<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1997
REGISTRATION NO. 333-28539
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
QUAKER HOLDING CO.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7378 APPLIED FOR
(State or other jurisdiction of (Primary Standard Industrial Classification (I.R.S. Employer
incorporation or organization) Code Number) Identification No.)
</TABLE>
277 PARK AVENUE
NEW YORK, NEW YORK 10172
(212) 892-3000
(Address and telephone number of registrant's principal executive offices)
PETER T. GRAUER
PRESIDENT
QUAKER HOLDING CO.
277 PARK AVENUE
NEW YORK, NEW YORK 10172
(212) 892-3000
(Name, address and telephone number of agent for service)
Copies to:
<TABLE>
<CAPTION>
<S> <C>
Richard D. Truesdell, Esq. Marc D. Jaffe, Esq.
Davis Polk & Wardwell Latham & Watkins
450 Lexington Avenue 885 Third Avenue
New York, New York 10017 New York, New York 10022
(212) 450-4000 (212) 906-1200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ].
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================
Title of Each Class of Amount to be Proposed Proposed Maximum Amount of
Securities to be Registered Registered Maximum Aggregate Offering Registration Fee (1)
Offering Price Price
Per Unit (1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units (2) (3)(4) (3) $85,050,000 $15.15(5)
- ------------------------------------------------------------------------------------------------------
Senior Discount (3) (6) (6) --
Debentures due 2009
- ------------------------------------------------------------------------------------------------------
Warrants to purchase (3)(4) (6) (6) --
Common Stock
- ------------------------------------------------------------------------------------------------------
Common Stock, par value 286,000 $23.00 $6,578,000 $1993.34
$0.01 per share
======================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) The Units will consist of Senior Discount Debentures due 2009 and Warrants
to purchase an aggregate of up to 286,000 Warrant Shares.
(3) The amount of Units, Senior Discount Debentures and Warrants to be
registered and the "Proposed Maximum Offering Price Per Unit" are not
currently determinable. The Senior Discount Debentures will be offered at a
discount from the principal amount.
(4) Up to 150,200.
(5) The registration fee amount of $25,757.58 was previously paid.
(6) No additional consideration will be paid by the purchasers of such
securities. Pursuant to Rule 457 under the Securities Act of 1933, no
separate fee is payable therefor.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED JULY 30, 1997
PROSPECTUS
, 1997
$
[DECISIONONE HOLDINGS CORP. LOGO]
DECISIONONE HOLDINGS CORP.
(AS SUCCESSOR OBLIGOR BY MERGER TO QUAKER HOLDING CO.)
UNITS CONSISTING OF
% SENIOR DISCOUNT DEBENTURES DUE 2008 AND
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
The units (the "Units"), each consisting of $1,000 principal amount
at maturity of % Senior Discount Debentures due 2008 (the "Debentures") and
warrants (the "Warrants") to purchase shares of common stock, par
value $.01 per share (the "Common Stock"), of Quaker Holding Co. ("Quaker")
are being offered (the "Offering") by Quaker, a corporation formed by the
DLJMB Funds (as defined herein) to acquire an interest in DecisionOne
Holdings Corp. ("Holdings") by means of the Merger (as defined herein). Upon
consummation of the Merger, Holdings will succeed to the obligations of
Quaker with respect to the Debentures and the Warrants, and the Warrants will
by their terms become exercisable for an equal number of shares of common
stock of Holdings, par value $.01 per share ("Holdings Common Stock").The
Debentures and the Warrants will not be separately transferable until the
earliest to occur of (i) 1997, (ii) the occurrence of a Change of
Control (as defined herein) and (iii) the date specified by Donaldson, Lufkin
& Jenrette Securities Corporation (the "Underwriter").
The issue price of the Units will be $ per Unit. The Debentures will
mature on , 2008. The issue price of the Debentures represents a yield to
maturity of % (computed on a semi-annual bond equivalent basis) calculated
from , 1997. The Debentures will accrete at a rate of %, compounded
semiannually, to an aggregate principal amount at maturity of approximately
$ million by , 2002. Cash interest will not accrue on the
Debentures prior to , 2002. Commencing on , 2002, cash interest on
the Debentures will be payable, at a rate of % per annum, semi-annually in
arrears on each and . See "Description of Debentures" and "Certain
Federal Income Tax Considerations."
The Debentures will be redeemable at the option of the Issuer (as defined
herein), in whole or in part, at any time on or after , 2002, in cash at
the redemption prices set forth herein, plus accrued and unpaid interest, if
any, thereon to the redemption date. In addition, at any time prior to ,
2000, the Issuer may, at its option, on any one or more occasions, redeem up
to 35% of the aggregate principal amount at maturity of the Debentures
originally issued at a redemption price equal to % of the Accreted Value (as
defined herein) thereof, with the net proceeds of one or more Equity
Offerings (as defined herein); provided that at least 65% of the original
aggregate principal amount at maturity of the Debentures will remain
outstanding immediately following each such redemption. Upon the occurrence
of a Change of Control, each Holder of the Debentures will have the right to
require the Issuer to repurchase Debentures at a price in cash equal to 101%
of the Accreted Value thereof, in the case of any such purchase prior to
, 2002, or 101% of the aggregate principal amount at maturity thereof, plus
accrued and unpaid interest, if any, thereon to the date of repurchase in the
case of any such purchase on or after , 2002. See "Description of
Debentures."
The Debentures will be senior obligations of the Issuer. The Debentures
will rank pari passu in right of payment with all future senior indebtedness
of the Issuer and will rank senior in right of payment to all future
indebtedness of the Issuer that is subordinated to the Debentures. The
Debentures will be effectively subordinated to all liabilities of the
Issuer's subsidiaries. On a pro forma basis after giving effect to the
Merger, including the Merger Financing and the application of the proceeds
therefrom, as of March 31, 1997, the Company would have had outstanding
approximately $738.8 million of Indebtedness (as defined herein) and the
Issuer's subsidiaries would have had $847.7 million of liabilities
outstanding, including Indebtedness under the Senior Subordinated Notes (as
defined herein) and the New Credit Facility (as defined herein) and including
trade payables.
Each Warrant will entitle the holder thereof, subject to certain
conditions, to purchase shares of Common Stock at an exercise price of
$ per share, subject to adjustment under certain circumstances. Upon
exercise, the holders of Warrants would be entitled, in the aggregate, to
purchase Holdings Common Stock representing % of the Holdings Common Stock
on a fully diluted basis on the date hereof, after giving effect to the
Merger. The Warrants will be exercisable at any time on or after , 1997.
Unless earlier exercised, the Warrants will expire on , 2007. See
"Description of Warrants."
Consummation of the Offering will occur concurrently with and is
conditioned upon, consummation of the Merger and Merger Financing. As part of
the Merger Financing, DecisionOne Corporation, a wholly owned subsidiary of
Holdings ("DecisionOne Corp."), is offering pursuant to a separate prospectus
$150 million principal amount of % Senior Subordinated Notes due 2007 (the
"Senior Subordinated Notes") and will enter into the New Credit Facility. See
"The Merger and Merger Financing."
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE UNITS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT AT PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO THE
MATURITY OF THE DEBENTURES PUBLIC(1) AND COMMISSIONS(2) COMPANY(1)(3)
- ------------- ------------------------------ ------------ -------------------------- -------------------
<S> <C> <C> <C> <C>
Per Unit ..... % % % %
Total ........ $ $ $ $
- ------------- ------------------------------ ------------ -------------------------- -------------------
</TABLE>
(1) Plus accrued original issue discount, if any, on the Debentures.
(2) See "Underwriting" for indemnification arrangements with the
Underwriter (as defined herein).
(3) Before deducting expenses payable by the Issuer, estimated at $ .
The Units are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by them, and subject to various
prior conditions, including the right to reject orders in whole or in part.
It is expected that delivery of the Units will be made in New York, New York,
on or about , 1997.
Donaldson, Lufkin & Jenrette
Securities Corporation
<PAGE>
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE UNITS CONSISTING OF % SENIOR DISCOUNT
DEBENTURES DUE 2008 AND WARRANTS TO PURCHASE COMMON STOCK OF QUAKER HOLDING
CO. BEING OFFERED HEREBY TO CALIFORNIA RESIDENTS, SUCH SECURITIES MAY BE SOLD
ONLY TO: (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF REGULATION D UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, (2) BANKS, SAVINGS AND LOAN
ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT
SHARING TRUSTS, ANY CORPORATIONS OR OTHER ENTITIES, WHICH, TOGETHER WITH SUCH
CORPORATION'S OR OTHER ENTITY'S AFFILIATES WHICH ARE UNDER COMMON CONTROL,
HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT
REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED BUT
NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000
AND SUBSIDIARIES OF THE FOREGOING, (3) ANY PERSON (OTHER THAN A PERSON FORMED
FOR THE SOLE PURPOSE OF PURCHASING THE SECURITIES OFFERED HEREBY) WHO
PURCHASES AT LEAST $1,000,000 AGGREGATE AMOUNT OF THE SECURITIES OFFERED
HEREBY, OR (4) ANY NATURAL PERSON WHO (A) HAS AN INCOME OF $65,000 AND A NET
WORTH OF $250,000, OR (B) HAS A NET WORTH OF $500,000 (IN EACH CASE EXCLUDING
HOME, HOME FURNISHINGS AND PERSONAL AUTOMOBILES). EACH CALIFORNIA RESIDENT
PURCHASING THE SECURITIES OFFERED HEREBY AGREES THAT IT WILL NOT SELL OR
OTHERWISE TRANSFER SUCH SECURITY TO A CALIFORNIA RESIDENT UNLESS THE
TRANSFEREE COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES AND THAT IT WILL
ADVISE THE TRANSFEREE OF THIS CONDITION WHICH TRANSFEREE, BY BECOMING SUCH,
WILL BE BOUND BY THE SAME RESTRICTIONS ON RESALE.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY. SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION
WITH THE OFFERING AND MAY BID FOR AND PURCHASE THE SECURITIES IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
Quaker has filed a registration statement on Form S-1 (together with all
amendments, supplements and exhibits thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission (the "Commission") with respect to the
Units, the Debentures and the Warrants (the "Securities") offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission, and reference is
hereby made to the Registration Statement and the exhibits and schedules
thereto for further information. Summary and other statements contained
herein concerning the provisions of any document are not necessarily
complete, and in each instance reference is hereby made to the copy of the
document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
Holdings, which will succeed to the obligations of Quaker under the
Securities following the Merger, is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
filed by Holdings may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices: Seven World Trade Center, 13th Floor, New York, New York 10048; and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. In addition, such material can
also be obtained from the Commission's Web site at http://www.sec.gov.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Investors are urged to read this Prospectus in
its entirety. As used in this Prospectus, the term "Quaker" means Quaker
Holding Co., the term "Issuer" means Quaker Holding Co. before the Merger and
DecisionOne Holdings Corp. after the Merger, the term "Holdings" means
DecisionOne Holdings Corp., the terms "DecisionOne" and the "Company" mean
DecisionOne Holdings Corp., its predecessors and subsidiaries, and the term
"DecisionOne Corp." means "DecisionOne Corporation", a wholly owned and the
principal operating subsidiary of DecisionOne Holdings Corp. References to
industry size and statistics contained herein, unless otherwise indicated,
are derived from information provided by Dataquest Incorporated
("Dataquest").
THE COMPANY
OVERVIEW
The Company is the largest independent provider of multivendor computer
maintenance and technology support services in the United States. The Company
offers its customers a single source solution for virtually all of their
computer maintenance and technology support requirements, including hardware
maintenance services, software support, end-user/help desk services, network
support and other technology support services. The Company believes it is the
most comprehensive independent (i.e., not affiliated with an original
equipment manufacturer ("OEM")) provider of these services across a broad
range of computing environments, including mainframes, midrange and
distributed systems, workgroups, personal computers ("PCs") and related
peripherals. The Company provides support for over 15,000 hardware products
manufactured by more than 1,000 OEMs. The Company also supports most major
operating systems and over 150 off-the-shelf ("shrink-wrapped") software
applications. The Company delivers its services through an extensive field
service organization of approximately 4,000 field technicians in over 150
service locations throughout the United States and Canada and strategic
alliances in selected international markets.
DecisionOne has emerged as the leading independent, multivendor provider
of computer maintenance and technology support services by (i) consummating
over 35 complementary acquisitions since the beginning of fiscal 1993, (ii)
expanding maintenance capabilities and introducing new technology support
services, (iii) increasing sales to existing customers by increasing
equipment under contract and by selling existing customers new technology
support services, (iv) adding new corporate customers and (v) providing
outsourcing services for OEMs, software publishers, system integrators and
other independent service organizations. As a result, the Company's revenues
have grown at a compound annual rate of 69.2% to approximately $820.4 million
for the annualized quarter ended March 31, 1997 from $114.1 million in fiscal
1993. Over the same period, the Company's Adjusted EBITDA (as defined herein)
has grown at a 74.2% compound annual rate to approximately $120.3 million for
the annualized quarter ended March 31, 1997 from $15.0 million in fiscal
1993.
In 1996, based on Dataquest projections, the Company estimates it had a 9%
market share of the $8.8 billion independent, multivendor segment of the
$40.5 billion U.S. hardware maintenance and technology support services
market. The independent, multivendor segment is projected by Dataquest to
grow at a 14% compound annual rate from $8.8 billion in 1996 to $14.8 billion
in 2000. The Company believes this growth is being driven by the
proliferation of computer equipment as well as outsourcing trends, including:
(i) the outsourcing by corporate customers of hardware maintenance and
technical support requirements and (ii) the outsourcing by major hardware
OEMs and software publishers of maintenance services (including warranty and
post-warranty services) and end-user technical support requirements. In
addition, the Company believes that demand for its services is being driven
by the increasing complexity of computing environments which has resulted
from the migration of computer systems from single OEM, centralized systems
to multivendor, decentralized systems. The Company believes that this
increased complexity has generally surpassed the technical capabilities of
many in-house support staffs and has accelerated the pace of outsourcing. The
Company believes that customers are increasingly turning to independent
service providers when outsourcing due to the increased use of multiple
vendors for hardware and the perception that OEM service providers are biased
toward specifying their own
3
<PAGE>
equipment as computer purchase requirements arise. Furthermore, many OEMs
such as Sun Microsystems, Inc. ("Sun") and Compaq Computer Corporation
("Compaq") are outsourcing certain non-core customer service activities,
including maintenance services (including warranty and post-warranty
services) and product support services (such as end-user help desk services)
to independent service organizations such as the Company.
COMPETITIVE STRENGTHS
The Company believes that it possesses a number of competitive strengths
that have allowed it to become the leading independent provider of
multivendor computer maintenance and technology support services, including:
EXTENSIVE SERVICE INFRASTRUCTURE. The Company provides customers with
high quality service through an extensive infrastructure including: (i)
approximately 4,000 highly trained field technicians, (ii) over 150
geographic locations throughout the United States and Canada, (iii) a
substantial spare parts inventory to ensure supply and rapid response times,
(iv) a broad service offering which enhances the Company's ability to provide
customers with a single source solution, (v) an extensive proprietary
database of historical failure rates for over 15,000 hardware products
manufactured by over 1,000 OEMs, (vi) a detailed record of major customers'
hardware and software assets and a record of such customers' maintenance
patterns and (vii) proprietary dispatch systems to ensure rapid customer
response times.
INDEPENDENT, MULTIVENDOR SERVICE PROVIDER. The Company provides customers
with an independent, multivendor solution for their computer maintenance and
technology support needs. As an independent service provider, the Company
believes it is viewed by customers as impartial to any particular OEM's
products. As a multivendor service provider, the Company supports over 15,000
hardware products manufactured by more than 1,000 OEMs as well as most major
operating systems and over 150 shrink-wrapped software applications. OEM,
specialty and local service providers do not offer either the breadth of
services or the geographic presence throughout the United States and Canada
provided by the Company.
CONTRACT-BASED REVENUES. Approximately 85% of the Company's revenues in
fiscal 1996 were derived from contracts, under which equipment and services
may be added and deleted. Furthermore, the Company believes that its
extensive service infrastructure and its unique knowledge of its customers'
hardware and software service requirements enhance the Company's ability to
provide superior service. The Company believes that the resulting track
record of service to existing customers affords it a competitive advantage in
renewing existing contracts and winning new contracts. Although many of the
Company's existing customer contracts are currently terminable on short
notice, 49 out of the Company's top 50 customers in fiscal 1994 are still
customers today.
DIVERSIFIED AND STABLE FORTUNE 1000 CUSTOMER BASE. The Company services
over 51,000 customers at over 182,000 sites across the United States and
Canada. In fiscal 1996, the Company's top 10 customers represented 23% of
revenues and the top 100 customers represented 47% of revenues. The Company's
customers include a diverse group of national and multinational corporations,
including SABRE Group, Inc. (an affiliate of American Airlines, Inc.), Sun,
Compaq, NationsBank, DuPont Company ("DuPont"), Chevron Corporation, and
Netscape Communications Corporation ("Netscape"). The Company believes that
the scope of its service offerings and the breadth of its geographic presence
in the United States and Canada allow it to serve this diverse group of
national and multinational customers as well as thousands of smaller
customers who also require customized services.
MITIGATED TECHNOLOGY AND RECESSION RISKS. The Company provides services
across a broad range of computing environments, including mainframes,
midrange and distributed systems, workgroups, PCs and related peripherals.
Consequently, although each segment of the computer hardware and software
industry is subject to shifts in technology, the Company believes that the
diversity of computing environments for which it provides services mitigates
the potential adverse effects of technological changes in any one segment.
Furthermore, the Company believes that because computer maintenance
requirements are based primarily on usage, the Company's hardware maintenance
business may be insulated from the adverse effects of declines in spending
during recessionary periods, so long as computer usage continues to
necessitate maintenance spending.
4
<PAGE>
BUSINESS STRATEGY
DecisionOne has developed a business strategy which it believes will
enable it to profitably grow future revenue and cash flow and which includes
the following elements:
PROVIDE A SINGLE SOURCE TECHNOLOGY SUPPORT SOLUTION. The Company intends
to continue its strategy of offering its customers a broad and expanding
range of computer technology support services in a single interface format.
The Company believes it meets the customer's preference for a single
interface by offering maintenance and technology support services across most
leading brands of hardware and software within virtually all computing
environments. In addition, the Company's single source solution enables the
Company to retain customers when customers change, substitute or upgrade
their computing environments.
OFFER ADDITIONAL SERVICES TO EXISTING CUSTOMERS. The Company generates new
revenues from existing customers by adding new equipment to existing hardware
maintenance contracts and by providing existing customers with additional
support services. Recent revenue growth attributable to the expansion of
additional support services has been derived primarily from (i) end-user
support services such as help desk services, (ii) network support services
such as local area networks ("LAN") administration, security management and
fault management, (iii) logistics services such as parts repair, inventory
and asset management, and warranty parts management and (iv) program
management services such as technology deployment and computer and software
moves, adds and changes. The Company believes that the breadth of its
additional support services has permitted, and will continue to permit, the
Company to leverage its historic strength in hardware maintenance to increase
revenues from existing customers and has enabled the Company to grow sales to
its top 50 customers in fiscal 1994 by 33.3% through fiscal 1996.
LEVERAGE EXISTING SERVICE INFRASTRUCTURE. The Company believes that, due
to the large scale of the Company's service infrastructure, the Company
enjoys substantial operating leverage and has positioned itself to increase
productivity and profitability whether the Company grows internally or
through acquisitions. The principal areas in which the Company expects to
realize the benefits of operating leverage include: (i) increased customer
call density in a region permitting field service technicians in the region
to complete a greater number of service calls per day, (ii) increased
comparable equipment density allowing the Company to operate with
proportionally lower inventory of spare parts and (iii) productivity gains
driven by new services such as end-user support services which reduce
unnecessary trips by field technicians to existing customers and by the
addition of new equipment under existing maintenance contracts. The Company
intends to further improve the productivity of its existing infrastructure by
investing in upgrades of its management information systems.
PURSUE COMPLEMENTARY ACQUISITIONS. The Company believes it is well
positioned strategically to participate in the further consolidation of the
computer maintenance and technology support services market and expects to
continue to evaluate complementary acquisitions. Further, the Company
believes that pursuing complementary acquisitions is an attractive growth
strategy due to the significant synergies which the Company may achieve when
it successfully consolidates acquisitions into its service infrastructure.
Since the beginning of fiscal 1993, the Company has completed over 35
acquisitions. The Company's typical acquisition consists principally of
customer maintenance and support contracts as well as the accompanying spare
parts inventory. The Company generally reduces the cost structure necessary
to service the acquired customer contracts by leveraging DecisionOne's
extensive service infrastructure, spare parts inventory and administrative
function. For example, the Company was able to service the contracts acquired
from Memorex Telex Corporation and certain of its affiliates ("Memorex
Telex") in November 1996 with approximately 36% fewer employees than
previously required by Memorex Telex. In addition, the Company seeks to
increase sales and profitability by offering acquired customers additional
services.
5
<PAGE>
CAPITALIZE ON OUTSOURCING TREND AMONG OEMS, SOFTWARE PUBLISHERS AND
SYSTEMS INTEGRATORS. The Company expands its marketing reach by offering its
services through outsourcing arrangements and indirect channels. For fast
growing hardware OEMs and software publishers concerned with cost savings and
time-to-market issues such as Sun, Netscape and Compaq, the Company provides
outsourced customer support services such as help desk services, warranty and
post-warranty maintenance services, and technical product support services.
For systems integrators, the Company provides maintenance and technology
support services on a subcontract basis to several large outsourcing clients
of Electronic Data Systems Corp. ("EDS") and Computer Sciences Corp.
STRATEGIC INITIATIVES
During fiscal 1997, the Company has implemented several strategic
initiatives designed to rationalize its cost structure and capitalize on
economies of scale. These initiatives included:
o the acquisition of complementary contracts and assets which the Company
has been able to service with fewer employees than the prior owners by
leveraging the Company's existing infrastructure. For example, during
fiscal 1997, the Company acquired contracts and assets of Memorex Telex
and Xerox Canada and reduced the number of service personnel required
to support such contracts from 1,192 to 768 and 160 to 120,
respectively;
o ongoing initiatives to enhance the efficiency of the Company's field
technician service force, including the addition of functionalities to
the Company's information systems which enable the Company to match
field technician skill sets with call productivity history and workload
requirements and the implementation of best practices, benchmarking and
targeted training programs across the Company's over 150 branch
locations; and
o the renegotiation of certain vendor contracts on more favorable terms,
including the Company's data center outsourcing contract with EDS and
the Company's telecommunications contracts with several providers.
As a result of these strategic initiatives and the Company's increased
operating leverage, the Company's Adjusted EBITDA has increased in each
successive quarter of fiscal 1997. Adjusted EBITDA for the quarter ended
March 31, 1997 increased to $30.1 million from $20.6 million for the quarter
ended September 30, 1996. Over the same period, Adjusted EBITDA margin
increased to 14.7% from 11.7%. In addition, these initiatives enabled the
Company to reduce 203 employees from its core business in November and
December of 1996 without impacting service levels and resulted in improved
revenue per employee from $30,700 in the quarter ended September 30, 1996 to
$32,400 in the quarter ended March 31, 1997. Certain quarterly data for
fiscal 1997 are shown in the table below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1996 MARCH 31, 1997
------------------ ----------------- --------------
(DOLLARS IN THOUSANDS)
---------------------------------------------------
<S> <C> <C> <C>
Revenues................................ $176,426 $191,253 $205,070
Sequential growth...................... 3.2% 8.4% 7.2%
Gross profit............................ $ 41,861 $ 48,221 $ 54,698
% of revenues.......................... 23.7% 25.2% 26.7%
Adjusted EBITDA(1)...................... $ 20,589 $ 25,386 $ 30,063
% of revenues.......................... 11.7% 13.3% 14.7%
Revenue per average number of
employees.............................. $ 30.7 $ 31.6 $ 32.4
</TABLE>
- ------------
(1) As defined in Note 8 to the Summary Historical and Unaudited Pro Forma
Condensed Consolidated Financial Data.
6
<PAGE>
RECENT DEVELOPMENTS
The Company's 1997 fiscal year ended on June 30, 1997. While the final
results of the quarter ended June 30, 1997 are not yet available, the Company
currently estimates that it recorded revenues of approximately $213.2 million
during the fourth quarter, and during such quarter realized operating income
of approximately $22.7 million and net income of approximately $11.2 million.
Based upon an estimated weighted average number of shares outstanding during
the quarter ended June 30, 1997 of approximately 30,266,000 shares, net
income per share for the fourth quarter is currently estimated to be
approximately $0.37.
The Company currently estimates that revenues for the full fiscal year
ended June 30, 1997 were approximately $785.9 million and that it realized
operating income of approximately $67.8 million and net income of
approximately $31.1 million. Based upon an estimated weighted average number
of shares outstanding during the fiscal year ended June 30, 1997 of
approximately 30,110,000 shares, net income per share for the fiscal year
ended June 30, 1997 is currently estimated to be $1.03 per share. Results of
operations for the full fiscal year ended June 30, 1997 include the impact of
certain charges recorded during the second quarter of fiscal 1997.
The above information is preliminary in nature only, and is subject in all
respects to completion of various internal analyses and procedures necessary
to finalize the Company's financial statements, and to completion of the
audit of the Company's financial statements for the fiscal year ended June
30, 1997.
HISTORY
Founded in 1969, the Company began operations as a provider of key punch
machines under the tradename Decision Data. During fiscal 1993, the Company
decided to focus principally on providing computer maintenance and technology
support services and sold its computer hardware products business. The
Company established a major presence in the servicing of midrange computer
systems through the successful acquisition and integration of assets and
contracts of over 35 complementary businesses from the beginning of fiscal
1993. In October 1995, the Company significantly expanded its computer
maintenance presence by acquiring Bell Atlantic Business Systems Services,
Inc. ("BABSS"). Prior to the acquisition, BABSS established a strong record
of internal growth, growing revenues from $338.4 million in 1991 to $486.1
million in 1994, representing a compound annual growth rate of 12.8%.
QUAKER
Quaker was incorporated on April 30, 1997 and has not carried on any
activities to date other than those incident to its formation and the
transactions contemplated by the Merger Agreement. All of the outstanding
capital stock of Quaker is owned by DLJMB and certain affiliated funds and
entities (the "Funds"). Certain additional funds affiliated with DLJMB (the
"Additional Funds") are expected to acquire a portion of the securities of
Quaker immediately prior to the Merger. As used herein, all references to the
"DLJMB Funds" prior to the time of the acquisition of securities of Quaker by
the Additional Funds shall refer to the Funds, and thereafter, to the Funds
and the Additional Funds. Immediately prior to the Merger, the DLJMB Funds
expect to purchase 9,782,508 shares of Common Stock and may acquire up to
1,417,180 warrants to purchase 1,417,180 shares of Common Stock at an
exercise price of not less than $0.01 per share (the "DLJMB Warrants") for
approximately $225 million (the "DLJMB Equity Investment"). The DLJMB Funds
expect that a limited number of institutional investors (the "Institutional
Investors") may acquire a portion of the securities of Quaker that would
otherwise be purchased by the DLJMB Funds in the DLJMB Equity Investment.
Upon the effectiveness of the Merger ("Effective Time"), the proceeds of the
DLJMB Equity Investment and any such purchase will become an asset of
Holdings, each share of Common Stock will become a share of Holdings Common
Stock and each warrant to acquire Common Stock will by its terms become
exercisable for an equal number of shares of Holdings Common Stock. In no
event would any such purchases by the Institutional Investors reduce the
fully diluted ownership by the DLJMB Funds of Holdings Common Stock after the
Effective Time to below a majority, or limit the rights of the DLJMB Funds as
described in "Certain Relationships and Related Transactions."
7
<PAGE>
THE MERGER AND MERGER FINANCING
Holdings and Quaker (which as of the date hereof is a wholly owned
subsidiary of the DLJMB Funds) have entered into an Agreement and Plan of
Merger, as amended (the "Merger Agreement"), dated as of May 4, 1997. The
Merger Agreement provides, among other things, for the merger of Quaker with
and into Holdings, with Holdings continuing as the surviving corporation (the
"Merger"). The Merger contemplates that approximately 5.3% (or 1,474,345 as
of April 21, 1997) of the outstanding shares of Holdings Common Stock will be
retained by existing Holdings stockholders.
In order to fund the payment of the cash portion of the Merger
Consideration (as defined herein), the Option Cash Proceeds (as defined
herein) and the Warrant Cash Proceeds (as defined herein), to refinance
outstanding indebtedness of DecisionOne Corp. and pay expenses incurred in
connection with the Merger, DecisionOne Corp. is issuing the Senior
Subordinated Notes and will enter into a syndicated senior secured loan
facility providing for term loan borrowings in the aggregate principal amount
of approximately $470 million and revolving loan borrowings of $105 million
(the "New Credit Facility"). At the Effective Time, DecisionOne Corp. is
expected to borrow all term loans available thereunder and approximately $8.3
million of revolving loans. The remaining revolving loans will, subject to a
borrowing base, be available to fund the working capital requirements of
DecisionOne Corp. The proceeds of such financings will, in part, be
distributed to Holdings in the form of a dividend and, in part, lent to
Holdings pursuant to an intercompany note. On May 4, 1997, DLJMB Inc., an
affiliate of DLJMB, received an executed commitment letter from DLJ Capital
Funding, Inc. ("DLJ Capital Funding") to provide the New Credit Facility,
which will be syndicated by DLJ Capital Funding. Additionally, on May 4,
1997, DLJMB Inc. received a letter from DLJSC (as defined herein) with
respect to the underwriting, purchase or private placement of the Senior
Subordinated Notes in which DLJSC indicated that it was highly confident of
its ability to sell the Senior Subordinated Notes in the public market. Each
of the commitments is subject to customary conditions, including the
negotiation, execution and delivery of definitive documentation with respect
to such commitment. See "Description of the New Credit Facility," "The Merger
and Merger Financing" and "Certain Relationships and Related Transactions."
Quaker expects to raise an additional $85 million through the concurrent
issuance of the Units in the Offering. At the Effective Time, Holdings will
succeed to the obligations of Quaker with respect to the Securities, and the
Warrants will, by their terms, become exercisable for an equal number of
shares of Holdings Common Stock. The DLJMB Funds (and certain Institutional
Investors) also expect to purchase 9,782,508 shares of Common Stock and may
acquire up to 1,417,180 DLJMB Warrants for approximately $225 million. In
lieu of acquiring the DLJMB Warrants, the DLJMB Funds (and certain
Institutional Investors) may acquire directly those shares of Common Stock
(up to 1,417,180 shares) for which such DLJMB Warrants would have been
exercisable, at a price that would be equivalent to the exercise price of the
DLJMB Warrants (the "Direct Shares"). The number of DLJMB Warrants issued or
Direct Shares purchased will be reduced by the number of Public Warrants
issued (if any). Upon the Effective Time, the proceeds of such purchase will
become an asset of Holdings, each share of Common Stock, including the Direct
Shares, if any, will become a share of Holdings Common Stock and each warrant
to acquire Common Stock will by its terms become exercisable for an equal
number of shares of Holdings Common Stock.
8
<PAGE>
The following table sets forth the estimated cash sources and uses of
funds as if the Merger and Merger Financing, including the application of the
proceeds therefrom, occurred and were completed at the Effective Time.
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
TOTAL SOURCES:
New Credit Facility:
Revolving credit facility ...................... $ 8.3
Term loans...................................... 470.0
Senior Subordinated Notes........................ 150.0
Units offered hereby ............................ 85.0
DLJMB Equity Investment.......................... 225.0
-------------
Total cash sources............................. $938.3
=============
TOTAL USES:
Cash Merger Consideration ....................... $605.9
Option Cash Proceeds and Warrant Cash Proceeds . 58.4
Repayment of existing revolving credit facility 221.2
Estimated transaction fees and expenses ......... 52.8
-------------
Total cash uses................................ $938.3
=============
</TABLE>
9
<PAGE>
THE OFFERING
Units Offered ................. Units, each consisting of $1,000
principal amount at maturity of % Senior
Discount Debentures due 2008 and
Warrants to purchase shares of Common
Stock. The Debentures and the Warrants will
not be separately transferable until the
earliest to occur of (i) , 1997, (ii) the
occurrence of a Change of Control and (iii)
the date specified by the Underwriter (the
"Separation Date").
Issue Price ................... $ per unit.
Gross Proceeds ................ $85,000,000.
Use of Proceeds ............... The net proceeds from the Offering, together
with the initial borrowings under the New
Credit Facility, the DLJMB Equity Investment
and the issuance of the Senior Subordinated
Notes, will be used to fund payment of the
cash portion of the Merger Consideration,
the Option Cash Proceeds and the Warrant
Cash Proceeds, to refinance outstanding
indebtedness of DecisionOne Corp. and to pay
the expenses incurred in connection with the
Merger.
THE DEBENTURES
Maturity Date ................. , 2008.
Yield and Interest ............ % (computed on a semi-annual bond
equivalent basis) calculated from ,
1997. The Debentures will accrete at a rate
of %, compounded semi-annually, to an
aggregate principal amount of $ million
by , 2002. Cash interest will not
accrue on the Debentures prior to ,
2002. Commencing , 2002, cash
interest on the Debentures will accrue and
be payable, at a rate of % per annum,
semi-annually in arrears on each and
.
Optional Redemption ........... The Debentures will be redeemable at the
option of the Issuer, in whole or in part,
at any time on or after , 2002, in
cash at the redemption prices set forth
herein, plus accrued and unpaid interest, if
any, thereon to the redemption date. In
addition, at any time prior to ,
2000, the Issuer may, at its option, on any
one or more occasions, redeem up to 35% of
the aggregate principal amount at maturity
of the Debentures originally issued at a
redemption price equal to % of the
Accreted Value thereof, with the net cash
proceeds of one or more Equity Offerings;
provided that at least 65% of the original
aggregate principal amount at maturity of
the Debentures will remain outstanding
immediately following each such redemption.
Change of Control ............. Upon the occurrence of a Change of Control,
each Holder of the Debentures will have the
right to require the Issuer to
10
<PAGE>
repurchase Debentures at a price in cash
equal to 101% of the Accreted Value thereof,
in the case of any such purchase prior to
, 2002, or 101% of the aggregate
principal amount at maturity thereof, plus
accrued and unpaid interest, if any, thereon
to the date of repurchase in the case of any
such purchase on or after , 2002. The
Issuer does not have, and may not in the
future have, any assets other than common
stock of DecisionOne Corp. As a result, the
Issuer's ability to repurchase all or any
part of the Debentures upon the occurrence
of a Change of Control will be dependent
upon the receipt of dividends or other
distributions from its direct and indirect
subsidiaries. The New Credit Facility and
the Senior Subordinated Notes restrict
DecisionOne Corp. from paying dividends and
making any other distributions to the
Issuer. If the Issuer does not obtain the
consent of the lenders under agreements
governing outstanding Indebtedness of its
Subsidiaries, including under the New Credit
Facility and the Senior Subordinated Notes,
to permit the repurchase of the Debentures
or does not refinance such Indebtedness, the
Issuer will likely not have the financial
resources to purchase Debentures upon the
occurrence of a Change of Control and the
Issuer's Subsidiaries will be restricted by
the terms of such Indebtedness from paying
dividends to the Issuer or otherwise lending
or distributing funds to the Issuer for the
purpose of such purchase. In any event,
there can be no assurance that the Issuer's
Subsidiaries will have the resources
available to pay any such dividend or make
any such distribution. Furthermore, the New
Credit Facility will provide that certain
change of control events will constitute a
default thereunder and the Senior
Subordinated Notes will provide that, in the
event of a Change of Control, DecisionOne
Corp. will be required to offer to
repurchase the Senior Subordinated Notes at
the price specified therefor. The Issuer's
failure to make a Change of Control offer
when required or to purchase tendered
Debentures when tendered would constitute an
Event of Default under the Debenture
Indenture (as defined herein). See
"Description of Debentures."
Ranking ....................... The Debentures will be senior obligations of
the Issuer. The Debentures will rank pari
passu in right of payment with all future
senior indebtedness of the Issuer and will
rank senior in right of payment to all
future indebtedness of the Issuer that is
subordinated to the Debentures. The
Debentures will be effectively subordinated
to all liabilities of the Issuer's
subsidiaries. On a pro forma basis, as of
March 31, 1997, after giving effect to the
Merger, including the Merger Financing and
the application of the proceeds therefrom,
the Company would have had outstanding
approximately $738.8 million of Indebtedness
and the Issuer's subsidiaries would have had
$847.7 million of total liabilities
outstanding, including Indebtedness under
the Senior Subordinated Notes and the New
Credit Facility and including trade
payables.
11
<PAGE>
Original Issue Discount ....... The Debentures are being offered at an
original issue discount for United States
federal income tax purposes. Thus, although
cash interest will not be payable on the
Debentures prior to , 2002, original
issue discount (i.e., the difference between
the sum of all principal and interest
payable on the Debentures and the portion of
the issue price of the Units allocable to
the Debentures) will accrue from the issue
date of the Debentures and will be included
as interest income periodically (including
for periods ending prior to , 2002)
in a holder's gross income for United States
federal income tax purposes in advance of
receipt of the cash payments to which the
income is attributable. See "Certain Federal
Income Tax Considerations."
Certain Covenants ............. The Debenture Indenture will contain certain
covenants that, among other things, limit
the ability of the Issuer and its Restricted
Subsidiaries to: incur indebtedness and
issue preferred stock, repurchase Capital
Stock (as defined herein) and certain
Indebtedness, engage in transactions with
affiliates, incur or suffer to exist certain
liens, pay dividends or other distributions,
engage in sales of accounts receivable, make
certain investments, sell assets and engage
in certain mergers and consolidations.
THE WARRANTS
Warrants ...................... Warrants which will initially be
exercisable for Common Stock and,
immediately following the Merger, will
entitle the holders thereof to purchase an
aggregate of shares of Holdings Common
Stock (the "Warrant Shares"), representing
% of Holdings Common Stock on a fully
diluted basis after giving effect to the
Merger.
Registration Rights ........... Pursuant to the warrant agreement (the
"Warrant Agreement") relating to the
Warrants, Quaker has agreed, subject to
certain limitations, that from the earlier
of (i) the later of the Separation Date and
120 days following the Closing Date and (ii)
45 days after the occurrence of a Change in
Control until the expiration of all
Warrants, it will maintain the effectiveness
of a registration statement with respect to
the issuance of the Common Stock upon
exercise of the Warrants (the "Shelf
Registration Statement"). At the Effective
Time, Holdings will succeed to the
obligations of Quaker under the Warrant
Agreement, including the obligations
relating to the Shelf Registration
Statement.
Exercise ...................... At the Effective Time, each Warrant will
entitle the holder thereof, subject to
certain conditions, to purchase shares of
Holdings Common Stock at an exercise price
of $ per share, subject to adjustment
under certain circumstances. The Warrants
will be exercisable at any time on or after
, 1997 and prior to the expiration of the
Warrants, as set forth below.
12
<PAGE>
The exercise price and number of shares of
Holdings Common Stock issuable upon exercise
of the Warrants will be subject to
adjustment from time to time upon the
occurrence of certain changes with respect
to the Holdings Common Stock, including
certain distributions of shares of Holdings
Common Stock, issuances of options or
convertible securities, dividends and
distributions and certain changes in options
and convertible securities of Holdings. A
Warrant does not entitle the holder thereof
to receive any dividends paid on shares of
Holdings Common Stock.
Expiration .................... , 2007.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the Units.
13
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data for and as of the end
of each of the years in the three-year period ended June 30, 1996 set forth
below have been derived from the audited consolidated financial statements of
the Company. The summary historical consolidated financial data set forth
below for and as of the end of the nine-month and the three-month periods
ended March 31, 1996 and March 31, 1997 have been derived from the unaudited
condensed consolidated financial statements of the Company. The historical
condensed consolidated results of operations of the Company for the nine
months and three months ended March 31, 1996 and 1997 are unaudited and are
not necessarily indicative of the Company's results of operations for the
full year. The unaudited historical consolidated financial data reflects all
adjustments (consisting of normal, recurring adjustments) which are, in the
opinion of management, necessary for a fair summary of the Company's
financial position, results of operations and cash flows for and as of the
end of the periods presented.
The unaudited summary consolidated pro forma financial data of the Company
set forth below are based on historical consolidated financial statements of
the Company, as adjusted to give effect to the Company's acquisition of BABSS
which occurred on October 20, 1995 and the Merger, including the Merger
Financing and the application of the proceeds thereof. The pro forma
statement of operations for the year ended June 30, 1996 gives effect to the
BABSS acquisition and the Merger, including the Merger Financing and the
application of the proceeds thereof, as if they had occurred as of July 1,
1995. The pro forma statements of operations for the nine-month and
three-month periods ended March 31, 1997 give effect to the Merger, including
the Merger Financing and the application of the proceeds thereof, as if they
had occurred as of July 1, 1996. The pro forma balance sheet gives effect to
the Merger, including the Merger Financing and the application of the
proceeds thereof, as if they had occurred at March 31, 1997. The pro forma
adjustments are based upon available information and upon certain assumptions
that management believes are reasonable under the circumstances. The pro
forma financial data do not purport to represent what the Company's actual
results of operations or actual financial position would have been if the
BABSS acquisition and the Merger, including the Merger Financing and the
application of the proceeds thereof, had occurred on such dates or to project
the Company's results of operations or financial position for any future
period or date.
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Condensed Consolidated Pro Forma Financial Data," "Selected
Consolidated Financial Data," and the Company's Consolidated Financial
Statements and Notes thereto, included elsewhere herein.
14
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------------------------
PRO FORMA
1994 1995 1996 1996
---------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues................................ $108,416 $163,020 $ 540,191 $697,676
Gross profit............................ 31,436 49,537 137,875 180,432
Operating income(2)(3).................. 15,983 20,779 49,373 68,687
Interest expense........................ (4,979) (2,521) (14,953) (71,504)
Interest income......................... 132 53 239 291
Income (loss) from continuing
operations(4)(5) ...................... 10,112 41,415 20,789 (1,516)
Net income (loss)....................... 10,112 42,528 18,862 (3,443)
CONSOLIDATED BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash equivalents............... $ 978 $ 2,659 $ 8,221
Inventory............................... 4,459 4,024 30,130
Repairable parts(6)..................... 9,473 27,360 154,970
Total assets............................ 35,496 135,553 514,510
Total debt(7)........................... 4,539 25,571 190,903
Total stockholders' equity (deficit) ... (27,627) 14,677 180,793
CONSOLIDATED CASH FLOWS DATA:
Net cash provided by operations......... $ 28,722 $ 38,415 $ 51,894
Net cash (used in) investing
activities............................. (3,348) (54,271) (346,354)
Net cash (used in) provided by
financing activities................... (24,946) 17,537 300,022
OTHER DATA:
EBITDA(8)............................... $ 22,672 $ 37,021 $ 114,816 $147,805
Amortization of repairable parts ....... 5,929 7,688 37,869 48,467
---------- ---------- ----------- -----------
Adjusted EBITDA(8)...................... 16,743 29,333 76,947 99,338
Adjusted EBITDA margin(9)............... 15.4% 18.0% 14.2% 14.2%
Depreciation and amortization of
intangibles............................ $ 7,161 $ 8,554 $ 23,982 $ 30,651
Repairable parts purchases.............. 1,857 12,154 63,514 74,287
Capital expenditures.................... 304 2,786 7,278 11,243
Cash interest expense................... 1,232 2,314 14,743 58,094
Total interest expense.................. 4,979 2,521 14,953 71,504
Revenue per average number of
employees(10).......................... 105.8 113.8 119.6 120.0
</TABLE>
15
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
----------------------- ---------------------
1996 1997 1996 1997
----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues............................. $ 369,167 $ 572,749 $172,673 $205,070
Gross profit......................... 96,459 144,780 42,711 54,698
Operating income(2)(3)............... 29,323 45,041 15,536 20,080
Interest expense..................... (11,289) (11,097) (5,855) (4,005)
Interest income...................... 69 393 54 316
Income (loss) from continuing
operations(5) ...................... 10,866 19,916 5,842 9,507
Net income (loss).................... 10,866 19,916 5,842 9,507
CONSOLIDATED BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash equivalents............ $ 12,886
Inventory............................ 35,186
Repairable parts(6).................. 195,656
Total assets......................... 641,677
Total debt........................... 246,671
Total stockholders' equity
(deficit)........................... 201,095
CONSOLIDATED CASH FLOWS DATA:
Net cash provided by operations ..... $ 35,489 $ 57,654 $ 20,590 $ 36,667
Net cash (used in) investing
activities.......................... (308,771) (105,329) (20,713) (34,569)
Net cash provided by financing
activities.......................... 276,032 52,388 4,933 2,510
OTHER DATA:
EBITDA(8)............................ $ 75,568 $ 121,680 $ 34,308 $ 46,419
Amortization of repairable parts ... 23,017 45,642 11,214 16,356
----------- ----------- ---------- ----------
Adjusted EBITDA(8)................... 52,551 76,038 23,094 30,063
Adjusted EBITDA margin(9)............ 14.2% 13.3% 13.4% 14.7%
Depreciation and amortization of
intangibles......................... $ 16,228 $ 26,697 $ 7,558 $ 9,983
Repairable parts purchases........... 31,715 64,803 19,560 28,815
Capital expenditures................. 3,331 6,093 1,153 2,261
Cash interest expense................ 11,134 10,578 5,803 3,642
Total interest expense............... 11,289 11,097 5,855 4,005
Ratio of Adjusted EBITDA to cash
interest expense.................... 4.72x 7.19x 3.98x 8.25x
Ratio of Adjusted EBITDA to total
interest expense.................... 4.66 6.85 3.94 7.51
Revenue per average number of
employees(10)....................... $ 90.3 $ 94.7 $ 29.8 $ 32.4
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues............................. $572,749 $ 205,070
Gross profit......................... 144,780 54,698
Operating income(2)(3)............... 45,041 20,080
Interest expense..................... (53,334) (17,804)
Interest income...................... 393 316
Income (loss) from continuing
operations(5) ...................... (4,582) 1,503
Net income (loss).................... (4,582) 1,503
CONSOLIDATED BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash equivalents............ $ 12,886
Inventory............................ 35,186
Repairable parts(6).................. 195,656
Total assets......................... 670,716
Total debt........................... 738,771
Total stockholders' equity
(deficit)........................... (261,966)
CONSOLIDATED CASH FLOWS DATA:
Net cash provided by operations ....
Net cash (used in) investing
activities .........................
Net cash provided by financing
activities .........................
OTHER DATA:
EBITDA(8)............................ $121,680 $ 46,419
Amortization of repairable parts ... 45,642 16,356
-------------- --------------
Adjusted EBITDA(8)................... 76,038 30,063
Adjusted EBITDA margin(9)............ 13.3% 14.7%
Depreciation and amortization of
intangibles......................... $ 26,697 $ 9,983
Repairable parts purchases........... 64,803 28,815
Capital expenditures................. 6,093 2,261
Cash interest expense................ 42,916 14,141
Total interest expense............... 53,334 17,804
Ratio of Adjusted EBITDA to cash
interest expense.................... 1.77x 2.13x
Ratio of Adjusted EBITDA to total
interest expense.................... 1.43 1.69
Revenue per average number of
employees(10)....................... $ 94.7 $ 32.4
</TABLE>
16
<PAGE>
- ------------
(1) The Summary Statement of Operations Data excludes the effects of
discontinued operations. See Note 3 of the Notes to the Company's
Consolidated Financial Statements.
(2) Operating income includes a $5.8 million charge and a $6.4 million
credit arising from unused lease liabilities for the years ended June
30, 1993 and 1994. During the nine months ended March 31, 1997 the
Company recorded a $4.3 million charge for estimated future employee
severance costs of $3.4 million and unutilized lease costs of $0.9
million.
(3) Operating income includes a $7.0 million charge for future employee
severance costs and unutilized lease costs, incurred in connection
with the BABSS acquisition, for the nine months ended March 31, 1996.
The year ended June 30, 1996 includes a reversal of $3.4 million of
this charge due to the Company's ability to utilize and sublease
various facilities identified in the original charge. See Note 17 of
the Notes to the Company's Consolidated Financial Statements.
(4) Income from continuing operations for the years ended June 30, 1992
through 1994 reflects interest expense arising from the Company's
senior and junior subordinated debt which was refinanced as a part of
the 1994 Restructuring. See Note 10 of the Notes to the Company's
Consolidated Financial Statements.
(5) Income from continuing operations for the years ended June 30, 1992
through 1994 include income taxes based on an effective tax rate
substantially less than the effective tax rates used for the years
ended June 30, 1995 and 1996, and the three and nine months ended
March 31, 1996 and 1997. The year ended June 30, 1995 includes a
$23.1 million net benefit arising from the recognition of future tax
benefits of tax loss carryforwards and temporary timing differences.
See Note 11 of the Notes to the Company's Consolidated Financial
Statements.
(6) Repairable parts represent parts that can be repaired and reused and
are required in order to meet the requirements of the contracts with
the Company's maintenance customers. These parts are principally
purchased from equipment manufacturers and other third parties. As
these parts are purchased, they are capitalized at cost and amortized
using the straight-line method over three to five years, the
estimated useful life of these repairable parts. Costs to refurbish
these parts are charged to expense as incurred.
(7) Total debt excludes redeemable preferred stock of $6.4 million and
$6.8 million at June 30, 1994 and 1995, respectively.
(8) "EBITDA" represents income (loss) from continuing operations before
interest expense, interest income, income taxes, depreciation,
amortization of repairable parts, amortization of intangibles,
amortization of discounts and capitalized expenses related to
indebtedness and non-recurring employee severance charges and
provisions for unutilized leases. The Company's historical results
include amortization of repairable parts which is unique to the
industry in which the Company competes. "Adjusted EBITDA" represents
EBITDA reduced by amortization of repairable parts. Neither EBITDA
nor Adjusted EBITDA is intended to represent cash flow from
operations as defined by generally accepted accounting principles and
should not be considered as an alternative to net income as an
indicator of the Company's operating performance or to cash flows as
a measure of liquidity and may not be comparable to similarly titled
measures of other companies. Adjusted EBITDA is presented because it
is relevant to certain covenants expected to be contained in the
agreements relating to the Merger Financing and the Company believes
that Adjusted EBITDA is a more consistent indicator of the Company's
ability to meet its debt service, capital expenditure and working
capital requirements than EBITDA.
(9) Adjusted EBITDA margin measures Adjusted EBITDA as a percentage of
revenues.
(10) Revenue per average number of employees is calculated by dividing
revenues for applicable periods by the average number of employees
during the respective periods.
17
<PAGE>
RISK FACTORS
In addition to the other information set forth herein, prospective
investors should carefully consider the following information in evaluating
the Company and its business before making an investment in the Debentures.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The information herein contains forward-looking statements that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Company, or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors
include, but are not limited to, the competitive environment in the computer
maintenance and technology support services industry in general and in the
Company's specific market areas; changes in prevailing interest rates and the
availability of and terms of financing to fund the anticipated growth of the
Company's business; inflation; changes in costs of goods and services;
economic conditions in general and in the Company's specific market areas;
demographic changes; changes in or failure to comply with federal, state
and/or local government regulations; liability and other claims asserted
against the Company; changes in operating strategy or development plans; the
ability to attract and retain qualified personnel; the significant
indebtedness of the Company; labor disturbances; changes in the Company's
acquisition and capital expenditure plans; and other factors referenced
herein. In addition, such forward-looking statements are necessarily
dependent upon assumptions, estimates and dates that may be incorrect or
imprecise and involve known and unknown risks uncertainties and other
factors. Accordingly, any forward-looking statements included herein do not
purport to be predictions of future events or circumstances and may not be
realized. Forward-looking statements can be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "pro forma" or "anticipates," "intends" or
the negative of any thereof, or other variations thereon or comparable
terminology, or by discussions of strategy or intentions. Given these
uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. The Company disclaims any
obligations to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
SUBSTANTIAL LEVERAGE; STOCKHOLDERS' DEFICIT; LIQUIDITY
In connection with the Merger and the Merger Financing, including the
application of the proceeds therefrom, the Issuer and DecisionOne Corp. will
incur a significant amount of indebtedness. As of March 31, 1997, after
giving pro forma effect to the Merger, including the Merger Financing and the
application of the proceeds thereof, the Company would have had (i) total
consolidated indebtedness of approximately $738.8 million, (ii) $78.0 million
of additional borrowings available under the New Credit Facility and (iii) a
stockholder's deficit of $262.0 million. In addition, subject to the
restrictions in the New Credit Facility and the indentures governing the
Debentures and the Senior Subordinated Notes, the Company may incur
additional indebtedness from time to time.
The level of the Company's indebtedness could have important consequences
to the Company, including: (i) limiting cash flow available for general
corporate purposes including acquisitions because a substantial portion of
the Company's cash flow from operations must be dedicated to debt service;
(ii) limiting the Company's ability to obtain additional debt financing in
the future for working capital, repairable parts purchases, capital
expenditures or acquisitions; (iii) limiting the Company's flexibility in
reacting to competitive and other changes in the industry and economic
conditions generally; and (iv) exposing the Company to risks inherent in
interest rate fluctuations because certain of the Company's borrowings may be
at variable rates of interest, which could result in higher interest expense
in the event of increases in interest rates.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance its indebtedness and to satisfy its other debt
obligations will depend upon its future operating performance, which will be
affected by general economic, financial, competitive, legislative,
regulatory, business and other factors beyond its control. The Company
anticipates that its operating cash flow, together with borrowings under the
New Credit Facility, will be sufficient to meet its anticipated future
operating expenses, capital expenditures and to service its debt requirements
as they become due.
18
<PAGE>
However, if the Company's future operating cash flows are less than currently
anticipated it may be forced, in order to meet its debt service obligations,
to reduce or delay acquisitions, purchases of repairable parts or capital
expenditures, sell assets or reduce operating expenses, including, but not
limited to, investment spending such as selling and marketing expenses,
expenditures on management information systems and expenditures on new
products. If the Company were unable to meet its debt service obligations, it
could attempt to restructure or refinance its indebtedness or to seek
additional equity capital. There can be no assurance that the Company will be
able to effect any of the foregoing on satisfactory terms, if at all. In
addition, subject to the restrictions and limitations contained in the
agreements relating to the Merger Financing, the Company may incur
significant additional indebtedness to finance future acquisitions, which
could adversely affect the Company's operating cash flows and its ability to
service its indebtedness. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
LIMITATIONS ON ACCESS TO CASH FLOW OF SUBSIDIARIES; HOLDING COMPANY STRUCTURE
The Issuer is a holding company, and its ability to pay interest on the
Debentures is dependent upon the receipt of dividends from its direct and
indirect subsidiaries. The Issuer does not have, and may not in the future
have, any assets other than the common stock of DecisionOne Corporation.
DecisionOne Corporation and its subsidiaries are parties to the New Credit
Facility and the Senior Subordinated Note Indenture, each of which imposes
substantial restrictions on DecisionOne Corp.'s ability to pay dividends to
the Issuer. Any payment of dividends will be subject to the satisfaction of
certain financial conditions set forth in the Senior Subordinated Note
Indenture and the New Credit Facility. The ability of DecisionOne Corp. and
its subsidiaries to comply with such conditions in the Senior Subordinated
Note Indenture may be affected by events that are beyond the control of the
Issuer. The breach of any such conditions could result in a default under the
Senior Subordinated Note Indenture and/or the New Credit Facility, and in the
event of any such default, the holders of the Senior Subordinated Notes or
the lenders under the New Credit Facility could elect to accelerate the
maturity of all the Senior Subordinated Notes or the loans under such
facility. If the maturity of the Senior Subordinated Notes or the loans under
the New Credit Facility were to be accelerated, all such outstanding debt
would be required to be paid in full before DecisionOne Corp. or its
subsidiaries would be permitted to distribute any assets or cash to the
Issuer. There can be no assurance that the assets of the Company would be
sufficient to repay all of such outstanding debt and to meet its obligations
under the Debenture Indenture. Future borrowings by DecisionOne Corp. can be
expected to contain restrictions or prohibitions on the payment of dividends
by such subsidiaries to the Issuer. In addition, under Delaware law, a
subsidiary of a company is permitted to pay dividends on its capital stock,
only out of its surplus or, in the event that it has no surplus, out of its
net profits for the year in which a dividend is declared or for the
immediately preceding fiscal year. Surplus is defined as the excess of a
company's total assets over the sum of its total liabilities plus the par
value of its outstanding capital stock. In order to pay dividends in cash,
DecisionOne Corp. must have surplus or net profits equal to the full amount
of the cash dividend at the time such dividend is declared. In determining
DecisionOne Corp.'s ability to pay dividends, Delaware law permits the Board
of Directors of DecisionOne Corp. to revalue its assets and liabilities from
time to time to their fair market values in order to create surplus. The
Issuer cannot predict what the value of its subsidiaries' assets or the
amount of their liabilities will be in the future and, accordingly, there can
be no assurance that the Issuer will be able to pay its debt service
obligations on the Debentures.
As a result of the holding company structure of the Company, the Holders
of the Debentures will be structurally junior to all creditors of the
Issuer's subsidiaries, except to the extent that the Issuer is itself
recognized as a creditor of any such subsidiary, in which case the claims of
the Issuer would still be subordinate to any security in the assets of such
subsidiary and any indebtedness of such subsidiary senior to that held by the
Issuer. In the event of insolvency, liquidation, reorganization, dissolution
or other winding-up of the Issuer's subsidiaries, the Issuer will not receive
any funds available to pay to creditors of the subsidiaries. As of March 31,
1997, on a pro forma basis after giving effect to the Merger and Merger
Financing, including the application of net proceeds therefrom, the aggregate
amount of indebtedness and other obligations of the Issuer's subsidiaries
(including trade payables) would have been approximately $847.7 million.
19
<PAGE>
POSSIBLE INABILITY TO REPURCHASE DEBENTURES UPON CHANGE OF CONTROL
In the event of a Change of Control, each Holder of Debentures will have
the right to require the Issuer to repurchase all or any part of such
Holder's Debentures at the offer price specified therefor in the Debenture
Indenture. Under the Debenture Indenture, a Change of Control will occur upon
the happening of certain events, including among others: (i) any sale, lease,
transfer, conveyance or other disposition (other than by way of merger or
consolidation) in one or a series of related transactions, of all or
substantially all of the assets of the Issuer and its Subsidiaries taken as a
whole to any "person" (as defined in Section 13(d) of the Exchange Act) or
"group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act)
other than the Principals (as defined herein) and their Related Parties (as
defined herein); (ii) the Issuer effects certain consolidations or mergers;
(iii) the Issuer consummates any transaction or series of related
transactions (including, without limitation, by way of merger or
consolidation) the result of which is that any "person" (as defined above) or
"group" (as defined above) other than the Principals and their Related
Parties becomes the "beneficial owner" (as defined above) of more than 50% of
the voting power of the Voting Stock of the Issuer or any parent holding
company of the Issuer or (iv) the first day on which a majority of the
members of the Board of Directors of the Issuer or any parent holding company
of the Issuer are not Continuing Directors. The Issuer does not have, and may
not in the future have, any assets other than common stock of DecisionOne
Corp. As a result, the Issuer's ability to repurchase all or any part of the
Debentures upon the occurrence of a Change of Control will be dependent upon
the receipt of dividends or other distributions from its direct and indirect
subsidiaries. The New Credit Facility and the Senior Subordinated Notes
restrict DecisionOne Corp. from paying dividends and making any other
distributions to the Issuer. If the Issuer does not obtain the consent of the
lenders under agreements governing outstanding Indebtedness of its
Subsidiaries, including under the New Credit Facility and the Senior
Subordinated Notes, to permit the repurchase of the Debentures or does not
refinance such Indebtedness, the Issuer will likely not have the financial
resources to purchase Debentures upon the occurrence of a Change of Control
and the Issuer's Subsidiaries will be restricted by the terms of such
Indebtedness from paying dividends to the Issuer or otherwise lending or
distributing funds to the Issuer for the purpose of such purchase. In any
event, there can be no assurance that the Issuer's Subsidiaries will have the
resources available to pay such dividend or make any such distribution.
Furthermore, the New Credit Facility will provide that certain change of
control events will constitute a default thereunder and the Senior
Subordinated Notes will provide that, in the event of a Change of Control,
DecisionOne Corp. will be required to offer to repurchase the Senior
Subordinated Notes at the price specified therefor. The Issuer's failure to
make a Change of Control offer when required or to purchase tendered
Debentures when tendered would constitute an Event of Default under the
Debenture Indenture. See "Description of Debentures."
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDERS' CLAIMS
The Debentures will be issued at a substantial original issue discount
from their principal amount at maturity. Consequently, purchasers of the
Debentures will be required to include amounts in gross income for federal
income tax purposes in advance of receipt of the cash payments to which the
income is attributable. See "Certain Federal Income Tax Consequences" for a
more detailed discussion of the federal income tax consequences to the
purchasers of the Debentures resulting from the purchase, ownership or
disposition thereof.
Under the Debenture Indenture, in the event of an acceleration of the
maturity of the Debentures upon the occurrence of an Event of Default, the
Holders of the Debentures may be entitled to recover only the amount which
may be declared due and payable pursuant to the Debenture Indenture, which
will be less than the principal amount at maturity of such Debentures. See
"Description of the Debentures--Events of Default and Remedies."
If a bankruptcy case is commenced by or against the Issuer under the
Bankruptcy Code, the claim of a Holder of Debentures with respect to the
principal amount thereof may be limited to an amount equal to the sum of (i)
the issue price of the Debentures as set forth on the cover page hereof and
(ii) that portion of the original issue discount (as determined on the basis
of such issue price) which is not deemed to constitute "unmatured interest"
for purposes of the Bankruptcy Code (as defined herein). Accordingly,
20
<PAGE>
Holders of the Debentures under such circumstances may, even if sufficient
funds are available, receive a lesser amount than they would be entitled to
under the express terms of the Debenture Indenture. In addition, there can be
no assurance that a bankruptcy court would compute the accrual of interest
under the same rules as those used for the calculation of original issue
discount under federal income tax law and, accordingly, a Holder might be
required to recognize gain or loss in the event of a distribution related to
such a bankruptcy case.
ABSENCE OF PUBLIC MARKET
The Securities are new securities for which no public market exists. The
Securities will not be listed on a securities exchange. There can be no
assurance that an active public market will develop or be sustained upon
completion of the Offering or at what prices Holders of the Securities would
be able to sell such securities, if at all. In addition, prevailing interest
rate levels, market fluctuations and general economic and political
conditions may adversely affect the liquidity and the market price of the
Securities, regardless of the Company's financial and operating performance.
The market for "high yield" securities, such as the Debentures, and markets
for the Units and the Warrants are volatile and unpredictable, which may have
an adverse effect on the liquidity of, and prices for, such securities. The
Company has been advised by the Underwriter that it currently intends to make
a market in the Securities after consummation of the Offering as permitted by
applicable laws and regulations; however, the Underwriter is not obligated to
do so and may discontinue doing so without notice at any time. Accordingly,
no assurance can be given that a liquid trading market of the Securities will
develop or be sustained. In addition, because the Underwriter may be deemed
to be an affiliate of the Company, the Underwriter will be required to
deliver a current "market-maker" prospectus and otherwise to comply with the
registration requirements of the Securities Act in connection with any
secondary market sale of the Debentures, which may affect its ability to
continue market-making activities. The Underwriter's ability to engage in
market-making transactions will therefore be subject to the availability of a
current "market-maker" prospectus. For so long as any of the Securities are
outstanding and, in the reasonable judgment of the Underwriter and its
counsel, the Underwriter or any of its affiliates is required to deliver a
prospectus in connection with the sale of the Debentures, the Company has
agreed to make a "market-maker" prospectus available to the Underwriter to
permit it to engage in market-making transactions.
FRAUDULENT TRANSFER STATUTES
Under federal or state fraudulent transfer laws, if a court were to find
that, at the time the Debentures were issued, the Issuer (i) issued the
Debentures with the intent of hindering, delaying or defrauding current or
future creditors or (ii)(A) received less than fair consideration or
reasonably equivalent value for incurring the indebtedness represented by the
Debentures and (B)(1) was insolvent or was rendered insolvent by reason of
the issuance of the Debentures, (2) was engaged, or about to engage, in a
business or transaction for which its assets were unreasonably small or (3)
intended to incur, or believed (or should have believed) it would incur,
debts beyond its ability to pay as such debts mature (as all of the foregoing
terms are defined in or interpreted under such fraudulent transfer statutes),
such court could avoid all or a portion of the Issuer's obligations to the
Holders of the Debentures, subordinate the Issuer's obligations to the
Holders of the Debentures to other existing and future indebtedness of the
Issuer, the effect of which would be to entitle such other creditors to be
paid in full before any payment could be made on the Debentures, and take
other action detrimental to the Holders of the Debentures, including in
certain circumstances, invalidating the Debentures. In that event, there
would be no assurance that any repayment on the Debentures would ever be
recovered by the Holders of the Debentures.
The definition of insolvency for purposes of the foregoing considerations
varies among jurisdictions depending upon the federal or state law that is
being applied in any such proceeding. However, the Issuer generally would be
considered insolvent at the time it incurs the indebtedness constituting the
Debentures, if (i) the fair market value (or fair saleable value) of its
assets is less than the amount required to pay its total existing debts and
liabilities (including the probable liability on contingent liabilities) as
they become absolute or matured or (ii) it is incurring debts beyond its
ability to pay as such debts mature.
21
<PAGE>
There can be no assurance as to what standard a court would apply in order to
determine whether the Issuer was "insolvent" as of the date the Debentures
were issued, or that, regardless of the method of valuation, a court would
not determine that the Issuer was insolvent on that date. Nor can there be
any assurance that a court would not determine, regardless of whether the
Issuer was insolvent on the date the Debentures were issued, that the
payments constituted fraudulent transfers on another ground. To the extent
that proceeds from the sale of the Debentures are used to repay indebtedness
under existing indebtedness of DecisionOne Corp., or to fund the cash portion
of the Merger Consideration, a court may find that the Issuer did not receive
fair consideration or reasonably equivalent value for the incurrence of the
indebtedness represented by the Debentures.
CONTROL BY THE DLJMB FUNDS
Following the Merger, up to 86.9% of the outstanding shares of Holdings
Common Stock (or 77.2% on a fully diluted basis) (or, if the DLJMB Funds
purchase the Direct Shares, 88.4% of the outstanding shares of Holdings
Common Stock) will be held by the stockholders of Quaker. As of the date
hereof, all of the outstanding capital stock of Quaker is owned in the
aggregate by the DLJMB Funds. While the DLJMB Funds expect that the
Institutional Investors may acquire a portion of the securities of Quaker
that would otherwise be purchased by the DLJMB Funds in the DLJMB Equity
Investment, in no event would any such purchases reduce the fully diluted
ownership by the DLJMB Funds of Holdings Common Stock after the Effective
Time to below a majority, or limit the rights of the DLJMB Funds as described
in "Certain Relationships and Related Transactions."
It is expected that at the Effective Time, the DLJMB Funds, the
Institutional Investors and any members of the Company's management who
choose to purchase shares of Common Stock will enter into a stockholders'
agreement (the "Investors' Agreement") which will contain provisions that,
among other things, will entitle the DLJMB Funds to appoint a majority of the
members of the Board of Directors of Holdings following the Merger. As a
result of its stock ownership and the Investors' Agreement, following the
Effective Time the DLJMB Funds will control Holdings and have the power to
elect a majority of its directors, appoint new management and approve any
action requiring the approval of the holders of Holdings Common Stock,
including adopting certain amendments to Holdings' certificate of
incorporation and approving mergers or sales of all or substantially all of
Holdings' assets. The directors elected by the DLJMB Funds will have the
authority to effect decisions affecting the capital structure of the Company,
including the issuance of additional capital stock, the implementation of
stock repurchase programs and the declaration of dividends.
The general partners of each of the DLJMB Funds and the members of DLJ
First are affiliates or employees of Donaldson, Lufkin & Jenrette, Inc.
("DLJ, Inc."). DLJ Capital Funding Inc., which has committed to DLJMB to
provide the New Credit Facility in connection with the Merger, is also an
affiliate of DLJ, Inc. Donaldson, Lufkin & Jenrette Securities Corporation,
which is underwriting the Units and the Senior Subordinated Notes, is also an
affiliate of DLJ, Inc.
POTENTIAL DELISTING AND LOSS OF LIQUIDITY
As a result of the Merger, the Holdings Common Stock will no longer meet
the listing requirements of The NASDAQ National Market System ("NASDAQ"), and
NASDAQ may unilaterally act to delist the Holdings Common Stock. Pursuant to
NASDAQ rules, Holdings will seek a dispensation from such listing
requirements to permit the Holdings Common Stock to continue to be listed on
NASDAQ, or, alternatively, Holdings may seek to be listed on a national
exchange. No assurance can be given that such dispensation will be granted or
that such listing will be achieved. Whether or not the Holdings Common Stock
is delisted, the volume of shares traded is expected to decline substantially
because of the significant ownership by the DLJMB Funds.
Upon any delisting, shares of Holdings Common Stock would trade only in
the over-the-counter market. Although prices in respect of trades would be
published by the National Association of Securities Dealers, Inc.
periodically in the "pink sheets," quotes for such shares would not be
readily available. As a result, it is anticipated that the shares of Holdings
Common Stock would trade much less frequently
22
<PAGE>
relative to the trading volume of Holdings Common Stock prior to the Merger
and holders may experience difficulty selling such shares or obtaining prices
that reflect the value thereof.
CURRENT REGISTRATION REQUIRED TO EXERCISE WARRANTS
Following the Merger, Holders of Warrants will be able to exercise their
Warrants only if a registration statement relating to the shares of Holdings
Common Stock underlying the Warrants is then in effect, or the exercise of
such Warrants is exempt from the registration requirements of the Securities
Act, and such securities are qualified for sale or exempt from qualification
under the applicable securities laws of the states in which the various
holders of the Warrants reside. Although Holdings will be required under the
terms of the Warrant Agreement to file and use its best efforts to make
effective by the earlier of (i) the later of the Separation Date and 120 days
following the Closing Date and (ii) 45 days after the occurrence of a Change
in Control until the expiration of all Warrants, a shelf registration
statement on an appropriate form under the Securities Act covering the
issuance of Holdings Common Stock upon the exercise of the Warrants, there
can be no assurance that Holdings will be able to do so in a timely manner.
Holdings will be unable to issue shares of Holdings Common Stock to those
persons desiring to exercise their Warrants if a registration statement
covering the securities issuable upon the exercise of the Warrants is not
effective (unless the sale and issuance of shares upon the exercise of such
Warrants is exempt from the registration requirements of the Securities Act)
or if such securities are not qualified or exempt from qualification in the
states in which the holders of the Warrants reside. See "Description of
Warrants."
LOSS OF CONTRACT-BASED REVENUE; FIXED FEE CONTRACTS
Over 85% of the Company's revenues during fiscal 1996 were contract-based.
As is customary in the computer services industry, the Company experiences
reductions in its contract-based revenue as customers may eliminate certain
equipment or services from coverage under the contracts, typically upon 30
days' notice, or either cancel or elect not to renew their contracts upon 30,
60 or 90 days' notice. The Company believes the principal reasons for the
loss of contract-based revenue are the replacement of the equipment being
serviced with new equipment covered under a manufacturer's warranty, the
discontinuance of the use of equipment being serviced for a customer due to
obsolescence or a customer's determination to utilize a competitor's services
or to move technical support services in-house. While the Company
historically has been able to offset the reduction of contract-based revenue
and maintain revenue growth through acquisitions and new contracts,
notwithstanding the reduction in contract-based revenue, there can be no
assurance it will continue to do so in the future, and any failure to
consummate acquisitions, enter into new contracts or add additional services
and equipment to existing contracts could have a material adverse effect on
the Company's profitability.
Under many of the Company's contracts, the customer pays a fixed fee for
customized bundled services which are priced by the Company based on its best
estimates of various factors, including estimated future equipment failure
rates, cost of spare parts and labor expenses. While the Company believes it
has historically been able to estimate these factors accurately enough to be
able to price these fixed-fee contracts on terms favorable to the Company,
there can be no assurance the Company will be able to continue to do so in
the future.
MANAGEMENT AND FUNDING OF GROWTH
Any future growth of the Company will require the Company to manage its
expanding domestic operations and international affiliations and to adapt its
operational and financial systems to respond to changes in its business
environment, while maintaining a competitive cost structure. The acquisition
strategy of the Company and the expansion of the Company's service offerings
have placed and will continue to place significant demands on the Company and
its management to improve the Company's operational, financial and management
information systems, to develop further the management skills of the
Company's managers and supervisors, and to continue to retain, train,
motivate and effectively manage the Company's employees. For example, the
Company's acquisition and integration of BABSS resulted in the loss of
certain members of its finance and accounting organization which resulted in
a
23
<PAGE>
difficulty in the timely performance of certain internal reconciliations and
account analyses. In response to these difficulties, the Company has taken
various personnel and procedural actions, including, among other things,
increasing the size of, and restructuring, its accounting staff, instituting
an internal audit function and enhancing its accounting systems, policies and
procedures. The failure of the Company to manage its prior or any future
growth effectively could have a material adverse effect on the Company.
Additionally, the Company's ability to maintain and increase its revenue
base and to respond to shifts in customer demand and changes in industry
trends will be partially dependent on its ability to generate sufficient cash
flow or obtain sufficient capital for the purpose of, among other things,
financing acquisitions, satisfying customer contractual requirements and
financing infrastructure growth, including a significant investment in
repairable parts, which are classified as non-current assets. There can be no
assurance the Company will be able to generate sufficient cash flow or that
financing will be available on acceptable terms (or permitted to be incurred
under the terms of the Merger Financing and any future indebtedness) to fund
the Company's future growth.
ACQUISITION GROWTH STRATEGY
The Company has historically pursued an aggressive acquisition strategy,
acquiring certain contracts and assets in 35 transactions from the beginning
of fiscal 1993 through March 31, 1997. Future acquisitions and/or internal
revenue growth will be necessary to offset expected declines in
contract-based revenues. As a result, the Company expects to continue to
evaluate acquisitions that can provide meaningful benefits by expanding the
Company's existing and future hardware maintenance and technology support
capabilities and leveraging its existing and future infrastructure. However,
there are various risks associated with pursuing an acquisition strategy of
this nature. The risks include problems inherent in integrating new
businesses, including potential loss of customers and key personnel and
potential disruption of operations. There can be no assurance that contracts
acquired by the Company will generate significant revenues or that customers
covered by such acquired contracts will not choose to terminate such
contracts. The rate at which any such contracts are terminated may be higher
than the rates at which the Company's contracts have historically been
terminated. There also can be no assurance that suitable acquisition
candidates will be available, that acquisitions can be completed on
reasonable terms, that the Company will successfully integrate the operations
of any acquired entities or that the Company will have access to adequate
funds to effect any desired acquisitions. Future acquisitions may be limited
by restrictions in the Company's indebtedness.
COMPETITION; COMPETITIVE ADVANTAGES OF OEMS
Competition among computer support service providers, both original
equipment manufacturer and independent service organizations, is intense. The
Company believes approximately 80% of that portion of industry hardware
maintenance services related to mainframes and stand-alone midrange systems
is currently serviced by OEM service organizations. In addition, the Company
believes that OEM service organizations provide a smaller, but still
significant, portion of the computer maintenance services related to
distributed systems, workgroups and PCs. The remainder of the market is
serviced by a small number of larger, independent companies, such as the
Company, offering a broader range of service capabilities, as well as
numerous small companies focusing on narrower areas of expertise or serving
limited geographic areas.
In many instances, OEM service organizations have greater resources than
the Company, and, because of their access to the OEM's engineering data, may
be able to respond more quickly to servicing equipment that incorporates new
or emerging technologies. Moreover, some OEMs, especially in the mainframe
environment, do not make available to end-users or independent service
organizations the technical information, repairable parts, diagnostics,
engineering changes and other support items required to service their
products, and design and sell their products in a manner so as to make it
virtually impossible for a third party to perform maintenance services
without potentially infringing upon certain proprietary rights of the OEM. In
addition OEMs are sometimes able to develop proprietary remote diagnostic or
monitoring systems which the Company may not be able to offer. Therefore, OEM
service organizations sometimes have a cost and timing advantage over the
Company because the Company must
24
<PAGE>
first develop or acquire from another party the required support items before
the Company can provide services for that equipment. An OEM's cost advantage,
the unavailability of required support items or various proprietary rights of
the OEM may preclude the Company from servicing certain products.
Furthermore, OEMs usually provide warranty coverage for new equipment for
specified periods, during which it is not economically feasible for the
Company to compete for the provision of maintenance services. To the extent
OEMs choose, for marketing reasons or otherwise, to expand their warranty
periods or terms, the Company's business may be adversely affected.
In June 1994, International Business Machines Corporation ("IBM") filed in
the United States District Court for the Southern District of New York (the
"Court") a motion to terminate a 1956 consent decree (the "IBM Consent
Decree") that, among other things, requires IBM to provide repairable parts,
documentation and other support items for IBM electronic data processing
systems to third parties on reasonable terms and places other restrictions on
IBM's conduct. On January 18, 1996, the Court entered an order approving a
modification of the IBM Consent Decree that, among other things, terminated
the IBM Consent Decree except insofar as it applies to the System 360/370/390
(mainframes) and AS/400 (midrange) families of IBM products. In July 1996,
IBM and the U.S. Department of Justice ("DOJ") reached an agreement in
tentative settlement of the remainder of IBM's motion and jointly moved to
terminate on a phased basis, the remaining provisions of the IBM Consent
Decree (the "Joint Motions"). On May 1, 1997 the Court granted the Joint
Motion. The order granting the Joint Motion is subject to appeal.
Consequently, certain of the remaining provisions of the IBM Consent Decree
(primarily relating to sales and marketing restrictions on IBM) terminate
either immediately upon, or within six months of, entry of the Court order;
all of the other remaining provisions (including those requiring IBM to
provide parts and other support items to third parties) terminate on July 2,
2000 with respect to AS/400 systems and on July 2, 2001 with respect to
System 360/370/390 mainframes. The impact, if any, upon the Company of the
termination of such sales and marketing restrictions is impossible to predict
because it depends upon what changes, if any, IBM will make in its sales and
marketing policies and practices. As a result of the termination of the IBM
Consent Decree, the Company's ability to service midrange and mainframe
products may be adversely affected. Furthermore, as the Company's business is
highly dependent upon its ability to service a wide variety of equipment in a
multivendor environment, the inability to compete effectively for the service
of IBM mainframes and midrange products could cause the loss of a substantial
portion of the Company's customer base to IBM or an IBM affiliate, which
would have a material adverse effect on the Company's business.
INVENTORY AND REPAIRABLE PARTS MANAGEMENT
In order to service its customers, the Company is required to maintain a
high level of inventory and repairable parts for extended periods of time.
Any decrease in the demand for the Company's maintenance services could
result in a substantial portion of the Company's inventory and repairable
parts becoming excess, obsolete or otherwise unusable. In addition, rapid
changes in technology could render significant portions of the Company's
inventory and repairable parts obsolete, thereby giving rise to write-offs
and a reduction in profitability. The inability of the Company to manage its
inventory and repairable parts or the need to write them off in the future
could have a material adverse effect on the Company's business, financial
results and results of operations.
Inventory and repairable parts purchases are made from OEMs and other
vendors. The Company typically has more than a single source of supply for
each part and component, but from time to time it will have only a single
supplier for a particular part. In some cases, the Company's OEM customer may
be the only source of supply for a repair part or component. Should a
supplier be unwilling or unable to supply any part or component in a timely
manner, the Company's business could be adversely affected. In addition, the
Company is dependent upon IBM for obtaining certain parts that are critical
to the maintenance of certain IBM mainframe and midrange systems that IBM is
currently required to make available to third parties pursuant to the IBM
Consent Decree. There can no assurance that IBM will continue to make parts
available for AS/400 Systems after July 2, 2000 and for System 360/370/390
mainframes after July 2, 2001. Even if such parts or components are
available, a shortage of supply could result in an increase in procurement
costs which, if not passed on to the customer, may adversely affect the
Company's profitability.
25
<PAGE>
COPYRIGHT ISSUES
In connection with the Company's performance of most hardware maintenance,
the computer system which is being serviced must be turned on for the purpose
of service or repair. When the computer is turned on, the resident operating
system software and, in some cases diagnostic software, is transferred from a
peripheral storage device or a hard disk drive into the computer's random
access memory. Within the past several years, several OEMs have been involved
in litigation with independent service organizations, including the Company,
in which they have claimed such transfer constitutes the making of an
unauthorized "copy" of such software by the independent service organization
which infringes on the software copyrights held by the OEMs. The Company is
aware of three cases in this area which have been decided in favor of the
OEM. Although the Company was not a party in any of these cases, three
similar claims have been asserted against the Company, each of which has been
resolved. Litigation of this nature can be time consuming and expensive, and
there can be no assurance the Company will not be a party to similar
litigation in the future, or that such litigation would be resolved on terms
that do not have a material adverse effect on the Company.
DEPENDENCE ON COMPUTER INDUSTRY TRENDS; RISK OF TECHNOLOGICAL CHANGE
The Company's future success is dependent upon the continuation of a
number of trends in the computer industry, including the migration by
information technology end-users to multivendor and multisystem computing
environments, the overall increase in the sophistication and interdependency
of computing technology, and a focus by information technology managers on
cost-efficient management. The Company believes these trends have resulted in
a movement by both end-users and OEMs towards outsourcing and an increased
demand for support service providers that have the ability to provide a broad
range of multivendor support services. There can be no assurance these trends
will continue into the future.
Additionally, rapid technological change and compressed product life
cycles are prevalent in the computer industry, which may lead to the
development of improved or lower cost technologies, higher quality hardware
with significantly reduced failure rates and maintenance needs, or customer
decisions to replace rather than continue to maintain aging hardware, and
which could result in a reduced need for the Company's services in the
future. Moreover, such rapid technological changes could adversely affect the
Company's ability to predict equipment failure rates, and, therefore, to
establish prices that provide adequate profitability. Similarly, new computer
systems could be built based upon proprietary, as opposed to open, systems
that could not be serviced by the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success depends, to a large extent, upon the
efforts and abilities of key managerial employees, particularly the Company's
executive officers. See "Management." Competition for qualified management
personnel in the industry is intense. There are not currently any employment
contracts which would ensure the continued employment of any executive
officer following the Merger. The loss of the services of certain of these
key employees or the failure to retain qualified employees when needed could
have a material adverse effect on the Company's business. The Company does
not currently maintain key man insurance.
POTENTIAL ENVIRONMENTAL LIABILITIES
The Company or certain businesses as to which it is alleged that the
Company is a successor have been identified as potentially responsible
parties in respect of three waste disposal sites that have been identified by
the United States Environmental Protection Agency as Superfund Sites. In
addition, the Company received a notice several years ago that it may be a
potentially responsible party with respect to a fourth, related site, but has
not received any other communication with respect to that site. Complete
information as to the scope of required clean-up at these sites is not yet
available and, therefore, management's evaluation may be affected as further
information becomes available. However, in light of information currently
available to management, including information regarding assessments of the
sites
26
<PAGE>
to date and the nature of involvement of the Company's predecessor at the
sites, it is management's opinion that the Company currently has sufficient
reserves for its share, if any, of the cost of clean-up of these sites and to
the extent current reserves prove inadequate, any payments in excess of the
reserved amounts will not be material to the consolidated financial position,
results of operations or liquidity of the Company. See "Business--Legal
Proceedings" and Note 18 of the Notes to the Company's Consolidated Financial
Statements.
27
<PAGE>
THE MERGER AND MERGER FINANCING
THE MERGER FINANCING
In order to fund the payment of the cash portion of the Merger
Consideration, the Option Cash Proceeds and the Warrant Cash Proceeds, to
refinance outstanding indebtedness of DecisionOne Corp. and pay expenses
incurred in connection with the Merger, DecisionOne Corp. is issuing the
Senior Subordinated Notes and will enter into a syndicated senior secured
loan facility providing for term loan borrowings in the aggregate principal
amount of approximately $470 million and revolving loan borrowings of $105
million. At the Effective Time, DecisionOne Corp. is expected to borrow all
term loans available thereunder and approximately $8.3 million of revolving
loans. The remaining revolving loans will, subject to a borrowing base, be
available to fund the working capital requirements of DecisionOne Corp. The
proceeds of such financings will, in part, be distributed to Holdings in the
form of a dividend and, in part, lent to Holdings pursuant to an intercompany
note. On May 4, 1997, DLJMB Inc., an affiliate of DLJMB, received an executed
commitment letter from DLJ Capital Funding to provide the New Credit
Facility, which will be syndicated by DLJ Capital Funding. Additionally, on
May 4, 1997, DLJMB Inc. received a letter from DLJSC with respect to the
underwriting, purchase or private placement of the Senior Subordinated Notes
in which DLJSC indicated that it was highly confident of its ability to sell
the Senior Subordinated Notes in the public market. Each of the commitments
is subject to customary conditions, including the negotiation, execution and
delivery of definitive documentation with respect to such commitment. See
"Description of the New Credit Facility" and "Certain Relationships and
Related Transactions."
Quaker expects to raise an additional $85 million through the concurrent
issuance of the Units in the Offering. At the Effective Time, Holdings will
succeed to the obligations of Quaker with respect to the Securities, and the
Warrants will, by their terms, become exercisable for an equal number of
shares of Holdings Common Stock. The DLJMB Funds and certain Institutional
Investors also expect to purchase 9,782,508 shares of Common Stock and may
acquire the DLJMB Warrants immediately prior to the Effective Time for
approximately $225 million. In lieu of acquiring the DLJMB Warrants, the
DLJMB Funds and certain Institutional Investors may acquire directly those
shares of Common Stock (up to 1,417,180 shares) for which such DLJMB Warrants
would have been exercisable, at a price that would be equivalent to the
exercise price of the DLJMB Warrants (the "Direct Shares"). The number of
DLJMB Warrants issued or Direct Shares purchased will be reduced by the
number of Public Warrants issued (if any). At the Effective Time, the
proceeds of such purchase will become an asset of Holdings, each share of
Common Stock including the Direct Shares, if any, will become a share of
Holdings Common Stock and each warrant to acquire the Common Stock if any,
will by its terms become exercisable for an equal number of shares of
Holdings Common Stock.
THE MERGER AGREEMENT
The Merger Agreement provides, among other things, for the merger of
Quaker with and into Holdings, with Holdings continuing as the surviving
corporation (the "Merger"). Pursuant to the Merger Agreement, at the
Effective Time, each share of Holdings Common Stock held by Holdings as
treasury stock or owned by Quaker immediately prior to the Effective Time
will be cancelled, and no payment will be made with respect thereto; each
share of Common Stock outstanding immediately prior to the Effective Time
will be converted into and become one share of common stock of the surviving
corporation with the same rights, powers and privileges as the shares so
converted; each outstanding warrant to purchase shares of Common Stock will,
pursuant to its terms, become exercisable for an equal number of shares of
Holdings Common Stock on the same terms and conditions; and each share of
Holdings Common Stock outstanding immediately prior to the Effective Time
will, except as otherwise provided with respect to shares as to which
appraisal rights have been exercised, be converted into the following (the
"Merger Consideration"): for each such share with respect to which an
election to retain Holdings Common Stock has been effectively made, revoked
or lost ("Stock Electing Shares"), the right to retain one share of Holdings
Common Stock, and for each such share (other than Stock Electing Shares), the
right to receive in cash from Holdings an amount equal to $23.00 (the "Cash
Merger Consideration"). The Merger contemplates that approximately 94.7% of
the presently issued and outstanding shares of Holdings Common Stock will be
converted, at the election of the holder, into cash, as described above, and
that approximately 5.3% (or 1,474,345 as of April 21, 1997) of such shares
will be retained by existing
28
<PAGE>
stockholders. Because 5.3% of the shares outstanding after the Merger must be
retained by existing stockholders of Holdings, the right to receive $23.00
per share or retain shares of Holdings Common Stock is subject to proration.
The shares which are to be retained will represent approximately 13.1% of the
shares of Holdings Common Stock (or 11.6% on a fully diluted basis) expected
to be issued and outstanding immediately after the Merger. If the Merger is
approved, 9,782,609 shares of Common Stock will be converted into Holdings
Common Stock that will represent approximately 86.9% of Holdings Common Stock
(or 77.2% on a fully diluted basis) (or, if the DLJMB Funds purchase the
Direct Shares, 88.4% of the outstanding Holdings Common Stock) after the
Merger. The DLJMB Funds expect that the Institutional Investors may acquire a
portion of the securities of Quaker that would otherwise be purchased by the
DLJMB Funds in the DLJMB Equity Investment. In no event would any such
purchases by the Institutional Investors reduce the fully diluted ownership
by the DLJMB Funds of Holdings Common Stock after the Effective Time to below
a majority, or limit the rights of the DLJMB Funds as described in "Certain
Relationships and Related Transactions."
The DLJMB Warrants will be exercisable for a maximum of 1,417,180 shares
of Common Stock at an exercise price of not less than $.01 per share;
however, the number of DLJMB Warrants (or if issued the Direct Shares) will
be decreased by the number of Warrants that are issued together with the
Debentures. All such DLJMB Warrants will, by their terms, become exercisable
for an equal number of shares of Holdings Common Stock on identical terms
following the Effective Time or in the case of Direct Shares will become
shares of Holdings Common Stock. As a result, following the Effective Time,
the DLJMB Warrants and the Warrants will permit the holders thereof to
purchase up to an additional 1,417,180 shares of Holdings Common Stock which
would represent, when exercised, approximately 11.2% of the Holdings Common
Stock (on a fully diluted basis) after the Merger.
At the Effective Time, each outstanding option to acquire shares of
Holdings Common Stock granted to employees and directors, whether vested or
not (the "Options"), will be cancelled and, in lieu thereof, as soon as
reasonably practicable as of or after the Effective Time, the holders of such
Options will receive, with respect to each Option, a cash payment in an
amount equal to the product of (x) the excess, if any, of $23.00 over the
exercise price of such Option multiplied by (y) the number of shares of
Holdings Common Stock subject to such Option (the "Option Cash Proceeds").
Alternatively, a portion of the Options may be converted into options to
purchase Holdings Common Stock following the Effective Time.
Holdings will use its reasonable best efforts to cause holders of all
outstanding warrants to purchase Holdings Common Stock (the "Existing
Warrants") to surrender such Existing Warrants to Holdings prior to the
Effective Time in exchange for a cash payment immediately after the Effective
Time of an amount equal to the (x) excess, if any, of $23.00 over the
exercise price of such Existing Warrant, multiplied by (y) the number of
shares of Holdings Common Stock subject to such Existing Warrant (the
"Warrant Cash Proceeds"), and upon such other terms and conditions
satisfactory to Quaker.
Holdings will submit the Merger Agreement to its stockholders for approval
and adoption at a special meeting of stockholders of Holdings, which is
expected to be held between August 5, 1997 and August 7, 1997 (the "Special
Meeting"). Approval of the Merger Agreement requires an affirmative vote of
the outstanding shares of Holdings Common Stock. J.H. Whitney & Co. and
certain partnerships associated with Welsh, Carson, Anderson & Stowe have
entered into a Voting Agreement and Irrevocable Proxy, dated as of May 4,
1997, pursuant to which they have agreed upon the terms set forth therein to
vote shares constituting approximately 30% of the outstanding Holdings Common
Stock in favor of approval and adoption of the Merger Agreement.
The obligations of Quaker and Holdings to effect the Merger are further
subject to, certain customary conditions, including approval of the Merger
Agreement by the stockholders of Holdings.
The Merger Agreement contains customary representations, warranties and
covenants of Holdings and Quaker, and may be terminated at any time prior to
the Effective Time (notwithstanding any approval of the Merger Agreement by
the stockholders of Holdings) under certain circumstances, including by
either Holdings or Quaker, if the Merger has not been consummated by the
later of (x) the earlier of September 15, 1997 and ten business days after
the Special Meeting, and (y) August 15, 1997, provided that the party seeking
to exercise such right is not then in breach in any material respect of any
of its obligations under the Merger Agreement.
29
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the Units, after deducting expenses of the
Offering, including discounts to the Underwriter, are estimated to be
approximately $ million. The proceeds from the Offering, together with the
borrowings under the New Credit Facility, the DLJMB Equity Investment, and
the issuance of Senior Subordinated Notes will be used to finance the
conversion into cash of approximately 94.7% of the shares of Holdings Common
Stock currently outstanding, to refinance the outstanding indebtedness of
DecisionOne Corp. under the existing bank credit facility (approximately
$239.9 million outstanding at an interest rate of 6.44% as of March 31, 1997
and which matures April 26, 2001), fund payments of the Option Cash Proceeds
and the Warrant Cash Proceeds, and finance the expenses and fees incurred in
connection with the Merger. See "The Merger and Merger Financing."
The following table sets forth the estimated cash sources and uses of
funds as if the Merger and Merger Financing, including the application of the
net proceeds therefrom, occurred and were completed at the Effective Time.
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
TOTAL SOURCES:
New Credit Facility:
Revolving credit facility....................... $ 8.3
Term loans...................................... 470.0
Senior Subordinated Notes ....................... 150.0
Units offered hereby............................. 85.0
DLJMB Equity Investment ......................... 225.0
-------------
Total cash sources............................. $938.3
=============
TOTAL USES:
Cash Merger Consideration ....................... $605.9
Option Cash Proceeds and Warrant Cash Proceeds . 58.4
Repayment of existing revolving credit facility 221.2
Estimated transaction fees and expenses ......... 52.8
-------------
Total cash uses................................ $938.3
=============
</TABLE>
30
<PAGE>
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of March 31, 1997, and on a pro forma basis to give effect
to the Merger, including the Merger Financing and the application of proceeds
therefrom, as if they had occurred on March 31, 1997. See "Use of Proceeds."
The information contained in this table should be read in conjunction with
the Company's Unaudited Condensed Consolidated Pro Forma Financial Data, the
Company's Consolidated Financial Statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
------------------------
HISTORICAL PRO FORMA
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............... $ 12,886 $ 12,886
============ ===========
Total debt (including current portion):
New Credit Facility:
Revolving credit facility (1) ......... $ -- $ 26,950
Term loan facility..................... -- 470,000
Existing revolving credit facility (1) 239,850 --
Senior Subordinated Notes............... -- 150,000
Debentures offered hereby (2) .......... -- 85,000
Notes payable and other debt............ 5,398 5,398
Capitalized lease obligations........... 1,423 1,423
------------ -----------
Total debt............................ 246,671 738,711
Stockholders' equity (deficit)(3) ..... 201,095 (261,966)
------------ -----------
Total capitalization.................. $447,766 $ 476,745
============ ===========
</TABLE>
- ------------
(1) It is assumed that, at the Effective Time, actual borrowings under the
existing revolving credit facility will be approximately $221.2
million. Any variation in the actual borrowings outstanding under the
existing revolving credit facility at the Effective Time will result in
a corresponding change in borrowings under the New Credit Facility.
(2) Assumes all proceeds of the Offering are attributable to the
Debentures. Following the Offering, a portion of the proceeds of the
Offering will be attributed to the Warrants based on their estimated
fair value. Such amount will be recorded as additional original issue
discount (OID) with respect to the Debentures and amortized over the
life of the Debentures, using the effective interest method.
(3) For a description of the pro forma adjustments, see Note 5 to the Notes
to Unaudited Condensed Consolidated Pro Forma Balance Sheet Data.
31
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL DATA
The following unaudited condensed consolidated pro forma financial data
(the "Pro Forma Financial Data") of the Company are based on historical
consolidated financial statements of the Company as adjusted to give effect
to the Company's acquisition of BABSS on October 20, 1995 and the Merger,
including the Merger Financing and the application of the proceeds thereof.
The unaudited condensed consolidated pro forma statement of operations data
for the year ended June 30, 1996 gives effect to the BABSS acquisition and
the Merger, including the Merger Financing and the application of the
proceeds thereof, as if they had occurred as of July 1, 1995. The unaudited
condensed consolidated pro forma statements of operations data for the
nine-month and three-month periods ended March 31, 1997 give effect to the
Merger, including the Merger Financing and the application of the proceeds
thereof, as if it had occurred as of July 1, 1996. The pro forma balance
sheet gives effect to the Merger, including the Merger Financing and the
application of the proceeds thereof, as if it had occurred as of March 31,
1997. The pro forma adjustments are based upon available information and upon
certain assumptions that management believes are reasonable under the
circumstances. The Pro Forma Financial Data and accompanying notes should be
read in conjunction with the historical consolidated financial statements of
the Company, including the notes thereto, and other financial information
pertaining to the Company. The Pro Forma Financial Data do not purport to
represent what the Company's actual results of operations or actual financial
position would have been if the Merger, including the Merger Financing and
the application of the proceeds thereof, and BABSS acquisition in fact
occurred on such dates or to project the Company's results of operations or
financial position for any future period or date. The Pro Forma Financial
Data do not give effect to any transactions other than the BABSS acquisition
and the Merger, including the Merger Financing and the application of the
proceeds thereof, discussed in the notes to the Pro Forma Financial Data
included elsewhere herein.
As a result of the proposed Merger, the Company and Quaker will incur
various costs currently estimated to range between $95 million and $105
million (pretax) in connection with consummating the transaction. These costs
consist primarily of professional fees, registration costs, compensation
costs and other expenses. While the exact timing, nature and amount of these
costs are subject to change the Company anticipates that a one-time pretax
charge of approximately $76 million ($69 million after tax) will be recorded
in the quarter in which the Merger is consummated. As a result of the
foregoing, the Company expects to record a significant net loss in the
quarter in which the Merger is recorded. Because this loss will result
directly from the one-time charge incurred in connection with the Merger, and
this charge will be funded entirely through the proceeds of the Merger
Financing, the Company does not expect this loss to materially impact its
liquidity, ongoing operations or market position. For a discussion of the
consequences of the incurrence of indebtedness in connection with the Merger
Financing, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
The pro forma adjustments were applied to the respective historical
consolidated financial statements of the Company to reflect and account for
the Merger as a recapitalization; accordingly, the historical basis of the
Company's assets and liabilities has not been impacted thereby.
32
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
--------------------------------------------------
HISTORICAL RESULTS BABSS ACQUISITION
------------------------ -------------------------
THE COMPANY BABSS ADJUSTMENTS PRO FORMA
------------- ---------- ------------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
Revenues............................... $540,191 $157,485 -- $697,676
Cost of revenues....................... 402,316 127,049 $ (9,549)(1) 517,244
(1,250)(2)
83 (3)
(1,405)(4)
------------- ---------- ------------- -----------
Gross profit........................... 137,875 30,436 12,121 180,432
Operating Expenses:
Selling, general, and administrative
expenses............................. 69,237 27,152 (1,701)(1) 92,211
(500)(2)
83 (3)
(997)(4)
(1,063)(5)
Amortization and write off of
intangibles.......................... 15,673 625 (625)(6) 19,534
3,861 (7)
Employee severance and unutilized
lease cost........................... 3,592 (3,592)(8)
------------- ---------- ------------- -----------
Operating income....................... 49,373 2,659 16,655 68,687
Interest expense....................... (14,953) (539) 539 (9) (20,570)
(5,617)(10)
Interest income........................ 239 52 291
------------- ---------- ------------- -----------
Income (loss) from continuing
operations before income taxes, and
extraordinary item.................... 34,659 2,172 11,577 48,408
(Provision) benefit for income taxes .. (13,870) 250 (5,743) (11) (19,363)
------------- ---------- ------------- -----------
Income (loss) from continuing
operations before extraordinary item . 20,789 2,422 5,834 29,045
Extraordinary item--early retirement
of debt............................... (1,927) (1,927)
------------- ---------- ------------- -----------
Net income (loss)...................... $ 18,862 $ 2,422 $ 5,834 $ 27,118
============= ========== ============= ===========
Primary income (loss) per
common share:
Continuing operations ................ $ 0.83 $ 1.15
Net income ........................... 0.75 1.08
Weighted average number of common and
common equivalent shares outstanding 25,196 25,196
Fully diluted income (loss) per
common share:
Continuing operations................. $ 0.82 $ 1.14
Net income ........................... 0.74 1.07
Weighted average number of
common and common equivalent shares
outstanding ......................... 25,430 25,430
OTHER DATA:
EBITDA (14)............................ $114,816 $ 16,524 $147,805
Amortization of repairable parts ..... 37,869 10,598 48,467
------------- ---------- ------------- -----------
Adjusted EBITDA (14)................... 76,947 5,926 99,338
Adjusted EBITDA margin (15)............ 14.2% 3.8% 14.2%
Depreciation and amortization of
intangibles........................... $ 23,982 $ 3,267 $ 30,651
Repairable parts purchases ............ 63,514 10,773 74,287
Capital expenditures .................. 7,278 3,965 11,243
Cash interest expense.................. 14,743 539 20,360
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THE MERGER
----------------------------
PRO FORMA,
ADJUSTMENTS AS ADJUSTED
-------------- -------------
<S> <C> <C>
Revenues............................... $697,676
Cost of revenues....................... 517,244
-------------- -------------
Gross profit........................... 180,432
Operating Expenses:
Selling, general, and administrative
expenses............................. 92,211
Amortization and write off of
intangibles.......................... 19,534
Employee severance and unutilized
lease cost...........................
-------------- -------------
Operating income....................... 68,687
Interest expense....................... (70,574)(12) (71,504)
19,640 (13)
Interest income........................ 291
-------------- -------------
Income (loss) from continuing
operations before income taxes, and
extraordinary item.................... (50,934) (2,526)
(Provision) benefit for income taxes .. 20,373 (11) 1,010
-------------- -------------
Income (loss) from continuing
operations before extraordinary item . (30,561) (1,516)
Extraordinary item--early retirement
of debt............................... (1,927)
-------------- -------------
Net income (loss)...................... $(30,561) $ (3,443)
============== =============
Primary income (loss) per
common share:
Continuing operations ................ $ (0.12)
Net income ........................... (0.27)
Weighted average number of common and
common equivalent shares outstanding 12,674
Fully diluted income (loss) per
common share:
Continuing operations................. $ (0.12)
Net income ........................... (0.27)
Weighted average number of
common and common equivalent shares
outstanding ......................... 12,674
OTHER DATA:
EBITDA (14)............................ $147,805
Amortization of repairable parts ..... 48,467
-------------- -------------
Adjusted EBITDA (14)................... 99,338
Adjusted EBITDA margin (15)............ 14.2%
Depreciation and amortization of
intangibles........................... $ 30,651
Repairable parts purchases ............ 74,287
Capital expenditures .................. 11,243
Cash interest expense.................. 58,094
</TABLE>
33
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1997
--------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
Revenues........................................... $572,749 $572,749
Cost of revenues .................................. 427,969 427,969
------------ ------------- -----------
Gross profit....................................... 144,780 144,780
Operating Expenses:
Selling, general, and administrative expenses .... 78,578 78,578
Amortization and write off of intangibles ........ 16,861 16,861
Employee severance and unutilized lease cost ..... 4,300 4,300
------------ ------------- -----------
Operating income................................... 45,041 45,041
(52,929)(12)
Interest expense................................... (11,097) 10,692 (13) (53,334)
Interest income.................................... 393 393
------------ ------------- -----------
Income (loss) before income taxes.................. 34,337 (42,237) (7,900)
(Provision) benefit for income taxes............... (14,421) 17,739 (11) 3,318
------------ ------------- -----------
Net income (loss).................................. $ 19,916 $(24,498) $ (4,582)
============ ============= ===========
Primary income (loss) per common share:
Net income ....................................... $ 0.66 $ (0.36)
Weighted average number of common and common
equivalent shares outstanding ................... 30,066 12,674
Fully diluted income (loss) per common share:
Net income ....................................... $ 0.66 $ (0.36)
Weighted average number of common and common
equivalent shares outstanding ................... 29,958 12,674
OTHER DATA:
EBITDA (14)........................................ $121,680 $121,680
Amortization of repairable parts................... 45,642 45,642
------------ -----------
Adjusted EBITDA (14)............................... 76,038 76,038
Adjusted EBITDA margin (15)........................ 13.3% 13.3%
Depreciation and amortization of intangibles ...... $ 26,697 $ 26,697
Repairable parts purchases......................... 64,803 64,803
Capital expenditures............................... 6,093 6,093
Cash interest expense.............................. 10,578 42,916
Total interest expense............................. 11,097 53,334
Ratio of Adjusted EBITDA to cash interest expense . 7.19x 1.77x
Ratio of Adjusted EBITDA to total interest
expense........................................... 6.85 1.43
</TABLE>
34
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
---------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
------------ -------------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
Revenues........................................... $205,070 $205,070
Cost of revenues .................................. 150,372 150,372
------------ -------------- -----------
Gross profit....................................... 54,698 54,698
Operating Expenses:
Selling, general, and administrative expenses .... 28,228 28,228
Amortization and write off of intangibles ........ 6,390 6,390
------------ -------------- -----------
Operating income................................... 20,080 20,080
Interest expense................................... (4,005) (17,644)(12) (17,804)
3,845 (13)
Interest income.................................... 316 316
------------ -------------- -----------
Income before income taxes......................... 16,391 (13,799) 2,592
(Provision) benefit for income taxes............... (6,884) 5,795 (11) (1,089)
------------ -------------- -----------
Net income......................................... $ 9,507 $ (8,004) $ 1,503
============ ============== ===========
Primary income per common share:
Net income ....................................... $ 0.32 $ 0.12
Weighted average number of common and common
equivalent shares outstanding ................... 30,062 12,674
Fully diluted income per common share:
Net income ....................................... $ 0.32 $ 0.12
Weighted average number of common and common
equivalent shares outstanding ................... 29,976 12,674
OTHER DATA:
EBITDA (14)........................................ $ 46,419 $ 46,419
Amortization of repairable parts................... 16,356 16,356
------------ -----------
Adjusted EBITDA (14)............................... 30,063 30,063
Adjusted EBITDA margin (15)........................ 14.7% 14.7%
Depreciation and amortization of intangibles ...... $ 9,983 $ 9,983
Repairable parts purchases......................... 28,815 28,815
Capital expenditures............................... 2,261 2,261
Cash interest expense.............................. 3,642 14,141
Total interest expense............................. 4,005 17,804
Ratio of Adjusted EBITDA to cash interest expense . 8.25x 2.13x
Ratio of Adjusted EBITDA to total interest
expense........................................... 7.51 1.69
</TABLE>
35
<PAGE>
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS DATA
(1) To reflect employee-related cost savings associated with the
redundancies created by the combination of the Company and BABSS.
Components of savings include, but are not limited to, salaries,
fringe benefits (except for those separately accounted for in Note 4
to the Pro Forma Combined Financial Data), travel and other.
Personnel reductions, totaling 405 employees, were implemented in the
field (260), operations support (90), sales (10) and administration
(45). These personnel reductions were announced and substantially
effected by December 31, 1995. The reductions were spread throughout
the United States with the only area of concentration being at the
respective headquarters locations in Horsham and Frazer,
Pennsylvania.
(2) To reflect rental expense reductions associated with facilities that
have been deemed "unutilized" as a result of the combination of the
Company and BABSS. See Note 17 of the Notes to the Company's
Consolidated Financial Statements. Included in such facilities are
the Company's former corporate headquarters, several large repair
depots (identified as surplus) as well as numerous duplicate field
offices throughout the United States. All remaining lease liabilities
associated with this unutilized space have either been included in
the purchase accounting of the BABSS acquisition or have been
expensed as part of the Company's net charge of $3.6 million recorded
in the results of operations for the twelve months ended June 30,
1996.
(3) To reflect additional depreciation resulting from a $2 million
increase in property and equipment valuation recorded as part of the
overall purchase price allocation of the BABSS acquisition, assuming
an estimated four-year depreciable life.
(4) To eliminate BABSS benefit expenses associated with pension and
postemployment benefits that are not part of the Company's benefit
package and have not, therefore, been incurred subsequent to the
acquisition. See Notes 3 and 11 of the Notes to DecisionOne Corp.'s
(formerly BABSS) Consolidated Financial Statements included elsewhere
herein. Both of these benefit programs ceased to exist as of the
acquisition date.
(5) To eliminate redundant corporate overhead allocations recorded in the
historical BABSS financial statements which have not been incurred
subsequent to the acquisition. BABSS was predominantly a
self-sufficient operation. The parent company of BABSS charged
corporate overhead to BABSS; these charges are not a component of the
ongoing expense structure of the Company.
(6) To eliminate intangible amortization expense recorded in the
historical BABSS financial statements.
(7) To reflect amortization expense resulting from the adjustments to
intangible assets recorded as part of the purchase price allocation
of BABSS. See Note 8 of the Notes to the Company's Consolidated
Financial Statements.
(8) To eliminate the non-recurring charge for employee severance and
unutilized lease costs.
(9) To eliminate intercompany interest expense charged by Bell Atlantic
Corporation, the parent company of BABSS, to BABSS.
(10) To reflect interest expense associated with the financing of the
BABSS acquisition. The assumed borrowing level associated with this
adjustment was $242.0 million, which is comprised of $212.0 million
of term loan debt and $30.0 million of notes to Significant
Stockholders (the "Affiliate Notes"). In April 1996, Holdings used
the proceeds of its initial public offering to reduce the term loan
debt by $70.0 million and repay the Affiliate Notes. The interest
rate on the term loan was 8.75% per annum, and the effective interest
rate on the Affiliate Notes was 12.9% per annum. The interest rate
swap agreements entered into by the Company have not been given
effect in the calculation of these adjustments, based on
immateriality.
36
<PAGE>
The pro forma interest adjustment has been computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1996
---------------
(IN THOUSANDS)
<S> <C>
Term loan interest.............................................. $ 17,019
Affiliate Notes interest:
Stated rate (10.101% per annum)................................ 2,273
Amortization of original issue discount........................ 354
Less actual interest expense included in the historical results (14,029)
---------------
Pro forma interest adjustment................................... $ 5,617
===============
</TABLE>
(11) To adjust the income tax (provision) benefit for effect of all pro
forma entries above at an effective tax rate of 40% and 42% for the
year ended June 30, 1996 and nine-month and three-month periods ended
March 31, 1997, respectively. Utilization of the Company's net
operating loss ("NOLs") tax carryforwards have not been reflected in
the pro forma income tax expense. The recognition of the Company's
NOLs have been recorded in the historical financials, see Note 11 of
the Notes to the Company's Consolidated Financial Statements.
(12) To reflect the additional interest expense attributable to the Merger
Financing, as follows:
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, 1996 MARCH 31, 1997 MARCH 31, 1997
--------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
New Credit Facility:
Term Loan A and revolving credit
facility.............................. $18,311 $13,733 $ 4,578
Term Loan B............................ 12,750 9,563 3,188
Term Loan C............................ 10,938 8,203 2,734
Senior Subordinated Notes............... 15,375 11,531 3,844
Senior Discount Debentures.............. 10,413 7,809 2,603
Amortization of deferred financing
costs................................... 2,787 2,090 697
--------------- -------------- --------------
$70,574 $52,929 $17,644
=============== ============== ==============
</TABLE>
The amounts and assumed interest rates of the Merger Financing are as
follows:
<TABLE>
<CAPTION>
ASSUMED
RATE
AMOUNT PER ANNUM
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
New Credit Facility:
Term Loan A and revolving credit
facility. ................................. $221,950 LIBOR + 2.50%
Term Loan B. .............................. 150,000 LIBOR + 2.75%
Term Loan C. .............................. 125,000 LIBOR + 3.00%
Senior Subordinated Notes. ................. 150,000 10.25%
Senior Discount Debentures.................. 85,000 12.25%
</TABLE>
The effect of a 1/4% change in interest rates on the above Merger
Financing would be $1.8 million, $1.4 million, and $0.5 million for the
year ended June 30, 1996, nine months ended March 31, 1997 and the three
months ended March 31, 1997, respectively.
For purposes of pro forma interest expense, assumes all proceeds of the
Offering are attributable to the Debentures. Following the Offering, a
portion of the proceeds of the Offering will be attributed to the Warrants
based on their estimated fair value. Such amount will be recorded as
additional original issue discount (OID) with respect to the Debentures
and amortized over the life of the Debentures, using the effective
interest method.
37
<PAGE>
(13) To reflect the elimination of interest expense (including
amortization of deferred financing costs, which are not considered to
be material) attributable to indebtedness to be paid in connection
with the Merger as follows:
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, 1996 MARCH 31, 1997 MARCH 31, 1997
--------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Existing revolving credit facility
(including BABSS pro forma) ............. $19,640 $10,692 $3,845
</TABLE>
(14) "EBITDA" represents income (loss) from continuing operations before
interest expense, interest income, income taxes, depreciation,
amortization of repairable parts inventory, amortization of
intangibles, amortization of discounts and capitalized expenses
related to indebtedness, and non-recurring employee severance charges
and provisions for unutilized leases. The Company's historical
financial results include amortization of repairable parts which is
unique to the industry in which the Company competes. "Adjusted
EBITDA" represents EBITDA reduced by amortization of repairable
parts. Neither EBITDA nor Adjusted EBITDA is intended to represent
cash flow from operations as defined by generally accepted accounting
principles and should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to
cash flows as a measure of liquidity and may not be comparable to
similarly titled measures of other companies. Adjusted EBITDA is
presented because it is relevant to certain covenants expected to be
contained in the agreements relating to the Merger Financing and the
Company believes that Adjusted EBITDA is a more consistent indicator
of the Company's ability to meet its debt service, capital
expenditure and working capital requirements than EBITDA.
(15) Adjusted EBITDA margin measures Adjusted EBITDA as a percentage of
revenues.
38
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET DATA
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................ $ 12,886 $ -- (1)$ 12,886
Accounts receivable, net................. 136,401 136,401
Inventories.............................. 35,186 35,186
Other.................................... 7,637 7,637
------------ -----------
Total current assets..................... 192,110 192,110
Repairable parts, net...................... 195,656 195,656
Property & equipment, net.................. 33,283 33,283
Intangibles, net and other assets.......... 220,628 7,000 (2) 249,667
22,275 (3)
(236)(4)
------------ -----------
Total assets............................... $641,677 $ 29,039 $ 670,716
============ ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt........ $ 4,756 $ 4,756
Accounts payable and accrued expenses.... 101,516 101,516
Deferred revenues........................ 72,096 72,096
Other.................................... 3,691 3,691
------------ -------------- -----------
Total current liabilities................ 182,059 182,059
New Credit Facility:
Revolving credit facility................. -- $ 26,950 (1) 26,950
Term loans................................ -- 470,000 (1) 470,000
Senior Subordinated Notes ................. -- 150,000 (1) 150,000
Senior Discount Debentures................. -- 85,000 (1) 85,000
Existing revolving credit facility ........ 239,850 (239,850)(1) --
Other long term debt....................... 2,065 2,065
Other liabilities.......................... 16,608 16,608
------------ -------------- -----------
Total liabilities......................... 440,582 492,100 932,682
------------ -------------- -----------
Total stockholders' equity (deficit)..... 201,095 (463,061)(5) (261,966)
------------ -------------- -----------
Total liabilities and stockholders'
equity..................................... $641,677 $ 29,039 $ 670,716
============ ============== ===========
</TABLE>
39
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET DATA
(1) The net effect on cash and cash equivalents of the Merger, including
the Merger Financing and the application of the proceeds thereof as
of March 31, 1997, is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
TOTAL SOURCES:
New Credit Facility:
Revolving credit facility(a)................... $ 26,950
Term loans..................................... 470,000
Senior Subordinated Notes....................... 150,000
Units offered hereby............................ 85,000
DLJMB Equity Investment ........................ 225,000
--------------
Total sources................................. $956,950
==============
TOTAL USES:
Cash Merger Consideration ...................... $605,900
Option Cash Proceeds ........................... 45,400
Warrant Cash Proceeds........................... 13,000
Repayment of existing revolving credit
facility....................................... 239,850
Estimated transaction fees and expenses ........ 52,800
--------------
Total uses.................................... $956,950
==============
</TABLE>
(2) Represents the anticipated tax benefit related to the transaction
fees and expenses. The anticipated tax benefit is limited due to the
expected non-deductibility of certain Merger transaction fees and
expenses and limitations on the recognition of deferred tax benefits
resulting from net operating losses expected to be reported in the
fiscal year ended June 30, 1998.
(3) Represents the portion of estimated transaction fees and expenses
attributable to the New Credit Facility, the Senior Subordinated
Notes and the Debentures, which will be recorded as deferred debt
issuance costs and will be amortized over the life of the debt to be
issued. Such estimated deferred debt issuance costs include estimated
fees and expenses payable to banks, and advisors and underwriting
discounts and commissions.
(4) The adjustment reflects the write-off deferred debt issuance costs
associated with the existing revolving credit financing.
(5) Represents the net change in stockholders' equity as a result of the
Merger, including the Merger Financing and the application of the
proceeds thereof:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash Merger Consideration ................ $(605,900)
DLJMB Equity Investment .................. 225,000
Transaction fees and expenses(b).......... (30,525)
Write-off of deferred debt issuance
costs.................................... (236)
Option Cash Proceeds (c) ................. (45,400)
Warrant Cash Proceeds .................... (13,000)
Tax benefit of above expense adjustments . 7,000
--------------
Total................................... $(463,061)
==============
</TABLE>
(a) Based on borrowings of $239.9 million that were outstanding
under the existing revolving credit facility as of March 31,
1997. Any variation in the actual borrowings outstanding
under the existing revolving credit facility on the closing
date will result in a corresponding change in borrowings
under the New Credit Facility.
(b) Represents the portion of the total $52.8 million of
estimated transaction fees and expenses which will be
recorded as an expense immediately upon consummation of the
Merger and related transactions; the remainder of such
transaction fees and expenses are recorded in Note (3) above
as deferred debt issuance costs.
(c) Represents compensation costs of the Company resulting from
the cancellation of options which will be recorded as an
expense immediately upon consummation of the Merger and
related transactions.
40
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the periods and
dates indicated set forth below have been derived from the audited
consolidated financial statements and the unaudited condensed consolidated
financial statements of the Company. The condensed consolidated results of
operations of the Company for the nine months and three months ended March
31, 1996 and 1997 are unaudited and are not necessarily indicative of the
Company's results of operations for the full year. The unaudited condensed
consolidated financial data reflects all adjustments (consisting of normal,
recurring adjustments) which are, in the opinion of management, necessary for
a fair summary of the Company's financial position, results of operations and
cash flows for and as of the end of the periods presented.
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and Notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues............................. $112,773 $114,060 $108,416 $163,020 $ 540,191
Gross profit......................... 27,753 27,575 31,436 49,537 137,875
Operating income(2)(3)............... 11,288 4,406 15,983 20,779 49,373
Interest expense..................... (9,881) (9,353) (4,979) (2,521) (14,953)
Interest income...................... 178 25 132 53 239
Income (loss) from continuing
operations(4)(5) ................... 1,441 (5,234) 10,112 41,415 20,789
Net income (loss).................... 2,524 (10,590) 10,112 42,528 18,862
Primary income (loss) per common
share:
Continuing operations............... $ 0.11 $ (0.25) $ 0.45 $ 1.81 $ 0.83
Net income (loss) .................. 0.19 (0.50) 0.45 1.86 0.75
Weighted average number of common
and common equivalent shares
outstanding........................ 13,544 21,215 22,595 22,843 25,196
Fully diluted income (loss) per
common share:
Continuing operations............... $ 0.11 $ (0.25) $ 0.45 $ 1.79 $ 0.82
Net income (loss)................... 0.19 (0.50) 0.45 1.84 0.74
Weighted average number of common
and common equivalent shares
outstanding ....................... 13,544 21,215 22,595 23,149 25,430
Ratio of earnings to fixed
charges(6)(7)....................... 1.13x -- 2.67x 5.09x 2.79x
CONSOLIDATED BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash equivalents............ $ 737 $ 550 $ 978 $ 2,659 $ 8,221
Inventory............................ 14,787 7,146 4,459 4,024 30,130
Repairable parts(8).................. 19,657 13,545 9,473 27,360 154,970
Total assets......................... 84,846 44,721 35,496 135,553 514,510
Total debt(9)........................ 72,972 51,530 4,539 25,571 190,903
Total stockholders' equity
(deficit)........................... (47,477) (58,146) (27,627) 14,677 180,793
CONSOLIDATED CASH FLOWS DATA:
Net cash provided by operations .... $ 16,550 $ 17,137 $ 28,722 $ 38,415 $ 51,894
Net cash (used in) provided by
investing activities ............... (8,226) 11,779 (3,348) (54,271) (346,354)
Net cash (used in) provided by
financing activities ............... (8,905) (29,103) (24,946) 17,537 300,022
OTHER DATA:
EBITDA(10)........................... $ 27,871 $ 24,361 $ 22,672 $ 37,021 $ 114,816
Amortization of repairable parts .... 12,016 9,375 5,929 7,688 37,869
---------- ---------- ---------- ---------- -----------
Adjusted EBITDA(10).................. 15,855 14,986 16,743 29,333 76,947
Adjusted EBITDA margin(11)........... 14.1% 13.1% 15.4% 18.0% 14.2%
Depreciation and amortization of
intangibles......................... $ 4,567 $ 4,769 $ 7,161 $ 8,554 $ 23,982
Repairable parts purchases........... 4,939 3,263 1,857 12,154 63,514
Capital expenditures................. 1,752 681 304 2,786 7,278
Cash interest expense................ 4,474 3,428 1,232 2,314 14,743
Total interest expense............... 9,881 9,353 4,979 2,521 14,953
Revenue per average number of
employees(12)....................... 70.9 82.3 105.8 113.8 119.6
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
----------------------- ---------------------
1996 1997 1996 1997
----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues........................................ $ 369,167 $ 572,749 $172,673 $205,070
Gross profit.................................... 96,459 144,780 42,711 54,698
Operating income(2)(3).......................... 29,323 45,041 15,536 20,080
Interest expense................................ (11,289) (11,097) (5,855) (4,005)
Interest income................................. 69 393 54 316
Income from continuing operations(5) ........... 10,866 19,916 5,842 9,507
Net income...................................... 10,866 19,916 5,842 9,507
Primary income (loss) per common share:
Continuing operations.......................... $ 0.46 $ 0.66 $ 0.25 $ 0.32
Net income (loss) ............................. 0.46 0.66 0.25 0.32
Weighted average number of common and common
equivalent shares outstanding................. 23,424 30,066 23,469 30,062
Fully diluted income (loss) per common share:
Continuing operations.......................... $ 0.46 $ 0.66 $ 0.25 $ 0.32
Net income (loss).............................. 0.46 0.66 0.25 0.32
Weighted average number of common and common
equivalent shares outstanding ................ 23,483 29,958 23,527 29,976
Ratio of earnings to fixed charges(6)(7) ....... 2.34x 3.17x 2.31x 3.90x
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents....................... $ 12,886
Inventory....................................... 35,186
Repairable parts(8)............................. 195,656
Total assets.................................... 641,677
Total debt...................................... 246,671
Total stockholders' equity...................... 201,095
CONSOLIDATED CASH FLOWS DATA:
Net cash provided by operations ................ $ 35,489 $ 57,654 $ 20,590 $ 36,667
Net cash (used in) investing activities ....... (308,771) (105,329) (20,713) (34,569)
Net cash provided by financing activities ..... 276,032 52,388 4,933 2,510
OTHER DATA:
EBITDA(10)...................................... $ 75,568 $ 121,680 $ 34,308 $ 46,419
Amortization of repairable parts ............... 23,017 45,642 11,214 16,356
----------- ----------- ---------- ----------
Adjusted EBITDA(10)............................. 52,551 76,038 23,094 30,063
Adjusted EBITDA margin(11)...................... 14.2% 13.3% 13.4% 14.7%
Depreciation and amortization of intangibles ... $ 16,228 $ 26,697 $ 7,558 $ 9,983
Repairable parts purchases...................... 31,715 64,803 19,560 28,815
Capital expenditures............................ 3,331 6,093 1,153 2,261
Cash interest expense........................... 11,134 10,578 5,803 3,642
Total interest expense.......................... 11,289 11,097 5,855 4,005
Ratio of Adjusted EBITDA to cash interest
expense........................................ 4.72x 7.19x 3.98x 8.25x
Ratio of Adjusted EBITDA to total interest
expense........................................ 4.66 6.85 3.94 7.51
Revenue per average number of employees(12) .... $ 90.3 $ 94.7 $ 29.8 $ 32.4
</TABLE>
42
<PAGE>
- ------------
(1) The Summary Statement of Operations Data excludes the effects of
discontinued operations. See Note 3 of the Notes to the Company's
Consolidated Financial Statements.
(2) Operating income includes a $5.8 million charge and a $6.4 million
credit arising from unused lease liabilities for the years ended June
30, 1993 and 1994. During the nine months ended March 31, 1997 the
Company recorded a $4.3 million charge for estimated future employee
severance costs of $3.4 million and unutilized lease costs of $0.9
million.
(3) Operating income includes a $7.0 million charge for future employee
severance costs and unutilized lease costs, incurred in connection
with the BABSS acquisition, for the nine months ended March 31, 1996.
The year ended June 30, 1996 includes a reversal of $3.4 million of
this charge due to the Company's ability to utilize and sublease
various facilities identified in the original charge. See Note 17 of
the Notes to the Company's Consolidated Financial Statements.
(4) Income (loss) from continuing operations for the years ended June 30,
1992 through 1994 reflects interest expense arising from the
Company's senior and junior subordinated debt which was refinanced as
a part of the 1994 Restructuring. See Note 10 of the Notes to the
Company's Consolidated Financial Statements.
(5) Income (loss) from continuing operations for the years ended June 30,
1992 through 1994 include income taxes based on an effective tax rate
substantially less than the effective tax rates used for the years
ended June 30, 1995 and 1996, and the three and nine months ended
March 31, 1996 and 1997. The year ended June 30, 1995 includes a
$23.1 million net benefit arising from the recognition of future tax
benefits of tax loss carryforwards and temporary timing differences.
See Note 11 of the Notes to the Company's Consolidated Financial
Statements.
(6) In calculating this ratio, "earnings" represents income from
continuing operations before provision for income taxes and
extraordinary items plus fixed charges. Fixed charges consist of
interest and amortization of discounts and capitalized expenses
related to indebtedness and one-third of rent expense, which is
representative of the interest factor.
(7) For the year ended June 30, 1993, earnings were insufficient to cover
fixed charges by $4.9 million. Accordingly, such ratio has not been
presented.
(8) Repairable parts represent parts that can be repaired and reused and
are required in order to meet the requirements of the contracts with
the Company's maintenance customers. These parts are principally
purchased from equipment manufacturers and other third parties. As
these parts are purchased, they are capitalized at cost and amortized
using the straight-line method over three to five years, the
estimated useful life of these repairable parts. Costs to refurbish
these parts are charged to expense as incurred.
(9) Total debt excludes redeemable preferred stock of $6.4 million and
$6.8 million at June 30, 1994 and 1995, respectively.
(10) "EBITDA" represents income (loss) from continuing operations before
interest expense, interest income, income taxes, depreciation,
amortization of repairable parts, amortization of intangibles,
amortization of discounts and capitalized expenses related to
indebtedness and non-recurring employee severance charges and
provisions for unutilized leases. The Company's historical results
include amortization of repairable parts which is unique to the
industry in which the Company competes. "Adjusted EBITDA" represents
EBITDA reduced by amortization of repairable parts. Neither EBITDA
nor Adjusted EBITDA is intended to represent cash flow from
operations as defined by generally accepted accounting principles and
should not be considered as an alternative to net income as an
indicator of the Company's operating performance or to cash flows as
a measure of liquidity and may not be comparable to similarly titled
measures of other companies. Adjusted EBITDA is presented because it
is relevant to certain covenants expected to be contained in the
agreements relating to the Merger Financing and the Company believes
that Adjusted EBITDA is a more consistent indicator of the Company's
ability to meet its debt service, capital expenditure and working
capital requirements than EBITDA.
(11) Adjusted EBITDA margin measures Adjusted EBITDA as a percentage of
revenues.
(12) Revenue per average number of employees is calculated by dividing
revenues for applicable periods by the average number of employees
during the respective periods.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements including the notes thereto.
This discussion contains forward-looking statements which involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors."
COMPANY HISTORY
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 35
complementary businesses. The most significant of these were IDEA Servcom,
Inc. ("Servcom"), certain assets and liabilities of which were acquired in
August 1994 for cash consideration of $29.5 million, BABSS which was acquired
in October 1995 for cash consideration of approximately $250.0 million and
certain assets of the U.S. computer service business of Memorex Telex which
were acquired in November 1996 for cash consideration of approximately $24.4
million after certain purchase price adjustments. These acquisitions were
accounted for as purchase transactions.
At the time of its acquisition by the Company, BABSS was among the largest
independent, multivendor service organizations servicing end-user
organizations and OEMs. Prior to the acquisition of BABSS, the Company had
higher gross margins than BABSS principally because approximately 30% of the
Company's revenues in fiscal 1995 were attributable to higher margin
contracts involving systems that can be serviced by a limited number of
service providers ("proprietary systems"), whereas BABSS had limited revenues
from proprietary systems. Prior to the acquisition, BABSS established a
strong record of internal revenue growth, growing revenues from $338.4
million in 1991 to $486.1 million in 1994, representing a compound annual
rate of 12.8%.
The Company's primary source of revenues is contracted services for
multivendor computer maintenance and technology support services, including
hardware support, end-user and software support, network support and other
support services. Approximately 85% of the Company's revenues during the last
fiscal year were derived from maintenance contracts covering a broad spectrum
of computer hardware. These contracts typically have a stipulated monthly fee
over a fixed initial term (typically one year) and continue thereafter unless
cancelled by either party. Such contracts generally provide that customers
may eliminate certain equipment and services from the contract upon notice to
the Company. In addition, the Company enters into per incident arrangements
with its customers. Per incident contracts can cover a range of bundled
services for computer maintenance or support services or for a specific
service, such as network support or equipment relocation services. Another
form of per incident service revenues includes time and material billings for
services as needed, principally maintenance and repair, provided by the
Company. Furthermore, the Company derives other revenues from the repair of
hardware and components at the Company's logistics services and depot repair
facilities. Pricing of the Company's services is based on various factors
including equipment failure rates, cost of repairable parts and labor
expenses. The Company customizes its contracts to the individual customer
based generally on the nature of the customer's requirements, the term of the
contract and the services that are provided.
The Company experiences reductions in revenue when customers replace
equipment being serviced with new equipment covered under a manufacturer's
warranty, discontinue the use of equipment being serviced due to
obsolescence, choose to use a competitor's services or move technical support
services
44
<PAGE>
in-house. The Company must more than offset this revenue "reduction" to grow
its revenues and seeks revenue growth from two principal sources: internally
generated sales from its direct and indirect sales force and the acquisition
of contracts and assets of other service providers. While the Company
historically has been able to offset the erosion of contract-based revenue
and maintain revenue growth through acquisitions and new contracts,
notwithstanding the reduction in contract based revenue, there can be no
assurance it will continue to do so in the future, and any failure to
consummate acquisitions, enter into new contracts or add additional services
and equipment to existing contracts could have a material adverse effect on
the Company's profitability.
Cost of revenues is comprised principally of personnel-related costs
(including fringe benefits), inventory cost recognition, amortization of
repairable parts and facilities costs and related expenses.
The acquisition of contracts and assets has generally provided the Company
with an opportunity to realize economies of scale because the Company
generally does not increase its costs related to facilities, personnel and
repairable parts in the same proportion as increases in acquired revenues.
The proposed Merger, which will be recorded as a recapitalization for
accounting purposes, is subject to a number of conditions, including
regulatory approvals and approval by Holdings' stockholders. The transaction
is estimated to have an aggregate value of approximately $957 million,
including refinancing of the Company's existing revolving credit facility
balance at March 31, 1997. The Company expects the Merger to close by
September 1997.
As a result of the proposed Merger, including the Merger Financing and the
application of the proceeds thereof, the Company and Quaker will incur
various costs currently estimated to range between $95 million and $105
million (pretax) in connection with consummating the transaction. These costs
consist primarily of compensation costs, underwriting discounts and
commissions, professional and advisory fees and other expenses. While the
exact timing, nature and amount of these costs are subject to change, the
Company anticipates that a one-time pretax charge of approximately $76
million ($69 million after tax) will be recorded in the quarter in which the
Merger is consummated. As a result of the foregoing, the Company expects to
record a significant net loss in the quarter in which the Merger is recorded.
Because this loss will result directly from the one-time charge incurred in
connection with the Merger, and this charge will be funded entirely through
the proceeds of the Merger Financing, the Company does not expect this loss
to materially impact its liquidity, ongoing operations or market position.
For a discussion of the consequences of the incurrence of indebtedness in
connection with the Merger Financing, see "--Liquidity and Capital
Resources".
RECENT DEVELOPMENTS
The Company's 1997 fiscal year ended on June 30, 1997. While the final
results of the quarter ended June 30, 1997 are not yet available, the Company
currently estimates that it recorded revenues of approximately $213.2 million
during the fourth quarter, and during such quarter realized operating income
of approximately $22.7 million and net income of approximately $11.2 million.
Based upon an estimated weighted average number of shares outstanding during
the quarter ended June 30, 1997 of approximately 30,266,000 shares, net
income per share for the fourth quarter is currently estimated to be
approximately $0.37.
The Company currently estimates that revenues for the full fiscal year
ended June 30, 1997 were approximately $785.9 million and that it realized
operating income of approximately $67.8 million and net income of
approximately $31.1 million. Based upon an estimated weighted average number
of shares outstanding during the fiscal year ended June 30, 1997 of
approximately 30,110,000 shares, net income per share for the fiscal year
ended June 30, 1997 is currently estimated to be $1.03 per share. Results of
operations for the full fiscal year ended June 30, 1997 include the impact of
certain charges recorded during the second quarter of fiscal 1997, as
discussed below.
The above information is preliminary in nature only, and is subject in all
respects to completion of various internal analyses and procedures necessary
to finalize the Company's financial statements, and to completion of the
audit of the Company's financial statements for the fiscal year ended June
30, 1997.
45
<PAGE>
RESULTS OF OPERATIONS
The following discussion of results of operations is presented for the
three and nine month periods ended March 31, 1997, and fiscal years ended
June 30, 1996, 1995 and 1994. The results of operations of the Company
include the operations of Memorex Telex from November 15, 1996, BABSS from
October 20, 1995 and Servcom from September 1, 1994.
The following table sets forth, for the periods indicated, certain
operating data expressed in dollar amounts and as a percentage of revenues:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED JUNE 30, MARCH 31,
-------------------------------- ---------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................... $108,416 $163,020 $540,191 $369,167 $572,749
Cost of revenues........... 76,980 113,483 402,316 272,708 427,969
---------- ---------- ---------- ---------- ----------
Gross profit............... 31,436 49,537 137,875 96,459 144,780
Operating Expenses:
Selling, general and
administrative expenses .. 16,474 21,982 69,237 49,519 78,578
Amortization and write-off
of intangibles............ 5,380 6,776 15,673 10,617 16,861
Employee severance and
unutilized lease costs
(credit).................. (6,401) -- 3,592 7,000 4,300
---------- ---------- ---------- ---------- ----------
Operating income........... 15,983 20,779 49,373 29,323 45,041
OTHER DATA:
EBITDA..................... 22,672 37,021 114,816 75,568 121,680
Adjusted EBITDA (1)........ 16,743 29,333 76,947 52,551 76,038
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Revenues................... $172,673 $205,070
Cost of revenues........... 129,962 150,372
---------- ----------
Gross profit............... 42,711 54,698
Operating Expenses:
Selling, general and
administrative expenses .. 22,303 28,228
Amortization and write-off
of intangibles............ 4,872 6,390
Employee severance and
unutilized lease costs
(credit).................. -- --
---------- ----------
Operating income........... 15,536 20,080
OTHER DATA:
EBITDA..................... 34,308 46,419
Adjusted EBITDA (1)........ 23,094 30,063
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE NINE MONTHS ENDED THREE MONTHS
30, MARCH 31, ENDED MARCH 31,
-------------------------- ----------------- -----------------
1994 1995 1996 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........... 71.0 69.6 74.5 73.9 74.7 75.3 73.3
-------- -------- -------- -------- -------- -------- --------
Gross profit............... 29.0 30.4 25.5 26.1 25.3 24.7 26.7
Operating Expenses:
Selling, general and
administrative expenses .. 15.2 13.5 12.8 13.4 13.7 12.9 13.8
Amortization and write-off
of intangibles............ 5.0 4.2 2.9 2.9 2.9 2.8 3.1
Employee severance and
unutilized lease costs
(credit).................. (5.9) -- 0.7 1.9 0.8 -- --
-------- -------- -------- -------- -------- -------- --------
Operating income........... 14.7 12.7 9.1 7.9 7.9 9.0 9.8
OTHER DATA:
EBITDA..................... 20.9 22.7 21.3 20.5 21.2 19.9 22.6
Adjusted EBITDA (1)........ 15.4 18.0 14.2 14.2 13.3 13.4 14.7
</TABLE>
- ------------
(1) As defined in Note 8 to the Summary Historical and Unaudited Pro Forma
Condensed Consolidated Financial Data.
46
<PAGE>
THREE AND NINE MONTHS ENDED MARCH 31, 1997
The following discussion of results of operations is presented for the
Company for the fiscal quarters ended March 31, 1997 and 1996 (the "1997
Quarter" and "1996 Quarter", respectively), and for the nine-month periods
then ended (the "1997 Period" and the "1996 Period", respectively).
Revenues: Revenues for the 1997 Quarter increased by $32.4 million, or
18.8%, to $205.1 million as compared to revenues for the 1996 Quarter of
$172.7 million. This increase is attributable primarily to the acquisition of
Memorex Telex in November 1996, which resulted in increased revenues of
approximately $25 million as compared to the 1996 Quarter.
For the 1997 Period, revenues increased to $572.7 million, as compared to
revenues of $369.2 million for the 1996 Period. This 55.1% increase was due
primarily to the BABSS acquisition, which occurred on October 20, 1995.
Gross Profit: Gross profit increased by $12.0 million, or 28.1%, from
$42.7 million for the 1996 Quarter to $54.7 million for the 1997 Quarter.
This increase is principally attributable to the Memorex Telex acquisition,
which occurred during the second quarter of fiscal 1997. As a percentage of
revenues, gross profit increased from 24.7% in the 1996 Quarter to 26.7% in
the 1997 Quarter.
The improvement in gross profit margin was primarily attributable to (i)
increased revenues from both acquisitions (including contract and asset
acquisitions from Memorex Telex, Xerox Canada and EMC) during the 1997 Period
and internal sales growth without a proportionate increase in personnel and
other operating expenses, (ii) head count reductions in the Company's field
technician force effected in November 1996 and (iii) more efficient
utilization of the Company's field service personnel and resources to service
the increased revenues referred to above.
Gross profit increased by $48.3 million, or 50.1%, from $96.5 million in
the 1996 Period to $144.8 million in the 1997 Period. The increase was due
primarily to the increase in revenues during the 1997 Period attributable to
the full period effect of the BABSS acquisition and, to a lesser extent, the
Memorex Telex acquisition. As a percentage of revenues, gross profit
decreased from 26.1% in the 1997 Period to 25.3% in the 1996 Period. The
decrease in gross margin was attributable to the full period effect in the
1997 Period of the change in mix of the Company's services resulting from the
BABSS acquisition, partially offset by improved gross profit margins
attributable to the efficiencies and productivity improvements described
above during the second and third quarters of the 1997 Period. As a result of
the BABSS acquisition, a significantly smaller portion of the Company's
revenues was derived from proprietary systems which typically generate higher
profit margins than services for non-proprietary systems.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased by $5.9 million, or 26.5%, from $22.3
million for the 1996 Quarter to $28.2 million for the 1997 Quarter. This
increase was attributable primarily to the Memorex Telex acquisition,
including increased sales force salaries and commissions, as well as
increased travel and bad debt expenses. As a percentage of revenues, selling,
general and administrative expenses increased from 12.9% for the 1996 Quarter
to 13.8% for the 1997 Quarter. Selling, general and administrative expenses
increased by $29.1 million, or 58.8% from $49.5 million in the 1996 Period to
$78.6 million in the 1997 Period. This increase was due primarily to the
acquisition of BABSS in October 1995. Selling, general and administrative
expenses as a percentage of revenue increased from 13.4% for the 1996 Period
to 13.7% for the 1997 Period.
Amortization of Intangibles: Amortization of intangible assets increased
by $1.5 million, or 30.6%, from $4.9 million for the 1996 Quarter to $6.4
million for the 1997 Quarter. This increase was attributable principally to
the amortization of intangibles, primarily goodwill, arising from
acquisitions during the 1997 Period, principally Memorex Telex in November,
1996.
Amortization of intangible assets increased by $6.3 million, or 59.4%,
from $10.6 million for the 1996 Period to $16.9 million for the 1997 Period.
This increase was attributable principally to the amortization of intangibles
resulting from the BABSS and Memorex Telex acquisitions.
47
<PAGE>
Employee severance and unutilized lease costs (credit): The Company
recorded charges of $4.3 million and $7.0 million, respectively, in the
second quarter of 1997 and 1996 for estimated future employee severance costs
and unutilized lease/contract losses in connection with specific
acquisitions. See Note 4 to the Unaudited Condensed Consolidated Financial
Statements.
Interest Expense: Interest expense, net of interest income, decreased by
$2.1 million, or 36.2%, from $5.8 million for the 1996 Quarter to $3.7
million for the 1997 Quarter. This decrease was primarily attributable to the
Company's reduced average borrowing rate on long-term indebtedness, which
equaled approximately 9.0% and 6.4%, respectively, for the corresponding
periods. The decrease in the average borrowing rate resulted from the
refinancing of the Company's revolving credit facility in April, 1996. This
interest rate-related decrease, coupled with lower average outstanding
borrowings in the 1997 Quarter resulted in decreased overall interest
expense.
Interest expense, net of interest income, decreased by $0.5 million, or
4.6%, from $11.2 million for the 1996 Period to $10.7 million for the 1997
Period. This decrease was also due primarily to the factors noted above.
Income Taxes: The Company's income tax provisions for the 1997 Quarter and
the 1997 Period reflect an estimated effective income tax rate of
approximately 42%, while the effective income tax rate for the 1996 Quarter
and the 1996 Period was approximately 40%. This increase in the Company's
anticipated effective income tax rate was due primarily to the prior-year
impact of certain non-recurring foreign income tax benefits relating to net
operating loss carryforwards.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues: Revenues increased by $377.2 million, or 231.4%, from $163.0
million for the fiscal year ended June 30, 1995 to $540.2 million for the
fiscal year ended June 30, 1996. The increase is largely a result of
acquisitions, principally the BABSS acquisition in October 1995 which
accounted for approximately $350 million of the increase.
Gross profit: Gross profit increased by $88.4 million, or 178.6%, from
$49.5 million during the fiscal year ended June 30, 1995 to $137.9 million
for the fiscal year ended June 30, 1996. As a percentage of revenues, gross
profit decreased from 30.4% to 25.5%, reflecting the change in mix of
services resulting from the acquisition of BABSS. As a result of that
acquisition, a smaller portion of revenues was derived from proprietary
systems which typically generate higher profit margins than services for
non-proprietary systems.
Selling, general and administrative expenses: Selling, general and
administrative expenses increased by $47.2 million, from $22.0 million for
the fiscal year ended June 30, 1995 to $69.2 million for the fiscal year
ended June 30, 1996, principally as a result of the additional expenses
relating to the revenue growth discussed above. As a percentage of revenues,
selling, general and administrative decreased from 13.5% to 12.8%,
respectively, reflecting economies of scale.
Amortization and write-off of intangibles: Amortization of intangibles
increased by $8.9 million, from $6.8 million for the fiscal year ended June
30, 1995 to $15.7 million for the fiscal year ended June 30, 1996,
principally due to the amortization of intangibles arising from the BABSS
acquisition.
Employee severance and unutilized lease costs (credit): During fiscal
1996, the Company recorded $3.6 million (net of adjustments recording during
the year) in employee severance and unutilized lease costs. These costs were
related principally to future rent obligations and related costs for
facilities of the Company that the Company determined were no longer required
as a result of the acquisition of BABSS.
Interest expense: Interest expense increased by $12.2 million, from $2.5
million for the fiscal year ended June 30, 1995 to $14.7 million for the
fiscal year ended June 30, 1996, principally as a result of the indebtedness
incurred to finance the acquisition of BABSS. See Note 10 of the Notes to the
Company's Consolidated Financial Statements.
Provision for income taxes: The income tax provision for the fiscal year
ended June 30, 1996 was based on an effective tax rate of approximately 40%.
For the fiscal year ended June 30, 1995, the Company
48
<PAGE>
reported an income tax benefit equivalent of approximately 126%, arising
primarily from the recognition of future tax benefits of tax loss
carry-forwards and temporary timing differences. See Note 11 of the Notes to
the Company's Consolidated Financial Statements.
Extraordinary item--early extinguishment of debt: Upon consummation of its
initial public offering in April 1996, the Company was required to pay the
total outstanding principal amount of its $30 million of 10.101% subordinated
debentures due October 20, 2001. This prepayment resulted in the write-off of
unamortized original issue discount of approximately $1.9 million, net of
income tax effect of $1.3 million, related to warrants issued with the
debentures.
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues: Revenues increased by $54.6 million, or 50.4%, from $108.4
million for fiscal 1994 to $163.0 million for fiscal 1995. The increase
principally reflected the benefit throughout the period of the Company's
acquisition of certain assets and liabilities of Servcom in August 1994.
Servcom had a monthly revenue base of approximately $5 million at the time of
the acquisition.
Gross profit: Gross profit increased by $18.1 million, or 57.6%, from
$31.4 million in fiscal 1994 to $49.5 million in fiscal 1995. As a percentage
of revenues, gross profit increased from 29.0% to 30.4%, principally as a
result of increased revenues from service contracts without a proportionate
increase in personnel costs.
Selling, general and administrative: Selling, general and administrative
expenses increased by $5.5 million, from $16.5 million in fiscal 1994 to
$22.0 million in fiscal 1995. The increase is related predominantly to the
Servcom acquisition, which required additional administrative and selling
support for the Servcom customer contracts. As a percentage of revenues,
selling, general and administrative expenses decreased from 15.2% to 13.5%,
due to economies of scale.
Amortization and write-off of intangibles: Amortization of intangibles
increased by $1.4 million, from $5.4 million in fiscal 1994 to $6.8 million
in fiscal 1995. The amortization in fiscal 1994 included a $2.9 million
write-off of intangibles relating to acquisitions in prior years.
Furthermore, amortization of intangibles arising from acquisitions made in
1991 and 1992 ended during fiscal 1994, offsetting, in part, the additional
amortization of intangibles recorded during fiscal 1995 as a result of the
August 1994 acquisition of Servcom.
Employee severance and unutilized lease costs (credit): During fiscal
1994, the Company recorded a benefit of $6.4 million arising from the
settlement of lease obligations for facilities no longer used in the
Company's business, which obligations had previously been accrued in fiscal
1993. During fiscal 1995, there were no comparable lease settlements.
Interest expense: Interest expense decreased $2.3 million, from $4.8
million in fiscal 1994 to $2.5 million in fiscal 1995, due to the
restructuring of indebtedness of the Company in 1994 (see Note 10 of the
Notes to the Company's Consolidated Financial Statements) and a decrease in
the prevailing interest rates on bank loans.
Income taxes: During fiscal 1995, the Company recorded a $23.1 million
income tax benefit related to the expected utilization of tax loss
carryforwards (which is net of a $10 million offsetting charge for potential
limitations on their use) and the future tax benefit of other deductible
temporary differences. As of June 30, 1995, based on its ability to generate
taxable income, the Company recorded the appropriate deferred taxes. See Note
11 of the Notes to the Company's Consolidated Financial Statements. The
effective tax rate in 1994 was approximately 9.2%, which resulted from
application of alternative minimum income tax and state taxes.
Discontinued operations: During fiscal 1995, the Company revised its
estimates of certain accruals created as a result of the disposal of its
computer products division during fiscal 1993. The reversal of certain
accruals resulted in $1.1 million in additional net income in fiscal 1995.
See Note 3 of the Notes to the Company's Consolidated Financial Statements.
49
<PAGE>
LIMITATION ON USE OF NET OPERATING LOSS CARRYFORWARDS AND OTHER TAX CREDITS
As of June 30, 1996, the Company had tax loss carryforwards of
approximately $38.1 million and $15.2 million for Federal and state income
tax purposes, respectively, which are scheduled to expire between 1997 and
2009. The Company also had minimum tax credits of approximately $1.2 million
as of June 30, 1996, with no applicable expiration period. These
carryforwards and credits may be utilized, as applicable, to reduce future
taxable income. The Company's initial public offering resulted in an
"ownership change" pursuant to Section 382 of the Code, which in turn
resulted in the usage, for U.S. federal income tax purposes, of these
carryforwards and credits during any future period being limited to
approximately $20 million per annum. See Note 11 to the Company's
Consolidated Financial Statements for the year ended June 30, 1996. In
addition, the Merger will cause another "ownership change" under Section 382
of the Code, and the Company, therefore, estimates that, for U.S. federal
income tax purposes, the limitation on its use of tax loss carryforwards and
other credits in any post-Merger period will be reduced to approximately $9.0
million per annum. The Company anticipates that fees and expenses incurred in
connection with the Merger will result in additional tax loss carryforwards
arising in fiscal 1998. For financial reporting purposes, the anticipated tax
benefit associated with these carryforwards will be limited due primarily to
the length of the period during which the anticipated tax benefit is expected
to be realized.
LIQUIDITY AND CAPITAL RESOURCES
Post-Merger
Following the Merger, the Company's principal sources of liquidity will be
cash flow from operations and borrowings under the New Credit Facility. The
Company's principal uses of cash will be debt service requirements, capital
expenditures, purchases of repairable parts and acquisitions, and working
capital. The Company expects that ongoing requirements for debt service,
capital expenditures, repairable parts and working capital will be funded
from operating cash flow and borrowing under the New Credit Facility. In
connection with future acquisitions, the Company may require additional
funding which may be provided in the form of additional debt, equity
financing or a combination thereof.
The Company will incur substantial indebtedness in connection with the
Merger and the Merger Financing. On a pro forma basis, after giving effect to
the Merger, the Merger Financing and the application of the proceeds thereof,
the Company would have had approximately $738.8 million of indebtedness
outstanding as of March 31, 1997 as compared to $246.7 million of
indebtedness outstanding as of March 31, 1997. In addition, on the same pro
forma basis, the Company would have a stockholders' deficit of $262.0 million
at March 31, 1997 as compared to a stockholders' equity of $201.1 million as
of March 31, 1997. The Company's significant debt service obligations
following the Merger could, under certain circumstances, have material
consequences to security holders of the Company. See "Risk Factors."
In connection with the Merger, the Issuer expects to raise $85 million
through the issuance of the Units. At the Effective Time, Holdings will
succeed to the obligations of Quaker with respect to the Debentures. In
addition, DecisionOne Corp. expects to issue the Senior Subordinated Notes
for approximately $150 million of gross proceeds, and expects to enter into
the New Credit Facility providing for term loans of $470 million and
revolving loans of up to $105 million. At the Effective Time, DecisionOne
Corp. is expected to borrow all term loans available thereunder and
approximately $8.3 million of revolving loans. The remaining revolving loans
will, subject to a borrowing base, be available to fund the working capital
requirements of DecisionOne Corp. after the Merger. The proceeds of such
financings will, in part, be distributed to Holdings in the form of a
dividend and, in part, as an intercompany note. Each financing is subject to
customary conditions, including the negotiation, execution and delivery of
definitive documentation with respect to such financing.
Immediately prior to the Merger, the DLJMB Funds and certain Institutional
Investors also expect to purchase approximately 9,782,508 shares of Common
Stock and are committed to purchase the DLJMB Warrants (or the Direct Shares)
for approximately $225 million. Upon the effectiveness of the
50
<PAGE>
Merger, the proceeds of such purchase will become an asset of Holdings. The
proceeds of the Debentures, the Senior Subordinated Notes, the initial
borrowings under the New Credit Facility and the DLJMB Equity Investment will
be used to finance the payment of the cash portion of the Merger
Consideration, the Option Cash Proceeds and the Warrant Cash Proceeds, to
refinance outstanding indebtedness of the Company and to pay expenses
incurred in connection with the Merger.
The term loan facility under the New Credit Facility will consist of (i) a
$195 million Term Loan A, (ii) a $150 million Term Loan B and (iii) a $125
million Term Loan C. Term Loan A will mature six years after the closing
date, Term Loan B will mature seven years after the closing date and Term
Loan C will mature eight years after the closing date. Commitments under the
revolving credit facility of the New Credit Facility will terminate six years
after the closing date.
Borrowings under the New Credit Facility will bear interest based on a
margin over, at DecisionOne Corp.'s option, the base rate or LIBOR. The
applicable margin will vary based on DecisionOne Corp.'s ratio of
consolidated indebtedness to Adjusted EBITDA. DecisionOne Corp.'s obligations
under the New Credit Facility will be secured by substantially all of the
assets of DecisionOne Corp., including a pledge of the capital stock of all
of its direct material subsidiaries, subject to certain limitations with
respect to foreign subsidiaries. In addition, Holdings will guarantee the
obligations of the DecisionOne Corp. under the New Credit Facility. Such
guarantee will only be recourse to Holdings' pledge of all of the outstanding
capital stock of DecisionOne Corp. to secure the obligations of DecisionOne
Corp. under the New Credit Facility. The New Credit Facility will contain
customary covenants and events of default, including substantial restrictions
on DecisionOne Corp.'s ability to make dividends or other distributions to
Holdings.
The Senior Subordinated Notes will be issued by DecisionOne Corp. and,
upon issuance, will not be guaranteed by Holdings or any of DecisionOne
Corp.'s subsidiaries. The Senior Subordinated Notes will mature in 2007.
Interest on the Senior Subordinated Notes will be payable semi-annually in
cash. The Senior Subordinated Notes will contain customary covenants and
events of default, including covenants that limit the ability of DecisionOne
Corp. and its subsidiaries to incur debt, pay dividends and make certain
investments.
The Debentures will be issued by Quaker, will become obligations of
Holdings following the Merger and will not be guaranteed by DecisionOne Corp.
nor by any of Holdings' consolidated subsidiaries. The Debentures will mature
in 2008. No interest will accrue or be payable on the Debentures until ,
2002. Thereafter, interest on the Debentures will be payable semi-annually in
cash. The Debentures will contain customary covenants and events of default,
including covenants that limit the ability of the Issuer and its subsidiaries
to incur debt, pay dividends and make certain investments.
Holdings is a holding company, and its ability to pay interest on the
Debentures is dependent upon the receipt of dividends from its direct and
indirect subsidiaries. Holdings does not have, and may not in the future
have, any assets other than the common stock of DecisionOne Corp. DecisionOne
Corp. and its subsidiaries are parties to the New Credit Facility and the
Senior Subordinated Note Indenture, each of which imposes substantial
restrictions on DecisionOne Corp.'s ability to pay dividends to Holdings.
As of March 31, 1997, the Company had no material commitments for
purchases of repairable parts or for capital expenditures.
The Company has budgeted approximately $10 million in incremental
expenditures for information systems to be incurred in fiscal 1998. The
initiatives to be funded include the following: (i) enhancements to the
Company's service entitlement process which will further ensure that
customers are billed for all work performed; (ii) improvements to the
Company's dispatch system and field engineer data collection and technical
support tools which are designed to increase productivity; (iii) enhancements
to the Company's help desk and central dispatch systems to provide an
integrated support solution to the customer base, and (iv) improvements to
the Company's field inventory tracking system which will facilitate increased
transfer of inventory among field locations and reduce purchases of
repairable parts. There can be no assurance that these amounts will be so
expended by the Company, nor when these amounts will be so expended.
51
<PAGE>
The Company anticipates that its operating cash flow, together with
borrowings under the New Credit Facility, will be sufficient to meet its
anticipated future operating expenses, capital expenditures and to service
its debt requirements as they become due. However, the Company's ability to
make scheduled payments of principal of, to pay interest on or to refinance
its indebtedness and to satisfy its other debt obligations will depend upon
its future operating performance, which will be affected by general economic,
financial, competitive, legislative, regulatory, business and other factors
beyond its control. See "Risk Factors."
Historical
Financing: Until its initial public offering in April 1996, the Company's
principal sources of capital had been borrowings from banks (primarily to
finance acquisitions), private placements of equity and debt securities with
principal stockholders and cash flow generated by operations. In April 1996,
the Company (i) completed an initial public offering, which raised
approximately $106 million and (ii) refinanced its bank debt, each of which
is more fully discussed below.
The Company has relied on banks as the primary source of funds required
for larger acquisitions, such as the August 1994 acquisition of certain
assets and liabilities of Servcom and the October 1995 acquisition of BABSS.
Since July 1993, the Company's smaller acquisitions have been funded
primarily through a combination of seller financing, cash and the assumption
of liabilities under acquired prepaid service contracts.
In April 1996, the Company completed an initial public offering raising
$106 million through the issuance of 6.3 million shares of common stock. The
Company used the proceeds to repay approximately $70 million of its then
existing term loan (the "1995 Term Loan") and the Affiliate Notes. Concurrent
with the initial public offering, the Company's Preferred Stock (Series A, B
and C) was converted into common stock in accordance with the terms thereof.
In April 1996, the Company converted the 1995 Term Loan and an existing
$30 million revolving credit facility into a $225 million variable rate,
unsecured revolving credit facility (the "1996 Revolving Credit Facility").
During November 1996, in connection with the acquisition of certain assets of
the U.S. computer service business of Memorex Telex, the Company's lender
approved a $75 million increase to the 1996 Revolving Credit Facility,
raising the total loan commitment to $300 million. See Note 3 to the
unaudited Condensed Consolidated Financial Statements.
The 1996 Revolving Credit Facility provides for revolving borrowings up to
$300 million. The commitments thereunder terminate on April 26, 2001. The
interest rate applicable to the 1996 Revolving Credit Facility varies, at the
Company's option, based upon LIBOR (plus an applicable margin not to exceed
1%) or the prime rate. The Company has entered into interest rate swap
agreements resulting in fixed Euro dollar interest rates of 5.4% on $40.0
million through December 1997 and 5.5% on another $40.0 million through
December 1998. See Notes 2 and 10 to the Company's audited Consolidated
Financial Statements. Although it may be exposed to losses in the event of
nonperformance by counterparties to such swap agreements, the Company does
not expect such losses, if any, to be material. As of March 31, 1997, the
interest rate applicable to loans under the 1996 Revolving Credit Facility
was LIBOR plus .75%, or an effective rate of approximately 6.5%, and
available borrowings under the 1996 Revolving Credit Facility were $55.5
million.
Borrowings incurred under the 1996 Revolving Credit Facility in the 1997
Quarter and the 1997 Period were approximately $2.6 million and $52.9
million, respectively. Borrowings incurred during the 1997 Period included
substantially all of the funding required with respect to the Memorex Telex
acquisition.
The borrower under the 1996 Revolving Credit Facility is DecisionOne Corp.
The obligations of DecisionOne Corp. thereunder are guaranteed by Holdings
and certain of its subsidiaries, except for its Canadian subsidiary. In
connection with the Merger, the Merger Financing and the application of the
proceeds thereof, all indebtedness outstanding under the 1996 Revolving
Credit Facility will be repaid.
52
<PAGE>
Cash Flow and Leverage: Cash flow from operating activities for the 1997
Quarter was approximately $36.7 million. These funds, together with
borrowings under the 1996 Revolving Credit Facility, provided the required
capital to fund capital expenditures of approximately $31.0 million, as well
as the acquisition of assets from complementary businesses for approximately
$3.5 million. Cash flow from operating activities for the 1997 Period was
approximately $57.7 million. These funds, together with borrowings under the
1996 Revolving Credit Facility, provided the capital required to fund capital
expenditures of approximately $70.9 million, as well as the acquisition of
assets from complementary businesses for approximately $34.4 million.
Reducing cash flow from operating activities for the 1997 Quarter and the
1997 Period was a $1.8 million payment to the Internal Revenue Service in
full satisfaction of certain interest liabilities related to prior tax
periods. See Note 9 to the Company's audited consolidated financial
statements for the fiscal year ended June 30, 1996. The Company had
adequately accrued for this liability prior to payment, and no further
amounts are due with regard to these matters.
In fiscal years 1996, 1995, and 1994, the Company generated net cash flow
from operating activities of $51.9 million, $38.4 million, and $28.7 million,
respectively. Cash required to fund the purchase of repairable parts and for
capital expenditures totaled $70.8 million, $14.9 million and $2.2 million,
during fiscal 1996, 1995 and 1994, respectively.
The majority of the Company's capital expenditures have historically
consisted of purchases of repairable parts needed to meet the service
requirements of customers under computer maintenance contracts. These
repairable parts are generally purchased from OEMs and other third parties.
The Company expended $86.4 million for the purchase of repairable parts in
fiscal 1997 including purchases relating to the Company's Compaq "End of
Life" Program. As of March 31, 1997, the Company had no material commitments
for purchases of repairable parts or for capital expenditures other than
those in the ordinary course of business.
The Company maintains a significant inventory of expendable and repairable
parts. Expendable parts are expensed as they are used in the operations of
the business. Repairable parts are recorded at cost at the time of their
acquisition and amortized over five years. The Company maintains a high level
of inventories due to the wide range of products serviced, ranging from
mainframe to personal computers.
The Company provides for obsolescence when accounting for expendable
inventories and reviews obsolescence as it applies to its repairable parts.
The Company believes it has provided adequate reserves for obsolescence for
expendable inventories. The Company believes that accumulated amortization on
repairable parts renders the need for an obsolescence reserve with respect to
repairable parts unnecessary.
The most significant of the Company's acquisitions during the 1997 Period
was the Memorex Telex acquisition on November 15, 1996. The base purchase
price was $50.4 million, comprised of the Company's assumption of $26.0
million of liabilities under acquired customer maintenance contracts, and
$24.4 million in cash after taking into account certain purchase price
adjustments.
The balance sheet reflects working capital (deficiency) as of March 31,
1997 of $10.1 million, and as of June 30, 1996, 1995, and 1994, of $12.9
million, ($51.8) million and ($34.0) million, respectively, which deficits
for 1995 and 1994 were primarily attributable to the use of short-term
liabilities to fund the purchase of long-term assets.
The allowance for uncollectible accounts at March 31, 1997 and 1996
amounted to 7.9% and 9.4% of trade receivables, respectively. The allowance
for uncollectible accounts at June 30, 1996 and 1995 amounted to 9.4% and
19.2% of trade receivables, respectively, because of the Company's write-off
experience with respect to accounts receivable obtained by acquisition and
the potential offset against an OEM's trade receivable in respect of
unreturned, unused and replaced parts.
The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible
parties in respect of three waste disposal sites that have been identified by
the U.S. Environmental Protection Agency as Superfund sites. In addition, the
Company received a notice several years ago that it may be a potentially
responsible party in respect of a fourth,
53
<PAGE>
related site, but has not received any other communication in respect of that
site. The Company has estimated that its share of the costs of the clean-up
of one of the sites will be approximately $500,000, which has been provided
for in liabilities related to the discontinued products division in the
Company's financial statements. Complete information as to the scope of
required clean-up at these sites is not yet available and, therefore,
management's evaluation may be affected as further information becomes
available. However, in light of information currently available to
management, including information regarding assessments of the sites to date
and the nature of involvement of the Company's predecessor at the sites, it
is management's opinion that the Company's share, if any, of the cost of
clean-up of these sites will not be material to the consolidated financial
position, results of operations or liquidity of the Company. See Note 18 of
the Notes to the Company's Consolidated Financial Statements. See "Risk
Factors--Potential Environmental Liabilities."
EFFECT OF INFLATION; SEASONALITY
Inflation has not been a material factor affecting the Company's business.
In recent years, the cost of electronic components has remained relatively
stable due to competitive pressures within the industry, which has enabled
the Company to contain its service costs. The Company's general operating
expenses, such as salaries, employee benefits, and facilities costs, are
subject to normal inflationary pressures.
The operations of the Company are generally not subject to seasonal
fluctuations.
54
<PAGE>
BUSINESS
OVERVIEW
The Company is the largest independent provider of multivendor computer
maintenance and technology support services in the United States, based on
Dataquest estimates for calendar year 1996. The Company offers its customers
a single source solution for virtually all of their computer maintenance and
technology support requirements, including hardware maintenance services,
software support, end-user/help desk services, network support and other
technology support services. The Company believes it is the most
comprehensive independent (i.e., not affiliated with an OEM) provider of
these services across a broad range of computing environments, including
mainframes, midrange and distributed systems, workgroups, PCs and related
peripherals. The Company provides support for over 15,000 hardware products
manufactured by more than 1,000 OEMs. The Company also supports most major
operating systems and over 150 shrink-wrapped software applications. The
Company delivers its services through an extensive field service organization
of approximately 4,000 field technicians in over 150 service locations
throughout the United States and Canada and strategic alliances in selected
international markets.
DecisionOne has emerged as the leading independent, multivendor provider
of computer maintenance and technology support services by (i) consummating
over 35 complementary acquisitions since the beginning of fiscal 1993, (ii)
expanding maintenance capabilities and introducing new technology support
services, (iii) increasing sales to existing customers by increasing
equipment under contract and by selling existing customers new technology
support services, (iv) adding new corporate customers and (v) providing
outsourcing services for OEMs, software publishers, system integrators and
other independent service organizations. As a result, the Company's revenues
have grown at a compound annual rate of 69.2% to approximately $820.4 million
for the annualized quarter ended March 31, 1997 from $114.1 million in fiscal
1993. Over the same period, the Company's Adjusted EBITDA has grown at a
74.2% compound annual rate to approximately $120.3 million for the annualized
quarter ended March 31, 1997 from $15.0 million in fiscal 1993.
In 1996, based on Dataquest projections, the Company estimates it had a 9%
market share of the $8.8 billion independent, multivendor segment of the
$40.5 billion U.S. hardware maintenance and technology support services
market. The independent, multivendor segment is projected by Dataquest to
grow at a 14% compound annual rate from $8.8 billion in 1996 to $14.8 billion
in 2000. The Company believes this growth is being driven by the
proliferation of computer equipment as well as outsourcing trends, including:
(i) the outsourcing by corporate customers of hardware maintenance and
technical support requirements and (ii) the outsourcing by major hardware
OEMs and software publishers of maintenance services (including warranty and
post-warranty services) and end-user technical support requirements. In
addition, the Company believes that demand for its services is being driven
by the increasing complexity of computing environments which has resulted
from the migration of computer systems from single OEM, centralized systems
to multivendor, decentralized systems. The Company believes that this
increased complexity has generally surpassed the technical capabilities of
many in-house support staffs and has accelerated the pace of outsourcing. The
Company believes that customers are increasingly turning to independent
service providers when outsourcing due to the increased use of multiple
vendors for hardware and the perception that OEM service providers are biased
toward specifying their own equipment as computer purchase requirements
arise. Furthermore, many OEMs such as Sun and Compaq are outsourcing certain
non-core customer service activities, including maintenance services
(including warranty and post-warranty services) and product support services
(such as end-user help desk services) to independent service organizations
such as the Company.
COMPETITIVE STRENGTHS
The Company believes that it possesses a number of competitive strengths
that have allowed it to become the leading independent provider of
multivendor computer maintenance and technology support services, including:
EXTENSIVE SERVICE INFRASTRUCTURE. The Company provides customers with
high quality service through an extensive infrastructure including: (i)
approximately 4,000 highly trained field technicians, (ii)
55
<PAGE>
over 150 geographic locations throughout the United States and Canada, (iii)
a substantial spare parts inventory to ensure supply and rapid response
times, (iv) a broad service offering which enhances the Company's ability to
provide customers with a single source solution, (v) an extensive proprietary
database of historical failure rates for over 15,000 hardware products
manufactured by over 1,000 OEMs, (vi) a detailed record of major customers'
hardware and software assets and a record of such customers' maintenance
patterns and (vii) proprietary dispatch systems to ensure rapid customer
response times.
INDEPENDENT, MULTIVENDOR SERVICE PROVIDER. The Company provides customers
with an independent, multivendor solution for their computer maintenance and
technology support needs. As an independent service provider, the Company
believes it is viewed by customers as impartial to any particular OEM's
products. As a multivendor service provider, the Company supports over 15,000
hardware products manufactured by more than 1,000 OEMs as well as most major
operating systems and over 150 shrink-wrapped software applications. OEM,
specialty and local service providers do not offer either the breadth of
services or the geographic presence throughout the United States and Canada
provided by the Company.
CONTRACT-BASED REVENUES. Approximately 85% of the Company's revenues in
fiscal 1996 were derived from contracts, under which equipment and services
may be added and deleted. Furthermore, the Company believes that its
extensive service infrastructure and its unique knowledge of its customers'
hardware and software service requirements enhance the Company's ability to
provide superior service. The Company believes that the resulting track
record of service to existing customers affords it a competitive advantage in
renewing existing contracts and winning new contracts. Although many of the
Company's existing customer contracts are currently terminable on short
notice, 49 out of the Company's top 50 customers in fiscal 1994 are still
customers today.
DIVERSIFIED AND STABLE FORTUNE 1000 CUSTOMER BASE. The Company services
over 51,000 customers at over 182,000 sites across the United States and
Canada. In fiscal 1996, the Company's top 10 customers represented 23% of
revenues and the top 100 customers represented 47% of revenues. The Company's
customers include a diverse group of national and multinational corporations,
including SABRE Group, Inc. (an affiliate of American Airlines, Inc.), Sun,
Compaq, NationsBank, DuPont, Chevron Corporation and Netscape. The Company
believes that the scope of its service offerings and the breadth of its
geographic presence in the United States and Canada allow it to serve this
diverse group of national and multinational customers as well as thousands of
smaller customers who also require customized services.
MITIGATED TECHNOLOGY AND RECESSION RISKS. The Company provides services
across a broad range of computing environments, including mainframes,
midrange and distributed systems, workgroups, PCs and related peripherals.
Consequently, although each segment of the computer hardware and software
industry is subject to shifts in technology, the Company believes that the
diversity of computing environments for which it provides services mitigates
the potential adverse effects of technological changes in any one segment.
Furthermore, the Company believes that because computer maintenance
requirements are based primarily on usage, the Company's hardware maintenance
business may be insulated from the adverse effects of declines in spending
during recessionary periods, so long as computer usage continues to
necessitate maintenance spending.
BUSINESS STRATEGY
DecisionOne has developed a business strategy which it believes will
enable it to profitably grow future revenue and cash flow and which includes
the following elements:
PROVIDE A SINGLE SOURCE TECHNOLOGY SUPPORT SOLUTION. The Company intends
to continue its strategy of offering its customers a broad and expanding
range of computer technology support services in a single interface format.
The Company believes it meets the customer's preference for a single
interface by offering maintenance and technology support services across most
leading brands of hardware and software within virtually all computing
environments. In addition, the Company's single source solution enables the
Company to retain customers when customers change, substitute or upgrade
their computing environments.
56
<PAGE>
OFFER ADDITIONAL SERVICES TO EXISTING CUSTOMERS. The Company generates new
revenues from existing customers by adding new equipment to existing hardware
maintenance contracts and by providing existing customers with additional
support services. Recent revenue growth attributable to the expansion of
additional support services has been derived primarily from (i) end-user
support services such as help desk services, (ii) network support services
such as LAN administration, security management and fault management, (iii)
logistics services such as parts repair, inventory and asset management, and
warranty parts management and (iv) program management services such as
technology deployment and computer and software moves, adds and changes. The
Company believes that the breadth of its additional support services has
permitted, and will continue to permit, the Company to leverage its historic
strength in hardware maintenance to increase revenues from existing customers
and has enabled the Company to grow sales to its top 50 customers in fiscal
1994 by 33.3% through fiscal 1996.
LEVERAGE EXISTING SERVICE INFRASTRUCTURE. The Company believes that, due
to the large scale of the Company's service infrastructure, the Company
enjoys substantial operating leverage and has positioned itself to increase
productivity and profitability whether the Company grows internally or
through acquisitions. The principal areas in which the Company expects to
realize the benefits of operating leverage include: (i) increased customer
call density in a region permitting field service technicians in the region
to complete a greater number of service calls per day, (ii) increased
comparable equipment density allowing the Company to operate with
proportionally lower inventory of spare parts and (iii) productivity gains
driven by new services such as end-user support services which reduce
unnecessary trips by field technicians to existing customers and by the
addition of new equipment under existing maintenance contracts. The Company
intends to further improve the productivity of its existing infrastructure by
investing in upgrades of its management information systems.
PURSUE COMPLEMENTARY ACQUISITIONS. The Company believes it is well
positioned strategically to participate in the further consolidation of the
computer maintenance and technology support services market and expects to
continue to evaluate complementary acquisitions. Further, the Company
believes that pursuing complementary acquisitions is an attractive growth
strategy due to the significant synergies which the Company may achieve when
it successfully consolidates acquisitions into its service infrastructure.
Since the beginning of fiscal 1993, the Company has completed over 35
acquisitions. The Company's typical acquisition consists principally of
customer maintenance and support contracts as well as the accompanying spare
parts inventory. The Company generally reduces the cost structure necessary
to service the acquired customer contracts by leveraging DecisionOne's
extensive service infrastructure, spare parts inventory and administrative
function. For example, the Company was able to service the contracts acquired
from Memorex Telex in November 1996 with approximately 36% fewer employees
than previously required by Memorex Telex. In addition, the Company seeks to
increase sales and profitability by offering acquired customers additional
services.
CAPITALIZE ON OUTSOURCING TREND AMONG OEMS, SOFTWARE PUBLISHERS AND
SYSTEMS INTEGRATORS. The Company expands its marketing reach by offering its
services through outsourcing arrangements and indirect channels. For fast
growing hardware OEMs and software publishers concerned with cost savings and
time-to-market issues such as Sun, Netscape and Compaq, the Company provides
outsourced customer support services such as help desk services, warranty and
post-warranty maintenance services, and technical product support services.
For systems integrators, the Company provides maintenance and technology
support services on a subcontract basis to several large outsourcing clients
of EDS and Computer Sciences Corp.
INDUSTRY BACKGROUND
The United States market for computer hardware maintenance and technology
support services is large and growing. According to Dataquest projections,
the hardware maintenance and technology support services market was
approximately $40.5 billion in 1996 and is projected to grow at a compound
annual rate of 5.6% to $50.3 billion by the year 2000. Within the market
surveyed by Dataquest, Dataquest estimates that the independent, multivendor
segment was approximately $8.8 billion in 1996 and projects the segment to
grow at a 14% compound annual rate to $14.8 billion by the year 2000.
According to Dataquest, independent, multivendor service providers such as
the Company are taking market share
57
<PAGE>
from the OEM service providers faster than OEMs are contracting new business.
The Company believes that this is occurring for several reasons including:
(i) customers are looking for single-source providers who support multiple
computer hardware and software platforms, (ii) independent service providers
are viewed as being unbiased toward computer purchase decisions and (iii)
OEMs are increasingly outsourcing customer maintenance service (including
warranty and post-warranty services) and technical customer support such as
help desk services to independents in order to focus on their core design,
technology and marketing competencies. According to Dataquest, within the
independent, multivendor segment, hardware maintenance was the dominant
service, accounting for approximately 71% of 1996 revenues, with technology
support services, including software support, network support and end-user
training, comprising the remaining 29% of 1996 revenues.
The independent, multivendor segment is also fragmented and consolidating.
According to Dataquest, the top 10 participants accounted for less than 50%
of the market in 1995. Participants in the independent multivendor segment
include: (i) several large independent service providers, (ii) the
multivendor segments of OEM service organizations and (iii) hundreds of
smaller independent companies servicing either product niches or limited
geographical areas of the United States. The significant market position of
OEMs is due largely to their traditional role of servicing their own
installed base of equipment and their customers' former reliance on
centralized, single vendor solutions (i.e. mainframe systems).
COMPANY SERVICES
The Company provides a comprehensive range of core technology support
services to customers across a broad range of computing environments,
including mainframes, midrange and distributed systems, workgroups, PCs and
related peripherals. The Company customizes its service offerings to the
individual customer's needs in response to the nature of the customer's
requirements, the term of the contract and the combination of services that
are provided. Services are bundled to match the support requirements of
customers and include hardware support, end-user and software support,
network support, management information services, program management,
planning support and ancillary support services.
Hardware Support
Hardware support services consist of remedial and preventive maintenance
for computers and computer peripheral devices. The Company supports over
15,000 different hardware products manufactured by more than 1,000 OEMs. The
Company's customer support centers ("CSCs") handle over 330,000 calls per
month regarding hardware support. The Company maintains and manages an
inventory of over 3.5 million parts representing more than 300,000 part
numbers. The Company also has access to a network of computer equipment
vendors, brokers and highly skilled repair suppliers, as well as access to
certain IBM Designated Parts Sales Locations.
In addition to its on-site diagnostic tools, the Company uses industry and
proprietary software diagnostic capabilities to monitor system performance on
a remote basis. Also, large customers are provided remote, on-line access to
certain of the Company's systems to log service requests and track service
delivery.
The Company prices its products and services on either a fixed fee or per
incident basis. Pricing is based on various factors including equipment
failure rates, cost of repairable parts and labor expenses.
End-User and Software Support
The Company's CSCs handle over 90,000 calls per month for help desk and
software support. Levels of support range from basic and network support for
corporate end-users to advanced operating system support for systems
administrators. Customized support also is available for vertical market
applications and OEM accounts. Operational services are available seven days
per week, twenty-four hours a day.
The Company currently provides support for PC/workstation operating
systems such as Windows(Registered Trademark) 95, Windows(Registered
Trademark), MS-DOS(Registered Trademark), and Sun Microsystems'
Solaris(Registered Trademark), as well as support on network operating
58
<PAGE>
systems such as Novell Netware(Registered Trademark) and Windows(Registered
Trademark) NT. Groupware products like Lotus Notes and Internet browsers such
as Netscape also are fully supported. Additionally, over 100 PC software
products ranging from spreadsheets and word processing to communications and
graphics are supported, as are numerous on-line services.
The Company is a Microsoft Authorized Support Center, providing help desk
support for a broad range of Microsoft business software applications and
operating systems. Technical support is delivered through the Company's
network of CSCs and ranges from basic end-user software support to second
level professional support, and work in conjunction with Microsoft desktop
applications and operating systems, like Microsoft Windows(Registered
Trademark) 95 and Windows(Registered Trademark) NT.
Network Support
The Company provides support services for networked computing
environments, including management, administration, and operations support
for both local area networks and wide area networks ("WANs"). Network support
services are designed to reduce the cost of ownership of networked computing,
improve productivity of network users, and supplement customers' internal
support staffs. The Company's remote network management services provide
monitoring of fault and performance data in customers' networks and problem
resolution from the Company's network management center. The Company also
provides on-site network services to assist customers with network
administration, operations, and remedial support. Network specialists may be
resident at the customer site or dispatched as necessary.
Logistics Services
The Company also repairs and refurbishes computer parts and assemblies at
seven depot repair centers in the United States. In addition to supporting
its own business, these services are provided primarily for OEMs,
distributors and other third-party maintenance companies. Subassemblies
repaired include system logic boards, hard disk drive assemblies,
peripherals, power supplies and related equipment. The Company's depot repair
facilities located in Malvern, Pennsylvania; Boston, Massachusetts;
Milwaukee, Wisconsin; and San Francisco, California are certified to ISO-9002
standards.
The Company also provides logistics services, including the planning and
forecasting of parts requirements and parts sourcing, inventory and warranty
management, for Compaq and other manufacturers. Under terms of the Compaq
logistics service contract, the Company handles orders from customers,
dealers and distributors in North America for parts that are no longer
produced by Compaq. The parts are used to repair Compaq desktops, laptops and
servers and include such components as flat panels (LCDs), motherboards,
monitors, power supplies and related parts. In addition to repair and
replacement work, the Company manages the program's logistics requirements
and parts warranty reimbursement activities.
Program Management
The Company provides ongoing management services for companies that wish
to outsource all or a portion of their services management requirements.
Typical services include third-party vendor management, on-site personnel
support and program evaluation, as well as a variety of support capabilities
required to prepare a system for operation and improve its efficiency. These
support capabilities include support for system installation,
de-installation, moves, upgrades, reconfigurations, system configuration
audits, inventory tracking services and data restoration assistance.
Planning Support
The Company assists customers in defining their enterprise service
requirements, establishing service delivery benchmarks, recommending process
improvements and auditing the results of implemented programs over time. The
objective of these consulting services is to assist customers in reducing the
total cost of ownership and improving operating efficiency in their service
environments.
59
<PAGE>
Information Services
The Company makes service improvement recommendations to customers based
on information accumulated from its hardware, network and end-user support
services. Management information services allow customers to make informed
decisions relating to hardware and software procurements as well as the need
for increased employee training. The Company believes these services
differentiate it from OEMs and software developers that may favor their own
products.
The Company's AssetOne(Trademark) service tracks customers' desktop assets
and provides information on hardware configuration, software utilization,
warranty status, equipment location and user profiles. This information can
then be used to improve the way customers' assets are deployed, serviced, and
used in order to reduce costs and increase end-user productivity.
Support Partner Programs
The Company maintains strategic alliances with several significant
companies in order to provide customers with comprehensive technology support
solutions. The Company does not receive revenues for services provided by its
strategic partners. Key relationships include: General Electric Computer
Leasing Corp., which provides computer acquisition, disposition and financing
services; SunGard Recovery Services Inc., which provides disaster recovery
services; and MicroAge, Inc., which supplies hardware products such as
personal computers, peripherals, network products and related devices.
SALES AND MARKETING
The Company's core product capabilities are bundled to match the support
requirements of customers. Individual service portfolios exist for data
center, mid-range and desktop environments. In addition, a product portfolio
exists for OEMs who seek support for parts sourcing and repair, inventory
management and related logistics services.
The Company sells its services through both direct and indirect sales
channels. The Company's direct sales force consists of approximately 275
sales professionals who are organized into a general commercial sales group
as well as into several dedicated groups including: a Federal Group, which
sells to the Federal Government; a National Accounts Group, which focuses on
large and multinational corporate customers; and a Telesales Group, which
focuses on small accounts.
The Company also sells its services through its indirect sales force
comprised of approximately 25 sales professionals. Product support
relationships exist with OEMs such as Sequent Computer Corporation, EMC(2)
Corporation ("EMC"), Sun and Compaq, and software developers such as
Netscape, Novell, Inc., Microsoft Corporation and SunSoft, Inc.
INTERNATIONAL BUSINESS PARTNERS
In order to provide international service to its multinational customers,
the Company supplements its broad North American infrastructure with
strategic alliances in selected international markets. The Company maintains
relationships with International Computers Limited ("ICL") and FBA Computer
Technology Services ("FBA"). The Company licenses many of its proprietary
multivendor support tools to FBA and to ICL Sorbus Ltd. ("ICL Sorbus"), which
is ICL's multivendor services group in Western Europe. As a result, the
Company is able to offer its multinational customers service in Western
Europe, Asia and Australia.
ICL is a leading information technology company that has approximately
23,000 employees operating in about 80 countries around the world. In Western
Europe, the ICL Sorbus companies provide multivendor services in 17 countries
with approximately 250 service locations and about 5,000 employees. Several
of the Company's major customers, including SABRE Group, Inc. and DuPont
benefit from the agreement between the Company and ICL Sorbus, whereby ICL
Sorbus agrees to provide services at the European locations of the Company's
multinational customers. Through ICL Sorbus, the Company utilizes the service
branches of both ICL and ICL's parent company, Fujitsu Ltd., to provide
worldwide multivendor support throughout Asia, the Pacific Rim, the Middle
East and Africa.
60
<PAGE>
FBA, an affiliate of Fujitsu Ltd., provides multivendor services in
Australia and New Zealand from 21 locations with 150 employees. In addition
to providing technical support to FBA, the Company has supplied various
management and sales support personnel to FBA. FBA also provides services to
certain of the Company's multinational customers, including Sun.
SERVICE INFRASTRUCTURE
Centralized Dispatch. When a customer places a call for remedial
maintenance, the Company uses its Dispatch Data Gathering system ("DDG") to
manage the process. When a customer is identified, the DDG system displays
the customer's service level requirements and covered equipment. Specific
information on the symptoms of the problem and the products that are
malfunctioning are entered into the system to begin tracking the service
event. The Company's Customer Support Representative ("CSR") selects, based
upon the requirements of the service event, the appropriate Customer Service
Engineer ("CSE") from a list of pre-assigned primary and back-up personnel
and passes this information to the selected CSE.
The Company maintains three CSCs in Malvern, Pennsylvania; Bloomington,
Minnesota; and Tulsa, Oklahoma. Customers can reach the CSCs by calling one
toll-free telephone number. The CSCs currently are staffed with over 575 CSRs
and 29 staff/operations managers. There is a duty manager on call in each
center at all times. CSCs are available on a 24 hour, 7 day per week basis.
Redundancy for disaster recovery purposes is designed into the CSC system
through the three locations' use of automatic telecommunications switching.
Inventory Logistics. In order to meet customer computer repair
requirements, the Company maintains a tiered approach to inventory
management. Parts or assemblies with low failure rates are stocked in either
the Company's central distribution center located in Malvern, Pennsylvania or
in its critical parts center in Dallas, Texas. The Company also maintains six
regional distribution centers in Atlanta, Georgia; Newark, New Jersey; Los
Angeles, California; San Francisco, California; Chicago, Illinois; and
Wilmington, Ohio for critical parts needed more frequently throughout the
United States. In order to service customers whose response time requirements
are two to four hours, higher usage parts are maintained at the Company's
branch offices or local attended stocking locations. Customer site parts
storage is arranged when customer response time requirements are two hours or
less.
The Company's field inventory system ("FIS") is a real-time system which
tracks the inventory and repairable parts assigned to its field workforce and
located at seven distribution centers, field offices or at customer sites.
Parts information processed through FIS is integrated with the Company's
other key systems, including DDG and International Support Information System
("ISIS").
SERVICE TECHNOLOGY
The Company has developed several proprietary technologies for use in
service planning, support and delivery. These service tools include
proprietary databases, remote diagnostic and system monitoring software, and
instructional documentation. These technical support tools not only provide
remote and on-site predictive and remedial service support, but also enable
the Company to collect extensive, objective systems performance measurement
information (on the customer's environment as well as benchmarking against
the Company's database) which its customers can use to identify potential
efficiencies, evaluate competing products and technologies, and determine
whether its requirements are being met.
The Company's proprietary service technologies include ISIS, SERVICE EDGE
and MAXwatch(Trademark). The Company licenses certain of these technologies
and provides other technical support to certain foreign multivendor service
providers, including ICL Sorbus in Europe, FBA in Australia and New Zealand,
and PT Metrodata Electronics in Indonesia.
International Support Information Systems. ISIS is a database accessible
to the Company's customer service engineers that is comprised of diagnostic
and symptom fix data for thousands of products, service updates, and service
planning information, such as machine performance and parts usage
information,
61
<PAGE>
and remote support capabilities for large IBM systems, including automatic
"call home" to the Company. The Company believes that ISIS is the most
comprehensive service-related database of any independent computer service
organization.
SERVICE EDGE. SERVICE EDGE is a PC-based system installed at the
customer's site which monitors error messages and collects and reports
service data to help customers predict potential system failures and provide
customers with system performance information.
MAXwatch(Trademark). MAXwatch(Trademark) is an on-site program for
products of Digital Equipment Corporation ("Digital") which monitors system
integrity, proactively detects and corrects certain system errors, and
automatically "calls home" for remote technical support when pre-defined
error thresholds are exceeded. A similar product, MAX400, is available for
IBM AS/400 systems.
DecisionOne, AssetOne(Trademark), ISIS, SERVICE EDGE and
MAXwatch(Trademark) are service marks or trademarks owned by the Company. All
other brand names, service marks or trademarks appearing herein are the
property of their respective owners.
TRAINING
The Company maintains the technical expertise of its engineers through
training programs designed to teach the various techniques for determining
the status of a customer's total computer operations. The Company's training
offers support professionals a broad exposure to various computer system
technologies.
The Company's training facilities include 26 classrooms, 23,000 square
feet of hands-on lab space, 26 full-time instructors and video specialists
and a curriculum of over 80 courses. The Company has five training centers
and labs located in Frazer, Pennsylvania; Malvern, Pennsylvania; Bloomington,
Minnesota; Milwaukee, Wisconsin; and Phoenix, Arizona. Six months following
course work, the Company surveys the engineers to gauge the effectiveness and
applicability of its training curriculum.
CUSTOMERS
The Company services over 51,000 customers at over 182,000 sites across
the United States and Canada. The Company sells services to five types of
customers: large businesses that have complex computing support needs and
typically maintain a data center, distributed computing and work group
environments; medium-sized businesses that rely primarily on distributed
systems for their computing needs; small businesses that principally use LANs
and WANs for computing; individuals who use stand-alone computing systems;
and OEMs and software developers that contract with the Company for warranty
services, logistic support services or help desk support. A significant
portion of the Company's revenues are attributable to large businesses with
complex computing support needs.
COMPETITION
Competition among computer support service providers, both OEM and
independent service organizations, is intense. The Company believes that
approximately 80% of that portion of the hardware maintenance services market
that is related to mainframes and stand-alone midrange systems is currently
serviced by OEM service organizations. In addition, the Company believes that
OEM service organizations provide a smaller, but still significant, portion
of the computer maintenance services related to distributed systems,
workgroups and PCs. The remainder of the market is serviced by a small number
of larger, independent companies, such as the Company, offering a broader
range of service capabilities, as well as numerous small companies focusing
on narrower areas of expertise.
The Company considers its principal competitors to include: IBM and its
affiliate Technology Service Solutions, Digital, and Wang Laboratories, Inc.,
the multivendor service divisions of certain other OEMs, other national
independent service organizations that are not affiliated with OEMs such as
Vanstar Corporation, Entex Corporation and Stream International, Inc., and
various regional service providers.
The Company believes that the primary competitive factors in the computer
services industry are the quality of a company's services, the ability to
service a wide range of products supplied by a variety of
62
<PAGE>
vendors, the geographic coverage of a company's services and the cost to the
customer of those services. The Company believes that customers are
increasingly looking for service providers capable of providing a
single-source solution for their increasingly complex multivendor systems.
See "Risk Factors--Competition; Competitive Advantages of OEMs."
FACILITIES
The Company leases certain office and warehouse facilities under operating
leases and subleases that expire at various dates through November 30, 2005.
The Company's executive offices are located at the Frazer, Pennsylvania
facilities listed below. The principal facilities currently leased or
subleased by the Company are as follows:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE LEASE EXPIRATION
- ------------------------------------------ --------- ----------------
<S> <C> <C>
Frazer, Pennsylvania (Office) ............. 109,800 November 2005
Frazer, Pennsylvania (Office) ............. 35,968 April 2003
Malvern, Pennsylvania (Depot/Call Center) 200,000 May 2000
Horsham, Pennsylvania (Warehouse) ........ 100,000 December 1999
Bloomington, Minnesota (Call Center) ...... 66,000 March 1998
Hayward, California (Depot) ............... 91,000 September 1999
Northborough, Massachusetts (Depot) ...... 52,778 July 1998
Wilmington, Ohio (Warehouse)............... 83,000 January 2001
Grove City, Ohio (Depot)................... 118,500 January 2002
</TABLE>
In addition, the Company owns two facilities located in Tulsa, Oklahoma
(multi-purpose) and the suburbs of Milwaukee, Wisconsin (logistics services).
The Company's management believes that its current facilities will be
adequate to meet its projected growth for the foreseeable future.
The Company's principal executive offices are located at 50 East
Swedesford Road, Frazer, Pennsylvania 19355, and the Company's telephone
number is (610) 296-6000.
EMPLOYEES
As of June 30, 1997, the Company had approximately 6,500 full-time and 60
part-time employees. None of the Company's employees is currently covered by
collective bargaining agreements. Management considers employee relations to
be good.
LEGAL PROCEEDINGS
The Company is a party, from time to time, to lawsuits arising in the
ordinary course of business. The Company believes it is not currently a party
to any material legal proceedings. However, within the past several years,
several OEMs have been involved in litigation with independent service
organizations, including the Company, in which such OEMs have claimed
infringement of software copyrights held by the OEMs. The Company currently
is not involved in any such litigation. See "Risk Factors--Copyright Issues."
The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible
parties in respect of three waste disposal sites that have been identified by
the United States Environmental Protection Agency as Superfund Sites: (i) PAS
Irwin Dump Site, Oswego, New York (and six satellite sites, including the
Fulton Terminals Site, Fulton, New York); (ii) North Penn Area 6 Site,
Lansdale, Pennsylvania; and (iii) Revere Chemical Site, Nockamixon,
Pennsylvania. In addition, the Company received a notice several years ago
that it may be a potentially responsible party with respect to the Boarhead
Farms Site, Bridgeton, Pennsylvania, at a site related to the Revere Chemical
site, but has not received any additional communication with respect to that
site. Under applicable law, all parties responsible for disposal of hazardous
substances at those sites are jointly and severally liable for clean-up
costs. The Company has estimated that its share of the costs of the clean-up
of one of the sites will be approximately $500,000, which has been provided
for in liabilities
63
<PAGE>
related to the discontinued products division in the accompanying
consolidated balance sheets as of June 30, 1996, 1995 and 1994. Complete
information as to the scope of required clean-up at these sites is not yet
available and, therefore, management's evaluation may be affected as further
information becomes available. However, in light of information currently
available to management, including information regarding assessments of the
sites to date and the nature of involvement of the Company's predecessor at
the sites, it is management's opinion that the Company's share, if any, of
the cost of clean-up of these sites will not be material to the consolidated
financial position, results of operations or liquidity of the Company. See
Note 16 of the Notes to the Company's Consolidated Financial Statements.
REGULATION
Under the National Industrial Security Operating Manual, companies with
contracts or subcontracts with the U.S. government that involve access to
classified information must, if they will come under foreign ownership,
control or influence ("FOCI"), notify the U.S. Department of Defense. If they
wish to retain their security clearances such companies must propose a plan
of action to mitigate or negate the FOCI. DecisionOne Corp. currently
requires security clearances in order to perform services under certain
classified contracts. As a result, on May 13, 1997, the Company notified the
Defense Department of the proposed Merger, and on June 27, 1997, it submitted
to the Defense Department its plan to mitigate or negate FOCI through use of
a Special Security Agreement. Among other things, DecisionOne Corp. has
proposed to mitigate the FOCI by the addition of two independent directors to
the board of directors of DecisionOne Corp. There is no deadline by which the
Department of Defense must approve a plan. If no plan has been approved by
the date of the Merger, the status of existing contracts will be subject to
case-by-case review and DecisionOne Corp. will be unable to bid on new
classified government work until and unless such an approval is forthcoming.
64
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning the current
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- ----- -------------------------------------------------
<S> <C> <C>
Kenneth Draeger ....... 56 Chairman and Chief Executive Officer and Director
Stephen J. Felice .... 40 President
Thomas J. Fitzpatrick 39 Vice President and Chief Financial Officer
Joseph S. Giordano ... 42 Senior Vice President--Operations
James J. Greenwell ... 38 Senior Vice President--Sales & Marketing
Thomas M. Molchan .... 42 General Counsel and Corporate Secretary
Dwight T. Wilson ...... 41 Vice President--Human Resources
Bruce K. Anderson .... 57 Director
Michael C. Brooks .... 52 Director
Thomas E. McInerney ... 55 Director
Arthur F. Weinbach .... 54 Director
</TABLE>
Kenneth Draeger has been the Chief Executive Officer and a Director of the
Company since July 1992 and Chairman of the Company since November 1995. From
1988 to 1991, Mr. Draeger was President of Agfa/Compugraphic, a manufacturer
of electronic pre-press equipment. Mr. Draeger is also a director of Galileo
Corporation.
Stephen J. Felice has been the President of the Company since October
1995. Mr. Felice joined BABSS in March 1987. He served as Vice President and
General Manager, Sales and Operations from January 1991 to October 1995 and
was responsible for all service delivery, sales activity, customer
management, and marketing channels with management responsibility over almost
3,000 employees.
Thomas J. Fitzpatrick has been the Vice President and Chief Financial
Officer of the Company since August 1996. Prior to August 1996 Mr.
Fitzpatrick was Vice President of Network Finance at Bell Atlantic Network
Services, Inc. Mr. Fitzpatrick served more than eight years at BABSS,
including over four years as Vice President and Chief Financial Officer.
Joseph S. Giordano has been Senior Vice President--Operations of the
Company since October 1995. From October 1993 to October 1995, Mr. Giordano
was Vice President Sales and Service Delivery of BABSS. From January 1991 to
October 1993, he was an Area General Manager of BABSS.
James J. Greenwell has been Senior Vice President--Sales & Marketing of
the Company since October 1995, and was Vice President Sales and Marketing of
the Company from 1993 to October 1995. From January 1992 to 1993, Mr.
Greenwell was Director of Operations of the Company's Qantel operation. Prior
to January 1992, he was Vice President, Sales and Marketing of Qantel
Corporation.
Thomas M. Molchan has been General Counsel and Corporate Secretary of the
Company since October 1995. From December 1986 to October 1995, he was Vice
President and General Counsel of BABSS.
Dwight T. Wilson has been Vice President--Human Resources of the Company
since October 1995. From April 1994 to October 1995, Mr. Wilson was Vice
President--Human Resources of BABSS. From October 1990 to March 1994, Mr.
Wilson was Director, Human Resources Policies and Planning of BABSS.
Bruce K. Anderson has been a Director of the Company since 1988. Mr.
Anderson has been a General Partner of certain Welsh affiliated partnerships
since 1979. Mr. Anderson is also a director of SEER Technologies and Broadway
& Seymour.
Michael C. Brooks has been a Director of the Company since 1988. Mr.
Brooks has been a General Partner of J.H. Whitney since January 1985 and
currently serves as Managing Partner. Mr. Brooks is also a director of
SunGard Data Systems, Inc. and Nitinol Medical Technologies, Inc.
65
<PAGE>
Thomas E. McInerney has been a Director of the Company since 1988. From
1994 to 1995, Mr. McInerney served as Chairman of the Company. Mr. McInerney
has been a General Partner of certain Welsh Carson affiliated partnerships
since 1991. Mr. McInerney is also a director of Bisys Group, Inc. and Aurora
Electronics, Inc.
Arthur F. Weinbach has been a Director of the Company since 1996. Mr.
Weinbach is President and Chief Executive Officer and a Director of Automatic
Data Processing, Inc. ("ADP"). Since 1981, he has served in various executive
and managerial positions with ADP, including over nine years as Chief
Financial Officer and six years as a member of ADP's Board of Directors.
Prior to joining ADP, Mr. Weinbach was a Partner with Touche Ross & Co., a
predecessor of Deloitte & Touche LLP. Mr. Weinbach is also a director of
Health Plan Services Inc.
The following table sets forth the name, age and position with Holdings of
each person who is expected to serve as a director of Holdings following the
Effective Time.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ ----- -------------------------------------------------
<S> <C> <C>
Kenneth Draeger ......... 56 Chairman and Chief Executive Officer and Director
Peter T. Grauer ......... 51 Director
Lawrence M.v.D. Schloss 42 Director
Tom G. Greig ............ 49 Director
Kirk B. Wortman ......... 34 Director
</TABLE>
In addition, it is expected that two additional directors, not affiliated
with DLJMB or Holdings, will be appointed at the Effective Time.
Peter T. Grauer has been a Managing Director of DLJ Merchant Banking II,
Inc. since September 1992. From April 1989 to September 1992, he was
Co-Chairman of Grauer & Wheat, Inc., an investment firm specializing in
leveraged buyouts. Prior thereto, Mr. Grauer was a Senior Vice President of
Donaldson, Lufkin & Jenrette Securities Corporation. Mr. Grauer is a director
of Doane Products Co., SDW Holdings, Inc. and Total Renal Care, Inc.
(NYSE:(TRL)).
Lawrence M.v.D. Schloss has been the Managing Partner of DLJ Merchant
Banking II, Inc. since November 1995. Prior to November 1995, he was Managing
Director of DLJ Merchant Banking, Inc. Mr. Schloss currently serves as
Chairman of the Board of McCulloch Corporation and as a director of Wilson,
Greatbatch, Inc. Mr. Schloss has previously served as a director of GTECH
Corporation (NYSE:GTK), Krueger International, Inc., OSi Specialties, Inc.
and MPB Corporation.
Tom G. Greig is a Managing Director in the Investment Banking Division of
DLJ and serves as co-head of the Technology Investment Banking Group. Mr.
Greig is a director of Manufacturers Services Limited, a contract electronics
manufacturer. Mr. Greig has over 20 years of experience in the investment
banking industry, the majority of which he has spent working with technology
based companies.
Kirk B. Wortman has been a Principal of DLJ Merchant Banking II, Inc.
since February 1997. For the five years prior to joining DLJ Merchant
Banking, Inc. he worked in the Leveraged Finance Group within DLJ's
Investment Banking Group, most recently as a Senior Vice President.
66
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth for the years ended June 30, 1997, 1996 and
1995 certain compensation paid by the Company to its Chief Executive Officer
and the four other most highly paid executive officers of the Company whose
cash compensation exceeded $100,000 for the year ended June 30, 1997. Certain
members of management are expected to enter into new employment agreements at
the Effective Time which may alter their compensation arrangements.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------------- --------------
SECURITIES
OTHER UNDERLYING
SALARY BONUS ANNUAL OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#)
- ---------------------------------- ------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Kenneth Draeger 1997 425,000 -- (1) -- 50,000
Chief Executive Officer 1996 355,000 484,500 (2) -- 70,000
1995 250,625 375,000 -- --
Stephen J. Felice 1997 225,000 60,000 (1) -- 9,000
President 1996 157,500(3) 130,340 (3) -- 100,000
1995 -- -- -- --
Thomas J. Fitzpatrick 1997 168,077 (4) 59,866 (1)(4)224,908 (5) 100,000
Vice President and Chief 1996 -- -- -- --
Financial Officer 1995 -- -- -- --
Thomas M. Molchan 1997 139,300 27,500 (1) -- 10,000
General Counsel and Corporate 1996 90,020(3) 42,725 (3) -- 33,000
Secretary 1995 -- -- -- --
James J. Greenwell 1997 140,500 22,500 (1) -- --
Senior Vice President--Sales and 1996 131,000 58,460 -- 10,000
Marketing 1995 129,500 90,000 -- 40,000
</TABLE>
- ------------
(1) Final payment of bonuses for fiscal 1997 will be determined in August
1997. Therefore, there may be additional bonus payments for fiscal
1997 which have not been determined at the time of filing.
(2) Mr. Draeger's bonus for fiscal 1996 was paid in two parts. $357,000
of this bonus was paid on August 15, 1996. The remaining $127,500 was
paid on May 15, 1997 after completion of ten consecutive trading days
where the share price of Holdings Common Stock closed above $18.00.
(3) Messrs. Felice and Molchan joined the Company and were named
executive officers on October 21, 1995. The salaries and bonuses
shown reflect the amount earned after such date through June 30,
1996.
(4) Mr. Fitzpatrick joined the Company and was named an executive officer
on August 12, 1996. The salary and bonus reflect the amount earned
after such date through June 30, 1997. Of the bonus amount, $30,000
was a one-time signing bonus.
(5) Of this amount, $223,908 is for relocation assistance. The other
$1,000 was for tax preparation assistance.
67
<PAGE>
The following table summarizes stock options to purchase Holdings Common
Stock granted during fiscal 1997 to the persons named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
HOLDINGS' OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------------------------------------------------
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF STOCK PRICE
UNDERLYING TOTAL OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OF OPTION TERM(1)
GRANTED(1) EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME(2) (#) FISCAL 1997 ($/SH) DATE 5%($) 10%($)
- --------------------- ------------ --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Draeger....... 50,000 4.3% $16.750 12/04/06 $ 526,699 $1,334,759
Stephen J. Felice .... 9,000 0.8 16.750 12/04/06 94,806 240,257
Thomas J. 100,000 (3) 8.7 22.875 08/12/06 1,438,596 3,645,686
Fitzpatrick.......... 100,000 8.7 14.000 09/08/06 880,452 2,231,239
Thomas M. Molchan .... 10,000 0.9 16.750 12/04/06 105,340 266,952
James J. Greenwell ... -- -- -- -- -- --
</TABLE>
- ------------
(1) Options vest in four equal annual installments commencing on the
first anniversary of the date of grant. Unvested options are subject
to termination upon termination of the optionee's service with the
Company.
(2) Potential Realizable Values are based on an assumption that the share
price of the Holdings Common Stock starts equal to the exercise price
shown for each particular option grant and appreciates at the annual
rate shown (compounded annually) from the date of the grant until the
end of the term of the option. These amounts are reported net of the
option exercise price, but before any taxes associated with exercise
or subsequent sale of the underlying stock. The actual value, if any,
an optionholder may realize will be a function of the extent to which
the share price exceeds the exercise price on the date the option is
exercised and also will depend on the optionholder's continued
employment through the vesting period. The actual value to be
realized by the optionholder may be greater or less than the values
estimated in this table.
(3) This grant which was issued on August 13, 1996 was subsequently
cancelled and, as shown in the table, replaced by another grant on
September 9, 1996.
The following table summarizes option exercises during fiscal 1997 and the
value of vested and unvested options for the persons named in the Summary
Compensation Table at June 30, 1997. Year-end values are based upon a price
of $22.75 per share, which was the closing market price of a share of
Holdings Common Stock on June 30, 1997, the last trading day of the fiscal
year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END HOLDINGS'
OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT JUNE 30, 1997 AT JUNE 30, 1997
----------------------------- -----------------------------
SHARES
ACQUIRED ON
EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ---------------------- ------------- -------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Draeger........ 25,000 337,500 1,109,780 102,500 24,561,355 1,074,375
Stephen J. Felice .... 3,000 24,750 22,000 84,000 324,500 1,160,250
Thomas J. Fitzpatrick -- -- -- 100,000 -- 600,000
Thomas M. Molchan...... -- -- 8,250 34,750 121,688 425,063
James J. Greenwell .... 60,000 1,040,000 79,000 27,500 1,629,000 445,625
</TABLE>
The Company does not currently grant any long-term incentives, other than
stock options, to its executives or other employees, nor does it sponsor any
defined benefit or actuarial plans at this time.
Immediately prior to the Effective Time, all outstanding options granted
to employees and directors, whether or not vested, will be cancelled, and the
holders of such options will receive a cash payment in
68
<PAGE>
respect of such options following the Effective Time. Alternatively, a
portion of such options may be converted into options to purchase shares of
Holdings Common Stock following the Merger.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Mr. Draeger entered into an employment agreement with Decision Data Inc.,
the predecessor of a wholly owned subsidiary of the Company, in October 1992.
The employment agreement, which is terminable at will by either party,
provides for a base salary of not less than $250,000 plus an annual bonus
awarded pursuant to a target formula developed by the Board of Directors. The
employment agreement also provides for a bonus to be paid to Mr. Draeger in
the event of a change of control of Holdings, ranging from $300,000 if the
Equity Value (as defined in the employment agreement) of the transaction is
at least $40.0 million, to an amount equal to $2.0 million plus 2% of any
excess in Equity Value over $100.0 million for transactions with an Equity
Value in excess of $100.0 million. The amount payable to Mr. Draeger upon
consummation of the Merger is approximately $13.9 million. In addition,
severance benefits are payable to Mr. Draeger in the event that his
employment is terminated, other than for cause (as defined in the agreement),
death or disability, for a period of 18 months following such termination in
a monthly amount equal to one-twelfth of his annual salary. Mr. Draeger has
agreed not to compete with Holdings or any of its affiliates (as defined in
the agreement) for a one year period after termination of his employment for
any reason. Mr. Draeger is expected to enter into a new employment agreement
with the Company at the Effective Time.
Messrs. Felice, Fitzpatrick, Giordano, Greenwell, Molchan and Wilson have
severance arrangements with the Company which in various instances provide
for a severance payment of up to one times base annual salary, a pro-rata
portion of accrued bonus, and the continuation of certain benefits for up to
one year in the event of termination without cause.
COMPENSATION OF DIRECTORS
Non-employee directors receive an annual retainer of $10,000 as well as
$1,500 for attendance at any meeting of the Board of Directors or any meeting
of its Executive Committee, Audit Committee or Compensation Committee, except
telephonic meetings and committee meetings held on the same date as a Board
meeting.
Under the terms of the Company's Stock Option and Restricted Stock
Purchase Plan (the "Plan"), as amended in 1996, each non-employee director is
entitled to receive a one-time grant of options to purchase 4,000 shares of
Holdings Common Stock vesting 25% a year over four years. In addition, the
Plan provides for a one-time grant of options to purchase 1,000 shares of
Holdings Common Stock to each non-employee director elected on or after May
2, 1996, vesting immediately.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In connection with the financing of the Company's acquisition of BABSS,
the Company issued 181,145 shares, 109,532 shares, 848 shares and 1,695
shares of Series C Preferred Stock (subsequently converted into 3,751,486
shares of Holdings Common Stock in connection with the initial public
offering) to certain partnerships associated with WCAS, J.H. Whitney, Mr.
McInerney and Mr. Anderson, respectively, in each case at a price of $100 per
share. In addition, the Company issued to a partnership associated with WCAS
and a partnership associated with J.H. Whitney, respectively, warrants to
purchase 297,606 and 171,144 shares of Holdings Common Stock, at an exercise
price of $.10 per share, for a cash purchase price of $7.25333 per warrant.
Finally, the Company sold $19.1 million and $10.9 million aggregate principal
amount of the Affiliate Notes to a partnership associated with WCAS and a
partnership associated with J.H. Whitney, respectively. The Affiliate Notes
were repaid with proceeds from the Company's initial public offering. Messrs.
Anderson and McInerney are general partners of certain WCAS entities and Mr.
Brooks is a general partner of J.H. Whitney.
In December 1995, the Company paid J.H. Whitney $125,000 representing the
payment of past due amounts for financial consulting services rendered by
J.H. Whitney to the Company in a prior transaction. Mr. Brooks is a general
partner of J.H. Whitney.
Mr. McInerney previously served as Chairman of the Company from 1994 to
1995.
69
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Holdings Common Stock immediately following the
consummation of the Merger by (i) any person or group who beneficially owns
more than five percent of Holdings Common Stock and (ii) all directors and
executive officers of Holdings as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PERCENTAGE OF OUTSTANDING
AFTER THE RECAPITALIZATION COMMON STOCK
------------------------------ -----------------------------
<S> <C> <C>
NAME AND ADDRESS OF BENEFICIAL OWNER:
- --------------------------------------------------------
DLJ Merchant Banking Partners II, L.P.
and related investors (1)(2) ........................... 11,199,789 88.37%
Lawrence M.v.D. Schloss (3) ............................. -- --
DLJ Merchant Banking Partners II, Inc.
277 Park Avenue
New York, NY 10172
Peter T. Grauer (3) ..................................... -- --
DLJ Merchant Banking Partners II, Inc.
277 Park Avenue
New York, NY 10172
Thomas G. Greig (3) ..................................... -- --
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, NY 10172
Kirk B. Wortman (3) ..................................... -- --
DLJ Merchant Banking Partners II, Inc.
277 Park Avenue
New York, NY 10172
All directors and officers as a group
(11 persons)(3)(4) ..................................... -- --
</TABLE>
(footnotes on following page)
70
<PAGE>
- ------------
(1) Includes 1,417,180 shares of Holdings Common Stock issuable upon the
exercise of the DLJMB Warrants. The number of DLJMB Warrants will be
reduced by the number of Warrants issued, if any. See "The Merger and
the Merger Financing."
(2) Consists of shares held directly by the following investors related to
DLJ Merchant Banking Partners II, L.P. ("DLJMB"): DLJ Offshore Partners
II, C.V. ("Offshore"), a Netherlands Antilles limited partnership, DLJ
Diversified Partners, L.P. ("Diversified"), a Delaware limited
partnership, DLJMB Funding II, Inc. ("Funding"), a Delaware
corporation, DLJ Merchant Banking Partners II-A, L.P. ("DLJMBPIIA"), a
Delaware limited partnership, DLJ Diversified Partners--A L.P.
("Diversified A"), a Delaware limited partnership, DLJ Millennium
Partners, L.P. ("Millennium"), a Delaware limited partnership, DLJ
Millennium Partners-A, L.P. ("Millennium A"), a Delaware limited
partnership, DLJ EAB Partners, L.P. ("EAB"), UK Investment Plan 1997
Partners ("UK Partners"), a Delaware partnership, and DLJ First ESC
LLC, a Delaware limited liability company ("DLJ First"). See "Certain
Relationships and Related Transactions" and "Underwriting." The address
of each of DLJMB, Diversified, Funding, DLJMBPIIA, Diversified A,
Millenium, Millenium A, DLJ First and EAB is 277 Park Avenue, New York,
New York 10172. The address of Offshore is John B. Gorsiraweg 14,
Willemstad, Curacao, Netherlands Antilles. The address of UK Partners
is 2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles,
California 90067. The DLJMB Funds expect that the Institutional
Investors may acquire a portion of the securities of Quaker that would
otherwise be purchased by the DLJMB Funds. In no event would any such
purchases reduce the fully diluted ownership by the DLJMB Funds of
Holdings Common Stock after the Effective Time to below a majority, or
limit the rights of the DLJMB Funds under the Investors' Agreement. The
Institutional Investors include Apollo Advisors II, L.P. ("Apollo"),
Bain Capital, Inc. ("Bain Capital"), Thomas H. Lee Company ("THL"),
certain investment funds associated with DLJ Capital Corp. ("Sprout")
and Ontario Teacher's Pension Plan Board ("Teachers").
Any investment by Apollo in Quaker (expected to represent approximately
6.57% of the outstanding Holdings Common Stock) would be made by Apollo
Investment Fund III, L.P., a Delaware limited partnership ("AIF III"),
Apollo Overseas Partners III, L.P., a Delaware limited partnership
("Overseas Partners"), and Apollo (U.K.) Partners III, L.P., a limited
partnership organized under the laws of England ("Apollo UK Partners")
(collectively, "Apollo Entities"). Each of the Apollo Entities is
principally engaged in the business of investment securities.
Apollo Advisors II, L.P., a Delaware limited partnership ("Advisors"),
is the general partner of AIF III and the managing general partner of
Overseas Partners and Apollo UK Partners. Advisors is principally
engaged in the business of providing advice regarding investments by,
and serving as the general partner of, the Apollo Entities. The address
of Apollo is 1301 Avenue of the Americas, 38th Floor, New York, New
York 10019.
Any investment by Bain Capital in Quaker (expected to represent
approximately 6.57% of the outstanding Holdings Common Stock) would be
made by Bain Capital Fund V, L.P., Bain Capital Fund, V-B, L.P., BCIP
Associates, and BCIP Trust Associates, L.P. Bain Capital Investors V,
Inc. is the general partner of Bain Capital Partners V, L.P. ("BCP V"),
a Delaware limited partnership. BCP V is the general partner of Bain
Capital Fund V, L.P. and Bain Capital Fund V-B, L.P. (the "Bain Fund
Vs"), both of which are Delaware limited partnerships. The Bain Fund
Vs' primary business activity is to make investments in private equity
securities and other interests in business organizations, domestic and
foreign.
BCIP Associates, a general partnership, and BCIP Trust Associates,
L.P., a limited partnership (together the "BCIPs"), are both organized
under the laws of the state of Delaware. The BCIPs' primary business
activity is to make investments in private equity securities and other
interests in business organizations, domestic and foreign. The address
of Bain Capital is Two Copley Place, Boston, Massachusetts 02116.
71
<PAGE>
Any investment by THL in Quaker (expected to represent approximately
6.57% of the outstanding Holdings Common Stock) would be made by Thomas
H. Lee Equity Fund III, L.P., a Delaware limited partnership ("Fund
III"), Thomas H. Lee Foreign Fund III, L.P., a Delaware limited
partnership ("Foreign Fund"), THL Co-Investors III-A, LLC, a
Massachusetts limited liability company ("Co-Investors A"), and THL
Co-Investors III-B, LLC, a Massachusetts limited liability company
("Co-Investors B"). The general partners of each of Fund III and
Foreign Fund is THL Equity Advisors III Limited Partnership, a
Massachusetts limited partnership ("Equity Advisors"). The general
partner of Equity Advisors is THL Equity Trust III, a Massachusetts
business trust, the beneficial owners of which are affiliates of Thomas
H. Lee Company. The manager of each of Co-Investors A and Co-Investors
B is Thomas H. Lee. The address of THL is 75 State Street, 26th Floor,
Boston, Massachusetts 02109.
DLJ Capital Corporation ("DLJCC"), a Delaware corporation, Sprout
Growth II, L.P., a Delaware limited partnership, The Sprout CEO Fund,
L.P., a Delaware limited partnership and one additional entity managed
by the Sprout Group, the Venture Capital affiliate of DLJ, may also
acquire capital stock of Quaker. DLJCC is a wholly owned subsidiary of
DLJ. Sprout Growth II, L.P. has two general partners: DLJCC is also the
managing general partner and DLJ Growth Associates II, L.P. is the
general partner. DLJ Growth Associates II, L.P. is a Delaware limited
partnership, whose general partners are a group of individual employees
of DLJCC and DLJ Growth Associates (II), Inc., a Delaware corporation
which is a wholly owned subsidiary of DLJCC. DLJCC is the managing
general partner of The Sprout CEO Fund. The address of Sprout is 277
Park Avenue, New York, New York 10172.
Teachers is an independent corporation established in 1990 to
administer the benefits and manage the investments of the pension plan
for over 200,000 Ontario teachers. At year end 1996, the fund assets
stood at a total of Cdn $51 billion. The address of Teachers is 5650
Yonge Street, 5th Floor, North York, Ontario M2M 4H5.
(3) Messrs. Schloss, Grauer and Wortman are officers of DLJ Merchant
Banking II, Inc., an affiliate of DLJMB and the Underwriter. Mr. Greig
is an officer of DLJSC. Share data shown for such individuals excludes
shares shown as held by the DLJMB Funds, as to which such individuals
disclaim beneficial ownership.
(4) Does not include Holdings Common Stock owned at the Effective Time or
options which may be issued to or retained by certain employees of
DecisionOne Corp. under Holdings' stock option plan or shares which may
be purchased by certain employees of DecisionOne Corp. under Holdings'
stock purchase plan.
72
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Investors' Agreement restricts transfers of the shares of Holdings
Common Stock by the Management Shareholders, permits the Management
Shareholders to participate in certain sales of shares of Holdings Common
Stock by the DLJMB Funds, requires the Management Shareholders to sell shares
of Holdings Common Stock in certain circumstances should the DLJMB Funds
choose to sell any such shares owned by the DLJMB Funds, permit the
Management Shareholders and the Institutional Shareholders to purchase equity
securities proposed to be issued by the Company on a preemptive basis in the
event the DLJMB Funds choose to acquire any such equity securities, and
provides for certain registration rights. The Investors' Agreement also
provides that the DLJMB Funds have the right to appoint a majority of the
members of the Board of Directors of Holdings.
In addition, DLJ Capital Funding received customary fees and reimbursement
of expenses in connection with the arrangement and syndication of the New
Credit Facility and as a lender thereunder. DLJSC received customary fees in
connection with the underwriting of the Senior Subordinated Notes and the
Debentures. DLJSC will receive a merger advisory fee of $5.0 million in cash
from Quaker upon consummation of the Merger. It is also expected that DLJSC
will receive an annual fee from the Company for financial advisory services.
Each DLJMB Warrant, if any that is issued, will entitle the holder thereof
to purchase one share of Company Common Stock at an exercise price of not
less than $0.01 per share subject to customary antidilution provisions and
other customary terms. The DLJMB Warrants will be exercisable at any time
prior to 5:00 p.m., New York City time, on August 15, 2007. The exercise of
the DLJMB Warrants also will be subject to applicable federal and state
securities laws. Each Public Warrant will have the same terms as the DLJMB
Warrants, other than the exercise price and certain antidilution provisions.
The DLJMB Funds will be entitled to request six demand registrations with
respect to the DLJMB Warrants (together with all or any portion of the Senior
Preferred Stock owned by them) and the Company Common Stock owned by them,
which demand registration rights will be immediately exercisable subject to
customary deferral and cutback provisions. In addition, the holders of the
DLJMB Warrants will also be entitled to unlimited piggyback registration
rights with respect to such Warrants (together with all or any portion of the
Senior Preferred Stock) subject to customary cutback provisions. If the DLJMB
Warrants are sold in connection with a registered sale or a sale under Rule
144A of the Securities Act of the Senior Preferred Stock, the Company will
(not earlier than the time the Company registers the Senior Preferred Stock
(or exchange securities in the case of a Rule 144A offering)) file a shelf
registration statement covering the Company Common Stock underlying such
DLJMB Warrants.
73
<PAGE>
DESCRIPTION OF NEW CREDIT FACILITY
The New Credit Facility will be provided by a syndicate of banks and other
financial institutions led by Donaldson, Lufkin & Jenrette Securities
Corporation, as arranger (the "Arranger"), DLJ Capital Funding, as
syndication agent (the "Syndication Agent") and , as administrative
agent (the "Administrative Agent"). The New Credit Facility will include a
$470.0 million Term Loan Facility and a $105.0 million Revolving Credit
Facility (subject to adjustment as provided below), which will provide for
loans and up to $25.0 million of letters of credit. The Term Loan Facility is
comprised of a term A facility of $195.0 million (the "Term A Facility"),
which will have a maturity of six years, a term B facility of $150.0 million
(the "Term B Facility"), which will have a maturity of seven years, and a
term C facility of $125.0 million (the "Term C Facility"), which will have a
maturity of eight years. The revolving facility will terminate six years
after the date of initial funding of the New Credit Facility and is subject
to an increase of up to $50.0 million at the Company's request at any time
prior to the revolving facility termination date.
The New Credit Facility will bear interest, at the option of DecisionOne
Corp., at the Administrative Agent's alternate base rate or reserve-adjusted
London Interbank Offered Rate ("LIBOR") plus, in each case, applicable
margins of (i) in the case of alternate base rate loans (x) 1.25% for
revolving and Term A loans, (y) 1.50% for Term B loans and (z) 1.75% for Term
C loans and (ii) in the case of LIBOR loans (x) 2.50% for revolving and Term
A loans, (y) 2.75% for Term B loans and (z) 3.00% for Term C loans.
DecisionOne Corp. will pay a commitment fee calculated at a rate of 1/2 of
1.00% per annum on the daily average unused commitment under the Revolving
Credit Facility (whether or not then available). Such fee will be payable
quarterly in arrears and upon termination of the Revolving Credit Facility
(whether at stated maturity or otherwise).
Beginning six months after the consummation of the Merger and the Merger
Financing, the applicable margins for the Term A Facility and the Revolving
Credit Facility, as well as the commitment fee, will be subject to reductions
based on the ratio of consolidated debt to Adjusted EBITDA (as defined in the
New Credit Facility).
DecisionOne Corp. will pay a letter of credit fee calculated at a rate per
annum equal to the then applicable margin for LIBOR loans under the Revolving
Credit Facility plus a fronting fee on the stated amount of each letter of
credit. Such fees will be payable quarterly in arrears. In addition,
DecisionOne Corp. will pay customary transaction charges in connection with
any letters of credit.
The Term Loan Facility will be subject to the following amortization
schedule:
<TABLE>
<CAPTION>
YEAR TERM LOAN A TERM LOAN B TERM LOAN C
- ------ ------------- ------------- -------------
<S> <C> <C> <C>
1 $ 0.00 $ 1.50 $ 1.25
2 9.75 1.50 1.25
3 19.50 1.50 1.25
4 39.00 1.50 1.25
5 48.75 1.50 1.25
6 78.00 1.50 1.25
7 -- 141.00 1.25
8 -- -- 116.25
- ------ ------------- ------------- -------------
$195.00 $150.00 $125.00
</TABLE>
The Term Loan Facility will be subject to mandatory prepayment: (i) with
100% of the net cash proceeds from the issuance of debt, subject to certain
exceptions, (ii) with 100% of the net cash proceeds of asset sales, subject
to certain exceptions, (iii) with 50% of DecisionOne Corp.'s excess cash flow
(as defined in the New Credit Facility) unless the Leverage Ratio (as defined
in the New Credit Facility) equals or is less than 3.5 to 1.0, and (iv) with
50% of the net cash proceeds from the issuance of equity. DecisionOne Corp.'s
obligations under the New Credit Facility will be secured by a first-priority
perfected lien on: (i) all property and assets, tangible and intangible, of
DecisionOne Corp., including a pledge of
74
<PAGE>
the capital stock of all of DecisionOne Corp.'s direct material subsidiaries,
and (ii) all intercompany indebtedness; provided, however, that no more than
65% of the equity interests of the foreign subsidiaries will be required to
be pledged as security in the event that a pledge of a greater percentage
would result in material increased tax or similar liabilities for DecisionOne
Corp. and its subsidiaries on a consolidated basis. Holdings will guarantee
the obligations of DecisionOne Corp. under the New Credit Facility. Such
guarantee will only be recourse to Holdings' pledge of all of the outstanding
capital stock of DecisionOne Corp. to secure the obligations of DecisionOne
Corp. under the New Credit Facility. In addition, obligations under the New
Credit Facility will be guaranteed by all material (as defined in the New
Credit Facility) domestic subsidiaries of DecisionOne Corp. and all foreign
subsidiaries of DecisionOne Corp. if such foreign subsidiaries' guarantees
will not have material adverse tax consequences on DecisionOne Corp.
Currently, the Company has no material subsidiaries and therefore no such
guarantees are required.
The New Credit Facility will contain customary covenants and restrictions
on the ability of DecisionOne Corp. to engage in certain activities,
including, but not limited to: (i) limitations on the incurrence of liens and
indebtedness, (ii) restrictions on sale lease-back transactions,
consolidations, mergers, sale of assets, capital expenditures, transactions
with affiliates and investments, and (iii) severe restrictions on dividends,
and other similar distributions.
The New Credit Facility will also contain financial covenants requiring
DecisionOne Corp. to maintain a minimum level of Adjusted EBITDA (as defined
in the New Credit Facility); a minimum Interest Coverage Ratio (as defined in
the New Credit Facility); a minimum Fixed Charge Coverage Ratio (as defined
in the New Credit Facility); and a maximum Leverage Ratio (as defined in the
New Credit Facility).
75
<PAGE>
DESCRIPTION OF UNITS
Each Unit being offered hereby will consist of one $1,000 principal amount
Debenture and Warrants to purchase shares of Common Stock. The
Debentures and the Warrants will not be separately transferable until on or
after (i) , 1997, (ii) such earlier date as the Underwriter may
determine and (iii) in the event of a Change of Control, the date on which
the Issuer mails notice thereof to the Holders of the Debentures. The
definitions of certain terms used in the following summary are set forth
below under "--Certain Definitions."
DESCRIPTION OF DEBENTURES
GENERAL
The Debentures will be issued pursuant to the indenture (the "Debenture
Indenture") between the Issuer and State Street Bank and Trust Company, as
trustee (the "Trustee"). The terms of the Debentures include those stated in
the Debenture Indenture and those made part of the Debenture Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The Debentures are subject to all such terms, and Holders of
Debentures are referred to the Debenture Indenture and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of
the Debenture Indenture does not purport to be complete and is qualified in
its entirety by reference to the Debenture Indenture, including the
definitions therein of certain terms used below. A copy of the proposed form
of Debenture Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available as set forth
below under "Additional Information."
The Debentures will be general unsecured obligations of the Issuer and
will be senior in right of payment to all future Indebtedness of the Issuer
that is subordinated to the Debentures and pari passu in right of payment
with all future Indebtedness of the Issuer that is not subordinated to the
Debentures. The Issuer will be the sole obligor with respect to the
Debentures; however the operations of the Issuer are conducted through its
Subsidiaries and, therefore, the Issuer is dependent upon the operations and
cash flow of its Subsidiaries to meet its obligations, including its
obligations under the Debentures. The New Credit Facility and the Senior
Subordinated Notes will restrict DecisionOne from paying any dividends or
making any other distributions to the Issuer. The ability of DecisionOne to
comply with the conditions in the Senior Subordinated Notes may be affected
by certain events that are beyond the Issuer's control. The Debentures will
be effectively subordinated to all Indebtedness and other liabilities
(including, without limitation, trade payables and lease obligations) of the
Issuer's Subsidiaries, including, without limitation, to DecisionOne Corp.'s
obligations under the New Credit Facility and the Senior Subordinated Notes.
Any right of the Issuer to receive assets of any of its Subsidiaries upon
such Subsidiary's liquidation or reorganization (and the consequent right of
Holders of the Senior Subordinated Notes to participate in those assets) will
be effectively subordinated to the claims of that Subsidiary's creditors
except to the extent that the Issuer itself is recognized as a creditor of
such Subsidiary, in which case the claims of the Issuer would still be
subordinate to the claims of such creditors who hold security in the assets
of such Subsidiary and to the claims of such creditors who hold Indebtedness
of such Subsidiary senior to that held by the Issuer. As of March 31, 1997,
on a pro forma basis giving effect to the Merger, including the Merger
Financing and the application of proceeds therefrom, the Issuer would have
had Indebtedness of approximately $85 million (all of which would have been
attributable to the Debentures) and the Issuer's Subsidiaries would have had
approximately $847.7 million of outstanding liabilities. The Debenture
Indenture will permit the incurrence of certain additional Indebtedness of
the Issuer and the Issuer's Subsidiaries in the future. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
As of the date of the Debenture Indenture, all of the Issuer's
Subsidiaries will be Restricted Subsidiaries. However, under certain
circumstances, the Issuer will be permitted to designate current or future
Subsidiaries (other than DecisionOne Corp.) as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Debenture Indenture.
76
<PAGE>
PRINCIPAL, MATURITY AND INTEREST
The Debentures will be limited in aggregate principal amount at maturity
to $ million and will mature on , 2008. The Debentures will be issued
at a substantial discount from their principal amount at maturity, together
with the Warrants, to generate gross proceeds of $85.0 million. Until ,
2002, no interest will accrue on the Debentures, but the Accreted Value will
increase (representing amortization of original issue discount) between the
date of original issuance and , 2002, on a semi-annual bond equivalent
basis using a 360-day year comprised of twelve 30-day months, such that the
Accreted Value shall be equal to the full principal amount at maturity of the
Debentures on , 2002. Beginning on , 2002, interest on the Debentures
will accrue at the rate of % per annum and will be payable semiannually in
cash on and , commencing on , 2002, to Holders of record on the
immediately preceding and . Interest on the Debentures will accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from , 2002. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Principal, premium, if any,
and interest on the Debentures will be payable at the office or agency of the
Issuer maintained for such purpose within the City and State of New York or,
at the option of the Issuer, payment of interest may be made by check mailed
to the Holders of the Debentures at their respective addresses set forth in
the register of Holders of Debentures; provided that all payments with
respect to Debentures represented by one or more permanent global Debentures
will be paid by wire transfer of immediately available funds to the account
of the Depository Trust Company or any successor thereto. Until otherwise
designated by the Issuer, the Issuer's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Debentures will be
issued in minimum denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the Debentures will not be
redeemable at the Issuer's option prior to , 2002. Thereafter, the
Debentures will be subject to redemption at the option of the Issuer, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, together with accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE OF
YEAR PRINCIPAL AMOUNT
- ------------------------ --------------------
<S> <C>
2002 .................... %
2003 ....................
2004 ....................
2005 and thereafter .... 100.000%
</TABLE>
Prior to , 2000, the Issuer may, at its option, on any one or more
occasions, redeem up to 35% of the aggregate principal amount at maturity of
Debentures originally offered in the Offering at a redemption price equal to
% of the Accreted Value thereof, with the net cash proceeds of one or more
Equity Offerings; provided that at least 65% of the original aggregate
principal amount at maturity of Debentures remains outstanding immediately
after the occurrence of each such redemption; and provided, further, that any
such redemption shall occur within 90 days of the date of the closing of each
such Equity Offering.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders,"
the Issuer is not required to make any mandatory redemption or sinking fund
payments with respect to the Debentures.
77
<PAGE>
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Debentures will
have the right to require the Issuer to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Debentures pursuant
to the offer described below (the "Change of Control Offer") at an offer
price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest thereon to the date of purchase (or, in the case
of repurchases of Debentures prior to , 2002, at a purchase price equal
to 101% of the Accreted Value thereof as of the date of repurchase) (the
"Change of Control Payment"). Within 65 days following any Change of Control,
the Issuer will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Debentures pursuant to the procedures required by the Debenture Indenture and
described in such notice. The Issuer will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Debentures as a result of a Change
of Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the Debenture Indenture relating
to such Change of Control Offer, the Issuer will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Debenture Indenture by virtue thereof.
On the Change of Control Payment Date, the Issuer will, to the extent
lawful, (1) accept for payment all Debentures or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
Debentures or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Debentures so accepted together with an
Officers' Certificate stating the aggregate principal amount at maturity of
Debentures or portions thereof being purchased by the Issuer. The Paying
Agent will promptly mail to each Holder of Debentures so tendered the Change
of Control Payment for such Debentures, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each
Holder a new Debenture equal in principal amount at maturity to any
unpurchased portion of the Debentures surrendered, if any; provided that each
such new Debenture will be in a principal amount at maturity of $1,000 or an
integral multiple thereof. The Issuer will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Debenture Indenture will provide that, the Issuer will fix the Change
of Control Payment Date no earlier than 30 but no more than 60 days after the
Change of Control Offer is mailed as set forth above. Prior to complying with
the provisions of the preceding sentence, but in any event within 60 days
following a Change of Control, the Issuer will either repay all outstanding
Indebtedness of its Subsidiaries or obtain the requisite consents, if any,
under all agreements governing all such outstanding Indebtedness of its
Subsidiaries to permit the repurchase of the Debentures required by this
covenant. The New Credit Facility and the Senior Subordinated Notes restrict
DecisionOne from paying any dividends or making any other distributions to
the Issuer. If the Issuer does not obtain the consent of the lenders under
agreements governing outstanding Indebtedness of its Subsidiaries, including
under the New Credit Facility and the Senior Subordinated Notes, to permit
the repurchase of the Debentures or does not refinance such Indebtedness, the
Issuer will likely not have the financial resources to purchase Debentures
and the Issuer's Subsidiaries will be restricted by the terms of such
Indebtedness from paying dividends to the Issuer or otherwise lending or
distributing funds to the Issuer for the purpose of such purchase. In any
event, there can be no assurance that the Issuer's Subsidiaries will have the
resources available to pay any such dividend or make any such distribution.
The Issuer's failure to make a Change of Control Offer when required or to
purchase tendered Debentures when tendered would constitute an Event of
Default under the Debenture Indenture. See "Risk Factors--Substantial
Leverage; Shareholders' Deficit; Liquidity" and "--Limitations on Access to
Cash Flow of Subsidiaries; Holding Company Structure."
Except as described above with respect to a Change of Control, the
Debenture Indenture does not contain provisions that permit the Holders of
the Debentures to require that the Issuer repurchase or redeem the Debentures
in the event of a takeover, recapitalization or similar restructuring.
78
<PAGE>
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the assets of the Issuer and its Subsidiaries, taken as
a whole. Although there is a developing body of case law interpreting the
phrase "substantially all," there is no precisely established definition of
the phrase under applicable law. Accordingly, the ability of a Holder of
Debentures to require the Issuer to repurchase such Debentures as a result of
a sale, lease, transfer, conveyance or other disposition of less than all of
the assets of the Issuer and its Subsidiaries taken as a whole to another
Person or group may be uncertain.
Asset Sales
The Debenture Indenture will provide that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, engage in an Asset Sale
unless (i) the Issuer (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value (evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of and (ii) at least
75% of the consideration therefor received by the Issuer or such Restricted
Subsidiary is in the form of (I) cash or Cash Equivalents or (II) property or
assets that are used or useful in a Permitted Business, or Capital Stock of
any Person primarily engaged in a Permitted Business if, as a result of the
acquisition by the Issuer or any Restricted Subsidiary thereof, such Person
becomes a Restricted Subsidiary; provided that the amount of (x) any
liabilities (as shown on the Issuer's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto), of the Issuer or any
Restricted Subsidiary (other than contingent liabilities and liabilities of
the Issuer that are by their terms subordinated to the Debentures) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Issuer or such Restricted Subsidiary from further
liability and (y) any notes or other obligations received by the Issuer or
any such Restricted Subsidiary from such transferee that are converted by the
Issuer or such Restricted Subsidiary into cash or Cash Equivalents (to the
extent of the cash or Cash Equivalents received) within 180 days following
the closing of such Asset Sale, will be deemed to be cash for purposes of
this provision; provided further, that the 75% limitation referred to above
shall not apply to any sale, transfer or other disposition of assets in which
the cash portion of the consideration received therefor, determined in
accordance with the foregoing proviso, is equal to or greater than what the
after-tax net proceeds would have been had such transaction complied with the
aforementioned 75% limitation.
Within 395 days after the Issuer's or any Restricted Subsidiary's receipt
of any Net Proceeds from an Asset Sale, Holdings or such Restricted
Subsidiary will apply such Net Proceeds (a) to permanently reduce
Indebtedness of a Restricted Subsidiary of the Issuer (and to correspondingly
reduce commitments with respect thereto) or (b) to repay Pari Passu
Indebtedness (provided that if the Issuer shall so repay Pari Passu
Indebtedness, it will equally and ratably reduce Indebtedness under the
Debentures if the Debentures are then redeemable or, if the Debentures may
not be then redeemed, the Issuer shall make an offer (in accordance with the
procedures set forth below for an Asset Sale Offer) to all Holders to
purchase at 100% of the principal amount thereof at maturity (or, in the case
of repurchases of Debentures prior to , 2002, at a purchase price equal
to 100% of the Accreted Value thereof as of the date of repurchase) the
amount of Debentures that would otherwise be redeemed or (c) to an investment
in property, capital expenditures or assets that are used or useful in a
Permitted Business, or Capital Stock of any Person primarily engaged in a
Permitted Business if, as a result of the acquisition by Holdings or any
Restricted Subsidiary thereof, such Person becomes a Restricted Subsidiary.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $15.0 million, the Issuer will be required to make an offer to all
Holders of Debentures (an "Asset Sale Offer") to purchase the maximum
principal amount of Debentures that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the
principal amount at maturity thereof plus accrued and unpaid interest thereon
to the date of purchase (or, in the case of repurchases of Debentures prior
to , 2002, at a purchase price equal to 100% of the Accreted Value
thereof as of the date of repurchase), in accordance with the procedures set
forth in the Debenture Indenture. To the extent that the aggregate principal
amount at maturity or Accreted Value (as
79
<PAGE>
applicable) of Debentures tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Issuer may use any remaining Excess Proceeds
for general corporate purposes. If the aggregate principal amount at maturity
or Accreted Value (as applicable) of Debentures surrendered by holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Debentures to be purchased on a pro rata basis. Upon completion of such Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Debentures pursuant to an Asset Sale Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of the Debenture Indenture relating to such Asset Sale Offer, the
Issuer will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in the
Debenture Indenture by virtue thereof.
The New Credit Facility and the Senior Subordinated Notes restrict
DecisionOne Corp. from paying any dividends or making any other distributions
to the Issuer. If the Issuer does not obtain the consent of the lenders under
agreements governing outstanding Indebtedness of its Subsidiaries, including
under the New Credit Facility and the Senior Subordinated Notes, to permit
the repurchase of the Debentures or does not refinance such Indebtedness, the
Issuer will likely not have the financial resources to purchase Debentures
and the Issuer's Subsidiaries will be restricted by the terms of such
Indebtedness from paying dividends to the Issuer or otherwise lending or
distributing funds to the Issuer for the purpose of such purchase. In any
event, there can be no assurance that the Issuer's Subsidiaries will have the
resources available to pay any such dividend or make any such distribution.
The Issuer's failure to make an Asset Sale Offer when required or to purchase
tendered Debentures when tendered would constitute an Event of Default under
the Debenture Indenture. See "Risk Factors--Substantial Leverage;
Stockholders Deficit; Liquidity" and "--Limitations on Access to Cash Flow of
Subsidiaries; Holding Company Structure."
SELECTION AND NOTICE
If less than all of the Debentures are to be redeemed at any time,
selection of Debentures for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities
exchange, if any, on which the Debentures are listed or, if the Debentures
are not so listed, on a pro rata basis, by lot or by such other method as the
Trustee deems fair and appropriate, provided that no Debentures with a
principal amount at maturity of $1,000 or less shall be redeemed in part.
Notice of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Debentures to
be redeemed at its registered address. If any Debenture is to be redeemed in
part only, the notice of redemption that relates to such Debenture shall
state the portion of the principal amount at maturity thereof to be redeemed.
A new Debenture in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Debenture. On and after the redemption date, interest will cease to
accrue and original issue discount will cease to accrete on Debentures or
portions thereof called for redemption.
CERTAIN COVENANTS
Restricted Payments
The Debenture Indenture will provide that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any other payment or distribution on
account of any Equity Interests of the Issuer or any of its Restricted
Subsidiaries (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Issuer or dividends or
distributions payable to the Issuer or any Wholly Owned Restricted
Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Issuer, any of its Restricted Subsidiaries or any
other Affiliate of the Issuer (other than any such Equity Interests owned by
the Issuer or any Restricted Subsidiary of the Issuer); (iii) make any
principal payment
80
<PAGE>
on, or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness of the Issuer that is pari passu with or subordinated in right
of payment to the Debentures, except in accordance with the scheduled
mandatory redemption or repayment provisions set forth in the original
documentation governing such Indebtedness or in accordance with the covenant
described under the caption entitled "--Repurchase at the Option of
Holders--Asset Sales" (but not otherwise pursuant to any mandatory offer to
repurchase upon the occurrence of any event); or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"),
unless:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof, and
(b) immediately after giving effect to such transaction on a pro forma
basis, the Issuer would have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described below under
caption entitled "--Incurrence of Indebtedness and Issuance of Preferred
Stock," and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Issuer and its Restricted Subsidiaries
after the date of the Debenture Indenture (excluding Restricted Payments
permitted by clauses (i) (to the extent that the declaration of any
dividend referred to therein reduces amounts available for Restricted
Payments pursuant to this clause (c)), (ii), (iii), (v), (vi), (viii),
(ix), (x), (xiii), (xiv), (xvi) and (xvii) of the next succeeding
paragraph), is less than the sum of (1) 50% of the Adjusted Consolidated Net
Income of the Issuer for the period (taken as one accounting period) from
the beginning of the first calendar month commencing after the date of the
Debenture Indenture to the end of the Issuer's most recently ended fiscal
quarter for which internal financial statements are available at the time
of such Restricted Payment (or, if such Adjusted Consolidated Net Income
for such period is a deficit, minus 100% of such deficit), plus (2) 100%
of the Qualified Proceeds received by the Issuer since the date of the
Debenture Indenture from contributions to the Issuer's capital or the
issue or sale since the date of the Debenture Indenture of Equity
Interests of the Issuer or of convertible debt securities of the Issuer
that have been converted into such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of the
Issuer and other than Designated Preferred Stock, Disqualified Stock or
convertible debt securities that have been converted into Disqualified
Stock), plus (3) the amount equal to the net reduction in Investments in
Persons after the date of the Debenture Indenture who are not Restricted
Subsidiaries (other than Permitted Investments) resulting from (x)
Qualified Proceeds received as a dividend, repayment of a loan or advance
or other transfer of assets (valued at the fair market value thereof) to
the Issuer or any Restricted Subsidiary from such Persons, (y) Qualified
Proceeds received upon the sale or liquidation of such Investment and (z)
the redesignation of Unrestricted Subsidiaries (other than any
Unrestricted Subsidiary designated as such pursuant to clause (vii) or
(xv) of the following paragraph) whose assets are used or useful in, or
which is engaged in, one or more Permitted Business as Restricted
Subsidiaries (valued (proportionate to the Issuer's equity interest in
such Subsidiary) at the fair market value of the net assets of such
Subsidiary at the time of such redesignation) not to exceed, in the case
of clauses (x), (y) and (z), the amount of Investments previously made by
the Issuer or any Restricted Subsidiary in such Person, which amount was a
Restricted Payment; provided that no proceeds received by the Issuer from
the issue or sale of any Equity Interests of the Issuer will be counted in
determining the amount available for Restricted Payments under this clause
(c) to the extent such proceeds were used to redeem, repurchase, retire or
acquire any Equity Interests or Indebtedness of the Issuer pursuant to
clauses (ii) and (iv) of the next succeeding paragraph.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
have complied with the provisions of the Debenture Indenture;
81
<PAGE>
(ii) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Issuer or pari passu or subordinated
Indebtedness of the Issuer in exchange for, or out of the net proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Issuer) of Equity Interests of the Issuer (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(2) of the preceding
paragraph;
(iii) the defeasance, redemption, repurchase or other acquisition of
pari passu or subordinated Indebtedness with the net proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(iv) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Issuer or DecisionOne Corp. held by
any member of the Issuer's or any of the Issuer's Restricted
Subsidiaries' management pursuant to any management equity subscription
agreement or stock option agreement; provided that (A) the aggregate
price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed (I) $5.0 million in any calendar year
(with unused amounts in any calendar year being carried over to
succeeding calendar years subject to a maximum (without giving effect to
the following clause (II)) of $10.0 million in any calendar year) plus
(II) the aggregate cash proceeds received by the Issuer during such
calendar year from any reissuance of Equity Interests by the Issuer or
DecisionOne Corp. to members of management of the Issuer and its
Restricted Subsidiaries and (B) no Default or Event of Default shall
have occurred and be continuing immediately after such transaction;
provided further that the aggregate cash proceeds referred to in clause
(II) above shall be excluded from clause (c)(2) of the preceding
paragraph;
(v) the payment of dividends by a Restricted Subsidiary on any class of
common stock of such Restricted Subsidiary if (A) such dividend is paid
pro rata to all holders of such class of common stock and (B) at least
51% of such class of common stock is held by the Issuer or one or more
of its Restricted Subsidiaries;
(vi) the repurchase of any class of common stock of a Restricted
Subsidiary if (A) such repurchase is made pro rata with respect to such
class of common stock and (B) at least 51% of such class of common stock
is held by the Issuer or one or more of its Restricted Subsidiaries;
(vii) any other Restricted Investment made in a Permitted Business
which, together with all other Restricted Investments made pursuant to
this clause (vii) since the date of the Debenture Indenture, does not
exceed $40.0 million (in each case, after giving effect to all
subsequent reductions in the amount of any Restricted Investment made
pursuant to this clause (vii), either as a result of (A) the repayment
or disposition thereof for cash or (B) as a result of the redesignation
of an Unrestricted Subsidiary as a Restricted Subsidiary (valued
proportionate to the Issuer's equity interest in such Subsidiary at the
time of such redesignation) at the fair market value of the net assets
of such Subsidiary at the time of such redesignation), in the case of
clause (A) and (B), not to exceed the amount of such Restricted
Investment previously made pursuant to this clause (vii); provided that
no Default or Event of Default shall have occurred and be continuing
immediately after making such Restricted Investment;
(viii) the declaration and payment of dividends to holders of any class
or series of Disqualified Stock of the Issuer issued after the date of
the Debenture Indenture in accordance with the covenant described below
under the caption "Incurrence of Indebtedness and Issuance of Preferred
Stock;" provided that no Default or Event of Default shall have occurred
and be continuing immediately after such declaration or payment;
(ix) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the
exercise price of such options;
(x) (A) payments made by the Issuer in respect of statutory appraisal
rights (and any settlement thereof) and (B) payments made by the Issuer
to fund the cash consideration payable in the Merger (including pursuant
to statutory appraisal rights and any settlement thereof) to
82
<PAGE>
security holders of Holdings (including without limitation, the Cash
Merger Consideration, the Option Cash Proceeds and the Warrant Cash
Proceeds) and fees and expenses of the Issuer and DecisionOne Corp. in
connection with the Merger;
(xi) a Restricted Payment to pay for the repurchase, retirement or
other acquisition or retirement for value of Equity Interests of the
Issuer outstanding on the date of the Debenture Indenture and which are
not held by the Principals or any member of management of the Issuer or
any Subsidiary of the Issuer on the date of the Debenture Indenture
(including any Equity Interests issued in respect of such Equity
Interests as a result of a stock split, recapitalization, merger,
combination, consolidation or otherwise, but excluding any Equity
Interests issued pursuant to any management equity plan or stock option
plan or similar agreement), provided that the aggregate Restricted
Payments made under this clause (xi) shall not exceed $40.0 million,
provided further that prior to the first anniversary of the consummation
of the Merger, the aggregate amount of Restricted Payments made under
this clause (xi) shall not exceed $20.0 million, provided further that
notwithstanding the foregoing proviso, the Issuer shall be permitted to
make Restricted Payments under this clause (xi) only if after giving
effect thereto, the Issuer would be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described under the
caption entitled "--Incurrence of Indebtedness and Issuance of Preferred
Stock;" provided that no Default or Event of Default shall have occurred
and be continuing immediately after making such Restricted Payment;
(xii) the payment of dividends on the Issuer's common stock, following
the first public offering of the Issuer's common stock after the date of
the Debenture Indenture, of up to 6.0% per annum of the net proceeds
received by the Issuer as common equity from such public offering, other
than with respect to public offerings with respect to the Issuer's
common stock registered on Form S-8; provided that no Default or Event
of Default shall have occurred and be continuing immediately after any
such payment of dividends;
(xiii) the declaration and payment of dividends to holders of any class
or series of Designated Preferred Stock issued after the date of the
Debenture Indenture; provided, however, immediately after the date of
issuance of such Designated Preferred Stock, after giving effect to such
issuance on a pro forma basis, the Issuer would have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the
covenant described below under caption entitled "--Incurrence of
Indebtedness and Issuance of Preferred Stock;"
(xiv) the payment of cash in lieu of fractional shares of Holdings
Common Stock under the Warrant Agreement;
(xv) any other Restricted Payment which, together with all other
Restricted Payments made pursuant to this clause (xvi) since the date of
the Debenture Indenture, does not exceed $40.0 million (in each case,
after giving effect to all subsequent reductions in the amount of any
Restricted Investment made pursuant to this clause (xv) either as a
result of (A) the repayment or disposition thereof for cash or (B) the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary
(valued proportionate to the Issuer's equity interest in such Subsidiary
at the time of such redesignation) at the fair market value of the net
assets of such Subsidiary at the time of such redesignation), in the
case of clause (A) and (B), not to exceed the amount of such Restricted
Investment previously made pursuant to this clause (xv); provided that
no Default or Event of Default shall have occurred and be continuing
immediately after making such Restricted Payment;
(xvi) the pledge by the Company of the Capital Stock of an Unrestricted
Subsidiary of the Company to secure Non-Recourse Debt of such
Unrestricted Subsidiary; and
(xvii) distributions or payments of Receivables Fees.
The Board of Directors may designate any Restricted Subsidiary (other than
DecisionOne Corp.) to be an Unrestricted Subsidiary if such designation would
not cause a Default. For purposes of making such designation, all outstanding
Investments by the Issuer and its Restricted Subsidiaries (except to the
extent
83
<PAGE>
repaid in cash) in the Subsidiary so designated will be deemed to be
Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Restricted Investments in an amount equal to the greater of (i) the net book
value of such Investments at the time of such designation and (ii) the fair
market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Investment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of (i) all Restricted Payments (other than Restricted Payments
made in cash) shall be the fair market value on the date of the Restricted
Payment of the asset(s) or securities proposed to be transferred or issued by
the Issuer or such Restricted Subsidiary, as the case may be, pursuant to the
Restricted Payment and (ii) Qualified Proceeds (other than cash) shall be the
fair market value on the date of receipt thereof by the Issuer of such
Qualified Proceeds. The fair market value of any non-cash Restricted Payment
and Qualified Proceeds shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $20.0 million. Not later than the date of making
any Restricted Payment, the Issuer shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting
forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed, which calculations shall be based upon
the Issuer's latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Debenture Indenture will provide that (i) the Issuer will not, and
will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become,
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), (ii) that
the Issuer will not issue any Disqualified Stock and (iii) that the Issuer
will not permit any of its Restricted Subsidiaries to, issue any Preferred
Stock; provided, however, that the Issuer and the Issuer's Restricted
Subsidiaries may incur Indebtedness (including Acquired Debt), Holdings may
issue shares of Disqualified Stock and any Restricted Subsidiary of the
Issuer may issue Preferred Stock, if the Issuer's Fixed Charge Coverage Ratio
for Holdings' most recently ended four fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such additional Indebtedness is incurred, or such Disqualified Stock or
Preferred Stock is issued, would have been at least 1.50 to 1.00, determined
on a pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock or Preferred Stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The Debenture Indenture will also provide that the Issuer will not incur
any Indebtedness that is contractually subordinated in right of payment to
any other Indebtedness of the Issuer unless such Indebtedness is also
contractually subordinated in right of payment to the Debentures on
substantially identical terms; provided, however, that no Indebtedness of the
Issuer shall be deemed to be contractually subordinated in right of payment
to any other Indebtedness of the Issuer solely by virtue of being unsecured.
The foregoing provisions will not apply to (collectively, "Permitted
Debt"):
(i) the incurrence by the Issuer, DecisionOne and its Restricted
Subsidiaries of Indebtedness under the New Credit Facility; provided that
the aggregate principal amount of all Indebtedness (with letters of credit
and bankers' acceptances being deemed to have a principal amount equal to
the maximum face amount thereunder) outstanding under the New Credit
Facility after giving effect to such incurrence does not exceed an amount
equal to $625.0 million;
(ii) the incurrence by (A) the Issuer and the Issuer's Restricted
Subsidiaries of Indebtedness represented by the Debentures and (B)
DecisionOne and its Restricted Subsidiaries of Indebtedness represented by
the Senior Subordinated Notes and any guarantee thereof;
84
<PAGE>
(iii) the incurrence by the Issuer or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property used in the business of the Issuer
or such Restricted Subsidiary, in aggregate principal amount not to exceed
$25.0 million at any time outstanding;
(iv) Existing Indebtedness;
(v) the incurrence by the Issuer or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Debenture Indenture;
(vi) Indebtedness of the Issuer to a Restricted Subsidiary; provided that
any subsequent issuance or transfer of any Capital Stock or other event
which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of any such Indebtedness (except to
the Issuer or another Restricted Subsidiary) shall be deemed, in each
case, to be an incurrence of such Indebtedness;
(vii) Indebtedness of a Restricted Subsidiary to the Issuer or another
Restricted Subsidiary; provided that any subsequent issuance or transfer
of any Capital Stock of any Restricted Subsidiary to whom such
Indebtedness is owed or any other event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Issuer or
another Restricted Subsidiary) shall be deemed, in each case, to be an
incurrence of such Indebtedness;
(viii) the incurrence by the Issuer or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging (a) interest rate risk with respect to any floating rate
Indebtedness of such Person that is permitted by the terms of the
Debenture Indenture to be outstanding or (b) exchange rate risk with
respect to agreements or Indebtedness of such Person payable denominated
in a currency other than U.S. dollars; provided that such agreements do
not increase the Indebtedness of the obligor outstanding at any time other
than as a result of fluctuations in foreign currency exchange rates or
interest rates or by reason of fees, indemnities and compensation payable
thereunder;
(ix) the incurrence by the Issuer or any of its Restricted Subsidiaries
of Acquired Debt in an aggregate principal amount at any time outstanding
not to exceed $25.0 million;
(x) the incurrence by the Issuer or any Restricted Subsidiary of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount at any time outstanding
not to exceed $60.0 million;
(xi) Indebtedness arising from agreements of the Issuer or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Restricted Subsidiary, other
than guarantees of Indebtedness incurred by any Person acquiring all or
any portion of such business, assets or a Restricted Subsidiary for the
purpose of financing such acquisition; provided, however, that (i) such
Indebtedness is not reflected on the balance sheet of the Issuer or any
Restricted Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet will
not be deemed to be reflected on such balance sheet for purposes of this
clause (i)) and (ii) the maximum assumable liability in respect of all
such Indebtedness shall at no time exceed the gross proceeds including
noncash proceeds (the fair market value of such noncash proceeds being
measured at the time received and without giving effect to any subsequent
changes in value) actually received by the Issuer and its Restricted
Subsidiaries in connection with such disposition;
(xii) obligations in respect of performance and surety bonds and
completion guarantees provided by the Issuer or any Restricted Subsidiary
in the ordinary course of business; and
85
<PAGE>
(xiii) (A) any guarantee by a Restricted Subsidiary of the Issuer of
Indebtedness of the Issuer that is pari passu in right of payment to the
Debentures that was permitted to be incurred under the Debenture Indenture
and (B) any guarantee by a Restricted Subsidiary of the Issuer of
Indebtedness of any other Restricted Subsidiary of the Issuer that was
permitted to be incurred under the Debenture Indenture.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiii) above or
is entitled to be incurred pursuant to the first paragraph of this covenant,
the Issuer shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant and such item of Indebtedness
will be treated as having been incurred pursuant to only one of such clauses
or pursuant to the first paragraph hereof. Accrual of interest and the
accretion of original issue discount will not be deemed to be an incurrence
of Indebtedness for purposes of this covenant.
Liens
The Debenture Indenture will provide that the Issuer will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom, or assign or convey any rights
to receive income therefrom, unless all payments due under the Debenture
Indenture and the Debentures are secured on an equal and ratable basis with
the obligations so secured until such time as such obligation is no longer
secured by a Lien, except for (i) Liens existing on the date of the Debenture
Indenture, (ii) Liens on assets of any Restricted Subsidiary of the Issuer
securing Indebtedness of Restricted Subsidiaries of the Issuer and (iii)
Permitted Liens.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Debenture Indenture will provide that Holdings will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to: (i)(a) pay
dividends or make any other distributions to the Issuer or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits or (b) pay
any Indebtedness owed to the Issuer or any of its Restricted Subsidiaries;
(ii) make loans or advances to the Issuer or any of its Restricted
Subsidiaries; or (iii) transfer any of its properties or assets to the Issuer
or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) the terms of any Indebtedness
permitted by the Debenture Indenture to be incurred by any Restricted
Subsidiary of the Issuer, (b) Existing Indebtedness, as in effect on the date
of the Debenture Indenture; (c) any agreement or other instrument of a Person
acquired by the Issuer or any of its Restricted Subsidiaries, as in effect at
the time of such acquisition (but not created in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired; (d) customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices; (e) applicable law; (f) purchase
money obligations for property acquired in the ordinary course of business
that impose restrictions of the nature described in clause (iii) above on the
property so acquired; or (g) contracts for the sale of assets, including,
without limitation, customary restrictions with respect to a Subsidiary
pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of
such Subsidiary.
The New Credit Facility and the Senior Subordinated Notes restrict
DecisionOne Corp. from paying any dividends or making any other distributions
to the Issuer. The existence of such restrictions could have an adverse
effect on the Issuer's ability to pay interest and principal on the
Debentures. See "Risk Factors--Substantial Leverage; Stockholders' Deficit;
Liquidity" and "--Limitations on Access to Cash Flow of Subsidiaries; Holding
Company Structure."
Merger, Consolidation, or Sale of Assets
The Debenture Indenture will provide that the Issuer may not consolidate
or merge with or into (whether or not the Issuer is the surviving entity), or
sell, assign, transfer, lease, convey or otherwise
86
<PAGE>
dispose of all or substantially all of its properties or assets in one or
more related transactions to, another Person unless (i) the Issuer is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Issuer) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the Person formed
by or surviving any such consolidation or merger (if other than the Issuer)
or the Person to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made assumes all the obligations of the
Issuer under the Debentures and the Debenture Indenture pursuant to a
supplemental indenture in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction, no Default or Event of Default exists;
and (iv) the Issuer or the Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made will, at the time of such
transaction after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable one quarter period, be permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption entitled "--Incurrence of Indebtedness and
Issuance of Preferred Stock." The foregoing clause (iv) will not prohibit (a)
a merger between the Issuer and a Subsidiary of an Affiliate of the Issuer
created solely for the purpose of holding the Capital Stock of the Issuer,
(b) a merger between the the Issuer and a Wholly Owned Restricted Subsidiary
or (c) a merger between the Issuer and an Affiliate incorporated solely for
the purpose of reincorporating the Issuer in another State of the United
States so long as, in each case, the amount of Indebtedness of the Issuer and
its Restricted Subsidiaries is not increased thereby.
Transactions with Affiliates
The Debenture Indenture will provide that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend
any transaction, contract, agreement, understanding, loan, advance or
guarantee with or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on
terms that are no less favorable to the Issuer or such Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Issuer or such Restricted Subsidiary with an unrelated Person and (ii) if
such Affiliate Transaction involves aggregate payments in excess of $5.0
million, the Issuer delivers to the Trustee either (x) a resolution of the
Board of Directors of the Issuer set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
such Affiliate Transaction is approved by a majority of the members of the
Board of Directors of the Issuer or (y) an opinion as to the fairness to the
Holders of the Debentures of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking firm
of national standing; provided, however, that (a) any employment agreement
entered into by the Issuer or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the
Issuer or such Restricted Subsidiary, (b) transactions between or among the
Issuer and/or its Restricted Subsidiaries, (c) transactions between the
Issuer or its Restricted Subsidiaries on the one hand, and the Underwriter or
its Affiliates on the other hand, involving the provisions of financial,
consulting or underwriting services by the Underwriter or its Affiliates,
provided that the fees payable to the Underwriter or its Affiliates do not
exceed the usual and customary fees of the Underwriter and its Affiliates for
similar services, (d) transactions in accordance with the Specified
Agreements, as amended; provided that no such amendment contains any
provisions that are materially adverse to the Holders of the Debentures, (e)
payment of employee benefits, including bonuses, retirement plans and stock
options, in the ordinary course of business, consistent with past practice,
(f) the payment of reasonable and customary fees to, and indemnity provided
on behalf of, officers, directors, employees or consultants of the Issuer or
any Restricted Subsidiary; (g) Restricted Payments permitted by the
provisions of the Debenture Indenture described above under clauses (i),
(iv), (v), (vi), (ix), (x), (xiv) and (xvi) of the second paragraph of the
covenant described above under the caption entitled "--Restricted Payments,"
(h) payments and transactions in connection with the Merger and the
application of the net proceeds from the Offering, including the payment of
any fees and expenses with respect thereto, (i) transactions pursuant to the
87
<PAGE>
Intercompany Note and any forgiveness of Indebtedness thereunder, (j)
transactions permitted by the provisions of the Debenture Indenture under the
covenant described below under the caption entitled "--Sales of Accounts
Receivable" and (k) transactions pursuant to the Management Loans, in each
case, shall not be deemed Affiliate Transactions.
Sales of Accounts Receivable
The Issuer may, and any of its Restricted Subsidiaries may, sell at any
time and from time to time, accounts receivable to any Accounts Receivable
Subsidiary; provided that (i) the aggregate consideration received in each
such sale is at least equal to the aggregate fair market value of the
receivables sold, as determined by the Board of Directors in good faith, (ii)
no less than 80% of the consideration received in each such sale consists of
either cash or a promissory note (a "Promissory Note") which is subordinated
to no Indebtedness or obligation other than the financial institution or
other entities providing the financing to the Accounts Receivable Subsidiary
with respect to such accounts receivable (the "Financier") and the remainder
of such consideration consists of an Equity Interest in such Accounts
Receivable Subsidiary; provided further that the Initial Sale will include
all accounts receivable of the Issuer and/or its Restricted Subsidiaries that
are party to such arrangements that constitute eligible receivables under
such arrangements, (iii) the cash proceeds received from the Initial Sale
less reasonable and customary transaction costs will be deemed to be Net
Proceeds and will be applied in accordance with the second paragraph of the
covenant described above under the caption entitled "--Repurchase at the
Option of Holders--Asset Sales," and (iv) the Issuer and its Restricted
Subsidiaries will sell all accounts receivable that constitute eligible
receivables under such arrangements to the Accounts Receivable Subsidiary no
less frequently than on a weekly basis.
The Issuer (i) will not permit any Accounts Receivable Subsidiary to sell
any accounts receivable purchased from the Issuer or any of its Restricted
Subsidiaries to any other person except on an arm's-length basis and solely
for consideration in the form of cash or Cash Equivalents, (ii) will not
permit the Accounts Receivable Subsidiary to engage in any business or
transaction other than the purchase, financing and sale of accounts
receivable of the Issuer and its Restricted Subsidiaries and activities
incidental thereto, (iii) will not permit any Accounts Receivable Subsidiary
to incur Indebtedness in an amount in excess of 97% of the book value of such
Accounts Receivable Subsidiary's total assets, as determined in accordance
with GAAP, (iv) will, at least as frequently as monthly, cause the Accounts
Receivable Subsidiary to remit to the Issuer as payment for additional
receivables or on the Promissory Notes or as a dividend, all available cash
or Cash Equivalents not held in a collection account pledged to a Financier,
to the extent not applied to pay or maintain reserves for reasonable
operating expenses of the Accounts Receivable Subsidiary or to satisfy
reasonable minimum capital requirements based on then current market practice
of rating agencies in similar transactions involving receivables of a similar
type and quality, as determined by the Board of Directors in good faith and
(v) will not, and will not permit any of its Subsidiaries to, sell accounts
receivable to any Accounts Receivable Subsidiary upon (1) the occurrence of
an Event of Default with respect to the Issuer and its Restricted
Subsidiaries and (2) the occurrence of certain events of bankruptcy or
insolvency with respect to such Accounts Receivable Subsidiary.
Reports
The Debenture Indenture will provide that, whether or not required by the
rules and regulations of the Securities an Exchange Commission (the
"Commission"), so long as any Debentures are outstanding, the Issuer will
furnish to the Holders of Debentures (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Issuer were required to file such
Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Issuer and its Restricted Subsidiaries and,
with respect to the annual information only, a report thereon by the Issuer's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Issuer were
required to file such reports. In addition whether or not required by the
rules and regulations of the Commission, the Issuer will file a copy of all
such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
88
<PAGE>
EVENTS OF DEFAULT AND REMEDIES
The Debenture Indenture will provide that each of the following
constitutes an Event of Default:
(i) default for 30 days in the payment when due of interest on the
Debentures;
(ii) default in payment when due of principal or premium, if any, on the
Debentures at maturity, upon redemption or otherwise;
(iii) failure by the Issuer for 30 days after receipt of notice from the
Trustee or Holders of at least 30% in principal amount of the Debentures
then outstanding to comply with the provisions of the covenants described
under the captions entitled "--Repurchase at the Option of Holders--Change
of Control," "--Repurchase at the Option of Holders--Asset Sales,"
"--Certain Covenants--Restricted Payments," "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock,"
"--Certain Covenants--Sale and Leaseback Transactions" or "--Certain
Covenants--Merger, Consolidation or Sale of Assets;"
(iv) failure by the Issuer for 60 days after notice from the Trustee or
the Holders of at least 30% in principal amount of the Debentures then
outstanding to comply with its other agreements in the Debenture Indenture
or the Debentures;
(v) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Issuer or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Issuer or any
of its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Debenture Indenture, which
default (i) is caused by a failure to pay Indebtedness at its stated final
maturity (after giving effect to any applicable grace period provided in
such Indebtedness) (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its stated final maturity and,
in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $20.0 million or more;
(vi) failure by the Issuer or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $20.0 million (net of any amounts
with respect to which a reputable and creditworthy insurance company has
acknowledged liability in writing), which judgments are not paid,
discharged or stayed within 60 days after their entry; and
(vii) certain events of bankruptcy or insolvency with respect to the
Issuer or any Restricted Subsidiary that is a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 30% in principal amount of the then outstanding
Debentures may declare all the Debentures to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising
from certain events of bankruptcy or insolvency with respect to the Issuer or
any Significant Subsidiary, all outstanding Debentures will become due and
payable without further action or notice. Upon any acceleration of maturity
of the Debentures, all principal of and accrued interest on (if on or after
, 2002) or Accreted Value of (if prior to , 2002) the Debentures
shall be due and payable immediately. Holders of the Debentures may not
enforce the Debenture Indenture or the Debentures except as provided in the
Debenture Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Debentures may direct the Trustee in
its exercise of any trust or power.
The Holders of a majority in aggregate principal amount of the Debentures
then outstanding, by notice to the Trustee, may on behalf of the Holders of
all of the Debentures waive any existing Default or Event of Default and its
consequences under the Debenture Indenture, except a continuing Default or
Event of Default in the payment of interest or premium on, or principal of,
the Debentures. The Trustee may withhold from Holders of the Debentures
notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in such Holders' interest.
89
<PAGE>
The Issuer is required to deliver to the Trustee annually a statement
regarding compliance with the Debenture Indenture, and the Issuer is required
upon becoming aware of any Default or Event of Default to deliver to the
Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Issuer,
as such, shall have any liability for any obligations of the Issuer under the
Debentures or the Debenture Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of
Debentures by accepting a Debenture waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the
Debentures. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuer may, at its option and at any time, elect to have the
obligation of the Issuer discharged with respect to the outstanding
Debentures ("legal defeasance"). Such legal defeasance means that the Issuer
will be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Debentures, except for (a) the rights of
Holders of outstanding Debentures to receive payments in respect of the
principal amount at maturity of or Accreted Value (as applicable), premium,
if any, and interest on the Debentures when such payments are due, or on the
redemption date, as the case may be, (b) the Issuer's obligations with
respect to the Debentures concerning issuing temporary Debentures,
registration of Debentures, mutilated, destroyed, lost or stolen Debentures
and the maintenance of an office or agency for payment and money for security
payments held in trust, (c) the rights, powers, trusts, duties and immunities
of the Trustee, and the Issuer's obligations in connection therewith and (d)
the legal defeasance provisions of the Debenture Indenture. In addition, the
Issuer may, at its option and at any time, elect to have the obligations of
the Issuer released with respect to certain covenants that are described in
the Debenture Indenture ("covenant defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Debentures. In the event covenant defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "--Events of Default
and Remedies" will no longer constitute an Event of Default with respect to
the Debentures.
In order to exercise either legal defeasance or covenant defeasance, (i)
the Issuer must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Debentures, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants selected by the Trustee, to pay the principal amount at
maturity of or Accreted Value (as applicable), premium, if any, and interest
on the outstanding Debentures on the stated maturity or on the applicable
optional redemption date, as the case may be, and the Issuer must specify
whether the Debentures are being defeased to maturity or to a particular
redemption date; (ii) in the case of legal defeasance, the Issuer shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Issuer has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Debenture Indenture, there has been a
change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, subject
to customary assumptions and exclusions, the Holders of the outstanding
Debentures will not recognize income, gain or loss for federal income tax
purposes as a result of such legal defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such legal defeasance had not occurred; (iii) in
the case of covenant defeasance, the Issuer shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that, subject to customary assumptions and exclusions,
the Holders of the outstanding Debentures will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred;
90
<PAGE>
(iv) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit (other than a Default or Event of Default resulting
from the borrowing of funds to be applied to such deposit) or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
legal defeasance or covenant defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or
instrument (other than the Debenture Indenture) to which the Issuer or any of
its Subsidiaries is a party or by which the Issuer or any of its Subsidiaries
is bound; (vi) the Issuer must have delivered to the Trustee an opinion of
counsel to the effect that, subject to customary assumptions and exclusions
(which assumptions and exclusions shall not relate to the operation of
Section 547 of the United States Bankruptcy Code or any analogous New York
State law provision), after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Issuer must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuer with the
intent of preferring the Holders of Debentures over the other creditors of
the Issuer with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuer or others; and (viii) the Issuer must deliver to the
Trustee an Officers' Certificate and an opinion of counsel (which opinion of
counsel may be subject to customary assumptions and exclusions), each stating
that all conditions precedent provided for relating to the legal defeasance
or the covenant defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Debentures in accordance with the
Debenture Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer
documents and the Issuer may require a Holder to pay any taxes and fees
required by law or permitted by the Debenture Indenture. The Issuer is not
required to transfer or exchange any Debenture selected for redemption. Also,
the Issuer is not required to transfer or exchange any Debenture for a period
of 15 days before a selection of Debentures to be redeemed.
The registered Holder of a Debenture will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Debenture
Indenture or the Debentures may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount at maturity of the
Debentures then outstanding (including, without limitation, consents obtained
in connection with a purchase of, or tender offer or exchange offer for,
Debentures), and any existing default or compliance with any provision of the
Debenture Indenture or the Debentures may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Debentures
(including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Debentures).
Without the consent of each Holder affected, however, an amendment or
waiver may not (with respect to any Debenture held by a non-consenting
Holder): (i) reduce the principal amount of Debentures whose Holders must
consent to an amendment, supplement or waiver; (ii) reduce the principal
amount at maturity of, change the fixed maturity of, or alter the redemption
provisions of (other than provisions relating to the covenants described
above under the caption entitled "--Repurchase at the Option of Holders"),
the Debentures or amend or modify the calculation of the Accreted Value so as
to reduce the amount of the Accreted Value of the Debentures; (iii) reduce
the rate of or change the time for payment of interest on any Debentures;
(iv) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Debentures (except a rescission of
acceleration of the Debentures by the Holders of at least a majority in
aggregate principal amount of the Debentures and a waiver of the payment
default that resulted from such acceleration); (v) make any Debenture payable
in money other than that stated in the Debentures; (vi) waive a redemption or
repurchase payment with respect to any Debenture (other a payment required by
one of the covenants described above under the caption entitled "--Repurchase
at the Option of Holders"), (vii) make any change in the foregoing amendment
and waiver provisions or (viii) modify any provision of the Debenture
Indenture with respect
91
<PAGE>
to the priority of the Debentures in right of payment. Notwithstanding the
foregoing, any amendment or waiver to the covenant described above under the
caption "--Repurchase at the Option of Holders--Change of Control" will
require the consent of the Holders of at least two-thirds in aggregate
principal amount of the Debentures then outstanding if such amendment would
adversely affect the rights of Holders of Debentures.
Notwithstanding the foregoing, without the consent of any Holder of
Debentures, the Issuer and the Trustee may amend or supplement the Debenture
Indenture or the Debentures to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Debentures in addition to or in place of
certificated Debentures, to provide for the assumption of the Issuer's
obligations to Holders of the Debentures in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Debentures or that does not adversely affect
the legal rights under the Debenture Indenture of any such Holder or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Debenture Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Debenture Indenture contains certain limitations on the rights of the
Trustee, should the Trustee become a creditor of the Issuer, to obtain
payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee
will be permitted to engage in other transactions with the Issuer; however,
if the Trustee acquires any conflicting interest, it must eliminate such
conflict within 90 days, apply to the Commission for permission to continue
as Trustee or resign.
The Holders of a majority in principal amount at maturity of the then
outstanding Debentures will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee subject to certain exceptions. The Debenture Indenture provides that
in case an Event of Default shall occur (which shall not be cured), the
Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Debenture Indenture at the request of any Holder
of Debentures, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Debenture
Indenture, without charge by writing to DecisionOne Holdings Corp., 50 East
Swedesford Road, Frazer, Pennsylvania 19355, Attention: General Counsel.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Debenture Indenture.
Reference is made to the Debenture Indenture for a full disclosure of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Accounts Receivable Subsidiary" means any newly created, Wholly Owned
Subsidiary of the Issuer (i) which is formed solely for the purpose of, and
which engages in no activities other than activities in connection with,
financing accounts receivable of the Issuer and/or its Restricted
Subsidiaries, (ii) which is designated by the Board of Directors of the
Issuer as an Accounts Receivables Subsidiary pursuant to a Board of
Directors' resolution set forth in an Officers' Certificate and delivered to
the Trustee, (iii) that has total assets at the time of such designation with
a book value not exceeding $500,000 plus the reasonable fees and expenses
required to establish such Accounts Receivable Subsidiary and any accounts
receivable financing, (iv) no portion of Indebtedness or any other obligation
(contingent or otherwise) of which (a) is at any time recourse to or
obligates the Issuer or any Restricted Subsidiary of the Issuer in any way,
other than pursuant to (I) representations and covenants entered into in the
ordinary course of business in connection with the sale of accounts
receivable to such Accounts Receivable Subsidiary or (II) any guarantee of
any such accounts receivable financing by the Issuer that is permitted to be
incurred
92
<PAGE>
pursuant to the covenant described under the caption entitled "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," or
(b) subjects any property or asset of the Issuer or any Restricted Subsidiary
of the Issuer, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to (I) representations and
covenants entered into in the ordinary course of business in connection with
sales of accounts receivable or (II) any guarantee of any such accounts
receivable financing by the Issuer or any Restricted Subsidiary that is
permitted to be incurred pursuant to the covenant described under the caption
entitled "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," (v) with which neither the Issuer nor any Restricted
Subsidiary of the Issuer has any contract, agreement, arrangement or
understanding other than contracts, agreements, arrangements and
understandings entered into in the ordinary course of business in connection
with sales of accounts receivable in accordance with the covenant described
under the caption "--Certain Covenants--Sales of Accounts Receivable" and
fees payable in the ordinary course of business in connection with servicing
accounts receivable and (vi) with respect to which neither the Issuer nor any
Restricted Subsidiary of the Issuer has any obligation (a) to subscribe for
additional shares of Capital Stock or other Equity Interests therein or make
any additional capital contribution or similar payment or transfer thereto
other than in connection with the sale of accounts receivable to such
Accounts Receivable Subsidiary in accordance with the covenant described
under "--Certain Covenants--Sales of Accounts Receivable" or (b) to maintain
or preserve the solvency or any balance sheet term, financial condition,
level of income or results of operations thereof.
"Accreted Value" means, as of any date of determination prior to ,
2002, with respect to any Debenture, the sum of (a) the initial offering
price (which shall be calculated by discounting the aggregate principal
amount at maturity of such Debenture at a rate of % per annum, compounded
semi-annually on each and from , 2002 to the date of issuance)
of such Debenture and (b) the portion of the excess of the principal amount
of such Debenture over such initial offering price which shall have been
accreted thereon through such date, such amount to be so accreted on a daily
basis at a rate of % per annum of the initial offering price of such
Debenture, compounded semi-annually on each and from the date of
issuance of the Debentures through the date of determination, computed on the
basis of a 360-day year of twelve 30-day months.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person
merges with or into or becomes a Subsidiary of such specified Person
including, without limitation, Indebtedness incurred in connection with, or
in contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person or assumed in
connection with the acquisition of any asset used or useful in a Permitted
Business acquired by such specified Person.
"Adjusted Consolidated Net Income" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period plus,
to the extent deducted in calculating Consolidated Net Income, the sum of (i)
100% of the aggregate amortization of intangibles (less any tax benefit
recorded by such Person as a result of such amortization) plus, with respect
to the Issuer, up to $25 million of charges arising from any write-off of
intangibles reflected on the Issuer's balance sheet as of March 31, 1997, for
such period of such Person and its Restricted Subsidiaries, (ii) 100% of
non-cash compensation expense for such period incurred by such Person and its
Restricted Subsidiaries related to stock options or other Equity Interests
granted to the employees or directors of such Person and its Restricted
Subsidiaries and (iii) expenses and charges of the Issuer and DecisionOne
Corp. related to the Merger which are paid, taken or otherwise accounted for
within 90 days of the consummation of the Merger.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with") as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise.
93
<PAGE>
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback)
other than (A) in the ordinary course of business or (B) sales of accounts
receivables to the Accounts Receivables Subsidiary in accordance with the
covenant described under the caption entitled "--Certain Covenants--Sales of
Accounts Receivable" (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of Holdings and its
Subsidiaries taken as a whole will be governed by the provisions of the
Debenture Indenture described above under the caption entitled "--Repurchase
at the Option of Holders--Change of Control" and/or the provisions described
above under the caption entitled "--Certain Covenants--Merger, Consolidation
or Sale of Assets" and not by the provisions of the Asset Sale covenant); and
(ii) the issue by any Restricted Subsidiaries of the Issuer of any Equity
Interests of such Restricted Subsidiary and the sale by the Issuer or any of
its Restricted Subsidiaries of Equity Interests of any of the Issuer's
Subsidiaries, in the case of clauses (i) and (ii), whether in a single
transaction or series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing: (1) a transfer of assets by the
Issuer to a Restricted Subsidiary or by a Restricted Subsidiary to the Issuer
or to another Restricted Subsidiary, (2) an issuance of Equity Interests by a
Restricted Subsidiary to the Issuer or to another Restricted Subsidiary, (3)
a Restricted Payment that is permitted by the covenant described above under
the caption entitled "--Certain Covenants--Restricted Payments," (4) the sale
and leaseback of any assets within 90 days of the acquisition of such assets,
(5) foreclosures on assets and (6) a disposition of Cash Equivalents in the
ordinary course of business will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining
term of the lease included in such sale and leaseback transaction (including
any period for which such lease has been extended or may, at the option of
the lessor, be extended).
"Business" shall have the meaning assigned to such term in Article 11,
Rule 11-01(d) of Regulation S-X, promulgated pursuant to the Securities Act,
as such regulation is in effect on the date of the Indenture.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means, (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of assets
of, the issuing Person.
"Cash Equivalents" means (i) Government Securities, (ii) any certificate
of deposit maturing not more than 365 days after the date of acquisition
issued by, or time deposit of, an Eligible Institution or any lender under
the New Credit Facility, (iii) commercial paper maturing not more than 365
days after the date of acquisition of an issuer (other than an Affiliate of
the Issuer) with a rating, at the time as of which any investment therein is
made, of "A-3" (or higher) according to S&P or "P-2" (or higher) according to
Moody's or carrying an equivalent rating by a nationally recognized rating
agency if both of the two named rating agencies cease publishing ratings of
investments, (iv) any bankers acceptances or money market deposit accounts
issued by an Eligible Institution and (v) any fund investing exclusively in
investments of the types described in clauses (i) through (iv) above.
"Change of Control" means the occurrence of any of the following: (i) any
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all
or substantially all of the assets of the Issuer and its Subsidiaries taken
as a whole to any "person" (as defined in Section 13(d) of the Exchange Act)
or "group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act)
other than the Principals and their Related Parties;
94
<PAGE>
(ii) the adoption of a plan for the liquidation or dissolution of the Issuer;
(iii) the Issuer consolidates with, or merges with or into, another "person"
(as defined above) or "group" (as defined above) in a transaction or series
of related transactions in which the Voting Stock of the Issuer is converted
into or exchanged for cash, securities or other property, other than any
transaction where (A) the outstanding Voting Stock of the Issuer is converted
into or exchanged for Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation and (B) either (1) the "beneficial
owners" (as defined in Rule 13d-3 under the Exchange Act) of the Voting Stock
of the Issuer immediately prior to such transaction own, directly or
indirectly through one or more Subsidiaries, not less than a majority of the
total Voting Stock of the surviving or transferee corporation immediately
after such transaction or (2) if, immediately prior to such transaction the
Issuer is a direct or indirect Subsidiary of any other Person (such other
Person, the "Parent Holding Company"), then the "beneficial owners" (as
defined above) of the Voting Stock of such Parent Holding Company immediately
prior to such transaction own, directly or indirectly through one or more
Subsidiaries, not less than a majority of the Voting Stock of the surviving
or transferee corporation immediately after such transaction; (iv) the
consummation of any transaction or series of related transactions (including,
without limitation, by way of merger or consolidation) the result of which is
that any "person" (as defined above) or "group" (as defined above) other than
the Principals and their Related Parties becomes the "beneficial owner" (as
defined above) of more than 50% of the voting power of the Voting Stock of
the Issuer or any Parent Holding Company of the Issuer or (v) the first day
on which a majority of the members of the Board of Directors of the Issuer or
any Parent Holding Company of the Issuer are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries
for such period, plus, to the extent deducted in computing Consolidated Net
Income, (i) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, (ii) Fixed Charges of such
Person for such period, (iii) depreciation and amortization (including
amortization of goodwill and other intangibles) and all other non-cash
charges (excluding any such non-cash charge to the extent that it represents
(x) an accrual of or reserve for cash charges in any future period, (y)
amortization of a prepaid cash expense that was paid in a prior period or (z)
amortization attributable to rotable inventory which has been capitalized in
accordance with GAAP) of such Person and its Restricted Subsidiaries for such
period, (iv) any net loss realized in connection with any Asset Sale and any
extraordinary or non-recurring loss, in each case, on a consolidated basis
determined in accordance with GAAP and (v) expenses and charges of the Issuer
or DecisionOne Corp. related to the Merger which are paid, taken or otherwise
accounted for within 90 days of the consummation of the Merger.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, the Fixed Charges of, and the depreciation and amortization and
other non-cash charges of, a Restricted Subsidiary of a Person shall be added
to Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in the same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of: (a) the interest expense of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined
in accordance with GAAP (including amortization of original issue discount,
non-cash interest payments, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net payments, if
any, pursuant to Hedging Obligations; provided, however, that in no event
shall any amortization of deferred financing costs be included in
Consolidated Interest Expense) and (b) consolidated capitalized interest of
such Person and its Restricted Subsidiaries for such period, whether paid or
accrued.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided, however, that (i) the Net Income or loss of
any Person that is not a Restricted Subsidiary or that is accounted for by
the equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid to the referent Person or a
95
<PAGE>
Restricted Subsidiary thereof in cash, (ii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to, the
date of such acquisition shall be excluded, and (iii) the cumulative effect
of a change in accounting principles, shall be excluded.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Issuer or any Parent Holding Company of the
Issuer who (i) was a member of such Board of Directors immediately after
consummation of the Merger, including the Offering and the application of the
net proceeds thereof, or (ii) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election or any successor Continuing Directors appointed by such Continuing
Directors (or their successors).
"DecisionOne Corp." means DecisionOne Corporation, a Delaware corporation
or its successors.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated Preferred Stock" means preferred stock of the Issuer (other
than Disqualified Stock) that is issued for cash (other than to a Restricted
Subsidiary) and is so designated as Designated Preferred Stock, pursuant to
an Officers' Certificate executed by the principal executive officer and the
principal financial officer of the Issuer, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth in clause
(c) of the covenant described under the caption entitled "--Certain
Covenants--Restricted Payments."
"Disqualified Stock" means, with respect to any Person, any Capital Stock
that, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, is exchangeable for Indebtedness (except to the
extent exchangeable at the option of such Person subject to the terms of any
debt instrument to which such Person is a party), or is redeemable at the
option of the Holder thereof, in whole or in part, on or prior to the date on
which the Debentures mature; provided, however, that if such Capital Stock is
issued to any plan for the benefit of employees of the Issuer or its
Subsidiaries or by any such plan to such employees, such Capital Stock shall
not constitute Disqualified Stock solely because it may be required to be
repurchased by the Issuer in order to satisfy applicable statutory or
regulatory obligations.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus not less than $100.0 million or its equivalent
in foreign currency, whose short-term debt is rated "A-3" or higher according
to Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to
Moody's Investor Services, Inc. ("Moody's") or carrying an equivalent rating
by a nationally recognized rating agency if both of the two named rating
agencies cease publishing ratings of investments.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any (i) issuance of common stock or preferred
stock by the Issuer (other than Disqualified Stock) that is registered
pursuant to the Securities Act, other than issuances registered on Form S-8
and issuances registered on Form S-4, and (ii) any private issuance of common
stock or preferred stock by the Issuer (other than Disqualified Stock),
excluding, in the case of clauses (i) and (ii) above, issuances of common
stock pursuant to employee benefit plans of the Issuer or its Restricted
Subsidiaries or otherwise as compensation to employees of the Issuer or its
Restricted Subsidiaries.
"Existing Indebtedness" means Indebtedness of the Issuer and its
Restricted Subsidiaries (other than Indebtedness under the New Credit
Facility or the Senior Subordinated Notes) in existence on the date of the
Debenture Indenture until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the Consolidated Interest Expense of such Person
for such period and (ii) any interest expense on Indebtedness of another
Person that is guaranteed by the referent Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether
96
<PAGE>
or not such guarantee or Lien is called upon) and (iii) the product of (a)
all cash dividend payments of the Issuer or any Restricted Subsidiary of the
Issuer on any series of preferred stock of the Issuer or such Restricted
Subsidiary times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person
and its Restricted Subsidiaries for such period. In the event that the Issuer
or any of its Restricted Subsidiaries incurs, assumes, guarantees, redeems or
repays any Indebtedness (other than revolving credit borrowings) or issues or
redeems preferred stock subsequent to the commencement of the period for
which the Fixed Charge Coverage Ratio is being calculated but on or prior to
the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee, redemption or repayment of Indebtedness,
or such issuance or redemption of preferred stock, as if the same had
occurred at the beginning of the applicable four-quarter reference period.
For purposes of making the computation referred to above, (i) the
Consolidated Cash Flow of the Company shall include (a) the Consolidated Cash
Flow of the Company and its Restricted Subsidiaries for the latest
four-quarter period for which consolidated internal financial statements of
the Company are available as derived from such financial statements plus or
minus (b) with respect to any Business or Qualified Contracts that have been
acquired by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations, after the first day of the applicable
four-quarter period and prior to the Calculation Date, the result of (1) the
Consolidated Cash Flow of such Business or Qualified Contracts for the most
recent three-month period prior to such acquisition for which internal
financial statements in respect of such acquired Business or Qualified
Contracts are available times four multiplied by (2) a fraction the numerator
of which is 365 minus the number of days during the relevant four-quarter
period for which the results of operations of such Business or Qualified
Contracts were included in clause (a) of this sentence and the denominator of
which is 365, (ii) the acquisition of any Business or Qualified Contracts
that has been made by the Issuer or any of its Restricted Subsidiaries,
including through mergers or consolidations and including any related
financing transactions after the first day of the applicable four-quarter
period and on or prior to the Calculation Date shall give pro forma effect to
financing transactions (including the incurrence of Acquired Debt) in
connection with the acquisition of such Business or Qualified Contracts, as
if such acquisition had occurred at the beginning of the applicable reference
period, and (iii) the Consolidated Cash Flow and expenses attributable to
discontinued operations as determined in accordance with GAAP, and
operations, Businesses and Qualified Contracts disposed of prior to the
Calculation Date shall be excluded. For purposes of the foregoing clause (i),
the Consolidated Cash Flow attributable to any Business or Qualified
Contracts acquired by the Issuer or any Restricted Subsidiary of the Issuer
shall be calculated utilizing the actual revenues attributable to such
Business or Qualified Contracts for the applicable period and the expenses
that would have been attributable to such Business or Qualified Contracts had
the Issuer acquired such Business or Qualified Contracts at the beginning of
the applicable period, as determined in good faith by the Issuer, taking into
account the Issuer's historical expenses in connection with the provision of
similar services for similar equipment under similar contracts. If since the
beginning of the applicable four-quarter period any Person (that subsequently
becomes a Restricted Subsidiary or was merged with or into the Issuer or any
Restricted Subsidiary since the beginning of such period) shall have made or
engaged in any Investment, disposition of operations, Businesses or Qualified
Contracts, or merger or consolidation, or shall have discontinued any
operations or acquired any Business or Qualified Contracts that would have
required adjustment pursuant to this definition had such Person been a
Restricted Subsidiary at the time of such Investment, disposition, merger,
consolidation, discontinued operation or acquisition, then "Consolidated Cash
Flow" shall be calculated giving pro forma effect thereto for such period as
if such Investment, acquisition, disposition, merger, consolidation or
discontinued operation had occurred at the beginning of the applicable
four-quarter period.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and
97
<PAGE>
statements and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as may be approved by a
significant segment of the accounting profession of the United States, which
are in effect on the date of the Debenture Indenture; provided, however, that
all reports and other financial information provided by the Issuer to the
Holders, the Trustee and/or the Commission shall be prepared accordance with
GAAP, as in effect on the date of such report or other financial information.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States of
America is pledged.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or foreign exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable, or representing any Hedging Obligations, if and to the extent
any of the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person), the maximum fixed repurchase price
of Disqualified Stock issued by such Person and the liquidation preference of
preferred stock issued by such Person, in each case, if held by any Person
other than the Issuer or a Wholly Owned Restricted Subsidiary of the Issuer,
and, to the extent not otherwise included, the guarantee by such Person of
any indebtedness of any other Person; provided that Indebtedness shall not
include the pledge by the Company of the Capital Stock of an Unrestricted
Subsidiary of the Company to secure Non-Recourse Debt of such Unrestricted
Subsidiary.
"Initial Sale" means (i) the first transaction after the commencement of
any accounts receivable financing arrangement in which accounts receivable
are sold by the Issuer and/or its Restricted Subsidiaries to an Accounts
Receivable Subsidiary and (ii) the first transaction following any amendment
to any such arrangement pursuant to which the class of eligible receivables
to be purchased pursuant to such arrangement is expanded in which such
expanded class of accounts receivable are sold by the Issuer and/or its
Restricted Subsidiaries to an Accounts Receivable Subsidiary.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP; provided that an acquisition of assets,
Equity Interests or other securities by the Issuer for consideration
consisting of common equity securities of the Issuer shall not be deemed to
be an Investment. If the Issuer or any Subsidiary of the Issuer sells or
otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary of the Issuer such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of the Issuer, the Issuer
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption entitled
"--Certain Covenants--Restricted Payments."
"Investors' Agreement" means the investors' agreement, dated as of ,
1997, among DecisionOne Corp., the DLJMB Funds, the Institutional Investors
and the Management Shareholders, as amended from time to time.
98
<PAGE>
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest).
"Management Loans" means one or more loans by the Issuer or DecisionOne
Corp. to officers and/or directors of the Issuer and any of its Restricted
Subsidiaries to finance the purchase by such officers and directors of common
stock of the Issuer; provided, however, that the aggregate principal amount
of all such Management Loans outstanding at any time shall not exceed $10.0
million.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such
gain (but not loss), realized in connection with (a) any Asset Sale
(including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the extinguishment of any Indebtedness of such Person or
any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring
gain (but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Issuer or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness (other than Indebtedness of the Issuer or
any Restricted Subsidiary referred to in clause (a) or (b) of the second
paragraph of the covenant described above under the caption "--Repurchase at
the Option of Holders--Asset Sales") secured by a Lien on the asset or assets
that are the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance
with GAAP.
"New Credit Facility" means that certain credit agreement, by and among
DecisionOne, Donaldson, Lufkin & Jenrette Securities Corporation, as
arranger, DLJ Capital Funding, Inc., as syndication agent, and the lenders
party thereto, including any related notes, guarantees, collateral documents,
instruments and agreement executed in connection therewith, and in each case
as amended, modified, renewed, refunded, replaced refinanced from time to
time, including any agreement extending the maturity of or refinancing or
refunding all or any portion of the Indebtedness thereunder or increasing the
amount that may be borrowed under such agreement or any successor agreement,
whether or not among the same parties.
"Non-Recourse Debt" means Indebtedness (i) no default with respect to,
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Issuer or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (ii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock (other
than the stock of an Unrestricted Subsidiary pledged by the Company to secure
debt of such Unrestricted Subsidiary) or assets of the Issuer or any of its
Restricted Subsidiaries; provided, however, that in no event shall
Indebtedness of any Unrestricted Subsidiary fail to be Non-Recourse Debt
solely as a result of any default provisions contained in a guarantee thereof
by the Issuer or any of its Restricted Subsidiaries if the Issuer or such
Restricted Subsidiary was otherwise permitted to incur such guarantee pursuant
to the Debenture Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Indebtedness" means Indebtedness of the Issuer that ranks pari
passu in right of payment to the Debentures.
"Permitted Business" means the equipment maintenance or support services
business or any business reasonably ancillary or related thereto.
99
<PAGE>
"Permitted Investments" means (i) Investments in the Issuer or in a
Restricted Subsidiary of the Issuer, (ii) Investments in cash or Cash
Equivalents, (iii) Investments by the Issuer or any Restricted Subsidiary of
the Issuer in a Person if, as a result of such Investment, (a) such person
becomes a Restricted Subsidiary of the Issuer or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Issuer or a
Restricted Subsidiary of the Issuer, (iv) Investments in accounts and notes
receivable acquired in the ordinary course of business, (v) any non-cash
consideration received in connection with an Asset Sale that complies with
the covenant described above under the caption entitled "--Repurchase at the
Option of Holders--Asset Sales," (vi) loans and advances to officers,
directors and employees for business-related travel expenses, moving expenses
and other similar expenses, in each case, incurred in the ordinary course of
business, (vii) any guarantees permitted to be made pursuant to the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock," (viii) Investments in any Accounts
Receivable Subsidiary made in connection with the formation of an Accounts
Receivable Subsidiary or received in consideration of sales of accounts
receivable, in each case, in accordance with the covenant described under the
caption entitled "--Certain Covenants--Sales of Accounts Receivable" and (ix)
the Management Loans.
"Permitted Liens" means (i) Liens on assets of DecisionOne Corp. and its
Subsidiaries; (ii) Liens in favor of the Issuer; (iii) Liens created by
Restricted Subsidiaries of the Issuer to secure Indebtedness of such
Restricted Subsidiaries to the Issuer or to other Wholly Owned Restricted
Subsidiaries of the Issuer; (iv) the pledge of the capital stock of
DecisionOne Corp. to secure the New Credit Facility; (v) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course
of business; (vi) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; (vii) carriers',
warehousemen's, mechanics', landlords', materialmen's, repairmen's or other
similar Liens arising in the ordinary course of business that are not
delinquent or remain payable without penalty; (viii) easements,
rights-of-way, restrictions and other similar encumbrances incurred in the
ordinary course of business that, in the aggregate, are not substantial in
amount, and that do not in any case materially detract from the value of the
property subject thereto or interfere with the ordinary conduct of the
businesses of the Issuer; (ix) Liens arising by operation of law in
connection with judgments to the extent, for an amount and for a period not
resulting in an Event of Default with respect thereto; (x) any customary
retention of title by the lessor under a Capital Lease Obligation incurred in
compliance with the covenant described under the caption entitled "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock;" (xi)
Liens in favor of the United States of America or any State thereof, or any
department, agency or instrumentality or political subdivision thereof, to
secure partial, progress, advance or other payments; (xii) Liens (other than
any Lien imposed by ERISA) consisting of pledges or deposits required in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other social security legislation; (xiii) Liens
arising solely by virtue of any statutory or common law provision relating to
banker's liens, rights of setoff or similar rights and remedies, in each case
as to deposit accounts or other funds maintained with a creditor depository
institution; provided that (A) such deposit account is not a dedicated cash
collateral account and is not subject to restrictions against access by the
Issuer in excess of those set forth by regulations promulgated by the Federal
Reserve Board, and (B) such deposit account is not intended by the Issuer to
provide collateral to the depository institution; (xiv) Liens on property of
a Person existing at the time such Person is merged into or consolidated with
the Issuer; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Issuer;
and (xv) Liens on property existing at the time of acquisition thereof by the
Issuer, provided that such Liens were in existence prior to the contemplation
of such acquisition.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Issuer
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Issuer or any of its Restricted
Subsidiaries; provided
100
<PAGE>
that: (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses and premiums incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date at least as late as the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right
of payment to the Debentures, such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and is
subordinated in right of payment to, the Debentures on terms at least as
favorable to the Holders of Debentures as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is Pari Passu
Indebtedness, such Permitted Refinancing Indebtedness has a final maturity
date on or later than the final maturity date of, and is subordinated or pari
passu in right of payment to, the Debentures on terms at least as favorable
to the Holders of Debentures as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Principals" means DLJ Merchant Banking, Inc.; DLJ Offshore Partners II,
C.V., DLJ Diversified Partners, L.P., DLJMB Funding II, Inc., UK Investment
Plan 1997 Partners and DLJ ESC LLC and each of their respective Affiliates.
"Qualified Contract" means any contract for the provision of computer
maintenance and/or technology support services with respect to which the
Issuer and its Restricted Subsidiaries have not received notice that the
counterparty to such contract intends to terminate such contract prior to the
expiration of its term or not to renew such contract at the end of its term.
"Qualified Proceeds" means any of the following or any combination of the
following: (i) cash, (ii) Cash Equivalents, (iii) assets that are used or
useful in a Permitted Business and (iv) the Capital Stock of any Person
engaged in a Permitted Business if, in connection with the receipt by the
Issuer or any Restricted Subsidiary of the Issuer of such Capital Stock, (a)
such Person becomes a Restricted Subsidiary of the Issuer or any Restricted
Subsidiary of the Issuer or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Issuer or any Restricted Subsidiary of
the Issuer.
"Receivables Fees" means distributions or payments made directly or by
means of discounts with respect to any participation interests issued or sold
in connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any receivables financing permitted pursuant
to the covenant entitled "Sales of Accounts Receivable."
"Related Party" means, with respect to the Principals, (i) any controlling
stockholder or partner of any Principal on the date of the Debenture
Indenture, or (ii) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
(directly or through one or more Subsidiaries) a 51% or more controlling
interest of which consist of the Principals and/or such other Persons
referred to in the immediately preceding clauses (i) or (ii).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
of the Indenture.
"Specified Agreements" means the Investors' Agreement and the Tax Sharing
Agreement.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of Voting Stock is at the time owned or
101
<PAGE>
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof) and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or one or more Subsidiaries of such Person
(or any combination thereof); provided, however, that the Accounts Receivable
Subsidiary and its Subsidiaries shall not be deemed Subsidiaries of the
Issuer or any of its other Subsidiaries.
"Unrestricted Subsidiary" means any Subsidiary (other than DecisionOne
Corp.) that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution, but only to the extent that such
Subsidiary: (i) has no Indebtedness other than Non-Recourse Debt; (ii) is not
party to any agreement, contract, arrangement or understanding with the
Issuer or any Restricted Subsidiary of the Issuer unless the terms of any
such agreement, contract, arrangement understanding are no less favorable to
the Issuer or such Restricted Subsidiary than those that might be obtained at
the time from Persons who are not Affiliates of the Issuer; (iii) is a Person
with respect to which neither the Issuer nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels,
of operating results; and (iv) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Issuer or any
of its Restricted Subsidiaries. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under
the caption entitled "--Certain Covenants--Restricted Payments." If, at any
time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as a Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Debenture Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Issuer as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption entitled "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," the
Issuer shall be in default of such covenant). The Board of Directors of the
Issuer may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be
an incurrence of Indebtedness by a Restricted Subsidiary of the Issuer of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the
covenant described under the caption entitled "--Certain
Covenants--Incurrence of Indebtedness and Issuance Disqualified of Stock" and
(ii) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors,
managers or trustees of any Person (irrespective of whether or not, at the
time, stock of any other class or classes shall have, or might have, voting
power by reason of the happening of any contingency).
"Warrant Agreement" means the Warrant Agreement, dated as of the date of
the Debenture Indenture, between the Issuer and Fleet National Bank, as
warrant agent.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
then outstanding principal amount of such Indebtedness into (ii) the total of
the product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
102
<PAGE>
DESCRIPTION OF WARRANTS
The Warrants will be issued pursuant to a Warrant Agreement (the "Warrant
Agreement") between Quaker and State Street Bank and Trust Company, as
Warrant Agent (the "Warrant Agent"), a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part and
is available as set forth above under the caption entitled "--Description of
Debentures--Additional Information." Upon consummation of the Merger,
Holdings will succeed to the obligations of Quaker with respect to the
Warrants and the Warrants will, by their terms, become exercisable for an
equal number of shares of Holdings Common Stock. The following summary of
certain provisions of the Warrant Agreement does not purport to be complete
and is qualified in its entirety by reference to the Warrant Agreement,
including the definitions therein of certain terms used below.
GENERAL
Following the Merger, each Warrant, when exercised, will entitle the
Holder thereof to receive fully paid and non-assessable shares of
Holdings Common Stock (the "Warrant Shares"), at an exercise price of $
per share, subject to adjustment (the "Exercise Price"). The Exercise Price
and the number of Warrant Shares are both subject to adjustment in certain
cases referred to below. Following the Merger, the Holders of the Warrants
would be entitled, in the aggregate, to purchase shares of Holdings Common
Stock representing approximately % of Holdings Common Stock on a fully
diluted basis immediately following consummation of the Merger. The Warrants
will be exercisable at any time on or after the Separation Date. Unless
exercised, the Warrants will automatically expire on , 2007 (the
"Expiration Date").
The Warrants may be exercised by surrendering to the Issuer the warrant
certificates evidencing the Warrants to be exercised with the accompanying
form of election to purchase properly completed and executed, together with
payment of the Exercise Price. Payment of the Exercise Price may be made at
the Holder's election (i) by tendering Debentures having an aggregate
principal amount at maturity, plus accrued and unpaid interest, if any,
thereon, to the date of exercise (or if such exercise takes place prior ,
2002, an Accreted Value on the date of exercise) equal to the Exercise Price
and (ii) in cash in United States dollars by wire transfer or by certified or
official bank check to the order of the Issuer. Upon surrender of the warrant
certificate and payment of the Exercise Price, the Issuer will deliver or
cause to be delivered, to or upon the written order of such Holder, stock
certificates representing the number of whole Warrant Shares to which the
Holder is entitled. If less than all of the Warrants evidenced by a warrant
certificate are to be exercised, a new warrant certificate will be issued for
the remaining number of Warrants. Holders of Warrants will be able to
exercise their Warrants only if a registration statement relating to the
Warrant Shares underlying the Warrants is then in effect, or the exercise of
such Warrants is exempt from the registration requirements of the Securities
Act, and such securities are qualified for sale or exempt from qualification
under the applicable securities laws of the states in which the various
Holders of Warrants or other persons to whom it is proposed that Warrant
Shares be issued on exercise of the Warrants reside. Upon consummation of the
Merger, Holdings will be required under the terms of the Warrant Agreement to
file and use its best efforts to make effective, by the earlier of (i) the
later of the Separation Date and 120 days from the closing of the Offering
and (ii) 45 days after the occurrence of a Change of Control, and (subject to
certain "black out" periods not to exceed 45 days in any calendar year)
maintain effective until the expiration or exercise of all Warrants a shelf
registration statement on an appropriate form under the Securities Act
covering the issuance of Warrant Shares upon the exercise of the Warrants. In
addition, Holdings will be required under the terms of the Warrant Agreement
to file and use its best efforts to make effective, by the earlier of (i) the
later of the Separation Date and 120 days from the closing of the Offering or
45 days after the occurrence of a Change of Control, and (subject to certain
"black out" periods not to exceed 45 days in any calendar year) maintain
effective until the expiration or exercise of all Warrants a shelf
registration statement on an appropriate form under the Securities Act
covering the resale of Warrant Shares upon the exercise of the Warrants by
broker-dealers. There can be no assurance that Holdings will be able to file,
cause to be declared effective or keep a registration statement continuously
effective until all of the Warrants have been exercised or have expired.
103
<PAGE>
No fractional Warrant Shares will be issued upon exercise of the Warrants.
The Issuer will pay to the Holder of the Warrant at the time of exercise an
amount in cash equal to the current market value of any such fractional
Warrant Shares less a corresponding fraction of the Exercise Price.
The Holders of the Warrants will have no right to vote on matters
submitted to the stockholders of the Issuer and will have no right to receive
dividends. The Holders of the Warrants will not be entitled to share in the
assets of the Issuer in the event of liquidation, dissolution or the winding
up of the Issuer. In the event a bankruptcy or reorganization is commenced by
or against the Issuer, a bankruptcy court may hold that unexercised Warrants
are executory contracts which may be subject to rejection by the Issuer with
approval of the bankruptcy court, and the Holders of the Warrants may, even
if sufficient funds are available, receive nothing or a lesser amount as a
result of any such bankruptcy case than they would be entitled to if they had
exercised their Warrants prior to the commencement of any such case.
In the event of a taxable distribution to holders of Holdings Common Stock
following the Merger that results in an adjustment to the number of Warrant
Shares or other consideration for which a Warrant may be exercised, the
Holders of the Warrants may, in certain circumstances, be deemed to have
received a distribution subject to United States federal income tax as a
dividend. See "Certain Federal Income Tax Considerations--Warrants."
ADJUSTMENTS
Following the Merger, the number of Warrant Shares purchasable upon
exercise of Warrants and the Exercise Price will be subject to adjustment in
certain events including: (i) the payment by Holdings of dividends and other
distributions on the Holdings Common Stock in Holdings Common Stock, (ii)
subdivisions, combinations and reclassifications of the Holdings Common
Stock, (iii) the issuance to all holders of Holdings Common Stock of rights,
options or warrants entitling them to subscribe for Holdings Common Stock or
securities convertible into, or exchangeable or exercisable for, Holdings
Common Stock at an offering price (or with an initial conversion, exchange or
exercise price) which is less than the Fair Market Value per share (as
defined) of Holdings Common Stock, (iv) the distribution to all holders of
Holdings Common Stock of any of Holdings' assets (including cash), debt
securities, preferred stock or any rights or warrants to purchase any such
securities (excluding those rights and warrants referred to in clause (iii)
above), (v) the issuance of shares of Holdings Common Stock for consideration
per share less than the then Fair Market Value per share of Holdings Common
Stock (excluding securities issued in transactions referred to in clauses (i)
through (iv) above), (vi) the issuance of securities convertible into or
exchangeable for Holdings Common Stock for a conversion or exchange price
plus consideration received upon issuance less than the then Fair Market
Value per share of Holdings Common Stock (excluding securities issued in
transactions referred to in clauses (i) through (iv) above), and (vii)
certain other events that could have the effect of depriving Holders of the
Warrants of the benefit of all or a portion of the purchase rights evidenced
by the Warrants.
"Disinterested Director" means, in connection with any issuance of
securities that gives rise to a determination of the Fair Market Value
thereof, each member of the Board of Directors of Holdings who is not an
officer, employee, director or other Affiliate of the party to whom Holdings
is proposing to issue the securities giving rise to such determination.
"Fair Market Value" per security at any date of determination shall be (1)
in connection with a sale to a party that is not an Affiliate of Holdings in
an arm's-length transaction (a "Non-Affiliate Sale"), the price per security
at which such security is sold and (2) in connection with any sale to an
Affiliate of Holdings, (a) the last price per security at which such security
was sold in a Non-Affiliate Sale within the three-month period preceding such
date of determination or (b) if clause (a) is not applicable, the fair market
value of such security determined in good faith by (i) a majority of the
Board of Directors of Holdings, including a majority of the Disinterested
Directors, and approved in a board resolution delivered to the Warrant Agent
or (ii) a nationally recognized investment banking, appraisal or valuation
firm, which is not an Affiliate of Holdings, in each case, taking into
account, among all other factors deemed relevant by the Board of Directors or
such investment banking, appraisal or valuation firm, the trading price and
volume of such security on any national securities exchange or automated
quotation system on which such security is traded.
104
<PAGE>
No adjustment in the Exercise Price will be required unless such
adjustment would require an increase or decrease of at least one percent
(1.0%) in the Exercise Price; provided however, that any adjustment that is
not made will be carried forward and taken into account in any subsequent
adjustment.
Following the Merger, in the case of certain consolidations or mergers of
Holdings, or the sale of all or substantially all of the assets of Holdings
to another corporation, (i) each Warrant will thereafter be exercisable for
the right to receive the kind and amount of shares of stock or other
securities or property to which such Holder would have been entitled as a
result of such consolidation, merger or sale had the Warrants been exercised
immediately prior thereto and (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale
shall have been made will assume the obligations of Holdings under the
Warrant Agreement.
RESERVATION OF SHARES
Holdings has authorized and reserved for issuance and will at all times
reserve and keep available such number of shares of Holdings Common Stock as
will be issuable upon the exercise of all outstanding Warrants. Such shares
of Holdings Common Stock, when paid for and issued, will be duly and validly
issued, fully paid and non-assessable, free of preemptive rights and free
from all taxes, liens, charges and security interests with respect to the
issuance thereof.
AMENDMENT
From time to time, the Issuer and the Warrant Agent, without the consent
of the Holders of the Warrants, may amend or supplement the Warrant Agreement
for certain purposes, including curing defects or inconsistencies or making
any change that does not adversely affect the legal rights of any Holder. Any
amendment or supplement to the Warrant Agreement that adversely affects the
legal rights of the Holders of the Warrants will require the written consent
of the Holders of a majority of the then outstanding Warrants (excluding
Warrants held by Holdings or any of its Affiliates). The consent of each
Holder of the Warrants affected will be required for any amendment pursuant
to which the Exercise Price would be increased or the number of Warrant
Shares purchasable upon exercise of Warrants would be decreased (other than
pursuant to adjustments provided in the Warrant Agreement).
105
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Holdings will be authorized upon consummation of the Merger by its Amended
and Restated Certificate of Incorporation to issue an aggregate of 30,000,000
shares of Holdings Common Stock, par value $.01 per share. Holdings is
authorized to issue up to 15,000,000 shares of Preferred Stock, par value
$.01 per share, in one or more series. Currently, there are no shares of
Preferred Stock issued or outstanding. The following is a summary of certain
of the rights and privileges pertaining to Holdings Common Stock and
Preferred Stock. For a full description of the Holdings' capital stock,
reference is made to the Holdings' Amended and Restated Certificate of
Incorporation currently in effect, a copy of which is on file with the
Commission.
COMMON STOCK
Voting Rights
The holders of Holdings Common Stock are entitled to one vote per share on
all matters submitted for action by the shareholders. There is no provision
for cumulative voting with respect to the election of directors. Accordingly,
the holders of more than 50% of the shares of Holdings Common Stock can, if
they choose to do so, elect the Board of Directors of Holdings and determine
most matters on which stockholders are entitled to vote.
Dividend Rights
Holders of Holdings Common Stock are entitled to share equally, share for
share, if dividends are declared on Holdings Common Stock, whether payable in
cash, property or securities of Holdings.
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of Holdings, after payment has been made from the funds available
therefore to the holders of Preferred Stock, if any, for the full amount to
which they are entitled, the holders of the shares of Holdings Common Stock
are entitled to share equally, share for share, in the assets available for
distribution. Holders of Holdings Common Stock have no conversion, redemption
or preemptive rights.
PREFERRED STOCK
The Preferred Stock is issuable from time to time in one or more series
and with such designations and preferences for each series as shall be stated
in the resolutions providing for the designation and issue of each such
series adopted by the board of directors of Holdings. The board of directors
is authorized by Holdings' Certificate of Incorporation to determine the
voting, dividend, redemption and liquidation preferences and limitations
pertaining to such series. The board of directors, without shareholder
approval, may issue Preferred Stock with voting and other rights that could
adversely affect the voting power of the holders of the Common Stock and
could have certain antitakeover effects. Holdings has no present plans to
issue any shares of Preferred Stock. The ability of the board of directors to
issue Preferred Stock without stockholder approval could have the effect of
delaying, deferring or preventing a change in control of Holdings or the
removal of existing management.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Holdings is a Delaware corporation and subject to Section 203 of the DGCL.
Because the Board of Directors of Holdings approved the Merger Agreement and
Voting Agreement prior to the execution thereof, the restrictions set forth
in Section 203 of the DGCL will not apply to the DLJMB Funds with respect to
the Merger or the other transactions contemplated by the Merger Agreement and
the Voting Agreeement. However, in general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
a corporation's outstanding voting stock) from engaging in a "business
106
<PAGE>
combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder, subject to
certain exceptions such as transactions done with the approval of the Board
of Directors and of the holders of at least two-thirds of the outstanding
shares of voting stock not owned by the interested stockholder. The existence
of this provision would be expected to have an anti-takeover effect,
including possibly discouraging takeover attempts that might result in a
premium over the market price for the shares of Holdings Common Stock.
DLJMB Warrants
Each DLJMB Warrant will entitle the holder thereof to purchase one share
of Holdings Common Stock at an exercise price of not less than $0.01 per
share subject to customary antidilution provisions and other customary terms.
The DLJMB Warrants will be exercisable at any time prior to 5:00 p.m., New
York City time, on August 15, 2007. The exercise of the DLJMB Warrants also
will be subject to applicable federal and state securities laws.
The DLJMB Funds will be entitled to request six demand registrations with
respect to the DLJMB Warrants (together with all or any portion of any
Preferred Stock owned by them) and the Holdings Common Stock owned by them,
which demand registration rights will be immediately exercisable subject to
customary deferral and cutback provisions. In addition, the holders of the
DLJMB Warrants will also be entitled to unlimited piggyback registration
rights with respect to such Warrants subject to customary cutback provisions.
Transfer Agent and Registrar
The transfer agent and registrar for the Holdings Common Stock following
the Merger will be Chase Mellon Shareholder Services, L.L.C.
107
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary, which is based on the opinion of Davis Polk &
Wardwell, counsel to the Issuer, describes the material United States federal
income tax consequences of the ownership and disposition of Units to initial
purchasers of the Units who are U.S. Holders (as defined below) and who
purchase the Units at the issue price set forth on the cover page hereof.
This summary is based on the Internal Revenue Code of 1986, as amended to the
date hereof (the "Code"), administrative pronouncements, judicial decisions
and existing and proposed Treasury Regulations, changes to any of which
subsequent to the date of this Prospectus may affect the tax consequences
described herein. This summary discusses only Units held as capital assets
within the meaning of Section 1221 of the Code. It does not discuss all of
the tax consequences that may be relevant to a holder in light of his
particular circumstances or to holders subject to special rules, such as
certain financial institutions, insurance companies, dealers in securities
and holders who hold the Debentures, Warrants or Units as part of a straddle
or a hedging or conversion transaction. Persons considering the purchase of
Units should consult their tax advisors with regard to the application of the
United States federal income tax laws to their particular situations as well
as any tax consequences arising under the laws of any state, local or foreign
taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Unit
that for United States federal income tax purposes is (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other
entity created or organized in or under the laws of the United States or of
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust. The term also includes certain former citizens or residents of the
United States.
ALLOCATION OF THE ISSUE PRICE BETWEEN THE DEBENTURE AND THE WARRANT
Each Unit is comprised of a Debenture and a Warrant. Consequently, the
"issue price" of a Unit for federal income tax purposes (generally, the first
price at which a substantial amount of Units is sold to persons other than
bond houses, brokers, or similar persons or organizations acting in the
capacity of underwriters, placement agents, or wholesalers) must be allocated
between the Debenture and the Warrant based on their respective fair market
values at the time of issuance, and a U.S. Holder's basis in each of the
Debenture and the Warrant will be equal to the amount allocated to such
Debenture and such Warrant. Based on the Issuer's estimate of the fair market
value of a Warrant, the Company intends to treat $ of the issue price of a
Unit as allocable to the Debenture (which amount the Company will therefore
treat as the "issue price" of the Debenture for federal income tax purposes)
and $ as allocable to the Warrant. The Issuer intends to file information
returns with the Internal Revenue Service (the "IRS") based on such
allocation.
The Company's allocation of the issue price is binding on a holder for
federal income tax purposes unless the holder discloses the use of a
different allocation in its federal income tax return for the year in which
the Unit was acquired. However, the Company's allocation is not binding on
the IRS, and there can be no assurance that the IRS will not challenge such
allocation.
THE DEBENTURES
For purposes of the following discussion, it is assumed that the
Debentures will constitute debt for federal income tax purposes. In general,
the excess of a Debenture's "stated redemption price at maturity" over its
issue price will generally constitute original issue discount ("OID") for
federal income tax purposes. The stated redemption price at maturity of a
Debenture is the sum of all scheduled amounts payable on the Debentures
(including the interest payable on the Debentures). U.S. Holders of the
Debentures will be required to include such OID in income for federal income
tax purposes as it accrues, in accordance with a constant yield method based
on a compounding of interest, before the receipt of cash payments
attributable to such income. Under this method, U.S. Holders of the
Debentures generally will be required to include in income increasingly
greater amounts of OID in successive accrual periods.
The Issuer does not intend to treat the possibility of an optional
redemption or repurchase of the Debentures as giving rise to any additional
accrual of OID or recognition of ordinary income upon redemption, sale or
exchange of a Debenture. Holders may wish to consider that United States
Treasury Regulations regarding the treatment of certain contingencies were
recently issued and may wish to consult their tax advisers in this regard.
108
<PAGE>
Upon the sale, exchange or retirement of a Debenture, a U.S. Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and such holder's adjusted tax
basis in the Debenture. A U.S. Holder's adjusted tax basis in a Debenture
will generally equal the issue price of such Debenture increased by the
amount of any OID previously included in income by such Holder with respect
to such Debenture. Gain or loss realized on the sale, exchange or retirement
of a Debenture will be capital gain or loss and will be long-term capital
gain or loss if at the time of sale, exchange or retirement the Debenture has
been held for more than one year.
The Debentures will be "applicable high yield discount obligations"
("AHYDOs"), as defined in the Code, because the yield to maturity of such
Debentures will exceed the "applicable Federal rate" in effect at the time of
their issuance (the "AFR") plus five percentage points. Under the rules
applicable to AHYDOs, a portion of the OID that accrues on the Debentures
will not be deductible by the Company at any time. The non-deductible portion
of the OID will be an amount that bears the same ratio to such OID as (i) the
excess of the yield to maturity of the Debentures over the AFR plus six
percentage points bears to (ii) the yield to maturity of the Debentures. To
the extent that the non-deductible portion of OID would have been treated as
a dividend if it had been distributed with respect to the Company's stock, it
will be treated as a dividend to holders of the Debentures for purposes of
the rules relating to the dividends received deduction for corporate holders.
Any remaining OID on the Debentures will not be deductible by the Company
until such OID is paid.
THE WARRANTS
A U.S. Holder will generally not recognize any gain or loss upon exercise
of any Warrants (except with respect to any cash received in lieu of a
fractional share of Common Stock). A U.S. Holder will have an initial tax
basis in the shares of Holdings Common Stock received on exercise of the
Warrants equal to the sum of its tax basis in the Warrants and the aggregate
exercise price thereof. A U.S. Holder's holding period in such shares of
Holdings Common Stock will commence on the day after the Warrants are
exercised.
If a Warrant expires without being exercised, a U.S. Holder will recognize
a capital loss in an amount equal to its tax basis in the Warrant. Upon the
sale or exchange of a Warrant, a U.S. Holder will generally recognize a
capital gain or loss equal to the difference, if any, between the amount
realized on such sale or exchange and the U.S. Holder's tax basis in such
Warrant. Such capital gain or loss will be long-term capital gain or loss if,
at the time of such sale or exchange, the Warrant has been held for more than
one year.
Under Section 305 of the Code, a U.S. Holder of a Warrant may be deemed to
have received a constructive distribution from the Issuer, which may result
in the inclusion of ordinary dividend income, in the event of certain
adjustments to the number of shares of Holdings Common Stock to be issued on
exercise of a Warrant.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain noncorporate U.S. Holders may be subject to backup withholding at
a rate of 31% on payments received with respect to, and the proceeds of a
disposition of, a Debenture or Warrant. Backup withholding will apply only if
the U.S. Holder (i) fails to furnish its Taxpayer Identification Number
("TIN") which, in the case of an individual, would be his or her Social
Security number, (ii) furnishes an incorrect TIN, (iii) is notified by the
IRS that it has failed to properly report payments of interest and dividends
or (iv) under certain circumstances, fails to certify, under penalty of
perjury, that it has furnished a correct TIN and has not been notified by the
IRS that it is subject to backup withholding. U.S. Holders should consult
their tax advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against such U.S. Holder's United States federal income
tax liability and may entitle such U.S. Holder to a refund, provided that the
required information is furnished to the IRS.
109
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") between Quaker and Donaldson, Lufkin & Jenrette
Securities Corporation (the "Underwriter" or "DLJSC"), the Underwriter has
agreed to purchase from Quaker, and Quaker has agreed to sell to the
Underwriter, all of the Units offered hereby.
The Underwriting Agreement provides that the obligations of the
Underwriter thereunder are subject to certain conditions precedent. The
Underwriting Agreement also provides that Quaker will indemnify the
Underwriter against certain liabilities and expenses, including liabilities
under the Securities Act. The nature of the Underwriter's obligation is such
that it is required to purchase all of the Units if any Units are purchased
by the Underwriter.
The Underwriter has advised Quaker that it proposes initially to offer the
Units, in part, directly to the public at the public offering price set forth
on the cover of this Prospectus and in part to selected dealers at such price
less a concession not in excess of $ per Unit. The Underwriter may allow,
and such dealers may reallow, a discount not in excess of $ per Unit to
certain other dealers. After the initial public offering of the Units, the
offering price and the other selling terms may be changed by the Underwriter.
The Securities are new securities for which no public market exists. The
Securities will not be listed on a securities exchange. There can be no
assurance that an active public market will develop or be sustained upon
completion of the Offering or at what prices Holders of the Securities would
be able to sell such securities, if at all. In addition, prevailing interest
rate levels, market fluctuations and general economic and political
conditions may adversely affect the liquidity and the market price of the
Securities, regardless of the Company's financial and operating performance.
The market for "high yield" securities, such as the Debentures, and markets
for the Units and the Warrants are volatile and unpredictable, which may have
an adverse effect on the liquidity of, and prices for, such securities. The
Company has been advised by the Underwriter that it currently intends to make
a market in the Securities after consummation of the Offering as permitted by
applicable laws and regulations; however, the Underwriter is not obligated to
do so and may discontinue doing so without notice at any time. Accordingly,
no assurance can be given that a liquid trading market of the Securities will
develop or be sustained. In addition, because the Underwriter may be deemed
to be an affiliate of the Company, the Underwriter will be required to
deliver a current "market-maker" prospectus and otherwise to comply with the
registration requirements of the Securities Act in connection with any
secondary market sale of the Debentures, which may affect its ability to
continue market-making activities. The Underwriter's ability to engage in
market-making transactions will therefore be subject to the availability of a
current "market-maker" prospectus. For so long as any of the Securities are
outstanding and, in the reasonable judgment of the Underwriter and its
counsel, the Underwriter or any of its affiliates (as defined in the rules
and regulations under the Securities Act) is required to deliver a prospectus
in connection with the sale of the Debentures, the Company has agreed to make
a "market-maker" prospectus available to the Underwriter to permit it to
engage in market-making transactions.
The Underwriter has informed Quaker that it does not intend to confirm
sales of the Units to any accounts over which it exercises discretionary
authority.
In connection with the Offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Units. Specifically, the Underwriter may overallot the Offering, creating a
syndicate short position. The Underwriter may bid for and purchase the Units
in the open market to cover syndicate short positions. In addition, the
Underwriter may bid for and purchase the Units in the open market to
stabilize the price of the Units. These activities may stabilize or maintain
the market price for the Units above independent market levels. The
Underwriter is not required to engage in these activities, and may end these
activities at any time.
The Underwriter is also acting as underwriter in connection with a
concurrent offering by DecisionOne Corp. of Senior Subordinated Notes and
will receive customary discounts and commissions in connection therewith. In
addition, the Underwriter is acting as Arranger and DLJ Capital Funding, an
110
<PAGE>
affiliate of the Underwriter, is the syndication agent and a lender under the
New Credit Facility. DLJ Capital Funding and the Underwriter will receive
fees pursuant to the New Credit Facility customary to performing such
services. In addition, the Underwriter will receive a merger advisory fee of
$5.0 million in cash from Quaker upon consummation of the Merger. It is also
expected that DLJSC will receive an annual fee from Holdings for financial
advisory services.
DLJMB and certain related entities, all of which are affiliates of the
Underwriter, will own a significant amount of Holdings Common Stock following
the Merger and Merger Financing. See "Certain Relationships and Related
Transactions--Transactions with DLJ and its Affiliates."
This Prospectus has been prepared for use by DLJSC in connection with
offers and sales of the Securities in market-making transactions at
negotiated prices related to prevailing market prices at the time of the
sale. DLJSC may act as principal or agent in such transactions. Holdings has
been advised by DLJSC that it intends to make a market in the Securities;
however, DLJSC is not obligated to do so. Any market-making may be
discontinued at any time, and there is no assurance that an active public
market for the Units will develop or, that if such market develops, that it
will continue.
Under Rule 2720 of the Conduct Rules ("Rule 2720") of the National
Association of Securities Dealers, Inc. ("NASD"), the Underwriter may be
deemed to be an "affiliate" of the Issuer and to have a "conflict of
interest" with the Issuer by virtue of the fact that affiliates of the
Underwriter may be deemed to beneficially own greater than 10% of the voting
stock of the Issuer. Under Rule 2720, when a member of the NASD, such as the
Underwriter, proposes to underwrite or otherwise assist in the distribution
of an affiliate's securities in a public offering, the yield on debt
securities to be distributed to the public must not be lower, or the price of
equity securities higher than that recommended by a "qualified independent
underwriter", who must participate in the preparation of the registration
statement and the prospectus and who must exercise the usual standards of due
diligence with respect thereto. In accordance with such requirements,
Ladenburg Thalmann & Co. Inc. (the "QIU") has agreed to act as the qualified
independent underwriter in connection with the Offering, has participated in
the preparation of this Prospectus and the Registration Statement of which
this Prospectus forms a part and has exercised the usual standards of due
diligence with respect thereto. The price of the Units when sold will be no
higher than that recommended by the QIU. The QIU will receive an aggregate
fee of $125,000 and will be reimbursed for certain other expenses, all of
which will be paid by the Issuer and DecisionOne Corp. in connection with the
offering of the Senior Subordinated Notes and Units. In addition, Quaker,
Holdings and DecisionOne Corp. have jointly and severally agreed to indemnify
the QIU against certain liabilities, including liabilities under the
Securities Act or to contribute to payments which the QIU may be required to
make in respect thereof.
LEGAL MATTERS
The validity of the Units offered hereby will be passed upon for the
Issuer by Davis Polk & Wardwell, New York, New York. Certain legal matters in
connection with the Offering will be passed upon for the Underwriter by
Latham & Watkins, New York, New York.
EXPERTS
The Consolidated Financial Statements of the Company as of June 30, 1996
and for each of the three years in the period ended June 30, 1996 and the
Consolidated Financial Statements of DecisionOne Corp. (formerly BABSS) as of
December 31, 1994 and October 20, 1995 and for the years ended December 31,
1993 and 1994 and the period from January 1, 1995 to October 20, 1995, and
the related financial statement schedules appearing in this Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as set forth in
their reports included herein and are included in reliance upon the reports
of such firm given upon their authority as experts in accounting and
auditing.
111
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECISIONONE HOLDINGS CORP.
<TABLE>
<CAPTION>
<S> <C>
Audited Financial Statements:
Independent Auditors' Report............................................................... F-2
Consolidated Balance Sheets as of June 30, 1995 and 1996................................... F-3
Consolidated Statements of Operations for the Years Ended June 30, 1994, 1995 and 1996 .... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 1994, 1995
and 1996.................................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1994, 1995 and 1996 .... F-6
Notes to Consolidated Financial Statements................................................. F-7
Unaudited Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1996 and March 31, 1997 ............. F-27
Condensed Consolidated Statement of Operations--Three and Nine Months Ended March 31, 1996
and 1997.................................................................................. F-28
Condensed Consolidated Statement of Cash Flows--Nine Months Ended March 31, 1996 and 1997 . F-29
Notes to Condensed Consolidated Financial Statements ...................................... F-30
DECISIONONE CORPORATION (FORMERLY BELL ATLANTIC BUSINESS SYSTEMS SERVICES, INC.)
Audited Financial Statements:
Independent Auditors' Report............................................................... F-33
Consolidated Balance Sheets as of December 31, 1994 and October 20, 1995 .................. F-34
Consolidated Statements of Operations for the years ended December 31, 1993 and 1994 and
for the period January 1, 1995 to October 20, 1995........................................ F-35
Consolidated Statements of Stockholder's Equity for the years ended December 31, 1993 and
1994 and for the period January 1, 1995 to October 20, 1995............................... F-36
Consolidated Statements of Cash Flows for the years ended December 31, 1993 and 1994 and
for the period January 1, 1995 to October 20, 1995........................................ F-37
Notes to Consolidated Financial Statements................................................. F-38
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of DecisionOne Holdings Corp.:
We have audited the accompanying consolidated balance sheets of
DecisionOne Holdings Corp. and subsidiaries (the "Company") as of June 30,
1995 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DecisionOne Holdings Corp.
and subsidiaries at June 30, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended June 30, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
August 30, 1996
F-2
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEARS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 2,659 $ 8,221
Accounts receivable, net.......................................... 27,758 92,650
Inventories....................................................... 4,024 30,130
Prepaid expenses, income tax receivable and other assets ......... 7,636 4,752
Deferred tax asset................................................ 8,503 8,018
---------- ----------
Total current assets............................................. 43,707 143,771
---------- ----------
Repairable Parts, net.............................................. 27,360 154,970
Property and Equipment, net........................................ 4,429 32,430
Deferred Tax Asset, net............................................ 25,011 16,405
Intangibles, net................................................... 34,568 164,659
Other Assets....................................................... 478 2,275
---------- ----------
Total Assets....................................................... $135,553 $514,510
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt................................. $ 19,414 $ 2,321
Accounts payable.................................................. 11,412 53,347
Accrued expenses.................................................. 21,773 36,217
Deferred revenues................................................. 40,222 38,485
Income taxes payable.............................................. 1,648
Net liabilities related to discontinued products division ........ 1,056 479
---------- ----------
Total current liabilities........................................ 95,525 130,849
---------- ----------
Revolving Credit Loan and Long-term Debt........................... 6,157 188,582
Other Liabilities.................................................. 12,383 14,286
Redeemable Preferred Stock......................................... 6,811
Shareholders' Equity:
Preferred stock, $1.00 par value; authorized 5,000,000 shares;
none outstanding
Common stock, $.01 par value; authorized 25,000,000 shares in
1995 and 100,000,000 shares in 1996; issued and outstanding
8,935,348 shares in 1995 and 27,340,288 shares in 1996 .......... 89 273
Additional paid-in capital........................................ 107,991 255,262
Accumulated deficit............................................... (92,378) (73,516)
Foreign currency translation adjustment........................... 680 622
Pension liability adjustment...................................... (1,705) (1,848)
---------- ----------
Total shareholders' equity....................................... 14,677 180,793
---------- ----------
Total Liabilities and Shareholders' Equity......................... $135,553 $514,510
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Service............................................ $ 97,548 $ 154,044 $ 526,703
Other.............................................. 10,868 8,976 13,488
------------ ------------ ------------
108,416 163,020 540,191
------------ ------------ ------------
Cost of Revenues:
Service............................................ 70,502 107,922 393,311
Other.............................................. 6,478 5,561 9,005
------------ ------------ ------------
76,980 113,483 402,316
------------ ------------ ------------
Gross Profit........................................ 31,436 49,537 137,875
Operating Expenses:
Selling, general and administrative expenses ...... 16,474 21,982 69,237
Amortization and write-off of intangibles ........ 5,380 6,776 15,673
Employee severance and unutilized lease costs
(credit).......................................... (6,401) 3,592
------------ ------------ ------------
Operating Income.................................... 15,983 20,779 49,373
Interest expense, net of interest income of $132 in
1994, $53 in 1995 and $239 in 1996................. 4,847 2,468 14,714
------------ ------------ ------------
Income from continuing operations before income
taxes (benefit), discontinued operations and
extraordinary item................................. 11,136 18,311 34,659
Provision for income taxes (benefit)................ 1,024 (23,104) 13,870
------------ ------------ ------------
Income before discontinued operations and
extraordinary item................................. 10,112 41,415 20,789
Discontinued operations--Income from operations of
discontinued products division...................... 1,113
------------ ------------ ------------
Income before extraordinary item.................... 10,112 42,528 20,789
Extraordinary item, net of tax benefit of $1,284 .. (1,927)
------------ ------------ ------------
Net income........................................ $ 10,112 $ 42,528 $ 18,862
============ ============ ============
Primary Income (Loss) Per Common Share:
Continuing operations.............................. $ 0.45 $ 1.81 $ 0.83
Discontinued operations............................ $ 0.05
Extraordinary item................................. $ (0.08)
------------ ------------ ------------
Net income ....................................... $ 0.45 $ 1.86 $ 0.75
============ ============ ============
Weighted average number of common and common
equivalent shares outstanding...................... 22,594,764 22,842,727 25,195,867
============ ============ ============
Fully Diluted Income (Loss) Per Common Share:
Continuing operations.............................. $ 0.45 $ 1.79 $ 0.82
Discontinued operations............................ $ 0.05
Extraordinary item................................. (0.08)
------------ ------------ ------------
Net income........................................ $ 0.45 $ 1.84 $ 0.74
============ ============ ============
Weighted average number of common and common
equivalent shares outstanding...................... 22,594,764 23,149,301 25,429,961
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT NUMBER OF SHARES OF COMMON STOCK)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
NUMBER ADDITIONAL ACCUMULATED
OF SHARES AMOUNT PAID-IN CAPITAL DEFICIT
------------ -------- --------------- -------------
<S> <C> <C> <C> <C>
Balance, June 30, 1993 .......... 8,889,547 $ 89 $ 87,324 $(145,018)
Net income ................... 10,112
Adjustment to pension
liability ....................
Foreign currency translation
adjustment ...................
Accrued dividends on Series A
and B Redeemable Preferred
Stock ........................ (186)
Increase in additional paid-in
capital and number of common
stock shares due to debt
restructuring ................ 30,801 21,220
------------ -------- --------------- -------------
Balance, June 30, 1994 .......... 8,920,348 89 108,358 (134,906)
Net income .................... 42,528
Adjustment to pension
liability ....................
Foreign currency translation
adjustment ..................
Accrued dividends on Series A
and B Redeemable Preferred
Stock ........................ (375)
Increase due to exercise of
options ..................... 15,000 8
------------ -------- --------------- -------------
Balance, June 30, 1995 .......... 8,935,348 89 107,991 (92,378)
Net income ................... 18,862
Adjustment to pension
liability ....................
Common Stock issued:
Exercise of preemptive
rights. ..................... 384,502 4 1,526
Public offering ............ 6,300,000 63 106,250
Exercise of options ........ 329,850 3 300
Exercise of warrants ....... 118,664 1 598
Conversion of Redeemable
Preferred Stock ........... 11,271,924 113 37,529
Stock issuance costs ......... (1,573)
Issuance of warrants ......... 126
Issuance of warrants attached
to Subordinated Debentures .. 3,400
Foreign currency translation
adjustment ..................
Accrued dividends on
Redeemable Preferred Stock ... (885)
------------ -------- --------------- -------------
Balance, June 30, 1996 .......... 27,340,288 $273 $255,262 $ (73,516)
============ ======== =============== =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
FOREIGN TOTAL
CURRENCY PENSION SHAREHOLDERS'
TRANSLATION LIABILITY (DEFICIENCY)
ADJUSTMENT ADJUSTMENT EQUITY
------------- ------------ ---------------
<S> <C> <C> <C>
Balance, June 30, 1993 .......... $445 $ (986) $(58,146)
Net income ................... 10,112
Adjustment to pension
liability .................... (639) (639)
Foreign currency translation
adjustment ................... 12 12
Accrued dividends on Series A
and B Redeemable Preferred
Stock ........................ (186)
Increase in additional paid-in
capital and number of common
stock shares due to debt
restructuring ................ 21,220
------------- ------------ ---------------
Balance, June 30, 1994 .......... 457 (1,625) (27,627)
Net income .................... 42,528
Adjustment to pension
liability .................... (80) (80)
Foreign currency translation
adjustment .................. 223 223
Accrued dividends on Series A
and B Redeemable Preferred
Stock ........................ (375)
Increase due to exercise of
options ..................... 8
------------- ------------ ---------------
Balance, June 30, 1995 .......... 680 (1,705) 14,677
Net income ................... 18,862
Adjustment to pension
liability .................... (143) (143)
Common Stock issued:
Exercise of preemptive
rights. ..................... 1,530
Public offering ............ 106,313
Exercise of options ........ 303
Exercise of warrants ....... 599
Conversion of Redeemable
Preferred Stock ........... 37,642
Stock issuance costs ......... (1,573)
Issuance of warrants ......... 126
Issuance of warrants attached
to Subordinated Debentures .. 3,400
Foreign currency translation
adjustment .................. (58) (58)
Accrued dividends on
Redeemable Preferred Stock ... (885)
------------- ------------ --------------
Balance, June 30, 1996 .......... $622 $(1,848) $180,793
============= ============ ==============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Operating Activities:
Net income..................................................... $ 10,112 $ 42,528 $ 18,862
Adjustments to reconcile net income to net cash provided by
operating activities:
Income from discontinued operations............................ (1,113)
Write-down of intangible assets................................ 2,932 70
Net credit on unused leases, net............................... (6,401)
Depreciation and amortization of property and equipment ....... 1,781 1,778 8,309
Amortization of intangibles.................................... 2,448 6,706 15,673
Amortization of repairable parts............................... 5,929 7,688 37,869
Deferred income taxes.......................................... (23,104) 7,579
Provision (recovery of loss) on accounts receivable ........... (162) 1,930 3,434
Provision for inventory obsolescence........................... 1,580 1,995 1,171
Extraordinary item............................................. 1,927
Changes in operating assets and liabilities, net of effects
from companies acquired, which provided (used) cash:
Accounts receivable............................................ (3,498) (8,836) (1,900)
Inventories.................................................... 1,107 931 (1,248)
Accounts payable............................................... (787) 4,552 29
Accrued expenses............................................... 264 (5,723) 227
Deferred revenues.............................................. 9,547 6,811 (33,928)
Net changes in other assets and liabilities.................... 3,870 2,202 (6,110)
---------- ---------- -----------
Net cash provided by operating activities..................... 28,722 38,415 51,894
---------- ---------- -----------
Investing Activities:
Capital expenditures-net of retirements........................ (304) (2,786) (7,278)
Repairable parts purchases..................................... (1,857) (12,154) (63,514)
Purchases of companies......................................... (1,187) (39,331) (275,562)
---------- ---------- -----------
Net cash used in investing activities......................... (3,348) (54,271) (346,354)
---------- ---------- -----------
Financing Activities:
Proceeds from issuance of preferred stock...................... 2,250 31,392
Proceeds from issuance of subordinated debentures.............. 30,000
Proceeds from issuance of common stock......................... 107,298
Proceeds from borrowings....................................... 11,000 32,000 703,720
Payment of subordinated debentures............................. (30,000)
Payments on borrowings......................................... (37,713) (14,463) (537,548)
Principal payments under capital leases........................ (3,423)
Dividends paid on preferred stock ............................. (1,446)
Other.......................................................... (483) 29
---------- ---------- -----------
Net cash provided by (used in) financing activities .......... (24,946) 17,537 300,022
---------- ---------- -----------
Net increase in cash and cash equivalents....................... 428 1,681 5,562
Cash and cash equivalents, beginning of year.................... 550 978 2,659
---------- ---------- -----------
Cash and cash equivalents, end of year.......................... $ 978 $ 2,659 $ 8,221
========== ========== ===========
Supplemental Disclosures of Cash Flow Information:
Net cash paid during the year for:
Interest...................................................... 485 2,065 14,838
Income taxes.................................................. 397 1,009 5,344
Noncash investing/financing activities:
Interest exchanged for subordinated debt...................... 2,073
Issuance of seller notes in connection with acquisitions .... 1,313 2,866 587
Accretion of accrued dividends................................ 186 375 885
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
1. NATURE OF BUSINESS
DecisionOne Holdings Corp. and its wholly owned subsidiaries (the
"Company") are providers of multivendor computer maintenance and technology
support services. The Company's services include hardware support, user and
software support, network support and other support services. These services
are offered by the Company across a broad range of computing environments,
including mainframes, midrange and distributed systems, workgroups, personal
computers ("PCs") and related peripherals. The Company maintains
approximately 3,900 technical personnel located in over 150 service locations
in North America.
Through June 30, 1995, the Company's services predominantly involved the
provision of maintenance services to the midrange computer market. On October
20, 1995, the Company acquired Bell Atlantic Business Systems Services, Inc.
("BABSS") (see Note 4). BABSS provided computer maintenance and technology
support services for computer systems ranging from the data center, which
includes both mainframe and midrange systems, to desk top. Subsequent to the
acquisition, DecisionOne Holdings Corp.'s principal operating subsidiary,
Decision Servcom, Inc., was merged into BABSS, which had changed its name to
DecisionOne Corporation. As a result, DecisionOne Corporation is the
principal operating subsidiary of the Company.
The Company's wholly owned, international subsidiaries are not significant
to the Company's financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION -- The consolidated financial statements include the
accounts of DecisionOne Holdings Corp. and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS --Cash and cash equivalents are highly liquid
investments with remaining maturities of three months or less at the time of
purchase.
INVENTORIES --Inventories are stated at the lower of cost or market, cost
principally being determined using the weighted average method. The Company
previously determined cost using the FIFO (first-in, first-out) method. The
change has no material effect on the consolidated financial statements.
REPAIRABLE PARTS -- Repairable parts are required in order to meet the
requirements of the contracts with the Company's maintenance customers. These
parts are principally purchased from equipment manufacturers and other third
parties. As these parts are purchased, they are capitalized at cost and
amortized principally using the straight-line method over three to five
years, their estimated useful life. Repairable parts are repaired by the
Company based upon anticipated need and generally have an economic life that
extends beyond the normal life cycle of the applicable product. Costs of
refurbishing parts are charged to operations as incurred. Repairable parts
are stated at cost, less accumulated amortization of $46,554 and $45,064 as
of June 30, 1995 and 1996, respectively. Repairable parts amortization
expense for the years ended June 30, 1994, 1995 and 1996 was $5,929, $7,688
and $37,869, respectively.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation is provided for using the straight-line method over the
estimated useful lives of the depreciable assets. Capitalized equipment
leases and leasehold improvements are amortized over the shorter of the
related lease terms or asset lives. Maintenance and repairs are charged to
expense as incurred; renewals and betterments are capitalized. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is charged to operations.
F-7
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTANGIBLES --Intangible assets are comprised of excess purchase price
over net assets acquired (goodwill), debt issuance costs and other intangible
assets, including the fair value of contractual profit participation rights,
acquired customer contracts, tradenames, other intangibles, and amounts
assigned to noncompete agreements.
Goodwill is being amortized on a straight-line basis over 20 years. Other
intangibles are being amortized, primarily on a straight-line basis, over 3
to 8 years for customer contracts; 20 years for contractual profit
participation rights; 1 to 6 years for tradenames and other intangibles; and
over four-year terms for specific noncompete agreements. Debt issuance costs
are amortized using the interest method over the term of the related debt.
CARRYING VALUE OF LONG-TERM ASSETS --The Company evaluates the carrying
value of long-term assets, property and equipment, repairable parts and
intangible assets, based upon current and anticipated undiscounted cash
flows, and recognizes an impairment when such estimated cash flows will be
less than the carrying value of the asset. Measurement of the amount of
impairment, if any, is based upon the difference between carrying value and
fair value.
REVENUE --The Company enters into maintenance contracts whereby it
services various manufacturers' equipment. Revenues from these contracts are
recognized ratably over the terms of such contracts. Revenues from
multi-period contracts are recorded as deferred revenues and are recognized
ratably over the term of the contracts.
Revenues derived from the maintenance of equipment not under contract are
recognized as the service is performed.
Revenues derived from other technology support services are recognized as
the service is performed or ratably over the term of the contract.
Estimated losses on contracts, if any, are charged against earnings in the
period in which such losses are identified.
FOREIGN CURRENCY TRANSLATION -- Gains and losses resulting from foreign
currency translation are accumulated as a separate component of shareholders'
equity. Gains and losses resulting from foreign currency transactions are
included in operations.
CREDIT RISK --Concentration of credit risk with respect to trade
receivables is limited due to the large number of customers comprising the
Company's customer base and their dispersion across many industries.
INCOME TAXES -- Effective July 1, 1993, the Company changed its policy of
accounting for income taxes to conform to Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes. The Company
previously followed Financial Accounting Standards No. 96, Accounting for
Income Taxes. SFAS No. 109 requires, among other things, the accrual of
deferred tax liabilities for future taxable amounts, deferred tax assets for
future deductions and operating loss carryforwards and a valuation allowance
to reduce deferred tax assets to the amounts that are more likely than not to
be realized. The adoption of SFAS No. 109 on July 1, 1993 did not have a
material effect on the Company's consolidated financial position or results
of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The following disclosures of the
estimated fair value of financial instruments were made in accordance with
the requirements of SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies.
F-8
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, AND ACCOUNTS PAYABLE --
The carrying amount of these items is a reasonable estimate of their fair
value.
SHORT-TERM DEBT AND LONG-TERM DEBT --Rates currently available to the
Company for debt with similar terms and remaining maturities are used to
estimate the fair value for debt issues. Accordingly, the carrying amount of
debt is a reasonable estimate of its fair value.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates
and assumptions.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS -- Effective July 1, 1994, the
Company adopted the provisions of No. 106, ("SFAS No. 106") Employers'
Accounting for Postretirement Benefits Other Than Pensions, and No. 112
("SFAS No. 112"), Employers' Accounting for Postemployment Benefits. The
adoption of SFAS No. 106 and SFAS No. 112 did not have a material effect on
the Company's consolidated financial position or results of operations.
STOCK-BASED COMPENSATION --In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"). SFAS No. 123
defines a fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation cost is measured at
the grant date based on the fair value of the award and is recognized over
the service period, which is usually the vesting period.
Under SFAS No. 123, the Company is permitted to continue to account for
employee stock-based transactions under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), but will be
required to disclose in a note to the consolidated financial statements pro
forma net income and income per share information as if the Company had
applied the new method of accounting. SFAS No. 123 also requires increased
disclosures for stock-based compensation arrangements regardless of the
method chosen to measure and recognize compensation for employee stock-based
arrangements.
The Company has determined that it will continue to account for such
transactions under APB No. 25 and will provide the disclosures required by
SFAS No. 123 during the year ending June 30, 1997.
DERIVATIVE FINANCIAL INSTRUMENTS -- Derivative financial instruments,
which constitute interest rate swaps (see Note 10), are used by the Company
in the management of its interest rate exposure and are accounted for on an
accrual basis. These derivative financial instruments are used to hedge risk
caused by fluctuating interest rates. Hedged financial instruments are
accounted for based on settlement accounting. Income and expense are recorded
in the same category as that arising from the related asset or liability. The
amounts to be paid or received under interest rate swap agreements are
recognized as interest income or expense in the periods in which they accrue.
Gains and losses resulting from effective hedges of existing assets,
liabilities or firm commitments are deferred and recognized when the
offsetting gains and losses are recognized on the related hedged items. Gains
realized on termination of interest rate swap contracts are deferred and
amortized over the remaining terms of the original swap agreements. The
Company does not hold or issue any derivative financial instruments for
trading purposes.
F-9
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
3. DISCONTINUED OPERATIONS
On February 9, 1993, the Company sold all of the inventory, fixed assets
and other intangible assets, as defined in the asset purchase agreement, of
its products division. The remaining assets and liabilities of the
discontinued operations consisted mainly of accounts receivable and accrued
expenses for warranty, lease commitments and other accrued costs. In 1993,
the Company established liabilities based on the best available information.
In 1995, the Company revised its estimates as a result of settlement of these
liabilities and the consolidated statement of operations for 1995 reflects an
increase in net income of $1,113 for the change in estimate.
In conjunction with the sale of the products division, the Company entered
into a maintenance service agreement with the purchaser. The agreement
provides that the Company has the option to be the exclusive provider of
warranty, extended warranty and maintenance services of products marketed by
the purchaser for a term of 5 years after the date of the sale.
4. BUSINESS ACQUISITIONS
During the years ended June 30, 1994, 1995 and 1996, the Company acquired
certain net assets of a series of service companies as follows:
<TABLE>
<CAPTION>
CONSIDERATION (IN THOUSANDS)
---------------------------------------------------------------------
TOTAL
NUMBER OF PURCHASE OTHER
YEARS ENDED ACQUISITIONS CASH NOTES PRICE INTANGIBLES GOODWILL
- ---------------------------------- -------------- --------- -------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Significant business acquisitions:
June 30, 1995 .................... 1 $ 27,413 $2,094 $ 29,507 $15,600 $ 7,394
June 30, 1996..................... 1 250,549 250,549 72,581 60,533
Nonsignificant business and
maintenance contract
acquisitions:
June 30, 1994..................... 5 975 1,490 2,465 3,193
June 30, 1995..................... 5 9,327 255 9,582 4,577 8,680
June 30, 1996..................... 5 14,853 578 15,431 6,522 6,318
</TABLE>
The Company purchased substantially all of the operating assets and
assumed certain liabilities of the acquired entities. These acquisitions have
been accounted for as purchase transactions, with the purchase price of each
acquisition allocated to the assets and liabilities acquired based on their
respective estimated fair values at the dates of acquisition. The results of
operations of the acquired entities have been included in the accompanying
consolidated financial statements from the dates of acquisition.
On August 31, 1994, the Company purchased certain net assets and
liabilities of IDEA/Servcom, Inc. ("Servcom") for approximately $29,500. This
acquisition was funded by cash and the issuance of a $2,600
noninterest-bearing note to the seller. See seller notes payable section of
Note 10. The excess of asset purchase price over the fair value of assets
acquired at the date of purchase resulted in goodwill of approximately
$7,400.
On October 20, 1995, the Company acquired all of the outstanding common
stock of BABSS, a subsidiary of Bell Atlantic Corporation ("BAC") for
approximately $250,549. The acquisition was funded with the proceeds from the
issuance of $30,000 of Series C preferred stock, $30,000 of subordinated
debentures and the balance from additional bank borrowings (see Notes 10 and
15). The excess of asset purchase price over the fair value of assets
acquired at the date of purchase resulted in goodwill of approximately
$58,796 initially recorded. Subsequent to the acquisition, the Company
recorded a net adjustment increasing goodwill by $1,737 and adjusted other
balance sheet accounts principally by the
F-10
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
4. BUSINESS ACQUISITIONS (Continued)
same amount. This resulted from the adjustment and reclassification of
certain tax accruals offset by favorable negotiations on certain leased
facilities (see Note 9). As part of the acquisition, the Company purchased
from BAC contractual profit participation rights whereby the Company will
receive a fixed percentage of the annual operating profits (3.2% or 3.5%,
depending upon the level of profits) earned by a former foreign affiliate of
BAC which provides computer maintenance and technology support services in
Europe. The value of the discounted estimated future cash flows over a
twenty-year period from these contractual profit participation rights is
$25,000.
The following summarized unaudited pro forma information for significant
acquisitions that have a material effect on the Company's results of
operations for the years ended June 30, 1995 and 1996 assumes that the
Servcom and BABSS acquisitions occurred as of July 1, 1994. The
nonsignificant business and maintenance contract acquisitions are not
considered material individually or in the aggregate. The pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of the results of operations which actually would have resulted
had the significant acquisitions been in effect on the dates indicated or
which may result in the future.
<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
YEARS ENDED JUNE 30,
---------------------
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues ............................................................. $679,284 $697,676
Income from continuing operations before extraordinary item ......... 20,153 31,080
Net income........................................................... 21,266 29,153
Primary Income Per Common Share:
Income from continuing operations before extraordinary item per
share .............................................................. $ 0.88 $ 1.23
Net income per common share.......................................... 0.93 1.16
Fully Diluted Income Per Common Share:
Income from continuing operations before extraordinary item per
share............................................................... $ 0.87 $ 1.22
Net income per common share.......................................... 0.92 1.15
</TABLE>
5. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Trade receivables .................... $33,843 $ 99,762
Other ................................ 531 2,468
--------- ---------
34,374 102,230
Allowance for uncollectible accounts (6,616) (9,580)
--------- ---------
$27,758 $ 92,650
========= =========
</TABLE>
F-11
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
6. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Consumable parts .......... $ 15,243 $ 40,564
Finished goods............. 569 360
---------- ----------
15,812 40,924
Allowance for
obsolescence.............. (11,788) (10,794)
---------- ----------
$ 4,024 $ 30,130
========== ==========
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Land and buildings......................... $ 2,055
Equipment.................................. $ 5,682 13,858
Computer hardware and software............. 8,359 27,277
Furniture and fixtures..................... 4,306 8,051
Leasehold improvements..................... 1,450 4,125
---------- ----------
19,797 55,366
Accumulated depreciation and amortization (15,368) (22,936)
---------- ----------
$ 4,429 $ 32,430
========== ==========
</TABLE>
The principal lives (in years) used in determining depreciation and
amortization rates of various assets are: buildings (40); equipment (3-10);
computer hardware and software (3-5); furniture and fixtures (5-10) and
leasehold improvements (term of related leases).
Depreciation and amortization expense was approximately $1,781, $1,778 and
$8,309 for the fiscal years ended 1994, 1995 and 1996.
F-12
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
8. INTANGIBLES
Intangibles consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
--------------------
1995 1996
--------- ----------
<S> <C> <C>
Goodwill................................ $16,074 $ 82,355
Customer contracts...................... 20,248 64,758
Contractual profit participation
rights................................. 25,000
Noncompete agreement.................... 3,000 4,500
Other intangibles....................... 2,250 7,671
Tradename............................... 1,500
--------- ----------
43,072 184,284
Accumulated amortization................ (8,504) (19,625)
--------- ----------
$34,568 $164,659
========= ==========
</TABLE>
Based upon the results of an impairment evaluation for the years ended
June 30, 1994 and 1995, management determined that customer contracts should
be written down $2,932 and $70, respectively. There were no write-downs of
intangibles in 1996.
Amortization expenses relating to intangibles were approximately $2,448,
$6,706 and $15,673 for the fiscal years ended 1994, 1995 and 1996.
9. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Compensation and benefits......... $11,046 $22,115
Interest.......................... 2,246 1,505
Unused leases..................... 857 3,485
Pension accrual................... 1,262 1,258
Accrued accounting and legal
fees............................. 920 1,073
Other accrued expenses............ 5,442 6,781
--------- ---------
$21,773 $36,217
========= =========
</TABLE>
Prior to 1994, the Company received $2,600 in tax bills (primarily
interest) from the Internal Revenue Service ("IRS") related to claims for tax
and interest for the years ended 1981 through 1987. The Company paid
approximately $500 of the claims upon receipt of the bills. As the Company
disputes the tax bills, no payments were made in 1994 nor 1995. In 1996, an
IRS mandated payment of $828 was made. As of June 30, 1995 and 1996, the
Company has an accrued liability of $2,500 and $1,883, respectively.
Subsequent to June 30, 1996, the Company provided the IRS with a letter of
credit in the amount of $1,768 to collateralize the outstanding balance.
In connection with the acquisition of BABSS, which has been accounted for
using the purchase method of accounting (see Note 4), the Company recorded
approximately $11,000 in liabilities resulting from planned actions with
respect to BABSS, which included the costs to exit certain leased facilities
and
F-13
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
9. ACCRUED EXPENSES (Continued)
to involuntarily terminate employees. The provision of approximately $3,500
for the costs to exit certain leased facilities principally relates to future
lease payments on a warehouse in California which has been made idle.
Approximately $4,000 was provided for severance and termination benefits of
approximately 210 employees in the field, operations support, sales and
administration. Approximately $3,000 was provided in connection with the exit
plan for write-downs of inventory and equipment at two California facilities
which will not be utilized in future operations. The provision for various
other charges of approximately $500 consisted of costs to complete the exit
plan. As of June 30, 1996, the Company has settled all of these liabilities,
except for the lease liabilities on idle facilities approximating $1,200 for
which payments will continue through 1999.
As a result of successful negotiations of unutilized leased facilities,
during 1996, the Company recorded a reduction of approximately $975 to both
the provisions for leased facilities and goodwill.
10. REVOLVING CREDIT LOAN AND LONG-TERM DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
--------------------
1995 1996
--------- ----------
<S> <C> <C>
Revolving credit loan........................................... $186,400
Bank debt....................................................... $21,000
Promissory note, noninterest-bearing, due August 31, 1998 ...... 2,256
Seller noninterest-bearing notes payable........................ 2,122 2,118
Capitalized lease obligations, payable in varying installments
amounting to $1,413 and $972 in 1997 and 1998, respectively,
at interest rates ranging from 7.25% to 13.01% at June 30,
1996, net of interest of approximately $6 and $187 in 1995 and
1996, respectively............................................. 193 2,385
--------- ----------
25,571 190,903
Less current portion............................................ 19,414 2,321
--------- ----------
$ 6,157 $188,582
========= ==========
</TABLE>
BANK DEBT
On October 20, 1995, in connection with the BABSS acquisition (see Note 4)
the Company entered into a Credit Agreement which provided for a term loan
(the "1995 Term Loan") of $230,000 and a revolving credit facility of up to a
maximum of $30,000. The 1995 Term Loan provided for 19 equal quarterly
principal payments of $10,000 to be due and payable on the last day of each
calendar quarter commencing December 31, 1995 with a final payment due on
September 30, 2000. Loans under the revolving credit facility were to mature
on September 30, 2000. Interest on the 1995 Term Loan and the revolving
credit facility were at varying rates based, at the Company's option, on the
Eurodollar rate or the Alternative Base Rate (NationsBank prime rate), plus
the Applicable Margins. Margins were based on the ratio of Total Funded Debt
to EBITDA; the Eurodollar Margin ranged from 1.75% to 2.5%, while the
Alternative Base Rate Margin ranged from 0.5% to 1.25%.
In April 1996, the Company completed an initial public offering (see Note
15). The Company used a portion of the proceeds to repay approximately
$70,000 of the 1995 Term Loan.
F-14
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
10. REVOLVING CREDIT LOAN AND LONG-TERM DEBT (Continued)
Also in April 1996, the Company converted the 1995 Term Loan and the
existing $30,000 Revolving Credit Facility into a $225,000 variable rate,
unsecured revolving credit facility ("the 1996 Revolving Credit Facility").
The 1996 Revolving Credit Facility is at floating interest rates, based
either on the LIBOR or prime rate, in either case plus an Applicable Margin,
at the Company's option. As of June 30, 1996, the applicable rate was LIBOR
plus .75% or 6.32%. The 1996 Revolving Credit Facility enables the Company to
borrow up to $225,000 in the form of revolving credit loans with a maturity
date of April 26, 2001 and with interest periods determined principally on a
quarterly basis. To offset the variable rate characteristics of the
borrowings, the Company has entered into interest rate swap agreements with
two banks resulting in fixed interest rates of 5.4% on $40,000 notional
principal amount through December 1997 and 5.5% on another $40,000 notional
principal amount through December 1998, thereby leaving approximately
$100,000 subject to floating rates under the 1996 Revolving Credit Facility.
Under the swap agreements, the Company receives interest payments at a
floating rate based on the pricing of the three-month LIBOR and pays interest
on the same notional amounts at an average fixed rate of 5.45%. The floating
rate is 5.44% for the three-month period ended June 30, 1996. For the
three-month period ending September 30, 1996, the floating rate is 5.57%. The
agreements convert a portion of the Company's debt obligation from a floating
rate to a fixed rate basis. The fair value of the interest rate swap
agreements generally reflects the estimated amount that the Company would
receive or pay to terminate the agreements. As of June 30, 1996, the Company
would receive approximately $1,100 to terminate the swap agreements.
The Company attempts to minimize its credit exposure by entering into
interest rate swap agreements only with major financial institutions.
Although the Company may be exposed to losses in the event of nonperformance
by counterparties, the Company does not expect such losses, if any, to be
significant.
Under the terms of the 1996 Revolving Credit Facility, the Company may use
up to $25,000 for letters of credit, subject to the limitation of $225,000 in
total credit. As of June 30, 1996, letters of credit in the face amount of
$3,498 were outstanding.
The loan agreement relating to the 1996 Revolving Credit Facility contains
various terms and covenants which provide for certain restrictions on the
Company's indebtedness, liens, investments, disposition of assets and mergers
and acquisitions and require the Company, among other things, to maintain
minimum levels of consolidated net worth and certain minimum financial
ratios.
The borrower under the 1996 Revolving Credit Facility is DecisionOne
Corporation. Repayment of the debt is guaranteed by the Company and its other
subsidiaries except for its Canadian subsidiary.
The Company had average borrowings of $24,379 and $172,065 during 1995 and
1996, respectively, at an average interest rate of 10.34% and 8.69%,
respectively. Maximum borrowings during 1995 and 1996 were $32,648 and
$268,748, respectively.
SELLER NOTES PAYABLE
In connection with various acquisitions, the Company issued
noninterest-bearing notes, the principal of which is payable monthly,
primarily based upon a percentage of monthly maintenance contract revenues
billed during the previous month (ranging from 12.5% to 30.0%). Aggregate
maturities of these notes are as follows: 1997-$908; 1998-$647; 1999-$475 and
2000-$88. As of June 30, 1996, the notes are presented at their estimated net
present value based on imputed interest rates ranging from 7.25% to 11.00%.
F-15
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
10. REVOLVING CREDIT LOAN AND LONG-TERM DEBT (Continued)
PROMISSORY NOTE
As part of the August 31, 1994 acquisition of certain assets and
liabilities of IDEA/Servcom, Inc., the Company issued a $2,600
noninterest-bearing note which was due in annual installments of $650 over
four years. The liability was reflected on the Company's books, net of a $506
discount calculated at the Company's then incremental borrowing rate of
9.50%. The loan was scheduled to mature on August 31, 1998. During the year
ended June 30, 1996, the Company prepaid the entire outstanding loan balance.
The resulting gain from prepayment was not material.
SUBORDINATED DEBENTURES
In connection with the BABSS acquisition (see Note 4) on October 20, 1995,
the Company issued and sold to its principal shareholders, an aggregate
$30,000 principal amount of 10.101% debentures (the "Affiliate Notes") due on
October 20, 2001. The Affiliate Notes were subordinated to the 1995 Term Loan
and the revolving credit facility. Interest on the Affiliate Notes was
payable semiannually on the last business day of June and December of each
year commencing on December 31, 1995.
In connection with the issuance of the debentures, the Company issued
468,750 Common Stock Purchase Warrants (the "Warrants"). Each Warrant
initially entitled the owner to buy one share of Common Stock for $0.10. The
number of shares that can be purchased per Warrant steps up over 24 months in
conjunction with the increasing conversion privilege applicable to the
Preferred Stock such that, at the end of 24 months, each Warrant entitled the
holder to buy approximately 1.21 shares of Common Stock at a price of $0.10
per share. The Warrants were exercisable from October 20, 1997 until October
20, 2001, provided that if the Company had a public offering of its Common
Stock meeting certain requirements before October 20, 1997, the Warrants
became exercisable at the time of the public offering and the number of
shares that could be purchased on exercise was fixed at that time and no
longer increased in steps. The Warrants also became exercisable upon
retirement of the debentures. Each Warrant had an assigned value of $7.25333
which resulted in an original issue discount of $3,400 which was being
amortized over the term of the Affiliate Notes. Upon consummation of its
initial public offering in April 1996, the Company was required to pay up to
the total amount outstanding under the Affiliate Notes and, accordingly, the
Company used $30,000 of the proceeds to retire the Affiliate Notes. As a
result, the Company recorded an extraordinary loss in the amount of $3,211,
net of taxes of $1,284, due to the acceleration of the amortization of
original issue discount.
1994 DEBT RESTRUCTURING
On January 27, 1994, the Company amended its then current Credit Agreement
to provide an $11,000 term loan and an $8,000 Revolving Credit Facility. The
term loan provided for 29 equal monthly payments of $350 beginning January
31, 1994 through May 31, 1996. Interest was at the "Base Rate" (the higher of
the bank's base rate or 1/2 percent above the Federal Funds Effective Rate)
plus 1-1/2 percent. The Revolving Credit Facility was due on demand and bore
interest at the Base Rate plus 1-1/2 percent. The loans were collateralized
by all of the Company's assets. The proceeds of the term loan were used to
extinguish certain subordinated notes. The term loan was prepaid in June
1994. There were no borrowings under the Revolving Credit Facility through
June 30, 1994.
Also, on January 27, 1994, the Company agreed with certain noteholders to
restructure its equity capitalization and subordinated debt. The noteholders
forgave debt approximating $46,698 of principal and interest in exchange for
cash and equity interest in the Company which resulted in a net gain of
approximately $20,031 to the Company, which was recorded as additional
paid-in capital. The outstanding indebtedness as of January 27, 1994 was
restructured as follows:
F-16
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
10. REVOLVING CREDIT LOAN AND LONG-TERM DEBT (Continued)
Senior Subordinated Noteholders exchanged $38,068 principal amount of
notes, $2,008 in accrued but unpaid interest, 2,570,160 shares of the
Company's common stock and warrants to purchase 210,369 shares of the
Company's common stock for $19,625 in cash and 40,000 shares of the
Company's Series B Convertible Preferred Stock, $1.00 par value, with a
redemption value of $100 per share (see Note 15).
The Junior Subordinated Noteholders exchanged $6,556 principal amount of
notes, $64 in accrued interest and warrants to purchase 55,707 shares of
the Company's common stock for 2,617,612 shares of the Company's common
stock, $.01 par value. The shares of common stock issued were deemed at
such time to have a fair value of $.50 per share.
As part of previous credit agreements and the 1994 Debt Restructuring, the
Company issued warrants to purchase shares of the Company's common stock
at a price of $10 per share. At June 30, 1995, due to antidilution
adjustment, warrants to purchase 235,735 shares at an exercise price of
$5.90 were outstanding. During 1996, warrants to purchase 101,257 shares
of common stock were exercised.
At June 30, 1996, warrants to purchase 134,478 shares of common stock were
outstanding. These warrants expire in the year 2000.
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED JUNE 30,
------------------------------
1994 1995 1996
--------- ----------- --------
<S> <C> <C> <C>
Current:
Federal................................. $ 2,485 $ 16,065 $ 2,892
State................................... 760 4,599 1,595
Foreign................................. (1,272) 548
Deferred:
Federal................................. (29,897) 8,945
State................................... (3,617) 641
Foreign................................. (499)
Benefit of operating loss carryforwards:
Federal................................. (1,861) (7,729)
State................................... (360) (1,253)
Foreign................................. (252)
--------- ----------- --------
Provision (benefit) for income taxes ... $ 1,024 $(23,104) $13,870
========= =========== ========
</TABLE>
F-17
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
11. INCOME TAXES (Continued)
The tax effects of temporary differences consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Gross deferred tax assets:
Accounts receivable.................................... $ 1,443 $ 1,341
Inventory.............................................. 3,299 2,586
Accrued expenses....................................... 3,761 6,378
Unused leases.......................................... 1,353
Fixed assets........................................... 100 299
Goodwill and other intangibles......................... 598 5,670
Operating loss carryforwards........................... 25,482 14,252
Minimum tax carryforward............................... 632 1,170
--------- ---------
Gross deferred tax asset................................ 36,668 31,696
Net valuation allowance................................. (686)
Gross deferred tax liabilities--repairable spare parts . (2,468) (7,273)
--------- ---------
Net deferred tax asset.................................. $33,514 $24,423
========= =========
</TABLE>
The change in the valuation allowance from 1995 to 1996 is principally due
to the utilization of foreign net operating loss carryforwards.
Net operating loss and minimum tax credit carryforwards available at June
30, 1996 expire in the following years:
<TABLE>
<CAPTION>
(IN THOUSANDS) YEAR OF
AMOUNT EXPIRATION
-------------- ------------
<S> <C> <C>
Federal operating
losses.................. 38,136 2002-2009
State operating losses .. 15,223 1997-2009
Minimum tax credit....... 1,170 INDEFINITE
</TABLE>
As a result of the Company's initial public offering, an "ownership
change" occurred pursuant to Section 382 of the Internal Revenue Code.
Accordingly, net operating loss and tax credit carryforwards are limited
during any future period to approximately $20,000 per annum.
F-18
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
11. INCOME TAXES (Continued)
A reconciliation between the provision (benefit) for income taxes,
computed by applying the statutory federal income tax rate of 34% for 1994,
35% for 1995 and 35% for 1996 to income before income taxes, and the actual
provision (benefit) for income taxes follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- --------- -------
<S> <C> <C> <C>
Federal income tax provision at statutory tax rate ...... 34.0% 35.0% 35.0%
State income taxes, net of federal income tax provision . 4.5 3.5 4.6
Foreign income taxes..................................... (6.9)
Unused lease credit...................................... (18.1) (0.1)
Write-off of intangibles................................. 12.6
Benefit of operating loss carryforward................... (19.9) (49.1) (0.8)
Change in valuation allowance............................ (108.9) (1.4)
Other.................................................... (3.9) (0.3) 2.6
-------- --------- -------
Actual income tax provision (benefit) effective tax
rate.................................................... 9.2% 126.2% 40.0%
======== ========= =======
</TABLE>
12. OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30,
------------------
1995 1996
--------- --------
<S> <C> <C>
Accrued rent, unused facilities and deferred
revenues............................................. $ 2,334 $ 4,237
Other noncurrent liabilities.......................... 10,049 10,049
--------- --------
$12,383 $14,286
========= ========
</TABLE>
Other noncurrent liabilities include provisions for possible liabilities
relating to various tax matters.
13. STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
Under the 1988 Stock Option and Restricted Stock Purchase Plan, the name
of which was subsequently changed to DecisionOne Stock Option and Restricted
Stock Purchase Plan (the "Plan"), the Company, at the discretion of the Board
of Directors, may issue restricted stock, incentive stock options and
non-qualified options for shares of the Company's common stock. Vesting of
the restricted stock and stock options is at the discretion of the Board of
Directors and generally occurs at a rate of 25% per year.
During 1994, the Board of Directors amended the Plan increasing the total
number of shares issuable to approximately 2,350,000. Additionally, in
November 1995 the Board of Directors amended the Plan increasing the total
number of shares issuable to approximately 3,350,000.
The price of the incentive stock options issued to employees under the
Plan is not less than 100% of the fair market value of the common shares at
the date of issuance. The option price for nonqualified options is determined
by the Board of Directors at the time of grant and may be less than the fair
market value of the common shares at the time of grant. However, no such
options were granted at prices less then 100% of the fair value of common
shares at the date of issuance. Options expire through May 2006. Restricted
shares which are not vested upon an employee's termination are subject to a
repurchase right of the Company at a price equal to the amount paid by the
employee.
Presented below is the activity in the Plan for the years ended June 30,
1994, 1995 and 1996:
F-19
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
13. STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN (Continued)
<TABLE>
<CAPTION>
OPTIONS PRICE RANGE
----------- -------------
<S> <C> <C>
Balance, July 1, 1993 . 436,606 .50-100.00
Options granted....... 1,507,089 .50
Options cancelled .... (100).50
Balance, June 30,
1994.................. 1,943,595 .50-100.00
Options exercised .... (15,000).50
Options granted....... 410,000 1.25-6.00
Options cancelled .... (75,275).50-100.00
Balance, June 30,
1996.................. 2,263,320 .50-6.00
Options exercised .... (329,850).50-6.00
Options granted....... 803,000 8.00-27.50
Options cancelled .... (125,000)1.25-8.00
Balance, June 30,
1996.................. 2,611,470 .50-27.50
</TABLE>
As of June 30, 1995, 977,454 options were vested and 40,901 options
remained available for issuance. As of June 30, 1996, 1,274,877 options were
vested and 382,808 options remained available for issuance.
14. LEASE COMMITMENTS
The Company conducts its operations primarily from leased warehouses and
office facilities and uses certain computer, data processing and other
equipment under operating lease agreements expiring on various dates through
2005. The future minimum lease payments for operating leases having initial
or remaining noncancellable terms in excess of one year for the five years
succeeding June 30, 1996 and thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997......... 20,477
1998......... 16,080
1999......... 13,300
2000......... 10,811
2001......... 4,621
Thereafter .. 12,150
--------
77,439
========
</TABLE>
On December 29, 1993, the Company entered into a settlement agreement to
terminate an existing lease on an unused facility, resulting in a payment to
the lessor amounting to $1,000. The payment was structured in the form of
cash and a $250 five-year, noninterest-bearing note payable. The settlement
resulted in a credit of approximately $8,000 recorded in the consolidated
statement of operations net of the provision of $1,599 for additional unused
leases for the year ended June 30, 1994. The outstanding balance of the $250
five-year, noninterest-bearing note payable was repaid in full during the
year ended June 30, 1995.
Rental expense, exclusive of unused rental expense and credits under all
noncancellable operating leases, amounted to approximately $5,128, $5,878 and
$13,149 for the fiscal years ended 1994, 1995 and 1996, respectively.
F-20
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
15. SHAREHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
In January 1994, as part of its debt restructuring (see Note 10), the
Company authorized the issuance of 22,500 shares of Series A redeemable
preferred stock, $1.00 par value, and 40,000 shares of Series B redeemable
preferred stock, $1.00 par value. The Series A redeemable preferred stock
("Series A Preferred Stock") was issued in exchange for $2,250 in cash and
the Series B redeemable preferred stock ("Series B Preferred Stock") was
issued in connection with the settlement of the senior subordinated notes
(see Note 10). On October 17, 1995, the Board of Directors and the
shareholders amended the Company's Certificate of Incorporation to authorize
the issuance of 300,000 shares of Series C Preferred Stock, $1.00 par value
(herein called the "Series C Preferred Stock" and together with the Series A
Preferred Stock and the Series B Preferred Stock, herein called the
"Preferred Stock"). On December 8, 1995, the Board of Directors and
shareholders further amended the Company's Certificate of Incorporation to
authorize 376,416 shares of preferred stock; consisting of 23,499 shares
designated Series A; 41,776 shares designated Series B; and 311,141 shares
designated Series C.
The holders of Series A Preferred Stock voted as a class (each holder of
Series A Preferred Stock entitled to one vote for each share of common stock
that would be issuable to such holder upon the conversion of the Series A
Preferred Stock); each share of the Series B and Series C Preferred Stock was
nonvoting. Cash dividends were cumulative and accrued at the rate of $6.00
per share per annum for Series A and Series B and $4.00 per share per annum
for Series C from the date of issuance. Dividends were paid when and as
declared by the Board of Directors. Series A was junior to Series C and
senior to Series B. No dividends (except dividends payable in common stock)
were permitted on Series A and Series B Preferred Stock or on common stock,
and no redemption of Series A and B Preferred Stock or common stock was
permitted unless all accrued dividends of Series C Preferred Stock had been
paid and Series C Preferred Stock had been fully redeemed. The Series A, B
and C redeemable preferred stock was assigned a value of $100 per share.
The Series A and B Preferred Stock were to be automatically converted if
the Company completed a public offering in which the total price paid for
shares of common stock was at least $12,500, the price per share of common
stock was at least $2.75, and the common stock was authorized for trading on
Nasdaq or listed on the New York or American Stock Exchange. The Series C
Preferred Stock was to automatically convert if the Company completed a
public offering of shares of its common stock in which (i) the aggregate
price paid for such shares by the public was at least $50,000, (ii) the price
per share paid by the public for such shares was at least $10 per share, and
(iii) the common stock after such public offering, was authorized for trading
on Nasdaq or was listed on the New York or American Stock Exchange.
Accordingly, as of June 30, 1996 all outstanding preferred stock has been
converted into common stock.
F-21
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
15. SHAREHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK (Continued)
The following table summarizes certain matters relating to Series A, B
and C preferred stock activity from July 1, 1993 to June 30, 1996:
<TABLE>
<CAPTION>
SERIES A SERIES B
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Balance, July 1, 1993
Issuance of Series A and B
Preferred Stock................ 22,500 $ 2,250 40,000 $ 4,000
Accretion of accruing
dividends...................... 67 119
---------- --------- ---------- ---------
Balance, June 30, 1994.......... 22,500 2,317 40,000 4,119
Accretion of accruing
dividends...................... 135 240
---------- --------- ---------- ---------
Balance, June 30, 1995.......... 22,500 2,452 40,000 4,359
Issuance of Series A, B and C
Preferred Stock ............... 999 100 1,776 178
Accretion of accruing
dividends...................... 107 190
Payment of accrued dividends ... (309) (549)
Conversion to Common Stock ..... (23,499) (2,350) (41,776) (4,178)
---------- --------- ---------- ---------
Balance, June 30, 1996.......... 0 $ 0 0 $ 0
========== ========= ========== =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SERIES C
----------------------
SHARES AMOUNT TOTAL
----------- ---------- ----------
<S> <C> <C> <C>
Balance, July 1, 1993
Issuance of Series A and B
Preferred Stock................ $ 6,250
Accretion of accruing
dividends...................... 186
----------- ---------- ----------
Balance, June 30, 1994.......... 6,436
Accretion of accruing
dividends...................... 375
----------- ---------- ----------
Balance, June 30, 1995.......... 6,811
Issuance of Series A, B and C
Preferred Stock ............... 311,141 31,114 31,392
Accretion of accruing
dividends...................... 588 885
Payment of accrued dividends ... (588) (1,446)
Conversion to Common Stock ..... (311,141) (31,114) (37,642)
----------- ---------- ----------
Balance, June 30, 1996.......... 0 $ 0 $ 0
=========== ========== ==========
</TABLE>
During the year ended June 30, 1996, certain shareholders exercised their
preemptive right to subscribe for and purchase additional shares of common
stock or other securities so issued at the same price as originally issued on
certain occasions from 1992 through 1995. On December 4, 1995, the following
securities were purchased: (a) 382,578 shares of common stock at a price of
$4 per share; (b) 999 shares of Series A Preferred Stock, at a price of $100
per share; (c) 1,776 shares of Series B Preferred Stock, at a price of $100
per share; (d) 1,924 shares of common stock at a price of $.50 per share; (e)
11,141 shares of Series C Preferred Stock, at a price of $100 per share; and
(f) 17,407 Common Stock Purchase Warrants at a price of $7.25333 per warrant
which entitles the holder to purchase 17,407 shares of common stock at an
exercise price of $.10 per share. The 17,407 Common Stock Purchase Warrants
were exercised in 1996.
On February 9, 1996, the Company amended its Certificate of Incorporation
to increase the number of authorized shares of Common Stock to 100,000,000
shares and to authorize 5,000,000 shares of Preferred Stock.
In April 1996, the Company completed a public offering of 6,300,000 shares
of common stock at $18.00 per share (the "Offering"). Prior to the Offering,
there was no public market for the Company's common stock. The common stock
is listed on the Nasdaq National Market under the symbol "DOCI".
The net proceeds of the offering, after deducting applicable issuance
costs and expenses were $104,740. The proceeds were used to repay
approximately $70,000 of the 1995 Term Loan, $30,000 in Affiliate Notes,
approximately $1,446 in accrued dividends to holders of the Redeemed
Preferred Stock and for other general corporate purposes.
In connection with the Company's initial public offering in April 1996,
all of the preferred shares were automatically converted to common stock at
the conversion price of $.4928 per Series A share, $1.6560 per Series B share
and $7.8161 per Series C share. Preferred shares were converted into
11,271,924 shares of common stock. Additionally, dividends in arrears of $309
for Series A, $549 for Series B and $588 for Series C were declared and paid
by the Company.
F-22
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
15. SHAREHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK (Continued)
In connection with his service as a director and Chairman of the Board
prior to 1994, the Company granted an individual warrants to purchase an
aggregate of 66,667 shares of common stock at an exercise price of $4.00 per
share. The warrants which expire on March 15, 2003 remain outstanding at June
30, 1996.
For further information regarding warrants attached to affiliate notes,
and other outstanding warrants, see Note 10.
16. RETIREMENT PLANS
The Company maintains a 401(k) plan for its employees which is funded
through the contributions of its participants. A similar plan exists for
former employees of an acquired company for which eligibility and additional
contributions were frozen in September 1988.
In addition, the Company assumed the liability of the defined benefit
pension plan applicable to employees of a company acquired in 1986. The
eligibility and benefits were frozen as of the date of the acquisition.
Pension expense for the defined benefit pension plan was computed as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED JUNE 30,
-----------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Interest cost ................. $ 461 $ 482 $ 495
Actual return on plan assets . (271) (312) (449)
Net amortization and deferral (72) (42) (72)
------- ------- -------
Periodic pension costs......... $ 118 $ 128 $ 118
======= ======= =======
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5%, and the expected long-term rate of
return on assets was 8.5% for 1994, 1995 and 1996.
The following table sets forth the funded status of the frozen pension
plan as of May 1, 1996 and 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1996
--------- ---------
<S> <C> <C>
Accumulated benefits (100% vested) ........ $ 6,757 $ 7,116
Fair value of plan assets.................. 5,432 5,800
--------- ---------
Unfunded projected benefit obligation ... 1,325 1,316
Unrecognized net loss...................... 1,705 1,848
Unrecognized net transition obligation .... 536 504
Adjustment to recognized minimum
liability................................. (2,241) (2,352)
--------- ---------
Accrued pension costs.................... $ 1,325 $ 1,316
========= =========
</TABLE>
F-23
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
17. EMPLOYEE SEVERANCE AND UNUTILIZED LEASE COSTS
In the second quarter of fiscal year 1996, in connection with the BABSS
acquisition, the Company recorded a $7,000 charge for $6,900 of leases of
duplicate facilities (the former headquarters, several large repair depots,
and numerous field offices of the Company) and $100 of severance of former
employees of the Company. Such amounts were based on management estimates.
In the fourth quarter of fiscal year 1996, the Company reversed $3,400 of
the charge. The reversal was the result of the Company's ability to utilize
and sublease various facilities identified in the original restructuring
charge. Such information was unknown to the Company when the original charge
was recorded.
18. COMMITMENTS AND CONTINGENT LIABILITIES
The Company, or certain businesses as to which it is alleged that the
Company is a successor, have been identified as potentially responsible
parties in respect to three waste disposal sites that have been identified by
the United States Environmental Protection Agency as Superfund sites. In
addition, the Company received a notice several years ago that it may be a
potentially responsible party with respect to a fourth related site, but has
not received any other communication with respect to that site. Under
applicable law, all parties responsible for disposal of hazardous substances
at those sites are jointly and severally liable for clean-up costs. The
Company originally estimated that its share of the costs of the clean-up of
one of these sites would be approximately $500 which is provided for in
liabilities related to the discontinued products division in the accompanying
consolidated balance sheets as of June 30, 1995 and 1996. Complete
information as to the scope of required clean-up at these sites is not yet
available and, therefore, management's evaluation may be affected as further
information becomes available. However, in light of information currently
available to management, including information regarding assessments of the
sites to date and the nature of involvement of the Company's predecessor at
the sites, it is management's opinion that the Company's share, if any, of
the cost of clean-up of these sites will not be material to the consolidated
financial position, results of operations or liquidity of the Company.
The Company is also party to various legal proceedings incidental to its
business. Certain claims, suits and complaints arising in the ordinary course
of business have been filed or are pending against the Company. In the
opinion of management, these actions can be successfully defended or resolved
without a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.
19. RELATED PARTY TRANSACTIONS
Prior to 1994, the Company entered into an agreement to purchase printer
products from Genicom Corporation (Genicom). The Company and Genicom are
under common ownership. The initial term of the agreement is for five years
with an option to extend based on mutual agreement of the parties. Purchases
from Genicom for the years ended June 30, 1994, 1995 and 1996 were
approximately $1,421, $1,972 and $1,512, respectively. Accounts payable to
Genicom amounted to approximately $42 and $14 as of June 30, 1995 and 1996,
respectively.
During the year ended June 30, 1996, the Company entered into a contract
with a related party for cleaning services. The approximate annual value of
the contract approximates $150.
During the year ended June 30, 1996, the Company paid approximately $125
for expense reimbursements to certain shareholders for services rendered in
connection with an acquisition in 1988. The amount was accrued for in prior
years.
F-24
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
19. RELATED PARTY TRANSACTIONS (Continued)
In connection with the Company's financing of the BABSS acquisition on
October 20, 1995, the Company issued subordinated debentures and redeemable
preferred stock to certain related parties (see Notes 10 and 15).
20. INCOME (LOSS) PER COMMON SHARE
Primary income (loss) per common share is computed using the weighted
average number of shares of common stock and dilutive common stock
equivalents outstanding during the period. Common stock equivalents are
computed on the applicable outstanding options and warrants using the average
price for the period under the treasury stock method. For the years ended
June 30, 1994, 1995 and 1996, the effect upon the primary income per share of
common stock equivalents was dilutive and is included in the computations.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, primary income (loss) per share when presented during periods
which include a Company's initial public offering, also include amounts
computed on options and warrants issued within twelve months of the filing
date as if they were outstanding for all periods presented, even when the
result is anti-dilutive, using the treasury stock method and the assumed
initial public offering price. For these options and warrants, the
determination of common stock and equivalents outstanding for the remainder
of the year, subsequent to initial public offering, assumes computation using
average prices for the period under the treasury stock method. Additionally,
the computation of primary income (loss) per common share includes the
conversion of all preferred stock, which automatically converts to shares of
common stock as of the closing of the initial public offering, as if they
were outstanding for all periods prior to the initial public offering, even
when the result is anti-dilutive.
The fully diluted income (loss) per common share computation assumes
common stock equivalents are computed on the applicable outstanding options
and warrants using the end of the period price under the treasury stock
method.
21. SUPPLEMENTARY DATA (UNAUDITED)
The unaudited supplementary primary and fully diluted income per common
share data gives effect to the Company's initial public offering and
recapitalization and the assumed use of predominately all of the proceeds
from the Company's sale of 6,300,000 shares of common stock therefrom to
principally reduce by approximately $70,000 the outstanding amount of its
1995 Term Loan due September 30, 2000, and to repay the $30,000 face amount
of the Affiliate Notes in each case as if such transactions had occurred on
October 20, 1995, the date of the aforementioned debt transactions.
Supplementary weighted average number of common and common equivalent shares
outstanding reflects additional shares of 3,647,368 assumed to be outstanding
to effect these transactions. The supplementary extraordinary item results
from the write-off of unamortized original issue discount related to the
warrants issued in conjunction with the Affiliate Notes, which occurred in
April 1996, and is assumed as of October 20, 1995.
F-25
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
21. SUPPLEMENTARY DATA (UNAUDITED) (Continued)
The unaudited supplementary per share data for the year ended June 30,
1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Supplementary primary income per share data:
Supplementary income from continuing operations before
extraordinary item ........................................... 0.81
Supplementary extraordinary item--early extinguishment of debt (0.07)
Supplementary weighted average number of common and common
equivalent shares outstanding ................................ 28,843,235
Supplementary fully diluted income per share data:
Supplementary income from continuing operations before
extraordinary item ........................................... 0.80
Supplementary extraordinary item--early extinguishment of debt (0.07)
Supplementary weighted average number of common and common
equivalent shares outstanding................................. 29,077,329
</TABLE>
22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial
information for the fiscal years ended 1995 and 1996:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS) SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,(1)
--------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
1995
Revenues ...................................... $32,044 $41,730 $41,660 $47,586
Gross profit .................................. 8,334 13,221 13,245 14,737
Income before extraordinary item .............. 1,476 4,043 4,660 32,349
Net income .................................... 1,476 4,043 4,660 32,349
Primary income per common share:
Income before extraordinary item ............. 0.06 0.18 0.20 1.42
Net income.................................... 0.06 0.18 0.20 1.42
</TABLE>
- ------------
(1) Net income for the fourth quarter of 1995 includes a tax benefit of
$24,900 primarily related to the future utilization of tax loss
carryforwards.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS) SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,(2)
--------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
1996
Revenues ...................................... $46,791 $149,703 $172,673 $171,024
Gross profit .................................. 15,524 38,224 42,711 41,416
Income before extraordinary item .............. 4,386 638 5,842 9,923
Net income .................................... 4,386 638 5,842 7,996
Primary income per common share:
Income before extraordinary item ............. 0.19 0.03 0.25 0.34
Net income ................................... 0.19 0.03 0.25 0.27
</TABLE>
- ------------
(2) Net income for the fourth quarter of 1996 includes (a) a $3,400
reversal of the previously recorded charge for employee severance and
unutilized lease costs (Note 17); and (b) a $1,500 adjustment related
to recoveries of previously reserved receivables.
F-26
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1997
---------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ....................................... $ 8,221 $ 12,886
Accounts receivable, net of allowances of $9,580 and $11,727 .... 92,650 136,401
Inventories, net of allowances of $19,537 and $19,928 ........... 30,130 35,186
Other ........................................................... 12,770 7,637
---------- -----------
Total current assets ........................................... 143,771 192,110
Repairable Parts, Net of Accumulated Amortization of $105,462 and
$144,158 .......................................................... 154,970 195,656
Intangibles, Net of Accumulated Amortization of $19,625 and $36,164 164,659 197,675
Property, Plant and Equipment, Net of Accumulated Depreciation of
$22,936 and $36,530 ............................................... 32,430 33,283
Other .............................................................. 18,680 22,953
---------- -----------
Total Assets ....................................................... $514,510 $641,677
========== ===========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Current portion of long-term debt ............................... $ 2,321 $ 4,756
Accounts payable and accrued expenses ........................... 89,564 101,156
Deferred revenues ............................................... 38,485 72,096
Other ........................................................... 479 3,691
---------- -----------
Total current liabilities ...................................... 130,849 182,059
Revolving Credit Loan and Long-term Debt ........................... 188,582 241,915
Other Liabilities .................................................. 14,286 16,608
Shareholders Equity:
Preferred stock, $1.00 par value; authorized 5,000,000 shares;
none outstanding
Common stock, $.01 par value, authorized 100,000,000 shares;
issued and outstanding 27,340,288 and 27,813,832 shares ........ 273 278
Additional paid-in capital ...................................... 255,262 255,691
Accumulated deficit ............................................. (73,516) (53,600)
Other ........................................................... (1,226) (1,274)
---------- -----------
Total Shareholders' Equity ..................................... 180,793 201,095
---------- -----------
Total Liabilities and Shareholders' Equity ......................... $514,510 $641,677
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-27
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ---------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues ................................. $172,673 $205,070 $369,167 $572,749
Cost of Revenues ......................... 129,962 150,372 272,708 427,969
---------- ---------- ---------- ----------
Gross Profit ............................. 42,711 54,698 96,459 144,780
Operating Expenses:
Selling, general and administrative
expenses ............................. 22,303 28,228 56,519 82,878
Amortization of intangibles ........... 4,872 6,390 10,617 16,861
---------- ---------- ---------- ----------
Total Operating Expenses ............ 27,175 34,618 67,136 99,739
Operating Income ......................... 15,536 20,080 29,323 45,041
---------- ---------- ---------- ----------
Interest Expense, Net of Interest Income 5,801 3,689 11,220 10,704
---------- ---------- ---------- ----------
Income Before Income Taxes ............... 9,735 16,391 18,103 34,337
Provision for Income Taxes ............... 3,893 6,884 7,237 14,421
---------- ---------- ---------- ----------
Net Income ............................... $ 5,842 $ 9,507 $ 10,866 $ 19,916
========== ========== ========== ==========
Per Common Share:
- -----------------------------------------
Net Income................................ $ 0.25 $ 0.32 $ 0.46 $ 0.66
Weighted Average Number of
Common Shares and Equivalent Shares
Outstanding ............................. 23,469 30,062 23,424 30,066
</TABLE>
See notes to condensed consolidated financial statements.
F-28
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Operating Activities:
Net income.............................................................. $ 10,866 $ 19,916
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property and equipment................. 5,611 9,836
Amortization of intangibles............................................. 10,617 16,861
Amortization of repairable parts........................................ 23,017 45,642
Changes in assets and liabilities, net of effects of business
acquisitions........................................................... (14,622) (34,601)
----------- -----------
Net cash provided by operating activities.............................. 35,489 57,654
Investing Activities:
Business acquisitions................................................... (273,725) (34,433)
Capital expenditures, net of retirements................................ (3,331) (6,093)
Repairable parts purchases.............................................. (31,715) (64,803)
----------- -----------
Net cash used in investing activities.................................. (308,771) (105,329)
Financing Activities:
Proceeds from issuance of common stock.................................. 1,631 434
Proceeds from issuance of redeemable preferred stock.................... 31,392 --
Proceeds from issuance of subordinated debentures and warrants ......... 30,126 --
Proceeds from borrowings................................................ 260,945 52,915
Payments on borrowings.................................................. (48,062) ---
Principal payments under capital leases................................. -- (961)
----------- -----------
Net cash provided by financing activities.............................. 276,032 52,388
Effect of exchange rates on cash......................................... (20) (48)
----------- -----------
Net change in cash and cash equivalents................................... 2,730 4,665
Cash and cash equivalents beginning of period............................. 2,659 8,221
----------- -----------
Cash and cash equivalents end of period................................... $ 5,389 $ 12,886
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-29
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
DecisionOne Holdings Corp. and Subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission and, therefore, do not include all information and footnotes
necessary for presentation of financial position, results of operations and
cash flows required by generally accepted accounting principles. The June 30,
1996 balance sheet was derived from the Company's audited consolidated
financial statements. The information furnished reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair summary of the financial position, results
of operations and cash flows. The Notes have been prepared based on
information available as of May 15, 1997 except with respect to Note 5 which
has been updated. 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, 1996, as amended.
NOTE 2: INCOME PER COMMON SHARE
Pursuant to Securities and Exchange Commission Staff Accounting Bulletins,
primary income per share for the three and nine month periods ended March 31,
1996, presented in connection with the Company's initial public offering of
common stock in its Registration Statement on Form S-1, as amended, dated
April 3, 1996 (the "Offering"), also includes amounts computed on options and
warrants issued within twelve months of the filing date as if they were
outstanding for all periods presented, even when the result is anti-dilutive,
using the treasury stock method and the Company's initial public offering
price. Additionally, the computation of primary income per common share for
the three and nine month periods ended March 31, 1996 includes the conversion
of all shares of preferred stock, which automatically converted into shares
of common stock as of the closing of the Offering, as if they were
outstanding for all periods presented, even when the result is anti-dilutive.
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 earnings per
share, which will approximate the Company's currently-reported 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' earnings per share information will be required
to be restated on a comparable basis.
Assuming that SFAS 128 had been implemented, pro forma basic earnings per
share would have been $0.34 and $0.27 for the three month periods and $0.72
and $0.51 for the nine month periods ended March 31, 1997 and 1996,
respectively. Under SFAS 128, diluted earnings per share would not have
differed from net income per common share for the periods presented in the
accompanying unaudited condensed consolidated statements of operations.
F-30
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
NOTE 3: BUSINESS ACQUISITION (DOLLARS IN THOUSANDS)
On November 15, 1996, the Company acquired substantially all of the assets
of the U.S. computer service business (the "Business") of Memorex Telex
Corporation and certain of its affiliates (collectively, "Memorex Telex").
Memorex Telex had filed a petition in bankruptcy in the United States
Bankruptcy Court in the District of Delaware on October 15, 1996; the Court
approved the sale to the Company on November 1, 1996. The base purchase price
was $52,500, comprised of the assumption of certain liabilities under
contracts of the Business (the "Deferred Revenues"), which were estimated at
closing to be $26,015, and base cash consideration of $26,485, excluding
transaction and closing costs. The purchase price is subject to further
adjustment based upon the actual amount of Deferred Revenues, the amount of
revenues of the Business for the two calendar months prior to closing, and
the actual amount of inventory. The estimated fair market values of certain
assets acquired, as well as liabilities assumed, are also subject to further
adjustment as additional information becomes available to the Company. During
the third quarter of fiscal 1997, the estimated Deferred Revenue liability
was increased by approximately $2,300.
The primary source of funds used for the acquisition was the Company's
revolving credit facility, which was increased from $225,000 to $300,000 on
November 13, 1996.
NOTE 4: EMPLOYEE SEVERANCE AND EXIT COSTS
In the second quarter of fiscal 1997, in connection with the Memorex Telex
acquisition, the Company recorded a $3,400 pre-tax charge for estimated
future employee severance costs, and a $0.9 million pre-tax charge for
unutilized lease/contract losses ("exit costs"), primarily associated with
duplicate facilities to be closed. The $3,400 charge, recorded in accordance
with Statement of Financial Accounting Standards No. 112 ("SFAS 112"),
Employers' Accounting for Postemployment Benefits, reflects the
actuarially-determined benefit costs for the separation of employees who are
entitled to benefits under pre-existing separation pay plans. These costs are
included in selling, general and administrative expenses in the accompanying
unaudited condensed consolidated statement of operations for the nine month
period ended March 31, 1997. For further information regarding the Memorex
Telex acquisition, see Note 3.
In the second quarter of fiscal 1996, in connection with the acquisition
of Bell Atlantic Business Systems Services ("BABSS"), the Company recorded
pre-tax charges for exit costs of $6,900, and estimated future employee
severance costs of $100. During the fourth quarter of fiscal 1996, the
Company reversed $3,400 of these employee severance and exit cost
liabilities. The reversal was primarily the result of the Company's ability
to utilize and sublease various facilities identified in the original $7,000
combined liability. Such information was unknown to the Company when the
original liability was recorded.
NOTE 5: SUBSEQUENT EVENT
On May 4, 1997, the Company and Quaker Holding Co. ("Quaker") an affiliate
of DLJ Merchant Banking Partners II, L.P. and affiliated funds and other
entities, entered into a definitive Agreement and Plan of Merger (the "Merger
Agreement"). Under the terms of the Merger Agreement, Quaker will merge with
and into the Company, and, subject to the following sentence, the holders of
each share of the Company's common stock can elect to receive $23 in cash for
such share or to retain such share in the merged Company. In any event,
holders will be required to retain 5.3% of the Company's common stock
outstanding immediately prior to the merger. In addition, the Company and
Quaker entered into a voting agreement with certain partnerships affiliated
with Welsh, Carson, Anderson & Stowe and J.H. Whitney & Co., pursuant to
which these partnerships, subject to certain conditions, have agreed to vote
in favor
F-31
<PAGE>
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 5: SUBSEQUENT EVENT (Continued)
of the merger 8,345,349 of the 14,837,501 shares of Company common stock
owned by them, exclusive of warrants to purchase 468,750 shares of common
stock at $0.10 per share. The 8,345,349 shares represent approximately 30% of
the Company's common stock outstanding on April 21, 1997.
The proposed merger, which will be recorded as a recapitalization for
accounting purposes, is subject to a number of conditions, including
regulatory approvals and approval by Company stockholders. The transaction is
estimated to have an aggregate value of approximately $957,000, including
refinancing of the Company's existing revolving credit facility. The Company
expects the merger to close by September, 1997.
As a result of the proposed merger, the Company and Quaker will incur
various costs, currently estimated to range between $95,000 and $105,000, on
a pretax basis, in connection with consummating the transaction. These costs
consist primarily of professional fees, registration costs, compensation
costs and other expenses. Although the exact timing, nature and amount of
these merger transaction costs are subject to change, the Company expects
that a one-time pre-tax charge for these costs of approximately $76 million
($69 million after tax) will be recorded in the quarter during which the
merger is consummated.
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder
of DecisionOne Corporation (formerly Bell Atlantic Business Systems Services,
Inc.):
We have audited the accompanying consolidated balance sheets of
DecisionOne Corporation (formerly, Bell Atlantic Business Systems Services,
Inc.) and subsidiary (the "Company") as of December 31, 1994 and October 20,
1995, and the related consolidated statements of operations, stockholder's
equity and of cash flows for the years ended December 31, 1993 and 1994 and
the period from January 1, 1995 to October 20, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DecisionOne Corporation and
subsidiary as of December 31, 1994 and October 20, 1995, and the results of
their operations and their cash flows for the years ended December 31, 1993
and 1994 and the period from January 1, 1995 to October 20, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postemployment
benefits as of January 1, 1993.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December 29, 1995
F-33
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC BUSINESS
SYSTEMS SERVICES, INC.) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents.................................... $ 6,456 --
Accounts receivable, net.................................... 50,743 66,426
Inventories, net............................................ 28,620 24,371
Deferred tax asset--current................................. 6,910 --
Prepaid expenses and other assets........................... 2,754 2,990
-------------- -------------
Total current assets...................................... 95,483 93,787
Repairable parts, net........................................ 91,012 91,486
Property and equipment, net.................................. 24,925 28,352
Intangibles, net............................................. 52,345 50,747
Deferred tax asset, net...................................... 12,814 1,062
Other assets................................................. 1,005 499
-------------- -------------
Total assets................................................. $ 277,584 $ 265,933
============== =============
Liabilities and Stockholder's Equity
Current Liabilities:
Accounts payable............................................ $ 24,767 $ 26,260
Accrued expenses............................................ 20,160 18,384
Deferred revenues........................................... 14,582 29,231
Current capitalized lease obligations....................... 1,627 1,525
Income taxes payable........................................ 1,548 --
Due to Bell Atlantic affiliates............................. 39,579 --
-------------- -------------
Total current liabilities................................. 102,263 75,400
Noncurrent capitalized lease obligations..................... 3,128 1,880
Due to Bell Atlantic affiliates.............................. 773 862
Other liabilities............................................ 23,377 1,293
Commitments and contingent liabilities
Stockholder's equity:
Common stock, no par value; one share authorized, issued
and outstanding in 1994 and 1995........................... -- --
Additional paid-in capital.................................. 276,619 314,262
Accumulated deficit......................................... (127,730) (127,134)
Foreign currency translation adjustment..................... (846) (630)
-------------- -------------
Total stockholder's equity................................ 148,043 186,498
-------------- -------------
Total liabilities and stockholder's equity................... $ 277,584 $ 265,933
============== =============
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER PERIOD
31, JANUARY 1 TO
--------------------- OCTOBER 20,
1993 1994 1995
---------- ---------- --------------
<S> <C> <C> <C>
Revenues:
Service................................................... $375,977 $457,675 $388,203
Other..................................................... 27,405 28,418 24,283
---------- ---------- --------------
403,382 486,093 412,486
---------- ---------- --------------
Cost of revenues:
Service................................................... 304,334 369,596 316,964
Other..................................................... 21,856 21,281 20,348
---------- ---------- --------------
326,190 390,877 337,312
---------- ---------- --------------
Gross profit............................................... 77,192 95,216 75,174
Operating expenses:
Selling, general and administrative expenses.............. 71,096 74,627 69,980
Amortization of intangibles............................... 4,383 3,884 1,652
---------- ---------- --------------
Operating income........................................... 1,713 16,705 3,542
Interest expense........................................... (3,341) (2,203) (1,855)
Interest income............................................ 206 54 218
---------- ---------- --------------
Income (loss) before income taxes and cumulative effect of
accounting change......................................... (1,422) 14,556 1,905
Provision for income taxes................................. 132 6,595 1,309
---------- ---------- --------------
Income (loss) before cumulative effect of accounting
change.................................................... (1,554) 7,961 596
Cumulative effect of accounting change..................... 1,881
---------- ---------- --------------
Net income.............................................. $ 327 $ 7,961 $ 596
========== ========== ==============
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND PERIOD JANUARY 1 TO
OCTOBER 20, 1995
(in thousands, except number of shares)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK
FOREIGN
-------------------- ADDITIONAL CURRENCY TOTAL
NUMBER OF PAID-IN ACCUMULATED TRANSLATION STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
----------- -------- ------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 ... 1 $0 $295,419 $(136,018) $(312) $159,089
Net income ............... 327 327
Foreign currency
translation adjustment .. (215) (215)
Distributions to BAC ..... (1,900) (1,900)
----------- -------- ------------ ------------- ------------- ---------------
Balance, December 31, 1993 . 1 0 293,519 (135,691) (527) 157,301
Net income ............... 7,961 7,961
Foreign currency
translation adjustment .. (319) (319)
Distributions to BAC ..... (16,900) (16,900)
----------- -------- ------------ ------------- ------------- ---------------
Balance, December 31, 1994 . 1 0 276,619 (127,730) (846) 148,043
Net income ............... 596 596
Foreign currency
translation adjustment .. 216 216
Distributions to BAC ..... (800) (800)
Contributed capital ...... 38,443 38,443
----------- -------- ------------ ------------- ------------- ---------------
Balance, October 20, 1995 .. 1 $0 $314,262 $(127,134) $(630) $186,498
=========== ======== ============ ============= ============= ===============
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER PERIOD
31, JANUARY 1,
--------------------- TO OCTOBER 20,
1993 1994 1995
---------- ---------- --------------
<S> <C> <C> <C>
Operating activities:
Net income ............................................... $ 327 $ 7,961 $ 596
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and
equipment............................................ 7,572 8,499 7,171
Amortization of intangibles........................... 4,383 3,884 1,652
Amortization of repairable parts...................... 43,443 43,450 28,767
Loss on fixed asset retirements ...................... 259 215 165
Provision for accounts receivable .................... 1,213 810 810
Provision for inventory obsolescence ................. 5,351 4,802 6,365
Changes in operating assets and liabilities, net of
effects from contributed capital, which provided
(used) cash:
Accounts receivable ............................. (9,448) (7,660) (18,305)
Inventories ..................................... (4,321) (3,800) (2,116)
Accounts payable ................................ 5,673 7,755 1,493
Accrued expenses ................................ 3,734 3,391 2,953
Deferred revenues ............................... 5,154 (757) 14,649
Net changes in income taxes, deferred taxes,
other assets and liabilities ................... (2,865) (189) 4,415
------------------------------------------------------------ ---------- --------------
Net cash provided by operating activities ..... 60,475 68,361 48,615
------------------------------------------------------------ ---------- --------------
Investing activities:
Capital expenditures ..................................... (8,336) (9,585) (10,763)
Repairable parts purchases ............................... (29,833) (45,907) (29,241)
Proceeds from sale of fixed assets ....................... 124 -- --
---------- ---------- --------------
Net cash used in investing activities ............. (38,045) (55,492) (40,004)
---------- ---------- --------------
Financing activities:
Distributions to shareholder ............................. (1,900) (16,900) (3,475)
Net borrowings (repayments) on affiliated debt ........... (19,029) 7,544 (10,242)
Additions to capital lease obligations ................... 1,825 2,283
Payments on capital lease obligations .................... (1,309) (1,357) (1,350)
---------- ---------- --------------
Net cash used in financing activities ............. (20,413) (8,430) (15,067)
---------- ---------- --------------
Net increase (decrease) in cash and cash equivalents ....... 2,017 4,439 (6,456)
Cash and cash equivalents, beginning of year ................ -- 2,017 6,456
---------- ---------- --------------
Cash and cash equivalents, end of year ...................... $ 2,017 $ 6,456 --
========== ========== ==============
Supplemental disclosures of cash flow information:
Net cash paid during the year for:
Interest ............................................... $ 3,409 $ 2,307 $ 1,986
Income taxes ........................................... 1,598 8,366 5,237
Noncash investing and financing activities:
Assets and liabilities contributed to capital by
stockholder:
Accounts receivable .................................... $ 1,812
Accounts payable ....................................... (4,729)
Notes payable .......................................... (29,248)
Income tax payable ..................................... 1,675
Deferred taxes ......................................... 17,079
Employee related liabilities ........................... (27,707)
--------------
$(41,118)
==============
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(In thousands)
1. NATURE OF BUSINESS
The consolidated financial statements include the accounts of DecisionOne
Corporation (formerly, Bell Atlantic Business Systems Services, Inc.
("BABSS")) and its wholly-owned subsidiary, Sorbus Canada Ltd. (the
"Company"). Prior to the acquisition discussed below, BABSS had been wholly
owned by Bell Atlantic Business Systems, Inc., a subsidiary of Bell Atlantic
Enterprises International, Inc., and, ultimately by Bell Atlantic Corporation
("BAC"). The Company is a provider of multivendor computer maintenance
service and technology support services.
On September 19, 1995, BAC entered into a stock purchase agreement (the
"Agreement") to sell all of the outstanding common stock of BABSS to Decision
Servcom, Inc. ("Operating Co."), an independent provider of computer
maintenance services in the mid-range computer market, for a cash purchase
price of approximately $250,000. In connection with the acquisition, the
Company's name was changed from BABSS to DecisionOne Corporation, and
Operating Co. was merged into it.
The Company's wholly-owned international subsidiary is not significant to
the Company's financial statements.
2. BASIS OF PRESENTATION
The Company was acquired effective October 20, 1995, through a transaction
accounted for using the purchase method of accounting. The accounts of the
Company do not reflect the allocation of the purchase price.
BAC's retention of certain of the Company's liabilities, and net of
certain assets (including cash and cash equivalents), has been accounted for
as a contribution of capital in the Company's accompanying consolidated
statements of stockholder's equity for the period ended October 20, 1995. See
Note 4.
Obligations arising out of employee benefit and pension plans accrued
prior to October 20, 1995, as well as certain claims and causes of action
related to the Company's actions or omissions that occurred prior to October
20, 1995 have been retained by BAC. Therefore, no accruals for the
aforementioned have been made in the Company's accompanying consolidated
balance sheet as of October 20, 1995.
3. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION -- The consolidated financial statements include the
accounts of BABSS and its wholly owned subsidiary. All intercompany balances
and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents are highly liquid
investments with remaining maturities of three months or less at the time of
purchase.
INVENTORIES -- Inventories are stated at the lower of cost or market, cost
being determined using the weighted average method. Inventories consist of
consumable replacement parts which are charged to operations when used.
Inventories are stated net of a provision for obsolescence of $21,718,
$22,742 and $23,852 at December 31, 1993 and 1994 and October 20, 1995,
respectively.
REPAIRABLE PARTS -- Repairable parts are required in order to meet the
requirements of the contracts with the Company's maintenance customers. These
parts are primarily purchased from equipment manufacturers or other third
parties. As these parts are purchased, they are capitalized at cost and
amortized using the straight-line method over five years, the estimated
useful life of these repairable parts.
F-38
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(In thousands)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
When a repairable part is used in providing maintenance services to a
customer's equipment, the defective part taken from the equipment is
exchanged for the repairable part taken from the Company's inventory.
Repairable parts are repaired by the Company based upon anticipated need and
generally have an economic life that extends beyond the normal life cycle of
the applicable product. Costs of refurbishing parts are charged to operations
as incurred. Repairable parts are stated at cost, less accumulated
amortization of $68,803 and $74,411 as of December 31, 1994 and October 20,
1995, respectively. Repairable parts amortization expense for the years ended
December 31, 1993 and 1994 and the period ended October 20, 1995 was $43,443,
$43,450 and $28,767, respectively.
No such impairment writedowns were required in the years ended December
31, 1993, or 1994, or in the period ended October 20, 1995.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost. 0
Depreciation is provided for using the straight-line method over the
estimated useful lives of the depreciable assets. Capitalized equipment
leases and leasehold improvements are amortized over the shorter of the
related lease terms or asset lives. Maintenance and repairs are charged to
expense as incurred; renewals and betterments are capitalized. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is charged to operations.
INTANGIBLE ASSETS -- Intangible assets are comprised of excess purchase
price over net assets acquired ("goodwill") and the fair value of acquired
customer contracts.
Goodwill is being amortized on a straight-line basis over a life of 25 to
40 years. Other intangibles are being amortized on a straight-line basis,
with lives between 2 to 18 years.
CARRYING VALUE OF LONG-TERM ASSETS -- The Company evaluates the carrying
value of long-term assets, property and equipment, repairable parts and
intangible assets, based upon current and anticipated undiscounted cash
flows, and recognizes an impairment when such estimated cash flows will be
less than the carrying value of the asset. Measurement of the amount of
impairment, if any, is based upon the difference between carrying value and
fair value.
SERVICE REVENUE -- The Company enters into maintenance contracts whereby
it services various manufacturers' equipment. Revenues from these contracts
are recorded as deferred revenues and are recognized ratably over the term of
the contract. Revenues derived from the maintenance of equipment not under
contract are recognized as the service is performed.
FOREIGN CURRENCY TRANSLATION -- Gains and losses resulting from foreign
currency translation are accumulated in a separate component of shareholder's
equity titled, "Cumulative Foreign Currency Translation Adjustment". Gains
and losses resulting from foreign currency transactions are not significant
and are included in operations.
CREDIT RISK -- Concentration of credit risk with respect to trade
receivables is limited due to the large number of customers comprising the
Company's customer base and their dispersion across many industries.
INCOME TAXES -- The Company is included in the consolidated federal tax
return of BAC. Calculation of the Company's income taxes on a separate return
basis would not result in any change to the amounts reflected in the
consolidated financial statements. Effective January 1, 1993, the Company
changed its policy of accounting for income taxes to conform to Statement of
Financial Accounting Standards
F-39
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(In thousands)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
("SFAS") No. 109, Accounting for Income Taxes. The Company previously
followed Accounting Principles Board Opinion No. 11, "Accounting for Income
Taxes." SFAS No. 109 requires, among other things, the accrual of deferred
tax liabilities for future taxable amounts, deferred tax assets for future
deductions and operating loss carryforwards, and a valuation allowance to
reduce deferred tax assets to the amounts that are more likely than not to be
realized. The cumulative effect of adopting SFAS No. 109 as of January 1,
1993 resulted in a non-cash increase to net income of $1,881 for the initial
adjustment of deferred tax balances to reflect the tax rates in effect at
adoption.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The following disclosure of the
estimated fair value of financial instruments was made in accordance with the
requirements of SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies.
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, AND ACCOUNTS PAYABLE --
The carrying amount of these items are a reasonable estimate of their fair
value.
NOTES PAYABLE -- Rates currently available to the Company for debt with
similar terms and remaining maturities are used to estimate the fair value
for debt issues, accordingly, the carrying amount of debt is a reasonable
estimate of its fair value.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
PENSION PLAN -- Substantially all of the Company's employees participated
in a noncontributory defined benefit pension plan sponsored by BAC for the
years ended December 31, 1993 and 1994 and for the period ended October 20,
1995. Amounts contributed by the Company to the pension plan were determined
by BAC based principally on the aggregate cost actuarial method, and are
subject to applicable federal income tax regulations. The obligation of the
pension plan which has been terminated as of October 20, 1995, will be
assumed by BAC.
POSTEMPLOYMENT BENEFITS -- Effective January 1, 1993, the Company adopted
the provisions of SFAS No. 112, Employers' Accounting for Postemployment
Benefits. SFAS No. 112 establishes accrual accounting standards for
employer-provided benefits which cover former or inactive employees after
employment, but before retirement. The adoption of SFAS No. 112 on January 1,
1993 did not have a material effect on the Company's consolidated financial
position or results of operations.
The Company's employees, if eligible, are provided post employment
benefits under plans administered by BAC for the years ended December 31,
1993 and 1994 and for the period ended October 20, 1995. Amounts contributed
by the Company to the benefit plans were determined by BAC based on an
actuarial methodology. BAC has assumed all such liabilities accrued as of
October 20, 1995.
4. CONTRIBUTED CAPITAL
Effective October 20, 1995, in accordance with the Agreement between BAC
and Operating Co., the Company accounted for BAC's retention of liabilities,
net of certain assets, as a contribution of capital.
F-40
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(In thousands)
4. CONTRIBUTED CAPITAL (Continued)
Amounts contributed to capital were as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash .................................. $ (2,675)
Accounts receivable.................... (1,812)
Accounts payable and accrued expenses 4,729
Income taxes payable................... (1,675)
Notes payable to affiliates............ 29,248
Deferred taxes......................... (17,079)
Employee related liabilities........... 27,707
----------
Net amount contributed to capital ..... $ 38,443
==========
</TABLE>
5. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Trade receivables......................... $51,513 $68,136
Due from affiliates....................... 1,655 1,362
Other..................................... 847 697
-------------- -------------
54,015 70,195
Less allowance for uncollectible
accounts................................. (3,272) (3,769)
-------------- -------------
$50,743 $66,426
============== =============
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Land and buildings........................ $ 2,419 $ 2,509
Equipment, furniture and fixtures ........ 48,008 54,722
Leasehold improvements.................... 3,964 4,721
Other..................................... 11,461 10,854
-------------- -------------
65,852 72,806
Accumulated depreciation and
amortization............................. (40,927) (44,454)
-------------- -------------
$ 24,925 $ 28,352
============== =============
</TABLE>
The principal lives (in years) used in determining depreciation rates of
various assets are: buildings (40); computers and equipment (5); furniture
and fixtures (10); office machines (10); and leasehold improvements (term of
related leases).
Depreciation expense was $7,572 and $8,499, for the years ended December
31, 1993 and 1994, respectively, and $7,171 for the period ended October 20,
1995.
F-41
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1993 AND 1994
(In thousands)
7. INTANGIBLES AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
Intangibles consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Customer contracts....... $ 8,500 $ 8,500
Goodwill................. 59,141 59,214
-------------- -------------
67,641 67,714
Accumulated
amortization............ (15,296) (16,967)
-------------- -------------
$ 52,345 $ 50,747
============== =============
</TABLE>
The Company periodically evaluates the fair value of goodwill and other
intangible assets and recognizes an impairment when it is probable that
estimated future undiscounted cash flows will be less than the carrying value
of the asset. No writedowns of goodwill or other intangible assets were made
in 1993, 1994 or 1995.
Amortization expense relating to intangibles was approximately $4,383 and
$3,884 for the years ended December 31, 1993 and 1994, respectively, and
$1,652 for the period ended October 20, 1995.
8. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Compensation and
benefits................. $ 6,642 $ 7,272
Bonuses................... 5,109 2,790
Other accrued expenses ... 8,409 8,322
-------------- -------------
$20,160 $18,384
============== =============
</TABLE>
9. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1
YEARS ENDED TO
DECEMBER 31, OCTOBER 20,
----------------------- 1995
1993 1994
- --------------------------------------------- ---------
<S> <C> <C> <C>
Continuing operations:
Current:
Federal..................................... $ 2,820 $ 7,243 $ 390
State....................................... 126 727 (110)
Foreign..................................... 552 1,026 653
--------- --------- -------------
3,498 8,996 933
--------- --------- -------------
Deferred:
Federal..................................... (3,119) (2,078) 707
State....................................... (7) 1,455 225
Foreign..................................... (240) (323) (331)
--------- --------- -------------
(3,366) (946) 601
--------- --------- -------------
Benefit of net operating loss carryforwards:
State....................................... -- (1,455) (225)
--------- --------- -------------
Provision for income taxes (benefit) ......... $ 132 $ 6,595 $1,309
========= ========= =============
</TABLE>
F-42
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(In thousands)
9. INCOME TAXES (Continued)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax asset were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Deferred tax assets (liabilities):
Current:
Accounts receivable ............... $ 1,934 --
Inventory ......................... 5,186 --
Accrued expenses ................... (489) --
Other .............................. 279 --
Deferred state taxes ............... 1,395 --
--------------
Gross deferred tax asset--current . 8,305 --
Less valuation allowance............... (1,395) --
--------------
Net deferred tax assets--current .. 6,910 --
--------------
Non-current:
Property and equipment ........... 2,646 1,062
Repairable parts ................... 2,211 --
Employee benefits ................. 8,100 --
Deferred state taxes .............. 1,777 --
Other ............................. (143) --
State net operating loss
carryforwards ...................... 5,163 --
-------------- -------------
Gross deferred tax
asset--noncurrent .................. 19,754 1,062
Less valuation allowance............... (6,940) --
-------------- -------------
Net deferred tax
asset--noncurrent .................. 12,814 1,062
-------------- -------------
Net deferred tax asset................. $19,724 $1,062
============== =============
</TABLE>
The net deferred tax asset as of December 31, 1994 in essence represents
an intercompany receivable from BAC, resulting from the future benefit of the
inclusion of the Company's temporary differences in the consolidated U.S.
federal tax return of BAC.
The October 20, 1995 deferred tax asset related to foreign operations.
A reconciliation between the provision (benefit) for income taxes,
computed by applying the statutory income tax rate to income before income
taxes, and the actual provision for income taxes follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- ------- -------
<S> <C> <C> <C>
Federal income tax provision (benefit) at statutory tax
rate....................................................... (35.0)% 35.0% 35.0%
State income taxes, net of federal income tax benefit ..... 5.4 3.2 (3.7)
Foreign income tax rate differential ....................... 5.1 1.2 6.6
Nondeductible expenses ..................................... 6.8 1.8 9.7
Amortization of goodwill.................................... 33.8 4.1 21.7
Other ...................................................... (6.9) -- (0.6)
--------- ------- -------
Actual income tax provision effective tax rate ............. 9.2% 45.3% 68.7%
========= ======= =======
</TABLE>
F-43
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(In thousands)
10. LEASE COMMITMENTS
The Company leases certain computer equipment under noncancellable capital
leases. The Company conducts its operations primarily from leased warehouses
and office facilities and uses certain computer, data processing and other
equipment under operating lease agreements expiring at various dates during
the next six years.
Future minimum payments under noncancellable capital leases and operating
leases as of October 20, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
October 21, 1995 to December 31, 1995 .. $ 364 $ 3,639
1996.................................... 1,669 15,308
1997.................................... 1,261 13,456
1998.................................... 400 10,885
1999.................................... 58 8,343
2000.................................... 55 4,588
Thereafter.............................. -- 11
--------- -----------
Total minimum lease payments............ 3,807 $56,230
Less amount representing interest ...... 402
---------
Present value of minimum lease
payments............................... 3,405
Less current obligations................ 1,525
---------
Noncurrent obligations.................. $1,880
=========
</TABLE>
Rental expense for operating leases was $12,609 and $14,145 for the years
ended December 31, 1993 and 1994 and $12,749 for the period ended October 20,
1995.
11. BENEFIT PLANS
Substantially all of the Company's employees were covered under a
noncontributory pension benefit plan sponsored by BAC, which plan was
terminated on October 20, 1995 (see Note 3). The pension benefit formula used
in the determination of pension cost is based on the greater of a flat dollar
amount per year of service or a stated percentage of adjusted career average
income. BAC's objective in funding the plan is to accumulate funds at a
relatively stable rate over participants' working lives so that benefits are
fully funded at retirement. Plan assets consist principally of investments in
corporate equity securities, U.S. Government and corporate debt securities
and real estate.
SFAS No. 87 requires a comparison of the actuarial present value of
projected benefit obligations with the fair value of plan assets, the
disclosure of the components of net periodic pension costs and a
reconciliation of the funded status of the plan with amounts recorded on the
balance sheet. Such disclosures are not presented for the Company because the
structure of the plan does not allow for determination of this information on
an individual company basis.
F-44
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(In thousands)
11. BENEFIT PLANS (Continued)
The Company recognized pension expense of $3,243 and $4,202 for the years
ended December 31, 1993 and 1994 and $4,846 for the period ended October 20,
1995.
The assumptions used in the actuarial computations by BAC for
determination of the above pension expense were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Discount rate ................................... 7.25% 8.25% 7.25%
Expected long-term rate of return on plan
assets.......................................... 8.25 8.25 8.25
Future compensation growth rate ................. 5.25 5.25 4.75
</TABLE>
Substantially all of the Company's employees participate in a savings plan
provided by BAC which provides opportunities for eligible employees to save
for retirement on a tax deferred basis. The Company recognized contribution
expense of $1,482 and $1,531 for the years ended December 31, 1993 and 1994
and $1,602 for the period ended October 20, 1995.
Under the Agreement, Operating Co. assumed no liabilities of the Company
relating to employee benefit programs.
12. OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Other postemployment benefit liabilities $19,120 $ --
Accrued pension cost ..................... 3,220 --
Other noncurrent liabilities ............. 1,037 1,293
-------------- -------------
$23,377 $1,293
============== =============
</TABLE>
Effective October 20, 1995, employee related liabilities (including other
postemployment benefit liabilities and accrued pension costs) were
contributed to capital by BAC. (see Note 4).
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a defendant in a number of lawsuits in the ordinary course
of business, including actions alleging wrongful termination of employment
and breach of contract. In several of the alleged wrongful termination cases,
the plaintiffs are seeking punitive damages. The Company believes it has
meritorious defenses to all of the claims and is vigorously defending the
lawsuits. Although the ultimate outcome of these lawsuits cannot be predicted
with certainty, the Company's management, after consultation with legal
counsel, does not expect that such lawsuits will have a material adverse
effect on the Company's financial condition, results of operation or
liquidity.
F-45
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(In thousands)
14. RELATED PARTY TRANSACTIONS
The Company engages in various activities with Bell Atlantic affiliated
companies. Amounts due from the affiliated companies consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Bell Atlantic Network Services, Inc. $ 797 $ 806
Bell Atlantic Network Integration ... 252 281
New Jersey Bell ...................... 65 70
Bell of Pennsylvania ................. 35 62
C&P Telephone Company--Maryland ..... 96 35
Other ................................ 410 108
-------------- -------------
Total due from affiliates .......... $1,655 $1,362
============== =============
</TABLE>
Amounts due to the affiliated companies consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 20,
1994 1995
-------------- -------------
<S> <C> <C>
Bell Atlantic Enterprises International ...... $ 3,856 $ 309
Bell Atlantic Professional Services........... 110 297
Bell Atlantic Customer Services
International................................ 239
Other......................................... 340 159
-------------- -------------
Total accounts payable affiliates........... 4,545 765
-------------- -------------
Notes payable--FSI............................ 39,579
Notes payable--BAP............................ 773 862
-------------- -------------
Total notes payable affiliates.............. 40,352 862
-------------- -------------
Total due to affiliates..................... $44,897 $1,627
============== =============
</TABLE>
The Company engages in various activities with affiliated companies. The
amount due to Bell Atlantic Financial Services, Inc. ("FSI") at December 31,
1994 is represented by a promissory note for the aggregate unpaid principal
balance plus interest on demand. The interest rates charged are based on the
weighted average cost of FSI's outstanding borrowings during the month. The
weighted average interest rate for 1994 and 1995 was approximately 5.8%.
The amount due to Bell Atlantic Properties ("BAP") is also represented by
a promissory note for the aggregate unpaid principal balance plus interest.
Interest is payable monthly on the unpaid principal at the rate of 9.88% per
annum.
Effective October 20, 1995, notes payable excluding interest of $29,248
due to FSI, and $4,650 of accounts payable due to affiliates were contributed
to capital by BAC. See Note 4.
F-46
<PAGE>
DECISIONONE CORPORATION (FORMERLY, BELL ATLANTIC
BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD JANUARY 1 TO OCTOBER 20, 1995
(In thousands)
14. RELATED PARTY TRANSACTIONS (Continued)
Transactions with affiliated companies had the following impact on the
results of operations:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1 TO
YEARS ENDED OCTOBER 20,
DECEMBER 31, 1993 1995
------------------- --------------
1993 1994 1995
--------- --------- --------------
<S> <C> <C> <C>
Revenues....................................... $17,347 $13,971 $10,270
--------- --------- --------------
Total operating and other expenses:
Rent expense ................................ $ 5,329 $ 3,176 $ 2,626
Other service and general and administrative
expenses.................................... 11,957 14,191 8,153
Interest expense............................. 3,035 1,823 1,512
--------- --------- --------------
$20,321 $19,190 $12,291
========= ========= ==============
</TABLE>
F-47
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Available Information.................... 2
Prospectus Summary....................... 3
Risk Factors............................. 18
The Merger and Merger Financing.......... 28
Use of Proceeds.......................... 30
Capitalization........................... 31
Unaudited Condensed Consolidated
Pro Forma Financial Data................ 32
Selected Consolidated Financial Data .... 41
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 44
Business................................. 55
Management .............................. 65
Executive Compensation................... 67
Security Ownership of Certain Beneficial
Owners and Management................... 70
Certain Relationships and Related
Transactions............................ 73
Description of New Credit Facility ...... 74
Description of Units..................... 76
Description of Debentures................ 76
Description of Warrants.................. 103
Description of Capital Stock............. 106
Certain Federal Income Tax Consequences . 108
Underwriting............................. 110
Legal Matters............................ 111
Experts.................................. 111
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
Until , 1997 (90 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
$
[DECISIONONE LOGO]
DECISIONONE
DECISIONONE HOLDINGS CORP.
(AS SUCCESSOR OBLIGOR BY MERGER TO QUAKER HOLDING CO.)
UNITS
CONSISTING OF
% SENIOR DISCOUNT
DEBENTURES DUE 2008
AND
WARRANTS TO PURCHASE
SHARES OF
COMMON STOCK
PROSPECTUS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the issuance and distribution of the
securities being registered hereby, other than underwriting discounts, are
estimated (except for the Securities and Exchange Commission ("SEC")
registration and National Association of Securities Dealers ("NASD") filing
fees, which are the actual amounts) as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee............. $ 25,772.73
NASD filing fee ................. 9,005.00
Blue Sky fees and expenses ..... 25,000.00
Accounting fees and expenses ... 150,000.00
Legal fees and expenses ......... 150,000.00
Printing and engraving expenses . 200,000.00
Trustee fees and expenses........ 10,000.00
Miscellaneous ................... 130,222.27
------------
Total.......................... $700,000.00
============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty,
except (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
the unlawful payment of dividends or unlawful stock purchases or redemptions)
or (iv) for any transaction from which a director derived an improper
personal benefit. Section 145 of the DGCL empowers the Company to indemnify,
subject to the standards set forth therein, any person in connection with any
action, suit or proceeding brought before or threatened by reason of the fact
that the person was a director, officer, employee or agent of such company,
or is or was serving as such with respect to another entity at the request of
such company. The DGCL also provides that the Company may purchase insurance
of behalf of any such director, officer, employee or agent.
Article 9 of Quaker's Certificate of Incorporation makes mandatory
indemnification expressly authorized under the DGCL for directors of Quaker.
With respect to officers of Quaker, Article 9 of Quaker's Certificate of
Incorporation provides indemnification to such extent and to such effect as
the Board of Directors shall determine to be appropriate and authorized by
Delaware law. Concurrent with the Merger, Holdings' Amended and Restated
Certificate of Incorporation and By-laws are being amended to provide as set
forth above, and will be filed by amendment.
Pursuant to Section 6.03 of the Merger Agreement, Holdings has agreed for
a period of six years following the Effective Time to (a) maintain in effect
and cause Holdings to maintain in effect policies of directors' and officers'
liability insurance and fiduciary liability insurance with terms no less
favorable than current policies, with respect to claims arising prior to the
Effective Time, provided that premiums for such insurance not exceed 125% of
the amount per annum Holdings paid in its last full fiscal year and (b)
indemnify, and cause Holdings to indemnify, the directors and officers of the
Company to the fullest extent permitted by Holdings' charter and bylaws and
applicable law.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ----------- ---------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement between Donaldson, Lufkin & Jenrette Securities
Corporation and the Issuer with respect to the Units.
2.1 Agreement and Plan of Merger, dated as of May 4, 1997 by and among the Issuer and
DecisionOne Holdings Corp.(1)
2.2 Voting Agreement and Irrevocable Proxy, dated as of May 4, 1997, among DecisionOne
Holdings Corp., the Issuer, J.H. Whitney & Co., Welsh, Carson, Anderson & Stowe IV,
L.P., Welsh, Carson Anderson & Stowe VI, L.P., and WCAS Capital Partners, L.P.(1)
2.3 Amendment No. 1 dated as of July , 1997 to the Agreement and Plan of Merger between
the Issuer and DecisionOne Holdings Corp.(8)
3.1* Certificate of Incorporation of the Issuer, as amended.
3.2 Amended and Restated Certificate of Incorporation of DecisionOne Holdings Corp.(2)
3.3* Bylaws of the Issuer.
3.4 Restated Bylaws of DecisionOne Holdings Corp.(2)
4.1* Form of Indenture in respect of the Debentures.
4.2* Form of Warrant Agreement dated , 1997, by and between Quaker Holding Co. and State
Street Bank and Trust Company, as Warrant Agent.
4.3* Form of Debenture (included in Exhibit 4.1)
4.4* Form of Warrant (included in Exhibit 4.2)
4.5* Form of Qualified Independent Underwriter Agreement.
5.1* Form of Opinion of Davis Polk & Wardwell.
8.1 Form of Opinion of Davis Polk & Wardwell.(6)
9.1 Voting Trust Agreement dated May 4, 1997, by and among the Issuer, DecisionOne Holdings
Corp., and certain of its shareholders (included in Exhibit 2.2).
10.1 Stock Option and Restricted Stock Purchase Plan, as amended and restated.(4)
10.2 Form of Incentive Stock Option Agreement.(2)
10.3 Incentive Stock Option Agreement, dated June 1, 1993, with Kenneth Draeger.(2)
10.4 Incentive Stock Option Agreement, dated August 1, 1993 with Kenneth Draeger.(2)
10.5 Incentive Stock Option Agreement, dated February 1, 1994, with Kenneth Draeger.(2)
10.6 Incentive Stock Option Agreement with R. Peter Zimmermann.(2)
10.7 Employment Agreement with Kenneth Draeger.(2)
10.8 Employment Letter with Stephen J. Felice.(2)
10.9 Employment Letter with R. Peter Zimmermann.(2)
10.10 Employment Letter with James J. Greenwell.(2)
10.11 Amended and Restated Registration Rights Agreement.(2)
10.12 First Amendment to Amended and Restated Registration Rights Agreement.(2)
10.13 Lease for Frazer, Pennsylvania executive offices (East).(2)
10.14 Lease for Frazer, Pennsylvania executive offices (West).(2)
10.15 Lease for Malvern, Pennsylvania depot and call center.(2)
10.16 Employment Letter with Joseph S. Giordano.(3)
II-2
<PAGE>
EXHIBIT
NO. EXHIBIT
- ----------- ---------------------------------------------------------------------------------------
10.17 Lease for Bloomington, Minnesota call center.(3)
10.18 Lease for Hayward, California depot.(3)
10.19 Lease for Northborough, Massachusetts depot.(3)
10.20 Revolving Credit Agreement, dated as of April 26, 1996, among DecisionOne Holdings
Corp., DecisionOne Corporation and The First National Bank of Boston et al.(4)
10.21 Employment Agreement with Thomas J. Fitzpatrick.(4)
10.22 Fifth Amended and Restated Revolving Credit and Term Loan Agreement.(2)
10.23 Employment Agreement with Thomas M. Molchan.(5)
10.24 Employment Agreement with Dwight T. Wilson.(5)
10.25* Form of Tax Sharing Agreement.
11.1 Computation of Earnings Per Share.(7)
12.1 Statement regarding Computation of Ratio of Earnings to Fixed Charges.(6)
21.1 List of Subsidiaries.(6)
23.1* Consent of Deloitte & Touche LLP.
23.2 Consent of Davis Polk & Wardwell (included in Exhibit 5.1).
23.3 Consent of Davis Polk & Wardwell (included in Exhibit 8.1).
23.4* Consent of Lawrence M.v.D. Schloss.
23.5* Consent of Thomas Greig.
23.6* Consent of Kirk Wortman
23.7* Consent of Peter Grauer
24.1 Power of Attorney.(7)
25.1* Statement of the Eligibility of Trustee on Form T-1 (bound separately).
</TABLE>
- ------------
* Filed herewith.
(1) Filed as an Exhibit to the Company's Proxy Statement/Prospectus No.
333-28265 on Form S-4 filed with the Securities and Exchange Commission
on June 2, 1997.
(2) Filed as an Exhibit to Registration Statement No. 333-1256 on Form S-1
filed with the Securities and Exchange Commission on February 9, 1996.
(3) Filed as an Exhibit to Pre-Effective Amendment No. 1 to Registration
Statement No. 333-1256 on Form S-1 filed with the Securities and
Exchange Commission on March 14, 1996.
(4) Filed as an Exhibit to the 10-K filed with the Securities and Exchange
commission on September 30, 1996.
(5) Filed as an Exhibit to the 10-Q filed with the Securities and Exchange
Commission on May 15, 1997.
(6) Previously filed as an Exhibit to the Registration Statement No.
333-28539 on Form S-1 filed with the Securities and Exchange Commission
on June 5, 1997.
(7) Previously filed as an Exhibit to Amendment No. 1 to the Registration
Statement No. 333-28539 on Form S-1 filed with the Securities and
Exchange Commission on July 9, 1997.
(8) Filed as an Exhibit to Amendment No. 3 to the Company's Proxy Statement/
Prospectus No. 333-28265 on Form S-4 filed with the Securities and
Exchange Commission on July 16, 1997.
(B) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules of DecisionOne Holdings Corp. and
subsidiaries as of June 30, 1994, 1995 and 1996, and March 31, 1997
(unaudited) and for the years ended June 30, 1994, 1995 and 1996 and the
nine months ended March 31, 1997 (unaudited):
I. Condensed Financial Information of Registrant
II.1 Valuation and Qualifying Accounts
Financial Statement Schedule of DecisionOne Corporation (formerly Bell
Atlantic Business Systems Services, Inc.) and subsidiary as of December
31, 1993 and 1994 and October 20, 1995 and for the years ended December
31, 1993 and 1994 and the period from January 1, 1995 to October 20, 1995:
II.2 Valuation and Qualifying Accounts
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the Offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in New
York, New York, on the 30th day of July, 1997.
QUAKER HOLDING CORP.
By: /s/ Peter T. Grauer
-----------------------------------
Name: Peter T. Grauer
Title: President, Director and
Treasurer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------- ------------------------------------------ -----------------
<S> <C> <C>
/s/ Peter T. Grauer President, Director and Treasurer July 30, 1997
-----------------------
Mr. Peter T. Grauer
/s/ Kirk Wortman Vice President, Director and Secretary July 30, 1997
-----------------------
Mr. Kirk Wortman
</TABLE>
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
DecisionOne Holdings Corp.:
We have audited the consolidated financial statements of DecisionOne Holdings
Corp. and subsidiaries as of June 30, 1995 and 1996, and for each of the
three years in the period ended June 30, 1996, and have issued our report
thereon dated August 30, 1996, (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedules listed
in Item 16 of this Registration Statement. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
the financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
August 30, 1996
S-1
<PAGE>
SCHEDULE I
DECISIONONE HOLDINGS CORP.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(PARENT COMPANY ONLY)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
--------------------- MARCH 31
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investment in equity of subsidiaries........................ $ 21,488 $180,793 $201,095
---------- ---------- -----------
Total assets.................................................. $ 21,488 $180,793 $201,095
========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Redeemable preferred stock.................................. 6,811
Shareholders' Equity:
Preferred stock, $1.00 par value; authorized 5,000,000
shares; none outstanding
Common stock, $.01 par value--authorized, 25,000,000 shares
in 1995 and 100,000,000 shares in 1996 and 1997; issued and
outstanding 8,935,348 shares in 1995, 27,340,288 shares in
1996 and 27,813,832 shares in 1997.......................... $ 89 $ 273 $ 278
Additional paid-in capital.................................. 107,991 255,262 255,691
Accumulated deficit......................................... (92,378) (73,516) (53,600)
Foreign currency translation adjustment..................... 680 622 574
Pension liability adjustment................................ (1,705) (1,848) (1,848)
---------- ---------- -----------
Total shareholders' equity............................... 14,677 180,793 201,095
---------- ---------- -----------
Total Liabilities and Shareholders' Equity.................... $ 21,488 $180,793 $201,095
========== ========== ===========
</TABLE>
See notes to condensed financial information of registrant.
S-2
<PAGE>
SCHEDULE I
DECISIONONE HOLDINGS CORP.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF OPERATIONS
(PARENT COMPANY ONLY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, NINE MONTHS
----------------------------- ENDED
1994 1995 1996 MARCH 31, 1997
--------- --------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Equity in net income of
subsidiaries........................ $10,112 $42,528 $18,862 $19,916
--------- --------- --------- --------------
Net income........................... $10,112 $42,528 $18,862 $19,916
========= ========= ========= ==============
</TABLE>
See notes to condensed financial information of registrant.
S-3
<PAGE>
SCHEDULE I
DECISIONONE HOLDINGS CORP.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF CASH FLOWS
(PARENT COMPANY ONLY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 NINE MONTHS
--------------------------------- ENDED
1994 1995 1996 MARCH 31, 1997
---------- ---------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating Activities:
Net income..................................... $ 10,112 $ 42,528 $ 18,862 $ 19,916
Adjustment to reconcile net income to net cash
provided by operating activities.............. (10,112) (42,528) (17,416) (19,916)
---------- ---------- ----------- --------------
Net cash provided by operating activities... -- -- 1,446 --
---------- ---------- ----------- --------------
Investing Activities--contribution to capital of
subsidiaries.................................... (2,250) (142,090) (434)
---------- ---------- ----------- --------------
Financing Activities:
Proceeds from issuance of preferred stock...... 2,250 31,392
Proceeds from issuance of common stock
and warrants ................................. 110,698 434
Dividends paid on preferred stock ............. (1,446)
---------- ---------- ----------- --------------
Net cash provided by financing activities... 2,250 140,644 434
---------- ---------- ----------- --------------
Net Change in Cash............................. $ -- $ -- $ --
========== ========== =========== ==============
</TABLE>
See notes to condensed financial information of registrant.
S-4
<PAGE>
SCHEDULE I
DECISIONONE HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements include the accounts of
DecisionOne Holdings Corp. (the Parent) and on an equity basis its
subsidiaries and should be read in conjunction with the consolidated
financial statements of DecisionOne Holdings Corp. and Subsidiaries (the
"Company") and the notes thereto.
2. SUBSEQUENT EVENT
On May 4, 1997, the Parent and Quaker Holding Co. ("Quaker") an affiliate
of DLJ Merchant Banking Partners II, LP an affiliated funds and other
entities, entered into a definitive Agreement and Plan of Merger (the "Merger
Agreement"). Under the terms of the Merger Agreement, Quaker will merge with
and into the Parent. Under the terms of the Merger Agreement, the, subject to
the following sentence, holders of each share of the Parent's common stock
can elect to receive $23 in cash for such share or to retain such share in
the merged Company. In any event, holders will be required to retain 5.3% of
the Parent's stock outstanding immediately prior to the merger. In addition,
the Parent and Quaker entered into a voting agreement with certain
partnerships affiliated with Welsh, Carson, Anderson & Stowe and J. H.
Whitney & Co., pursuant to which these partnerships, subject to certain
conditions, have agreed to vote in favor of the merger 8,345,349 of the
14,837,501, respectively, shares of the Parent's common stock owned by them,
exclusive of warrants to purchase 468,750 shares of common stock at $0.10 per
share. The 8,345,349 shares represent approximately 30% of the Parent's
common stock outstanding on April 21, 1997.
The proposed merger, which will be recorded as a recapitalization for
accounting purposes, is subject to a number of conditions, including
regulatory approvals and approval by the Parent's stockholders. The
transaction is estimated to have an aggregate value of approximately $957
million, including refinancing of the Company's existing revolving credit
facility. The Parent expects the merger to close by September, 1997.
As a result of the proposed merger, the Parent and Quaker will incur
various costs, currently estimated to range between $95 million and $105
million in connection with consummating the transaction. These costs consist
primarily of professional fees, registration costs, compensation costs and
other expenses. Although the exact timing, nature and amount of these merger
transaction costs are subject to change, the Parent expects that a one-time
pre-tax charge for these costs of approximately $76 million ($69 million
after tax) will be recorded in the quarter during which the merger is
consummated.
S-5
<PAGE>
SCHEDULE II.1
DECISIONONE HOLDINGS CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE OF CHARGES TO CHARGES TO BALANCE
BEGINNING OF CORP. AND OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------- -------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1994
Accounts receivable--
Allowance for uncollectible
accounts............................. $ 2,170 $ (162) $ (547) $ 1,461
Inventory--
Allowance for obsolescence .......... $ 6,196 $1,580 $ 594(b) $ 8,370
YEAR ENDED JUNE 30, 1995
Accounts receivable--
Allowance for uncollectible accounts $ 1,481 $1,930 $3,225(a) $ 6,616
Inventory--
Allowance for obsolescence........... $ 8,370 $1,995 $1,423(b) $11,788
YEAR ENDED JUNE 30, 1996
Accounts receivable--
Allowance for uncollectible accounts $ 6,616 $3,434 $ (470)(a) $ 9,580
Inventory--
Allowance for obsolescence .......... $11,788 $1,171 $1,450(b) $ (3,615) $14,794
NINE MONTH PERIOD ENDED
MARCH 31, 1997 (UNAUDITED)
Accounts receivable--
Allowance for doubtful accounts ..... $ 9,580 $2,726 $1,593(b) (2,172))(a) $11,727
Inventory--
Allowance for obsolescence........... $14,794 $2,088 $3,046 $19,928
</TABLE>
- ------------
(a) Amount represents net recoveries (writeoffs) during the year and
allowances recorded as a result of acquisitions during the year.
(b) Amount primarily represents allowance recorded as a result of
acquisitions during the year.
S-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
DecisionOne Corporation:
We have audited the consolidated financial statements of DecisionOne
Corporation (formerly Bell Atlantic Business Systems Services, Inc.) and
subsidiary as of December 31, 1994 and October 20, 1995, and for the years
ended December 31, 1993 and 1994 and the period from January 1, 1995 to
October 20, 1995, and have issued our report thereon dated December 29, 1995
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedule listed in Item 16 of this Registration
Statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December 29, 1995
S-7
<PAGE>
SCHEDULE II.2
DECISIONONE CORPORATION
(FORMERLY, BELL ATLANTIC BUSINESS SYSTEMS SERVICES, INC.) AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGES TO CHARGES TO BALANCE
BEGINNING OF COSTS AND OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------- -------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Accounts receivable--
Allowance for uncollectible accounts $ 2,719 $1,213 $(1,074)(a) $ 2,858
Inventory--
Allowance of obsolescence ........... $21,040 $5,351 $(4,673)(b) $21,718
YEAR ENDED DECEMBER 31, 1994
Accounts receivable--
Allowance for uncollectible accounts $ 2,858 $ 810 $ (396)(a) $ 3,272
Inventory--
Allowance of obsolescence............ $21,718 $4,802 $(3,778)(b) $22,742
YEAR ENDED OCTOBER 20, 1995
Accounts receivable--
Allowance for uncollectible
accounts............................. $ 3,272 $ 810 $ (313)(a) $ 3,769
Inventory--
Allowance of obsolescence ........... $22,742 $6,365 $(5,255)(b) $23,852
</TABLE>
- ------------
(a) Amount primarily represents net write offs during the year.
(b) Amount primarily represents the writeoff of inventory during the
year.
S-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------------- ----------------
<S> <C> <C>
1.1 * Form of Underwriting Agreement between Donaldson, Lufkin & Jenrette Securities
Corporation and the Issuer with respect to the Units.
2.1 Agreement and Plan of Merger, dated as of May 4, 1997 by and among the Issuer and
DecisionOne Holdings Corp.(1)
2.2 Voting Agreement and Irrevocable Proxy, dated as of May 4, 1997, among DecisionOne
Holdings Corp., the Issuer, J.H. Whitney & Co., Welsh, Carson, Anderson & Stowe IV,
L.P., Welsh, Carson Anderson & Stowe VI, L.P., and WCAS Capital Partners, L.P.(1)
2.3 Amendment No. 1 dated as of July , 1997 to the Agreement and Plan of Merger
between the Issuer and DecisionOne Holdings Corp.(8)
3.1 * Certificate of Incorporation of the Issuer, as amended.
3.2 Amended and Restated Certificate of Incorporation of DecisionOne Holdings Corp.(2)
3.3 * Bylaws of the Issuer.
3.4 Restated Bylaws of DecisionOne Holdings Corp.(2)
4.1 * Form of Indenture in respect of the Debentures.
4.2 * Form of Warrant Agreement dated , 1997, by and between Quaker Holding Co. and
State Street Bank and Trust Company, as Warrant Agent.
4.3 * Form of Debenture (included in Exhibit 4.1)
4.4 * Form of Warrant (included in Exhibit 4.2)
4.5 * Form of Qualified Independent Underwriter Agreement.
5.1 * Form of Opinion of Davis Polk & Wardwell.
8.1 Form of Opinion of Davis Polk & Wardwell.(7)
9.1 Voting Trust Agreement dated May 4, 1997, by and among the Issuer, DecisionOne
Holdings Corp., and certain of its shareholders (included in Exhibit 2.2).
10.1 Stock Option and Restricted Stock Purchase Plan, as amended and restated.(4)
10.2 Form of Incentive Stock Option Agreement.(2)
10.3 Incentive Stock Option Agreement, dated June 1, 1993, with Kenneth Draeger.(2)
10.4 Incentive Stock Option Agreement, dated August 1, 1993 with Kenneth Draeger.(2)
10.5 Incentive Stock Option Agreement, dated February 1, 1994, with Kenneth Draeger.(2)
10.6 Incentive Stock Option Agreement with R. Peter Zimmermann.(2)
10.7 Employment Agreement with Kenneth Draeger.(2)
10.8 Employment Letter with Stephen J. Felice.(2)
10.9 Employment Letter with R. Peter Zimmermann.(2)
10.10 Employment Letter with James J. Greenwell.(2)
10.11 Amended and Restated Registration Rights Agreement.(2)
10.12 First Amendment to Amended and Restated Registration Rights Agreement.(2)
<PAGE>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------------- ----------------
10.13 Lease for Frazer, Pennsylvania executive offices (East).(2)
10.14 Lease for Frazer, Pennsylvania executive offices (West).(2)
10.15 Lease for Malvern, Pennsylvania depot and call center.(2)
10.16 Employment Letter with Joseph S. Giordano.(3)
10.17 Lease for Bloomington, Minnesota call center.(3)
10.18 Lease for Hayward, California depot.(3)
10.19 Lease for Northborough, Massachusetts depot.(3)
10.20 Revolving Credit Agreement, dated as of April 26, 1996, among DecisionOne Holdings
Corp., DecisionOne Corporation and The First National Bank of Boston et al.(4)
10.21 Employment Agreement with Thomas J. Fitzpatrick.(4)
10.22 Fifth Amended and Restated Revolving Credit and Term Loan Agreement.(2)
10.23 Employment Agreement with Thomas M. Molchan.(5)
10.24 Employment Agreement with Dwight T. Wilson.(5)
10.25* Form of Tax Sharing Agreement.
11.1 Computation of Earnings Per Share.(7)
12.1 Statement regarding Computation of Ratios of Earnings to Fixed Charges.(6)
21.1 List of Subsidiaries.(6)
23.1 * Consent of Deloitte & Touche LLP.
23.2 Consent of Davis Polk & Wardwell (included in Exhibit 5.1).
23.3 Consent of Davis Polk & Wardwell (included in Exhibit 8.1).
23.4 * Consent of Lawrence M.v.D. Schloss.
23.5 * Consent of Thomas Greig.
23.6 * Consent of Kirk Wortman.
23.7 * Consent of Peter Grauer.
24.1 Power of Attorney.(7)
25.1 * Statement of the Eligibility of Trustee on Form T-1 (bound separately).
</TABLE>
- ------------
* Filed herewith.
(1) Filed as an Exhibit to the Company's Proxy Statement/Prospectus No.
333-28265 on Form S-4 filed with the Securities and Exchange Commission
on June 2, 1997.
(2) Filed as an Exhibit to Registration Statement No. 333-1256 on Form S-1
filed with the Securities and Exchange Commission on February 9, 1996.
(3) Filed as an Exhibit to Pre-Effective Amendment No. 1 to Registration
Statement No. 333-1256 on Form S-1 filed with the Securities and
Exchange Commission on March 14, 1996.
(4) Filed as an Exhibit to the 10-K filed with the Securities and Exchange
Commission on September 30, 1996.
(5) Filed as an Exhibit to the 10-Q filed with the Securities and Exchange
Commission on May 15, 1997.
(6) Previously filed as an Exhibit to the Registration Statement No.
333-28539 on Form S-1 filed with the Securities and Exchange Commission
on June 5, 1997.
(7) Previously filed as an Exhibit to Amendment No. 1 to the Registration
Statement No. 333-28539 on Form S-1 filed with the Securities and
Exchange Commission on July 9, 1997.
(8) Filed as an Exhibit to Amendment No. 3 to the Company's Proxy Statement/
Prospectus No. 333-28265 on Form S-4 filed with the Securities and
Exchange Commission on July 16, 1997.
<PAGE>
L&W DRAFT 7/29/97
$___,000,000
QUAKER HOLDING CO.
___ Units Consisting of
__% Senior Discount Debentures due 2008 and
____ Warrants to Purchase ___ Shares of Common Stock
UNDERWRITING AGREEMENT
July __, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
Dear Sirs:
Quaker Holding Co., a Delaware corporation ("QUAKER"),
proposes to issue and sell ___ units (the "Units"), each consisting of $1,000
principal amount at maturity of __% Senior Discount Debentures due 2008 (the
"DEBENTURES") and __ warrants (the "WARRANTS") to purchase __ shares of common
stock of the Company (as defined herein), par value $.01 per share (the "COMMON
STOCK"), to Donaldson, Lufkin & Jenrette Securities Corporation ("YOU" or the
"UNDERWRITER"). The Debentures are to be issued pursuant to the provisions of
an indenture to be dated as of August __, 1997 (the "INDENTURE") between Quaker
and State Street Bank and Trust Company, as Trustee (the "TRUSTEE"). The
Warrants will be issued pursuant to a warrant agreement to be dated as of
August __, 1997 (the "WARRANT AGREEMENT") between Quaker and State Street Bank
and Trust Company, as warrant agent (the "WARRANT AGENT"). Shares of common
stock of the Company issuable upon exercise of the Warrants are collectively
referred to herein as (the "WARRANT SHARES"). The Debentures and the Warrants
will not be separately transferable until the earliest to occur of (i) ____,
1998, (ii) the occurrence of a Change of Control (as defined in the Indenture)
and (iii) the date specified by the Underwriter (the "SEPARATION DATE"). The
Units, the Debentures, the Warrants and the Warrant Shares are collectively
referred to herein as the "SECURITIES." Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the
Indenture.
<PAGE>
The Units are being issued and sold in connection with the
execution of an Agreement and Plan of Merger (the "MERGER AGREEMENT"), dated as
of May 4, 1997, by and between Quaker and DecisionOne Holdings Corp., a
Delaware corporation ("HOLDINGS"). The Merger Agreement provides, among other
things, for the merger of Quaker with and into Holdings (the "MERGER"). At the
effective time of the Merger (the "Effective Time"), Holdings will assume and
succeed to the obligations of Quaker hereunder and under the Indenture, the
Warrant Agreement, the Debentures, the Warrants and the Warrant Shares. As used
herein, the "COMPANY" shall refer to Quaker prior to the Merger and to Holdings
immediately following the Effective Time.
In order to fund the payment of the cash portion of the
Merger Consideration (as defined in the Prospectus (as defined below)), the
Option Cash Proceeds (as defined in the Prospectus) and the Warrant Cash
Proceeds (as defined in the Prospectus), to refinance $____ million of
outstanding indebtedness (the "REFINANCING") of DecisionOne Corporation, a
wholly owned subsidiary of Holdings ("DECISIONONE CORP."), and to pay expenses
incurred in connection with the Merger, (i) DecisionOne Corp. (A) is issuing
$150 million in aggregate principal amount of __% Senior Subordinated Notes due
2007 (the "NOTES"), and (B) will enter into a syndicated senior secured loan
facility (the "NEW CREDIT FACILITY") providing for term loan borrowings in the
aggregate principal amount of approximately $470 million and revolving loan
borrowings of approximately $105 million, (ii) Quaker will issue the Units and
(iii) the DLJMB Funds (as defined in the Prospectus) and the Institutional
Investors (as defined in the Prospectus) will purchase 9,782,508 shares of
common stock of Quaker and may acquire up to 1,417,180 DLJMB Warrants (as
defined in the Prospectus) for an aggregate of approximately $225 million (the
"EQUITY INVESTMENT"). At the effective time of the Merger (the "EFFECTIVE
TIME"), the Company will borrow all term loans available under the New Credit
Facility and [$8.3 million] of revolving loans available thereunder.
Approximately $___ million of the proceeds of such borrowings and the proceeds
from the sale of Notes will be distributed to Holdings in the form of a
dividend and the remaining $____ million will be loaned to Holdings pursuant to
an intercompany note (the "INTERCOMPANY NOTE"). In addition, at the Effective
Time, each share of common stock of Quaker will become one share of common
stock of Holdings ("HOLDINGS COMMON STOCK"), each warrant to acquire common
stock of Quaker will by its terms become exercisable for an equal number of
shares of Holdings Common Stock and Holdings will assume and succeed to the
obligations of Quaker with respect to the Debentures, the Warrants and the
DLJMB Warrants.
SECTION 1. Registration Statement and Prospectus. Quaker has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-1, including a
prospectus, relating to the Units. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to
Rule 430A under the Act, is hereinafter referred to as the "REGISTRATION
STATEMENT;" and the prospectus in the form first used to confirm sales of the
Units is hereinafter referred to as the "PROSPECTUS." If Quaker has filed, or
is required pursuant to the terms hereof to file, a registration statement
pursuant to Rule 462(b) under the Act registering
2
<PAGE>
additional Securities (a "RULE 462(B) REGISTRATION STATEMENT"), then, unless
otherwise specified, any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase. On the basis of
the representations and warranties contained in this Agreement, and subject to
its terms and conditions, Quaker agrees to issue and sell, and the Underwriter
agrees to purchase from Quaker all of the Units at a price equal to $____ per
Unit (the "PURCHASE PRICE").
SECTION 3. Terms of Public Offering. The Company is advised
by you that you propose (1) to make a public offering of the Units as soon
after the execution and delivery of this Agreement as in your judgment is
advisable and (2) initially to offer the Units upon the terms set forth in the
Prospectus.
SECTION 4. Delivery and Payment. Delivery to the Underwriter
of and payment for the Units shall be made at 10:00 A.M., New York City time,
on August 7, 1997 (the "CLOSING DATE") at such place as you shall designate.
The Closing Date and the location of delivery of and payment for the Units may
be varied by agreement between you and Quaker.
Certificates for the Units, the Debentures and the Warrants
shall be registered in such names and issued in such denominations as you shall
request in writing not later than two full business days prior to the Closing
Date. Such certificates shall be made available to you for inspection not later
than 9:30 A.M., New York City time, on the business day prior to the Closing
Date. Certificates in definitive form evidencing the Units, the Debentures and
the Warrants will be delivered to you on the Closing Date with any transfer
taxes thereon duly paid by Quaker, for your account, against payment to Quaker
of the Purchase Price therefor by wire transfer of Federal or other funds
immediately available in New York City.
SECTION 5. Agreements of Company. The Company agrees with
you:
(a) To advise you promptly and, if requested by you, to
confirm such advice in writing, (1) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to the
Prospectus or for additional information, (2) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
of the suspension of qualification of the Securities for offering or sale in
any jurisdiction, or the initiation of any proceeding for such purposes, (3)
when any amendment to the Registration Statement becomes effective, (4) if
Quaker is required to file a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, when the Rule 462(b) Registration Statement
has become effective and (5) of the happening of any event during the period
referred to in Section 5(d) below which makes any statement of a material fact
made in the Registration Statement or the Prospectus untrue or which requires
any additions to or changes in the Registration Statement or the Prospectus in
order to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
3
<PAGE>
(b) To furnish to you three signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you such number of conformed copies
of the Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
(c) To prepare the Prospectus in a form approved by you and
to file the Prospectus in such form with the Commission within the applicable
period specified in Rule 424(b) under the Act; not to file any further
amendment to the Registration Statement and not to make any amendment or
supplement to the Prospectus of which you shall not previously have been
advised or to which you shall reasonably object after being so advised; and to
prepare and file with the Commission, promptly upon your reasonable request,
any amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Securities by you, and to use its best efforts to cause any
such amendment to the Registration Statement to become promptly effective.
(d) Prior to 4:00 P.M., New York City time, on the first
business day after the date of this Agreement and from time to time thereafter
for such period as in the opinion of counsel for the Underwriter a prospectus
is required by law to be delivered in connection with sales by the Underwriter
or a dealer, to furnish in New York City to the Underwriter and any dealer as
many copies of the Prospectus (and of any amendment or supplement to the
Prospectus) as the Underwriter or any such dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event
shall occur or condition shall exist as a result of which, in the opinion of
counsel for the Underwriter, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if, in the opinion of counsel for the Underwriter, it is necessary to amend
or supplement the Prospectus to comply with applicable law, forthwith to
prepare and file with the Commission an appropriate amendment or supplement to
the Prospectus so that the statements in the Prospectus, as so amended or
supplemented, will not in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with applicable
law, and to furnish to the Underwriter and to any dealer as many copies thereof
as the Underwriter or any such dealer may reasonably request.
(f) Prior to any public offering of the Units, to cooperate
with you and counsel for the Underwriter in connection with the registration or
qualification of the Units for offer and sale by you and by dealers under the
state securities or Blue Sky laws of such jurisdictions as you may request, to
continue such qualification in effect so long as required for distribution of
the Units and to file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification;
provided, however, that Quaker shall not be required in connection therewith to
register or qualify as a foreign corporation in any jurisdiction in which it is
not now so qualified or to take any action that would subject it to general
consent to service of process or taxation other than as to matters and
transactions relating to the Prospectus, the Registration Statement, any
preliminary prospectus or the offering or sale of the Securities, in any
jurisdiction in which it is not now so subject.
4
<PAGE>
(g) To mail and make generally available to its security
holders as soon as practicable an earnings statement covering the twelve-month
period ending ______________, that shall satisfy the provisions of Section
11(a) of the Act, and to advise you in writing when such statement has been so
made available.
(h) So long as any of the Securities are outstanding,to mail
and make generally available as soon as practicable after the end of each
fiscal year to the record holders of the Securities (1) all documents filed
with the Commission by the Company pursuant to Sections 13, 14 and 15 of
Securities Exchange Act of 1934, as amended (the "Reports"), which requirement
to furnish shall be deemed satisfied upon the filing of such Reports with the
Commission and (2) for any period during which the Company no longer files such
Reports with the Commission, to mail and make generally available to the record
holders of the Securities the information that would otherwise be included in
Reports as soon as reasonably available.
(i) So long as any of the Securities are outstanding, to
furnish to you as soon as available copies of all reports or furnished to or
filed with the Commission or any national securities exchange on which any
class of securities of Holdings is listed and such other publicly available
information concerning Holdings and its subsidiaries as you may reasonably
request.
(j) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to
be paid all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel and the Company's accountants in connection with the registration and
delivery of the Units under the Act and all other fees or expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to
any of the foregoing prior to or during the period specified in Section 5(d),
including the mailing and delivering of copies thereof to the Underwriter and
dealers in the quantities specified herein, (ii) all costs and expenses related
to the transfer and delivery of the Units to the Underwriter, including any
transfer or other taxes payable thereon, (iii) all costs of printing or
producing this Agreement and any other agreements or documents in connection
with the offering, purchase, sale or delivery of the Units, (iv) all expenses
in connection with the registration or qualification of the Units for offer and
sale under the securities or Blue Sky laws of the several states and all costs
of printing or producing any Preliminary and Supplemental Blue Sky Memoranda in
connection therewith (including the filing fees and fees and disbursements of
counsel for the Underwriter in connection with such registration or
qualification and memoranda relating thereto), (v) the filing fees and
disbursements of counsel for the Underwriter in connection with the review and
clearance of the offering of the Units by the National Association of
Securities Dealers, Inc., (vi) the cost of printing certificates representing
the Units, the Debentures and the Warrants, (vii) the costs and charges of any
transfer agent, registrar and/or depositary (including the Depository Trust
Company), (viii) the fees and expenses of the qualified independent underwriter
(the "QIU") (including the fees and disbursements of counsel to the QIU), (ix)
any fees charged by rating agencies for the rating of the Units, (x) the fees
and expenses of the Trustee and the Trustee's counsel in connection with the
Indenture and the Debentures, (xi) the fees and expenses of the Warrant Agent
and the Warrant Agent's counsel
5
<PAGE>
in connection with the Warrant Agreement and the Warrants and (xii) all other
costs and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this Section.
(k) During the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell, contract to
sell or otherwise transfer or dispose of any securities of Quaker or Holdings
or any warrants, rights or options to purchase or otherwise acquire securities
of Quaker or Holdings substantially similar to the Units, Debentures, Warrants
or Common Stock (other than (1) the Units, Debentures, Warrants or Warrant
Shares, and (2) commercial paper issued in the ordinary course of business),
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
(l) Not to voluntarily claim, and to actively resist any
attempts to claim, the benefit of any usury laws against the holders of the
Debentures.
(m) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by the
Company prior to the Closing Date and to satisfy all conditions precedent to
the delivery of the Units.
(n) If the Registration Statement at the time of the
effectiveness of this Agreement does not cover all of the Units, to file a Rule
462(b) Registration Statement with the Commission registering the Units not so
covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on
the date of this Agreement and to pay to the Commission the filing fee for such
Rule 462(b) Registration Statement at the time of the filing thereof or to give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
(o) The Company will, for so long as any of the Securities
are outstanding and if, in the reasonable judgment of the Underwriter or its
counsel, the Underwriter or any of its affiliates (as defined in the rules and
regulations under the Act) is required to deliver a prospectus (any such
prospectus, a "MARKET MAKING PROSPECTUS") in connection with sales of the
Securities, to (i) provide the Underwriter, without charge, as many copies of
the Market Making Prospectus as the Underwriter may reasonably request, (ii)
periodically amend the Registration Statement so that the information contained
in the Registration Statement complies with the requirements of Section 10(a)
of the Act, (iii) amend the Registration Statement or amend or supplement the
Market Making Prospectus when necessary to reflect any material changes in the
information provided therein and promptly file such amendment or supplement
with the Commission, (iv) provide the Underwriter with copies of each amendment
or supplement so filed and such other documents, including opinions of counsel
and "comfort" letters, as the Underwriter may reasonably request and (iv)
indemnify the Underwriter with respect to the Market Making Prospectus and if
applicable, contribute to any amount paid or payable by the Underwriter in a
manner substantially identical to that specified in Section 7 hereof (with
appropriate modifications). The Company consents to the use, subject to the
provisions of the Act and the state securities or Blue Sky laws of the
jurisdictions in which the Securities are offered by the Underwriter, of each
Market Making Prospectus.
6
<PAGE>
SECTION 6. Representations and Warranties of the Company. The
Company represents and warrants to the Underwriter that:
(a) The Registration Statement has become effective (other
than any Rule 462(b) Registration Statement to be filed by the Company after
the effectiveness of this Agreement); any Rule 462(b) Registration Statement
filed after the effectiveness of this Agreement will become effective no later
than 10:00 P.M., New York City time, on the date of this Agreement; and no stop
order suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement (other than any Rule
462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement), when it became effective, did not contain
and, as amended, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) the Registration
Statement (other than any Rule 462(b) Registration Statement to be filed by the
Company after the effectiveness of this Agreement) and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Act, (iii) if the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, such Rule
462(b) Registration Statement and any amendments thereto, when they become
effective (A) will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading and (B) will comply in all material respects
with the Act and (iv) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, except that the representations and warranties set
forth in this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to the
Underwriter furnished to the Company in writing expressly for use therein nor
to that part of the Registration Statement that constitutes the Statement of
Eligibility (Form T-1) under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Company hereby acknowledges that the only
information furnished to the Company by the Underwriter for use in the
Registration Statement and the Prospectus is the information contained under
the caption "Underwriting."
(c) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the Act, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in any preliminary prospectus based upon information
relating to the Underwriter furnished to the Company in writing by you
expressly for use therein. The Company hereby acknowledges that the only
information furnished to Quaker by the Underwriter for use in the Registration
Statement, the Prospectus and each preliminary prospectus filed as part of the
Registration Statement is the information contained under the caption
"Underwriting."
7
<PAGE>
(d) Quaker does not have any direct or indirect subsidiaries.
(e) Immediately subsequent to the Effective Time, the
entities listed on Schedule I hereto will be the only direct or indirect
subsidiaries of Holdings. No subsidiary listed on Schedule I hereto, other than
[DecisionOne Corp., Properties Holding Corporation and Properties Development
Corporation] (collectively, the "Subsidiaries"), has (i) contributed in any of
the last three fiscal years or in the three-month period ended March 31, 1997
greater than 10% of the Holdings' consolidated revenues, EBITDA (as defined in
the Prospectus) or net income or (ii) at any of December 31, 1996 or March 31,
1997 constituted greater than 10% of the total assets of Holdings.
(f) The Company is and, immediately subsequent to the
Effective Time, will be duly incorporated and validly existing as a corporation
in good standing under the laws of its jurisdiction of incorporation and has
and, immediately subsequent to the Effective Time, will have the corporate
power and authority to carry on its business as described in the Prospectus and
to own, lease and operate its properties, and is and, immediately subsequent to
the Effective Time, will be duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not reasonably
be expected to (i) have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, or (ii) in any manner draw into question the
validity of (I) this Agreement, the Indenture, the Warrant Agreement or the
Securities or (II) the Debenture Assumption (as defined herein), the Warrant
Assumption (as defined herein), the Intercompany Note, the Merger Agreement,
the Tax Sharing Agreement (as defined in the Indenture) or the Investors'
Agreement (as defined in the Indenture) (each of the documents referred to in
this clause II, the "OPERATIVE DOCUMENTS") (the events referred to in clauses
(i) and (ii), a "MATERIAL ADVERSE EFFECT").
(g) All of the outstanding shares of capital stock of the
Company have been and, immediately subsequent to the Effective Time, will have
been duly authorized and validly issued and are and, immediately subsequent to
the Effective Time, will be fully paid, non-assessable and not subject to any
preemptive or similar rights.
(h) Except as otherwise set forth in the Prospectus,
immediately subsequent to the Effective Time, the outstanding shares of capital
stock of the subsidiaries of Holdings are owned by Holdings, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature (each, a
"LIEN").
(i) The Indenture has been duly qualified under the Trust
Indenture Act, and, on the Closing Date, will have been duly authorized,
executed and delivered by Quaker and will be a valid and binding agreement of
Quaker, enforceable in accordance with its terms except as (a) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (b) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
8
<PAGE>
(j) Immediately subsequent to the Effective Time, the
Indenture and the Debenture Assumption will be duly authorized by Holdings and,
when the Debenture Assumption is executed and delivered in accordance with the
terms of the Indenture, the Indenture will be the legally valid and binding
obligation of Holdings, enforceable against Holdings in accordance with its
terms, except as (a) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (b) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(k) Quaker has duly and validly authorized the issuance of
the Debentures and the Warrants as a Unit. The Debentures have been duly
authorized and, on the Closing Date, will have been validly executed and
delivered by Quaker. When the Debentures have been executed and authenticated
in accordance with the provisions of the Indenture and delivered to and paid
for by the Underwriter in accordance with the terms of this Agreement, the
Debentures will be entitled to the benefits of the Indenture and will be valid
and binding obligations of Quaker, enforceable in accordance with their terms
except as (a) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (b) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(l) Immediately subsequent to the Effective Time, the Units
will be duly authorized by Holdings. Immediately subsequent to the Effective
Time, the Debentures and the Debenture Assumption will be duly authorized by
Holdings and, when the Debenture Assumption is executed and delivered in
accordance with the terms of the Indenture, will be the legally valid and
binding obligations of Holdings, enforceable against Holdings in accordance
with their terms except (a) as such enforcement may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (b) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(m) The Warrant Agreement has been duly authorized by Quaker
and, on the Closing Date, will have been validly executed and delivered by
Quaker. When the Warrant Agreement has been validly executed and delivered, the
Warrant Agreement will constitute the valid and binding agreement of Quaker,
enforceable against Quaker in accordance with its terms except as (a) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (b) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(n) Immediately subsequent to the Effective Time, the Warrant
Agreement and the Warrant Assumption will be duly authorized by Holdings and,
when the Warrant Assumption (as defined herein) is executed and delivered in
accordance with the terms of the Warrant Agreement, the Warrant Agreement will
constitute the valid and binding agreement of Holdings, enforceable against
Holdings in accordance with its terms except as (a) the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (b) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
9
<PAGE>
(o) The Warrants have been duly authorized by Quaker and, on
the Closing Date, will have been validly delivered by Quaker. When the Warrants
have been validly issued and countersigned, the Warrant Agreement has been
validly executed and delivered and upon delivery to the Underwriter against
payment therefor in accordance with the terms hereof, the Warrants will be
entitled to the benefits of the Warrant Agreement and will be valid and binding
obligations of Quaker, enforceable against Quaker in accordance with their
terms except as (a) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (b) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(p) Immediately subsequent to the Effective Time, the
Warrants and the Warrant Assumption will be duly authorized by Holdings and
when the Warrant Assumption is executed and delivered in accordance with the
terms of the Warrant Agreement, the Warrants will be valid and binding
obligations of Holdings enforceable against Holdings in accordance with their
terms except as (a) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (b) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(q) Quaker has and, immediately subsequent to the Effective
Time, Holdings will have duly authorized and reserved for issuance the Warrant
Shares to be issued upon the exercise of the Warrants and, when issued and
delivered upon the exercise of the Warrants against payment of the exercise
price as provided in the Warrant Agreement, the Warrant Shares will have been
validly issued and will be fully paid and non assessable, and the issuance of
the Warrant Shares will not be subject to any preemptive or similar rights.
(r) The Securities conform as to legal matters to the
description thereof contained in the Prospectus.
(s) All of the indebtedness represented by the Debentures, is
being incurred, and all of the indebtedness being repaid in the Refinancing was
incurred, for proper purposes and in good faith and Holdings was, at the time
of the incurrence of the indebtedness being repaid in the Refinancing, and that
both as of the date hereof and, immediately subsequent to the Effective Time
and the transactions contemplated hereby and by each of the Operative
Documents, (a) the fair value and present fair saleable value of the Company's
assets exceeds and would exceed its stated liabilities and identified
contingent liabilities, (b) the Company should be able to pay its debts as they
become absolute and matured and (c) the capital of the Company is not and would
not be unreasonably small for the business in which it is engaged and for the
business proposed to be conducted after consummation of the Merger.
(t) The Company is not and, immediately subsequent to the
Effective Time, the Company and each of its Subsidiaries will not be in
violation of its respective charter or by-laws or in default in the performance
of any obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument that is
material to the Company and each of its Subsidiaries, taken as a whole, any
such person, to which such entity is a party or by which any such person or its
respective property is bound.
10
<PAGE>
(u) The execution, delivery and performance of this
Agreement, the Indenture, the Warrant Agreement, the Securities and the
Operative Documents by the Company, and compliance by the Company with all the
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states) and will not conflict with
or constitute a breach of any of the terms or provisions of, or a default
under, the charter or by-laws of the Company or any of its Subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument
that is material to the Company and its Subsidiaries, taken as a whole, to
which the Company or any of its Subsidiaries is or, immediately subsequent to
the Effective Time, will be a party or by which the Company or any of its
Subsidiaries or their respective property is or, immediately subsequent to the
Effective Time, will be bound, or violate or conflict with any applicable law
or any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over the Company or any of its
Subsidiaries or their respective property.
(v) When executed and delivered by the Company and the other
parties thereto, each of the Operative Documents will be the valid and legally
binding obligation of the Company enforceable against the Company, and to the
best of the Company's knowledge, each of the other parties thereto, in
accordance with its respective terms, except as (a) the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting the
creditors' rights generally and (b) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability.
(w) No action has been taken and no law, statute, rule or
regulation or order has been enacted, adopted or issued by any governmental
agency or body which prevents the execution, delivery and performance of any of
this Agreement, the Indenture, the Debentures, the Warrant Agreement, the
Warrants, the Warrant Shares or any of the Operative Documents or the issuance
of the Securities, or suspends the sale of the Securities in any jurisdiction
referred to in Section 5(f); and no injunction, restraining order or other
order or relief of any nature by a federal or state court or other tribunal of
competent jurisdiction has been issued with respect to the Company which would
prevent or suspend the issuance or sale of the Securities in any jurisdiction
referred to in Section 5(f).
(x) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its Subsidiaries, is or could be a
party or to which any of their respective property is or could be subject that
are required to be described in the Registration Statement or the Prospectus
and are not so described; nor are there any statutes, regulations, contracts or
other documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement that
are not so described or filed as required.
(y) The Company has not and, immediately subsequent to the
Effective Time, none of the Company or any of its Subsidiaries will have
violated any foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or
11
<PAGE>
hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS") or any provisions of the Employee Retirement Income
Security Act of 1974, as amended, or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a Material Adverse Effect except as otherwise set forth in the
Prospectus.
(z) Except as otherwise set forth in the Prospectus, there
are no costs or liabilities associated with Environmental Laws (including,
without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws or any
Authorization (as defined below), any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a Material Adverse Effect or except as otherwise set
forth in the Prospectus.
(aa) The Company has, and immediately subsequent to the
Effective Time, each of the Company and its subsidiaries will have such
permits, licenses, consents, exemptions, franchises, authorizations and other
approvals (each an "AUTHORIZATION") of, and has and, immediately subsequent to
the Effective Time, will have made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and
all courts and other tribunals, including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease, license and
operate its respective properties and to conduct its business, except where the
failure to have any such Authorization or to make any such filing or notice
would not, singly or in the aggregate, have a Material Adverse Effect. Each
such Authorization is and, immediately subsequent to the Effective Time, will
be valid and in full force and effect and the Company is and, immediately
subsequent to the Effective Time, each of the Company and its Subsidiaries will
be in compliance with all the terms and conditions thereof and with the rules
and regulations of the authorities and governing bodies having jurisdiction
with respect thereto; and no event has occurred (including, without limitation,
the receipt of any notice from any authority or governing body) which allows
or, after notice or lapse of time or both, would allow, revocation, suspension
or termination of any such Authorization or results or, after notice or lapse
of time or both, would result in any other impairment of the rights of the
holder of any such Authorization; and such Authorizations contain no
restrictions that are or, immediately subsequent to the Effective Time, will be
burdensome to the Company or any of its Subsidiaries, except in both
circumstances where such failure to be valid and in full force and effect or to
be in compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(ab) This Agreement has been duly authorized, executed and
delivered by Quaker.
(ac) Deloitte & Touche LLP are independent public accountants
with respect to each of Quaker and Holdings as required by the Act.
(ad) The consolidated historical financial statements of
Holdings, together with related schedules and notes forming part of the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), present fairly in all material respects the consolidated historical
financial position, results of operations and changes in financial position of
Holdings
12
<PAGE>
and its subsidiaries on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply; such
historical statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the other
historical financial information and data set forth in the Registration
Statement and the Prospectus (and any amendment or supplement thereto) are, in
all material respects, accurately presented and prepared on a basis consistent
with such financial statements and the books and records of Holdings, except as
otherwise disclosed therein.
(ae) The Company is not and, immediately subsequent to the
Effective Time, the offering and sale of the Units and the application of the
proceeds thereof and the other transactions contemplated by this Agreement and
the Operative Documents, the Company will not be, an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended.
(af) Except (a) as otherwise set forth in the Prospectus and
(b) for the registration rights agreement, dated as of January 27, 1994, among
Onset Corporation and the security holders party thereto, there are and,
immediately subsequent to the Effective Time, will be no contracts, agreements
or understandings between the Company and any person granting such person the
right to require the Company to file a registration statement under the Act
with respect to any securities of the Company or to require the Company to
include such securities with the Units registered pursuant to the Registration
Statement.
(ag) Since the respective dates as of which information is
given in the Prospectus other than as set forth in the Prospectus (exclusive of
any amendments or supplements thereto subsequent to the date of this
Agreement), (i) there has not occurred any material adverse change or any
development involving a prospective material adverse change in the condition,
financial or otherwise, or the earnings, business, management or operations of
Quaker or Holdings and its Subsidiaries, taken as a whole, (ii) there has not
been any material adverse change or any development involving a prospective
material adverse change in the capital stock or in the consolidated long-term
debt of Quaker or Holdings or any of its Subsidiaries and (iii) none of Quaker,
Holdings nor any of its subsidiaries has incurred any material liability or
obligation, direct or contingent which are material to the Company and its
Subsidiaries, taken as a whole.
(ah) Quaker, Holdings and Holdings' Subsidiaries have each
complied with all provisions of Section 517.075, Florida Statutes (Chapter
92-198, Laws of Florida).
(ai) The pro forma financial statements and the related notes
thereto set forth in the Registration Statement and the Prospectus (and any
supplement or amendment thereto) have been prepared on a basis consistent with
the historical financial statements of Holdings and its subsidiaries, give
effect to the assumptions used in the preparation thereof on a reasonable basis
and in good faith and present fairly in all material respects the historical
and proposed transactions contemplated by the Registration Statement and the
Prospectus as and to the extent set forth in the notes thereto. Such pro forma
financial statements have been prepared in accordance with the applicable
requirements of Rule 11-02 of Regulation S-X promulgated by
13
<PAGE>
the Commission. The other pro forma financial and statistical information and
data set forth in the Registration Statement and the Prospectus (and any
supplement or amendment thereto) are, in all material respects, accurately
presented and prepared on a basis consistent with the pro forma financial
statements except as disclosed therein.
(aj) There is and, immediately subsequent to the Effective
Time, will be no (i) material unfair labor practice complaint, grievance or
arbitration proceeding pending or threatened against the Company before the
National Labor Relations Board or any state or local labor relations board or
(ii) strike, labor dispute, slowdown or stoppage pending or threatened against
the Company, except for such actions specified in clause (i) or (ii) above,
which, singly or in the aggregate, would not have a Material Adverse Effect. To
the best of the Company's knowledge, no collective bargaining organizing
activities are taking place with respect to the Company.
(ak) The Company maintains and, immediately subsequent to the
Effective Time, the Company and each of its subsidiaries will maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(al) Except as otherwise set forth in the Prospectus, the
Company and its Subsidiaries own or possess and, immediately subsequent to the
Effective Time, will own or possess o can or, immediately subsequent to the
Effective Time, could acquire on reasonable terms, all patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names ("intellectual
property") currently employed by them in connection with the business now
operated by them except where the failure to own or possess or otherwise be
able to acquire such intellectual property would not, singly or in the
aggregate, have a Material Adverse Effect; and, to the best of the Company's
knowledge, none of the Quaker Holdings or any of its subsidiaries has received
any notice of infringement of or conflict with asserted rights of others with
respect to any of such intellectual property which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would have a
Material Adverse Effect.
(am) Each certificate signed by any officer of the Company,
and delivered to the Underwriter or counsel for the Underwriter shall be deemed
to be a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
SECTION 7. Indemnification. (a) The Company agrees to
indemnify and hold harmless the Underwriter, its directors, its officers and
each person, if any, who controls the Underwriter within the meaning of Section
15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), from and against any and all losses,
14
<PAGE>
claims, damages, liabilities and judgments (including, without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action, that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), the Prospectus (or any amendment or
supplement thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or alleged untrue statement or omission (i) based
upon information relating to the Underwriter furnished in writing to the
Company by the Underwriter expressly for use therein or (ii) that is contained
in part of the Registration Statement that constitutes the Statement of
Eligibility (Form T-1) under the Trust Indenture Act. The foregoing indemnity
agreement with respect to any untrue statement contained in or omission from a
preliminary prospectus shall not inure to the benefit of an Underwriter from
whom the person asserting any such losses, liabilities, claims, damages or
expenses purchased Units, or any director or officer of or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented, if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if such is required by law, at or prior to the written confirmation of
the sale of such Units to such person and the untrue statement contained in or
omission from such preliminary prospectus was corrected in the Prospectus (or
the Prospectus as amended or supplemented).
(b) The Underwriter agrees to indemnify and hold harmless the
Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to such Underwriter but only with
reference to information relating to such Underwriter furnished in writing to
the Company by or on behalf of the Underwriter expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any
person in respect of which indemnity may be sought pursuant to Section 7(a) or
7(b) (the "INDEMNIFIED PARTY"), the Indemnified Party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the Indemnifying Party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all reasonable fees and expenses of such counsel, as
incurred (except that in the case of any action in respect of which indemnity
may be sought pursuant to both Sections 7(a) and 7(b), the Underwriter shall
not be required to assume the defense of such action pursuant to this Section
7(c), but may employ separate counsel and participate in the defense thereof,
but the fees and expenses of such counsel, except as provided below, shall be
at the expense of the Underwriter) subject to repayment to the Indemnifying
Party if it is finally judicially determined by a court of competent
jurisdiction that such Indemnified Party is not entitled to indemnification.
Any Indemnified Party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses
of such counsel shall be at the
15
<PAGE>
expense of the Indemnified Party unless (i) the employment of such counsel
shall have been specifically authorized in writing by the Indemnifying Party,
(ii) the Indemnifying Party shall have failed to assume the defense of such
action or employ counsel reasonably satisfactory to the Indemnified Party or
(iii) the named parties to any such action (including any impleaded parties)
include both the Indemnified Party and the Indemnifying Party, and the
Indemnified Party shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different from or additional
to those available to the Indemnifying Party (in which case the Indemnifying
Party shall not have the right to assume the defense of such action on behalf
of the Indemnified Party). In any such case, the Indemnifying Party shall not,
in connection with any one action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all
indemnified parties and all such fees and expenses shall be reimbursed as they
are incurred. Such firm shall be designated in writing by Donaldson, Lufkin &
Jenrette Securities Corporation, in the case of parties indemnified pursuant to
Section 7(a), and by the Company, in the case of parties indemnified pursuant
to Section 7(b). The Indemnifying Party shall indemnify and hold harmless the
Indemnified Party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
Indemnifying Party shall have received a request from the Indemnified Party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the Indemnifying Party) and, prior to the
date of such settlement, the Indemnifying Party shall have failed to comply
with such reimbursement request. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any pending or
threatened action in respect of which the Indemnified Party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the Indemnified Party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the Indemnified Party from
all liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the Indemnified Party.
(d) To the extent the indemnification provided for in this
Section 7 is unavailable to an Indemnified Party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriter on the other hand from the offering
of the Units or (ii) if the allocation provided by clause 7(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and the Underwriter on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriter on the other hand shall be deemed
to be in the same proportion as the total net
16
<PAGE>
proceeds from the offering (before deducting expenses) received by the Company,
and the total underwriting discounts and commissions received by the
Underwriter, bear to the total price to the public of the Units, in each case
as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company on the one hand and the Underwriter on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Underwriter and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
incurred by such Indemnified Party in connection with investigating or
defending any matter, including any action, that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 7, the Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Units underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which the Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The remedies provided for in this Section 7 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any Indemnified Party at law or in equity.
SECTION 8. Conditions of Underwriter's Obligations. The
obligation of the Underwriter to purchase the Units under this Agreement is
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of Quaker
contained in this Agreement and all of the representations and warranties of
Holdings and its subsidiaries contained in the Merger Agreement shall be true
and correct on the Closing Date with the same force and effect as if made on
and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, such Rule
462(b) Registration Statement shall have become effective by 10:00 P.M., New
York City time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
17
<PAGE>
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) On or after the date hereof there shall not have occurred
any downgrading, nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating of Quaker,
Holdings or any of Holdings' subsidiaries or any securities of Quaker, Holdings
or any of Holdings' subsidiaries or in the rating outlook for any such entity
(including, without limitation, the placing of any of the foregoing ratings on
creditwatch with negative or developing implications or under review with an
uncertain direction) by any "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act.
(d) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by Peter T. Grauer and Kirk C. Wortman, in their
capacities as President and Treasurer and Vice President and Secretary of
Quaker, confirming, to the best of their respective knowledge, as to Quaker,
the matters set forth in Sections 8(a), 8(b), 8(c) and 8(f).
(e) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by Kenneth Draeger, Thomas J. Fitzpatrick and
Thomas M. Molchan, in their capacities as Chairman and Chief Executive Officer,
Vice President and Chief Financial Officer and General Counsel and Corporate
Secretary of Holdings, confirming, to the best of their respective knowledge,
as to Holdings and Holdings' subsidiaries, the matters set forth in Sections
8(a), 8(b), 8(c) and 8(f).
(f) Since the respective dates as of which information is
given in the Prospectus other than as set forth in the Prospectus (exclusive of
any amendments or supplements thereto subsequent to the date of this
Agreement), (i) there shall not have occurred any change or any development
involving a prospective change in the condition, financial or otherwise, or the
earnings, business, management or operations of Quaker or Holdings and any of
Holdings' subsidiaries, taken as a whole, (ii) there shall not have been any
change or any development involving a prospective change in the capital stock
or in the long-term debt of Quaker, Holdings or any of Holdings' subsidiaries
and (iii) none of Quaker, Holdings or any of Holdings' subsidiaries shall have
incurred any liability or obligation, direct or contingent, the effect of
which, in any such case described in clause 8(e)(i), 8(e)(ii) or 8(e)(iii), in
your judgment, is material and adverse and, in your judgment, makes it
impracticable to market the Securities on the terms and in the manner
contemplated in the Prospectus.
(g) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriter), dated the Closing Date,
of Davis Polk & Wardwell ("Davis Polk") counsel for the Company, to the effect
that:
(i) Quaker has been duly incorporated, is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on
its business as described in the Prospectus and to own, lease and
operate its properties;
18
<PAGE>
(ii) Quaker is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be
so qualified would not have a Material Adverse Effect;
(iii) Quaker does not have any direct or indirect
subsidiaries;
(iv) Quaker is not in violation of its charter or by-laws
and, to the best of such counsel's knowledge after due inquiry, Quaker
is not in default in the performance of any obligation, agreement,
covenant or condition contained in any Operative Document;
(v) Quaker has duly authorized the issuance of the Debentures
and the Warrants as a Unit and delivered the Units;
(vi) the Debentures have been duly authorized and, when
executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Underwriter in
accordance with the terms of this Agreement, will be entitled to the
benefits of the Indenture and will be valid and binding obligations of
the Company, enforceable in accordance with their terms except (a) as
such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
and remedies generally and (b) as such enforcement may be limited by
general principles of equity, regardless of whether enforcement is
sought in a proceeding at law or in equity;
(vii) the Indenture has been duly qualified under the Trust
Indenture Act and has been duly authorized, executed and delivered by
Quaker and is a valid and binding agreement of Quaker, enforceable in
accordance with its terms except (a) as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights and remedies generally and
(b) as such enforcement may be limited by general principles of
equity, regardless of whether enforcement is sought in a proceeding at
law or in equity;
(viii) the Warrant Agreement has been duly authorized,
executed and delivered by the Company and is a valid and binding
agreement of the Company, enforceable in accordance with its terms
except as (a) as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights and remedies generally and (b) as such enforcement
may be limited by general principles of equity, regardless of whether
enforcement is sought in a proceeding at law or in equity;
(ix) Quaker has duly authorized the Warrants and, when
countersigned by the Warrant Agent and issued and delivered by Quaker
in accordance with the terms of the Warrant Agreement and delivered to
and paid for by the Underwriter in accordance with the terms of this
Agreement, the Warrants will have been validly issued, and the
issuance of such Warrants will not be subject to any preemptive or
similar rights;
19
<PAGE>
(x) Quaker has duly authorized and reserved for issuance the
Warrant Shares to be issued upon the exercise of the Warrants and,
when issued and delivered upon the exercise of the Warrants against
payment of the Exercise Price (as defined in the Warrant Agreement) as
provided in the Warrant Agreement, the Warrant Shares will conform in
all material respects to the description thereof in the Prospectus,
will have been duly issued and will be fully paid and non-assessable,
and the issuance of such Warrant Shares will not be subject to any
preemptive or similar rights;
(xi) all the outstanding shares of capital stock of Quaker
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights;
(xii) this Agreement has been duly authorized, executed
and delivered by Quaker;
(xiii) each of the Operative Documents is the valid and
legally binding obligation of the Company enforceable against the
Company in accordance with its respective terms, except as (a) the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting the creditors' rights generally, (b) rights of
acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability and (c) rights of
acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability;
(xiv) to the best of such counsel's knowledge after due
inquiry, except as otherwise set forth in the Prospectus, there are no
contracts, agreements or understandings between Quaker and any person
granting such person the right to require Quaker to file a
registration statement under the Act with respect to any securities of
Quaker or to require Quaker to include such securities with the Units
registered pursuant to the Registration Statement;
(xv) such counsel has been advised by the Commission that the
Registration Statement has become effective under the Act, no stop
order suspending its effectiveness has been issued and no proceedings
for that purpose are, to the best of such counsel's knowledge after
due inquiry, pending before or contemplated by the Commission;
(xvi) the statements under the captions "the Merger and
Merger Financing," "Risk Factors--Fraudulent Transfer Statutes,"
"Certain Relationships and Related Transactions," "Description of the
New Credit Facility," "Description of the Units," "Description of the
Warrants," "Description of the Debentures," "Underwriting" and the
description of the existing employment and severance agreements under
the caption "Executive Compensation--Existing Employment and Severance
Agreements" in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to
such legal matters, documents and proceedings;
20
<PAGE>
(xvii) the execution, delivery and performance of this
Agreement, the Indenture, the Debentures, the Warrant Agreement, the
Warrants, the Debenture Assumption and the Warrant Assumption and the
consummation of the Merger by Quaker will not (A) require any consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as may be
required under the Securities Act or other securities or Blue Sky laws
of various states or by the NASD); (B) conflict with or constitute a
breach of any of the terms or provisions of, or default under, the
certificate of incorporation or by-laws of Quaker; (C) require any
consent or approval (which has not been obtained) of parties to, or
conflict with or constitute a breach of any of the terms or provisions
of, or default under, any of the agreements filed as an exhibit to the
Registration Statement (which has not been waived); (D) violate or
conflict with any laws or rules or regulations, rulings or court
decrees as applicable to Quaker or its properties; or (E) result in
the creation or imposition of any Lien on any material asset of Quaker
under any of the agreements filed as an exhibit to the Registration
Statement, except as, with respect to clauses (C) and (E) above, would
not have a Material Adverse Effect;
(xviii) Quaker is not and, immediately subsequent to the
Merger, the offering and sale of the Units and the application of the
proceeds thereof and the other transactions contemplated by this
Agreement and the Operative Documents, in each case, as described in
the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended; and
(xix) (A) the Registration Statement and the Prospectus and
any supplement or amendment thereto (except for the financial
statements and other financial data included therein as to which no
opinion need be expressed) comply as to form with the Act, (B) such
counsel has no reason to believe that at the time the Registration
Statement became effective or on the date of this Agreement, the
Registration Statement and the prospectus included therein (except for
the financial statements and other financial data as to which such
counsel need not express any belief and except for that part of the
Registration Statement that constitutes the Statement of Eligibility
(Form T-1) under the Trust Indenture Act) contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading and (C) such counsel has no reason to believe
that the Prospectus, as amended or supplemented, if applicable (except
for the financial statements and other financial data and the Form
T-1, as aforesaid) contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The opinion of Davis Polk & Wardwell
described in Section 8(g) above shall be rendered to you at the
request of the Company and shall so state therein.
Immediately subsequent to the Effective Time, you shall have received
the opinion of Davis Polk to the effect that:
21
<PAGE>
(xx) the Debenture Assumption has been duly authorized,
executed and delivered by Holdings and is a valid and binding
agreement of Holdings, enforceable in accordance with its terms except
as (a) as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
and remedies generally and (b) as such enforcement may be limited by
general principles of equity, regardless of whether enforcement is
sought in a proceeding at law or in equity;
(xxi) the Warrant Assumption has been duly authorized,
executed and delivered by Holdings and is a valid and binding
agreement of Holdings, enforceable in accordance with its terms except
as (a) as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
and remedies generally and (b) as such enforcement may be limited by
general principles of equity, regardless of whether enforcement is
sought in a proceeding at law or in equity;
(xxii) the Debentures are valid and binding obligations of
Holdings, enforceable against Holdings in accordance with their terms
except (a) as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights and remedies generally and (b) as such enforcement
may be limited by general principles of equity, regardless of whether
enforcement is sought in a proceeding at law or in equity;
(xxiii) the Indenture is the valid and binding obligation of
Holdings, enforceable against Holdings in accordance with its terms
except, in the case of both clauses (I) and (II), as (a) as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights and remedies
generally and (b) as such enforcement may be limited by general
principles of equity, regardless of whether enforcement is sought in a
proceeding at law or in equity;
(xxiv) the Warrant Agreement is the valid and binding
obligation of Holdings, enforceable against Holdings in accordance
with its terms except as (a) as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights and remedies generally and (b) as such
enforcement may be limited by general principles of equity, regardless
of whether enforcement is sought in a proceeding at law or in equity;
(xxv) Holdings has duly authorized, issued and delivered the
Warrants and the Warrants have been validly issued, and the issuance
of such Warrants will not be subject to any preemptive or similar
rights;
(xxvi) Holdings has duly authorized and reserved for issuance
the Warrant Shares to be issued upon the exercise of the Warrants and,
when issued and delivered upon the exercise of the Warrants against
payment of the Exercise Price as provided in the Warrant Agreement,
the Warrant Shares will conform in all material respects to the
description thereof in the Prospects, will have been duly issued and
will be fully paid and non-
22
<PAGE>
assessable, and the issuance of such Warrant Shares will not be
subject to any preemptive or similar rights;
(xxvii) the execution, delivery and performance of the
Debenture Assumption and the Warrant Assumption and the consummation
of the Merger by Holdings will not (A) require any consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as may be
required under the Securities Act or other securities or Blue Sky laws
of various states or by the NASD); (B) conflict with or constitute a
breach of any of the terms or provisions of, or default under, the
certificate of incorporation or by-laws of Holdings or any of its
Subsidiaries; (C) require any consent or approval (which has not been
obtained) of parties to, or conflict with or constitute a breach of
any of the terms or provisions of, or default under, any of the
agreements filed as an exhibit to the Registration Statement (which
has not been waived); (D) violate or conflict with any laws or rules
or regulations, rulings or court decrees as applicable to Holdings,
Holdings' Subsidiaries or their respective properties; or (E) result
in the creation or imposition of any Lien on any material asset of
Holdings or any of Holdings' Subsidiaries under any of the agreements
filed as an exhibit to the Registration Statement, except as, with
respect to clauses (C) and (E) above, would not have a Material
Adverse Effect; and
(xxviii) a registration statement on an appropriate form
under the Act containing a Market Making Prospectus in connection with
sales of the Securities has, such counsel has been advised by the
Commission, become effective under the Act, no stop order suspending
the effectiveness of such registration statement has been issued and
no proceedings for that purpose are, to the best of such counsel's
knowledge after due inquiry, pending before or contemplated by the
Commission.
(h) You shall have received on the Closing Date, an opinion
(satisfactory to you and counsel for the Underwriter), dated the Closing Date,
of Thomas M. Molchan, General Counsel and Corporate Secretary of Holdings to
the effect that:
(i) the entities listed on Schedule I hereto are the only
direct or indirect subsidiaries of Holdings;
(ii) each of Holdings and Holdings' subsidiaries has been
duly incorporated, is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and has
the corporate power and authority to carry on its business as
described in the Prospectus and to own, lease and operate its
properties;
(iii) such counsel does not know of any legal or governmental
proceedings pending or threatened to which Holdings or any of its
subsidiaries is or could be a party or to which any of their
respective property is or could be subject that are required to be
described in the Registration Statement or the Prospectus and are not
so described;
23
<PAGE>
(iv) to his knowledge, neither Holdings nor any of its
subsidiaries has violated any Environmental Law or any provisions of
the Employee Retirement Income Security Act of 1974, as amended, or
the rules and regulations promulgated thereunder, except for such
violations which, singly or in the aggregate, would not have a
Material Adverse Effect or except as otherwise set forth in the
Prospectus;
(v) to his knowledge: each of Holdings and its subsidiaries
has such Authorizations of, and has made all filings with and notices
to, all governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including, without
limitation, under any applicable Environmental Laws, as are necessary
to own, lease, license and operate its respective properties and to
conduct its business, except where the failure to have any such
Authorization or to make any such filing or notice would not, singly
or in the aggregate, have a Material Adverse Effect; each such
Authorization is valid and in full force and effect and each of
Holdings and its subsidiaries is in material compliance with all the
terms and conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect
thereto; and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which
allows or, after notice or lapse of time or both, would allow,
revocation, suspension or termination of any such Authorization or
results or, after notice or lapse of time or both, would result in any
other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that
are burdensome to Holdings or any of its subsidiaries; except where
such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any
such restriction would not, singly or in the aggregate, have a
Material Adverse Effect;
(vi) each of Holdings and Holdings' subsidiaries is duly
qualified and is in good standing as a foreign corporation authorized
to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not
have a Material Adverse Effect;
(vii) none of Holdings or any of Holdings' subsidiaries is in
violation of its respective charter or by-laws and, to the best of
such counsel's knowledge, none of Holdings or any of its subsidiaries
is in default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to
Holdings and Holdings' subsidiaries, taken as a whole, to which
Holdings or any of Holdings' subsidiaries is a party or by which
Holdings or any of Holdings' subsidiaries or their respective property
is bound;
(viii) to the best of such counsel's knowledge, except (a) as
otherwise set forth in the Prospectus and (b) for the registration
rights agreement, dated as of January 27, 1994, among Onset
Corporation and the security holders party thereto, there are no
contracts, agreements or understandings between Holdings and any
person granting such
24
<PAGE>
person the right to require Holdings to file a registration statement
under the Act with respect to any securities of Holdings; and
(ix) except as otherwise set forth in the Prospectus, all of
the outstanding shares of capital stock of Holdings and each of its
subsidiaries are, and immediately subsequent to the Effective Time,
will have been duly authorized and validly issued and are, and
immediately subsequent to the Effective Time, will be fully paid and
non-assessable, and all of the outstanding shares of the capital stock
of the subsidiaries of Holdings are, and immediately subsequent to the
Effective Time, will be owned by Holdings, directly or indirectly
through one or more subsidiaries, free and clear of any Lien.
The opinion of Thomas M. Molchan described in
Section 8(h) above shall be rendered to you at the request of Holdings
and shall so state therein.
In giving such opinions with respect to the matters
covered by Section 8(g)(xiii), Davis Polk and counsel for the
Underwriters may state that their opinion and belief are based upon
their participation in the preparation of the Registration Statement
and Prospectus and any amendments or supplements thereto and review
and discussion of the contents thereof, but are without independent
check or verification except as specified.
(i) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Latham & Watkins, counsel for the Underwriter in
form and substance reasonably satisfactory to the Underwriter.
(j) You shall have received, on each of the date hereof and
the Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to you, from Deloitte & Touche
LLP, independent public accountants, containing the information and statements
of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(k) The Equity Investment shall have been consummated as
described in the Registration Statement and the Prospectus.
(l) Quaker shall have entered into the Indenture and Holdings
shall have entered into the Debenture Assumption and the Underwriter shall have
received counterparts, as executed, thereof.
(m) Quaker shall have entered into the Warrant Agreement and
Holdings shall have entered into the Warrant Assumption and the Underwriter
shall have received counterparts, as executed, thereof.
(n) a registration statement on an appropriate form under the
Act containing a Market Making Prospectus in connection with sales of the
Securities shall have become effective
25
<PAGE>
under the Act, no stop order suspending the effectiveness of such registration
statement shall have been issued and no proceedings for that purpose are, to
the best of such counsel's knowledge after due inquiry, pending before or
contemplated by the Commission.
(o) The Company shall have entered into each of the Operative
Documents (the form and substance of which shall be reasonably acceptable to
the Underwriter) and the Underwriter shall have received counterparts,
conformed as executed, of each thereof and of all other documents and
agreements entered into in connection therewith.
(p) Each condition to closing contemplated by the New Credit
Facility (other than the issuance and sale of the Units pursuant hereto) shall
have been satisfied or waived. There shall exist at and as of the Closing Date
(after giving effect to the transactions contemplated by this Agreement and the
other Operative Documents) no conditions that would constitute a default (or an
event that with notice or the lapse of time, or both, would constitute a
default) under the New Credit Facility. On the Closing Date, the closing under
the New Credit Facility shall have been consummated on terms that conform in
all material respects to the description thereof in the Registration Statement
and the Prospectus and the Underwriter shall have received evidence
satisfactory to it of the consummation thereof.
(q) Each condition to closing contemplated by the
underwriting agreement relating to the offering of the Notes by DecisionOne
Corp. (other than the issuance and sale of the Units pursuant hereto) shall
have been satisfied or waived. On the Closing Date, the closing under the
underwriting agreement relating to the offering of the Notes by DecisionOne
Corp. shall have been consummated on terms that conform in all material
respects to the description thereof in the Registration Statement and the
Prospectus and the Underwriter shall have received evidence satisfactory to it
of the consummation thereof.
(r) Each condition to closing contemplated by each of the
other Operative Documents (other than the issuance and sale of the Units
pursuant hereto) shall have been satisfied or waived. There shall exist at and
as of the Closing Date (after giving effect to the transactions contemplated by
this Agreement and the other Operative Documents) no conditions that would
constitute a default (or an event that with notice or the lapse of time, or
both, would constitute a default), breach or violation of any of the Operative
Documents. On the Closing Date, each of the Operative Documents shall have been
entered into on terms that conform in all material respects to the description
thereof in the Registration Statement and the Prospectus and the Underwriter
shall have received evidence satisfactory to it of the execution thereof and
the consummation of the transactions contemplated thereby.
(s) Each condition to closing contemplated by the Merger
Agreement (other than the issuance and sale of the Units pursuant hereto) shall
have been satisfied or waived. There shall exist at and as of the Closing Date
(after giving effect to the transactions contemplated by this Agreement and the
other Operative Documents) no conditions that would constitute a default (or an
event that with notice or the lapse of time, or both, would constitute a
default) under the Merger Agreement. On the Closing Date, the Merger shall have
been consummated on terms that conform in all material respects to the
description thereof in the Registration Statement and the
26
<PAGE>
Prospectus and the Underwriter shall have received evidence satisfactory to it
of the consummation thereof. The Company shall deliver to the Underwriter
copies of the certificate of merger required under Delaware law to be filed in
order to effect the Merger, as certified by the Secretary of State of Delaware
on the Closing Date.
(t) On the Closing Date, you shall have received a copy of
the solvency opinion by an independent third party addressed to the Board of
Directors of Holdings and the Board of Directors of DecisionOne Corp. as to the
solvency of the Company and its subsidiaries following the consummation of the
transactions contemplated herein and by the Merger Agreement.
(u) On the Closing Date, the existing revolving credit
facility of DecisionOne Corp. will be prepaid in full and the Underwriter shall
have received evidence of such repayment.
(v) The Company shall not have failed at or prior to the
Closing Date to perform or comply with any of the agreements herein contained
and required to be performed or complied with by the Company at or prior to the
Closing Date.
SECTION 9. Effectiveness of Agreement and Termination. This
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time prior to the
Closing Date by you by written notice to Quaker if any of the following has
occurred: (1) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market
the Units on the terms and in the manner contemplated in the Prospectus, (2)
the suspension or material limitation of trading in securities or other
instruments on the New York Stock Exchange, the American Stock Exchange, the
Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago
Board of Trade or the Nasdaq National Market or limitation on prices for
securities or other instruments on any such exchange or the Nasdaq National
Market, (3) the suspension of trading of any securities of Quaker, Holdings or
any of Holdings' subsidiaries on any exchange or in the over-the-counter
market, (4) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects,
or will materially and adversely affect, the business, prospects, financial
condition or results of operations of Quaker or Holdings and Holdings'
subsidiaries, taken as a whole, (5) the declaration of a banking moratorium by
either federal or New York State authorities or (6) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
SECTION 10. Miscellaneous. Notices given pursuant to any
provision of this Agreement shall be addressed as follows: (i) if to Quaker, to
Quaker Holding Co., 277 Park Avenue, New York 10172; Attention: Peter T.
Grauer, with a copy to Davis Polk & Wardwell, 450 Lexington Avenue, New York,
NY 10017; Attention: Richard D. Truesdell, Esq.; (ii) if to Holdings, to
DecisionOne Holdings Corp., 50 East Swedesford Road, Frazer, PA 19355,
27
<PAGE>
Attention: General Counsel, with a copy to Davis Polk & Wardwell, 450 Lexington
Avenue, New York, NY 10017; Attention: Richard D. Truesdell, Esq. and (iii) if
to the Underwriter, to Donaldson, Lufkin & Jenrette Securities Corporation, 277
Park Avenue, New York, NY 10172, Attention: Syndicate Department, with a copy
to Latham & Watkins, 885 Third Avenue, New York, NY 10022; Attention: Marc D.
Jaffe, Esq., or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company and the
Underwriter set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and
payment for the Units, regardless of (1) any investigation, or statement as to
the results thereof, made by or on behalf of the Underwriter, the officers or
directors of the Underwriter, any person controlling the Underwriter, the
Company or the officers or directors of the Company or any person controlling
the Company, (2) acceptance of the Units and payment for them hereunder and (3)
termination of this Agreement.
If for any reason the Units are not delivered by or on behalf
of Quaker as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Company agrees to reimburse the
Underwriter for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by it. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has
agreed to pay pursuant to Section 5(i) hereof. The Company also agrees to
reimburse the Underwriter, its directors and officers and any persons
controlling the Underwriter for any and all fees and expenses (including,
without limitation, the fees disbursements of counsel) incurred by it in
connection with enforcing its rights hereunder (including, without limitation,
pursuant to Section 7 or 8 hereof).
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Underwriter, the Underwriter's directors and officers, any controlling persons
referred to herein, the Company's directors and the Company's officers who sign
the Registration Statement and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors
and assigns" shall not include a purchaser of any of the Units from any
Underwriter merely because of such purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
28
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the Underwriter.
Very truly yours,
QUAKER HOLDING CO.
By:
------------------------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
---------------------------------
Name:
Title:
29
<PAGE>
SCHEDULE I
Subsidiaries of DecisionOne Holdings Corp.
DecisionOne Corporation
Properties Holding Corporation
Properties Development Corporation
International Computers Properties Corporation
DecisionOne (Canada) Corporation
DecisionOne Supplies, Inc.
Decision Data Computer International, S.A.
Decision Data Investment Corporation
Decision Data International Corporation
<PAGE>
CONFORMED COPY
CERTIFICATE OF INCORPORATION
OF
QUAKER HOLDING CO.
*****
FIRST: The name of the Corporation is Quaker Holding Co.
SECOND: The address of its registered office in the State of Delaware
is 1013 Centre Road, Wilmington, Delaware 19805. The name of its registered
agent at such address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as the same exists or may hereafter be
amended (the "Delaware Law").
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 45,000,000 consisting of 30,000,000 shares of
Common Stock, par value $.01 per share (the "COMMON STOCK") and 15,000,000
shares of Preferred Stock, par value $.01 per share (the "PREFERRED STOCK").
The Board of Directors is hereby empowered to authorize by resolution or
resolutions from time to time the issuance of one or more classes or series of
Preferred Stock and to fix the designations, powers, preferences and relative,
participating, optional or other rights, if any, and the qualifications,
limitations or restrictions thereof, if any, with respect to each such class or
series of Preferred Stock and the number of shares constituting each such class
or series, and to increase or decrease the number of shares of any such class
or series to the extent permitted by the Delaware Law.
FIFTH: The name and mailing address of the incorporator are:
Name Mailing Address
Patricia Long 450 Lexington Avenue
New York, NY 10017
The power of the incorporator as such shall terminate upon the filing
of this Certificate of Incorporation.
<PAGE>
SIXTH: The names and mailing addresses of the persons who are to serve
as directors until the first annual meeting of stockholders or until their
successors are elected and qualified are:
Name Mailing Address
Peter T. Grauer 277 Park Avenue
New York, NY 10172
Kirk Wortman 277 Park Avenue
New York, NY 10172
SEVENTH: The Board of Directors shall have the power to adopt, amend
or repeal the bylaws of the Corporation.
EIGHTH: Election of directors need not be by written ballot unless the
bylaws of the Corporation so provide.
NINTH: (1) A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permitted by Delaware Law.
(2)(a) Each person (and the heirs, executors or administrators of such
person) who was or is a party or is threatened to be made a party to, or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of the Corporation or is or
was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless by the Corporation to the fullest extent
permitted by Delaware Law. The right to indemnification conferred in this
ARTICLE NINTH shall also include the right to be paid by the Corporation the
expenses incurred in connection with any such proceeding in advance of its
final disposition to the fullest extent authorized by Delaware Law. The right
to indemnification conferred in this ARTICLE NINTH shall be a contract right.
(b) The Corporation may, by action of its Board of Directors, provide
indemnification to such of the officers, employees and agents of the
Corporation to such extent and to such effect as the Board of Directors shall
determine to be appropriate and authorized by Delaware Law.
2
<PAGE>
(3) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss incurred by such person in any such capacity or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under Delaware Law.
(4) The rights and authority conferred in this ARTICLE NINTH shall not
be exclusive of any other right which any person may otherwise have or
hereafter acquire.
(5) Neither the amendment nor repeal of this ARTICLE NINTH, nor the
adoption of any provision of this Certificate of Incorporation or the bylaws of
the Corporation, nor, to the fullest extent permitted by Delaware Law, any
modification of law, shall eliminate or reduce the effect of this ARTICLE NINTH
in respect of any acts or omissions occurring prior to such amendment, repeal,
adoption or modification.
TENTH: The Corporation reserves the right to amend this Certificate of
Incorporation in any manner permitted by Delaware Law and, with the sole
exception of those rights and powers conferred under the above ARTICLE NINTH,
all rights and powers conferred herein on stockholders, directors and officers,
if any, are subject to this reserved power.
IN WITNESS WHEREOF, I have hereunto signed my name this 30th day of
April, 1997.
/s/ Patricia Long
-----------------
Patricia Long
3
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
QUAKER HOLDING CO.
* * * * *
ARTICLE 1
OFFICES
SECTION 1.01. Registered Office. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
SECTION 1.02. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
SECTION 1.03. Books. The books of the Corporation may be kept within
or without of the State of Delaware as the Board of Directors may from time to
time determine or the business of the Corporation may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
SECTION 2.01. Time and Place of Meetings. All meetings of stockholders
shall be held at such place, either within or without the State of Delaware, on
such date and at such time as may be determined from time to time by the Board
of Directors (or the Chairman in the absence of a designation by the Board of
Directors).
SECTION 2.02. Annual Meetings. Annual meetings of stockholders,
commencing with the year 1998, shall be held to elect the Board of Directors
and transact such other business as may properly be brought before the meeting.
<PAGE>
SECTION 2.03. Special Meetings. Special meetings of stockholders may
be called by the Board of Directors or the chairman of the Board and shall be
called by the Secretary at the request in writing of holders of record of a
majority of the outstanding capital stock of the Corporation entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
SECTION 2.04. Notice of Meetings and Adjourned Meetings; Waivers of
Notice. (a) Whenever stockholders are required or permitted to take any action
at a meeting, a written notice of the meeting shall be given which shall state
the place, date and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. Unless otherwise
provided by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended ("DELAWARE LAW"), such notice shall be given
not less than 10 nor more than 60 days before the date of the meeting to each
stockholder of record entitled to vote at such meeting. Unless these bylaws
otherwise require, when a meeting is adjourned to another time or place
(whether or not a quorum is present), notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Corporation may transact
any business which might have been transacted at the original meeting. If the
adjournment is for more than 30 days, or after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
(b) A written waiver of any such notice signed by the person
entitled thereto, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
SECTION 2.05. Quorum. Unless otherwise provided under the certificate
of incorporation or these bylaws and subject to Delaware Law, the presence, in
person or by proxy, of the holders of a majority of the outstanding capital
stock of the Corporation entitled to vote at a meeting of stockholders shall
constitute a quorum for the transaction of business.
SECTION 2.06. Voting. (a) Unless otherwise provided in the certificate
of incorporation and subject to Delaware Law, each stockholder shall be
entitled to one vote for each outstanding share of capital stock of the
Corporation held by
2
<PAGE>
such stockholder. Unless otherwise provided in Delaware Law, the certificate of
incorporation or these bylaws, the affirmative vote of a majority of the shares
of capital stock of the Corporation present, in person or by proxy, at a
meeting of stockholders and entitled to vote on the subject matter shall be the
act of the stockholders.
(b) Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to a corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period.
SECTION 2.07. Action by Consent. (a) Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting of stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding
capital stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within 60 days of the
earliest dated consent delivered in the manner required by this Section and
Delaware Law to the Corporation, written consents signed by a sufficient number
of holders to take action are delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
SECTION 2.08. Organization. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, (or in his absence or if
one
3
<PAGE>
shall not have been elected, the President) shall act as chairman of the
meeting. The Secretary (or in his absence or inability to act, the person whom
the chairman of the meeting shall appoint secretary of the meeting) shall act
as secretary of the meeting and keep the minutes thereof.
SECTION 2.09. Order of Business. The order of business at all meetings
of stockholders shall be as determined by the chairman of the meeting.
ARTICLE 3
DIRECTORS
SECTION 3.01. General Powers. Except as otherwise provided in Delaware
Law or the certificate of incorporation, the business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 3.02. Number, Election and Term of Office. The number of
directors which shall constitute the whole Board shall be fixed from time to
time by resolution of the Board of Directors but shall not be less than three
nor more than nine. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 3.12 herein, and each director so
elected shall hold office until his successor is elected and qualified or until
his earlier death, resignation or removal. Directors need not be stockholders.
SECTION 3.03. Quorum and Manner of Acting. Unless the certificate of
incorporation or these bylaws require a greater number, a majority of the total
number of directors shall constitute a quorum for the transaction of business,
and the affirmative vote of a majority of the directors present at meeting at
which a quorum is present shall be the act of the Board of Directors. When a
meeting is adjourned to another time or place (whether or not a quorum is
present), notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the Board of Directors may transact any business
which might have been transacted at the original meeting. If a quorum shall not
be present at any meeting of the Board of directors the directors present
thereat may adjourn the meeting, from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 3.04. Time and Place of Meetings. The Board of Directors shall
hold its meetings at such place, either within or without the State of
Delaware, and at such time as may be determined from time to time by the Board
of
4
<PAGE>
Directors (or the Chairman in the absence of a determination by the Board of
Directors).
SECTION 3.05. Annual Meeting. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
place either within or without the State of Delaware, on such date and at such
time as shall be specified in a notice thereof given as hereinafter provided in
Section 3.07 hereof or in a waiver of notice thereof signed by any director who
chooses to waive the requirement of notice.
SECTION 3.06. Regular Meetings. After the place and time of regular
meetings of the Board of Directors shall have been determined and notice
thereof shall have been once given to each member of the Board of Directors,
regular meetings may be held without further notice being given.
SECTION 3.07. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President and shall
be called by the Chairman of the Board, President or Secretary on the written
request of three directors. Notice of special meetings of the Board of
Directors shall be given to each director at least three days before the date
of the meeting in such manner as is determined by the Board of Directors.
SECTION 3.08. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. Any such committee, to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the certificate of
incorporation, adopting an agreement of merger or consolidation, recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending
the bylaws of the Corporation; and unless the resolution of the Board of
Directors or the certificate of incorporation
5
<PAGE>
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. Each committee shall
keep regular minutes of its meetings and report the same to the Board of
Directors when required.
SECTION 3.09. Action by Consent. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 3.10. Telephonic Meetings. Unless otherwise restricted by the
certificate of incorporation or these bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or such committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 3.11. Resignation. Any director may resign at any time by
giving written notice to the Board of Directors or to the Secretary of the
Corporation. The resignation of any director shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice; and
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
SECTION 3.12. Vacancies. Unless otherwise provided in the certificate
of incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all the stockholders
having the right to vote as a single class may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the certificate of
incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected. Each director so chosen shall hold office until his
successor is elected and qualified, or until his earlier death, resignation or
removal. If there are no directors in office, then an election of directors may
be held in accordance with Delaware Law. Unless otherwise provided in the
certificate of incorporation, when one or more directors shall resign from the
Board, effective at a future date, a majority of the directors then in
6
<PAGE>
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in the filling of other vacancies.
SECTION 3.13. Removal. Any director or the entire Board of Directors
may be removed, with or without cause, at any time by the affirmative vote of
the holders of a majority of the outstanding capital stock of the Corporation
entitled to vote and the vacancies thus created may be filled in accordance
with Section 3.12 herein.
SECTION 3.14. Compensation. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the Board of Directors shall
have authority to fix the compensation of directors, including fees and
reimbursement of expenses.
ARTICLE 4
OFFICERS
SECTION 4.01. Principal Officers. The principal officers of the
Corporation shall be a President, one or more Vice Presidents, a Treasurer and
a Secretary who shall have the duty, among other things, to record the
proceedings of the meetings of stockholders and directors in a book kept for
that purpose. The Corporation may also have such other principal officers,
including one or more Controllers, as the Board may in its discretion appoint.
One person may hold the offices and perform the duties of any two or more of
said offices, except that no one person shall hold the offices and perform the
duties of President and Secretary.
SECTION 4.02. Election, Term of Office and Remuneration. The principal
officers of the Corporation shall be elected annually by the Board of Directors
at the annual meeting thereof. Each such officer shall hold office until his
successor is elected and qualified, or until his earlier death, resignation or
removal. The remuneration of all officers of the Corporation shall be fixed by
the Board of Directors. Any vacancy in any office shall be filled in such
manner as the Board of Directors shall determine.
SECTION 4.03. Subordinate Officers. In addition to the principal
officers enumerated in Section 4.01 hereof, the Corporation may have one or
more Assistant Treasurers, Assistant Secretaries and Assistant Controllers and
such
7
<PAGE>
other subordinate officers, agents and employees as the Board of Directors may
deem necessary, each of whom shall hold office for such period as the Board of
Directors may from time to time determine. The Board of Directors may delegate
to any principal officer the power to appoint and to remove any such
subordinate officers, agents or employees.
SECTION 4.04. Removal. Except as otherwise permitted with respect to
subordinate officers, any officer may be removed, with or without cause, at any
time, by resolution adopted by the Board of Directors.
SECTION 4.05. Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors (or to a principal officer if
the Board of Directors has delegated to such principal officer the power to
appoint and to remove such officer). The resignation of any officer shall take
effect upon receipt of notice thereof or at such later time as shall be
specified in such notice; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 4.06. Powers and Duties. The officers of the Corporation shall
have such powers and perform such duties incident to each of their respective
offices and such other duties as may from time to time be conferred upon or
assigned to them by the Board of Directors.
ARTICLE 5
GENERAL PROVISIONS
SECTION 5.01. Fixing the Record Date. (a) In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than 60 nor less than 10 days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided that the Board of Directors may fix a new record date for the
adjourned meeting.
8
<PAGE>
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board
of Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by Delaware Law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by Delaware Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 5.02. Dividends. Subject to limitations contained in Delaware
Law and the certificate of incorporation, the Board of Directors may declare
and pay dividends upon the shares of capital stock of the Corporation, which
dividends may be paid either in cash, in property or in shares of the capital
stock of the Corporation.
SECTION 5.03. Fiscal Year. The fiscal year of the Corporation shall
commence on January 1 and end on December 31 of each year.
9
<PAGE>
SECTION 5.04. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed, affixed or otherwise reproduced.
SECTION 5.05. Voting of Stock Owned by the Corporation. The Board of
Directors may authorize any person, on behalf of the Corporation, to attend,
vote at and grant proxies to be used at any meeting of stockholders of any
corporation (except this Corporation) in which the Corporation may hold stock.
SECTION 5.06. Amendments. These bylaws or any of them, may be altered,
amended or repealed, or new bylaws may be made, by the stockholders entitled to
vote thereon at any annual or special meeting thereof or by the Board of
Directors.
10
<PAGE>
L&W DRAFT 7/26/97
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
QUAKER HOLDING CO.
___% SENIOR DISCOUNT DEBENTURES DUE 2008
------------------------------------
INDENTURE
Dated as of August ___, 1997
------------------------------------
------------------------------------
STATE STREET BANK AND TRUST COMPANY
TRUSTEE
------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE........................................................ 1
Section 1.01. Definitions............................................................................... 1
Section 1.02. Other Definitions. ....................................................................... 15
Section 1.03. Incorporation By Reference of Trust Indenture Act......................................... 16
Section 1.04. Rules of Construction..................................................................... 17
Section 1.05. Compliance Certificates and Opinions...................................................... 17
Section 1.06. Form of Documents Delivered To Trustee.................................................... 17
Section 1.07. Acts of Holders........................................................................... 18
ARTICLE 2 THE NOTES......................................................................................... 19
Section 2.01. Form and Dating........................................................................... 19
Section 2.02. Execution and Authentication.............................................................. 19
Section 2.03. Registrar and Paying Agent................................................................ 22
Section 2.04. Paying Agent to Hold Money in Trust....................................................... 22
Section 2.05. Lists of Holders of the Notes............................................................. 22
Section 2.06. Transfer and Exchange..................................................................... 23
Section 2.07. Replacement Notes......................................................................... 23
Section 2.08. Outstanding Notes......................................................................... 24
Section 2.09. Treasury Notes............................................................................ 24
Section 2.10. Temporary Notes........................................................................... 24
Section 2.11. Cancellation.............................................................................. 24
Section 2.12. Defaulted Interest........................................................................ 24
Section 2.13. Record Date............................................................................... 25
Section 2.14. CUSIP Number.............................................................................. 25
Section 2.15. Computation of Interest................................................................... 25
ARTICLE 3 REDEMPTION AND PREPAYMENT......................................................................... 25
Section 3.01. Election to Redeem; Notice to Trustee..................................................... 25
Section 3.02. Selection by Trustee of Notes to Be Redeemed.............................................. 25
Section 3.03. Notice of Redemption...................................................................... 26
Section 3.04. Effect of Notice of Redemption............................................................ 27
Section 3.05. Deposit of Redemption Price............................................................... 27
Section 3.06. Notes Payable on Redemption Date.......................................................... 27
Section 3.07. Notes Redeemed in Part.................................................................... 27
Section 3.08. Optional Redemption....................................................................... 27
Section 3.09. Mandatory Redemption...................................................................... 28
Section 3.10. Offer to Purchase by Application of Excess Proceeds....................................... 28
ARTICLE 4 COVENANTS......................................................................................... 30
Section 4.01. Payment of Principal, Premium and Interest................................................ 30
Section 4.02. Maintenance of Office or Agency........................................................... 30
Section 4.03. Money for Payments to Be Held In Trust.................................................... 31
Section 4.04. Reports................................................................................... 32
Section 4.05. Statement as to Compliance; Notice of Default............................................. 32
Section 4.06. Payment of Taxes and Other Claims......................................................... 33
Section 4.07. Stay, Extension, Usury Laws............................................................... 33
Section 4.08. Corporate Existence....................................................................... 33
Section 4.09. Offer to Repurchase Upon Change of Control................................................ 34
Section 4.10. Asset Sales............................................................................... 35
Section 4.11. Limitation on Restricted Payments......................................................... 36
i
<PAGE>
Section 4.12. Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock.................. 40
Section 4.13. Transactions with Affiliates.............................................................. 43
Section 4.14. Dividend and Other Payment Restrictions Affecting Subsidiaries............................ 43
Section 4.16 Sales of Accounts Receivables............................................................. 44
Section 4.17. No Restrictions on Consummation of Merger................................................. 45
ARTICLE 5 SUCCESSORS........................................................................................ 45
Section 5.01. Merger, Consolidation, or Sale of All or Substantially All Assets......................... 45
Section 5.02. Successor Corporation Substituted......................................................... 46
ARTICLE 6 DEFAULTS AND REMEDIES............................................................................. 46
Section 6.01. Events of Default and Notice Thereof...................................................... 46
Section 6.02. Acceleration.............................................................................. 47
Section 6.03. Other Remedies............................................................................ 48
Section 6.04. Waiver of Past Defaults................................................................... 48
Section 6.05. Control by Majority. ............................................................... 48
Section 6.06. Limitation on Suits....................................................................... 48
Section 6.07. Rights of Holders of Notes to Receive Payment............................................. 49
Section 6.08. Collection Suit by Trustee................................................................ 49
Section 6.09. Trustee May File Proofs of Claim.......................................................... 49
Section 6.10. Priorities................................................................................ 49
Section 6.11. Undertaking for Costs..................................................................... 50
ARTICLE 7 TRUSTEE........................................................................................... 50
Section 7.01. Duties of Trustee......................................................................... 50
Section 7.02. Rights of Trustee......................................................................... 51
Section 7.03. Individual Rights of Trustee.............................................................. 52
Section 7.04. Trustee's Disclaimer...................................................................... 52
Section 7.05. Notice of Defaults........................................................................ 52
Section 7.06. Reports by Trustee to Holders of the Notes................................................ 52
Section 7.07. Compensation and Indemnity................................................................ 53
Section 7.08. Replacement of Trustee.................................................................... 53
Section 7.09. Successor Trustee by Merger, etc.......................................................... 54
Section 7.10. Eligibility; Disqualification............................................................. 54
Section 7.11. Preferential Collection of Claims Against the Company..................................... 55
Section 7.12. Rights of Holders with Respect to Time Method and Place................................... 55
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE.......................................................... 55
Section 8.01. Option to Effect Defeasance or Covenant Defeasance........................................ 55
Section 8.02. Legal Defeasance and Discharge............................................................ 55
Section 8.03. Covenant Defeasance....................................................................... 56
Section 8.04. Conditions to Defeasance or Covenant Defeasance........................................... 56
ii
<PAGE>
Section 8.05. Deposited Money and U.S. Government Obligations to be Held in Trust;
Other Miscellaneous Provisions............................................................ 57
Section 8.06. Repayment to Company...................................................................... 58
Section 8.07. Reinstatement............................................................................. 58
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER...................................................................59
Section 9.01. Without Consent of Holders of Notes....................................................... 59
Section 9.02. With Consent of Holders of Notes.......................................................... 59
Section 9.03. Compliance with TIA....................................................................... 61
Section 9.04. Revocation and Effect of Consents......................................................... 61
Section 9.05. Notation on or Exchange of Notes.......................................................... 61
ARTICLE 10 SATISFACTION AND DISCHARGE........................................................................ 61
Section 10.01 Satisfaction and Discharge of Indenture................................................... 61
Section 10.02 Application of Trust Money............................................................... 62
ARTICLE 11 MISCELLANEOUS..................................................................................... 63
Section 11.01. Conflict of Any Provision of Indenture with TIA........................................... 63
Section 11.02. Notices................................................................................... 63
Section 11.03. Communication by Holders of Notes with Other Holders of Notes............................. 64
Section 11.04. Certificate and Opinion as to Conditions Precedent........................................ 64
Section 11.05. Legal Holidays............................................................................ 64
Section 11.06. No Personal Liability of Directors, Officers, Employees and Stockholders.................. 65
Section 11.07. Governing Law............................................................................. 65
Section 11.08. No Adverse Interpretation of Other Agreements............................................. 65
Section 11.09. Successors and Assigns.................................................................... 65
Section 11.10. Severability.............................................................................. 65
Section 11.11. Counterpart Originals..................................................................... 65
Section 11.12. Table of Contents, Headings, etc.......................................................... 66
</TABLE>
EXHIBITS
EXHIBIT A FORM OF NOTE
EXHIBIT B FORM OF ASSUMPTION AGREEMENT
iii
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture Indenture
--------------- ---------
Section
-------
Act Section
-----------
310(a)(1).......................................... 7.10
(a)(2)........................................ 7.10
(a)(3)........................................ N.A.
(a)(4)........................................ N.A.
(a)(5)........................................ 7.10
(b)........................................... 7.10
(c)........................................... N.A.
311(a)............................................. 7.11
(b)........................................... 7.11
(c)........................................... N.A.
312(a)............................................. 11.03
(b)........................................... 11.03
(c)........................................... 11.03
313(a)............................................. 7.06
(b)(1)........................................ N.A.
(b)(2)........................................ 7.06; 7.07
(c)........................................... 7.06; 10.02
(d)........................................... 7.06
314(a)............................................. 4.04; 11.02
(b)........................................... N.A.
(c)(1)........................................ 11.04
(c)(2)........................................ 11.04
(c)(3)........................................ N.A.
(d)........................................... N.A.
(f)........................................... N.A.
315(a)............................................. 7.01
(b)........................................... 7.05; 11.02
(c)........................................... 7.01
(d)........................................... 7.01
(e)........................................... 6.11
316(a)(last sentence).............................. 2.09
(a)(1)(A)..................................... 6.05
(a)(1)(B)..................................... 6.04
(a)(2)........................................ N.A.
(b)........................................... 6.07
317(a)(1).......................................... 6.08
(a)(2)........................................ 6.09
(b)........................................... 2.04
318(a)............................................. 11.01
(b)........................................... N.A.
(c)........................................... 11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
iv
<PAGE>
INDENTURE dated as of August ___, 1997 between Quaker Holding Co., a
Delaware corporation (the "Issuer"), and State Street Bank and Trust Company,
as trustee (the "Trustee"). The Company and the Trustee agree as follows for
the benefit of each other and for the equal and ratable benefit of the Holders
of the __% Senior Discount Debentures due 2008 (the "Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
Set forth below are certain defined terms used in this Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Accounts Receivable Subsidiary" means any newly created, Wholly
Owned Subsidiary of the Company (i) which is formed solely for the purpose of,
and which engages in no activities other than activities in connection with,
financing accounts receivable of the Company and/or its Restricted
Subsidiaries, (ii) which is designated by the Board of Directors of the
Company as an Accounts Receivables Subsidiary pursuant to a Board Resolution
set forth in an Officers' Certificate and delivered to the Trustee, (iii) that
has total assets at the time of such designation with a book value not
exceeding $500,000 plus the reasonable fees and expenses required to establish
such Accounts Receivable Subsidiary and any accounts receivable financing,
(iv) no portion of Indebtedness or any other obligation (contingent or
otherwise) of which (a) is at any time recourse to or obligates the Company or
any Restricted Subsidiary of the Company in any way, other than pursuant to
(I) representations and covenants entered into in the ordinary course of
business in connection with the sale of accounts receivable to such Accounts
Receivable Subsidiary or (II) any guarantee of any such accounts receivable
financing by the Company or any Restricted Subsidiary that is permitted to be
incurred pursuant to the covenant described in Section 4.12 hereof, or (b)
subjects any property or asset of the Company or any Restricted Subsidiary of
the Company, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to (I) representations and covenants
entered into in the ordinary course of business in connection with sales of
accounts receivable or (II) any guarantee of any such accounts receivable
financing by the Company or any Restricted Subsidiary that is permitted to be
incurred pursuant to the covenant described in Section 4.12 hereof, (v) with
which neither the Company nor any Restricted Subsidiary of
<PAGE>
the Company has any contract, agreement, arrangement or understanding other
than contracts, agreements, arrangements and understandings entered into in
the ordinary course of business in connection with sales of accounts
receivable in accordance with the covenant described in Section 4.16 hereof
and fees payable in the ordinary course of business in connection with
servicing accounts receivable and (vi) with respect to which neither the
Company nor any Restricted Subsidiary of the Company has any obligation (a) to
subscribe for additional shares of Capital Stock or other Equity Interests
therein or make any additional capital contribution or similar payment or
transfer thereto other than in connection with the sale of accounts receivable
to such Accounts Receivable Subsidiary in accordance with the covenant
described in Section 4.16 hereof or (b) to maintain or preserve the solvency
or any balance sheet term, financial condition, level of income or results of
operations thereof.
"Accreted Value" means, as of any date of determination prior to ,
2002, with respect to any Note, the sum of (a) the initial offering price
(which shall be calculated by discounting the aggregate principal amount at
maturity of such Note at a rate of % per annum, compounded semi-annually on
each and from , 2002 to the date of issuance) of such Note and (b) the portion
of the excess of the principal amount of such Note over such initial offering
price which shall have been accreted thereon through such date, such amount to
be so accreted on a daily basis at a rate of % per annum of the initial
offering price of such Note, compounded semi-annually on each and from the
date of issuance of the Notes through the date of determination, computed on
the basis of a 360-day year of twelve 30-day months.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person or assumed in
connection with the acquisition of any asset used or useful in a Permitted
Business acquired by such Person.
"Adjusted Consolidated Net Income" means, with respect to any Person
for any period, the Consolidated Net Income of such Person for such period
plus, to the extent deducted in calculating Consolidated Net Income, the sum
of (i) 100% of the aggregate amortization of intangibles (less any tax benefit
recorded by such Person as a result of such amortization), plus, with respect
to the Company, up to $25.0 million of charges arising from any write-off of
intangibles reflected on the Company's balance sheet as of March 31, 1997, for
such period of such Person and its Restricted Subsidiaries, (ii) 100% of
non-cash compensation expense for such period incurred by such Person and its
Restricted Subsidiaries related to stock options or other Equity Interests
granted to the employees or directors of such Person and its Restricted
2
<PAGE>
Subsidiaries and (iii) expenses and charges of the Company and DecisionOne
Corp. related to the Merger which are paid, taken or otherwise accounted for
within 90 days of the consummation of the Merger.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with") as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through
the ownership of voting securities, by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback) other than (A) in the ordinary course of business or (B) sales of
accounts receivables to the Accounts Receivables Subsidiary in accordance with
Section 4.16 hereof (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole will be governed by Section 4.09 hereof and/or
Section 5.01 hereof and not by the provisions of Section 4.10 hereof); and
(ii) the issue by any Restricted Subsidiary of the Company of any Equity
Interests of such Restricted Subsidiary and the sale by the Company or any of
its Restricted Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of clauses (i) and (ii), whether in a single
transaction or series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing: (1) a transfer of assets by the
Company to a Restricted Subsidiary or by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary, (2) an issuance of Equity
Interests by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, (3) a Restricted Payment that is permitted by Section 4.11 hereof,
(4) the sale and leaseback of any assets within 90 days of the acquisition of
such assets, (5) foreclosures on assets and (6) a disposition of Cash
Equivalents in the ordinary course of business will not be deemed to be Asset
Sales.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction,
3
<PAGE>
determined in accordance with GAAP) of the obligation of the lessee for net
rental payments during the remaining term of the lease included in such sale
and leaseback transaction (including any period for which such lease has been
extended or may, at the option of the lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar foreign,
federal or state law for the relief of debtors.
"Board of Directors" means the board of directors of the Company or
any duly authorized committee of such board of directors.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of
such certification and delivered to the Trustee.
"Business" shall have the meaning assigned to such term in Article
11, Rule 11-01(d) of Regulation S-X, promulgated pursuant to the Securities
Act, as such regulation is in effect on the date of this Indenture.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance sheet
in accordance with GAAP.
"Capital Stock" means, (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) Government Securities, (ii) any
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution or any
lender under the New Credit Facility, (iii) commercial paper maturing not more
than 365 days after the date of acquisition of an issuer (other than an
Affiliate of the Company) with a rating, at the time as of which any
investment therein is made, of "A-3" (or higher) according to S&P or "P-2" (or
higher) according to Moody's or carrying an equivalent rating by a nationally
recognized rating agency if both of the two named rating agencies cease
publishing ratings of investments, (iv) any bankers
4
<PAGE>
acceptances or money market deposit accounts issued by an Eligible Institution
and (v) any fund investing exclusively in investments of the types described
in clauses (i) through (iv) above.
"Change of Control" means the occurrence of any of the following: (i)
any sale, lease, transfer, conveyance or other disposition (other than by way
of merger or consolidation) in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" (as defined in Section 13(d) of the Exchange Act)
or "group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act)
other than the Principals and their Related Parties; (ii) the adoption of a
plan for the liquidation or dissolution of the Company; (iii) the Company
consolidates with, or merges with or into, another "person" (as defined above)
or "group" (as defined above) in a transaction or series of related
transactions in which the Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any transaction
where (A) the outstanding Voting Stock of the Company is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee corporation and (B) either (1) the "beneficial owners" (as defined
in Rule 13d-3 under the Exchange Act) of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly through one
or more Subsidiaries, not less than a majority of the total Voting Stock of
the surviving or transferee corporation immediately after such transaction or
(2) if, immediately prior to such transaction the Company is a direct or
indirect Subsidiary of any other Person (such other Person, the "Parent
Holding Company"), then the "beneficial owners" (as defined above) of the
Voting Stock of such Holding Company immediately prior to such transaction
own, directly or indirectly through one or more Subsidiaries, not less than a
majority of the Voting Stock of the surviving or transferee corporation
immediately after such transaction; (iv) the consummation of any transaction
or series of related transactions (including, without limitation, by way of
merger or consolidation) the result of which is that any "person" (as defined
above) or "group" (as defined above) other than the Principals and their
Related Parties becomes the "beneficial owner" (as defined above) of more than
50% of the voting power of the Voting Stock of the Company or any Parent
Holding Company of the Company or (v) the first day on which a majority of the
members of the Board of Directors of the Company or any Parent Holding Company
of the Company are not Continuing Directors.
"Closing Date" means the closing date of the sale and original
issuance of the Notes under this Indenture.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value .01
per share.
5
<PAGE>
"Company" means the Issuer, as obligor under the Notes, until the
Merger, whereupon the term shall refer to Holdings, unless and until a
successor replaces Holdings in accordance with Article 5 hereof, and
thereafter includes such successor.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period, plus, to the extent deducted in computing
Consolidated Net Income, (i) provision for taxes based on income or profits of
such Person and its Restricted Subsidiaries for such period, (ii) Fixed
Charges of such Person for such period, (iii) depreciation and amortization
(including amortization of goodwill and other intangibles) and all other
non-cash charges (excluding any such non-cash charge to the extent that it
represents (x) an accrual of or reserve for cash charges in any future period,
(y) amortization of a prepaid cash expense that was paid in a prior period or
(z) amortization attributable to rotable inventory which has been capitalized
in accordance with GAAP) of such Person and its Restricted Subsidiaries for
such period, (iv) any net loss realized in connection with any Asset Sale and
any extraordinary or non-recurring loss, in each case, on a consolidated basis
determined in accordance with GAAP and (v) expenses and charges of the Company
or DecisionOne Corp. related to the Merger which are paid, taken or otherwise
accounted for within 90 days of the consummation of the Merger.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, the Fixed Charges of, and the depreciation and amortization and
other non-cash charges of, a Restricted Subsidiary of a Person shall be added
to Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in the same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum of: (a) the interest expense of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined
in accordance with GAAP (including amortization of original issue discount,
non-cash interest payments, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments, if any,
pursuant to Hedging Obligations; provided, however, that in no event shall any
amortization of deferred financing costs be included in Consolidated Interest
Expense) and (b) consolidated capitalized interest of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person
6
<PAGE>
and its Restricted Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP; provided, however, that (i) the Net Income
or loss of any Person that is not a Restricted Subsidiary or that is accounted
for by the equity method of accounting shall be included only to the extent of
the amount of dividends or distributions paid to the referent Person or a
Restricted Subsidiary thereof in cash, (ii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to, the
date of such acquisition shall be excluded and (iii) the cumulative effect of
a change in accounting principles,shall be excluded.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company or any Parent Holding Company
of the Company who (i) was a member of such Board of Directors immediately
after consummation of the Merger, including the Offering and the application
of the net proceeds thereof, or (ii) was nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election or any successor Continuing Directors appointed by such Continuing
Directors (or their successors).
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 12.02 hereof or such other address as to
which the Trustee may give notice to the Company.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"DecisionOne Corp." means DecisionOne Corporation, a Delaware
corporation, or its successors.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated Preferred Stock" means preferred stock of the Company
(other than Disqualified Stock) that is issued for cash (other than to a
Restricted Subsidiary) and is so designated as Designated Preferred Stock,
pursuant to an Officers' Certificate executed by the principal executive
officer and the principal financial officer of the Company, on the issuance
date thereof, the cash proceeds of which are excluded from the calculation set
forth in clause (c) of Section 4.11 hereof.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock that, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, is exchangeable for Indebtedness (except to the
extent exchangeable at
7
<PAGE>
the option of such Person subject to the terms of any debt instrument to which
such Person is a party), or is redeemable at the option of the Holder thereof,
in whole or in part, on or prior to _________, 2008; provided, however, that
if such Capital Stock is issued to any plan for the benefit of employees of
the Company or its Subsidiaries or by any such plan to such employees, such
Capital Stock shall not constitute Disqualified Stock solely because it may be
required to be repurchased by the Company in order to satisfy applicable
statutory or regulatory obligations.
"Eligible Institution" means a commercial banking institution that
has combined capital and surplus not less than $100.0 million or its
equivalent in foreign currency, whose short-term debt is rated "A-3" or higher
according to S&P or "P-2" or higher according to Moody's or carrying an
equivalent rating by a nationally recognized rating agency if both of the two
named rating agencies cease publishing ratings of investments.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any (i) issuance of common stock or preferred
stock by the Company (other than Disqualified Stock) that is registered
pursuant to the Securities Act, other than issuances registered on Form S-8
under the Securities Act and issuances registered on Form S-4 under the
Securities Act, and (ii) any private issuance of common stock or preferred
stock by the Company (other than Disqualified Stock), excluding, in the case
of clauses (i) and (ii) above, issuances of common stock pursuant to employee
benefit plans of the Company or its Restricted Subsidiaries or otherwise as
compensation to employees of the Company or its Restricted Subsidiaries.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the New Credit
Facility) or the Senior Subordinated Notes in existence on the date of this
Indenture until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for
any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person
and its Restricted Subsidiaries for such period. In the event that the Company
or any of its Restricted Subsidiaries incurs, assumes, guarantees, redeems or
repays any Indebtedness (other than revolving credit borrowings) or issues or
redeems preferred stock subsequent to the commencement of the
8
<PAGE>
period for which the Fixed Charge Coverage Ratio is being calculated but on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee, redemption or repayment of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. For purposes of
making the computation referred to above, (i) the Consolidated Cash Flow of
the Company shall include (a) the Consolidated Cash Flow of the Company and
its Restricted Subsidiaries for the latest four-quarter period for which
consolidated internal financial statements of the Company are available as
derived from such financial statements plus or minus (b) with respect to any
Business or Qualified Contracts that have been acquired by the Company or any
of its Restricted Subsidiaries, including through mergers or consolidations,
after the first day of the applicable four-quarter period and prior to the
Calculation Date, the result of (1) the Consolidated Cash Flow of such
Business or Qualified Contracts for the most recent three-month period prior
to such acquisition for which internal financial statements in respect of such
acquired Business or Qualified Contracts are available times four multiplied
by (2) a fraction the numerator of which is 365 minus the number of days
during the relevant four-quarter period for which the results of operations of
such Business or Qualified Contracts were included in clause (a) of this
sentence and the denominator of which is 365, (ii) the acquisition of any
Business or Qualified Contracts that has been made by the Company or any of
its Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions after the first day of the
applicable four-quarter period and on or prior to the Calculation Date shall
give pro forma effect to financing transactions (including the incurrence of
Acquired Debt) in connection with the acquisition of such Business or
Qualified Contracts, as if such acquisition had occurred at the beginning of
the applicable reference period, and (iii) the Consolidated Cash Flow and
expenses attributable to discontinued operations as determined in accordance
with GAAP, and operations, Businesses and Qualified Contracts disposed of
prior to the Calculation Date shall be excluded. For purposes of the foregoing
clause (i), the Consolidated Cash Flow attributable to any Business or
Qualified Contracts acquired by the Company or any Restricted Subsidiary of
the Company shall be calculated utilizing the actual revenues attributable to
such Business or Qualified Contracts for the applicable period and the
expenses that would have been attributable to such Business or Qualified
Contracts had the Company acquired such Business or Qualified Contracts at the
beginning of the applicable period, as determined in good faith by the
Company, taking into account the Company's historical expenses in connection
with the provision of similar services for similar equipment under similar
contracts. If since the beginning of the applicable four-quarter period any
Person (that subsequently
9
<PAGE>
becomes a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made or
engaged in any Investment, disposition of operations, Businesses or Qualified
Contracts, or merger or consolidation, or shall have discontinued any
operations or acquired any Business or Qualified Contracts that would have
required adjustment pursuant to this definition had such Person been a
Restricted Subsidiary at the time of such Investment, disposition, merger,
consolidation, discontinued operation or acquisition, then "Consolidated Cash
Flow" shall be calculated giving pro forma effect thereto for such period as
if such Investment, acquisition, disposition, merger, consolidation or
discontinued operation had occurred at the beginning of the applicable
four-quarter period.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the Consolidated Interest Expense of such
Person for such period and (ii) any interest expense on Indebtedness of
another Person that is guaranteed by the referent Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or one
of its Restricted Subsidiaries (whether or not such guarantee or Lien is
called upon) and (iii) the product of (a) all cash dividend payments of the
Company or any Restricted Subsidiary of the Company on any series of preferred
stock of the Company or such Restricted Subsidiary times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in
accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect on the
date of this Indenture; provided, however, that all reports and other
financial information provided by the Company to the Holders, the Trustee
and/or the Commission shall be prepared in accordance with GAAP, as in effect
on the date of such report or other financial information.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America is
pledged.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without
10
<PAGE>
limitation, letters of credit and reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against
fluctuations in interest rates or foreign exchange rates.
"Holder" means a Person in whose name a Note is registered.
"Holdings" means DecisionOne Holdings Corp., a Delaware corporation,
the corporate parent of DecisionOne Corp.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing
Capital Lease Obligations or the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable, or representing any Hedging Obligations, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person), the maximum fixed repurchase price of
Disqualified Stock issued by such Person and the liquidation preference of
preferred stock issued by such Person, in each case, if held by any Person
other than the Company or a Wholly Owned Restricted Subsidiary of the Company,
and, to the extent not otherwise included, the guarantee by such Person of any
indebtedness of any other Person.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Initial Sale" means (i) the first transaction after the commencement
of any accounts receivable financing arrangement in which accounts receivable
are sold by the Company and/or its Restricted Subsidiaries to an Accounts
Receivable Subsidiary and (ii) the first transaction following any amendment
to any such arrangement pursuant to which the class of eligible receivables to
be purchased pursuant to such arrangement is expanded in which such expanded
class of accounts receivable are sold by the Company and/or its Restricted
Subsidiaries to an Accounts Receivable Subsidiary.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates)
11
<PAGE>
in the forms of direct or indirect loans (including guarantees), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or
other securities, and all other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
an acquisition of assets, Equity Interests or other securities by the Company
for consideration consisting of common equity securities of the Company shall
not be deemed to be an Investment. If the Company or any Subsidiary of the
Company sells or otherwise disposes of any Equity Interests of any direct or
indirect Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of the Company, the
Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Subsidiary not sold or disposed of in an amount determined as provided in
the final paragraph of Section 4.11 hereof.
"Investors' Agreement" means the investors' agreement, dated as of
___________, 1997, among DLJ Merchant Banking Partners II, L.P. and affiliated
funds, a limited number of institutional investors and certain members of
management of the Company, as amended from time to time.
"Legal Holiday" means a Saturday, Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized
by law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a
security interest).
"Management Loans" means one or more loans by the Company or Holdings
to officers and/or directors of the Company and any of its Restricted
Subsidiaries to finance the purchase by such officers and directors of common
stock of Holdings; provided, however, that the aggregate principal amount of
all such Management Loans outstanding at any time shall not exceed $10.0
million.
"Merger" means the merger of the Issuer with and into Holdings, with
Holdings continuing as the surviving corporation.
"Moody's" means Moody's Investor Services, Inc.
12
<PAGE>
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP, excluding, however, (i)
any gain (but not loss), together with any related provision for taxes on such
gain (but not loss), realized in connection with (a) any Asset Sale
(including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the extinguishment of any Indebtedness of such Person or
any of its Restricted Subsidiaries, and (ii) any extraordinary or nonrecurring
gain (but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss), and (iii) with respect to
the Company, the after-tax amount of any interest income with respect to the
Intercompany Note.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness (other than Indebtedness of the Company or
any Restricted Subsidiary referred to in clause (a) of the second paragraph of
Section 4.10 hereof secured by a Lien on the asset or assets that are the
subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain credit agreement, dated as
of ___________, 1997, by and among DecisionOne Corp., Donaldson, Lufkin &
Jenrette Securities Corporation, as arranger, DLJ Capital Funding, Inc., as
syndication agent, and the lenders party thereto, including any related notes,
guarantees, collateral documents, instruments and agreement executed in
connection therewith, and in each case as amended, modified, renewed,
refunded, replaced refinanced from time to time, including any agreement
extending the maturity of or refinancing or refunding all or any portion of
the Indebtedness thereunder or increasing the amount that may be borrowed
under such agreement or any successor agreement, whether or not among the same
parties.
"Non-Recourse Debt" means Indebtedness (i) no default with respect
to, which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or
13
<PAGE>
payable prior to its stated maturity; and (ii) as to which the lenders have
been notified in writing that they will not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries; provided,
however, that in no event shall Indebtedness of any Unrestricted Subsidiary
fail to be Non-Recourse Debt solely as a result of any default provisions
contained in a guarantee thereof by the Company or any of its Restricted
Subsidiaries if the Company or such Restricted Subsidiary was otherwise
permitted to incur such guarantee pursuant to this Indenture.
"Notes" means the Company's __% Senior Discount Debentures due 2008
issued in compliance with this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering and sale of units (the "Units")
consisting of the Notes and warrants to purchase shares of common stock of the
Company pursuant to a prospectus, dated as of _____________, 1997, contained
or incorporated in the Registration Statement.
"Offerings" means the Offering and the concurrent offering of the __%
Senior Subordinated Notes due 2207 by DecisionOne Corp. pursuant to a
prospectus dated as of ______, 1997, contained or incorporated in a
Registration Statement on Form S-1 (No. 333-28539) filed with the Commission
on June 3, 1997 and all exhibits, schedules and amendments thereto.
"Officer" means the Chairman of the Board, the President, any Vice
President or the Secretary of the Company.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company that meets the requirements set
forth in Section 1.05 hereof.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee. Each such
opinion shall include the statements provided for in TIA Section 314(e) to the
extent applicable.
"Pari Passu Indebtedness" means Indebtedness of the Company that
ranks pari passu in right of payment to the Notes.
"Permitted Business" means the equipment maintenance or support
services business or any business reasonably ancillary or related thereto.
14
<PAGE>
"Permitted Investments" means (i) Investments in the Company or in a
Restricted Subsidiary of the Company, (ii) Investments in cash or Cash
Equivalents, (iii) Investments by the Company or any Restricted Subsidiary of
the Company in a Person if, as a result of such Investment, (a) such person
becomes a Restricted Subsidiary of the Company or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company, (iv) Investments in accounts and notes
receivable acquired in the ordinary course of business, (v) any non-cash
consideration received in connection with an Asset Sale that complies with
Section 4.10 hereof, (vi) loans and advances to officers, directors and
employees for business-related travel expenses, moving expenses and other
similar expenses, in each case, incurred in the ordinary course of business,
(vii) any guarantees permitted to be made pursuant to Section 4.12 hereof,
(viii) Investments in any Accounts Receivable Subsidiary made in connection
with the formation of any Accounts Receivable Subsidiary or received in
consideration of sales of accounts receivable, in each case, in accordance
with Section 4.16 hereof, (ix) the Intercompany Note and (x) the Management
Loans.
"Permitted Liens" means (i) Liens on assets of DecisionOne Corp. and
its Subsidiaries; (ii) Liens in favor of the Company; (iii) Liens created by
Restricted Subsidiaries of the Company to secure Indebtedness of such
Restricted Subsidiaries to the Company or to other Wholly Owned Restricted
Subsidiaries of the Company; (iv) the pledge of the capital stock of
DecisionOne Corp. to secure the New Credit Facility; (v) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (vii) carriers',
warehousemen's, mechanics', landlords', materialmen's, repairmen's or other
similar Liens arising in the ordinary course of business that are not
delinquent or remain payable without penalty; (viii) easements, rights-of-way,
restrictions and other similar encumbrances incurred in the ordinary course of
business that, in the aggregate, are not substantial in amount, and that do
not in any case materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the businesses of the
Company; (ix) Liens arising by operation of law in connection with judgments
to the extent, for an amount and for a period not resulting in an Event of
Default with respect thereto; (x) any customary retention of title by the
lessor under a Capital Lease Obligation incurred in compliance with Section
4.12 hereof; (xi) Liens in favor of the United States of America or any State
thereof, or any department, agency or instrumentality or political
15
<PAGE>
subdivision thereof, to secure partial, progress, advance or other payments;
(xii) Liens (other than any Lien imposed by the Employee Retirement Income
Security Act of 1974) consisting of pledges or deposits required in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other social security legislation; (xiii) Liens
arising solely by virtue of any statutory or common law provision relating to
banker's liens, rights of set-off or similar rights and remedies, in each case
as to deposit accounts or other funds maintained with a creditor depository
institution; provided that (A) such deposit account is not a dedicated cash
collateral account and is not subject to restrictions against access by the
Company in excess of those set forth by regulations promulgated by the Federal
Reserve Board, and (B) such deposit account is not intended by the Company to
provide collateral to the depository institution; (xiv) Liens on property of a
Person existing at the time such Person is merged into or consolidated with
the Company; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Company;
and (xv) Liens on property existing at the time of acquisition thereof by the
Company, provided that such Liens were in existence prior to the contemplation
of such acquisition.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease
or refund other Indebtedness of the Company or any of its Restricted
Subsidiaries; provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accredit value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses and premiums incurred in
connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date at least as late as the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; (iii) if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated
in right of payment to the Notes, such Permitted Refinancing Indebtedness has
a final maturity date later than the final maturity date of, and is
subordinated in right of payment to, the Notes on terms at least as favorable
to the Holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is Pari Passu Indebtedness, such Permitted
Refinancing Indebtedness has a final maturity date on or later than the final
maturity date of, and is subordinated or pari passu in right of payment to,
the Notes on terms at least as
16
<PAGE>
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Principals" means DLJ Merchant Banking, Inc., DLJ Offshore Partners
II C.V., DLJ Diversified Partners, L.P. DLJMB Funding II, Inc., UK Investment
Plan 1997 Partners and DLJ ESC LLC and each of their respective Affiliates.
"Qualified Contract" means any contract for the provision of computer
maintenance and/or technology support services with respect to which the
Company and its Restricted Subsidiaries have not received notice that the
counterparty to such contract intends to terminate such contract prior to the
expiration of its term or not to renew such contract at the end of its term.
"Qualified Proceeds" means any of the following or any combination of
the following: (i) cash, (ii) Cash Equivalents, (iii) assets that are used or
useful in a Permitted Business and (iv) the Capital Stock of any Person
engaged in a Permitted Business if, in connection with the receipt by the
Company or any Restricted Subsidiary of the Company of such Capital Stock, (a)
such Person becomes a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or any Restricted Subsidiary of
the Company.
"Receivables Fees" means distributions or payments made directly or
by means of discounts with respect to any participation interests issued or
sold in connection with, and other fees paid to a Person that is not a
Restricted Subsidiary in connection with, any receivables financing permitted
pursuant to Section 4.16 hereof.
"Registration Statement" means the Registration Statement (No.
333-28539) on Form S-1 relating to the Units filed with the Commission on June
3, 1997 and all exhibits, schedules and amendments thereto.
"Related Party" means, with respect to the Principals, (i) any
controlling stockholder or partner of any Principal on the date of this
Indenture, or (ii) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
(directly or through one or more Subsidiaries) a 51% or more controlling
interest of which consist
17
<PAGE>
of the Principals and/or such other Persons referred to in the immediately
preceding clauses (i) or (ii).
"Responsible Officer," when used with respect to the Trustee, means
any officer in the Corporate Trust Office of the Trustee and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of this Indenture.
"Specified Agreements" means the Investors' Agreement and the Tax
Sharing Agreement.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of Voting Stock is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or one or more Subsidiaries of such Person (or any combination
thereof); provided, however, that the Accounts Receivable Subsidiary and its
Subsidiaries shall not be deemed Subsidiaries of the Company or any of its
other Subsidiaries.
"Tax Sharing Agreement" means the tax sharing agreement, dated as of
______________, 1997, among the Company, DecisionOne Corp., and the
DecisionOne Corp's Subsidiaries on the date of this Indenture, as amended from
time to time.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
18
<PAGE>
"Trustee" means the party named as such above unless and until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means such successor.
"Unrestricted Subsidiary" means any Subsidiary (other than
DecisionOne Corp.) that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent
that such Subsidiary: (i) has no Indebtedness other than Non-Recourse Debt;
(ii) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless the terms
of any such agreement, contract, arrangement understanding are no less
favorable to the Company or such Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of the Company;
(iii) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe
for additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels,
of operating results; and (iv) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any
of its Restricted Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy
of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by Section 4.11 hereof. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as a
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.12 hereof, the Company shall be in
default of such covenant). The Board of Directors of the Company may at any
time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only
be permitted if (i) such Indebtedness is permitted under Section 4.12 hereof
and (ii) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" means any class or classes of Capital Stock pursuant
to which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock
of any other class or classes shall have, or might have, voting power by
reason of the happening of any contingency).
19
<PAGE>
"Warrant Agreement" means the Warrant Agreement, dated as of the date
of this Indenture, between the Company and State Street Bank and Trust
Company, as warrant agent.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
then outstanding principal amount of such Indebtedness into (ii) the total of
the product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries
of such Person or by such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Term Defined in
Section
"Act".................................................. 1.07
"Affiliate Transaction"................................ 4.13
"Asset Sale Offer"..................................... 3.10
"Change of Control Offer".............................. 4.09
"Change of Control Payment"............................ 4.09
"Change of Control Payment Date"....................... 4.09
"Covenant Defeasance".................................. 8.03
"DTC".................................................. 2.01
"Electronic Message"................................... 2.02
"Event of Default"..................................... 6.01
"Excess Proceeds"...................................... 4.10
"Financier"............................................ 4.16
"incur"................................................ 4.12
"Legal Defeasance"..................................... 8.02
20
<PAGE>
"Offer Amount"......................................... 3.10
"Offer Period"......................................... 3.10
"Paying Agent"......................................... 2.03
"Payment Default"...................................... 6.01
"Permitted Debt"....................................... 4.12
"Purchase Date......................................... 3.10
"Promissory Note"...................................... 4.19
"Registrar"............................................ 2.03
"Restricted Payments".................................. 4.11
"Separation Date"...................................... 2.02
"Units"................................................ 1.01
"Warrant Endorsement".................................. 2.02
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any successor obligors
upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
21
<PAGE>
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) references to sections of or rules under the Securities
Act shall be deemed to include substitute, replacement or
successor sections or rules adopted by the Commission from
time to time.
SECTION 1.05. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that, in the case of any such application or request as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or opinion (other than the certificates required by
Section 4.05(a) hereof) with respect to compliance with a condition or
covenant provided for in this Indenture shall comply with the provisions of
TIA 314(e) and shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he or
she has made such examination or investigation as is necessary to enable him
or her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.06. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
22
<PAGE>
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representation
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect
to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.07. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and (subject to TIA Section 315) conclusive in
favor of the Trustee and the Company, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any reasonable manner that the Trustee
deems sufficient.
23
<PAGE>
(c) The ownership of Notes shall be proved by a register kept by the
Registrar.
(d) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of such Holders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or
other Act, but the Company shall have no obligation to do so. Notwithstanding
TIA Section 316(c), any such record date shall be the record date specified in
or pursuant to such Board Resolution, which shall be a date not more than 30
days prior to the first solicitation of Holders generally in connection
therewith and no later than the date such solicitation is completed.
If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for the purposes of determining
whether Holders of the requisite proportion of Notes then outstanding have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for this purpose the
Notes then outstanding shall be computed as of such record date; provided that
no such request, demand, authorization, direction, notice, consent, waiver or
other Act by the Holders on such record date shall be deemed effective unless
it shall become effective pursuant to the provisions of this Indenture not
later than six months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act by the Holder of any Note shall bind every future Holder
of the same Note or the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, suffered or omitted to be done by the Trustee, any Paying Agent
or the Company in reliance thereon, whether or not notation of such action is
made upon such Note.
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Notes may have
notations, legends or endorsements approved as to form by the Company and
required by law, stock exchange rule, agreements to which the Company is
subject, or usage. Each Note
24
<PAGE>
shall be dated the date of its authentication. The Notes shall be issuable in
registered form, without coupons, and only in denominations of $1,000 and
integral multiples thereof.
Notes issued in global form shall be substantially as set forth in
Exhibit A hereto (including the text referred to in footnotes 1 and 2
thereto). Notes issued in definitive form shall be substantially as set forth
in Exhibit A hereto (but without the text referred to in footnotes 1 and 2
thereto). Each Note in global form shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that it shall
represent the aggregate amount of outstanding Notes from time to time endorsed
thereon and that the aggregate amount of outstanding Notes represented thereby
may from time to time be reduced or increased, as appropriate, to reflect
exchanges and redemptions. Any endorsement of a Note in global form to reflect
the amount of any increase or decrease in the amount of outstanding Notes
represented thereby shall be made by the Trustee or the Depositary in
accordance with instructions given by the Holder thereof as required by
Section 2.06. The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Notes in global form.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer of the Company shall sign the Notes for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Notes and may be in facsimile form.
If an Officer of the Company whose signature is on a Note no longer
holds that office at the time the Note is authenticated, the Note shall
nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature of the Trustee shall be conclusive evidence that
the Note has been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Notes shall be substantially
as set forth in Exhibit A hereto.
The Trustee shall, upon a written order of the Company signed by an
Officer of the Company, authenticate Notes for original issue up to an
aggregate principal amount at maturity of Notes stated in the Notes. The
aggregate principal amount at maturity of Notes outstanding at any time shall
not exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such
25
<PAGE>
agent. An authenticating agent has the same rights as an Agent to deal with
the Company or an Affiliate of the Company.
All Notes issued prior to the separation described below shall have
printed or overprinted thereon the following (the "Warrant Endorsement"):
THE NOTES EVIDENCED BY THIS CERTIFICATE ARE NOT TRANSFERABLE
SEPARATELY FROM THE WARRANTS ATTACHED HERETO ORIGINALLY SOLD AS A
UNIT WITH THE NOTES UNTIL THE EARLIEST TO OCCUR OF (I)
______________, 1997 (II) SUCH EARLIER DATE AS THE UNDERWRITER MAY
DETERMINE AND (III) THE OCCURRENCE OF A CHANGE OF CONTROL, (THE
"SEPARATION DATE"). PRIOR TO SUCH DATE, THE NOTES EVIDENCED BY THIS
CERTIFICATE MAY BE TRANSFERRED ONLY IN INTEGRAL MULTIPLES OF $1,000
PRINCIPAL AMOUNT OF NOTES AND ONLY WITH THE SIMULTANEOUS TRANSFER TO
THE TRANSFEREE OF _____ WARRANTS FOR EACH $1,000 PRINCIPAL AMOUNT SO
TRANSFERRED.
Under the terms of the warrant agreement relating to the Warrants
(the "Warrant Agreement"), the holder of this security may at any
time on or after the Separation Date, at its option, by notice to the
Trustee elect to separate or separately transfer the Notes and the
Warrants represented hereby, in whole or in part, for a definitive
Warrant Certificate or Warrant Certificates or a beneficial interest
in a Global Warrant (as defined in the Warrant Agreement) evidencing
the underlying Warrants and for a Note or Notes or a beneficial
interest in a global Note of a like aggregate principal amount at
maturity of authorized denominations and not containing a Warrant
Endorsement in accordance with the Indenture (such surrender and
exchange being referred to herein as a "Separation" and the related
Warrants being referred to as "Separated"); provided that no delay or
failure on the part of the Trustee or the Warrant Agent to exchange
this security and Note or Notes shall affect the Separation of the
Notes and the Warrants represented hereby or their separate
transferability. Until such separation, the holder of this security
is, for each $1,000 principal amount of Notes, also the record owner
of __ Warrants expiring ________, 2007, each to purchase ____ shares
of common stock of the Company, par value $.01 per share (the "Common
Stock," subject to adjustment as provided in the Warrant Agreement.
The Company has deposited with the Trustee, as custodian for the
Holder of the Notes bearing this Warrant Endorsement, a certificate
or certificates for such Warrants to purchase an aggregate of _______
shares of Common Stock (subject to adjustment as provided in the
Warrant Agreement). Prior to the separation of the Notes and the
Warrants as described above, record ownership of such Warrants is
transferable only by the transfer of this Note on the Note register
maintained by the Company pursuant to the Indenture. After such
separation, ownership of a Warrant is transferable only by the
26
<PAGE>
transfer of the certificate representing such Warrant in accordance
with the provisions of the Warrant Agreement.
By accepting a security bearing this Warrant Endorsement, each holder
of this security shall be bound by all of the terms and provision of
the Warrant Agreement (a copy of which is available on request to the
Company or the Warrant Agent).
Election to Exercise. On or after _________, 1997, the Warrants may
be exercised by obtaining from the Trustee, as custodian for holders
of securities bearing this Warrant Endorsement, the required forms of
election to exercise, declaration from and instructions for payment
of the Exercise Price (as such term is defined in the Warrant
Agreement). Upon receiving the required forms and payment of such
Exercise Price, the Trustee as custodian for the Holder of the
security bearing this Warrant Endorsement, shall exercise such
Warrants in accordance with the provisions of the Warrant Agreement.
Election of Exchange. The holder hereof may elect to separate its
Notes and Warrants and to exchange this security (representing
ownership of __________ Warrants evidenced by Warrant Certificates
deposited with the Trustee) for a new Note in the principal amount
hereof and a Warrant Certificate in the amount of said
_______________ Warrants either by (i) completing and signing in the
space below or (ii) delivery of a computer-generated message
transmitted by DTC to the Trustee (an "Electronic Message").
Dated:
Name of Holder of this security:________________________
Address:_________________________
_________________________
Signature:_______________________
Note: The above signature must correspond with the name as
written upon the face of this security in every
particular,without alteration or enlargement whatever and if
the certificate representing any principal amount at
maturity of this security or the associated Warrants is to
be registered in a name other than that in which this
security is registered.
By delivery of this security or upon receipt of an Electronic
Message, the holder hereof hereby irrevocably instructs the Trustee
(A) to issue in the name of such registered holder a new Note (CUSIP
________________) not containing the above Warrant Endorsement in the
principal amount equal to the principal amount hereof and (B) to
deliver this security to the Warrant Agent pursuant to the provisions
of the Warrant Agreement with instructions to issue in the name of,
or
27
<PAGE>
release to, such holder a Warrant Certificate (CUSIP _______________)
representing the number of Warrants equal to the number of Warrants
represented by this security or with respect to which an Electronic
Message has been received and, if applicable, to issue a new Warrant
Certificate to replace the Warrant Certificate held on deposit by the
Trustee as custodian representing the number of Warrants equal to the
difference between (x) the number of Warrants represented by the
Warrant Certificate so held on deposit and (y) the number of Warrants
represented by this security or with respect to which an Electronic
Message has been received."
Until any Note and the Warrant with which it is initially issued are
separated or separately transferred pursuant to the terms of the Warrant
Endorsement, the Trustee shall hold such Warrant as custodian on behalf of the
holder of such Note bearing such legends.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain (i) an office or agency where Notes may be
presented for registration of transfer or for exchange (including any
co-registrar, the "Registrar") and (ii) an office or agency where Notes may be
presented for payment ("Paying Agent") within the City of and the State of New
York or, at the option of the Company, payment of interest may be made by
check mailed to the Holders at their respective addresses set forth in the
register of Holders; provided that all payments with respect to Notes
represented by one or more permanent global Notes will be paid by wire
transfer of immediately available funds to the account of the Depository Trust
Company or any successor thereto. The Registrar shall keep a register of the
Notes and of their transfer and exchange. The Company may appoint one or more
co-Registrars and one or more additional paying agents. The term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent, Registrar or co-Registrar without prior notice to any Holder. The
Company shall notify the Trustee and the Trustee shall notify the Holders of
the name and address of any Agent not a party to this Indenture. The Company
may act as Paying Agent, Registrar or co-Registrar. The Company shall enter
into an appropriate agency agreement with any Agent not a party to this
Indenture, which shall be subject to any obligations imposed by the provisions
of the TIA. The agreement shall implement the provisions of this Indenture
that relate to such Agent. The Company shall notify the Trustee of the name
and address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such, and shall be entitled to appropriate compensation in accordance with
Section 7.07 hereof.
28
<PAGE>
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands in connection with the Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all money held by the Paying Agent for the payment
of principal of, premium, if any, and interest on the Notes, and shall notify
the Trustee of any Default by the Company in making any such payment. While
any such Default continues, the Trustee may require a Paying Agent to pay all
money held by it to the Trustee and to account for any funds disbursed. The
Company at any time may require a Paying Agent to pay all money held by it to
the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than
the Company) shall have no further liability for the money delivered to the
Trustee. If the Company acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Holders all money held by it as
Paying Agent.
SECTION 2.05. LISTS OF HOLDERS OF THE NOTES.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not
the Registrar, the Company shall furnish to the Trustee at least seven (7)
Business Days before each interest payment date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders,
including the aggregate principal amount at maturity of the Notes held by each
thereof, and the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
When Notes are presented to the Registrar with a request to register
the transfer or to exchange them for an equal principal amount of Notes of
other denominations, the Registrar shall register the transfer or make the
exchange if its requirements for such transactions are met; provided, however,
that any Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar and the Trustee duly executed
by the Holder thereof or by his attorney duly authorized in writing. To permit
registrations of transfer and exchanges, the Company shall issue and the
Trustee shall authenticate Notes at the Registrar's request, subject to such
rules as the Trustee may reasonably require.
29
<PAGE>
Neither the Company nor the Registrar shall be required to (i) issue,
register the transfer of or exchange Notes during a period beginning at the
opening of business on a Business Day fifteen (15) days before the day of any
selection of Notes for redemption or purchase under Section 3.01 hereof and
ending at the close of business on the day of selection, (ii) register the
transfer of or exchange any Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part or
(iii) register the transfer or exchange of a Note between a record date and
the next succeeding interest payment date.
No service charge shall be made to any Holder for any registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 2.10, 3.06 or 9.05 hereof, which shall be paid by the Company).
Prior to due presentment to the Trustee for registration of the
transfer of any Note, the Trustee, any Agent and the Company may deem and
treat the Person in whose name any Note is registered as the absolute owner of
such Note for the purpose of receiving payment of principal of, premium, if
any, and interest on such Note and for all other purposes whatsoever, whether
or not such Note is overdue, and none of the Trustee, any Agent nor the
Company shall be affected by notice to the contrary.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee receive evidence to their satisfaction of the destruction,
loss or theft of any Note and the ownership thereof, the Company shall issue
and the Trustee, upon the written order of the Company signed by an Officer of
the Company, shall authenticate a replacement Note if the Trustee's
requirements for replacements of Notes are met. If required by the Trustee or
the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the reasonable judgment of the Trustee and the Company to
protect the Company, the Trustee, each Agent and each authenticating agent
from any loss which any of them may suffer if a Note is replaced. The Company
and the Trustee may charge for its expenses in replacing a Note.
Every replacement Note is an additional Obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and ratably
with all other Notes duly issued hereof.
30
<PAGE>
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation and those described in this Section 2.08 as not outstanding. If a
Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Note is
held by a bona fide purchaser. If the principal amount of any Note is
considered paid under Section 4.01 hereof, it ceases to be outstanding and
interest on it ceases to accrue. Subject to Section 2.09 hereof, a Note does
not cease to be outstanding because the Company or an Affiliate of the Company
holds the Note.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by
the Company or any Affiliate of the Company shall be considered as though not
outstanding, except that for purposes of determining whether the Trustee shall
be protected in relying on any such direction, waiver or consent, only Notes
which a Responsible Officer of the Trustee knows to be so owned shall be so
considered. Notwithstanding the foregoing, Notes that are to be acquired by
the Company or an Affiliate of the Company pursuant to an exchange offer,
tender offer or other agreement shall not be deemed to be owned by such entity
until legal title to such Notes passes to such entity.
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes. Temporary Notes
shall be substantially in the form of definitive Notes but may have variations
that the Company and the Trustee consider appropriate for temporary Notes.
Without unreasonable delay, the Company shall prepare and the Trustee, upon
receipt of the written order of the Company signed by an Officer of the
Company, shall authenticate definitive Notes in exchange for temporary Notes.
Until such exchange, temporary Notes shall be entitled to the same rights,
benefits and privileges as definitive Notes.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation. Subject to Section 2.07
hereof, the Company may not issue new Notes to replace Notes that it has
31
<PAGE>
redeemed or paid or that have been delivered to the Trustee for cancellation.
All cancelled Notes held by the Trustee shall be destroyed and certification
of their destruction delivered to the Company, unless by a written order,
signed by an Officer of the Company, the Company shall direct that cancelled
Notes be returned to it.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, the
Company shall pay the defaulted interest in any lawful manner plus, to the
extent lawful, interest payable on the defaulted interest, to the Persons who
are Holders on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five (5) Business Days
prior to the payment date, in each case at the rate provided in the Notes and
in Section 4.01 hereof. The Company shall fix or cause to be fixed each such
special record date and payment date, and shall, promptly thereafter, notify
the Trustee of any such date. At least fifteen (15) days before the special
record date, the Company (or the Trustee, in the name of and at the expense of
the Company) shall mail to Holders, at their addresses as they appear on the
register of Notes maintained by the Registrar, a notice that states the
special record date, the related payment date and the amount of such interest
to be paid.
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of Holders
entitled to vote or consent to any action by vote or consent authorized or
permitted under this Indenture shall be determined as provided for in TIA ss.
316(c).
SECTION 2.14. CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number and, if it
does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company
will promptly notify the Trustee of any change in the CUSIP number.
SECTION 2.15. COMPUTATION OF INTEREST.
Interest on the Notes will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
ARTICLE 3
REDEMPTION AND PREPAYMENT
32
<PAGE>
SECTION 3.01. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Notes pursuant to Section
3.08 shall be evidenced by a Board Resolution. In case of any redemption at
the election of the Company, the Company shall, at least 45 but not more than
60 days prior to the redemption date fixed by it (unless a shorter notice
period shall be satisfactory to the Trustee for its convenience), notify the
Trustee pursuant to an Officers' Certificate of (i) such redemption date, (ii)
the principal amount of Notes to be redeemed and (iii) the clause of this
Indenture pursuant to which the redemption shall occur.
SECTION 3.02. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any,
on which the Notes are listed or, if the Notes are not so listed, on a pro
rata basis, by lot or by such other method as the Trustee deems fair and
appropriate, provided that no Notes with a principal amount of $1,000 or less
shall be redeemed in part.
The Trustee shall promptly notify the Company and the Registrar in
writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of
the principal amount of such Note which has been or is to be redeemed.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.10 hereof, notice of
redemption shall be mailed by first class mail, postage prepaid, at least 30
but not more than 60 days before the redemption date to each Holder of Notes
to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed.
All notices of redemption shall state:
(a) the redemption date;
(b) the redemption price;
33
<PAGE>
(c) if less than all Notes then outstanding are to be
redeemed, the identification (and, in the case of a
Note to be redeemed in part, the principal amount)
of the particular Notes to be redeemed;
(d) that on the redemption date the redemption price
will become due and payable upon each such Note or
portion thereof, and that (unless the Company shall
default in payment of the redemption price)
interest thereon shall cease to accrue on or after
said date;
(e) the places or places where such Notes are to be
surrendered for payment of the redemption price;
(f) that Notes called for redemption must be
surrendered to the Paying Agent to
collect the redemption price;
(g) the CUSIP number, if any, relating to such Notes,
and
(h) in the case of a Note to be redeemed in part, the
principal amount of such Note to be redeemed and
that after the redemption date upon surrender of
such Note, a new Note or Notes in the aggregate
principal amount at maturity equal to the
unredeemed portion thereof will be issued.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at its request, by the Trustee in
the name and at the expense of the Company.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Sections 3.03,
3.10 or 4.09 hereof, Notes called for redemption become irrevocably due and
payable on the redemption date at the redemption price. A notice of redemption
may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
On or prior to any redemption date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 4.03 hereof)
an amount of money in same day funds (or New York Clearing House funds if such
deposit is made prior to the applicable redemption date) sufficient to pay the
redemption price of, and accrued interest on, all the Notes or portions
thereof which are to be redeemed on that date.
34
<PAGE>
SECTION 3.06. NOTES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the redemption date, become due and payable at the
redemption price therein specified and from and after such date (unless the
Company shall default in the payment of the redemption price and accrued
interest) such Notes shall cease to bear interest. Upon surrender of any such
Note for redemption in accordance with said notice, such Note shall be paid by
the Company at the redemption price together with accrued interest to the
redemption date.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal thereof (and premium, if any, thereon)
shall, until paid, bear interest from the redemption date at the rate borne by
such Note.
SECTION 3.07. NOTES REDEEMED IN PART.
Any Note which is to be redeemed only in part shall be surrendered at
the office or agency of the Company maintained for such purpose pursuant to
Section 4.02 hereof (with, if the Company, the Registrar or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company, the Registrar or the Trustee duly executed by,
the Holder thereof or his attorney duly authorized in writing), and a new Note
in principal amount equal to the unpurchased or unredeemed portion will be
issued in the name of the Holder thereof upon cancellation of the original
Note. On and after the purchase or redemption date, unless the Company
defaults in payment of the purchase or redemption price, interest shall cease
to accrue on Notes or portions thereof purchased or called for redemption.
SECTION 3.08. OPTIONAL REDEMPTION.
(a) Except as described in this Section 3.08, the Notes will not be
redeemable at the Company's option prior to _____________, 2002. Thereafter,
the Notes will be subject to redemption at the option of the Company, in whole
or in part, upon not less than 30 nor more than 60 days' written notice, at
the redemption prices (expressed as percentages of principal amount) set forth
below, together with accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
_____________ of each of the years indicated below:
YEAR Percentage of
Principal
Amount
35
<PAGE>
2002.............................................................. [ ]%
2003.............................................................. [ ]%
2004.............................................................. [ ]%
2005 and thereafter............................................... 100.000%
In addition, prior to _________, 2000, the Company may, at its
option, on any one or more occasions, redeem up to 35% of the original
aggregate principal amount at maturity of Notes at a redemption price equal to
____% of the Accreted Value thereof, with the net cash proceeds of one or more
Equity Offerings; provided that at least 65% of the original aggregate
principal amount at maturity of Notes remains outstanding immediately after
the occurrence of each such redemption; and provided, further, that any such
redemption shall occur within 90 days of the date of the closing of each such
Equity Offering.
(b) Any redemption pursuant to this Section 3.08 shall be made
pursuant to the provisions of Sections 3.01 through 3.07 hereof.
SECTION 3.09. MANDATORY REDEMPTION.
Except as set forth under Sections 4.09 and 4.10 hereof, the Company
shall not be required to make mandatory redemption or sinking fund payments
with respect to the Notes.
SECTION 3.10. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later
than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount at maturity
of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer
Amount") or, if less than the Offer Amount has been tendered, all Notes
tendered in response to the Asset Sale Offer.
If the Purchase Date is on or after an interest payment record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Note is registered at the
close of business on such record
36
<PAGE>
date, and no additional interest shall be payable to Holders who tender Notes
pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.10 and Section 4.10 hereof and the length of time
the Asset Sale Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale
Offer shall cease to accrete after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the
Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note completed, or transfer
by book-entry transfer, to the Company, a depositary, if
appointed by the Company, or a Paying Agent at the address
specified in the notice not later than the third Business
Day preceding the end of the Offer Period;
(f) that Holders shall be entitled to withdraw their election if
the Company, the depositary or the Paying Agent, as the case
may be, receives, not later than the third Business Day
preceding the end of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased;
(g) that, if the aggregate principal amount at maturity of Notes
surrendered by Holders exceeds the Offer Amount, the Company
shall select the Notes to be purchased on a pro rata basis
(with such adjustments as may be deemed appropriate by the
Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
37
<PAGE>
(h) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered (or transferred
by book-entry transfer).
On or before 12:00 p.m. (New York City time) on each Purchase Date,
the Company shall, irrevocably deposit with the Trustee or Paying Agent in
immediately available funds the aggregate purchase price with respect to a
principal amount of Notes equal to the Offer Amount, together with accrued and
unpaid interest thereon to the Purchase Date, to be held for payment in
accordance with the terms of this Section 3.10. On the Purchase Date, the
Company shall, to the extent lawful, (i) accept for payment, on a pro rata
basis to the extent necessary, the Offer Amount of Notes or portions thereof
tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount
has been tendered, all Notes tendered, (ii) deliver or cause the Paying Agent
or depositary, as the case may be, to deliver to the Trustee Notes so accepted
and (iii) deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.10. The Company, the depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not
later than three Business Days after the Purchase Date) mail or deliver to
each tendering Holder an amount equal to the purchase price of the Notes
tendered by such Holder and accepted by the Company for purchase, plus any
accrued and unpaid interest, thereon to the Purchase Date, and the Company
shall promptly issue a new Note, and the Trustee, upon written request from
the Company shall authenticate and mail or deliver such new Note to such
Holder, equal in principal amount to any unpurchased portion of the Note
surrendered. Any Note not so accepted shall be promptly mailed or delivered by
the Company to the Holder thereof. The Company shall send a notice to each
Holder stating the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.10, any
purchase pursuant to this Section 3.10 shall be made pursuant to the
provisions of Sections 3.01 through 3.07 hereof.
38
<PAGE>
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in
the Notes. Principal, premium, if any, and interest shall be considered paid
on the date due if the Paying Agent, if other than the Company or a Subsidiary
thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited
by the Company in immediately available funds and designated for and
sufficient to pay all principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate
equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments
of interest (without regard to any applicable grace period) at the same rate
to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain, in The City of New York, an office or
agency where Notes may be presented or surrendered for payment, where Notes
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Company will give prompt written notice to the Trustee of
any change in the location of any such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its
agent to receive all such presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other offices
or agencies (in or outside of The City of New York) where the Notes may be
presented or surrendered for any or all such purposes, and may from time to
time rescind such designation; provided, however, that no such designation or
recession shall in any manner relieve the Company of its obligation to
maintain an office or agency in The City of New York for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or recession and any change in the location of any such office or agency.
39
<PAGE>
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03 hereof.
SECTION 4.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it
will, on or before each due date of the principal of, premium, if any, or
interest on any of the Notes, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay the principal, premium,
if any, or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided, and will promptly notify
the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal of, premium, if
any, or interest on any Notes, deposit with a Paying Agent a sum in same day
funds (or New York Clearing House funds if such deposit is made prior to the
date on which such deposit is required to be made) sufficient to pay the
principal, premium, if any, or interest so becoming due (or at the option of
the Company, payment of interest may be mailed by check to the Holders of the
Notes at their respective addresses set forth in the register of Holders of
Notes; provided that all payments with respect to Notes represented by one or
more permanent global Notes will be paid by wire transfer of immediately
available funds to the account of the Depository Trust Company or any
successor thereto) such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of, premium, if any, or interest on Notes in trust for the
benefit of the Persons entitled thereto until such sums
shall be paid to such Persons or otherwise disposed of as
herein provided;
(b) give the Trustee notice of any default by the Company (or
any other obligor upon the Notes) in the making of any
payment of principal, premium, if any, or interest;
(c) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent; and
40
<PAGE>
(d) acknowledge, accept and agree to comply in all respects with
the provisions of this Indenture relating to the duties,
rights and obligations of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be
paid to the Company at the request of the Company or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Note
shall thereafter, as an unsecured general creditor, look only to the Company
for payment thereof, and all liability of the Trustee or such Paying Agent
with respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, shall at the
expense of the Company cause notice to be promptly sent to each Holder that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such notification any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 4.04. REPORTS.
Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will furnish to
the Holders of Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations
of the Company and its Restricted Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition whether or not required by the rules and regulations of
the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission
will not accept such a filing) and make such
41
<PAGE>
information available to securities analysts and prospective investors upon
request.
SECTION 4.05. STATEMENT AS TO COMPLIANCE; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year ending after the date of this Indenture, an
Officers' Certificate stating whether, to such Officers' knowledge, the
Company is in compliance with all covenants and conditions to be complied with
by it under this Indenture (including with respect to any Restricted Payments
made during such year, the basis upon which the calculations required by
Section 4.07 hereof were computed, which calculations may be based on the
Company's latest financial statements), and further stating, as to each
Officer signing such certificate, that to the best of his or her knowledge
each entity is not in default in the performance or observance of any terms,
provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action the Company is taking or
proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest or premium, if any, on the
Notes is prohibited or if such event has occurred, a description of the event
and what action the Company is taking or proposes to take with respect
thereto. For purposes of this Section 4.05, such compliance shall be
determined without regard to any period of grace or requirement of notice
under this Indenture.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the annual reports
delivered pursuant to Section 4.04(a) hereof shall be accompanied by a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary
for certification of such financial statements, nothing has come to their
attention that would lead them to believe that the Company has violated any
provisions of Article Four or Article Five hereof or, if any such violation
has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, within five Business Days, upon becoming aware
of any Default or Event of Default or any default under any document,
instrument or agreement representing Indebtedness of the Company or any
Restricted Subsidiary, deliver to the Trustee an Officers' Certificate
specifying such Default or Event of Default.
42
<PAGE>
SECTION 4.06. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments
and governmental charges levied or imposed upon it or any Subsidiary or upon
the income, profits or property of the Company or any of its Subsidiaries and
(b) all material lawful claims for labor, materials and supplies, which, if
unpaid, might by law become a lien upon the property of the Company or any of
its Subsidiaries that could produce a material adverse effect on the
consolidated financial condition of the Company; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and in respect of which appropriate reserves (in the good faith
judgment of management of the Company) are being maintained in accordance with
GAAP.
SECTION 4.07. STAY, EXTENSION, USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law whatever
enacted, now or at any time hereafter in force, that may affect that covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby waives all benefit or advantage of any such law,
and covenants that it shall not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.08. CORPORATE EXISTENCE.
Subject to Article Five hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and that of each Subsidiary of the Company and the
corporate rights (charter and statutory), corporate licenses and corporate
franchises of the Company and its Subsidiaries, except where a failure to do
so, singly or in the aggregate, is not likely to have a materially adverse
effect upon the business, assets, financial conditions or results of
operations of the Company and the Subsidiaries taken as a whole determined on
a consolidated basis in accordance with GAAP; provided that prior to the
occurrence and continuance of an Event of Default, the Company shall not be
required to preserve any such existence (except of the Company), right,
license or franchise if the Board of Directors of the Company shall determine
and deliver to the Trustee an Officers' Certificate to the effect that the
preservation thereof is no longer desirable in the conduct of the business
of the Company or such Subsidiary and that the loss
43
<PAGE>
thereof is not disadvantageous in any material respect to the Holders.
SECTION 4.09. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
shall have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount at
maturity thereof plus accrued and unpaid interest thereon to the date of
purchase (or, in the case of repurchases of Notes prior to ____, 2002, at a
purchase price equal to 101% of the Accreted Value thereof as of the date of
repurchase) (the "Change of Control Payment").
(b) Within 65 days following any Change of Control, the Company shall
mail a notice to each Holder of Notes issued under this Indenture, with a copy
to the Trustee, with the following statements and/or information:
(1) a Change of Control Offer is being made pursuant to
this Section 4.09 and that all Notes properly
tendered pursuant to such Change of Control Offer
will be accepted for payment;
(2) the purchase price and the purchase date, which
will be no earlier than 30 days nor later than 60
days from the date such notice is mailed, except as
may be otherwise required by applicable law (the
"Change of Control Payment Date");
(3) any Note not properly tendered will remain
outstanding and continue to accrue interest;
(4) unless the Company defaults in the payment of the
Change of Control Payment, all Notes accepted for
payment pursuant to the Change of Control Offer
will cease to accrue interest on the Change of
Control Payment Date;
(5) Holders electing to have any Notes purchased
pursuant to a Change of Control Offer will be
required to surrender the Notes, with the form
entitled "Option of Holder to Elect Purchase" on
the reverse of the Notes completed, to the Paying
Agent and at the address specified in the notice
prior to the close of business on the third
Business Day preceding the Change of Control
Payment Date;
44
<PAGE>
(6) Holders will be entitled to withdraw their tendered
Notes and their election to require the Company to
purchase such Notes, provided that the paying agent
receives, not later than the close of business on
the third Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of
the Holder, the principal amount of Notes tendered
for purchase, and a statement that such Holder is
withdrawing his tendered Notes and his election to
have such Notes purchased; and
(7) that Holders whose Notes are being purchased only
in part will be issued new Notes equal in principal
amount to the unpurchased portion of the Notes
surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral
multiple thereof.
(c) Prior to complying with the provisions of this Section 4.09, but
in any event within 30 days following a Change of Control, the Company shall
either repay all outstanding Senior Debt, or offer to repay in full all
outstanding Senior Debt and repay the Senior Debt with respect to which such
offer has been accepted, or obtain the requisite consents, if any, under all
outstanding Senior Debt to permit the repurchase of the Notes required by this
Section 4.09.
(d) The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws or regulations are applicable in connection
with the repurchase of the Notes pursuant to a Change of Control Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations described in this Indenture by virtue thereof.
(e) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (iii) deliver or cause to be delivered to
the Trustee the Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount at maturity of Notes or portions
thereof being purchased by the Company. The Paying Agent shall promptly mail
to each Holder of Notes so tendered the Change of Control Payment for such
Notes, and the Trustee shall promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Note equal in principal amount
to any unpurchased
45
<PAGE>
portion of the Notes surrendered, if any; provided that each such new Note
will be in a principal amount of $1,000 or an integral multiple thereof. The
Company shall publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date.
(f) The Change of Control provisions described in this Section 4.09
will be applicable whether or not any other provisions of this Indenture are
applicable.
SECTION 4.10. ASSET SALES.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time
of such Asset Sale at least equal to the fair market value (evidenced by a
Board of Resolution set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise
disposed of and (ii) at least 75% of the consideration therefor received by
the Company or such Restricted Subsidiary is in the form of (I) cash or Cash
Equivalents or (II) property or assets that are used or useful in a Permitted
Business, or Capital Stock of any Person primarily engaged in a Permitted
Business if, as a result of the acquisition by the Company or any Restricted
Subsidiary thereof, such Person becomes a Restricted Subsidiary; provided that
the amount of (x) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet or in the notes thereto), of
the Company or any Restricted Subsidiary (other than contingent liabilities
and liabilities of the Company that are by their terms subordinated to the
Notes) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability and (y) any notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are converted by the Company or such Restricted Subsidiary into cash or
Cash Equivalents (to the extent of the cash or Cash Equivalents received)
within 180 days following the closing of such Asset Sale, will be deemed to be
cash for purposes of this provision; provided further, that the 75% limitation
referred to above shall not apply to any sale, transfer or other disposition
of assets in which the cash portion of the consideration received therefor,
determined in accordance with the foregoing proviso, is equal to or greater
than what the after-tax net proceeds would have been had such transaction
complied with the aforementioned 75% limitation.
Within 395 days after the Company's or any Restricted Subsidiary's
receipt of any Net Proceeds from an Asset Sale, the Company or such Restricted
Subsidiary shall apply such Net Proceeds (a) to permanently reduce
Indebtedness of a Restricted Subsidiary of the Company (and to correspondingly
reduce commitments with
46
<PAGE>
respect thereto) or (b) to repay Pari Passu Indebtedness (provided that if the
Company shall so repay Pari Passu Indebtedness, it will equally and ratably
reduce Indebtedness under the Notes if the Notes are then redeemable or, if
the Notes may not be then redeemed, the Company shall make an offer pursuant
to Section 3.10 hereof to purchase at 100% of the principal amount thereof at
maturity (or, in the case of repurchases of Notes prior to ______, 2002 at a
purchase price equal to 100% of the Accreted Value thereof as of the date of
repurchase) the amount of Notes that would otherwise be redeemed or (c) to an
investment in property, capital expenditures or assets that are used or useful
in a Permitted Business, or Capital Stock of any Person primarily engaged in a
Permitted Business if, as a result of the acquisition by the Company or any
Restricted Subsidiary thereof, such Person becomes a Restricted Subsidiary.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the preceding sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0
million, the Company shall be required to make an Asset Sale Offer to purchase
the maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount at maturity thereof plus accrued and unpaid interest thereon to the
date of purchase (or, in the case of repurchases of Notes prior to ________,
2002 at a purchase price equal to 100% of the Accreted Value thereof as of the
date of repurchase), in accordance with the procedures set forth in Section
3.10 hereof. To the extent that the aggregate principal amount at maturity or
Accreted Value (as applicable) of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount at maturity of or Accreted Value (as applicable) of Notes surrendered
by holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes to be purchased on a pro rata basis. Upon completion of such
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Indenture relating to such Asset Sale Offer, the Company
will comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations described in this Indenture by
virtue thereof.
SECTION 4.11. LIMITATION ON RESTRICTED PAYMENTS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or
47
<PAGE>
pay any dividend or make any other payment or distribution on account of any
Equity Interests of the Company or any of its Restricted Subsidiaries (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or dividends or distributions payable to
the Company or any Wholly Owned Restricted Subsidiary); (ii) purchase, redeem
or otherwise acquire or retire for value any Equity Interests of the Company,
any of its Restricted Subsidiaries or any other Affiliate of the Company
(other than any such Equity Interests owned by the Company or any Restricted
Subsidiary of the Company); (iii) make any principal payment on, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness of
the Company that is subordinated in right of payment to the Notes, except in
accordance with the scheduled mandatory redemption or repayment provisions set
forth in the original documentation governing such Indebtedness (but not
pursuant to any mandatory offer to repurchase upon the occurrence of any
event); or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, and
(b) immediately after giving effect to such transaction on a pro
forma basis, the Company would have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 4.12 hereof, and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the date of this Indenture (excluding Restricted Payments permitted by clauses
(i) (to the extent that the declaration of any dividend referred to therein
reduces amounts available for Restricted Payments pursuant to this clause
(c)), (ii), (iii), (v), (vi), (viii), (ix), (x), (xiii), (xiv) and (xvi) of
the next succeeding paragraph), is less than the sum of (1) 50% of the
Adjusted Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first calendar month commencing
after the date of this Indenture to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available at
the time of such Restricted Payment (or, if such Adjusted Consolidated Net
Income for such period is a deficit, minus 100% of such deficit), plus (2)
100% of the Qualified Proceeds received by the Company since the date of this
Indenture from contributions to the Company's capital or the issue or sale
since the date of the this Indenture of Equity Interests of the Company or of
convertible debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests or convertible debt securities)
sold to a Subsidiary of the Company and other than
48
<PAGE>
Designated Preferred Stock, Disqualified Stock or convertible debt securities
that have been converted into Disqualified Stock), plus (3) the amount equal
to the net reduction in Investments in Persons after the date of this
Indenture who are not Restricted Subsidiaries (other than Permitted
Investments) resulting from (x) Qualified Proceeds received as a dividend,
repayment of a loan or advance or other transfer of assets (valued at the fair
market value thereof) to the Company or any Restricted Subsidiary from such
Persons, (y) Qualified Proceeds received upon the sale or liquidation of such
Investment and (z) the redesignation of Unrestricted Subsidiaries (other than
any Unrestricted Subsidiary designated as such pursuant to clause (ix) or
(xvi) of the following paragraph) whose assets are used or useful in, or which
is engaged in one or more Permitted Businesses as Restricted Subsidiaries
(valued (proportionate to the Company's equity interest in such Subsidiary) at
the fair market value of the net assets of such Subsidiary at the time of such
redesignation) not to exceed, in the case of clauses (x), (y) and (z), the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Person, which amount was a Restricted Payment; provided
that no proceeds received by the Company from the issue or sale of any Equity
Interests of the Company will be counted in determining the amount available
for Restricted Payments under this clause (c) to the extent such proceeds were
used to redeem, repurchase, retire or acquire any Equity Interests or
Subordinated Indebtedness of the Company pursuant to clauses (ii) and (iv) of
the next succeeding paragraph.
The foregoing provisions shall not prohibit:
(i) the payment of any dividend within 60 days after the
date of declaration thereof, if at such date of declaration such
payment would have complied with the provisions of this Indenture;
(ii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company or Subordinated
Indebtedness of the Company in exchange for, or out of the net
proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(2)
of the preceding paragraph;
(iii) the defeasance, redemption, repurchase or other
acquisition of pari passu or subordinated Indebtedness with the net
proceeds from an incurrence of Permitted Refinancing Indebtedness;
49
<PAGE>
(iv) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or
Holdings held by any member of the Company's or any of the Company's
Restricted Subsidiaries' management pursuant to any management equity
subscription agreement or stock option agreement; provided that (A)
the aggregate price paid for all such repurchased, redeemed, acquired
or retired Equity Interests shall not exceed (I) $5.0 million in any
calendar year (with unused amounts in any calendar year being carried
over to succeeding calendar years subject to a maximum (without
giving effect to the following clause (II)) of $10.0 million in any
calendar year) plus (II) the aggregate cash proceeds received by the
Company during such calendar year from any reissuance of Equity
Interests by the Company or DecisionOne Corp. to members of
management of the Company and its Restricted Subsidiaries and (B) no
Default or Event of Default shall have occurred and be continuing
immediately after such transaction; provided further that the
aggregate cash proceeds referred to in clause (II) above shall be
excluded from clause (c)(2) of the preceding paragraph;
(v) the payment of dividends by a Restricted Subsidiary on
any class of common stock of such Restricted Subsidiary if (A) such
dividend is paid pro rata to all holders of such class of common
stock and (B) at least 51% of such class of common stock is held by
the Company or one or more of its Restricted Subsidiaries;
(vi) the repurchase of any class of common stock of a
Restricted Subsidiary if (A) such repurchase is made pro rata with
respect to such class of common stock and (B) at least 51% of such
class of common stock is held by the Company or one or more of its
Restricted Subsidiaries;
(vii) any other Restricted Investment made in a Permitted
Business which, together with all other Restricted Investments made
pursuant to this clause (vii) since the date of this Indenture, does
not exceed $40.0 million (in each case, after giving effect to all
subsequent reductions in the amount of any Restricted Investment made
pursuant to this clause (vii), either as a result of (A) the
repayment or disposition thereof for cash or (B) as a result of the
redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary (valued proportionate to the Company's equity interest in
such Subsidiary at the time of such redesignation) at the fair market
value of the net assets of such Subsidiary at the time of such
redesignation), in the case of clause (A) and (B), not to exceed the
amount of such Restricted Investment previously made pursuant to this
clause (ix); provided that no Default or Event of Default shall have
occurred and be continuing immediately after making such Restricted
Investment;
50
<PAGE>
(viii) the declaration and payment of dividends to holders
of any class or series of Disqualified Stock of the Company issued
after the date of this Indenture in accordance with the covenant
described in Section 4.14 hereof; provided that no Default or Event
of Default shall have occurred and be continuing immediately after
such declaration or payment;
(ix) repurchases of Equity Interests deemed to occur upon
exercise of stock options if such Equity Interests represent a
portion of the exercise price of such options;
(x) (A) payments made by the Company in respect of statutory
appraisal rights (and any settlement thereof) and (B) payments made
by the Company to fund the cash consideration payable in the Merger
(including pursuant to statutory appraisal rights and any settlement
thereof) to security holders of Holdings (including without
limitation, the Cash Merger Consideration, the Option Cash Proceeds
and the Warrant Cash Proceeds (each as defined in the Registration
Statement)) and fees and expenses of the Company and DecisionOne
Corp. in connection with the Merger;
(xi) a Restricted Payment to pay for the repurchase,
retirement or other acquisition or retirement for value of Equity
Interests of Holdings outstanding on the date of this Indenture and
which are not held by the Principals or any member of management of
Holdings or any Subsidiary of Holdings on the date of this Indenture
(including any Equity Interests issued in respect of such Equity
Interests as a result of a stock split, recapitalization, merger,
combination, consolidation or otherwise, but excluding any Equity
Interests issued pursuant to any management equity plan or stock
option plan or similar agreement), provided that the aggregate
Restricted Payments made under this clause (xi) shall not exceed
$40.0 million, provided further that prior to the first anniversary
of the consummation of the Merger, the aggregate amount of Restricted
Payments made under this clause (xi) shall not exceed $20.0 million,
provided further that notwithstanding the foregoing proviso, the
Company shall be permitted to make Restricted Payments under this
clause (xi) only if after giving effect thereto, the Company would be
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.12 hereof; provided that no Default or Event
of Default shall have occurred and be continuing immediately after
making such Restricted Payment;
(xii) the payment of dividends on the Company's common
stock, following the first public offering of the Company's or
Holdings' common stock after the date of this Indenture, of up to
6.0% per annum of the net proceeds received by the Company as common
equity from such public
51
<PAGE>
offering, other than, in each case, with respect to public offerings
with respect to the Company's or Holdings' common stock registered on
Form S-8; provided that no Default or Event of Default shall have
occurred and be continuing immediately after any such payment of
dividends;
(xiii) the declaration and payment of dividends to holders
of any class or series of Designated Preferred Stock issued after the
date of this Indenture; provided, however, immediately after the date
of issuance of such Designated Preferred Stock, after giving effect
to such issuance on a pro forma basis, the Company would have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.12 hereof.
(xiv) the payment in cash in lieu of fractional shares of
Common Stock under the Warrant Agreement;
(xv) any other Restricted Payment which, together with all
other Restricted Payments made pursuant to this clause (xvi) since
the date of this Indenture, does not exceed $40.0 million (in each
case, after giving effect to all subsequent reductions in the amount
of any Restricted Investment made pursuant to this clause (xv) either
as a result of (A) the repayment or disposition thereof for cash or
(B) the redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary (valued proportionate to the Company's equity interest in
such Subsidiary at the time of such redesignation) at the fair market
value of the net assets of such Subsidiary at the time of such
redesignation), in the case of clause (A) and (B), not to exceed the
amount of such Restricted Investment previously made pursuant to this
clause (xvi); provided that no Default or Event of Default shall have
occurred and be continuing immediately after making such Restricted
Payment; and
(xvi) distributions or payments of Receivables Fees.
The Board of Directors may designate any Restricted Subsidiary (other
than DecisionOne Corp.) to be an Unrestricted Subsidiary if such designation
would not cause a Default. For purposes of making such designation, all
outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed
to be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
Section 4.11. All such outstanding Investments will be deemed to constitute
Restricted Investments in an amount equal to the greater of (i) the net book
value of such Investments at the time of such designation and (ii) the fair
market value of such Investments at the time of such designation. Such
designation will only be
52
<PAGE>
permitted if such Restricted Investment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of (i) all Restricted Payments (other than restricted
Payments made in cash) shall be the fair market value on the date of the
Restricted Payment of the asset(s) or securities proposed to be transferred or
issued by the Company or such Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment and (ii) Qualified Proceeds (other than
cash) shall be the fair market value on the date of receipt thereof by the
Company of such Qualified Proceeds. The fair market value of any non-cash
Restricted Payment and Qualified Proceeds shall be determined by the Board of
Directors whose resolution with respect thereto shall be delivered to the
Trustee, such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if
such fair market value exceeds $20.0 million. Not later than the date of
making any Restricted Payment, the Company shall deliver to the Trustee and
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section
4.11 were computed, which calculations shall be based upon the Company's
latest available financial statements.
SECTION 4.12. LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become, directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt), (ii) that the Company will not issue any Disqualified Stock
and (iii) that the Company will not permit any of its Restricted Subsidiaries
to issue any preferred stock; provided, however, that the Company and its
Restricted Subsidiaries may incur Indebtedness (including Acquired Debt), the
Company may issue shares of Disqualified Stock and any Restricted Subsidiary
of the Company may issue Preferred Stock if the Company's Fixed Charge
Coverage Ratio for the Company's most recently ended four fiscal quarters for
which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified
Stock or Preferred Stock is issued, would have been at least 1.50 to 1.00,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Disqualified Stock or Preferred Stock had been issued, as the case may be,
at the beginning of such four-quarter period.
The foregoing provisions will not apply to (collectively, "Permitted
Debt"):
53
<PAGE>
(i) the incurrence by the Company, DecisionOne Corp. and its
Restricted Subsidiaries of Indebtedness under the New Credit
Facility; provided that the aggregate principal amount of all
Indebtedness (with letters of credit and bankers' acceptances being
deemed to have a principal amount equal to the maximum face amount
thereunder) outstanding under the New Credit Facility after giving
effect to such incurrence does not exceed an amount equal to $625.0
million;
(ii) the incurrence by (A) the Company and its Restricted
Subsidiaries of Indebtedness represented by the Notes and (B)
DecisionOne Corp. and its Restricted Subsidiaries of Indebtedness
represented by the Senior Subordinated Notes and any guarantee
thereof;
(iii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations, in
each case, incurred for the purpose of financing all or any part of
the purchase price or cost of construction or improvement of property
used in the business of the Company or such Restricted Subsidiary, in
aggregate principal amount not to exceed $25.0 million at any time
outstanding;
(iv) Existing Indebtedness;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for,
or the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund, Indebtedness that was permitted by this
Indenture;
(vi) Indebtedness of the Company to a Restricted Subsidiary;
provided that any subsequent issuance or transfer of any Capital
Stock or other event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of
any such Indebtedness (except to the Company or another Restricted
Subsidiary) shall be deemed, in each case, to be an incurrence of
such Indebtedness;
(vii) Indebtedness of a Restricted Subsidiary to the Company
or another Restricted Subsidiary; provided that any subsequent
issuance or transfer of any Capital Stock of any Restricted
Subsidiary to whom such Indebtedness is owed or any other event which
results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or another Restricted Subsidiary) shall be
deemed, in each case, to be an incurrence of such Indebtedness;
54
<PAGE>
(viii) the incurrence by the Company or any of its
Restricted Subsidiaries of Hedging Obligations that are incurred for
the purpose of fixing or hedging (a) interest rate risk with respect
to any floating rate Indebtedness of such Person that is permitted by
the terms of this Indenture to be outstanding or (b) exchange rate
risk with respect to agreements or Indebtedness of such Person
payable denominated in a currency other than U.S. dollars; provided
that such agreements do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by reason of
fees, indemnities and compensation payable thereunder;
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Acquired Debt, in an aggregate principal amount at
any time outstanding not to exceed $25.0 million;
(x) the incurrence by the Company or any Restricted
Subsidiary of Indebtedness (in addition to Indebtedness permitted by
any other clause of this paragraph) in an aggregate principal amount
at any time outstanding not to exceed the sum of $60.0 million;
(xi) Indebtedness arising from agreements of the Company or
a Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or
a Restricted Subsidiary, other than guarantees of Indebtedness
incurred by any Person acquiring all or any portion of such business,
assets or a Restricted Subsidiary for the purpose of financing such
acquisition; provided, however, that (i) such Indebtedness is not
reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for purposes
of this clause (i)) and (ii) the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the gross
proceeds including noncash proceeds (the fair market value of such
noncash proceeds being measured at the time received and without
giving effect to any subsequent changes in value) actually received
by the Company and its Restricted Subsidiaries in connection with
such disposition;
(xii) obligations in respect of performance and surety bonds
and completion guarantees provided by the Company or any Restricted
Subsidiary in the ordinary course of business; and
55
<PAGE>
(xiii) (A) any guarantee by a Restricted Subsidiary of the
Company of Indebtedness of the Company that is passu in right of
payment to the Debentures that was permitted to be incurred under
this Indenture and (B) any guarantee by a Restricted Subsidiary of
the Company of Indebtedness of any other Restricted Subsidiary of the
Company that was permitted to be incurred under this Indenture.
For purposes of determining compliance with this Section 4.12, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiii) above or
is entitled to be incurred pursuant to the first paragraph of this covenant,
the Company shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant and such item of Indebtedness
will be treated as having been incurred pursuant to only one of such clauses
or pursuant to the first paragraph hereof. Accrual of interest and the
accretion of original issue discount will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
SECTION 4.13. TRANSACTIONS WITH AFFILIATES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or such Restricted Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Restricted Subsidiary with
an unrelated Person and (ii) if such Affiliate Transaction involves aggregate
payments in excess of $5.0 million, the Company delivers to the Trustee either
(x) a resolution of the Board of Directors of the Company set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and such Affiliate Transaction is approved by a majority of
the members of the Board of Directors of the Company or (y) an opinion as to
the fairness to the Holders of the Notes of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment
banking firm of national standing; provided, however, that (a) any employment
agreement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary, (b) transactions between or among the
Company and/or its Restricted Subsidiaries, (c) transactions between the
Company or its Restricted Subsidiaries on the one hand, and the Underwriter or
its Affiliates on the other hand, involving the provision of financial,
consulting or underwriting services by the Underwriter or its
56
<PAGE>
Affiliates, provided that the fees payable to the Underwriter or its
Affiliates do not exceed the usual and customary fees of the Underwriter and
its Affiliates for similar services, (d) transactions in accordance with the
Specified Agreements, as amended; provided that no such amendment contains any
provisions that are materially adverse to the Holders of the Notes, (e)
payment of employee benefits, including bonuses, retirement plans and stock
options, in the ordinary course of business, consistent with past practice,
(f) the payment of reasonable and customary fees to, and indemnity provided on
behalf of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary; (g) Restricted Payments permitted by the provisions of
clauses (i), (iv), (v), (vi), (ix), (x), (xiv) and (xvi) of the second
paragraph of Section 4.11 hereof, (h) payments and transactions in connection
with the Merger and the application of the net proceeds from the Offering,
including the payment of any fees and expenses with respect thereto, (i)
transactions pursuant to the Intercompany Note and any forgiveness of
Indebtedness thereunder, (j) transactions permitted by the provisions of
Section 4.11 hereof and (k) transactions pursuant to the Management Loans, in
each case, shall not be deemed Affiliate Transactions.
SECTION 4.14. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any encumbrance or restriction on the ability of
any Restricted Subsidiary to: (i) (a) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits or (b) pay any Indebtedness owed to the Company or
any of its Restricted Subsidiaries; (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries; or (iii) transfer any of its properties
or assets to the Company or any of its Restricted Subsidiaries, except for
such encumbrances or restrictions existing under or by reason of (a) the terms
of any Indebtedness permitted by this Indenture to be incurred by any
Restricted Subsidiary of the Company, (b) Existing Indebtedness, as in effect
on the date of this Indenture; (c) any agreement or other instrument of a
Person acquired by the Company or any of its Restricted Subsidiaries, as in
effect at the time of such acquisition (but not created in contemplation of
such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired; (d) customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices; (e) applicable law; (f) purchase
money obligations for property acquired in the ordinary course of business
that impose restrictions of the nature
57
<PAGE>
described in clause (iii) above on the property so acquired; or (g) contracts
for the sale of assets, including, without limitation, customary restrictions
with respect to a Subsidiary pursuant to an agreement that has been entered
into for the sale or disposition of all or substantially all of the Capital
Stock or assets of such Subsidiary.
SECTION 4.15 LIMITATIONS ON LIENS
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom, or assign or convey any rights to receive income therefrom,
unless all payments due under this Indenture and the Notes are secured on an
equal and ratable basis with the obligations so secured or until such time as
such obligation is no longer secured by a Lien except for (i) Liens existing
on the date of this Indenture, (ii) Liens on assets of any Restricted
Subsidiary of the Company securing indebtedness of Restricted Subsidiaries of
the Company and (iii) Permitted Liens.
SECTION 4.16 SALES OF ACCOUNTS RECEIVABLES.
The Company may, and any of its Restricted Subsidiaries may, sell at
any time and from time to time, accounts receivable to any Accounts Receivable
Subsidiary; provided that (i) the aggregate consideration received in each
such sale is at least equal to the aggregate fair market value of the
receivables sold, as determined by the Board of Directors of the Company in
good faith, (ii) no less than 80% of the consideration received in each such
sale consists of either cash or a promissory note (a "Promissory Note") which
is subordinated to no Indebtedness or obligation other than the financial
institution or other entities providing the financing to the Accounts
Receivable Subsidiary with respect to such accounts receivable (the
"Financier") and the remainder of such consideration consists of an Equity
Interest in such Accounts Receivable Subsidiary; provided further that the
Initial Sale will include all accounts receivable of the Company and/or its
Restricted Subsidiaries that are party to such arrangements that constitute
eligible receivables under such arrangements, (iii) the cash proceeds received
from the Initial Sale less reasonable and customary transaction costs will be
deemed to be Net Proceeds and will be applied in accordance with the second
paragraph of Section 4.10 hereof, and (iv) the Company and its Restricted
Subsidiaries will sell all accounts receivable that constitute eligible
receivables under such arrangements to the Accounts Receivable Subsidiary no
less frequently than on a weekly basis.
The Company (i) will not permit any Accounts Receivable Subsidiary to
sell any accounts receivable purchased from the Company or any of its
Restricted Subsidiaries to any other person
58
<PAGE>
except on an arm's-length basis and solely for consideration in the form of
cash or Cash Equivalents, (ii) will not permit the Accounts Receivable
Subsidiary to engage in any business or transaction other than the purchase,
financing and sale of accounts receivable of the Company and its Restricted
Subsidiaries and activities incidental thereto, (iii) will not permit any
Accounts Receivable Subsidiary to incur Indebtedness in an amount in excess of
97% of the book value of such Accounts Receivable Subsidiary's total assets,
as determined in accordance with GAAP, (iv) will, at least as frequently as
monthly, cause the Accounts Receivable Subsidiary to remit to the Company as
payment for additional receivables or on the Promissory Notes or as a
dividend, all available cash or Cash Equivalents not held in a collection
account pledged to a Financier, to the extent not applied to pay or maintain
reserves for reasonable operating expenses of the Accounts Receivable
Subsidiary or to satisfy reasonable minimum capital requirements based on then
current market practices of rating agencies in similar transactions involving
receivables of a similar type and quality, as determined by the Board of
Directors of the Company in good faith and (v) will not, and will not permit
any of its Subsidiaries to, sell accounts receivable to any Accounts
Receivable Subsidiary upon (1) the occurrence of an Event of Default with
respect to the Company and its Restricted Subsidiaries and (2) the occurrence
of certain events of bankruptcy or insolvency with respect to such Accounts
Receivable Subsidiary.
SECTION 4.17. NO RESTRICTIONS ON CONSUMMATION OF MERGER.
Notwithstanding any provision contained herein to the contrary, this
Indenture will not prohibit the consummation of the Merger, provided that
concurrently with the Merger, (a) Holdings, as the surviving corporation,
shall execute and deliver to the Trustee an assumption agreement substantially
in the form of EXHIBIT B hereto pursuant to which it shall assume all the
Obligations of the Issuer under the Notes and this Indenture.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving entity), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another Person unless (i) the
Company is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made is a corporation organized or existing under the laws of the United
States, any state thereof or
59
<PAGE>
the District of Columbia; (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made assumes all the obligations of the Company under the Notes and
this Indenture pursuant to a supplemental indenture in form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction, no
Default or Event of Default exists; (iv) the Company or the Person formed by
or surviving any such consolidation or merger, or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been
made will, at the time of such transaction after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.12 hereof. The foregoing clause (iv) will not
prohibit (a) a merger between the Company and a Wholly Owned Subsidiary of an
Affiliate of the Company created solely for the purpose of holding the Capital
Stock of the Company, (b) a merger between the Company and a Wholly Owned
Restricted Subsidiary or (c) a merger between the Company and an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
State of the United States so long as, in each case, the amount of
Indebtedness of the Company and its Restricted Subsidiaries is not increased
thereby.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease or conveyance or other disposition of all or substantially all of the
assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company) and may
exercise every right and power of the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes except in the
case of a sale of all of the Company's assets that meets the requirements of
Section 5.01 hereof; provided, further, that solely for purposes of computing
Consolidated Net Income for purposes of clause (c) of the first paragraph of
Section 4.11 hereof, the Consolidated Net Income of any Person other than the
Company or any of its Restricted Subsidiaries shall be included only for
periods subsequent to the effective time of such consolidation or merger,
sale, assignment, transfer, lease or conveyance or other disposition of
assets.
60
<PAGE>
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT AND NOTICE THEREOF.
Each of the following constitutes an "Event of Default":
(a) default for 30 days in the payment when due of interest
on the Notes;
(b) default in payment when due of principal or premium, if
any, on the Notes at maturity, upon redemption or otherwise;
(c) failure by the Company for 30 days after receipt of
notice from the Trustee or Holders of at least 30% in principal
amount of the Notes then outstanding to comply with the provisions of
Sections 3.10, 4.09, 4.10, 4.11, 4.12 or Article 5 hereof.
(d) failure by the Company for 60 days after notice from the
Trustee or the Holders of at least 30% in principal amount of the
Notes then outstanding to comply with its other agreements in this
Indenture or the Notes;
(e) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of
this Indenture, which default (i) is caused by a failure to pay
Indebtedness at its stated final maturity (after giving effect to any
applicable grace period provided in such Indebtedness) (a "Payment
Default") or (ii) results in the acceleration of such Indebtedness
prior to its stated final maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount
of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates
$20.0 million or more;
(f) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $20.0
million (net of any amounts with respect to which a reputable and
creditworthy insurance company has acknowledged liability in
writing), which judgments are not paid, discharged or stayed within
60 days after their entry;
61
<PAGE>
(g) the Company or any of its Restricted Subsidiaries that
is a Significant Subsidiary pursuant to or within the meaning of the
Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for
relief against it in an involuntary case,
(iii) consents to the appointment of a Custodian
of it or for all or substantially all of
its property,
(iv) makes a general assignment for the benefit
of its creditors,
(v) generally is not paying its debts as they
become due; or
(h) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any
of its Restricted Subsidiaries that is a
Significant Subsidiary in an involuntary
case;
(ii) appoints a Custodian of the Company or any
of its Restricted Subsidiaries that is a
Significant Subsidiary or for all or
substantially all of the property of the
Company or any of its Restricted
Subsidiaries that is a Significant
Subsidiary;
(iii) orders the liquidation of the Company or
any of its Restricted Subsidiaries that is
a Significant Subsidiary; and
and the order or decree remains unstayed and in effect for 60
consecutive days.
SECTION 6.02. ACCELERATION
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 30% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default specified in clause (g) or
clause (h) of Section 6.01 hereof, all outstanding Notes will become due and
payable without further action or notice. Upon any acceleration of maturity of
the Notes, all principal of and accrued interest on (if on or after _______,
2002) or Accreted Value of (if prior to ___, 2002) the Notes shall be due and
payable immediately. Holders of
62
<PAGE>
the Notes may not enforce this Indenture or the Notes except as provided in
this Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. In the event of a declaration of acceleration
of the Notes because an Event of Default has occurred and is continuing as a
result of the acceleration of any Indebtedness described in clause (e) of
Section 6.01 hereof, the declaration of acceleration of the Notes shall be
automatically annulled if the holders of any Indebtedness described in clause
(e) of Section 6.01 hereof have rescinded the declaration of acceleration in
respect of such Indebtedness within 30 days of the date of such declaration
and if (y) the annulment of the acceleration of the Notes would not conflict
with any judgment or decree of a court of competent jurisdiction and (z) all
existing Events of Default, except nonpayment of principal or interest on the
Notes that became due solely because of the acceleration of the Notes, have
been cured or waived.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may upon
delivery of pursue any available remedy to collect the payment of principal,
premium, if any, and interest on the Notes or to enforce the performance of
any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding, by notice to the Trustee, may on behalf of the Holders of
all of the Notes waive any existing Default or Event of Default and its
consequences under this Indenture, except a continuing Default or Event of
Default in the payment of interest or premium on, or principal of, the Notes.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in such Holders' interest.
63
<PAGE>
SECTION 6.05. CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal amount at maturity
of the then outstanding Notes may direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee
or exercising any trust or power conferred on it. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture, that
the Trustee determines may be unduly prejudicial to the rights of other
Holders of Notes or that may involve the Trustee in personal liability. The
Trustee may take any other action which it deems proper which is not
inconsistent with any such direction.
SECTION 6.06. LIMITATION ON SUITS.
No Holder of a Note will have any right to institute any proceeding
with respect to this Indenture or for any remedy hereunder, unless (i) such
Holder shall have previously given to the Trustee written notice of a
continuing Event of Default with respect to the Notes, (ii) the Holders of at
least 30% in aggregate principal amount at maturity of the Notes then
outstanding shall have made written request to the Trustee to institute such
proceeding and, if requested by the Trustee, provided reasonable indemnity to
the Trustee, with respect to such proceeding and (iii) the Trustee shall not
have received from the Holders of a majority in aggregate principal amount at
maturity of the Notes then outstanding a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium, if any, and
interest on any Note, on or after the respective due dates expressed in any
Note, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent
of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) hereof
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium, if any, and interest remaining unpaid on the
Notes and interest on overdue principal and, to the extent lawful, interest
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
64
<PAGE>
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and
distribute any money or other property payable or deliverable on any such
claims and any custodian in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee, as administrative
expenses associated with any such proceeding and in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay
to the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof. To the extent that
the payment of any such compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 7.07 hereof out of the estate in any such proceeding, shall be
denied for any reason, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties that the Holders may be entitled to receive in such
proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article Six, it
shall pay out the money, subject to Article 10 hereof, in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and
the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and, if any, and
interest, respectively;
65
<PAGE>
Third: without duplication, to the Holders for any other Obligations
owing to the Holders under this Indenture and the Notes; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted
by it as a Trustee, a court in its discretion may require the filing by any
party litigant in the suit of an undertaking to pay the costs of the suit, and
the court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by
a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of
more than 10% in principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(1) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no others,
and no implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture, provided, that
the Trustee shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
66
<PAGE>
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section 7.01;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture unless the Holders shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact
or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel.
The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel. The Trustee may consult
with counsel and the written advice of such counsel or any
Opinion of Counsel shall be full and complete authorization
and protection from liability in respect of any action
taken, suffered or omitted by it hereof in good faith and in
reliance thereon.
67
<PAGE>
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of
any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be
authorized or within the rights or powers conferred upon it
by this Indenture.
(e) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company
shall be sufficient if signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders unless such
Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with
such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company with the
same rights it would have if it were not Trustee. However, in the event that
the Trustee acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue as trustee
or resign. Any Agent may do the same with like rights and duties. The Trustee
is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the direction of the Company under any provision
of this Indenture, it shall not be responsible for the use or application of
any money received by any Paying Agent other than the Trustee, and it shall
not be responsible for any statement or recital herein or any statement in the
Notes or any other document in connection with the sale of the Notes or
pursuant to this Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to Holders of Notes a notice
of the Default or Event of Default within 90 days
68
<PAGE>
after it occurs. Except in the case of a Default or Event of Default in
payment of principal of, premium, if any, or interest on any Note, the Trustee
may withhold the notice if and so long as a committee of its Responsible
Officers in good faith determines that withholding the notice is in the
interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each __________ beginning with the ___________
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA ss. 313(a) (but if no
event described in TIA ss. 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail
all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed in accordance with TIA ss.
313(d). The Company shall promptly notify the Trustee when the Notes are
listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee, from time to time as may be
agreed upon between them, reasonable compensation for its acceptance of this
Indenture and services hereof. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee promptly upon request for all reasonable disbursements,
advances and expenses incurred or made by it in addition to the compensation
for its services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with
the acceptance or administration of its duties under this Indenture, including
the costs and expenses of enforcing this Indenture against the Company
(including this Section 7.07) and defending itself against any claim (whether
asserted by the Company or any Holder or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereof, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereof. The Company shall defend the claim and the Trustee shall
cooperate
69
<PAGE>
in the defense. The Trustee may have separate counsel and the Company shall
pay the reasonable fees and expenses of such counsel. The Company need not pay
for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in Section 6.01(g) or (h) hereof,
the expenses and the compensation for the services (including the fees and
expenses of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to
the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company
may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof,
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee
under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor
70
<PAGE>
Trustee takes office, the Holders of a majority in principal amount of the
then outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10 hereof, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereof have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Company's obligations under Section
7.07 hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business (including the trust
created by this Indenture) to, another corporation, the successor corporation
without any further act shall be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereof that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or
state authorities and that has, or is a wholly owned subsidiary of a bank
holding company that has, a combined capital and surplus of at least $100
million as set forth in its most recent published annual report of condition.
71
<PAGE>
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
SECTION 7.12. RIGHTS OF HOLDERS WITH RESPECT TO TIME METHOD AND PLACE
Subject to the limitations of this Article 7, a majority in principal
amount of the outstanding Notes issued hereof shall have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Trustee, subject to certain exceptions.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 8.02 or Section 8.03 hereof
be applied to all Notes then outstanding upon compliance with the conditions
set forth below in this Article Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to
have been discharged from its obligations with respect to all Notes then
outstanding on the date the conditions set forth below are satisfied ("Legal
Defeasance"). For this purpose such defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
Notes outstanding, which shall thereafter be deemed to be "outstanding" only
for the purposes of Section 8.05 and the other Sections of this Indenture
referred to in clauses (i) and (ii) of this Section 8.02, and to have
satisfied all its other obligations under such Notes and this Indenture (and
the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which
shall survive until otherwise terminated or discharged hereunder: (i) the
rights of Holders of outstanding Notes to receive payments in
72
<PAGE>
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due solely from amounts deposited with the Trustee as
provided in Section 8.04 hereof, (ii) the Company's obligations with respect
to the Notes under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 4.02 and 4.03
hereof, (iii) the rights, powers, trusts, duties, indemnities and immunities
of the Trustee and the Company's obligations in connection therewith and (iv)
this Article 8.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall be released from its
obligations under the covenants contained in Article Five and in Sections
4.04, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14 and 4.16 with respect to the
outstanding Notes, if any, on and after the date the conditions set forth
below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed to be not "outstanding" for the purposes of any
direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for financial
accounting purposes). For this purpose, such Covenant Defeasance means that,
with respect to the outstanding Notes, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference
in any such covenant to any other provision herein or in any other document
and such omission to comply shall not constitute a Default or an Event of
Default under Section 6.01(c) hereof, but, except as specified above, the
remainder of this Indenture and such Notes shall be unaffected thereby. In
addition, upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, Sections 6.01(d) through 6.01(f) and Section
6.01(i) shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either
Section 8.02 or Section 8.03 hereof to the outstanding Notes:
(i) the Company shall have irrevocably deposited with the Trustee, in
trust, for the benefit of the Holders of the Notes and without retaining any
legal interest corpus of such trust, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal amount at maturity of or Accreted
Value (as
73
<PAGE>
applicable), premium, if any, and interest due on the outstanding Notes on the
stated maturity thereof or on the applicable optional redemption date, as the
case may be, and the Company must specify whether the Notes are being defeased
to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by, the United States Internal Revenue Service a
ruling or (B) since the Closing Date, there has been a change in the
applicable U.S. federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel in the United States shall confirm that,
subject to customary assumptions and exclusions, the Holders of the
outstanding Notes will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such Legal Defeasance and will be subject
to U.S. federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions
and exclusions, the Holders of the outstanding Notes will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of such
Covenant Defeasance and will be subject to such tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
or, insofar as Events of Default set forth in Section 6.01(g) and (h), at any
time in the period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be satisfied until the
expiration of such period);
(v) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company is a
party or by which the Company is bound;
(vi) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions (which assumptions and exclusions shall
not relate to the operation of Section 547 of the United States Bankruptcy
Code or any analogous New York State law provision or related judicial
decisions) after the 91st day following the deposit the trust funds will not
be
74
<PAGE>
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally, and that the Trustee
has a perfected security interest in such trust funds for the ratable benefit
of the Holders;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding any
creditors of the Company;
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States (which Opinion of
Counsel may be subject to customary assumptions and exclusions) each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance, as the case may be, have been complied with; and
(ix) the Trustee shall have received such other documents and
assurances as the Trustee shall reasonably require.
SECTION 8.05. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 4.03
hereof, all money and Government Securities (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof
in respect of the Notes then outstanding shall be held in trust and applied by
the Trustee, in accordance with the provisions of such Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Notes of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the Notes then
outstanding.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time at the Company's
request any money or Government Securities held by it as provided in Section
8.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered
75
<PAGE>
to the Trustee (which may be the opinion delivered under Section 8.04(i)
hereof), are in excess of the amount thereof which would then be required to
be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
The Trustee shall promptly pay to the Company, after written request
therefor, any money held at such time in excess of the amounts required to pay
any of the Company's Obligations then owing with respect to the Notes.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest, if any, on any Note and remaining unclaimed for one year
after such principal, and premium, if any, or interest, if any, have become
due and payable shall be paid to the Company on its request or (if then held
by the Company) shall be discharged from such trust; and the Holder of such
Note shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in The New York Times
and The Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such notification or publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or Government Securities in accordance with Section 8.02 hereof or
Section 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit
had occurred pursuant to Section 8.02 hereof or Section 8.03 hereof, as the
case may be, until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with Section 8.02 hereof or Section 8.03
hereof, as the case may be; provided, however, that if the Company makes any
payment of principal of (or premium, if any) or interest on any Note following
the reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money
held by the Trustee or Paying Agent.
76
<PAGE>
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 hereof, without the consent of any
Holder of Notes, the Company and the Trustee may amend or supplement this
Indenture or the Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(c) to comply with Article 5 hereof;
(d) to provide for the assumption of the Company's obligations
to the Holders of the Notes in the case of a merger,
consolidation, sale, assignment, transfer lease or other
conveyance or other disposition of assets;
(e) to make any change that would provide any additional rights
or benefits to the Holders of the Notes or that does not, in
the opinion of counsel, adversely affect the legal rights
hereunder of any such Holder;
(f) to add covenants for the benefit of the Holders or to
surrender any right or power conferred upon the Company; or
(g) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under
the Trust Indenture Act.
Upon the written request of the Company accompanied by a Board
Resolution authorizing the execution of any such amended or supplemental
indenture, and upon receipt by the Trustee of an Officers' Certificate and an
Opinion of Counsel, the Trustee shall join with the Company in the execution
of any amended or supplemental indenture authorized or permitted by the terms
of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental indenture that affects
its own rights, duties or immunities under this Indenture or otherwise.
77
<PAGE>
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, this Indenture and the
Notes issued hereunder may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for the Notes), and, subject to Sections 6.02, 6.04 and 6.07
hereof, any existing default or compliance with any provision of this
Indenture, the Notes may be waived with the consent of the Holders of a
majority in principal amount of the outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Upon the request of the Company accompanied by a Board of Resolution
authorizing the execution of any such amended or supplemental indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of
the consent of the Holders of Notes as aforesaid, and upon receipt by the
Trustee of an Officers' Certificate and an Opinion of Counsel, the Trustee
shall join with the Company in the execution of such amended or supplemental
indenture unless such amended or supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such amended or supplemental Indenture.
The consent of the Holders is not necessary under this Section 9.02
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver. Subject to Sections 6.04 and 6.07 hereof,
the Holders of a majority in aggregate principal amount at maturity of the
Notes then outstanding may waive compliance in a particular instance by the
Company with any provision of this Indenture, the Notes. However, without the
consent of each Holder affected, an amendment or waiver may not (with respect
to any Note held by a non-consenting Holder):
(i) reduce the principal amount of the Notes whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal amount at maturity of or change the
fixed maturity of any Note or alter the redemption
provisions with respect to the redemption of the Notes
78
<PAGE>
(other than provisions relating to Sections 4.09 and 4.10
hereof);
(iii) reduce the rate of or change the time for payment of
interest on any Note;
(iv) waive a Default or Event of Default in the payment of
principal of, premium, if any, or interest on the Notes
(except a rescission of acceleration of the Notes by the
Holders of at least a majority in aggregate principal amount
at maturity of such Notes and a waiver of the payment
default that resulted from such acceleration) or in respect
of a covenant or a provision contained herein which cannot
be amended or modified without the consent of all Holders;
(v) make any Note payable in money other than that stated in
such Notes;
(vi) make any change in Section 6.04 or Section 6.07 hereof;
(vii) waive a redemption or repurchase payment with respect to any
Note (other than a payment required by Sections 3.10, 4.09
or 4.10 hereof);
(viii) modify any provision of this Indenture with respect to the
priority of the Notes in right of payment; or
(ix) make any change in the foregoing amendment and waiver
provisions of this Article 9.
Notwithstanding the foregoing, any amendment or waiver to Section
4.09 hereof will require the consent of the Holders of at least two-thirds in
aggregate principal amount at maturity of the Notes then outstanding if such
amendment would adversely affect the rights of Holders of Notes.
SECTION 9.03. COMPLIANCE WITH TIA.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in an amended or supplemental indenture that complies with the TIA
as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note
and every subsequent Holder of a Note or portion of a Note that evidences the
same debt as the consenting Holder's Note, even if notation of the consent is
not made on any Note. However, any such Holder of a Note or subsequent Holder
of a Note
79
<PAGE>
may revoke the consent as to its Note if the Trustee receives written notice
of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may, but shall not be required to, place an appropriate
notation about an amendment, supplement or waiver on any Note thereafter
authenticated. The Company in exchange for all Notes may issue and the Trustee
shall authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article Nine if the amendment or supplement does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. The Company may not sign an amendment or supplemental indenture until
the Board of Directors approves it. In signing or refusing to sign any amended
or supplemental indenture the Trustee shall be entitled to receive and
(subject to Section 7.01 hereof) shall be fully protected in relying upon an
Officers's Certificate and an Opinion of Counsel stating that the execution of
such amended or supplemental indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it will be valid and
binding upon the Company, if any, in accordance with its terms.
ARTICLE 10
SATISFACTION AND DISCHARGE
SECTION 10.01 SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall be discharged and will cease to be of further
effect as to all Notes issued hereunder, when either
(a) all such Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been
replaced or paid and Notes for whose payment money has
theretofore been deposited in trust and thereafter repaid to
the Company) have been delivered to the Trustee for
cancellation; or
80
<PAGE>
(b) (i) all such Notes not theretofore delivered to such
Trustee for cancellation have become due and
payable by reason of the making of a notice of
redemption or otherwise or will become due and
payable within one year and the Company has
irrevocably deposited or caused to be deposited
with such Trustee as trust funds in trust an amount
of money sufficient to pay and discharge the entire
Indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation for
principal, premium, if any, and accrued interest to
the date of maturity or redemption;
(ii) no Default or Event of Default with respect to this
Indenture or the Notes shall have occurred and be
continuing on the date of such deposit or shall
occur as a result of such deposit and such deposit
will not result in a breach or violation of, or
constitute a default under, any other instrument to
which the Company is a party or by which the
Company is bound;
(iii) the Company has paid or caused to be paid all sums
payable by it under this Indenture; and
(iv) the Company has delivered irrevocable instructions
to the Trustee under this Indenture to apply the
deposited money toward the payment of such Notes at
maturity or the redemption date, as the case may
be.
In addition, the Company must deliver an Officers' Certificate and an
Opinion of Counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
SECTION 10.02 APPLICATION OF TRUST MONEY
Subject to the provisions of the last paragraph of Section 4.03
hereof, all money deposited with the Trustee pursuant to Section 11.01 hereof
shall be held in trust and applied by it, in accordance with the provisions of
the Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as Paying Agent) as the Trustee may
determine, to Persons entitled thereto, of the principal (and premium, if any)
and interest for whose payment such money has been deposited with the Trustee.
If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 11.01 hereof by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining,
81
<PAGE>
restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Notes shall be revived and reinstated
as though such deposit had occurred pursuant to Section 11.01 hereof; provided
that if the Company has made any payment of principal of, premium, if any, or
interest on any Notes because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or Government Securities held by the
Trustee or Paying Agent.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. CONFLICT OF ANY PROVISION OF INDENTURE WITH TIA.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by TIA ss. 318(c), the imposed duties shall control.
SECTION 11.02. NOTICES.
Any notice or communication by the Company, or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
DecisionOne Holdings Corp.
50 East Swedesford Road
Frazer, Pennsylvania 19355
Attention: Thomas M. Molchan, Esq.
Facsimile: (610) 408-3820
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Richard D. Truesdell, Esq.
Facsimile: (212) 450-4800
If to the Trustee:
State Street Bank and Trust Company
82
<PAGE>
777 Main Street, 11th Floor
Hartford, Connecticut 06115
Attention: Corporate Trust Department
Facsimile: (860) ___-____
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery
to the courier, if sent by overnight air courier guaranteeing next day
delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA ss. 313(c), to the extent required by
the TIA. Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA
ss. 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the
83
<PAGE>
statements set forth in Section 1.05 hereof) stating that,
in the opinion of the signers, all conditions precedent and
covenants, if any, provided for in this Indenture relating
to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the
statements set forth in Section 1.05 hereof) stating that,
in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
SECTION 11.05. LEGAL HOLIDAYS.
In any case where any interest payment date, any date established for
payment of defaulted interest pursuant to Section 2.12 hereof, or any maturity
date with respect to any Note shall not be a Business Day, then
(notwithstanding any other provisions of this Indenture or the Notes) payment
of interest or principal (and premium, if any) need not be made on such date
but may be made on the next succeeding Business Day with the same force and
effect as if made on the interest payment date or date established for payment
of defaulted interest pursuant to Section 2.12 hereof or the maturity date, as
applicable, and no interest shall accrue with respect to such payment for the
period from and after such interest payment date or date established for
payment of defaulted interest pursuant to Section 2.12 or maturity date , as
the case may be, to the next succeeding Business Day.
SECTION 11.06. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company shall have any liability for any obligations of the Company under the
Notes or this Indenture or for any claim based on, in respect of, or by reason
of such obligations or their creation. Each Holder of the Notes by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
SECTION 11.07. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE, GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CHOICE OF LAW RULES THEREOF.
84
<PAGE>
SECTION 11.08. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 11.09. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall
bind its respective successors and assigns, whether so expressed or not. All
covenants and agreements in this Indenture by the Trustee shall bind its
respective successors and assigns, whether so expressed or not.
SECTION 11.10. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 11.11. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.12. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
85
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed in New York, New York as of the day and year first above
written.
QUAKER HOLDING CO.
Dated: August ___, 1997
By:_________________________________
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
Dated: August ___, 1997
By:_________________________________
Name:
Title:
86
<PAGE>
EXHIBIT A
(Face of Note)
[Unless and until it is exchanged in whole or in part for Notes in definitive
form, this Note may not be transferred except as a whole by the Depositary to
a nominee of the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. The Depository Trust Company shall act as the Depositary until a
successor shall be appointed by the Company. Unless this certificate is
presented by an authorized representative of The Depository Trust Company (55
Water Street, New York, New York) ("DTC"), to the Company or its agent for
registration of transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or such other name as may be requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or
such other entity as may be requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.]1
[Insert Warrant Endorsement as applicable]
THE NOTES EVIDENCED BY THIS CERTIFICATE ARE NOT TRANSFERABLE SEPARATELY FROM
THE WARRANTS ATTACHED HERETO ORIGINALLY SOLD AS A UNIT WITH THE NOTES UNTIL
THE EARLIEST TO OCCUR OF (I) _________, 1997 (II) SUCH EARLIER DATE AS
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MAY DETERMINE AND (III)
THE OCCURRENCE OF A CHANGE OF CONTROL (THE "SEPARATION DATE"). PRIOR TO SUCH
DATE, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
INTEGRAL MULTIPLES OF $1,000 PRINCIPAL AMOUNT OF NOTES AND ONLY WITH THE
SIMULTANEOUS TRANSFER TO THE TRANSFEREE OF __ WARRANTS FOR EACH $1,000
PRINCIPAL AMOUNT SO TRANSFERRED.
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT;
FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE PRICE IS $_______,
THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $_______, THE ISSUE DATE IS AUGUST
__, 1997 AND THE YIELD TO MATURITY IS ____% PER ANNUM.
- ------------
1. This paragraph should be included only if the Note is issued in global form.
A-1
<PAGE>
_____% Senior Discount Debentures due 2008
No. $_________
Cusip No:
QUAKER HOLDING CO.
promises to pay to Cede & Co. or registered assigns, the principal sum of
$_________________ (_______________________________ Dollars) on __________,
2008.
Interest Payment Dates: __________ and ___________
Record Dates: _________ and ___________
By:______________________________
Name:
Title:
This is one of the ____% Senior
Discount Debentures due 2008
referred to in the within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: _____________________________
Authorized Signature
A-2
<PAGE>
(Back of Note)
QUAKER HOLDING CO.
___% Senior Discount Debentures 2008
Capitalized terms used herein shall have the meanings assigned to them in the
Indenture referred to below.
1. INTEREST. Quaker Holding Co., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate of
____% per annum in the manner specified below. Interest will not accrue prior
to _____, 2002. Thereafter, the Company shall pay interest semi-annually in
arrears on ______ and ________ of each year, or if any such day is not a
Business Day, on the next ucceeding Business Day (each an "Interest Payment
Date"). Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from _______, 2002.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate equal to the per annum rate on the Notes
then in effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand
at the same rate to the extent lawful. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) to the Persons who are registered Holders of Notes at the
close of busi ess on ____________ and _____________ next preceding the
Interest Payment Date, even if such Notes are cancelled after such record date
and on or before such Interest Payment Date, except as provided in Section
2.12 of the Indenture with respect to defaulted interest. The Notes will be
payable as to principal, premium, if any, and interest at the office or agency
of the Company maintained for such purpose within or without the City and
State of New York, or, at the option of the Company, payment of interest may
be made by check mailed to the Holders at their addresses set forth in the
register of Holders; provided that all payments with respect to Notes
represented by one or more permanent global Notes will be paid by wire
transfer of immediately available funds to the account of the Depository Trust
Company or any successor thereto. Such payment shall be in such coin or
currency of the United Sates of America as at the time of payment is legal
tender for payment of public and private debts.
A-3
<PAGE>
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust Company,
the Trustee under the Indenture, will act as Paying Agent and Registrar. The
Notes may be presented for registration of transfer and exchange at the
offices of the Registrar. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company or any of its Subsidiaries may act
in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as of
August ___, 1997 (the "Indenture") between the Company and the Trustee. The
terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms,
and Holders are referred to the Indenture and such Act for a statement of such
terms. The Notes are general unsecured obligations of the Company limited to
___________ in aggregate principal amount at maturity.
5. OPTIONAL REDEMPTION. Except as set forth in the next paragraph, the Notes
will not be redeemable at the Company's option prior to ________, 2002.
Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
written notice, at the redemption prices (expressed as a percentage of
principal amount) set forth below, together with accrued and unpaid interest
thereon, to the applicable redemption date, if redeemed during the
twelve-month period beginning on __________ of each of the years indicated
below:
YEAR PERCENTAGE OF
PRINCIPAL AMOUNT
2002 ..................................... _______%
2003 ..................................... _______%
2004 and thereafter ....................... 100.000%
In addition, prior to _________, 2000, the Company may, at its
option, on any one or more occasions redeem up to 35% of the original
aggregate principal amount at maturity of Notes at a redemption price equal to
______% of the Accreted Value thereof, with the net cash proceeds of one or
more Equity Offerings; provided that at least 65% of the original aggregate
principal amount at maturity of Notes remains outstanding immediately after
the occurrence of each such redemption; and provided, further that any such
redemption shall occurs within 90 days of the date of closing of each such
Equity Offering.
A-4
<PAGE>
6. MANDATORY REDEMPTION. Other than as set forth in paragraph 8, the Company
shall not be required to make mandatory redemption payments with respect to
the Notes.
7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days
but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes may be redeemed in
part but only in whole multiples of $1,000. On and after the redemption date
interest ceases to accrue on Notes or portions thereof called for redemption.
8. REPURCHASE AT OPTION OF HOLDERS. (a) Upon the occurrence of a Change of
Control, the Company shall make an offer (a "Change of Control Offer") to
repurchase all or any part (equal to $1,000 or an integral multiple thereof)
of the Notes at a price in cash equal to 101% of the aggregate principal
amount at maturity thereof plus accrued and unpaid interest, if any, to the
date of purchase (or, in the case of repurchases of Notes prior to ____,2002,
at a purchase price equal to 101% of the Accreted Value thereof as of the date
of repurchase) (the "Change of Control Payment"). Within 65 days following any
Change of Control, the Company shall mail a notice to each Holder of Notes
issued under the Indenture, with a copy to the Trustee, containing the
information set forth in Section 4.09 of the Indenture. Holders of Notes that
are subject to an offer to purchase may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" on the
reverse side of this Note.
(b) Within 395 days after the Company's or any Restricted
Subsidiary's receipt of any Net Proceeds from an Asset Sale, the Company or
such Restricted Subsidiary shall apply such Net Proceeds (a) to permanently
reduce Indebtedness of a Restricted Subsidiary of the Company (and to
correspondingly reduce commitments with respect thereto) or (b) to repay Pari
Passu Indebtedness (provided that if the Company shall so repay Pari Passu
Indebtedness, it will equally and ratably reduce Indebtedness under the Notes
if the Notes are then redeemable or, if the Notes may not be then redeemed,
the Company shall make an offer pursuant to Section 3.10 of the Indenture to
purchase at 100% of the principal amount thereof at maturity (or, in the case
of repurchases of Notes prior to ___, 2002, at a purchase price equal to 100%
of the Accreted Value thereof as of the date of repurchase) the amount of
Notes that would otherwise be redeemed or (c) to an investment in property,
capital expenditures or assets that are used or useful in a Permitted
Business, or Capital Stock of any Person primarily engaged in a Permitted
Business if, as a result of the acquisition by the Company or any Restricted
Subsidiary thereof, such Person becomes a Restricted Subsidiary. Any Net
A-5
<PAGE>
Proceeds from Asset Sales that are not applied or invested as provided in the
preceding sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million,
the Company shall be required to make an Asset Sale Offer to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount at maturity thereof plus accrued and unpaid interest thereon to the
date of purchase (or, in the case of repurchases of Notes prior to ______,
2002, at a purchase price equal to 100% of the Accreted Value thereof as of
the date of repurchase), in accordance with the procedures set forth in
Section 3.10 of the Indenture. To the extent that the aggregate principal
amount at maturity or Accreted Value (as applicable) of Notes amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount at maturity of or Accreted Value (as
applicable) of Notes surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without
coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. Neither the
Company nor the Registrar need exchange or register the transfer of any Note
or portion of a Note selected for redemption. Also, neither the Company nor
the Registrar need exchange or register the transfer of any Notes for a period
of 15 days before a selection of Notes to be redeemed.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as
its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture and the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount at maturity of the then
outstanding Notes, and, subject to the terms of the Indenture, any existing
default (other than a default in the payment of the principal of, premium, if
any, or interest on, the Notes) or compliance with any provision of the
Indenture and the Notes may be waived with the consent of the Holders of a
A-6
<PAGE>
majority in principal amount of the then outstanding Notes. Without the
consent of any Holder, the Indenture and the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
comply with Article 5 of the Indenture, to provide for the assumption of the
Company's obligations to Holders of the Notes, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to add covenants for the benefit of the Holders or to surrender any
right or power conferred upon the Company, to comply with the requirements of
the Commission in order to effect or maintain the qualification of the
Indenture under the TIA or to provide for the appointment of a successor
trustee in compliance with the requirements of Section 7.10 of the Indenture.
12. DEFAULTS AND REMEDIES. Each of the following constitutes an "Event of
Default": (a) default for 30 days in the payment when due of interest on the
Notes; (b) default in payment when due of principal or premium, if any, on the
Notes at maturity, upon redemption or otherwise; (c) failure by the Company
for 30 days after receipt of notice from the Trustee or Holders of at least
30% in principal amount of the Notes then outstanding to comply with the
provisions of Sections 3.10, 4.09, 4.10, 4.11, 4.12 or Article 5 of the
Indenture; (d) failure by the Company for 60 days after notice from the
Trustee or the Holders of at least 30% in principal amount of the Notes then
outstanding to comply with its other agreements in the Indenture or the Notes;
(e) default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (i) is caused by a failure to
pay Indebtedness at its stated final maturity (after giving effect to any
applicable grace period provided in such Indebtedness) (a "Payment Default")
or (ii) results in the acceleration of such Indebtedness prior to its stated
final maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $20.0 million or more; (f) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $20.0 million (net of any amounts with respect to
which a reputable and creditworthy insurance company has acknowledged
liability in writing), which judgments are not paid, discharged or stayed
within 60 days
A-7
<PAGE>
after their entry; and (g) certain events of bankruptcy with
respect to the Company or any of its Restricted Subsidiaries that is a
Significant Subsidiary.
If an Event of Default occurs and is continuing under the Indenture,
the Trustee or the Holders of at least 30% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising
under clause (f) or (g) of the preceding paragraph, all outstanding Notes will
become due and payable without further action or notice. Upon any acceleration
of maturity of the Notes, all principal of and accrued interest on (if on or
after ____,2002) or Accreted Value of (if prior to ______, 2002) the Notes
shall be due and payable immediately. Holders of Notes may not enforce the
Indenture or the Notes except as provided under the Indenture. Subject to
certain limitations Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or
power. In the event of a declaration of acceleration of the Notes because an
Event of Default has occurred and is continuing as a result of the
acceleration of any Indebtedness described in clause (e) of Section 6.01 of
the Indenture, the declaration of acceleration of the Notes shall be
automatically annulled if the holders of any Indebtedness described in clause
(e) of Section 6.01 of the Indenture have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of
such declaration and if (y) the annulment of the acceleration of the Notes
would not conflict with any judgment or decree of a court of competent
jurisdiction and (z) all existing Events of Default, except nonpayment of
principal or interest on the Notes that became due solely because of the
acceleration of the Notes, have been cured or waived. The Trustee may withhold
from Holders of Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal,
premium, if any, or interest) if it determines that withholding notice is in
their interest. In addition, the Trustee shall have no obligation to
accelerate the Notes if in the best judgment of the Trustee acceleration is
not in the best interest of the Holders of such Notes.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for
the Company, and may otherwise deal with the Company, as if it were not the
Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder,
as such, of the Company shall not
A-8
<PAGE>
have any liability for any obligations of the Company under these Notes or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder by accepting any of these Notes
waives and releases all such liability.
15. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder
or an assignee, such as: TEN COM (= tenants in common), TENANT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee
on Uniform Security Identification Procedures, the Company has caused CUSIP
numbers to be printed on the Notes and the Trustee may use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
DecisionOne Holdings Corp.
50 East Swedesford Road
Frazer, Pennsylvania 19355
Attention: Thomas M. Molchan, Esq.
Facsimile: (610) 408-3820
A-9
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:
Your Signature:__________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee.
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.09 or 4.10 of the Indenture, check the box below:
[ ] Section 4.09 [ ] Section 4.10
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.09 or Section 4.10 of the Indenture, state the
amount you elect to have purchased: $_____________
Date:_____________________ Your Signature: ______________________
(Sign exactly as your name appears on the Note)
Tax Identification No.:_______________
Signature Guarantee.
A-11
<PAGE>
EXHIBIT B
FORM OF ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT (this "Agreement"), dated as of August __,
1997, between DecisionOne Holdings Corp., a Delaware corporation (the
"Company"), and State Street Bank and Trust Company, as trustee under the
indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, Quaker Holding Co., a Delaware corporation ("Quaker"), has
heretofore executed and delivered to the Trustee an indenture (the
"Indenture"), dated as of the date hereof, providing for the issuance of __%
Senior Discount Debentures due 2008 (the "Notes");
WHEREAS, Quaker has been merged with and into the Company;
WHEREAS, pursuant to Section 4.17 of the Indenture, the Company is
required to execute and deliver this Agreement concurrently with such merger;
WHEREAS, pursuant to Section 9.01 of the Indenture the Trustee is
authorized to execute and deliver this Agreement; and
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Company and the Trustee mutually covenant and agree for the equal and ratable
benefit of the holders of the Securities as follows:
1. ASSUMPTION. The Company hereby assumes all of the obligations of
Quaker under the Indenture and the Notes and, hereafter, shall be deemed the
"Company" for all purposes under the Indenture and the Notes.
2. NEW YORK LAW TO GOVERN. The internal law of the State of New
York, without regard to the choice of law rules thereof, shall govern and be
used to construe this Agreement.
3. COUNTERPARTS. The parties may sign any number of copies of this
Agreement. Each signed copy shall be an original, but all of them together
represent the same agreement.
4. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
<PAGE>
[Signatures on following page]
B-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and attested, all as of the date first above written.
Dated: August __, 1997 DECISIONONE HOLDINGS CORP.
By: ____________________________
Name:
Title:
Dated: August __, 1997 STATE STREET BANK AND TRUST COMPANY
as Trustee
By: ____________________________
Name:
Title:
B-3
<PAGE>
===============================================================================
QUAKER HOLDING CO.
__________ Units Consisting of
$_________ Aggregate Principal Amount of
___% Senior Discount Debentures due 2008 and Warrants to
Purchase _________ Shares of Common Stock
WARRANT AGREEMENT
Dated as of August ___, 1997
STATE STREET BANK AND TRUST COMPANY
Warrant Agent
===============================================================================
<PAGE>
WARRANT AGREEMENT dated as of August ___, 1997 between Quaker Holding
Co., a Delaware corporation ("Quaker"), and State Street Bank and Trust
Company, as warrant agent (the "Warrant Agent").
WHEREAS, Quaker proposes to issue warrants (the "Warrants") to
initially purchase up to an aggregate of ________ shares of Common Stock, par
value $.01 per share (the "Quaker Common Stock"), of Quaker (the Quaker Common
Stock issuable on exercise of the Warrants being referred to herein as the
"Quaker Warrant Shares"), in connection with the offering (the "Offering") by
Quaker of _______ Units (the "Units"), each consisting of $1,000 principal
amount at maturity of Quaker's ___% Senior Discount Debentures due 2008 (the
"Debentures") and _____ Warrants, each Warrant initially representing the
right to purchase _____ Quaker Warrant Shares.
WHEREAS, the Units are being issued and sold in connection with the
execution of an Agreement and Plan of Merger, as amended (the "Merger
Agreement"), dated as of May 4, 1997, by and between Quaker and DecisionOne
Holdings Corp. ("Holdings") and the Merger Agreement provides, among other
things, for the merger of Quaker with and into Holdings (the "Merger").
WHEREAS, at the effective time of the Merger (the "Effective Time"),
each share of Quaker Common Stock will become one share of common stock of
Holdings, par value $.01 per share ("Holdings Common Stock"), each Warrant
will by its terms become exercisable to initially purchase ________ shares of
Holdings Common Stock (the "Holdings Warrant Shares") and Holdings will
succeed to the obligations of Quaker hereunder and with respect to the
indenture relating to the Debentures (the "Indenture"), the Debentures and the
Warrants.
WHEREAS, immediately subsequent to the Effective Time, Holdings will
authorize, execute and deliver an assumption agreement pursuant to which
Holdings will assume all of the obligations of Quaker under the Warrants and
the Warrant Agreement.
WHEREAS, the Company desires the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing so to act, in connection with
the issuance of Warrant Certificates (as defined) and other matters as
provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
As used herein, the "Company" shall refer to Quaker prior to the
Merger and to Holdings from and after the Effective Time. As used herein,
"Common Stock" shall refer to Quaker Common Stock prior to the Merger and to
Holdings Common Stock from and after the Effective Time. As used herein, the
term "Warrant Shares" shall refer to the Quaker Warrant Shares prior to the
Merger and the Holdings Warrant Shares from and after the Effective Time.
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
<PAGE>
SECTION 2. Warrant Certificates. The certificates evidencing the
Warrants (the "Warrant Certificates") to be delivered pursuant to this
Agreement shall be in registered form only and shall be substantially in the
form set forth in Exhibit A attached hereto and shall, prior to the Separation
Date (as defined herein), bear the legend set forth in Exhibit B attached
hereto.
The Warrants initially will be issued in global form (the "Global
Warrants"), substantially in the form of Exhibit A attached hereto (including
the text referred to in footnotes 1 and 2 thereto). The Global Warrant shall
represent such of the outstanding Warrants as shall be specified therein and
shall provide that it shall represent the aggregate amount of outstanding
Warrants from time to time endorsed thereon and that the aggregate amount of
outstanding Warrants represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and exercises. Any endorsement
of the Global Warrant to reflect the amount of any increase or decrease in the
amount of outstanding Warrants represented thereby shall be made by the
Warrant Agent or the depositary with respect to the Global Warrants (the
"Depositary") in accordance with instructions given by the holder thereof. The
Company initially appoints The Depository Trust Company ("DTC") to act as
Depositary with respect to the Warrants in global form.
Each Global Warrant shall bear the following legend on the face
thereof:
"Unless and until it is exchanged in whole or in part for Warrants in
definitive form, this Warrant may not be transferred except as a
whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor
Depositary or a nominee of such successor Depositary. The Depository
Trust Company shall act as the Depositary until a successor shall be
appointed by the Company. Unless this certificate is presented by an
authorized representative of The Depository Trust Company (55 Water
Street, New York, New York) ("DTC"), to the Company or its agent for
registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as
may be requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or such other entity as may be
requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein."
Beneficial owners of interests in a Global Warrant may receive
Warrants in definitive form (the "Definitive Warrants"), substantially in the
form of Exhibit A attached hereto (but without the text referred to in
footnotes 1 and 2 thereto) in the name of such beneficial owners in accordance
with the procedures of the Warrant Agent and the Depositary. In connection
with the execution and delivery of such Definitive Warrants, the Warrant Agent
shall reflect on its books and records a decrease in the principal amount of
the relevant Global Warrant equal to the number of such Definitive Warrants
and the Company shall execute and the Warrant Agent shall countersign and
deliver one or more Definitive Warrants in an equal aggregate number.
2
<PAGE>
SECTION 3. Execution of Warrant Certificates. (a) Warrant
Certificates shall be signed on behalf of the Company by its Chairman of the
Board, Chief Executive Officer, its President or a Vice President and by its
Secretary or an Assistant Secretary. Each such signature upon the Warrant
Certificates may be in the form of a facsimile signature of the present or any
future Chairman of the Board, Chief Executive Officer, President, Vice
President, Secretary or Assistant Secretary and may be imprinted or otherwise
reproduced on the Warrant Certificates and for that purpose the Company may
adopt and use the facsimile signature of any person who shall have been
Chairman of the Board, Chief Executive Officer, President, Vice President,
Secretary or Assistant Secretary, notwithstanding the fact that at the time
the Warrant Certificates shall be countersigned and delivered or disposed of
he shall have ceased to hold such office. The seal of the Company may be in
the form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Warrant Certificates.
(b) In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not
ceased to be such officer of the Company; and any Warrant Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant Certificate, shall be a proper officer of the
Company to sign such Warrant Certificate, although at the date of the
execution of this Warrant Agreement any such person was not such officer.
(c) Warrant Certificates shall be dated the date of countersignature
by the Warrant Agent.
SECTION 4. Registration and Countersignature. (a) The Warrant Agent,
on behalf of the Company, shall number and register the Warrant Certificates
in a register as they are issued by the Company.
(b) Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
The Warrant Agent shall, upon written instructions of the Chairman of the
Board, the Chief Executive Officer, the President, a Vice President, the
Treasurer or the Controller of the Company, initially countersign, issue and
deliver Warrant Certificates entitling the holders thereof to purchase not
more than the number of Warrant Shares referred to above in the first recital
hereof and shall countersign and deliver Warrant Certificates as otherwise
provided in this Agreement.
(c) The Company and the Warrant Agent may deem and treat the
registered holder(s) of the Warrant Certificates as the absolute owner(s)
thereof (notwithstanding any notation of ownership or other writing thereon
made by anyone) for all purposes, and neither the Company nor the Warrant
Agent shall be affected by any notice to the contrary.
SECTION 5. Registration of Transfers and Exchanges. (a) The Warrant
Certificates shall be issued in registered form only. The Company shall cause
to be kept at the office of the Warrant Agent a register in which, subject to
such reasonable regulations as it may prescribe, the
3
<PAGE>
Company shall provide for the registration of Warrant Certificates and
transfers or exchanges of Warrant Certificates as provided in this Agreement.
All Warrant Certificates issued upon any registration of transfer or exchange
of Warrant Certificates shall be the valid obligations of the Company,
evidencing the same obligations, and entitled to the same benefits under this
Agreement, as the Warrant Certificates surrendered for such registration of
transfer or exchange.
A holder may transfer its Warrants only by written
application to the Warrant Agent stating the name of the proposed transferee
and otherwise complying with the terms of this Agreement. No such transfer
shall be effected until, and such transferee shall succeed to the rights of a
holder only upon, final acceptance and registration of the transfer by the
Warrant Agent in the register. Prior to the registration of any transfer of
Warrants by a holder as provided herein, the Company, the Warrant Agent, and
any agent of the Company may treat the person in whose name the Warrants are
registered as the owner thereof for all purposes and as the person entitled to
exercise the rights represented thereby, any notice to the contrary
notwithstanding. Furthermore, any holder of a Global Warrant shall, by
acceptance of such Global Warrant, agree that transfers of beneficial
interests in such Global Warrant may be effected only through a book-entry
system maintained by the holder of such Global Warrant (or its agent), and
that ownership of a beneficial interest in the Warrants represented thereby
shall be required to be reflected in a book-entry. When Warrant Certificates
are presented to the Warrant Agent with a request to register the transfer or
to exchange them for an equal amount of Warrants of other authorized
denominations, the Warrant Agent shall register such transfer or make such
exchange as requested if its requirements for such transactions are met. To
permit registrations of transfers and exchanges, the Company shall execute
Warrant Certificates at the Warrant Agent's request. No service charge shall
be made for any registration of transfer or exchange of Warrants, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer of Warrants.
(b) The Global Warrants initially shall (i) be registered in the name
of the Depositary for such Global Warrants or the nominee of such Depositary,
(ii) be delivered to the Warrant Agent as custodian for such Depositary and
(iii) bear legends as set forth in Section 2 hereof. Members of, or
participants in, the Depositary ("Agent Members") shall have no rights under
this Agreement with respect to the Global Warrants, as the case may be, held
on their behalf by the Depositary or the Warrant Agent as its custodian, and
the Depositary may be treated by the Company, the Warrant Agent and any agent
of the Company or the Warrant Agent as the absolute owner of such Global
Warrant for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Warrant Agent or any agent of the
Company or the Warrant Agent, from giving effect to any written certification,
proxy or other authorization furnished by the Depositary or impair, as between
the Depositary and its Agent Members, the operation of customary practices
governing the exercise of the rights of a holder of any Warrants.
(c) Transfers of a Global Warrant shall be limited to transfers of
such Global Warrant in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in the
Global Warrants may be transferred in accordance with the rules and procedures
of the Depositary. Certificated Warrants shall be issued and transferred to
all beneficial owners in exchange for their beneficial interests in the Global
Warrant if the Depositary notifies
4
<PAGE>
the Company that it is unwilling or unable to continue as Depositary for any
such Global Warrant and a successor depositary is not appointed by the Company
within 120 days of such notice.
(d) In connection with the transfer of the entire Global Warrant to
the beneficial owners thereof pursuant to paragraph (c) above, the Global
Warrant shall be surrendered to the Warrant Agent for cancellation, and the
Company shall execute, and the Warrant Agent shall countersign and deliver, to
each beneficial owner identified by the Depositary in exchange for its
beneficial interest in the Global Warrant, Definitive Warrants of authorized
denominations representing, in the aggregate, the number of Warrants
theretofore represented by the Global Warrant.
(e) The registered holder of a Global Warrant may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a holder is
entitled to take under this Agreement or the Warrants.
(f) The Warrant Agent shall retain copies of all letters, notices and
other written communications received pursuant to this Section 5. The Company
shall have the right to inspect and make copies of all such letters, notices
or other written communications at any reasonable time upon the giving of
reasonable written notice to the Warrant Agent.
(g) Any Warrant Certificate surrendered for registration of transfer,
exchange or exercise of the Warrants represented thereby shall, if surrendered
to the Company, be delivered to the Warrant Agent, and all Warrant
Certificates surrendered or so delivered to the Warrant Agent shall be
promptly cancelled by the Warrant Agent and shall not be reissued by the
Company and, except as provided in this Section 5 in case of an exchange,
Section 6 hereof in case of the exercise of less than all the Warrants
represented thereby or Section 8 hereof in case of a mutilated Warrant
Certificate, no Warrant Certificate shall be issued hereunder in lieu thereof.
The Warrant Agent shall deliver to the Company from time to time or otherwise
dispose of such cancelled Warrant Certificates as the Company may direct.
(h) The Warrant Agent is hereby authorized to countersign, in
accordance with the provisions of this Section 5 and of Section 4 hereof, the
new Warrant Certificates required pursuant to the provisions of this Section
5.
(i) Notwithstanding the provisions of Section 5(a), until Separated
(as defined herein) each Warrant Certificate will be held by the Trustee, as
custodian for the registered holders of each Debenture or Debenture in global
form, and will be registered in the name of the registered holder of such
Debenture initially in the amount specified to the Warrant Agent by the
Company. Such holder may, at any time, on or after the Separation Date (as
defined herein), at its option, by notice to the Trustee elect to separate
and/or separately transfer the Debentures and the Warrants represented by such
Debenture or Debenture in global form containing a Warrant Endorsement (as
defined in the Indenture), in whole or in part, for a definitive Warrant
Certificate or Warrant Certificates or a beneficial interest in a Global
Warrant evidencing the underlying Warrants and for a Debenture or Debentures
or a beneficial interest in a global Debenture of a like aggregate
5
<PAGE>
principal amount at maturity of authorized denominations and not containing a
Warrant Endorsement in accordance with the Indenture (such surrender and
exchange being referred to herein as a "Separation" and the related Warrants
being referred to as "Separated"); provided that no delay or failure on the
part of the Trustee or the Warrant Agent to exchange such Warrant Certificate
and Debenture or Debentures shall affect the Separation of the Debentures and
the Warrants or their separate transferability. Prior to Separation, record
ownership of the Warrants will be evidenced by the certificates for Debentures
or a global Debenture registered in the names of the holders of the Debentures
or global Debenture, which certificates or global Debenture will bear thereon
a Warrant Endorsement substantially in the form set forth in the Indenture,
and the right to receive or exercise Warrants will be transferable only in
connection with the transfer of such Debentures or a beneficial interest in a
global Debenture.
All Debentures and global Debentures containing a Warrant
Endorsement presented for Separation shall be duly endorsed by the registered
holder or holders thereof or by the duly appointed legal representative
thereof or by a duly authorized attorney, and in the case of transfer, which
signature shall be medallion guaranteed by an institution which is a member of
a Securities Transfer Association recognized signature guarantee program. Upon
notice from the Trustee of a Separation, the Warrant Agent shall, with respect
to Definitive Warrants, deliver (or cause to be delivered) the Warrant
Certificate or Warrant Certificates executed by the Company and countersigned
by the Warrant Agent in the name of such registered holder or holders or such
transferee or transferees or shall, with respect to Global Warrants, deliver
(or cause to be delivered) a Global Warrant (CUSIP __________) executed by the
Company and countersigned by the Warrant Agent in the name of the Depositary
or its nominee for such aggregate number of Warrants (or, with respect to a
Global Warrant, increasing the number of Warrants represented thereby in such
amount) as shall equal _____ Warrants for each $1,000 principal amount at
maturity of Debentures so exchanged for Separation, bearing numbers or other
distinguishing symbols not contemporaneously outstanding, to the person or
persons entitled thereto. Upon registration of transfer or exchange of a
Warrant Certificate, the Warrant Agent shall countersign and deliver by
certified mail a new Warrant Certificate to the persons entitled thereto.
(j) No service charge shall be made for registration of transfer or
exchange upon surrender of any Warrant Certificate at the office of the
Warrant Agent maintained for that purpose. The Company may require payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration, transfer or exchange of Warrant
Certificates.
SECTION 6. Separation of Warrants; Terms of Warrants; Exercise of
Warrants. (a) The Debentures and Warrants will not be separately transferable
until the close of business on the earliest to occur of (i) ________________,
1998, (ii) such earlier date as Donaldson, Lufkin & Jenrette Securities
Corporation may determine and (iii) in the event of a Change of Control (as
defined in the Indenture) (the earliest of such dates, the "Separation Date"),
at which time such Warrants shall become separately transferable. Subject to
the terms of this Agreement, each Warrant holder shall have the right, which
may be exercised during the period commencing at the opening of business on
_______, 1997 and until 5:00 p.m., New York City time on ________, 2007 (the
"Exercise Period"), to receive from the Company the number of fully paid and
6
<PAGE>
nonassessable Warrant Shares which the holder may at the time be entitled to
receive on exercise of such Warrants and payment of the exercise price (the
"Exercise Price") then in effect for such Warrant Shares; provided that
holders shall be able to exercise their Warrants only if a registration
statement relating to the Warrant Shares is then in effect, or the exercise of
such Warrants is exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and such securities are
qualified for sale or exempt from qualification under the applicable
securities laws of the states in which the various holders of the Warrants or
other persons to whom it is proposed that the Warrant Shares be issued on
exercise of the Warrants reside. Each holder may exercise its right, during
the Exercise Period, to receive Warrant Shares on a net basis, such that,
without the exchange of any funds, the holder tenders Debentures having an
aggregate principal amount at maturity, plus accrued and unpaid interest, if
any thereon, to the date of exercise (or, if such exercise takes place prior
to ___________, 2002, an Accreted Value (as defined in the Indenture) on the
date of exercise) equal to the Exercise Price of the Warrants being exercised
by such holder. Each Warrant not exercised prior to 5:00 p.m., New York City
time, on __________, 2007 (the "Expiration Date") shall become void and all
rights thereunder and all rights in respect thereof under this agreement shall
cease as of such time. No adjustments as to dividends will be made upon
exercise of the Warrants.
(b) In order to exercise all or any of the Warrants represented by a
Warrant Certificate, (i) in the case of Definitive Warrants, the holder
thereof must surrender for exercise the Warrant Certificate to the Warrant
Agent at its New York corporate trust office set forth in Section 19 hereof,
(ii) in the case of a book-entry interest in a Global Warrant, the exercising
Agent Member whose name appears on a securities position listing of the
Depositary as the holder of such book-entry interest must comply with the
Depositary's procedures relating to the exercise of such book-entry interest
in such Global Warrant and (iii) in the case of both Global Warrants and
Definitive Warrants, the holder thereof or the Agent Member, as applicable,
must deliver to the Warrant Agent the form of election to purchase on the
reverse thereof duly filled in and signed, which signature shall be medallion
guaranteed by an institution which is a member of a Securities Transfer
Association recognized signature guarantee program, and upon payment to the
Warrant Agent for the account of the Company of the Exercise Price, which is
set forth in the form of Warrant Certificate attached hereto as Exhibit A, as
adjusted as herein provided, for the number of Warrant Shares in respect of
which such Warrants are then exercised. Payment of the aggregate Exercise
Price shall be made (i) in cash, by wire transfer or by certified or official
bank check payable to the order of the Company or (ii) on a net basis in the
manner provided in Section 6(a) hereof.
(c) Subject to the provisions of Section 7 hereof, upon compliance
with clause (b) above, the Warrant Agent shall deliver or cause to be
delivered with all reasonable dispatch, to or upon the written order of the
holder and in such name or names as the Warrant holder or Agent Member may
designate, a certificate or certificates for the number of whole Warrant
Shares issuable upon the exercise of such Warrants or other securities or
property to which such holder is entitled hereunder, together with cash as
provided in Section 12 hereof; provided that if any consolidation, merger or
lease or sale of assets is proposed to be effected by the Company as described
in Section 11(m) hereof, or a tender offer or an exchange offer for shares of
Common Stock shall be made, upon such surrender of Warrants and payment of the
Exercise Price as
7
<PAGE>
aforesaid, the Warrant Agent shall, as soon as possible, but in any event not
later than two business days thereafter, deliver or cause to be delivered the
full number of Warrant Shares issuable upon the exercise of such Warrants in
the manner described in this sentence or other securities or property to which
such holder is entitled hereunder, together with cash as provided in Section
12 hereof. Such certificate or certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to
have become a holder of record of such Warrant Shares as of the date of the
surrender of such Warrants and payment of the Exercise Price.
(d) The Warrants shall be exercisable, at the election of the holders
thereof, either in full or from time to time in part. If less than all the
Warrants represented by a Definitive Warrant are exercised, such Definitive
Warrant shall be surrendered and a new Definitive Warrant of the same tenor
and for the number of Warrants which were not exercised shall be executed by
the Company and delivered to the Warrant Agent and the Warrant Agent shall
countersign the new Definitive Warrant, registered in such name or names as
may be directed in writing by the holder, and shall deliver the new Definitive
Warrant to the Person or Persons entitled to receive the same. The Warrant
Agent shall make such notations on Schedule A to each Global Warrant as are
required to reflect any change in the number of Warrants represented by such
Global Warrant resulting from any exercise in accordance with the terms
hereof.
(e) All Warrant Certificates surrendered upon exercise of Warrants
shall be cancelled by the Warrant Agent. Such cancelled Warrant Certificates
shall then be disposed of by the Warrant Agent in a manner satisfactory to the
Company. The Warrant Agent shall account promptly to the Company with respect
to Warrants exercised and concurrently pay to the Company all monies received
by the Warrant Agent for the purchase of the Warrant Shares through the
exercise of such Warrants.
(f) The Warrant Agent shall keep copies of this Agreement and any
notices given or received hereunder available for inspection by the holders
during normal business hours at its office. The Company shall supply the
Warrant Agent from time to time with such numbers of copies of this Agreement
as the Warrant Agent may request.
SECTION 7. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; provided that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in
the issue of any Warrant Certificates or any certificates for Warrant Shares
in a name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
SECTION 8. Mutilated or Missing Warrant Certificates. In case any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue and the Warrant Agent may countersign, in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
8
<PAGE>
stolen or destroyed, a new Warrant Certificate of like tenor and representing
an equivalent number of Warrants, but only upon receipt of evidence
satisfactory to the Company and the Warrant Agent of such loss, theft or
destruction of such Warrant Certificate and indemnity, if requested, also
satisfactory to them. Applicants for such substitute Warrant Certificates
shall also comply with such other reasonable regulations and pay such other
reasonable charges as the Company or the Warrant Agent may prescribe.
SECTION 9. Reservation of Warrant Shares. (a) The Company will at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon
the exercise of all outstanding Warrants.
(b) The Company or, if appointed, the transfer agent for the Common
Stock (the "Transfer Agent") and every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid will be irrevocably authorized and directed at
all times to reserve such number of authorized shares as shall be required for
such purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Warrant Agent is hereby irrevocably
authorized to requisition from time to time from such Transfer Agent the stock
certificates required to honor outstanding Warrants upon exercise thereof in
accordance with the terms of this Agreement. The Company will supply such
Transfer Agent with duly executed certificates for such purposes and will
provide or otherwise make available any cash which may be payable as provided
in Section 12 hereof. The Company will furnish such Transfer Agent a copy of
all notices of adjustments, and certificates related thereto, transmitted to
each holder pursuant to Section 14 hereof.
(c) Before taking any action which would cause an adjustment pursuant
to Section 11 hereof to reduce the Exercise Price below the then par value (if
any) of the Warrant Shares, the Company will take any corporate action which
may, in the opinion of its counsel (which may be counsel employed by the
Company), be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares at the Exercise Price as so
adjusted.
(d) The Company covenants that all Warrant Shares which may be issued
upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free
of preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issuance thereof.
SECTION 10. Obtaining Stock Exchange Listings. The Company will from
time to time take all action which may be necessary so that the Warrant
Shares, immediately upon their issuance upon the exercise of Warrants, will be
listed on the principal securities exchanges and markets within the United
States of America, if any, on which other shares of Common Stock are then
listed, if any.
9
<PAGE>
SECTION 11. Adjustment of Exercise Price and Number of Warrant Shares
Issuable. The Exercise Price and the number of Warrant Shares issuable upon
the exercise of each Warrant are subject to adjustment from time to time upon
the occurrence of the events enumerated in this Section 11. For purposes of
this Section 11, "Common Stock" means shares now or hereafter authorized of
any class of common stock of the Company and any other stock of the Company,
however designated, that has the right (subject to any prior rights of any
class or series of preferred stock) to participate in any distribution of the
assets or earnings of the Company without limit as to per share amount.
Notwithstanding anything to the contrary contained herein, the
Exercise Price and the number of Warrant Shares issuable upon the exercise of
each Warrant shall not be subject to adjustment under this Article 11 in
connection with the Merger. Instead, at the Effective Time, each Warrant shall
be and shall become the right initially to purchase _______ shares of Holdings
Common Stock at an initial Exercise Price of $_______ per share and, from and
after the Effective Time, such number of shares of Holdings Common Stock and
such Exercise Price shall be subject to adjustment pursuant to this Section
11.
(a) Adjustment for Change in Capital Stock. If the Company (i) pays a
dividend or makes a distribution on its Common Stock in shares of its Common
Stock, (ii) subdivides its outstanding shares of Common Stock into a greater
number of shares, (iii) combines its outstanding shares of Common Stock into a
smaller number of shares, (iv) makes a distribution on its Common Stock in
shares of its capital stock other than Common Stock or (v) issues by
reclassification of its Common Stock any shares of its capital stock; then the
Exercise Price in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter
exercised may receive the aggregate number and kind of shares of capital stock
of the Company which he would have owned immediately following such action if
such Warrant had been exercised immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If, after an adjustment, a holder of a Warrant upon exercise of it may receive
shares of two or more classes of capital stock of the Company, the Company
shall determine the allocation of the adjusted Exercise Price between the
classes of capital stock. After such allocation, the exercise privilege and
the Exercise Price of each class of capital stock shall thereafter be subject
to adjustment on terms comparable to those applicable to Common Stock in this
Section 11. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) Adjustment for Rights Issue. If the Company distributes any
rights, options or warrants to all holders of its Common Stock entitling them
for a period expiring within 45 days after the record date mentioned below to
purchase shares of Common Stock at a price per share
10
<PAGE>
less than the Fair Value (as defined herein) per share on that record date,
the Exercise Price shall be adjusted in accordance with the formula:
O + N x P
-----
E' = E x M
---------------
O + N
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
O = the number of shares of Common Stock outstanding
on the record date.
N = the number of additional shares of Common Stock
offered.
P = the offering price per share of the additional
shares.
M = the Fair Value per share of Common Stock on the
record date.
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after
the record date for the determination of stockholders entitled to receive the
rights, options or warrants. If at the end of the period during which such
rights, options or warrants are exercisable, not all rights, options or
warrants shall have been exercised, the Exercise Price shall be immediately
readjusted to what it would have been if "N" in the above formula had been the
number of shares actually issued.
(c) Adjustment for Other Distributions. If the Company distributes to
all holders of its Common Stock any of its assets or debt securities or any
rights or warrants to purchase debt securities, assets or other securities of
the Company, the Exercise Price shall be adjusted in accordance with the
formula:
M - F
E' = E x -----------
M
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
M = the Fair Value per share of Common Stock on the
record date mentioned below.
11
<PAGE>
F = the fair market value on the record date of the
assets, securities, rights or warrants to be
distributed in respect of one share of Common Stock
as determined in good faith by the Board of
Directors of the Company (the "Board of Directors."
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the
distribution.
This Section 11(c) does not apply to cash dividends or cash
distributions paid out of consolidated current or retained earnings as shown
on the books of the Company prepared in accordance with generally accepted
accounting principles. Also, this Section 11(c) does not apply to rights,
options or warrants referred to in Section 11(b) hereof.
(d) Adjustment for Common Stock Issue.
If the Company issues shares of Common Stock for a
consideration per share less than the Fair Value per share on the date the
Company fixes the offering price of such additional shares, the Exercise Price
shall be adjusted in accordance with the formula:
P
-
E' = E x O + M
-----------
A
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
M = the Fair Value per share on the date of issuance of such
additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
12
<PAGE>
This subsection (d) does not apply to:
(1) any of the transactions described in
subsections (b) and (c) of this Section 11,
(2) the exercise of Warrants, or the conversion or
exchange of other securities convertible or exchangeable for Common
Stock,
(3) Common Stock issued to the Company's employees
under bona fide employee benefit plans adopted by the Board of
Directors and approved by the holders of Common Stock when required
by law, if such Common Stock would otherwise be covered by this
subsection (d) (but only to the extent that the aggregate number of
shares excluded hereby and issued after the date of this Warrant
Agreement shall not exceed 5% of the Common Stock outstanding at the
time of the adoption of each such plan, exclusive of antidilution
adjustments thereunder),
(4) Common Stock upon the exercise of rights or
warrants issued to the holders of Common Stock,
(5) Common Stock issued to shareholders of any
person which merges into the Company in proportion to their stock
holdings of such person immediately prior to such merger, upon such
merger, or
(6) the issuance of shares of Common Stock pursuant
to rights, options or warrants which were originally issued in a
Non-Affiliate Sale (as defined below) together with one or more other
securities as part of a unit at a price per unit.
(e) Adjustment for Convertible Securities Issue.
If the Company issues any securities convertible into or
exchangeable for Common Stock (other than securities issued in transactions
described in subsections (b) and (c) of this Section 11) for a consideration
per share of Common Stock initially deliverable upon conversion or exchange of
such securities less than the Fair Value per share on the date of issuance of
such securities, the Exercise Price shall be adjusted in accordance with this
formula:
13
<PAGE>
P
-
O + M
E' = E x -----------
O + D
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such securities.
P = the aggregate consideration received for the issuance of such
securities.
M = the Fair Value per share on the date of issuance of such
securities.
D = the maximum number of shares deliverable upon conversion
or in exchange for such securities at the initial conversion
or exchange rate.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
If all of the Common Stock deliverable upon conversion or
exchange of such securities have not been issued when such securities are no
longer outstanding, then the Exercise Price shall promptly be readjusted to
the Exercise Price which would then be in effect had the adjustment upon the
issuance of such securities been made on the basis of the actual number of
shares of Common Stock issued upon conversion or exchange of such securities.
This subsection (e) does not apply to convertible securities
issued to shareholders of any person which merges into the Company, or with a
subsidiary of the Company, in proportion to their stock holdings of such
person immediately prior to such merger, upon such merger.
14
<PAGE>
(f) Consideration Received.
For purposes of any computation respecting consideration
received pursuant to subsections (d), and (e) of this Section 11, the
following shall apply:
(1) in the case of the issuance of shares of Common Stock
for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any
commissions, discounts or other expenses incurred by the Company for
any underwriting of the issue or otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the Board of Directors
(irrespective of the accounting treatment thereof), whose
determination shall be conclusive, and described in a Board
resolution which shall be filed with the Warrant Agent;
(3) in the case of the issuance of securities convertible
into or exchangeable for shares, the aggregate consideration received
therefor shall be deemed to be the consideration received by the
Company for the issuance of such securities plus the additional
minimum consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (1) and (2) of
this subsection); and
(4) in the case of the issuance of shares of Common Stock
pursuant to rights, options or warrants which rights, options or
warrants were originally issued together with one or more other
securities as part of a unit at a price per unit, the consideration
shall be deemed to be the fair value of such rights, options or
warrants at the time of issuance thereof as determined in good faith
by the Board of Directors whose determination shall be conclusive and
described in a Board resolution which shall be filed with the Warrant
Agent plus the additional minimum consideration, if any, to be
received by the Company upon the exercise, conversion or exchange
thereof (as determined in the same manner as provided in clauses
(1) and (2) of this subsection).
(g) Fair Value. In Sections 11(d) and (e) hereof, the "Fair Value"
per security at any date of determination shall be (1) in connection with a
sale by the Company to a party that is not an Affiliate of the Company in an
arm's-length transaction (a "Non-Affiliate Sale"), the price per security at
which such security is sold and (2) in connection with any sale by the Company
to an Affiliate of the Company, (a) the last price per security at which such
security was sold in a Non-Affiliate Sale within the three-month period
preceding such date of determination or (b) if clause (a) is not applicable,
the fair market value of such security determined in good faith by (i) a
majority of the Board of Directors, including a majority of the Disinterested
Directors, and approved in a Board resolution delivered to the Warrant Agent
or (ii) a nationally recognized investment banking, appraisal or valuation
firm, which is not an Affiliate of the Company, in each case, taking into
account, among all other factors deemed relevant by the Board of Directors or
15
<PAGE>
such investment banking, appraisal or valuation firm, the trading price and
volume of such security on any national securities exchange or automated
quotation system on which such security is traded. Notwithstanding the
foregoing, any sale to Donaldson, Lufkin & Jenrette Securities Corporation (or
any successor thereto) pursuant to an underwritten public offering registered
under the Securities Act shall be deemed to be and treated as a Non-Affiliate
Sale.
In Sections 11(b) and (c) hereof, the "Fair Value" per security at
any date of determination shall be (a) the last price per security at which
such security was sold by the Company in a Non-Affiliate Sale within the
three-month period preceding such date of determination or (b) if clause (a)
is not applicable, the fair market value of such security determined in good
faith by (i) a majority of the Board of Directors, including a majority of the
Disinterested Directors, and approved in a Board resolution delivered to the
Warrant Agent or (ii) a nationally recognized investment banking, appraisal or
valuation firm, which is not an Affiliate of the Company, in each case, taking
into account, among all other factors deemed relevant by the Board of
Directors or such investment banking, appraisal or valuation firm, the trading
price and volume of such security on any national securities exchange or
automated quotation system on which such security is traded.
For purposes of this Section 11(g), "Disinterested Director" means,
in connection with any issuance of securities that gives rise to a
determination of the Fair Value thereof, each member of the Board of Directors
who is not an officer, employee, director or other Affiliate of the party to
whom the Company is proposing to issue the securities giving rise to such
determination.
For purposes of this Section 11(g), "Affiliate" of any specified
Person means (A) any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such specified
Person and (B) any director, officer or employee of such specified person. For
purposes of this definition "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control with") as
used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities,
by agreement or otherwise.
(i) When De Minimis Adjustment May Be Deferred. No adjustment in the
Exercise Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Exercise Price. Any adjustments that are not
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
(j) When No Adjustment Required. No adjustment need be made for a
transaction referred to Section 11(a), (b), (c), (d), (e) or (f) hereof, if
Warrant holders are to participate in the transaction on a basis and with
notice that the Board of Directors determines to be fair and appropriate in
light of the basis and notice on which holders of Common Stock participate in
the transaction. No adjustment need be made for (i) rights to purchase Common
Stock pursuant to a Company plan for reinvestment of dividends or interest,
(ii) a change in the par value or no par value of the Common Stock or (iii)
the issuance by the Company of the DLJMB Warrants (as
16
<PAGE>
defined in the registration (No. 333-28539) on Form S-1 relating to the Units
filed with the Securities and Exchange Commission (the "Commission") on June
3, 1997). To the extent the Warrants become convertible into cash, no
adjustment need be made thereafter as to the cash.
Interest will not accrue on the cash.
(k) Notice of Adjustment. Whenever the Exercise Price is adjusted,
the Company shall provide the notices required by Section 13 hereof.
(l) Voluntary Reduction. The Company from time to time may reduce the
Exercise Price by any amount for any period of time, if the period is at least
20 days and if the reduction is irrevocable during the period; provided that
in no event may the Exercise Price be less than the par value of a share of
Common Stock. Whenever the Exercise Price is reduced, the Company shall mail
to Warrant holders a notice of the reduction. The Company shall mail the
notice at least 15 days before the date the reduced Exercise Price takes
effect. The notice shall state the reduced Exercise Price and the period in
which it will be in effect. A reduction of the Exercise Price does not change
or adjust the Exercise Price otherwise in effect for purposes of Sections
11(a), (b), (c), (d), (e) and (f) hereof.
(m) Notice of Certain Transactions. If (i) the Company takes any
action that would require an adjustment in the Exercise Price pursuant to
Section 11(a), (b), (c), (d), (e) or (f) hereof and if the Company does not
arrange for Warrant holders to participate pursuant to Section 11(i) hereof,
(ii) the Company takes any action that would require a supplemental Warrant
Agreement pursuant to Section 11(n) hereof or (iii) there is a liquidation or
dissolution of the Company, then the Company shall mail to Warrant holders a
notice stating the proposed record date for a dividend or distribution or the
proposed effective date of a subdivision, combination, reclassification,
consolidation, merger, transfer, lease, liquidation or dissolution. The
Company shall mail the notice at least 15 days before such date. Failure to
mail the notice or any defect in it shall not affect the validity of the
transaction.
(n) Reorganization of Company. Immediately after the Effective Time,
if the Company consolidates or merges with or into, or transfers or leases all
or substantially all its assets to, any person, upon consummation of such
transaction the Warrants shall automatically become exercisable for the kind
and amount of securities, cash or other assets which the holder of a Warrant
would have owned immediately after the consolidation, merger, transfer or
lease if the holder had exercised the Warrant immediately before the effective
date of the transaction. Concurrently with the consummation of such
transaction, the corporation formed by or surviving any such consolidation or
merger if other than the Company, or the person to which such sale or
conveyance shall have been made, shall enter into a supplemental Warrant
Agreement so providing and further providing for adjustments which shall be as
nearly equivalent as may be practical to the adjustments provided for in this
Section 11(n). The successor Company shall mail to Warrant holders a notice
describing the supplemental Warrant Agreement. If the issuer of securities
deliverable upon exercise of Warrants under the supplemental Warrant Agreement
is an affiliate of the formed, surviving, transferee or lessee corporation,
that issuer shall join in the supplemental Warrant Agreement. If this Section
11(n) applies, Sections 11(a), (b), (c), (d), (e) and (f) hereof do not apply.
17
<PAGE>
(o) Company Determination Final. Any determination that the Company
or the Board of Directors must make pursuant to Section 11(a), (c), (d), (e),
(f), (g), (h) or (i) hereof is conclusive.
(p) Warrant Agent's Disclaimer. The Warrant Agent has no duty to
determine when an adjustment under this Section 11 should be made, how it
should be made or what it should be. The Warrant Agent has no duty to
determine whether any provisions of a supplemental Warrant Agreement under
Section 11(n) hereof are correct. The Warrant Agent makes no representation as
to the validity or value of any securities or assets issued upon exercise of
Warrants. The Warrant Agent shall not be responsible for the Company's failure
to comply with this Section 11.
(q) When Issuance or Payment May Be Deferred. In any case in which
this Section 11 shall require that an adjustment in the Exercise Price be made
effective as of a record date for a specified event, the Company may elect to
defer until the occurrence of such event (i) issuing to the holder of any
Warrant exercised after such record date the Warrant Shares and other capital
stock of the Company, if any, issuable upon such exercise over and above the
Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise on the basis of the Exercise Price and (ii) paying to such
holder any amount in cash in lieu of a fractional share pursuant to Section 12
hereof; provided that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional Warrant Shares, other capital stock and cash upon the occurrence of
the event requiring such adjustment.
(r) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to this Section 11, each Warrant outstanding prior to
the making of the adjustment in the Exercise Price shall thereafter evidence
the right to receive upon payment of the adjusted Exercise Price that number
of shares of Common Stock (calculated to the nearest hundredth) obtained from
the following formula:
N' = N x E
---
E'
where:
N' = the adjusted number of Warrant Shares issuable
upon exercise of a Warrant by payment of the
adjusted Exercise Price.
N = the number or Warrant Shares previously issuable
upon exercise of a Warrant by payment of the
Exercise Price prior to adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
18
<PAGE>
(s) Form of Warrants. Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon the exercise of the
Warrants, Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
SECTION 12. Fractional Interests. The Company shall not be required
to issue fractional Warrant Shares on the exercise of Warrants. If more than
one Warrant shall be presented for exercise in full at the same time by the
same holder, the number of full Warrant Shares which shall be issuable upon
the exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section
12, be issuable on the exercise of any Warrants (or specified portion
thereof), the Company shall pay an amount in cash equal to the Fair Value per
Warrant Share, as determined on the day immediately preceding the date the
Warrant is presented for exercise, multiplied by such fraction, computed to
the nearest whole U.S. cent.
SECTION 13. Notices to Warrant Holders. (a) Upon any adjustment of
the Exercise Price pursuant to Section 11 hereof, the Company shall promptly
thereafter (i) cause to be filed with the Warrant Agent a certificate of a
firm of independent public accountants of recognized standing selected by the
Board of Directors of the Company (who may be the regular auditors of the
Company) setting forth the Exercise Price after such adjustment and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, upon
exercise of a Warrant and payment of the adjusted Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, and (ii) cause to be given to each of the registered holders of
Warrants at the address appearing on the Warrant register for each such
registered holder written notice of such adjustments by first-class mail,
postage prepaid. Where appropriate, such notice may be given in advance and
included as a part of the notice required to be mailed under the other
provisions of this Section 13.
(b) In case:
(i) the Company shall authorize the issuance to all holders
of shares of Common Stock of rights, options or warrants to subscribe
for or purchase shares of Common Stock or of any other subscription
rights or warrants;
(ii) the Company shall authorize the distribution to all
holders of shares of Common Stock of evidences of its indebtedness or
assets (other than cash dividends or cash distributions payable out
of consolidated earnings or earned surplus or dividends payable in
shares of Common Stock or distributions referred to in Section 11(a)
hereof);
(iii) of any consolidation or merger to which the Company is
a party and for which approval of any stockholders of the Company is
required, or of the conveyance or transfer of the properties and
assets of the Company substantially as an entirety, or of any
reclassification or change of Common Stock issuable upon exercise of
the Warrants (other than a change in par value, or from par value to
no par value, or from no par value to par
19
<PAGE>
value, or as a result of a subdivision or combination), or a tender
offer or exchange offer for shares of Common Stock;
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(v) the Company proposes to take any action (other than
actions of the character described in Section 11(a) hereof) which
would require an adjustment of the Exercise Price pursuant to Section
11 hereof;
then the Company shall cause to be filed with the Warrant Agent and shall
cause to be given to each of the registered holders of Warrants at his address
appearing on the Warrant register, at least 20 days (or 10 days in any case
specified in clauses (i) or (ii) above) prior to the applicable record date
hereinafter specified, or promptly in the case of events for which there is no
record date, by first-class mail, postage prepaid, a written notice stating
(x) the date as of which the holders of record of shares of Common Stock to be
entitled to receive any such rights, options, warrants or distribution are to
be determined, (y) the initial expiration date set forth in any tender offer
or exchange offer for shares of Common Stock, or (z) the date on which any
such consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange such shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up. The failure to give the
notice required by this Section 13 or any defect therein shall not affect the
legality or validity of any distribution, right, option, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up, or the vote upon any action.
(c) Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders of Warrants the
right to vote or to consent or to receive notice as stockholders in respect of
the meetings of stockholders or the election of directors of the Company or
any other matter, or any rights whatsoever as stockholders of the Company.
SECTION 14. Merger, Consolidation or Change of Name of Warrant Agent.
(a) Any corporation into which the Warrant Agent may be merged or with which
it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor warrant agent
under the provisions of Section 16 hereof. In case at the time such successor
to the Warrant Agent shall succeed to the agency created by this Agreement,
and in case at that time any of the Warrant Certificates shall have been
countersigned but not delivered, any such successor to the Warrant Agent may
adopt the countersignature of the original Warrant Agent; and in case at that
time any of the Warrant Certificates shall not have been countersigned, any
successor to the Warrant Agent may countersign such Warrant Certificates
either in the name of the predecessor Warrant Agent or in the name of the
successor to the Warrant
20
<PAGE>
Agent; and in all such cases such Warrant Certificates shall have the full
force and effect provided in the Warrant Certificates and in this Agreement.
(b) In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent whose name has been changed
may adopt the countersignature under its prior name, and in case at that time
any of the Warrant Certificates shall not have been countersigned, the Warrant
Agent may countersign such Warrant Certificates either in its prior name or in
its changed name, and in all such cases such Warrant Certificates shall have
the full force and effect provided in the Warrant Certificates and in this
Agreement.
SECTION 15. Warrant Agent. The Warrant Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates
shall be taken as statements of the Company and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Warrant Agent or action taken or to be taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant Certificate in respect of any action taken, suffered or omitted by
it hereunder in good faith and in accordance with the opinion or the advice of
such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to
the Company or to any holder of any Warrant Certificate for any action taken
in reliance on any Warrant Certificate, certificate of shares, notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution
of this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the execution of this Agreement and to indemnify the Warrant
Agent and save it harmless against any and all liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of its negligence
or bad faith.
21
<PAGE>
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as it may consider proper,
whether with or without any such security or indemnity. All rights of action
under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrant Certificates or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent and any recovery of judgment shall be for
the ratable benefit of the registered holders of the Warrants, as their
respective rights or interests may appear.
(g) The Warrant Agent, and any stockholder, director, officer or
employee of it, may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction
in which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal
entity.
(h) The Warrant Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the provisions hereof.
The Warrant Agent shall not be liable for anything which it may do or refrain
from doing in connection with this Agreement except for its own negligence or
bad faith.
(i) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of any Warrant Certificate to make or cause to be
made any adjustment of the Exercise Price or number of the Warrant Shares or
other securities or property deliverable as provided in this Agreement, or to
determine whether any facts exist which may require any of such adjustments,
or with respect to the nature or extent of any such adjustments, when made, or
with respect to the method employed in making the same. The Warrant Agent
shall not be accountable with respect to the validity or value or the kind or
amount of any Warrant Shares or of any securities or property which may at any
time be issued or delivered upon the exercise of any Warrant or with respect
to whether any such Warrant Shares or other securities will when issued be
validly issued and fully paid and nonassessable, and makes no representation
with respect thereto.
SECTION 16. Change of Warrant Agent. If the Warrant Agent shall
become incapable of acting as Warrant Agent, the Company shall appoint a
successor to such Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after it has been notified in writing
of such incapacity by the Warrant Agent or by the registered holder of a
Warrant Certificate, then the registered holder of any Warrant may apply to
any court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. Pending appointment of a successor to such Warrant Agent,
either by the Company or by such a court, the duties of the Warrant Agent
shall be carried out by the Company. The holders of a majority of the
unexercised Warrants shall be entitled at any time to remove the Warrant Agent
and appoint a successor to such
22
<PAGE>
Warrant Agent. Such successor to the Warrant Agent need not be approved by the
Company or the former Warrant Agent. After appointment the successor to the
Warrant Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; provided that the former Warrant Agent shall deliver and
transfer to the successor to the Warrant Agent any property at the time held
by it hereunder and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Failure to give any notice provided for in
this Section 16, however, or any defect therein, shall not affect the legality
or validity of the appointment of a successor to the Warrant Agent.
SECTION 17. Registration. Holders shall be able to exercise their
Warrants only if a registration statement relating to the Warrant Shares is
then in effect, or the exercise of such Warrants is exempt from the
registration requirements of the Securities Act, and such securities are
qualified for sale or exempt from qualification under the applicable
securities laws of the states in which the various holders of the Warrants or
other persons to whom it is proposed that the Warrant Shares be issued on
exercise of the Warrants reside.
(a) (i) The Company shall prepare and cause to be filed with the
Commission pursuant to Rule 415 under the Securities Act a shelf registration
statement on the appropriate form relating to the offer and sale by the
Company of the Warrant Shares to the holders of Warrants upon exercise of the
Warrants and resales of the Warrant Shares by the holders thereof.
(ii) In addition, the Company shall prepare and cause to be
filed with the Commission pursuant to Rule 415 under the Securities Act a
shelf registration statement on the appropriate form relating to the resale of
Warrant Shares upon the exercise of the Warrants by any broker or dealer
registered under the Securities Exchange Act of 1934, as amended (together
with the registration statement contemplated by clause (i) above, the
"Registration Statements").
(b) The Company shall use its reasonable best efforts to cause such
Registration Statements to be declared effective by the Commission by the
earlier of (i) the later of the Separation Date and 120 days from the date of
this Agreement and (ii) 45 days after the occurrence of a Change of Control.
(c) The Company shall use its best efforts to keep the Registration
Statements continuously effective under the Securities Act in order to permit
the prospectus included therein to be lawfully delivered by the Company to the
holders exercising the Warrants until the Expiration Date or such shorter
period that will terminate when all the Warrants have been exercised; provided
that, except as provided below with respect to any Black Out Period (as
defined herein), the Company shall be deemed not to have used its reasonable
best efforts to keep the Registration Statements effective during the
requisite period if it voluntarily takes any action that would result in it
not being able to offer and sell the Warrant Shares upon exercise of the
Warrants during that period, unless such action is required by applicable law.
Notwithstanding the foregoing, the Company shall not be required to amend or
supplement the Registration Statements, any related prospectus or any document
incorporated therein by reference, for a period (a "Black Out Period") not to
exceed, for so long as this Agreement is in effect, an aggregate of 45 days in
any calendar year, in the event that (i) an event occurs and is continuing as
a result of which the Registration
23
<PAGE>
Statements, any related prospectus or any document incorporated therein by
reference as then amended or supplemented would, in the Company's good faith
judgment, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and (ii)(A)
the Company determines in its good faith judgment that the disclosure of such
event at such time would have a material adverse effect on the business,
operations or prospects of the Company or (B) the disclosure otherwise relates
to a material business transaction which has not yet been publicly disclosed;
provided that no Black Out Period may be in effect during the three months
prior to the Expiration Date.
(d) The Company shall cause the Registration Statements and the
related prospectus and any amendment or supplement thereto, as of the
effective date of the Registration Statements, amendment or supplement, (i) to
comply in all material respects with the applicable requirements of the
Securities Act and the rules and regulations of the Commission and (ii) not to
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(e) The Company shall give prompt written notice to the holders of
the Warrants and the Warrant Agent of (i) the effectiveness of the
Registration Statements or any post-effective amendment thereto, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statements or the initiation or threatening of any
proceedings for that purpose, (iii) the receipt by the Company or its legal
counsel of any notification with respect to the suspension of the
qualification of the Warrant Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, (iv) the
happening of any event that requires the Company to make changes in the
Registration Statements or the prospectus in order to make the statements
therein not misleading and (v) the commencement and termination of any Black
Out Period.
(f) The Company shall use its reasonable best efforts to prevent the
issuance or obtain the withdrawal of any order suspending the effectiveness of
the Registration Statements at the earliest possible time.
(g) Upon the occurrence of any event contemplated by Section
17(e)(iv) or (v) hereof (subject to the last sentence of Section 17(c) hereof)
the Company shall promptly prepare a post-effective amendment to the
Registration Statements or a supplement to the related prospectus or file any
other required document so that, as thereafter delivered to holders of the
Warrants, the prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and will contain the current information required by the Securities
Act.
(h) Not later than the effective date of the Registration Statements,
the Company will provide a CUSIP number for the Warrant Shares and provide the
Warrant Agent with printed certificates for the Warrant Shares in a form
eligible for deposit with the Depository Trust Company.
24
<PAGE>
(i) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the
Registration Statements.
(j) The Company shall register or qualify or cooperate with the
holders in connection with the registration or qualification of the Warrant
Shares for offer and sale by the Company upon exercise of the Warrants under
the securities or blue sky laws of such states of the United States as any
holder reasonably requests and do any and all other acts or things necessary
or advisable to enable such offer and sale in such jurisdictions; provided
that the Company shall not be required to (i) qualify to do business in any
jurisdiction in which it is not then so qualified or (ii) take any action
which would subject it to general service of process or to taxation in any
jurisdiction in which it is not then so subject.
(k) The Company shall bear all expenses incurred by it in connection
with the performance of its obligations under this Section 17.
(l) The Company acknowledges and agrees that any remedy at law for
breach of any provision of this Section 17 will be inadequate and that, in
addition to any other remedies that the holder may have, the holders shall be
entitled to the remedy of specific performance to ensure the Company performs
its obligations under this Section 17. The election of any one or more
remedies by the holders hereunder shall not constitute a waiver of the right
to pursue other available remedies.
(m) No person is entitled to include any securities of the Company
held by such person in, or to have such securities registered under, the
Registration Statements.
SECTION 18. Reports.
(a) Whether or not required by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), so long as any Warrants
are outstanding, the Company shall furnish to the holders of Warrants (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the
rules and regulations of the Commission, the Company shall file a copy of all
such information and reports with the Commission for public availability
(unless the Commission shall not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
(b) The Company shall provide the Warrant Agent with a sufficient
number of copies of all such reports that the Warrant Agent may be required to
deliver to the holders of the Warrants under this Section 18.
25
<PAGE>
SECTION 19. Notices to Company and Warrant Agent. Any notice or
demand authorized by this Agreement to be given or made by the Warrant Agent
or by the registered holder of any Warrant to or on the Company shall be
sufficiently given or made when and if deposited in the mail, first class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent) as follows:
DecisionOne Holdings Corp.
50 East Swedesford Road
Frazer, Pennsylvania 19355
Telephone: (610) 296-6000
Attention: Thomas M. Molchan, Esq.
In case the Company shall fail to maintain such office or agency or
shall fail to give such notice of the location or of any change in the
location thereof, presentations may be made and notices and demands may be
served at the principal office of the Warrant Agent.
Any notice pursuant to this Agreement to be given by the Company or
by the registered holder(s) of any Warrant to the Warrant Agent shall be
sufficiently given when and if deposited in the mail, first-class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company) to the Warrant Agent as
follows:
State Street Bank and Trust Company
--------------------
--------------------
--------------------
SECTION 20. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions
in regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not in any way
adversely affect the interests of the holders of Warrants. Any amendment or
supplement to this Agreement that has a material adverse effect on the
interests of the holders of Warrants shall require the written consent of the
holders of a majority of the then outstanding Warrants (excluding Warrants
held by the Company or any of its affiliates). The consent of each holder of
Warrants affected shall be required for any amendment pursuant to which the
Exercise Price would be increased or the number of Warrant Shares purchasable
upon exercise of Warrants would be decreased (other than pursuant to
adjustments provided in this Agreement.
SECTION 21. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
26
<PAGE>
SECTION 22. Termination. This Agreement shall terminate at 5:00 p.m.,
New York City time on _____________, 2007. Notwithstanding the foregoing, this
Agreement will terminate on any earlier date if all Warrants have been
exercised. The provisions of Section 15 shall survive such termination.
SECTION 23. Governing Law. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be construed in
accordance with the internal laws of said State.
SECTION 24. Benefits of This Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the
Company, the Warrant Agent and the registered holders of Warrants any legal or
equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered holders of Warrants.
SECTION 25. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
[Signature Page Follows]
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
QUAKER HOLDING CO.
By:
----------------------------------
Name:
Title:
[Seal]
Attest:
----------------------
Secretary
STATE STREET BANK AND TRUST COMPANY,
as Warrant Agent
By
----------------------------------
Name:
Title:
[Seal]
Attest:
----------------------
Secretary
28
<PAGE>
EXHIBIT A
FORM OF WARRANT
[Face of Warrant Certificate]
[Unless and until it is exchanged in whole or in part for Warrants in
definitive form, this Warrant may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary. The Depository Trust Company shall act as the Depositary until a
successor shall be appointed by the Company. Unless this certificate is
presented by an authorized representative of The Depository Trust Company (55
Water Street, New York, New York) ("DTC"), to the Company or its agent for
registration of transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or such other name as may be requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or
such other entity as may be requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.](1)
EXERCISABLE ON OR AFTER ________, 1997.
No. _____ __________Warrants
Warrant Certificate
QUAKER HOLDING CO.
This Warrant Certificate certifies that ______________, or registered
assigns, is the registered holder of Warrants expiring ________, 2007 (the
"Warrants") to purchase Common Stock. Each Warrant entitles the holder upon
exercise to receive from the Company commencing ________, 1997 until 5:00 p.m.
New York City Time on _________, 2007, the number of fully paid and
nonassessable Warrant Shares as set forth in the Warrant Agreement, subject to
adjustment as set forth in Section 11 of the Warrant Agreement, at the initial
exercise price (the "Exercise Price") of $______ payable in lawful money of
the United States of America upon surrender of this Warrant Certificate and
payment of the Exercise Price at the office or agency of the Warrant Agent,
but only subject to the conditions set forth herein and in the Warrant
Agreement referred to on the reverse hereof. Notwithstanding the foregoing,
Warrants may be exercised without the exchange of funds pursuant to the net
exercise provisions of Section 6 of the Warrant Agreement. The Exercise Price
and number of Warrant Shares issuable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events set forth in the
- --------
(1) This paragraph should be included only if the Warrant is issued in
global form.
A-1
<PAGE>
Warrant Agreement. No Warrant may be exercised after 5:00 p.m., New York City
Time on __________, 2007, and to the extent not exercised by such time such
Warrants shall become void. Reference is hereby made to the further provisions
of this Warrant Certificate set forth on the reverse hereof and such further
provisions shall for all purposes have the same effect as though fully set
forth at this place. This Warrant Certificate shall not be valid unless
countersigned by the Warrant Agent, as such term is used in the Warrant
Agreement. This Warrant Certificate shall be governed and construed in
accordance with the internal laws of the State of New York.
IN WITNESS WHEREOF, Quaker Holding Co. has caused this Warrant
Certificate to be signed by its [Chief Executive Officer] and by its
[Secretary] and may cause its corporate seal to be affixed hereunto or
imprinted hereon.
Dated: August , 1997
----
QUAKER HOLDING CO.
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
Countersigned:
STATE STREET BANK AND TRUST COMPANY
as Warrant Agent
By:
-----------------------------
Name:
Title:
A-2
<PAGE>
[Reverse of Warrant Certificate]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring __________, 2007 entitling the holder on
exercise to receive shares of Common Stock, and are issued or to be issued
pursuant to a Warrant Agreement dated as of August ___, 1997 (the "Warrant
Agreement"), duly executed and delivered by the Company to State Street Bank
and Trust Company, as warrant agent (the "Warrant Agent"), which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Warrant Agent, the Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of the Warrants. A copy
of the Warrant Agreement may be obtained by the holder hereof upon written
request to the Company.
Warrants may be exercised at any time on or after _________, 1997 and
on or before _________, 2007; provided that holders shall be able to exercise
their Warrants only if a registration statement relating to the Warrant Shares
is then in effect, or the exercise of such Warrants is exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of the Warrants or other persons to whom it is proposed that
the Warrant Shares be issued on exercise of the Warrants reside. In order to
exercise all or any of the Warrants represented by this Warrant Certificate,
(i) in the case of Definitive Warrants, the holder must surrender for exercise
this Warrant Certificate to the Warrant Agent at its New York corporate trust
office set forth in Section 19 of the Warrant Agreement, (ii) in the case of a
book-entry interest in a Global Warrant, the exercising Agent Member whose
name appears on a securities position listing of the Depositary as the holder
of such book-entry interest must comply with the Depositary's procedures
relating to the exercise of such book-entry interest in such Global Warrant
and (iii) in the case of both Global Warrants and Definitive Warrants, the
holder thereof or the Agent Member, as applicable, must deliver to the Warrant
Agent the form of election to purchase on the reverse hereof duly filled in
and signed, which signature shall be medallion guaranteed by an institution
which is a member of a Securities Transfer Association recognized signature
guarantee program, and upon payment to the Warrant Agent for the account of
the Company of the Exercise Price, as adjusted as provided in the Warrant
Agreement, for the number of Warrant Shares in respect of which such Warrants
are then exercised. No adjustment shall be made for any dividends on any
Common Stock issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will
pay the cash value thereof determined as provided in the Warrant Agreement.
The Company has agreed under the terms of the Warrant Agreement to
file and use its reasonable best efforts to make effective no later than the
earlier of (i) the later of the Separation
A-3
<PAGE>
Date and 120 days from the date of the Warrant Agreement and (ii) 45 days
after the occurrence of a Change of Control and (subject to Black Out Periods)
to maintain effective until expiration or exercise of all Warrants shelf
registration statements (the "Registration Statements") on appropriate forms
under the Securities Act covering the issuance and resale of Warrant Shares
upon exercise of the Warrants.
Warrant Certificates, when surrendered at the office of the Warrant
Agent by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.
A-4
<PAGE>
Form of Election to Purchase
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive __________ shares of
Common Stock and herewith tenders payment for such shares to the order of the
Company in the amount of $______ in accordance with the terms hereof unless
the holder is exercising Warrants pursuant to the net exercise provisions of
Section 6 of the Warrant Agreement in which case the holder shall tender
Debentures having an aggregate principal amount at maturity, plus accrued and
unpaid interest, if any thereon, to the date of exercise (or, if such exercise
takes place prior to ___________, 2002, an Accreted Value (as defined in the
Indenture) on the date of exercise equal to the Exercise Price of the Warrants
being exercised by such holder. The undersigned requests that a certificate
for such shares be registered in the name of _______________________________,
whose address is _______________________________ and that such shares be
delivered to ________________ whose address is ______________________________.
If said number of shares is less than all of the shares of Common Stock
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of such shares be registered in the name of
______________, whose address is _________________________, and that such
Warrant Certificate be delivered to _________________, whose address is
__________________.
Date: ,
-------------- ----
--------------------------
(Signature)
--------------------------
(Signature Guaranteed)
A-5
<PAGE>
SCHEDULE A(2)
SCHEDULE OF WARRANTS
EVIDENCED BY THIS GLOBAL WARRANT
The initial number of Warrants evidenced by this Global
Warrant shall be _________. The following decreases/increases in the number of
Warrants evidenced by this Warrant have been made:
Decrease in Increase in Total Number of
Number of Number of Warrants Evidenced
Warrants Warrants by this Global Notation Made
Date of Evidenced by Evidenced by Warrant Following by or on
Decrease/ this Global this Global such Decrease/ Behalf of
Increase Warrant Warrant Increase Warrant Agent
- -------- ------- ------- -------- -------------
________ ___________ ____________ __________________ ______________
________ ___________ ____________ __________________ ______________
________ ___________ ____________ __________________ ______________
________ ___________ ____________ __________________ ______________
________ ___________ ____________ __________________ ______________
________ ___________ ____________ __________________ ______________
________ ___________ ____________ __________________ ______________
________ ___________ ____________ __________________ ______________
________ ___________ ____________ __________________ ______________
________ ___________ ____________ __________________ ______________
________ ___________ ____________ __________________ ______________
________ ___________ ____________ __________________ ______________
- -------------------------
(2) To be included only on Global Warrants.
A-6
<PAGE>
EXHIBIT B
FORM OF TRANSFER LEGEND
Each Certificate evidencing Warrants originally issued as part of a
Unit of Debentures and Warrants issued by the Company (and each Certificate
evidencing Warrants issued on registration of transfer thereof or in exchange
or substitution therefor prior to the close of business on the Separation Date
(as defined)) shall bear a legend, which may be affixed by stamp or sticker,
in substantially the following form:
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE NOT TRANSFERABLE
SEPARATELY FROM THE DEBENTURES ORIGINALLY SOLD AS A UNIT WITH THE
WARRANTS UNTIL THE EARLIEST TO OCCUR OF (I) __________, 1997, (II)
SUCH EARLIER DATE AS DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION MAY DETERMINE AND (III) IN THE EVENT OF A CHANGE IN
CONTROL (AS DEFINED IN THE INDENTURE RELATING TO THE DEBENTURES), THE
DATE THE COMPANY MAILS A NOTICE THEREOF. PRIOR TO SUCH DATE, THE
WARRANTS EVIDENCED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
INTEGRAL MULTIPLES OF _____ WARRANTS AND ONLY WITH THE SIMULTANEOUS
TRANSFER TO THE TRANSFEREE OF $1,000 PRINCIPAL AMOUNT OF DEBENTURES
FOR EACH _____ WARRANTS SO TRANSFERRED.
B-1
<PAGE>
Exhibit 4.5
July 28, 1997
DecisionOne Holdings Corp.
DecisionOne Corporation
50 East Swedesford Road
Frazer, Pennsylvania 19355
Quaker Holdings Co.
277 Park Avenue
New York, New York 10172
Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Re: Agreement to Act as "Qualified Independent Underwriter"
Ladies and Gentlemen:
You have advised us that (i) DecisionOne Corporation
("DecisionOne"), a Delaware corporation, has filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(Reg. No. 333-28411) (the "DecisionOne S-1"), relating to the offering by
DecisionOne of $150,000,000 principal amount of % Senior Subordinated Notes
due 2007 (the "Notes"), or such other principal amount of Notes as you may
determine, and (ii) Quaker Holding Co. ("Quaker"), a Delaware corporation, has
filed with the Commission a registration statement on Form S-1 (Reg. No.
333-28539) (the "Quaker S-1"), relating to the offering by Quaker of units (the
"Units"), each consisting of $1,000 principal amount of its ____% Senior
Discount Debentures due 2008 (the "Debentures") and warrants (the "Warrants")
to purchase shares of the common stock, par value $.01 per share, of Quaker
(the "Quaker Common Stock"). We understand that the number of Units offered and
the number of shares of Common Stock included in each Debenture Warrant will be
determined based on market conditions. Upon consummation of the merger (the
"Merger") between Quaker and DecisionOne Holdings Corp. ("Holdings"), a
Delaware corporation, Holdings will succeed
<PAGE>
Page 2
to the obligations of Quaker with respectto the Debentures and the Warrants,
and the Warrants will become exercisable for an equal number of shares of
common stock, par value $.01 per share, of Holdings (the "Holdings Common
Stock"). The term "Unit Issuer" means Quaker before the Merger and Holdings
after the Merger, the term "Note Issuer" means DecisionOne and the term
"Issuers" means the Unit Issuer and the Note Issuer. The Notes will be issued
pursuant to an Indenture by and between DecisionOne and Fleet National Bank, as
Trustee. The Debentures will be issued pursuant to an Indenture by and between
the Unit Issuer and Fleet National Bank, as Trustee.
In connection with the public offerings of the Notes and
Units (the "Offerings"), Donaldson, Lufkin & Jenrette Securities Corporation
(the "Underwriter") will be the underwriter. Subject to the terms and
conditions of the underwriting agreement to be entered into between DecisionOne
and the Underwriter (the "Note Underwriting Agreement"), the Underwriter will
agree to purchase from DecisionOne, and DecisionOne will agree to sell to the
Underwriter, all of the Notes. Subject to the terms and conditions of the
underwriting agreement to be entered into between the Unit Issuer and the
Underwriter (the "Unit Underwriting Agreement"), the Underwriter will agree to
purchase from the Unit Issuer, and the Unit Issuer will agree to sell to the
Underwriter, all of the Units. The Note Underwriting Agreement and the Unit
Underwriting Agreement are sometimes collectively referred to as the
Underwriting Agreements. The Notes, Units, Debentures and Warrants are
sometimes collectively referred to as the "Securities."
We understand that, as a member of the National Association
of Securities Dealers, Inc. ("NASD"), the Underwriter may participate in the
Offerings only if the yield at which the Notes are to be offered to the public
in its Offering is no lower than the yield, and if the price of each Unit to be
offered to the public in its Offering is no higher than the price, recommended
by a "Qualified Independent Underwriter" (as such term is defined in Rule
2720(b)(15) of the NASD Conduct Rules) and such Qualified Independent
Underwriter participates in the preparation of the registration statement and
prospectus relating to each of the Offerings and exercises the usual standards
of due diligence with respect thereto. This Agreement describes the terms on
which Ladenburg Thalmann & Co. Inc. ("Ladenburg") agrees to serve as such a
Qualified Independent Underwriter in connection with each of the Offerings. In
connection with the services to be provided by Ladenburg hereunder and based
upon the several representations and warranties of, and subject to the
performance of the several covenants by, the Issuers herein set forth and
Ladenburg's satisfaction with the results of its due diligence review,
Ladenburg agrees to deliver to the Issuers and the Underwriter, and file with
the NASD, a letter (the "Letter"), substantially in the form of Appendix A
hereto, on the date
<PAGE>
Page 3
each Registration Statement (as hereinafter defined) is first declared
effective by the Commission (the "Effective Date") or, if the Offerings are not
priced on the Effective Date, on the date of the pricing of the Offerings (the
"Pricing Date"). As a condition to the delivery of the Letter, each
Registration Statement and each amendment thereto will include any revisions
that in the reasonable judgment of Ladenburg and its legal counsel are required
to enable Ladenburg to deliver the Letter.
As herein used, except as the context may otherwise require,
the term "Registration Statement" means either the DecisionOne S-1 or the
Quaker S-1 (including the related prospectuses, financial statements, exhibits,
schedules, term sheets and all other documents filed as parts thereof or
incorporated therein) for the registration of the respective Securities under
the Securities Act of 1933, as amended (the "1933 Act"), in the form declared
effective, filed with the Commission and any amendments thereto. The term
"Prospectus" with respect to each Offering means the prospectus, including any
preliminary or final prospectus (including the form of prospectus or term sheet
first filed with the Commission pursuant to Rule 424(b) or 430A under the 1933
Act after the Registration Statement with respect to such Offering becomes
effective or, if no such filing is required, each prospectus in the form
included in the Registration Statement with respect to such Offering at the
time it is first declared effective), and any amendment or supplement thereto
(including any form of prospectus or term sheet filed with the Commission
pursuant to Rule 424(b) under the 1933 Act), to be used in connection with such
Offering.
1. NASD Requirement. Ladenburg hereby confirms its agreement
to act in connection with the Offerings as a "Qualified Independent
Underwriter" within the meaning of Rule 2720 of the NASD Conduct Rules and
represents that Ladenburg satisfies or will satisfy at the times designated in
Rule 2720(b)(15) the requirements set forth therein.
2. Consent. Ladenburg hereby consents to be named in the
Registration Statement and Prospectus with respect to each Offering as having
acted as the Qualified Independent Underwriter and to the filing of this
Agreement as an exhibit to the Registration Statement with respect to each
Offering. All references to Ladenburg in the Registration Statement or
Prospectus with respect to each Offering or in any other filing, report,
document, release or other communication prepared, issued or transmitted in
connection with the Offerings by the Issuers or the Underwriter or any entity
controlling, controlled by or under common control with, or by any of them,
shall be subject to Ladenburg's prior consent with respect to form and
substance. Ladenburg's obligation to act as a Qualified Independent Underwriter
<PAGE>
Page 4
hereunder shall terminate if the Issuers shall breach in any material respect
any representation, warranty or covenant hereunder and such breach shall not be
cured within 10 days of written notice thereof to the Issuers, provided such
breach would adversely affect Ladenburg's ability to meet its obligations
hereunder or impose, in Ladenburg's reasonable judgment, additional liability
on Ladenburg.
3. Fee and Expenses. The Issuers agree to pay Ladenburg an
aggregate fee of $125,000 (the "Fee") for its services hereunder, of which
$45,000 (the "Initial Payment") shall be earned upon the execution of this
Agreement. The Initial Payment, together with the balance of the Fee, shall be
payable on the date on which payment for and delivery of any of the Securities
are made (the "Closing Date"). The Issuers also agree to reimburse Ladenburg
for all reasonable out-of-pocket expenses, including all reasonable fees and
expenses of Ladenburg's counsel, incurred by Ladenburg in connection with this
Agreement and the Offerings; provided, however, that the obligation of the
Issuers to reimburse Ladenburg for fees and expenses shall be limited to
$25,000. The limitation on fees and expenses set forth in the immediately
preceding sentence is subject to there being no (i) material change in the
nature of the Offerings as described in the draft DecisionOne S-1 and Quaker
S-1 heretofore provided to Ladenburg, (ii) material delay in the consummation
of the Offerings which causes an unexpected and material number of revisions in
either S-1 or (iii) unusual number of refilings with the Commission as a result
of the Commission's comments with respect to either S-1. Ladenburg will be
entitled to retain the full amount of such fee and receive payment of such
expenses regardless of the yield of the Notes or the price of the Units that
Ladenburg recommends pursuant to this Agreement. If, for whatsoever reason, it
is determined that the Offerings shall not commence or will not be consummated,
Ladenburg shall be entitled to be paid in full for the above-mentioned
expenses, promptly following such determination, and shall continue to be
entitled to any amount payable to Ladenburg under Section 6.
4. Representations, Warranties and Covenants of the Issuers.
(a) Each of the Issuers agrees that all of its
representations and warranties contained in the Underwriting
Agreements, when made, shall be deemed to be incorporated by
reference herein and made to Ladenburg hereunder. Each of the
Issuers agrees that its execution of an Underwriting
Agreement shall constitute confirmation to Ladenburg that, on
such date, the representations and warranties of such Issuer
included in the Underwriting Agreements are true, correct and
complete in all material respects.
<PAGE>
Page 5
(b) Each of the Issuers represents and warrants that
this Agreement has been duly authorized, executed and
delivered by such Issuer; the performance of this Agreement
and the consummation of the transactions contemplated hereby
will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of such Issuer
pursuant to the terms or provisions of, or result in a breach
or violation of any of the terms or provisions of or
constitute a default under, any indenture, mortgage, deed of
trust, voting trust agreement, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness,
lease, contract or other agreement or instrument to which
such Issuer or any of its properties is bound, or under the
certificate of incorporation or by-laws of such Issuer or
under any statute or under any order, rule or regulation of
any court or governmental body applicable to the business or
properties of such Issuer; and no consent, approval,
authorization or order of any court or governmental agency or
body is required for the consummation by such Issuer of the
transactions on its part herein contemplated which has not
been duly obtained.
(c) Each of the Issuers agrees that all of its
covenants and other agreements contained in the Underwriting
Agreements, when made, shall be deemed to be incorporated by
reference herein and made with Ladenburg hereunder. Each of
the Issuers agrees that its execution of an Underwriting
Agreement shall constitute confirmation to Ladenburg of such
Issuer's performance in all material respects of its
covenants and other agreements contained in the Underwriting
Agreements.
5. Availability of Information.
(a) Each of the Issuers hereby agrees to provide
Ladenburg, at such Issuer's sole cost and expense, with all
information and documentation with respect to its business,
financial condition and other matters as Ladenburg may deem
relevant and shall reasonably request in connection with its
performance under this Agreement, including, without
limitation, copies of all correspondence with the Commission
or the NASD, certificates of its officers, opinions of its
counsel and comfort letters from its auditors. The
above-mentioned certificates, opinions of counsel and comfort
letters shall be provided to Ladenburg, as Ladenburg may
request on or prior to the Effective Date, on or prior to the
<PAGE>
Page 6
Pricing Date and on or prior to the Closing Date, if then
required to be provided under either Underwriting Agreement.
Each of the Issuers will make reasonably available to
Ladenburg its auditors, counsel and officers and directors to
discuss with Ladenburg any aspect of such Issuer which
Ladenburg may deem relevant. In addition, each of the Issuers
will cause to be delivered to Ladenburg, when delivered to
the Underwriter, copies of all certificates, opinions,
comfort letters, reports and other documents delivered to the
Underwriter pursuant to the Underwriting Agreements and shall
cause the person issuing such certificate, opinion, comfort
letter, report or other document to authorize Ladenburg to
rely thereon to the same extent as if addressed directly to
Ladenburg. In addition, the Underwriter and each of the
Issuers will promptly advise Ladenburg of all telephone
conversations with the NASD or the Commission which relate to
or may affect the Offerings, the DecisionOne S-1 or the
Quaker S-1.
(b) Latham & Watkins will provide, at the
Underwriter's expense, to Ladenburg the opinions said counsel
shall deliver to the Underwriter as underwriter under the
Underwriting Agreements, which opinions shall be addressed to
Ladenburg and shall be dated the Closing Date (or any other
date on which an opinion is delivered by such counsel
pursuant to the Underwriting Agreements).
(c) Ladenburg hereby agrees to cooperate in all
reasonable respects with the Underwriter and its counsel in
responding to any comments made by the NASD with respect to
the Offerings, this Agreement or Ladenburg's role as
"Qualified Independent Underwriter".
6. Indemnification and Contribution.
(a) The Issuers severally agree to indemnify and
hold harmless Ladenburg and its directors, its officers and
each person, if any, who controls Ladenburg within the
meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act") from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any
legal or other expenses incurred in connection with
investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages,
liabilities or judgments and any amount paid in
<PAGE>
Page 7
settlement of, any action, suit or proceeding commenced or
any claim asserted), to which Ladenburg may become subject
under the 1933 Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or
otherwise, related to, based upon or arising out of (i) an
untrue statement or alleged untrue statement of a material
fact contained in the applicable Registration Statement, any
preliminary prospectus, either Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading,
(ii) any breach or alleged breach by the applicable Issuer of
its representations, warranties and agreements contained in
this Agreement or (iii) Ladenburg's performance of its duties
under this Agreement; provided, however, that the applicable
Issuer will have no obligation under this Section 6(a) to the
extent that any such loss, claim, damage, liability or action
pursuant to clause (iii) above shall have been determined in
a final judgment of a court of competent jurisdiction to have
been due to the willful misconduct or gross negligence of
Ladenburg.
Ladenburg agrees to indemnify and hold harmless each
of the Issuers, its directors and officers, and each person,
if any, who controls any of the Issuers within the meaning of
either Section 15 of the 1933 Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity
from the Issuers to Ladenburg, but only with respect to
information relating to Ladenburg furnished in writing by
Ladenburg expressly for use in the applicable Registration
Statement, the applicable Prospectus, or any amendment or
supplement thereto, or any preliminary prospectus; provided,
however, that the foregoing indemnity by Ladenburg shall not
apply to any untrue statement or omission contained in any
preliminary prospectus which is not contained in the related
Prospectus.
(b) In case any action shall be comenced involving
any person in respect of which indemnity may be sought under
this Section 6, such person shall promptly notify each
indemnifying party in writing and such indemnifying party
shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such indemnified party,
and the payment of all fees and expenses of such counsel, as
incurred (except that in the case of any action in respect of
which indemnity may be sought pursuant to the first and
second paragraphs of Section 6(a), Ladenburg shall not be
required to assume the defense thereof, but
<PAGE>
Page 8
may employ separate counsel and participate in the defense
thereof, but the fees and expenses of such counsel, except as
provided below, shall be at the expense of Ladenburg). Any
indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the
employment of such counsel by such indemnified party shall
have been specifically authorized in writing by the
indemnifying parties, (ii) the indemnified party shall have
failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party, or (iii)
the named parties to any such action (including any impleaded
parties) include both the indemnified party and the
indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal
defenses available to it which are different from or
additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to
assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but
substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more
than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm
shall be designated in writing by Ladenburg, in the case of
parties indemnified pursuant to the first paragraph of
Section 6(a), and by the applicable Issuer, in the case of
the parties indemnified pursuant to the second paragraph of
Section 6(a). The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason
of any settlement of any action (i) effected with its written
consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days
after the indemnifying party shall have received a request
from the indemnified party for reimbursement for the fees and
expense of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to
the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any
pending or threatened action in respect of which the
indemnified party is or could have been a party and
<PAGE>
Page 9
indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release
of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and
(ii) does not include a statement as to or an admission of
fault, culpability or a failure to act, by or on behalf of
the indemnified party.
(c) To the extent the indemnification provided for
in Section 6(a) is unavailable to, or insufficient to hold
harmless any indemnified party under Section 6(a), in respect
of any loss, claim, damage, liability or judgment referred to
therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments
(i) in such proportion as is appropriate to reflect the
relative benefits received by the Issuers, on the one hand,
and Ladenburg, on the other, from the Offerings or (ii) if
the allocation provided by clause (i) above is not permitted
by applicable law, or if the indemnified party failed to give
the notice required under Section 6(b), in such proportion as
is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault
of the Issuers, on the one hand, and Ladenburg, on the other,
in connection with Ladenburg's activities under this
Agreement or the statements or omissions that resulted in
such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The
relative benefits received by the Issuers, on the one hand,
and Ladenburg, on the other, shall be deemed to be in the
same proportion as the total net proceeds from the Offerings
(before deducting expenses) bear to the total fee paid to
Ladenburg pursuant to Section 3. The relative fault of the
Issuers, on the one hand, and of Ladenburg, on the other,
shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material
fact relates to information supplied by the Issuers or by
Ladenburg, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent
such statement or omission.
The Issuers and Ladenburg agree that it would not be
just and equitable if contribution pursuant to this Section
6(c) were determined by pro rata allocation or by any other
method of allocation which does not take account of the
equitable
<PAGE>
Page 10
considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or
defending any matter, including any action that could have
given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 6,
Ladenburg shall not be required to contribute any amount in
excess of the amount by which the fee paid to Ladenburg
pursuant to Section 3 exceeds the amount of any damages
Ladenburg has otherwise been required to pay by reason of
such activities under this Agreement or such untrue or
alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled
to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(d) The remedies provided for in this Section 6 are
not exclusive and shall not limit any rights or remedies
which may otherwise be available to any indemnified party at
law or in equity.
(e) The statements with respect to Ladenburg in the
last paragraph under the caption "Underwriting" in the
Prospectus with respect to each Offering constitute the only
information furnished to the applicable Issuer in writing on
behalf of Ladenburg expressly for use in the applicable
Registration Statement, the applicable Prospectus or any
amendment or supplement thereto, or any applicable
preliminary prospectus.
(f) The indemnity and contribution agreements
contained in this Section 6, and the covenants,
representations and warranties of the Issuers set forth in
this Agreement, shall remain operative and in full force and
effect regardless of (i) any investigation made by Ladenburg
or on its behalf or by or on behalf of any person who
controls Ladenburg or (ii) any termination of this Agreement
or the Offerings.
7. Successors and Assigns. The benefits of this Agreement
shall inure to the respective successors and assigns of the parties hereto and
the obligations and liabilities assumed
<PAGE>
Page 11
in this Agreement by the parties hereto shall be binding upon their respective
successors and assigns. Ladenburg expressly acknowledges and agrees that this
Agreement shall be binding upon and inure to the benefit of Holdings only upon
consummation of the Merger.
8. Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented unless the Issuers, the
Underwriter and Ladenburg consent in writing to such amendment, modification or
supplement.
9. Notice. Whenever notice is required to be given pursuant
to this Agreement, such notice shall be in writing and shall be delivered by
hand or by commercial messenger service or mailed by first class mail, postage
prepaid, addressed (a) if to Ladenburg, at the address set forth at the head of
this Agreement, Attention: Ronald Kramer, (b) if to the Issuers, at 50 East
Swedesford Road, Frazer, Pennsylvania 19355, Attention: Kenneth Draeger, (c) if
to Quaker, prior to the Merger, at 277 Park Avenue, New York, New York 10172,
Attention, Peter T. Grauer, or (d) if to the Underwriter, at 277 Park Avenue,
New York, New York 10172, Attention: Maureen Block, Legal Department, or such
other address as to which any party shall notify the other parties hereto in
writing.
10. Governing Law. This Agreement shall be construed (both as
to validity and performance) and enforced in accordance with and governed by
the laws of the State of New York applicable to agreements made and to be
performed wholly within such jurisdiction. Each of the Issuers irrevocably
consents that any legal action or proceeding against it under, arising out of
or in any manner relating to this Agreement may be brought in any court of the
State of New York, County of New York, or in the United States District Court
for the Southern District of New York. Each of the Issuers, by the execution
and delivery of this Agreement, expressly and irrevocably assents and submits
to the personal jurisdiction of any of such courts in any such action or
proceeding. Each of the Issuers irrevocably consents to the service of any
complaint, summons, notice or other process relating to any such action or
proceeding by delivery thereof to it in the manner provided for in Section 9
hereof.
11. Counterparts. This Agreement may be signed in two or more
counterparts with the same force and effect as if the signatures thereto and
hereto were upon the same instrument.
12. Obligations. After the Merger, all several
representations and warranties, covenants, agreements and obligations of the
Issuers contained in this Agreement shall become
<PAGE>
Page 12
joint and several representations and warranties, covenants, agreements and
obligations of the Issuers.
If the above terms are in accordance with your understanding
of our agreement, please sign the enclosed copy of this Agreement and return
such copy to us.
Very truly yours,
LADENBURG THALMANN & CO. INC.
By:
-----------------------------
Managing Director
CONFIRMED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN:
DECISIONONE HOLDINGS CORP.
By:
----------------------------------------
Name:
Title:
DECISIONONE CORPORATION
By:
----------------------------------------
Name:
Title:
QUAKER HOLDING CO.
By:
----------------------------------------
Name:
Title:
<PAGE>
Page 13
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By:
----------------------------------------
Name:
Title:
<PAGE>
APPENDIX A
July , 1997
DecisionOne Holdings Corp.
DecisionOne Corporation
50 East Swedesford Road
Frazer, Pennsylvania 19355
Quaker Holdings Co.
277 Park Avenue
New York, New York 10172
Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Re: Agreement to Act as "Qualified Independent Underwriter"
-------------------------------------------------------
Ladies and Gentlemen:
You have advised us that (i) DecisionOne Corporation ("DecisionOne"),
a Delaware corporation, has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (Reg. No. 333-28411),
relating to the offering by DecisionOne of $150,000,000 principal amount of %
Senior Subordinated Notes due 2007 (the "Notes"), or such other principal
amount of Notes as you may determine, and (ii) Quaker Holding Co. ("Quaker"), a
Delaware corporation, has filed with the Commission a registration statement on
Form S-1 (Reg. No. 333- 28539), relating to the offering by Quaker of ________
units (the "Units"), each consisting of $1,000 principal amount of its ____%
Senior Discount Debentures due 2008 (the "Debentures") and warrants (the
"Warrants") to purchase _________ shares of the common stock, par value $.01
per share, of Quaker (the "Quaker Common Stock") at a price of $____ per share.
Upon consummation of the merger (the "Merger") between Quaker and DecisionOne
Holdings Corp. ("Holdings"), a Delaware corporation, Holdings will succeed to
the obligations of Quaker with respect to the Debentures and the Warrants, and
the Warrants will become exercisable for an equal number of shares of common
stock, par value $.01 per share, of Holdings (the "Holdings Common Stock"). The
<PAGE>
July , 1997
Page 2
term "Unit Issuer" means Quaker before the Merger and Holdings after the
Merger. The Notes will be issued pursuant to an Indenture by and between
DecisionOne and Fleet National Bank, as Trustee. The Debentures will be issued
pursuant to an Indenture by and between the Unit Issuer and Fleet National
Bank, as Trustee. DecisionOne, Quaker and Holdings are sometimes collectively
referred to as the "Corporations". The Notes, Units, Debentures and Warrants
are sometimes collectively referred to as the "Securities."
We understand that, as a member of the National Association of
Securities Dealers, Inc. (the "NASD"), the Underwriter may participate in the
Offerings only if the yield at which the Notes are offered to the public is no
lower than the yield, and if the price of each Unit offered to the public is no
higher than the price, recommended by a "Qualified Independent Underwriter."
Pursuant to a letter agreement, dated July 28, 1997, among the Corporations,
the Underwriter and us (the "Retention Agreement"), we have been retained as a
"Qualified Independent Underwriter" (as such term is defined in Rule
2720(b)(15) of the NASD Conduct Rules) to recommend to you the minimum yield
for the Notes, and the maximum price for the Units, to be sold to the public.
We have participated in the preparation of the Registration Statement
and the Prospectus (as such terms are defined in the Retention Agreement) with
respect to each of the Offerings, and have exercised the usual standards of due
diligence with respect thereto. Assuming that the Offerings are each commenced
on July , 1997, and further assuming compliance by the Corporations and the
Underwriter with their representations, warranties and covenants in Sections 4
and 5 of the Retention Agreement, we recommend that (a) the yield of the Notes
be no lower than % and (b) the price of the Units be no higher than $ ,
each of which should in no event be considered or relied upon as an indication
of the actual value of any of the Securities.
Very truly yours,
LADENBURG THALMANN & CO. INC.
By:_________________________________
Managing Director
<PAGE>
212-450-4000
July 30, 1997
Re: Registration Statement on Form S-1 (Registration No. 333-28539)
Quaker Holding Co.
277 Park Avenue
New York, NY 10172
Ladies and Gentlemen:
We have acted as counsel to Quaker Holding Co. (the "Company") in
connection with the Company's Registration Statement on Form S-1 (No. 333-28539)
(the "Registration Statement"), as amended, filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, for
the registration of up to 150,200 Units (the "Units"), consisting of Senior
Discount Debentures due 2008 (the "Debentures") and Warrants (the "Warrants")
to purchase shares of common stock of the Company, par value $0.01 per share
(the "Common Stock"). The Debentures are to be issued under an Indenture (the
"Indenture") between the Company and State Street Bank and Trust Company, as
trustee (the "Trustee"). The Warrants are to be issued under a Warrant Agreement
between the Company and State Street Bank and Trust Company (the "Warrant
Agent").
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary or advisable for the purpose of rendering this opinion, including
the form of resolutions (the "Resolutions") to be adopted by the Board of
Directors of the Company relating to the Units, the Debentures, the Indenture,
the Warrants, the Warrant Agreement and the Common Stock.
Upon the basis of the foregoing, we are of the opinion that:
<PAGE>
2 July 30, 1997
1. When the Resolutions are duly adopted by the Board of Directors
of the Company, the Debentures will be duly authorized and, assuming the
Indenture is duly executed and delivered by the Company and the Trustee, and
the Debentures are duly executed, authenticated and issued in accordance
with the Indenture, and delivered as part of the Units in accordance with the
Underwriting Agreement referred to in the prospectus that is part of the
Registration Statement, will be valid and binding obligations of the Company.
2. When the Resolutions are duly adopted by the Board of Directors
of the Company, the Warrants will be duly authorized and, assuming the Warrant
Agreement is duly executed and delivered by the Company and the Warrant Agent,
and the Warrants are duly executed in accordance with the Warrant Agreement
and duly issued in accordance with the Warrant Agreement and delivered as
part of the Units in accordance with the Underwriting Agreement referred to
in the prospectus that is part of the Registration Statement, will be valid
and binding obligations of the Company.
3. When the Resolutions are duly adopted by the Board of Directors
of the Company, the issuance of the Common Stock will be duly authorized and
when issued and delivered in accordance with the terms of the Warrant
Agreement and the Warrants, will be validly issued, fully paid and non-
assessable.
4. When the Resolutions are duly adopted by the Board of Directors
of the Company, the issuance of the Debentures and Warrants as Units will be
validly authorized and when the Debentures are duly executed and authenticated
in accordance with the Indenture with the Warrant Endorsement (as defined in the
Indenture) endorsed thereon, and duly delivered against payment of the
consideration therefor in accordance with the Underwriting Agreement referred
to in the prospectus that is part of the Registration Statement will be valid
and binding obligations of the Company.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of
the United States of America and the General Corporation Law of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in such Registration
Statement, and any subsequent amendments, and in the related prospectus under
the caption "Legal Matters" contained in the Registration Statement.
<PAGE>
3 July 30, 1997
Very truly yours,
<PAGE>
TAX SHARING AGREEMENT
This Tax Sharing Agreement dated as of [ ] is between DecisionOne
Holdings Corporation, a Delaware corporation ("PARENT"), DecisionOne
Corporation, a Delaware corporation ("SUB") and five directly and indirectly
wholly-owned Delaware subsidiaries of Sub, Decision One Supplies, Inc.
("SUB1"), Properties Holding Corporation ("SUB2"), IC Properties Corporation
("SUB3"), Properties Development Corporation ("SUB4") and Decision Data
Investment Corporation ("SUB5"). Sub, Sub1, Sub2, Sub3, Sub4 and Sub5 are each
also referred herein as "SUBSIDIARY".
WHEREAS, PARENT is the common parent corporation of an affiliated
group of corporations (the "PARENT GROUP") within the meaning of Section
1504(a) of the Internal Revenue Code of 1986, as amended (the "CODE"); and
WHEREAS, Sub is a 100% subsidiary of Parent, and Sub1, Sub2, Sub3,
Sub4 and Sub5 are 100% subsidiaries of Sub;
WHEREAS, except as provided below, PARENT and each SUBSIDIARY files
its own tax returns and pays the corresponding tax liabilities;
WHEREAS, the PARENT Group has filed and intends to file consolidated
income tax returns as permitted by Section 1501 of the Code and similar laws of
other jurisdictions; and
WHEREAS, PARENT and each SUBSIDIARY desire to agree upon a method for
determining the financial consequences to each party resulting from the filing
of a consolidated income tax return;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the terms set
forth below shall have the following meanings.
"COMBINED STATE TAX" means, with respect to each state or local taxing
jurisdiction, any income or franchise tax payable to such state or local taxing
jurisdiction in which a SUBSIDIARY files tax returns with PARENT on a
consolidated, combined or unitary basis for purposes of such income or
franchise tax.
<PAGE>
"FEDERAL TAX" means any tax imposed under Subtitle A of the Code.
"FINAL DETERMINATION" shall mean (i) with respect to Federal Taxes, a
"determination" as defined in Section 1313 (a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to taxes other than
Federal Taxes, any final determination of liability in respect of a tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise (including the expiration of a statute of
limitations or a period for the filing of claims for refunds, amended returns
or appeals from adverse determinations) or (ii) the payment of tax by PARENT
with respect to any item disallowed or adjusted by a Taxing Authority (as
hereinafter defined), provided that PARENT determines that no action should be
taken to recoup such payment.
"SUBSIDIARY FEDERAL TAX LIABILITY" shall mean, with respect to any
taxable year and with respect to each SUBSIDIARY, the sum of such SUBSIDIARY's
Federal Tax liability and any interest, penalties and other additions to such
taxes for such taxable year, computed as if such SUBSIDIARY were not and never
were part of the PARENT Group, but rather were a separate corporation filing a
separate United States federal income tax return. Such computation shall be
made with respect to each SUBSIDIARY (A) without regard to the income,
deductions (including net operating loss and capital loss deductions) and
credits in any year of PARENT or any other SUBSIDIARY, (B) by taking account of
any Tax Asset of such SUBSIDIARY in accordance with Section 2(c)(ii) hereof,
(C) with regard to net operating loss and capital loss carryforwards and
carrybacks and minimum tax credits from earlier years of such SUBSIDIARY, (D)
as though the highest rate of tax specified in subsection (b) of Section 11 of
the Code were the only rate set forth in that subsection and (E) reflecting the
positions, elections and accounting methods used by PARENT in preparing the
consolidated federal income tax return for the PARENT Group.
"SUBSIDIARY COMBINED STATE TAX LIABILITY" shall mean, with respect to
any taxable year and with respect to each SUBSIDIARY, an amount of Combined
State Taxes determined in accordance with the principles set forth in the
definition of such SUBSIDIARY's SUBSIDIARY Federal Tax Liability and comparable
provisions under applicable law.
"TAX ASSET" means any net operating loss, net capital loss, investment
tax credit, foreign tax credit, charitable deduction or any other deduction,
credit or tax attribute which could reduce taxes (including without limitation
deductions and credits related to alternative minimum taxes).
2
<PAGE>
"TAX AUTHORITY" means any governmental authority, including the United
States or any state, province, municipality or other political subdivision
thereof, responsible for the imposition of federal, state or local taxes
covered by this Tax Sharing Agreement.
2. TAX SHARING. (a) General. For each taxable year of the PARENT
Group during which income, losses, or credits against tax of the SUBSIDIARIES
are includible in the consolidated Federal Tax return of the PARENT Group, each
SUBSIDIARY shall pay to PARENT an amount equal to the sum of its
SUBSIDIARY Federal Tax Liability and its SUBSIDIARY Combined State Tax
Liability for such taxable year as determined in paragraph (c) below.
(b) Estimated Payments. Not later than [10] days prior to each date
on which an estimated Federal Tax installment is due (a "FEDERAL TAX PAYMENT
DATE"), PARENT shall determine under Code Section 6655 the estimated amount of
the related installment of each SUBSIDIARY's SUBSIDIARY Federal Tax Liability,
as determined under the principles of Section 2(a) of this Agreement. Each
SUBSIDIARY shall then pay to PARENT not later than each Federal Tax Payment
Date the amount of its SUBSIDIARY Federal Tax Liability thus determined. Not
later than [10] days prior to each date on which an estimated Combined State
Tax installment is due (a "COMBINED STATE TAX PAYMENT DATE"), PARENT shall
determine under provisions of applicable law comparable to Code Section 6655
the estimated amount of the related installment of each SUBSIDIARY's SUBSIDIARY
Combined State Tax Liability, as determined under the principles of Section
2(a) of this Agreement. Each SUBSIDIARY shall then pay to PARENT not later than
each Combined State Tax Payment Date the amount of its SUBSIDIARY Combined
State Tax Liability thus determined.
(c) Payment of Taxes Shown on Return.
(i) On or before the date PARENT files its consolidated Federal Tax
return for any year for which payments are to be made under this
Agreement, with respect to each SUBSIDIARY, SUBSIDIARY shall pay to
PARENT, or PARENT shall pay to SUBSIDIARY, as appropriate, an amount
equal to the difference, if any, between the SUBSIDIARY's SUBSIDIARY
Federal Tax Liability for such year as determined by PARENT and the
aggregate amount of the estimated installments of such SUBSIDIARY's
SUBSIDIARY Federal Tax Liability for such year made pursuant to
Section 2(b). On or before the date PARENT files a Combined State Tax
return for any year for which payments are to be made under this
Agreement with respect to each SUBSIDIARY, SUBSIDIARY shall pay to
PARENT, or PARENT shall pay to
3
<PAGE>
SUBSIDIARY, as appropriate, an amount equal to the difference, if any,
between such SUBSIDIARY's SUBSIDIARY Combined State Tax Liability for
such year as determined by PARENT and the aggregate amount of the
estimated installments paid with respect to such SUBSIDIARY's
SUBSIDIARY Combined State Tax Liability pursuant to
Section 2(b).
(ii) If PARENT determines, that a SUBSIDIARY has a Tax Asset that may
under applicable law be used to reduce a Federal Tax or Combined State
Tax liability of the PARENT Group for any taxable period, PARENT shall
pay to such SUBSIDIARY an amount equal to the actual tax saving
produced by such Tax Asset at the time such tax saving is realized by
the PARENT Group. The future calculations of such SUBSIDIARY's
SUBSIDIARY Federal Tax Liability or combined State Tax Liability, as
appropriate, shall be adjusted to reflect such use. The amount of any
such tax saving for any taxable period shall be the amount of any
refund actually received from a Taxing Authority with respect to such
tax period or the reduction in taxes payable to a Taxing Authority
with respect to such tax period as compared to the taxes that would
have been payable to a Taxing Authority by the PARENT Group with
respect to such tax period in the absence of such Tax Asset.
(d) Treatment of Adjustments. If any adjustment is made on a tax
return of the PARENT Group, after the filing thereof, in which income or loss
of a SUBSIDIARY is included, then at the time of a Final Determination of the
adjustment, such SUBSIDIARY shall pay to PARENT or PARENT shall pay to such
SUBSIDIARY, as the case may be, the difference between all payments actually
made under Section 2(a) with respect to the taxable year covered by such tax
return and all payments that would have been made under Section 2(a) taking
such adjustment into account, together with any penalties actually paid and
interest for each day until the date of Final Determination calculated at the
rate determined, in the case of a payment by such SUBSIDIARY, under Section
6621(a)(2) of the Code and, in the case of a payment by PARENT, under Section
6621(a)(1) of the Code.
(e) Preparation of Returns. So long as the PARENT Group elects to
file consolidated Federal Tax returns as permitted by Section 1501 of the Code
or any Combined State Tax Return, PARENT shall prepare and file such returns
and any other returns, documents or statements required to be filed with the
Internal Revenue Service with respect to the determination of the Federal Tax
liability of the PARENT Group and with the appropriate Taxing Authorities with
respect to the determination of the Combined State Tax liability of the PARENT
Group.
4
<PAGE>
PARENT shall have the right with respect to any consolidated Federal Tax
returns or Combined State Tax Returns that it has filed or will file to
determine (i) the manner in which such returns, documents or statements shall
be prepared and filed, including, without limitation, the manner in which any
item of income, gain, loss, deduction or credit shall be reported, (ii) whether
any extensions should be requested, and (iii) the elections that will be made
by any member of the PARENT Group. In addition, PARENT shall have the right to
(i) contest, compromise or settle any adjustment or deficiency proposed,
asserted or assessed as a result of any audit of any consolidated or Combined
State Tax return filed by the PARENT Group, (ii) file, prosecute, compromise or
settle any claim for refund, and (iii) determine whether any refunds to which
the PARENT Group may be entitled shall be received by way of refund or credited
against the tax liability of the PARENT Group. Each SUBSIDIARY hereby
irrevocably appoints PARENT as its agent and attorney-in-fact to take any
action (including the execution of documents) as PARENT may deem necessary or
appropriate to effect this Section 2(e). The delegation of powers to PARENT in
this Section 2(e) is in no way intended to limit the agency powers otherwise
provided to the common parent by Treas. Reg. ss. 1.1502-77. In addition, PARENT
shall treat all SUBSIDIARIES equally with respect to the matters covered in
Section 2(e).
(f) Reimbursement for Certain Services and Expenses. PARENT shall
provide services in connection with this Agreement, including but not limited
to, (i) those services relating to the preparation of returns described in
Section 2(b), 2(c) and 2(e) and (ii) services relating to the other activities
(including services relating to audits and contests) described in Section 2(e).
As compensation for these services, each SUBSIDIARY shall pay PARENT a fee
calculated on a basis such that PARENT is reimbursed for all direct and
indirect costs and expenses incurred with respect to each respective
SUBSIDIARY's share of the overall costs and expenses incurred by PARENT with
respect to tax related services, including outside legal and accounting
expenses incurred in the course of the conduct of any audit or contest
regarding the tax liability of the PARENT Group, and any other expenses
incurred in the course of any litigation relating thereto, to the extent such
costs are reasonably attributable to a SUBSIDIARY issue. PARENT shall calculate
the fee payable, invoice each SUBSIDIARY and each SUBSIDIARY will pay the
invoiced amount within [30] days of receipt of such invoice.
3. TERM. This Agreement shall survive until terminated by the parties
hereto.
4. EFFECTIVE DATE. This Agreement shall be effective for all taxable
years ending after the date hereof, and shall supersede all prior agreements as
to
5
<PAGE>
the allocation of Federal Tax liability and Combined State Tax liability
between the parties to this Agreement for all such taxable years.
5. COOPERATION. PARENT and each SUBSIDIARY shall cooperate fully in
the implementation of this Agreement, including but not limited to, providing
promptly to the requesting party such assistance and documentation as may be
reasonably requested by such party in connection with any of the activities
described in Sections 2 and 3 of this Agreement. In addition, PARENT and each
SUBSIDIARY shall retain all relevant tax records for relevant open periods in
accordance with past practice.
6. SUCCESSORS. This agreement shall be binding on and inure to the
benefit of any successor, by merger, acquisition of assets or otherwise, to any
of the parties hereto (including but not limited to any successor of PARENT and
SUBSIDIARIES succeeding to the tax attributes of such party under Section 381
of the Code), to the same extent as if such successor had been an original
party hereto.
7. AUTHORIZATION, ETC. Each of the parties hereto hereby represents
and warrants that it has the power and authority to execute, deliver and
perform this Agreement, that this Agreement has been duly authorized by all
necessary corporate action on the part of such party that this Agreement
constitutes a legal, valid and binding obligation of each such party and that
the execution, delivery and performance of this Agreement by such party does
not contravene or conflict with any provision of law or of its charter or
bylaws or any agreement, instrument or order binding on such party.
8. SECTION CAPTIONS. Section captions used in this Agreement are for
convenience and reference only and shall not affect the construction of this
Agreement.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF [DELAWARE] WITHOUT GIVING EFFECT TO
LAWS AND PRINCIPLES RELATING TO CONFLICTS OF LAW.
10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
11. WAIVERS AND AMENDMENTS; FUTURE SUBSIDIARIES. This Agreement
shall not be waived, amended or otherwise modified except in writing, duly
6
<PAGE>
executed by all of the parties hereto. PARENT and each SUBSIDIARY agree to
cause any corporation that in the future becomes a member of the PARENT Group
or that files tax returns with PARENT on a consolidated, combined or unitary
basis to become a party to this agreement as an additional "SUBSIDIARY"
hereunder.
7
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
agreement to be executed by a duly authorized officer as of the date first
above written.
DecisionOne Holding Corp.
By:
------------------------------------
Name:
Title:
DecisionOne Corp.
By:
------------------------------------
Name:
Title:
DecisionOne Corp.
By:
------------------------------------
Name:
Title:
DecisionOne Supplies, Inc.
By:
------------------------------------
Name:
Title:
Properties Holding Corporation
By:
------------------------------------
Name:
8
<PAGE>
Title:
IC Properties Corporation
By:
------------------------------------
Name:
Title:
Properties Development Corporation
By:
------------------------------------
Name:
Title:
Decision Data Investment Corporation
By:
------------------------------------
Name:
Title:
9
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
DecisionOne Holdings Corp.:
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-28539 of DecisionOne Holdings Corp. and subsidiaries on Form S-1 of our
report dated August 30, 1996 and our report dated December 29, 1995 on
DecisionOne Corporation (formerly Bell Atlantic Business Systems Services,
Inc.) and subsidiary which are part of this Registration Statement, and of
our reports dated August 30, 1996 and December 29, 1995 relating to the
financial statement schedules appearing elsewhere in this Registration
Statement, and to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
July 29, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF LAWRENCE M.V.D. SCHLOSS
I hereby consent to the reference in the Prospectus constituting part of
Amendment No. 3 to the Registration Statement on Form S-1 of Quaker Holding
Co. to my name as a person about to become a director of DecisionOne Holdings
Corp.
/s/ Lawrence M.v.D. Schloss
---------------------------
Lawrence M.v.D. Schloss
July 29, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF TOM G. GREIG
I hereby consent to the reference in the Prospectus constituting part of
Amendment No. 3 to the Registration Statement on Form S-1 of Quaker Holding
Co. to my name as a person about to become a director of DecisionOne Holdings
Corp.
/s/ Thomas G. Greig
-------------------
Thomas G. Greig
July 29, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF KIRK WORTMAN
I hereby consent to the reference in the Prospectus constituting part of
Amendment No. 3 to the Registration Statement on Form S-1 of Quaker Holding
Co. to my name as a person about to become a director of DecisionOne Holdings
Corp.
/s/ Kirk B. Wortman
-------------------
Kirk Wortman
July 29, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF PETER T. GRAUER
I hereby consent to the reference in the Prospectus constituting part of
Amendment No. 3 to the Registration Statement on Form S-1 of Quaker Holding
Co. to my name as a person about to become a director of DecisionOne Holdings
Corp.
/s/ Peter T. Grauer
-------------------
Peter T. Grauer
July 29, 1997
<PAGE>
CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
---------------------
QUAKER HOLDING CO.
(Exact name of obligor as specified in its charter)
DELAWARE APPLIED FOR
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
PETER T. GRAUER
PRESIDENT
QUAKER HOLDING CO.
277 PARK AVENUE
NEW YORK, NY 10172
(Address of principal executive offices) (Zip Code)
% SENIOR DISCOUNT DEBENTURES DUE 2008
(Title of indenture securities)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on
file with the Securities and Exchange Commission as Exhibit 2
to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED
IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter
for the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Hartford and State
of Connecticut, on the 25th day of July, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Elizabeth C. Hammer
---------------------------------------------
NAME: ELIZABETH C. HAMMER
TITLE: VICE PRESIDENT
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by Quaker
Holding Co. of its % SENIOR DISCOUNT DEBENTURES DUE 2008, we hereby consent
that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Elizabeth C. Hammer
---------------------------------------------
NAME: ELIZABETH C. HAMMER
TITLE: VICE PRESIDENT
DATED: JULY 25, 1997
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this
commonwealth and a member of the Federal Reserve System, at the close of
business March 31, 1997, published in accordance with a call made by the
Federal Reserve Bank of this District pursuant to the provisions of the
Federal Reserve Act and in accordance with a call made by the Commissioner of
Banks under General Laws, Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
THOUSANDS OF
DOLLARS
--------------
<S> <C> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .... 1,665,142
Interest-bearing balances.............................. 8,193,292
Securities................................................ 10,238,113
Federal funds sold and securities purchased under
agreements to resell in
domestic offices of the bank and its Edge subsidiary .... 5,853,144
Loans and lease financing receivables:
Loans and leases, net of unearned
income...................................... 4,936,454
Allowance for loan and lease losses ..... 70,307
Allocated transfer risk reserve.......... 0
Loans and leases, net of unearned income and
allowances............................................... 4,866,147
Assets held in trading accounts........................... 957,478
Premises and fixed assets................................. 380,117
Other real estate owned................................... 884
Investments in unconsolidated subsidiaries................ 25,835
Customers' liability to this bank on acceptances
outstanding.............................................. 45,548
Intangible assets......................................... 158,080
Other assets.............................................. 1,066,957
--------------
Total assets.............................................. 33,450,737
==============
LIABILITIES
Deposits:
In domestic offices................................... 8,270,845
Noninterest-bearing.................. 6,318,360
Interest-bearing..................... 1,952,485
In foreign offices and Edge subsidiary................ 12,760,086
Noninterest-bearing.................. 53,052
Interest-bearing..................... 12,707,034
Federal funds purchased and securities sold under
agreements to
repurchase in domestic offices of the bank and of its
Edge subsidiary........................................... 8,216,641
Demand notes issued to the U.S. Treasury and Trading
Liabilities.............................................. 926,821
Other borrowed money...................................... 671,164
Subordinated notes and debentures......................... 0
Bank's liability on acceptances executed and outstanding . 46,137
Other liabilities......................................... 745,529
Total liabilities......................................... 31,637,223
--------------
EQUITY CAPITAL
Perpetual preferred stock and related surplus............. 0
Common stock.............................................. 29,931
Surplus................................................... 360,717
Undivided profits and capital reserves/Net unrealized
holding gains (losses)................................... 1,426,881
Cumulative foreign currency translation adjustments ...... (4,015)
Total equity capital...................................... 1,813,514
--------------
Total liabilities and equity capital...................... 33,450,737
==============
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
5
