbursement for
reasonable tax planning and estate planning services.
7. Business Expenses. During the Employment Term, the
Company shall reimburse such of Executive's travel, entertainment and other
business expenses as are reasonably and necessarily incurred by Executive
during the Employment Term in the performance of his duties hereunder, in
accordance with the Company's policies as in effect from time to time.
8. Termination. Upon a termination of the Employment Term
prior to its scheduled expiration, Executive shall be entitled to the payments
described in this Section 8.
(a) For Cause by the Company; by Executive without Good
Reason. The Employment Term may be terminated prior to the Expiration Date by
the Company and Holdings for Cause or by Executive without Good Reason (each as
defined below).
If the Employment Term is terminated by the Company or
Holdings for Cause or by Executive without Good Reason, Executive shall be
entitled to receive his Base Salary through the date of termination, any Bonus
that has been earned in accordance with Section 4 for a prior fiscal year but
not yet paid and any unreimbursed business expenses, payable promptly following
the later of the date of such termination
3
<PAGE> 4
and the date on which the appropriate documentation is provided.
All other benefits following termination of the Employment
Term pursuant to this Section 8(a) shall be determined in accordance with the
plans, policies and practices of the Company.
(b) Death or Disability (as defined below). The Employment
Term shall terminate prior to the Expiration Date upon Executive's death or
Disability. If the Employment Term is terminated prior to the Expiration Date
by reason of death or Disability, Executive or Executive's estate, as
applicable, shall receive (i) the amounts described under Section 8(a), (ii)
continued payment of Base Salary through the first anniversary of the date of
death or the first anniversary of the date of termination based upon
Disability, (iii) continued participation by Executive's family in all health,
medical and dental plans of the Company, or comparable coverage, for such one
year period and (iv) the Bonus that would have been payable to Executive for
the year of termination pursuant to paragraph 4 hereof (if the target is met)
pro-rated to the date of termination and payable upon termination. Such
amounts shall be in addition to any proceeds otherwise payable to Executive or
his estate, as the case may be, on account of any life or disability insurance
policy provided as a benefit to Executive hereunder.
All other benefits following termination of the Employment Term
pursuant to this Section 8(b) shall be determined in accordance with the plans,
policies and practices of the Company.
(c) By the Company without Cause; by Executive with Good
Reason; Election by the Company not to Renew. The Employment Term may be
terminated prior to the Expiration Date by the Company or Holdings without
Cause or by Executive with Good Reason.
If the Employment Term is terminated prior to the Expiration
Date by the Company or Holdings without Cause or by Executive with Good Reason
or the Company elects (other than for Cause) not to extend the Employment Term
for an additional one year period in accordance with Section 1, subject to
Executive's continued compliance with the covenants (other than an inadvertent
breach) set forth in Section 9, Executive shall receive (i) the amounts
described under Section 8(a), (ii) continued payment of Executive's Base Salary
for an eighteen (fifteen in the case of a termination for Good Reason) month
period at the rate in effect for the year of termination, payable in eighteen
(fifteen in the case of a termination for Good Reason) monthly installments,
(iii) continued participation by Executive's family in all health, medical and
dental plans of the Company, or comparable coverage, for such eighteen (or
fifteen) month period or, if earlier, until Executive is covered by comparable
programs of a subsequent employer and (iv) payment in an amount equal to 1 1/2
(1 1/4 in the case of a termination for Good Reason) times the Bonus Executive
would have received (assuming for this purpose that
4
<PAGE> 5
the target was met) had Executive remained employed hereunder for the entire
year, payable in eighteen (fifteen in the case of a termination for Good
Reason) monthly installments; provided that if Executive obtains employment
prior to the payment of all such monthly installments of Base Salary and Bonus,
Executive shall only receive one-half of the amount of each remaining
installment.
All other benefits following termination of the Employment Term
pursuant to this Section 8(c) shall be determined in accordance with the plans,
policies and practices of the Company.
(d) Definitions. For purposes of this Section 8, the
following terms shall have the following meanings:
(i) "CAUSE" shall mean:
(A) Executive's willful and continued failure substantially
to perform his duties under the Agreement (other than as a result of total or
partial incapacity due to physical or mental illness);
(B) the conviction of Executive or the plea of guilty by
Executive for a felony under the laws of the United States or any state thereof
or any other jurisdiction in which the Company or Holdings conducts business;
(C) Executive's repeatedly being under the influence of
illegal drugs or alcohol while performing his duties hereunder; or
(D) Executive's breach (other than an inadvertent breach) of
the provisions of Section 9;
provided that, in the case of any action or omission described in clause (A) or
(D) above (a "DEFICIENCY"), the Company must first provide Executive 30 days
written notice of the Deficiency and the opportunity to cure such Deficiency.
For purposes of this definition, no act or failure to act shall be deemed
"willful" unless effected by Executive not in good faith and without a
reasonable belief that such action or failure to act was in or not opposed to
the Company's or Holdings' best interests.
(ii) "GOOD REASON" shall mean the happening of any of the
following events followed within six months by a Notice of Termination by
Executive:
(A) Mr. Kenneth Draeger is replaced as Chief Executive
Officer of the Company and Executive is not promoted to such position;
(B) there is an adverse change to Executive's title or a
material adverse
5
<PAGE> 6
change in Executive's responsibilities or duties; or
(C) the Company's current principal place of business in
Pennsylvania is relocated more than 35 miles from its current site;
provided that, in the case of clause (B), Executive must first provide the
Company 30 days written notice of the change and the opportunity to cure.
(iii) "DISABILITY" shall mean Executive's inability, as a
result of physical or mental illness, to perform the duties of the position(s)
specified in Section 2 for a period of three consecutive months or for periods
aggregating more than six months during any 24 month period. Any question as
to the existence of the Disability of Executive as to which Executive and the
Company cannot agree shall be determined in writing by a qualified independent
physician selected by the Company and reasonably acceptable to Executive. The
determination of Disability made in writing to the Company and Executive shall
be final and conclusive for all purposes of the Agreement.
(e) Notice of Termination. Any purported termination of the
Employment Term prior to its scheduled expiration by the Company or Holdings or
by Executive shall be communicated by written notice of termination to the
other party hereto. For purposes of this Agreement, a "NOTICE OF TERMINATION"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination under the
provision so indicated.
9. Non-Competition/Confidential Information. (a) Executive
acknowledges and recognizes the highly competitive nature of the businesses of
the Company, Holdings and their affiliates and accordingly agrees that during
the Employment Term and through the first anniversary of the date of
termination of employment, Executive will not directly or indirectly accept an
engagement with any person or entity, a substantial business of which is
multivendor computer maintenance business or any other line of business of the
Company or Holdings or any of their affiliates accounting for 10% or more of
the Company's or Holding's gross revenues (each a "COMPETITIVE BUSINESS")
(including without limitation by performing or soliciting the performance of
services for any person who is a customer or client of the Company or any of
its affiliates), whether such engagement is as an officer, director,
proprietor, employee, partner, investor (other than as a holder of less than 1%
of the outstanding capital stock of a publicly traded corporation), consultant,
advisor, agent, sales representative or other participant, in any geographic
area in which Holdings, the Company or any of their affiliates conducted any
such competing line of business. Notwithstanding the foregoing, Executive may
accept an engagement with a division of a business so long as a substantial
business of such division is not a Competitive Business.
(b) During the Employment Term and through the second
anniversary of
6
<PAGE> 7
the date of termination of employment, Executive will not induce, or cause any
person or entity to induce, any employee of Holdings, the Company or any of
their affiliates to engage in any activity in which Executive is prohibited to
engage by paragraph (a) above or to terminate his employment with Holdings, the
Company or any of their affiliates, and will not employ or offer employment, or
cause any person or entity to employ or offer employment, to any person who was
employed by Holdings, the Company or any of their affiliates unless such person
shall have ceased to be employed by Holdings, the Company or any of their
affiliates for a period of at least 12 months.
(c) Executive will not at any time (whether during or after
his employment with Holdings and the Company) disclose or use for his own
benefit or purposes or the benefit or purposes of any other person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than Holdings, the Company and any of
their affiliates, any trade secrets, information, data, or other confidential
information relating to customers, development programs, costs, marketing,
trading, investment, sales activities, promotion, credit and financial data,
manufacturing processes, financing methods, plans, or the business and affairs
of Holdings or the Company generally, or of any of their affiliates, provided
that the foregoing shall not apply to information which is not unique to
Holdings or the Company or which is generally known to the industry or the
public other than as a result of Executive's breach of this covenant.
Executive agrees that upon termination of his employment with Holdings and the
Company for any reason, he will return immediately all memoranda, books,
papers, plans, information, letters and other data, and all copies thereof or
therefrom, in any way relating to the business of Holdings, the Company and
their affiliates, except that he may retain personal notes, notebooks and
diaries. Executive further agrees that he will not retain or use for his
account at any time any trade names, trademark or other proprietary business
designation used or owned in connection with the business of Holdings, the
Company or their affiliates.
10. Specific Performance and Other Remedies. Executive
acknowledges and agrees that Holdings and the Company have no adequate remedy
at law for a breach or threatened breach of any of the provisions of Section 9
and, in recognition of this fact, Executive agrees that, in the event of such a
breach or threatened breach, in addition to any remedies at law, Holdings
and/or the Company, without posting any bond and without notice to the
Executive, shall be entitled to obtain equitable relief in the form of specific
performance, temporary restraining order, temporary or permanent injunction or
any other equitable remedy which may then be available. Nothing in this
Agreement shall be construed as prohibiting Holdings or the Company from
pursuing any other remedies at law or in equity that it may have or any other
rights that they may have under any other agreement.
11. Miscellaneous.
7
<PAGE> 8
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
without reference to principles of conflict of laws.
(b) Entire Agreement/Amendments. This Agreement, any
purchase agreement to be entered into on the date hereof regarding the purchase
of shares of the Company, the MSIP to be adopted by Holdings and any award
agreements entered into under the MSIP, and the provisions of any employee plan
or arrangement maintained from time to time by the Company or Holdings in which
Executive participates contain the entire understanding of the parties with
respect to the employment of Executive by Holdings and the Company and
supersede any prior agreements between the Company, Holdings (and their
predecessors) and Executive. There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein and therein.
No provision in this Agreement may be amended unless such amendment is agreed
to in writing.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement. No waiver by either party of any breach by the other party of any
condition or provision contained in this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar condition or
provision at the same or any prior or subsequent time. Any waiver must be in
writing and signed by the Executive or Holdings or the Company, as the case may
be.
(d) Severability. It is expressly understood and agreed that
although Executive, Holdings and the Company consider the restrictions
contained in Section 9 to be reasonable, if a final judicial determination is
made by a court of competent jurisdiction that the time or territory
restriction in Section 9 or any other restriction contained in Section 9 is an
unenforceable restriction against Executive, such provision shall not be
rendered void but shall be deemed amended to apply to such maximum time and
territory, if applicable, or otherwise to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any
court of competent jurisdiction finds that any restriction contained in Section
9 is unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein. In the event that any one or more of the
other provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by any
party without the consent of the other parties.
8
<PAGE> 9
(f) Mitigation. Except as set forth in Section 8(c),
Executive shall not be required to mitigate the amount of any payment or
benefit to be provided pursuant to Section 8 by seeking other employment or
otherwise.
(g) Successors. This Agreement shall inure to the benefit of
and be binding upon the personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees of the
parties hereto. The Executive shall be entitled to select (and change, to the
extent permitted under any applicable law) a beneficiary or beneficiaries to
receive any compensation or benefit payable hereunder following the Executive'
death by giving Holdings or the Company written notice thereof. In the event
of the Executive's death or a judicial determination of his incompetence,
reference in this Agreement to the Executive shall be deemed, where
appropriate, to refer to his beneficiary, estate or other legal representative.
(h) Communications. For the purpose of this Agreement,
notices and all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when faxed or delivered or
two business days after being mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed (A) to the Executive
at his address then appearing in the personnel records of the Company, (B) to
Holdings at Holding's then current headquarters, with a copy to Holding's
Secretary, (C) to the Company at the Company's then current headquarters, with
a copy to the Company's Secretary and (D) to DLJMBII at DLJMBII's then current
headquarters with a copy to Peter Grauer or (E) to such other address as any
party may have furnished to the others in writing in accordance herewith, with
such notice of change of address being effective only upon receipt.
(i) Withholding Taxes. Holdings and/or the Company, as
applicable, may withhold from any and all amounts payable under this Agreement
such federal, state, local and any other applicable taxes as may be required to
be withheld pursuant to any applicable law or regulation.
(j) Survivorship. The respective rights and obligations of
the parties hereunder shall survive any termination of Executive's employment
to the extent necessary to the agreed preservation of such rights and
obligations.
(k) Representations. Each party represents and warrants to
the others that he or it is fully authorized and empowered to enter into this
Agreement and that the performance of his or its obligations under this
Agreement will not violate any agreement between him or it and any other person
or entity.
(l) Fees and Expenses. In the event of a dispute by
Holdings, the Company or Executive as to the validity or enforceability of, or
liability under, any
9
<PAGE> 10
provision of this Agreement and with respect to any claims arising in
connection with Executive's employment with Holdings and the Company, each
party shall pay its own legal fees and expenses incurred in connection with
such dispute or claim.
(m) Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
(n) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement. Any reference
to the Executive in the masculine gender herein is for convenience and is not
intended to express any preference by the Company for executives of any gender.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
---------------------------------------
Stephen J. Felice
DECISIONONE HOLDINGS CORP.
By:
-----------------------------------
Name:
Title:
DECISIONONE CORPORATION
By:
-----------------------------------
Name:
Title:
11
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
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF DECISIONONE CORPORATION AND
SUBSIDIARIES OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE RATE> 1
<CASH> 6,651
<SECURITIES> 0
<RECEIVABLES> 150,388
<ALLOWANCES> 10,854
<INVENTORY> 27,944
<CURRENT-ASSETS> 192,102
<PP&E> 75,627
<DEPRECIATION> 42,249
<TOTAL-ASSETS> 723,692
<CURRENT-LIABILITIES> 174,634
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (88,562)
<TOTAL-LIABILITY-AND-EQUITY> 723,692
<SALES> 202,264
<TOTAL-REVENUES> 202,264
<CGS> 157,445
<TOTAL-COSTS> 157,445
<OTHER-EXPENSES> 102,436
<LOSS-PROVISION> 53
<INTEREST-EXPENSE> 9,909
<INCOME-PRETAX> (67,579)
<INCOME-TAX> (10,462)
<INCOME-CONTINUING> (57,117)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57,117)
<EPS-PRIMARY> 0
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